All right. Thank you everybody. Good morning. Thank you for joining us for the first day of our TMT conference. We are delighted to host management team from Evolv Technologies. Joining us are CEO, John Kedzierski, CFO, Chris Kutsor. Gents, thank you so much for joining us this morning.
Thank you for having us.
Morning.
We're going to kick it off. It's a fireside chat session, but by all means, if you're interested in asking questions, do not hesitate to raise your hands. Maybe kicking it off for the benefit of the audience slightly less familiar with Evolv, can you maybe share with us briefly what is it that Evolv does?
Yeah. I assume many of you might have flown here and gone through an airport and experienced what the legacy security screening paradigm looks like. It's the walk-through metal detector, the X-ray machine next to it, how much physical space that occupies. Just how many linear feet, how many people operate those devices to make sure that you're safe when you get onto that airplane. You can quickly imagine that you could not take that operation and put it into the lobby of a school, or the lobby of an office building, the entrance to an emergency room, a distribution center, or in front of a house of worship. Evolv was created to address that gap, to enable people to do something they could never do before, which is to screen for weapons at scale in a way that was minimally invasive.
Not having to empty your pockets and take out your wallet and your keys, or take off your belt buckle. Be able to have people walk through just as they normally do, not single file, but with the regular pace of humanity as it gets around. Evolv went public now five years ago. We have two products in market to address that specific need. Evolv Express is our walk-through product. We're present in many professional sports stadiums across North America, so you very well have experienced it. You just walk in like you normally do, keep all your things in pace, and we try to get minimal nuisance as you do that.
Secondly, we introduced a product for verticals like schools, workplaces that have a lot of bags, and bags like the ones that you have with you today with your laptop and your tablet and so forth inside, and enable that same kind of seamless paradigm that we have with Express. No human operates the eXpedite machine. There's no screen to review X-ray images. That is all done with AI. Now, five years after being public, we have over 8,000 of those units deployed, approaching 9,000 at the end of Q1, which we just released. We are across our largest verticals of education, healthcare, sports, and stadiums, and we've screened over 4 billion people on a daily basis. More than 4 million people on average walk through our devices, which is more than are screened by the TSA every day.
That's great, and I'm happy you brought up the verticals you guys serve. From where we sit, when we think about the driver's world, unfortunately, it's not becoming a safer place. Complying with some regulatory frameworks, it would appear as if it's all coming in your direction as tailwinds. Is that the right way to be thinking about it?
Our company exists to make the world a safer place to live, to learn, to work, to play. Unfortunately, when those events occur, people look for solutions. The security industry has historically been event driven. I made the analogy to the airport earlier. Air travel and air security changed dramatically after 9/11. An event happens and the security industry tries to think about how do you do things to try to prevent it from going on again. If you look at the story arc of Evolv, we started in stadiums and we have a very nice position in stadiums that we're very proud of, and we partner with many teams across the NFL, NBA, NHL, MLS, and MLB. That's where the company started. It was a slam dunk product market fit.
People could get into the stadium faster and in a much more convenient way than they did before, without getting patted down and emptying pockets. Events like Uvalde that happened after the company went public and Evolv got pulled into education, which is a very significant market for us now. Unfortunately, we all too often open the newspaper and read about another school shooting and another event. School boards, parents are looking for answers, and Evolv has been there to provide products starting with the Express product, but then the eXpedite product. Schools think about what your kids bring into the high school, and they have a bag with a ton of clutter on it that could generate more nuisance alarms inside the walk-through product. We added eXpedite, and we've had some very nice deployments.
Last year, we highlighted the largest contract in the company's history with Gwinnett County Public Schools. That went one for one, Express and eXpedite at every entryway into the high schools and middle schools in Gwinnett County, which is the largest school district in Georgia. Healthcare has been a strong market for us for quite some time. Healthcare, specifically emergency rooms, are the most dangerous workplace in the United States in terms of on-employee violence. Just think about the people that come in to an emergency room. They're not there for a good day. It could be a mental health patient, it could be somebody suffering from drug addiction, and unfortunately, violent matters occur. We've seen some significant growth in healthcare over the last few years. As I mentioned, security is event driven.
Right here in Manhattan a couple of years ago now, you had the murder of the UnitedHealthcare CEO. That drove interest from corporate security teams in terms of how they secure their own facilities. Top verticals, sports and entertainment, education, healthcare, they rotate around. For example, we're in summer. Education was always strong for us in the summertime as schools do improvements before students get back into the fall. Yes, when unfortunate events occur, security teams look for answers and we try to provide those.
Maybe a good point to segue into your just recent results. Solid beat, raise into 2026 as the year unfolds. Can you maybe talk to us about the revenue contributors that you have seen this quarter, and how do you see that being sustained into 2026?
Sure, yeah. Thanks, Shaul. I'll talk about revenue a little bit. In Q1, we posted just over $46 million in revenue, which was up 45% year-on-year. That year-over-year comparison was driven by strong customer demand. John talked about the different verticals driving it, of course. We had strength in our pricing across the board. We also had a one-time positive effect, where we changed our purchasing method from the prior year that gives us a year-over-year favorable comparison. We've been talking about that for months. This isn't new information. That also contributed to the year-over-year compare. When we put that in context for the full year, we also raised expectations for 2026 to $175 million-$180 million in full year revenue. That's up from $172 million-$176 million.
We felt good in starting the year off in Q1, and we see that flowing through the rest of the year as well.
On that purchasing, we've been getting questions from investors about the mix between the purchase and subscription deals during the first quarter, as well as obviously the implications on gross margins. Maybe can we double-click on both these items?
Sure. We talked about revenue a little bit. It was up year-over-year. It was also, as you said, it matters on the mix whether a customer chooses to do a purchase-subscription, in which they buy the hardware themselves, because some customers prefer or have procurement preferences of owning the equipment, but it still comes with a four-year services and software agreement with it, and that's our purchase-subscription model. That's a little bit more front-loaded with revenue, but again, has a four-year subscription that accompanies it. The other option that customers can choose is just a four-year full-year subscription, in which case they do not own the hardware. It's leased from us in addition to our software and services that come with it as well, and that's a more ratable, smoother four-year recognition of revenue.
In the purchase-subscription, we had a higher mix in Q1 that drove some of the revenue contribution in Q1 of purchase-subscription. Higher mix of purchase-subscription brings a little bit more lumpiness of revenue. We knew that going into Q1, so that wasn't the reason for the good start to the year. It was contemplated in our prior guidance. We had a significant amount of that backlog coming into Q1, and we deployed that backlog that produced some of the Q1 revenue. As we think about the year, we also told investors we are seeing right now a slightly higher mix of the purchase-subscription flavor from our customers for the year. We're estimating 55% of our revenue or the mix will come from purchase-subscription, where we started the year at about 50/50.
When we think long term, we generally assume a 50/50 mix of purchase versus pure subscription, because it's ultimately the customers that make that decision. We try to make it seamless for them to choose what's best for their particular deployments.
Got it. Maybe even building on that, how should investors be thinking about Evolv's cash flow into 2026?
We mentioned a few things on our last call. We ended Q1 down about $8 million in cash flow compared to the prior quarter, that was expected. That was primarily driven by the prior year's 2025 incentive payments. That was the difference of the $8 million of cash change in Q1. We said we expect to be cash flow positive in the second half of the year. We didn't say anything specifically about Q2, you think of Q1, down single digits, second half, where we expect to be positive. You can fill in the blanks to see year-over-year, probably not a lot of change. That's just simple math.
Got it. John, can we talk about eXpedite's traction, how it differs from some of the competing solutions out there? Maybe as customers deploy both Express and eXpedite, does that expansion motion improve customer stickiness over time?
Thank you for those questions. I'm really excited about the eXpedite product. It provides a brand-new paradigm, and it allows places that could not deploy traditional X-ray to do so. The reason being, you do not need a trained X-ray operator to use it, and that's the largest fundamental difference between eXpedite and other solutions in the market, and I'll get into some other ones. What do I mean by a trained security operator is trained in X-ray? Think about when you go to the radiologist. X-ray images don't look like regular images. They're specifically trained to look at the image of your knee and tell you if there's something wrong with it. The same applies for looking for the barrel of a gun or a knife or an explosive component inside a bag. We developed our own proprietary data set.
There are not public sources available for X-ray images of every type of bag with every type of weapon that we can get our hands on to go inside it. We built that data set, trained our own models, built the machine from the ground up. It's our own design. It's not an ODM, OEM-type design to enable that kind of autonomous operation. Secondly, on a difference is speed. Because we do not have a human reviewing the machine, we can run the belt much faster. Because there's various X-ray solutions on the market, but think 4x faster. A traditional X-ray machine, if you run the belt without stopping it, which is a big without if, it runs at about 500 bags an hour and upwards of 2,000 bags per hour because we're not relying on a human to go look at it.
In terms of the stickiness, we've integrated eXpedite into the ownership experience that people have with Express. Our solutions are cloud connected, so they're not just screening you at the door, but they're providing valuable data to our customers as well. How many people came in what entrance? How many people were stopped for a secondary screening? How often do they find a real weapon? On average, our devices find about 500 real firearms every single day. They get all that information. They can get after-action reports to compare a security team from one to another. They can do what if analysis.
If I raise the thresholds and look for smaller and smaller threats, which can come with a compromise of alert rate, they can actually do that inside our portal and see what the results would be because we gather the same data every single time and you can actually run a different algorithm against yesterday's scans and tell you exactly how many people you would stop. We built eXpedite into that, so you see all the eXpedite data as well, manage software, configurations, and most importantly, for staffing. Often, the largest encumbrance into deploying a solution like ours is you have to have somebody at the door manning it. It's an incremental cost.
We integrated the alerts from Express and eXpedite into the same user interface so that one operator can see alerts, "Hey, I need to stop this person and look in their right hip pocket that's walking in, and I need to stop that bag and examine that bag," and we do that in one place to make it as sticky as possible. In terms of the traction, the product first started being shipped into the market January of last year. It's been in the market just over a year. 6% of our customer base has eXpedite. I think that's pretty good traction in a year, especially in the security industry. We continually report on the attach rates with customers, which I'm very pleased with. In Q1, we had nine new customers that bought eXpedite.
Eight of them bought Express as well, and I think that's a pretty good attach rate.
Absolutely. 500 firearms a day.
Every day.
By the way, is that mostly from the education vertical or it's pretty much uneven?
It's all over. That's the firearms that our customers tag.
Yeah.
We take their verification that I did a search, I found a real weapon. They tag it. We have that data in our portal. There's a lot of weapons coming into buildings, especially in the U.S. every day.
Yeah. We've said the world is not becoming a safer place. AI has been topic du jour the past two years now. Can you talk about how you guys are deploying AI internally? That's only one hand, and as well as maybe tailwinds that it could be providing for overall demand you are seeing or you could be seeing.
We view AI, generative AI, large language models as a tailwind overall. We have the benefit of being a full stack technology provider. You can't go in to pick your LLM of choice and say, "Create a weapon screening system," and get one. We design our own hardware. We design the software that runs on that hardware. We build our own data sets and train our own proprietary models. You have to have all of those pieces to be able to make our solution work. I think that builds a pretty substantial moat in terms of our disruptive threat from LLM.
As a result, we view gen AI as a tailwind to operations in terms of building efficiency, allowing us to service our customers in a more effective way, helping us bring innovation to customers faster because the productivity of our engineers is improved since they're no longer remembering, "Did I close that for loop or do I need a semicolon at the end of this?" Because AI can write code for you. We're leaning in hard. We're pushing across the organization to leverage these capabilities to bring innovation to our customers faster and serve them in a more efficient way.
Chris, as we think about your improved 2026 revenue guidance, how are you guys balancing that growth on the one hand given rising hardware costs, I would even say memory costs, and that being put against some of your EBITDA targets?
Yeah. Thanks for the question. It's obviously a topic du jour out there. We were fortunate enough that we contemplated premium pricing in our guidance we had for the year. John talked about it at a question we got at our earnings filing that we contemplated that and we're still within that envelope that we contemplated. Like everybody else, there is pressure out there. We do see it. We had planned for it. We planned for it not just to accept it from the market, but there are things of course we can do internally with options and engineering swaps and what have you. All of that was contemplated and is still contemplated in our guidance.
Yeah. Very proud of the planning the team did, and they thought about it. We disclosed that we had put a million dollars into our guidance to account for purchase price variance and premium pricing for semiconductors. Like Chris said, we still feel good that we're going to live within that envelope and that's contemplated in the modest EBITDA expansion that we've guided to the street.
Got it. Can you also maybe talk about your current cash position on the balance sheet? How do you see that? Do you feel comfortable with it? Any potential kind of strategic thoughts down the road in terms of expanding the platform longer term?
Yeah. Thanks for the question on that. The latter part of your question, how we think about this long-term expanding the business, please tune in June 9th. We have an investor day planned where we'll be talking about capital allocation and our long-term growth rates and everything that falls within there to the longer term. In the short term, we feel very good about our cash position, the strength of the balance sheet. It was about a year ago where we put in place our financing, and we've got about $60 million, give or take which quarter you're looking at, in cash. About $30 million of that is debt, $30 million is cash, and we have capacity for another $45 million to tap into should we need it.
You take all of that, we feel very good about. I talked about being cash flow positive in the second half of the year. The business is certainly in a good spot foundationally to think about the next step, as you said, which we'll have more to say June 9th.
Questions from the audience before we proceed. Hugh, go ahead.
Can you talk about the contract manufacturing arrangements with Plexus?
Yes. We do not have our own manufacturing plants. We have used contract manufacturing since the inception of the company. We had a contract manufacturer, a single location one in Massachusetts, relatively conveniently located to the office, which was great for the company as it grew from a startup into a publicly traded company. Last year, we disclosed that we signed a contract with Plexus, a publicly traded global scale contract manufacturer, and that we would be onboarding them through the first half of this year with entering scale manufacturing for that, meaning specifically that the majority of our units would be coming out of Plexus in the second half of 2026. It's been a good partnership. I personally meet with the leadership team there on a regular basis to see how it's going, and it's going on a track.
That is also implied within our guidance of modest EBITDA expansion as we commented on the last earnings call, moderate gross margin expansion to the back half of the year too, to the mid-50s.
Got it. One of the questions that we often get, so folks clearly understand all the verticals, John, that you guys have addressed. What about airports? Where does that sit strategically within your thinking for the next several years? It would appear as if it's a massive opportunity.
It's a question that comes up often.
Yeah.
I gave the example of TSA screening because people are very familiar with it, and it's an easy way to paint a picture of what our technology. While they check you out for narcotics, while they check you out to see if you're on a list with a warrant or whatever else might be there, right? They do a lot of things slowly, one person at a time.
On purpose. We're the antithesis of that. We're how do you fill a stadium of 80,000 people quickly? How do you fill a school when the bell rings at 8:00 A.M. quickly and efficiently and still scan for weapons, right? That's a different paradigm. Now, that's not to say there aren't some places where we can make some penetration or help change that paradigm in the airport. To John's point, given all the other things in front of us, there's some wide open TAM for us to go tackle in the meantime versus changing the way airports run security. If you think about that dichotomy.
Got it. No, absolutely. Makes a whole lot of sense. In addition, it would appear that your competitive landscape is fairly limited, maybe high barriers of entry. Talk to us a little bit if you have been detecting any changes, any new entrants or not.
Evolv created a category, a brand-new category. We enabled people to do something they weren't doing before. What's very unique about our business is outside of a stadium, when we're selling to a client, as far as I can tell, most often we're replacing nothing at all. It's very different, even than some innovation that we're used to in our lives, like the iPhone.
Right? Steve Jobs, when he showed you the iPhone, didn't have to convince you that a mobile phone was a good thing to carry. BlackBerry, Motorola, and Nokia had already all done that, just showed you a better phone. In our case, we're showing something to people for the first time, so we created a category.
Incumbent.
We've been successful in penetrating into that category, and that's attracted competition. I think that's a great sign. That's a sign when you have venture capital firms that are investing in startups for technology to compete with us, that they see the same market opportunity that we do. Shaul, I believe as we continue to iterate on this technology, make it smaller, have different variants at various cost prices, continue to increase the efficacy, and the efficacy is all about lowering nuisance alarm rates. It's like a smoke alarm. When the smoke alarm goes off, people pay attention because it usually does the false alarm. As we continue to do that, I believe most large public buildings will have a technology like ours because why wouldn't you?
Why would you, if you could simply prevent with a lot of inconvenience, weapons coming from your facility, why wouldn't you do that? That's attracted competitors because that market opportunity is there, and there's a lot of precedents for those kind of markets building. I mean, when I was driving my first car in high school in the mid-90s, it didn't have airbags. All cars have airbags. It didn't have a rearview camera. Now you can't sell one without it, and they've become standard place. I believe technology like ours will follow that same scale. That's an attractive market. Competitors come in, but we like the position that we have.
No incumbents, which is good news.
We're the incumbent now.
Yeah. No, absolutely. Maybe with that in mind, what's going on, let's say, outside of the United States in that respect? I know Europe, slightly more fragmented, different regulatory environments, languages, et cetera.
Things are different. The profile of threats are different, but the core drive for people feeling secure in public places without inconveniencing how they live is the same globally. We do have a business outside the United States. It's nascent, pretty small but something as Chris talked about capital allocation, and we talked about Investor Day, we're thinking about into the future. We have systems deployed at several countries around the world. It's hundreds, not the thousands that we have inside North America, and we believe there's plenty of places where we have good product market fit with what we have today.
How should we be thinking about the buyer? We talk about enterprises. Who's the buyer? Who's the purchasing body? When we think about it from Evolv's perspective, when you go and pitch your clients, who do you talk to?
It does vary by vertical. If you go into enterprise-like verticals like healthcare, corporate workplaces, and even stadiums, there's a head of security that's there, and that's who we engage with. Most commonly, that person has a law enforcement background.
Yeah.
They think about security. It's a show-me sale. I'm not aware of a customer who's bought this product sight unseen. Most likely, there's a demo that's involved, and now you have this ex-law enforcement individual who doesn't take your word for it. They walk through it. They bring every weapon they have. They try to fool it any way that they can. That's what those sales typically look like. For example, we invest in a fleet of demo trucks to make it cost-effective from a customer acquisition cost to go do this, and they go on tours through city where we can test the technologies. You get into education vertical, and it can be different. In a large school district, like Gwinnett County Public Schools that I mentioned, largest school district in Georgia, it's in the Atlanta area.
They actually have their own police department, and there's a police chief that's involved, and that can look similar. You can get into smaller school districts where it's the superintendent or it's the principal of a school that's making those decisions, or it's school board driven by parents. The education vertical can be most different. Otherwise, it's typically a security buyer.
Got it. John, Chris, just before we wrap it up, what's the key message you'd like investors to walk away from this session? Maybe without front-running your June 9th analyst event.
Being consistent. This is a new market. This is still a nascent market, and we're very early in this technology adoption curve. If you look at the units that we've penetrated into that 700,000+ entryway TAM, and to provide some scale on that number, there's 130,000 school buildings in the United States alone, and they have more than one door. I asked ChatGPT the other day how many buildings are in the world. There's 2.7 billion. 700,000 is not some far-fetched number. We finished last year with over 8,000, right? We added hundreds of units to that in Q1. We're 1% penetrated into this TAM, and if you look at traditional S-curves, there's a long way to go to get to 80% even SAM adoption in this marketplace. I can think of the cases like access control systems.
The key cards that you use to get into your office building are now here in this hotel that you use, and the pace of those that came in were very early. There's a ton of greenfield in front of us, and I think we're just tapping in what the opportunity is.
Got it. With that, gentlemen, thank you so much for joining us. Thank you.
Thank you. Appreciate it.
Thank you.