Evolv (EVLV) Q3 2026 Earnings Call Transcript

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DATE

Tuesday, Nov. 10, 2026

CALL PARTICIPANTS

• Senior Vice President of Finance and Investor Relations - Brian Norris
• President and Chief Executive Officer - John Kedzierski
• Chief Financial Officer - Chris Kutsor

TAKEAWAYS

• Total Revenue -- $47.3 million, increasing 10% year over year driven by new customer wins and expansion in the existing base despite a difficult comparison against the largest contract in company history.
• Annual Recurring Revenue (ARR) -- $140.5 million, growing 20% year over year as pricing changes shifted more contract value from upfront hardware sales into recurring streams.
• Remaining Performance Obligation (RPO) -- $325.8 million, representing 12% year-over-year growth and providing visibility into 1.7x the full-year revenue outlook.
• Net Revenue Retention (NRR) -- 108%, reflecting success in renewing and expanding relationships with existing customers.
• Net Loss -- $(15.6) million, compared to a loss of $(1.8) million in the prior-year period.
• Adjusted EBITDA -- $4.7 million, yielding an adjusted EBITDA margin of 10% despite increased investments in research, development, and sales.
• Market Penetration -- Under 5%, with approximately 10,000 units deployed out of an estimated addressable market of 700,000 doorways.
• Education Footprint -- 28 of the 100 largest U.S. school districts and over 1,900 school buildings, screening approximately 1 million visitors daily.
• Healthcare Penetration -- 23% of units booked in the quarter, with technology now present in all 10 of the top 10 healthcare networks and more than 800 hospital buildings.
• Fortune 500 Adoption -- Over 40 companies, including three new additions during the quarter, use the platform as their weapon screening partner.
• eXpedite Customer Base -- 115 customers, representing 9% of the total customer base, up from 3% in the prior year.
• eXpedite Attachment Rate -- 88%, representing the percentage of new customers who purchased Evolv Express alongside the eXpedite product.
• Cash Position -- $66.9 million in cash, equivalents, and marketable securities, increasing $3.5 million sequentially.
• Operating Cash Flow -- $18 million, up from $3.5 million a year ago due to improved collections and working capital management.
• Free Cash Flow -- $3.2 million, a positive result driven by enhanced profitability and disciplined capital allocation.
• Subscription Gross Margin -- 59.8%, up from 51.8% year over year as recurring revenue mix improved.
• RPO Embedded Margin -- 66%, which management estimates is the gross margin profile for revenue currently under contract.
• 2026 Revenue Guidance -- $182 million to $185 million, representing 25% to 27% growth, a tightening of the previous range.
• 2026 ARR Guidance -- $148 million to $150 million, reflecting projected year-over-year growth of 23% to 25%.
• 2027 Revenue Outlook -- 20% or more growth, inclusive of an estimated 3% to 4% headwind from the shift to recurring revenue recognition.
• Pricing Change Impact -- $5.5 million, representing the amount of upfront product revenue shifted into recurring revenue for 2026 due to intentional pricing adjustments.
• International Revenue Mix -- 4% of total revenue in 2025, with management viewing international markets as a future growth area pending regulatory clearances.

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RISKS

• Kedzierski warned that "the pricing changes I described earlier shift more of each purchase subscription contract from upfront product revenue into recurring revenue... it reduces the amount of revenue recognized upfront in 2027," creating a 3% to 4% growth headwind.
• Kutsor indicated that "the first half of 27 faces harder year over year comparison to the first half of 26," which had been boosted by the fulfillment of a significant product backlog.
• Kedzierski noted that international expansion is an "investment for the future" because it requires significant "product and regulatory compliance," including safety standards for ionizing radiation and privacy compliance for cloud data.

SUMMARY

Evolv Technologies Holdings, Inc. (NASDAQ:EVLV) reported record quarterly revenue and expanded its base of recurring revenue through strategic pricing adjustments and new customer acquisitions in core verticals. Management indicated that the company has reached a pivot point where annual recurring revenue growth is expected to sustainably outpace total revenue growth as it transitions more hardware sales to a subscription-based model. The company reported significant footprint expansion in the education and healthcare sectors, while maintaining positive adjusted EBITDA and positive free cash flow. Management confirmed its long-term growth targets while detailing investments in sales capacity and product innovation intended to capitalize on a market penetration level currently estimated at less than 5%.

• Management is preparing to transition from beta to the full release of Evolv Express 11.0, which CEO Kedzierski stated showed signs of "maintaining or improving detection performance while lowering the alert rate."
• New regulatory standards in California will require weapons detection screening at specific hospital entrances by March 2027, which management identified as a supportive backdrop for continued healthcare sector growth.
• The company released eXpedite 3.0 software, which includes a red box visual alert on X-ray images to help operators quickly identify the location of threats within bags.
• CFO Kutsor noted that "ARR and RPO [are] increasingly important measures of our performance" as the business model shifts away from upfront hardware recognition toward high-margin recurring software.
• The company screens more than 5 million people daily and has identified more than 2.2 million weapons since 2021, including recent firearm detections at high schools in Georgia, Maryland, and Texas.
• Management expects to increase frontline sales capacity through 2027, though new sellers typically require several quarters to reach full productivity levels.
• Kutsor stated, "We also believe we have reached a point where ARR growth should sustainably outpace revenue growth as the recurring component of the business continues to expand."

INDUSTRY GLOSSARY

• ARR (Annual Recurring Revenue): The sum of subscription and recurring service revenue for the final month of a quarter multiplied by 12.
• Evolv Express: An AI-powered security screening system designed to detect firearms and explosives in unstructured crowds.
• Evolv eXpedite: An autonomous AI-based weapon detection system specifically for screening bags in high-clutter environments.
• MyEvolv: A customer portal that integrates data from Express and eXpedite systems for performance analytics.
• NRR (Net Revenue Retention): A metric calculating recurring revenue from the same customer base over a 12-month period, inclusive of churn and expansions.
• RPO (Remaining Performance Obligation): The total estimated revenue to be recognized in the future from unsatisfied or partially satisfied performance obligations in existing contracts.

Full Conference Call Transcript

Operator: Good afternoon, and welcome to the Evolve Technology Third Quarter Earnings Results Conference Call. All participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. As a reminder, this conference call is being recorded. I would now like to introduce you to your host for today's call, Brian Norris, senior vice president of finance and investor relations for Evolve Technology. Please go ahead, sir.

Brian Norris: Thank you, and good afternoon. Welcome to today's call. I am joined by John Kedzierski, our president and CEO, and Chris Kutsor, our chief financial officer. Earlier today, we issued a press release detailing our third quarter results and updated 2026 outlook. The release is available in the Investor Relations of our website, and it has been furnished with the SEC. To help investors better understand the underlying trends in our business we have also posted an investor presentation that provides additional detail on key business trends and themes discussed today. During today's call, we will be making forward-looking statements within the meaning of safe harbor provisions of the Private Securities Litigation Reform Act of 2000.

These statements reflect our current expectations regarding our business, strategy, growth opportunities, customer activity, strategic partnerships, product demand, and financial outlook. All forward-looking statements are subject to material risks, uncertainties, and assumptions, some of which are beyond our control. Actual events or financial results may differ materially due to a number of factors, including those described under the caption Risk Factors in Annual Report on Form 10-Ks for the year ended 12/31/2025 filed with the SEC on 03/10/2026, and our quarterly report for the quarter ended 09/30/2026 on Form 10-Q filed with the SEC earlier today.

The forward-looking statements made today represent our views as of 11/10/2026, although we believe that the expectations reflected in these statements are reasonable, we cannot guarantee that future results, performance, or the events and circumstances reflected therein will be achieved or will occur. Except as may be required by applicable law, we disclaim any obligation to update them to reflect future events or circumstances. Our commentary today will also include non-GAAP financial measures that we believe provide additional insights for investors. These measures should not be considered in isolation from or as a substitute for financial information prepared in accordance with GAAP.

Non GAAP measures discussed today include adjusted gross profit and margin, adjusted operating expenses and operating income, adjusted EBITDA, adjusted EBITDA margin, adjusted earnings and adjusted earnings per diluted share, and free cash flow and free cash flow margin. Reconciliations to the most directly comparable GAAP measures are included in today's press release, and our definitions may differ from similarly titled measures used by other companies. We are unable to provide a reconciliation of forward-looking non-GAAP measures including adjusted EBITDA and adjusted EBITDA margin, to the most directly comparable GAAP measures without unreasonable effort.

In addition, we will be discussing annual recurring revenue or ARR, remaining performance obligation or RPO, net revenue retention or NRR, and net unit retention or NUR, which we believe provide useful insights into the business. We define ARR as the sum of subscription revenue and the service revenue related to purchase subscriptions. For the final month of the quarter, all multiplied by 12. RPO represents estimated revenues, to be recognized in the future, which are related to performance obligations that are unsatisfied or partially satisfied as of the end of the reporting period.

We define NRR as recurring revenue, in the last month of the quarter divided by recurring revenue from the year ago month, for that same customer base, inclusive of churn and expansions. We define net unit retention as total units in the last month of the quarter divided by the same measure in the year ago month for the same customer base inclusive of churn and expansions, Finally, we define free cash flow as cash flow from operations less CapEx and capitalized R&D. Free cash-flow margin is free cash flow divided by revenue. Before I turn things over to John, I would like to briefly highlight some of our investor outreach plans for the remainder of the year.

We plan to be at 3 institutional investor conferences, including the Craig Hallum Alpha Select Conference, next week, the UBS Global Technology Conference in December, and the Northland Capital Conference later in December. As always, we welcome the opportunity to engage with both existing and prospective shareholders. If you would like additional information, please feel free to contact me at bnorris@evolvetechnology.com. With that, I would like to turn the call over to John.

John Kedzierski: Good afternoon. And thank you for joining us. We continue to make meaningful progress building a scalable, high growth business with increasingly consistent and predictable performance. Our third quarter results represent another step forward. We remain in the early stages of a very large market opportunity. Across the markets we serve today, estimate more than 700,000 doorways could be addressed by our solutions. With approximately 10,000 units deployed today, our penetration remains below 5%. Leaving significant runway ahead. Underpinning that opportunity is a differentiated technology platform purpose built for physical security, Evolve is not simply a software application that can be replicated with AI tools.

Our proprietary sensor hardware, software, AI models trained on proprietary data, and services work together as an integrated solution that we believe serves as a unique solutions moat. Advances in AI help us improve detection capabilities, and performance over time. Through our long term subscription model, we are able to deliver ongoing product enhancements to customers while building a growing base of recurring and contracted revenue. With that context, let me share some thoughts on our third quarter results. Revenue in the third quarter was a record $47.3 million up 10% year over year. Driven by new customer wins and expansion within our existing customer base.

That growth comes on top of a 57% revenue growth in Q3 25, which was buoyed by the largest contract in our history, and created an unusually difficult year over year comparison. ARR increased 20% year over year. While recurring revenue reached a record $32.5 million or approximately 69% of total revenue. Importantly, the pricing changes we made last year are having the intended effect of less onetime product revenue and more recurring revenue for the same contract value. When customers purchase our equipment, and, as a result, ARR is now growing faster than revenue. Chris will get into the details of the financial impact shortly.

Our net revenue retention was a strong 108% in the third quarter, reflecting continued success renewing and expanding existing customer relationships. Our business operations continue to perform well, with adjusted EBITDA margin of 10% and positive free cash flow of $3.2 million in the quarter. Finally, remaining performance obligation was up 4% sequentially and 12% year over year to $326 million. Reflecting strong end market demand, continued multi product adoption, and strong renewal upgrades to our Gen 2 Express Our RPO provides visibility into future revenue and reinforces 1 of the key strengths of our model, a large and expanding base of contracted revenue expected to be recognized over the coming years.

Our RPO represents more than 1.7x our full year revenue outlook underscoring the visibility and durability embedded in our model. Beyond the numbers, Evolve is making a meaningful impact in the communities we serve. We now screen more than 5 million people every day and have screened more than 5 billion visitors since deploying Evolve Express. Since the beginning of 2021, our customers have tagged more than 2.2 million weapons. That impact becomes very real. When our technology helps identify a potential threat. Recently, our customers identified firearms being brought into 3 different high schools. In Maryland, George, and Texas.

These incidents underscore the very real problem our customers are working to solve and our responsibility to continue innovating on their behalf. Education remains an important part of that mission. Evolve Express is deployed in 28 of the 100 largest US school districts and over 1900 school buildings. Screening nearly 1 million visitors every day. In Q3, we added more than a dozen customers across K-12 and higher education with adoption across Gen 2 Express Expedite, and Gen 1 Express. We continue to see strong demand across health care, adding several new customers, including Bellin Health Systems, TidalHealth, St. John's Riverside Hospital, Southwest Healthcare System, part of Universal Health Services.

Health care represented 23% of units booked in the quarter, up from 18% over the last 12 months. Today, our technology can be found in more than 800 hospital buildings, including all 10 of the top 10 health care networks, 16 of the top 20, and 61 of the top 100. We are also seeing a supportive regulatory backdrop. Including in California, where new standards requiring weapons detection screening at specified hospital entrances are required to be adopted by March 2027. In sports and live entertainment, we continue to expand our presence at major venues, adding new customers, including Climate Pledge Arena, Prudential Center, and PPG Paints Arena. We also continue to make inroads at the collegiate level.

With key wins at the University of Tennessee, and the University of Memphis, while deepening relationships with existing customers through renewals and upgrades at SoFi Stadium, and the Hollywood Park campus, Mercedes Benz Stadium, Acrisure Stadium, Bridgestone Arena. We also continued to see momentum in workplace, adding 3 additional Fortune 500 companies during the quarter. Today, we serve as the weapon screening partner for more than 40 Fortune 500 companies. Innovation remains central to how we create value for customers, and expedite is a good example. We now have more than 115 expedite customers. Representing approximately 9% of our customer base up from 3% a year ago.

In the third quarter, approximately 88% of new customers purchasing expedite also purchased Evolve Express. We are particularly excited about the value of Express and expedite working together. Early 26 data from 5 school district customers using the products together showed that approximately 97% of students passed through express without an alert. While approximately 98% of bags passed through expedite. Without an alert. The combination of Evolve Express and expedite gives customers additional flexibility to tailor their people and bags screening operations to their needs, including the ability to bags separately and operate Xpress at higher sensitivity settings. That matters because fewer alerts can translate to fewer secondary screening events. And lower staffing requirements.

Often a barrier to deploying screening at scale. We believe that combination can make screening more practical across a broader range of customers, entrances, and use cases. eXpedite 3.0 builds on that foundation. Our eXpedite 3.0 software release gives operators greater context when a bag alerts by showing them where to search with a red box on the X-ray image. It also expands sensitivity options to enhance knife detection while reducing false alarms from common items like 3-ring binders. And further integrates express and expedite data through the MyEvolv portal. We remain very encouraged by the opportunity in front of us.

And I think the progress we have made over the past 2 years provides important context for where we are headed. Over that period, revenue has grown from $104 million in 2024 to the $183 million midpoint of our 2026 guidance. An increase of approximately 76% During that time, we have delivered positive adjusted EBITDA every quarter, dramatically improves our capital structure, improved sales productivity and discount discipline, increased the recurring component of our customer contracts, and build a stronger renewal and expansion motion. All while maintaining a disciplined and thoughtful approach to how we invest and deploy capital. That progress gives us confidence in the long term operating model we outlined at Investor Day in June.

Including our expectation for revenue to ramp and grow at a compound annual rate of approximately 25% through 2031. We expect growth to build toward that longer term rate as the investments we are making will increasingly contribute to the business. There are several reasons for that confidence. First, we will meaningfully expand our sales capacity by adding frontline sellers. As we discussed at Investor Day, we are putting additional resources into sales and marketing, the growth engine of the business. New sellers take several quarters to reach full productivity. We expect the contribution from these investments to build through 2027 and become increasingly meaningful in 2028 and beyond.

Second, we are improving the performance characteristics that our customers care about most. Detecting more threats while generating fewer alerts. With the release of eXpedite 3.0 software and the anticipated release of Express 11.0, we believe we are making meaningful improvements in detection and alert rates. We also plan to introduce new product tiers and are developing new form factors to address more entrances, use cases, and customers, which we believe can unlock additional portions of the 100,000 doorway market opportunity we identified at investor day. Third, our renewal and expansion motion continues to strengthen.

Net revenue retention was 108% at 09/30/2026, and we believe there is an opportunity to drive NRR higher as we continue to strengthen renewals and increase upgrade and expansion activity across our installed base. Fourth, we are seeing encouraging ARPU trends and strong market acceptance of the pricing increases we implemented earlier this year. We believe those trends can continue as we increase the value we deliver to customers and expand those relationships over time. And finally, we believe expedite gives us another important way to expand our existing customer relationships. With approximately 1350 customers today, we see a significant opportunity to deploy Xpress and expedite together across different types of entrances.

That creates a powerful net revenue retention expansion opportunity while also improving CAC efficiency by allowing us to sell more into existing customers. We expect to fund our growth through the gross profit generated by the business, and our existing balance sheet. At the same time, we expect to deliver modest expansion in our adjusted EBITDA margin in 2026, while continuing to prioritize top line growth. As you think about 2027, there are 2 year over year dynamics that will affect reported revenue growth. First, the pricing changes I described earlier shift more of each purchase subscription contract from upfront product revenue into recurring revenue.

We believe this creates a better long term revenue mix but it reduces the amount of revenue recognized upfront in 2027. We estimate that the pricing changes will represent an approximately 3 to 4 percentage point headwind to revenue growth in 2027. Additionally, the first half of 27 faces harder year over year comparison to the first half of 26, which benefited from a full 6 months of product revenue under our direct fulfillment model as well as the shipment of a significant amount of product backlog. As a result, we expect reported growth to build through the year as these comparisons normalize, new sellers ramp, and our investments contribute more meaningfully.

Importantly, we expect to deploy more units in 2027 than we will in 2026. We anticipate the incremental units from our investments to arrive in the second half of 27, limiting the recurring revenue recognized within the year. This informs our initial view of 2027 revenue growth, which we expect to be 20% or more inclusive of the 3 to 4-point headwind from our prior pricing changes, which moved more of the contract value to recurring revenue will be recognized over time. That also means we expect ARR growth to outpace revenue in 2027. In summary, we remain confident in the opportunity ahead. Demand remains strong. Our products continue to improve.

So we are investing in expanding our portfolio and go to market capabilities to address more of the market. We remain confident in the 5-year framework we laid out at investor day, and look forward to providing more detail on our plans and 2027 outlook when we report our fourth quarter results in February. With that, I will turn it over to Chris to walk through our third quarter financial results and updated outlook in greater detail.

George Chris Kutsor: Thanks, John, and good afternoon, everyone. I am going to review our third quarter results in more detail and then share our updated outlook for 2026. Revenue in Q3 was $47.3 million an increase of 10% year over year. This primarily reflected strong underlying demand for our solutions. I also remind investors that Q3 of 25 was the first quarter of product revenue under direct fulfillment and included approximately $3 million of revenue from the largest contract in the company's history. Normalizing for that contract, along with the pricing changes that John covered, would result in approximately 18% to 19% year over year growth in Q3 of 26.

As John discussed, we have made several pricing changes over the last 18 months. And as we have covered several times on prior investor calls, and at our June Investor Day, For customers that want to own the asset, we intentionally lowered the hardware price and increased software and services by the same amount leaving the total contract price unchanged.

With the expected impact on revenue recognition starting primarily in Q3 To illustrate the impact, consider the model we shared at Investor Day that included a 4-year purchase subscription contract of approximately $70,000 Under the new pricing, approximately $4200 that previously would have been recognized upfront as onetime product revenue, instead moves into ARR and is recognized over the entire contract term. Applied to 1300 purchase subscription units on the year, That represents approximately $5.5 million shifting from, upfront product revenue into recurring revenue, which we estimate represents approximately a 3% headwind to our 2026 revenue growth rate.

In short, the economics have not changed, but the revenue mix has, which we believe is better for the long term value of the business and makes ARR and RPO increasingly important measures of our performance. ARR at 09/30/2026 was $141 million reflecting growth of 20% year over year. Growth in ARR was driven by strong new customer acquisition, expanding deployments within the installed base, and continued strength in renewal activity. Gross margin on a GAAP basis was 49.7% in the third quarter consistent with the year ago period.

By revenue stream, product gross margin was 8.7% compared with 13.9% in Q3 last year, primarily reflecting our new pricing model which intentionally shifts a greater portion of contract value from upfront product revenue and into recurring revenue. While that shift reduces product gross margin in the near term, it shifts more revenue into RPO with the associated gross profit recognized over the contract term contributing to the expansion we are seeing in our recurring revenue margins. Subscription gross margin increased to 59.8% from 51.8% while services gross margin increased to 72.6% from 70.1%. And adjusted gross margin was 50.8% compared with 50.6% a year ago.

Moving down the P and L, Q3 adjusted operating expenses which exclude stock based compensation, loss on impairment of equipment, and certain other onetime expenses, were $26.5 million compared to $24.8 million in the third quarter of last year, reflecting the continued investment in product innovation and go to market capacity and strategic investments in IT systems and personnel to support scale and efficiency. Q3 adjusted EBITDA which excludes stock based compensation and other 1 time items, was $4.7 million compared to $5.1 million in the third quarter of last year. This resulted in adjusted EBITDA margin of 10% compared to 12% in the third quarter of last year.

The year over year decline primarily reflected investments we are making to support growth, particularly in research and development and sales and marketing. As well as incremental spending on internal systems and controls associated with our ongoing SOX remediation efforts. Remaining performance obligation or RPO was $326 million at the end of the third quarter, reflecting growth of 4% sequentially and 12% year over year. And $132 million of that RPO is expected to revenue the next 12 months. Important element of our path to higher profitability is gross margin profile embedded in our remaining performance obligation, which we estimate to be approximately 66% gross margin. Well above our current reported gross margin levels.

The difference reflects the structure of our purchase subscription model with the majority of hardware cost recognized upfront and a significant portion of the related software and services revenue recognized in future periods. Believe the conversion of this revenue that is under contract will increasingly benefit our margin profile and represents an important source of earnings leverage as we scale. Turning to the balance sheet, Cash, cash equivalents, marketable securities and restricted cash increased $3.5 million sequentially to $66.9 million Cash flow from operations was $18 million in the third quarter, up $14.5 million from $3.5 million a year ago driven by improved profitability, significantly stronger collections, and better inventory and working capital management. Turning to our 2026 outlook.

As John highlighted, the fundamentals of our business remain strong, with robust customer demand, and the foundational changes we made to our business model are taking hold. With 1 quarter to go in the year, we are tightening our full year 2026 outlook for revenue to $182 million to $185 million compared to our prior guidance of $180 million to $185 million representing a growth of approximately 25% to 27% year over year. We are reaffirming our estimate for year end annual recurring revenue to approximately $148 million to $150 million representing growth of approximately 23% to 25% year over year.

As we discussed at our Investor Day in June, we are continuing to invest in expanding our sales and marketing capabilities to increase our market presence, and in R&D to accelerate innovation and further improve system performance and in financial and operational infrastructure to support scale, in an increasingly mature control environment. Even with these investments, we continue to expect full year adjusted EBITDA margins in the high single digits compared with 7.6% adjusted EBITDA margins in 2025. I want to take a moment to touch on 2027.

As John mentioned, we remain encouraged by the outlook for the business, which includes revenue growth of 20% or more in 2027, despite the 3% to 4% short term headwind associated with the pricing changes that are driving more recurring revenue and less onetime product revenue. While our 2027 operating plan is not yet finalized, we remain confident in the long term framework we laid out at Investor Day. Including our expectation for revenue to grow at a compound annual rate of approximately 25% through 2031. We expect revenue growth to build toward that longer-term rate over the next 5 years, as the investments we are making will increasingly contribute to the business.

We also believe we have reached a point where ARR growth should sustainably outpace revenue growth as the recurring component of the business continues to expand and we expect that dynamic to continue in 2027. At the same time, we expect to continue the investment strategy I just outlined to support the long term growth opportunity in front of us. Importantly, we are making these investments from a position of financial strength. The business has demonstrated its ability to generate positive adjusted EBITDA and cash. And we expect to fund our growth investments from the gross profit generated by the business and our existing balance sheet.

This gives us the flexibility to invest where we see attractive returns, while remaining disciplined on profitability and cash generation. While our operating plan is still being finalized, currently expect continued modest expansion and adjusted EBITDA margins in 2027. As we make our final investment decisions, we will continue to balance our focus on the significant growth opportunity in front of us with our commitment to profitable growth and disciplined capital allocation. We will provide a more complete outlook when we report our fourth quarter results at which point we will expect to have the benefit of a finalized operating plan. With that, I will turn it over to Brian for Q&A.

Brian Norris: Thank you, Chris. Operator, at this time, we would like to open the call up for Q&A. We ask our participants to limit themselves to 1 question and 1 follow-up.

Operator: We will now begin Q&A. For today's session, we will be utilizing the raised hand feature. If you would like to ask a question, simply click on the raised hand button at the bottom of your screen. Once you have been called on, please unmute yourself and begin to ask a question. Please limit to 1 question and 1 follow-up before jumping back into the queue. Thank you very much. We will now pause a moment to assemble the queue. Okay. Your first question comes from Jeremy Hamblin of Craig Hallum Capital. Jeremy, please unmute your mic and ask your question.

Jeremy Hamblin: Thanks, and congratulations on the momentum in the business. I thought I would start with just understanding, you know, first in Q3, your mix of subscription deals versus purchase deals, And then as we look ahead to 2027, what do you anticipate that mix looks like as we move through next year? Is there gonna be any seasonality first half versus second half? But what color can you share with us on that?

John Kedzierski: Hey, Jeremy. Thanks for the thanks for the question. I just wanted to clarify. You were asking about the mix in Q3, and I wanna make sure I got it. Were you asking about how trends to 2027? I wanna make sure I got that right.

Jeremy Hamblin: Right. I wanted to understand what the Q3 mix like mix looks like, and then if you have some color on Q4, that would be great. But then as we look at 2027, how do you expect that mix to play out given the pricing changes that have been made?

John Kedzierski: Yeah. Thanks. If you if you looked at our deployments for the quarter in Q3, it was close to 50-50, which we have typically you know, been guiding people on. In 2027, it is a little early for us to wanna share. I $50.50 is a good place to start. And as we get closer to actually guiding on 2027 in February, we will we will update you then. It was 50-50 for Q3, to be very specific, is approximately what it was. Understood. So you are seeing that kind of normalization towards the long term that you would expect.

Jeremy Hamblin: I wanted to also ask about the ARR growth rate in Q3. So as you look at your guidance for the year, it would imply, think, about a 24% growth rate for the year, but you have been at kind of the steady ARR growth rate now for the last 3 quarters of around 20%. Can you just walk us through that acceleration? Obviously, you have talked about you know, that example deal of the $70,000 and kind of the $4200 of upfront revs that are being traded to ARR. But is there more detail you can share with us?

John Kedzierski: Yes, Jeremy. And we actually posted a investor slide deck on our investor relations site to specifically talk about, you know, this. So we have made pricing changes. Those were made last year in July of last year, that as we just discussed in our prepared remarks, moved more value to ARR. Those take a while, to materialize inside our results, and we are there now, which is why you see ARR at 20% growth in Q3 compared to 10% revenue growth, and we see that accelerating from here as we close out the year.

For a specific magnitude of that impact, as compared to 2025, we now have on that $70,000 illustrative ARPU that we shared at our Investor Day, we take $8000 less of onetime product revenue, which means $8000 goes into ARR. Now mind you, the ARR is most typically recognized over 4 years. So you have an $8000 per unit trade for a onetime product revenue for $2,000 in the year of recognized subscription and recurring revenue. Now in the Q3, about 50% of our business was purchased. That $8000 trade from 2025 we look forward to 2027, account is only part of that purchase. Business.

Take all of that is what we guided that next year, we see that as a 3% to 4% headwind on onetime, product, you know, revenue and why we are confident that recurring revenue, ARR specifically, will outpace. Overall revenue growth.

George Chris Kutsor: Jeremy, just a bit more color too to John's point. While that $8000 comes out of onetime product revenue, and into future recurring revenue. John mentioned that is about $2,000 in ARR because it is split among the 4 years, but the entire $8000 goes into our RPO. Of course, right, by definition. The other thing I will point out is that is a trade we like because of course, the business becomes more predictable and with more recurring revenue.

And it is really important to note when that contract is up for renewal down the road, it is now at a higher rate for the customer for that recurring business, for that SaaS that we are providing, and that is an important driver at renewal for us to get a higher ARPU at that time. So that is gonna compound as we move forward into the future, and that is obviously 1 of the great values that we are unlocking here.

Jeremy Hamblin: Understood. that is helpful. Last 1 before I hop out of the queue. Just in terms of new customers. Right? So you added, I think, 51 new customers in the quarter. Can you give us a sense for what portion of your new customers are deploying both Xpress and expedite initially and how that compares versus maybe where you were a year ago.

John Kedzierski: Jeremy, we are very excited about expedite and the continued adoption of that product, and we are really thrilled about eXpedite 3.0, which is a software release that all of our expedite customers will get further enhancing the capabilities of the product and bringing features they have been really asking for, like identifying what caused the alert with a red box. On the image. In terms of the attachment, you know, rate, we see a very high attachment rate of expedite to express sales.

And overall, about 9% of our total installed base customer base, I am sorry, has deployed expedite at this point, which in the time frame that it is been available, we are really thrilled about As we look into 2027, we see further opportunities to enhance the penetration of expedite, in. Into the market in particular at the time of renewal, and we are looking at how we can make those really attractive renewal and upgrade offers for our customers.

Operator: Your next question comes from Mike Latimore of Northland Capital Group.

Mike Latimore: Great. Yeah. Thanks. Nice quarter. In terms of the bookings in the quarter, what percent of the units came from the base versus new customers? And then you know, kind of ballpark for number of units by year end, do think?

John Kedzierski: About It was about 60-40, 60% of our overall business came from existing customers. The you asked about year end units? Yeah. Subscription counter. Yep. Yeah. So if you look at our total install base, no change from being comfortably over 10,000 which we said before. Okay.

Mike Latimore: And then how do you think about you moving more revenue into recurring. I mean, how do you think about the just kind of the growth in RPO? What does that kind of need to trend towards to kinda hit your goals?

John Kedzierski: Yeah. Well, I would not give a specific number We talked about all the drivers that is happening. You should expect that to continue to be healthy from here. Because of everything we have been talking about of moving more into recurring. Our mix will ultimately impact that in any given quarter or year, which, you know, we talked about a few minutes ago of course. And then contract length will also So those are some variables of 1 of the reasons we would not wanna give a specific point. But Yeah.

You know, we are thrilled with the rate of RPO growth, the moves that we are making to increase the long term value of the business as we build to the 5-year plan that we deployed at investor day. You know, more RPO, more ARR drives more recurring revenue that we are going to recognize. It provides more predictability. Is the business as we look forward, a higher base as we look into future years. And as Chris Kutsor mentioned, increases the lifetime value of these customers. And we are we are thrilled with how that is working.

Mike Latimore: Alright. Great. Thank you.

Operator: Just a reminder, if you would like to ask a question, simply click on the raise hand button at the bottom of your screen. Okay. Our next question comes from Eric Martinuzzi from Lake Street Capital Markets. Eric, if you can please unmute your mic and ask your question.

Eric Martinuzzi: Yes. Curious to know a little bit more about the sales capacity investments that you are making. I know you can press out in a number of different directions, whether it is direct or channel. Or marketing spend. What are the. Can you prioritize those for us?

John Kedzierski: Yes. We are encouraged by what we are seeing in the market and adoption, you know, of our products, and we think it is the right time to continue to invest in our sales and marketing capacity because we can reach more customers, but also the opportunities that we see in cross sell with existing customers and renewing existing customers to continue to drive that NRR, you know, up. So in terms of, you know, where we are we are putting that, it is it is a across the board in our markets inside, you know, North America, which is the strength you know, of our business.

And as we have commented, you know, previously, we see an opportunity internationally as well, and we are gonna make the investments in those markets. Now the international opportunity is an investment for the future because that also has to come part and parcel with product and regulatory clearances. But most importantly, the majority of that investment is frontline sellers. it is individual sellers that are going out to customers and communicating what Evolve can do for them.

Eric Martinuzzi: Okay. And with regard to the competitive landscape, you have highlighted 3 different areas about your competitive advantages. there is throughput, there is threat isolation, and there is data insights. Obviously, with the eXpedite 3.0, that is an example of a threat isolation advancement. What are you working on as far as throughput and data insights?

John Kedzierski: We are continuously working on improving the characteristics of the product that we believe may matter most to the customers and matter most to continued market you know, penetration. Express 3-point. eXpedite 3.0 is now out You know, in the market, customers can upgrade their systems, and they are doing so now. We are also working on Express 11.0 which is out with a reasonable size of cohort of customers in beta with hundreds of thousands of people having walked through it at this point, and we are encouraged by the signs that we see there in terms of maintaining or improving detection performance while lowering the alert rate.

We think that is a critical function of these systems. it is the characteristic that customers focus on you know, the most because it reduces the friction on people coming in the visitor experience, and we believe it is the opportunity to lower the friction on staff. And as I mentioned in my prepared remarks, you know, staff and the burden of manning an entrance is very often 1 of the largest barriers to penetration of this category into the market. And simply put, if there is, you know, less alerts, there is less things for staff to deal with.

George Chris Kutsor: And, Eric, just in case it is not obvious, John talked about 11.0 on Express and 3.0 on eXpedite. Those are backward compatible. This is the value we provide with our recurring software and services platform. And so whether it is gen 2 or gen 1, expressed, this. These benefits go to our existing install base and new customers.

Eric Martinuzzi: Got it. Thank you.

Operator: Your next question comes from the line of Cher-Vaughn Zandt from Ladenburg Thalmann. Cher-Vaughn, please unmute your mic and ask your question.

Analyst: Hey, guys. Thanks for taking my questions, and congrats on a nice quarter. Thank you. Just thinking about your guide and thinking about kind of this framework you have talked about for 2027 of at least 20% growth. I know that I think international kinda lags behind where we are in the US in terms of entryway security, but I think still you know, it is a sizable opportunity. So I wanna know within that growth, is kind of sort of like an international, like, expansion plan or ramp up included in that, or should we treat that as an essential, like, upside to your framework? Thanks.

John Kedzierski: We are also very excited about the international opportunity, safety, and security is not solely a US concern. We think it is a global concern, and we are encouraged by the early traction that we see. The comment that I made in terms of it is an investment for the future, I wanna be clear. We are making that investment now. Focused particularly on product and regulatory compliance, We are a hardware attached SaaS business that is a very important distinction. We love the fact that we are putting hardware on a company site and the real estate that we occupy as for. Especially for the durability of the future of the you know, of the business.

But that hardware also comes with a compliance requirement. Expedite uses ionizing radiation. There is requirements for that. there is health and safety requirements that apply at Express. We have a cloud platform that gathers data that comes with privacy compliance, and we are making those investments right now. But that informs the comments that I made that we see international as a future growth opportunity.

George Chris Kutsor: And as far as the contemplation in our 2027 guide, it is a small contributor. And it is just the base is so much smaller to grow from, to have a real impact in 2027 numbers is just. it is such a scale difference. It was about 4% of our revenue in 2025. Just to give you some perspective. So it can grow wildly for us, and it will have a little bit of effect early on. Just to put in perspective.

Analyst: Got it. And then 1 quick 1, just obviously, it was a sizable beat. In terms of adjusted EBITDA this quarter. And you are moving your guide up by, you know, $500,000 to the midpoint, Just thinking about obviously, that, you know, it is. We are doing 10% last quarter, 10% this quarter. You are pricing in a step down in terms of a margin. Is that just due to maybe certain risks in Q4 in terms of sales, or is it that step up in sales and marketing and R&D spend that you were talking about that you Investments you have not necessarily made in. Made yet and you are planning to make in Q4?

George Chris Kutsor: No, it is more about the, run rate. And if I understand your question, Cher-Vaughn, just to be clear, were you comparing it to what would be Q4 of 25, or were you comparing it sequentially? I mean, this next quarter, so Q3 versus Q4. Yeah. there is not a dramatic step up in investment. it is a continuation of the investments. And it will matter based off of the mix of the products that ship and therefore, the gross margin that comes with a purchase subscription versus a pure subscription, that is 1 of the main factors.

And then you have got just a little bit of seasonality there of a Q3, Q4, but there is no underlying change to the business trends that were going on in Q3 that will not continue in Q4.

Analyst: Got it. Thanks so much.

John Kedzierski: You bet. And welcome to the call, Cher-Vaughn. Great to have you.

Analyst: Thank you. Thank you.

Operator: Thank you, everyone, for joining. This concludes today's call. You may now disconnect.

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