EVLV

Good afternoon, and welcome to the Evolv Technologies first quarter earnings results conference call. All participants are in a listen-only mode. Later, we'll 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 your host for today's call, Brian Norris, Senior Vice President of Finance and Investor Relations for Evolv Technologies. Please go ahead, sir.

Thank you. Good afternoon. Welcome to today's call. I'm joined today by John Kedzierski, our President and Chief Executive Officer, and Chris Kutsor, our Chief Financial Officer. Today, after the market closed, we issued a press release detailing our first quarter results and our 2026 outlook. The release is filed with the SEC and is available on the Investor Relations section of our website. During today's call, we will make forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements reflect our current expectations and views of future events, including, but not limited to, our business strategy and model, our expectations for future growth and market opportunities, our ability to acquire, renew, and expand customer relationships, our strategic partnership with Plexus, future demand for our products, and our ability to achieve our business 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 multiple factors, including those described under the caption Risk Factors in our annual report on Form 10-K for the year ended December 31st, 2025, filed with the SEC on March 10th, 2026, and our quarterly report on Form 10-Q, filed with the SEC earlier today. The forward-looking statements made today represent our views as of May 12th, 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 herein 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 and Adjusted EBITDA margin, and adjusted earnings and earnings per diluted share. 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 will also discuss other operating metrics, including annual recurring revenue or ARR, and remaining performance obligation or RPO, which we believe are helpful in understanding the progress we are making as a business.

Before I turn things over to John, I'd like to remind investors about Investor Day 2026, which will be held on June 9th, 2026. The event will be webcast live on the Investor Relations section of our website. We look forward to providing a deeper update on our strategy, product innovation, and long-term financial framework at that time. With that, I'd like to turn the call over to John.

Thank you, Brian, and thanks to everyone for joining us today. As we reflect on our first quarter results, the message is straightforward: We continue to execute on what we said we would do. The progress we're making starts with the trust and partnership of our customers, and it's being delivered through the steady, disciplined work of our team. We continue to strengthen the consistency and reliability of our operations while scaling a hardware-enabled subscription business that is producing increasingly predictable and durable outcomes. We're doing this in a global security environment that is more complex than it even was a few years ago. Threat levels across schools, healthcare facilities, workplaces, and public venues remain elevated.

That's being reinforced by instability and violence playing out globally, from ongoing unrest in the Middle East to high-profile attacks at public sites abroad, like the recent shooting at an archaeological site near Mexico City and the attempted attack at the White House Correspondents' Dinner. Against that backdrop, customers are increasingly focused on solutions that are not just effective, but scalable, consistent, and operationally reliable. Last quarter, we touched on the broader market conversation around generative AI and how quickly it is changing the software landscape. We won't revisit that discussion today. The takeaway remains relevant. Differentiation comes from owning the full solution. Evolv was never built as a pure software company. Our platform combines proprietary hardware and sensors, the software that runs on that hardware, and our highly differentiated AI models.

Because our systems are deployed at scale, with our customer's permission, we can evaluate new models using real-world data. That feedback loop, combined with operational learning in the field, helps improve performance over time and supports long-term customer relationships. We deliver this capability as weapons detection as a service, which includes the hardware, software, use of AI models, and the on-site services required to keep systems operating as designed. We remain on track to be comfortably over 10,000 units deployed by the end of this year, reflecting sustained customer demand and our ability to scale responsibly. As our installed base grows, the platform becomes more valuable, supporting better detection performance, deeper customer integration, and stronger reoccurring revenue visibility through multiyear subscription contracts. As we look ahead, we believe we are still in the early innings of building scale in our business.

While the company previously shared a long-term target of 10%-15% Adjusted EBITDA margins at its 2023 Investor Day, we are increasingly confident there is a potential for much greater leverage over time. That leverage is driven by a growing install base, growing adoption of eXpedite, improved customer acquisition efficiency, and operating scale across both our platform and services. We'll share much more detail on these dynamics at our Investor Day on June 9. With that context, let me briefly summarize our first quarter results. Revenue in the first quarter was $46.3 million, up 45% year-over-year. Our growth reflected new customer wins, strong unit deployments, continued expansion within existing customers, and a step up in product revenue resulting from our decision to directly fulfill purchase subscriptions, which provides a year-over-year one-time benefit.

We ended the quarter with annual recurring revenue of $127.3 million, reflecting 20% year-over-year growth as our subscription base continues to scale. Adjusted EBITDA margin expanded to 8.5% in Q1, compared to 6.4% in the first quarter of last year. We welcomed nearly 50 new customers during the quarter and now serve approximately 1,300 customers globally. Finally, remaining performance obligation was up 18% year-over-year to $299 million, reflecting continued end market demand and strong upgrades to our Gen2 Express platform. Beyond the financial results, we continue to see our platform deliver practical, real-world value to the communities that rely on Evolv every day. Weapon screening isn't just about what's detected.

It's about helping organizations establish environments where safety is taken seriously, and people can go about their daily lives with confidence. By serving as a critical layer within broader safety strategies, our technology supports environments where students can learn, patients can receive care, employees can work, and communities can gather, helping make the world a better place to live, learn, work, and play. Over the past several months, we've seen multiple instances in education where Evolv systems flagged firearms and knives during student arrival screening, allowing school staff and law enforcement to intervene early and prevent weapons from entering school buildings. In these situations, teams are able to respond quickly and allow the school day to continue without escalation, underscoring the value of preventative, operationally reliable screening.

These events are occurring alongside broader policy discussions, including in Georgia, where House Bill 1023 recently passed the House and is now under consideration in the Senate. The bill would require weapon screening at primary student entry points across public schools statewide. While we are not assuming any specific legislative outcome, we are monitoring this development as one example of how policy discussions and day-to-day security challenges continue to reinforce long-term demand for proactive, layered weapon screening. In the first quarter of 2026, we continue to see steady demand across our core end markets, beginning with education, where safety priorities, operational scale, and daily throughput make reliability essential. During the quarter, we added over 12 new education customers, including K-12 districts and municipalities across Arkansas, California, Michigan, Mississippi, New Mexico, New York, North Carolina, Pennsylvania, Tennessee, and Texas.

These wins spanned a wide range of district sizes and operating environments, reflecting the applicability of our solutions across diverse geographies and education systems. In healthcare, we continued to build momentum with new customers across a range of hospital and health settings. Notable additions included BronxCare Health System and the West Virginia University Health System. Additional wins with regional systems and community hospitals further expanded our footprint in healthcare, reflecting a focus on safety solutions that preserve patient access and experience. In professional sports and live entertainment, we added several high-profile venues during the quarter, including Subaru Park, which is a state-of-the-art stadium for professional soccer. We also added one of professional football's most established franchises, as well as a major multi-use arena in the Western U.S., which is home to both professional basketball and hockey.

These environments require security approaches that perform consistently at scale without disrupting the fan experience. As the playoffs begin this spring, Evolv was proud to serve as the weapon screening partner for 50% of all playoff teams across professional basketball and hockey. This reflects sustained trust from leagues and franchises operating large scale, high visibility events. We are also seeing growing momentum in the enterprise workspace. Across corporate campuses, headquarters, manufacturing facilities, and distribution centers. Security leaders in these environments are increasingly focused on protecting employees and visitors while maintaining efficient operations. During the quarter, we added several large-scale enterprise customers, including one of the world's most valuable and recognizable technology companies, as well as another Fortune 500 corporation.

Today, we are proud to serve as the trusted weapon screening partner for more than 30 Fortune 500 companies, highlighting our expanding role in supporting safer workplaces. The momentum we're seeing across these markets reinforces the trust customers place in Evolv as a long-term partner and validates our strategy to expand the platform beyond walk-through screening. eXpedite, our autonomous AI-based bag screening solution, continues to gain traction in environments where customers want to screen bags without slowing entry or increasing staffing requirements. Increasingly, customers are looking to conduct bag screening as part of a single integrated security workflow, and eXpedite is purpose-built for that model. When deployed alongside Evolv Express, we believe this combination offers customers with substantial bag and backpack usage, and specifically bags that have items like laptops in them, one of the most effective screening solutions available, enabling high throughput while delivering remarkably low alarm rates.

In fact, in a specific school deployment of Express and eXpedite, one customer reported an eXpedite average alert rate of less than 2% on over 300,000 scanned bags over a six-month period of time. We believe the market is increasingly recognizing this type of performance. We now have over 75 eXpedite customers representing approximately 6% of our total customer base, up from roughly 1% a year ago. In the first quarter, 19% of new customers purchased eXpedite almost always alongside Express, which stacks ARPUs while optimizing customer acquisition costs. As customers increasingly see the value in operating both walk-through and bag screening through a single cloud-connected platform, we see meaningful opportunity for account expansion and deeper subscription stickiness over time.

Following a period of 18 months of meaningful progress in resetting the business and building momentum, my focus has increasingly shifted toward positioning the company for long-term success. Recently, I've been able to spend more of my time focused on leadership and organization development as we prepare for our next stage of growth. We strengthened the organization with new experienced talent across AI and algorithms, product management, services, and IT to support the long-range needs of a growing customer base while continuing to drive more innovation and executing with discipline. We are increasing investments in the foundational capabilities required to operate at greater scale, upgrading core back-office systems, strengthening our process and controls, and tightening key operating processes across the company.

These investments are deliberate and are reflected in our outlook that expects to deliver expanded Adjusted EBITDA margins in 2026, ensuring that increased organizational rigor and financial discipline progress hand in hand. Turning to operations, we remain on track with our strategic partnership with Plexus, our new global contract manufacturing partner. Onboarding is progressing as planned, and we expect to complete that work by the end of the quarter. The Plexus partnership positions us to expand production capacity, extend our global reach, and further strengthen operational resilience as we continue to scale. With respect to supply chain, while semiconductor supply constraints have been well documented across the industry, we've been able to largely mitigate these challenges and expect to maintain our delivery plans for the near term, and we continue to expect to execute against our full-year unit deployment targets.

Importantly, when we provided our guidance earlier this year, we proactively considered the impact of premium pricing for components, and those assumptions were embedded into our outlook. As a result, while we remain vigilant, we believe we appropriately plan for these dynamics and our positions to manage them through the year. Before I turn things over to Chris, I want to share some context around our outlook. We continue to see strong momentum across the business. Our pipeline remains healthy. Execution is tracking well, and for those reasons, we are raising our outlook for 2026. We continue to expect to end 2026 with comfortably over 10,000 units deployed.

We are raising full-year revenue guidance and now expect $175 million-$180 million, up from $172 million-$178 million, representing growth of 20%-23% year-over-year. While we continue to invest in innovation and operations, we expect to deliver expanded, Adjusted EBITDA margins in 2026. As we move forward, our focus remains squarely on execution and scale, delivering consistently today while building the foundation for durable long-term growth. With that, I'll turn it over to Chris to walk through our first quarter financial results and outlook in more detail.

Thanks, John, and good afternoon, everybody. I'm going to review our first quarter results in more detail and then share more about our outlook for 2026. Revenue in Q1 was $46.3 million, an increase of 45% year-over-year. This reflected strong end-market demand for our solutions as well as growth in product revenue related to the transition from the direct fulfillment model, which provides a one-time year-over-year benefit by recognizing more product revenue for a given deal compared to a year ago. ARR at March 31st, 2026 was $127.3 million, reflecting growth of 20% year-over-year. This was fueled by new customer growth and expanding deployments across our customer base. Adjusted gross margin was 52% in Q1, compared to 61% in the same period last year.

As we've noted before, our intentional shift of purchase subscriptions to direct fulfillment creates an initial gross margin headwind. This outcome is fully aligned with our strategy. Margin stepped down in the first quarter of a new deployment, the direct model produces superior long-term returns, including higher total gross profit, increased revenue and ARR, and a better cash flow than our prior distribution approach. Moving down the P&L, Q1 adjusted operating expenses, which excludes stock-based compensation, loss on impairment of equipment and certain other one-time expenses, were $26.9 million, compared to $23.2 million in the first quarter of last year, reflecting growth of 16%. The increased spend includes investments across R&D, our sales team, higher commissions commensurate with revenue, as well as adding critical G&A roles and system investments to help with efficiencies and scale.

Q1 Adjusted EBITDA, which excludes stock-based comp and other one-time items, was a positive $3.9 million, compared to $2.1 million in the first quarter of last year. This resulted in Adjusted EBITDA margin of 8.5% compared to 6.4% in the first quarter last year. Remaining performance obligation, or RPO, was $299 million at the end of the first quarter compared to $253.5 million at the end of Q1 of last year, reflecting growth of 18% year-over-year. We continued to see a strong trend of customers upgrading to our Gen2 Express platform. These upgrades, together with solid end market demand, drove this year-over-year growth.

We continue to expect RPO growth to begin to accelerate, supported by increasing end market demand, a ramp-up of renewals going forward, and by bringing more revenue back in-house through our direct purchase fulfillment motion, which we've discussed with investors over the last nine months. Turning to the balance sheet. As we previously forecasted, cash equivalents, and marketable securities decreased by about $8 million sequentially to $61 million. This primarily reflected timing of the company's annual incentive payments associated with our strong 2025 performance. This distribution typically occurs in March of each year. I will remind investors that we expect to be cash flow positive in the second half of 2026. Turning to 2026. 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.

We are raising our full year 2026 outlook for revenue to $175 million-$180 million, compared to our prior guidance of $172 million-$178 million, representing year-over-year growth of approximately 20%-23%. Our upwardly revised revenue outlook reflects three factors. First, a higher mix of purchase subscriptions, which increases year one revenue of a contract. Second, incremental contributions from short-term rental subscriptions that expand customer access to our technology. Finally, continued strength in pricing and ARPU trends. We continue to expect to exit 2026 with annual recurring revenue of approximately $145 million-$150 million, representing growth of 20%-25% year over year.

As we've been saying for the past year, the fulfillment model and pricing changes we made in mid-2025 are important factors in understanding our revenue trends. Q1 came in above the high end of our prior guidance, with revenue up 45%. That performance was driven by strong demand and the installation of a record backlog that was more heavily weighted toward purchase subscription transactions, which by definition include more upfront one-time product revenue. During our last earnings call, we told you about our thoughts for the shape of revenue for the year, and it is coming along as expected. We continue to expect a sequential decline in Q2 revenue simply because the prior year purchase subscription backlog was largely shipped in Q1. This is a timing dynamic related to backlog mix and fulfillment timing and not a reflection of end market demand, which remains strong.

Turning to the second half of the year. We still expect H2 total revenue to be modestly higher than H1 and up year-over-year, with ARR growth outpacing revenue growth in H2. This reflects the changes to our pricing and fulfillment model implemented in mid-2025, as discussed on prior earnings calls. These changes shift a portion of contract value away from upfront product revenue and toward recurring revenue, which impacts the timing of revenue recognition. As a result, for a given purchase subscription unit, we expect to realize approximately 20% less upfront product revenue and roughly 20% more ARR beginning in the second half of 2026. We continue to expect strong unit growth with deployments in H2 exceeding H1 deployments and H2 unit deployments growing over 25% year-over-year.

In summary, we expect that H2 2026 will reflect the final period of meaningful impact from these pricing and fulfillment changes, after which our revenue profile is expected to become more normalized. Our 2026 outlook reflects a business that is capturing more of the economic value it creates while continuing to build a larger base of recurring revenue, increasing visibility through ARR and RPO, and delivering a more durable and predictable revenue profile over time. We remain committed to investing in growth and for foundational capabilities required to operate at greater scale. We plan to do this in a disciplined way that grows expenses below our revenue growth rate. We continue to expect to deliver expanded Adjusted EBITDA margins, with full year Adjusted EBITDA margins in the high single digits for 2026, compared to 7.6% in 2025.

Finally, a brief comment on our long-term operating model. As we've shared on prior earnings calls, the framework from three years ago that contemplated 10%-15% long-term Adjusted EBITDA margins is no longer reflective of how we see the business evolving. Based on continued growth and operating improvements, we now see the opportunity for greater long-term leverage. We look forward to sharing more detail about this at our Investor Day on June ninth. For more information on that event, please feel free to reach out to Brian. With that, I'll turn it back over to you, Brian.

Thank you, Chris. Operator, at this time we'd like to open the call up for Q&A. We're going to ask participants to limit themselves to one question and one follow-up.

We will now begin Q&A. For today's session, we'll be utilizing the Raise Hand feature. If you'd like to ask a question, simply click on the Raise Hand button at the bottom of your screen. Once you've been called on, please unmute yourself and begin to ask your question. Please limit yourself to one question and one follow-up before jumping back into the queue. Thank you. I will now pause a moment to assemble the queue. Our first question comes from Jeremy Hamblin with Craig-Hallum Capital Group. Please unmute your line and ask your question.

Thanks, and congratulations on the record results. I thought I would start with just understanding the contract momentum. You noted lots of success across verticals. Wanted to get a better sense for the mix of deals. You noted that this quarter included a, you know, a bunch of purchase deals. Wanted to see if you could add a little more color to that. What portion of the mix was purchase deals versus full subscription deals? As you look ahead to Q2 in the second half of the year, how you expect that balance of mix to play out?

Thanks, Jeremy. Appreciate it. As far as the mix, traditionally you've seen 60, you know, 40. As we moved into the, you know, year, in Q1, we saw a different mix, about 60/40. Traditionally, it's been 50/50. You note inside our earnings release, we actually said that in our guidance for the year, we expect it to go to about 55 purchase, 45 subscription. We're seeing a change that seems to be sticky, and we've reflected that in our guidance.

Got it. As a follow-up, in terms of thinking about, you know, the pricing change that you made last year, you provided some nice color about, you know, the 20% increase in ARR values. In terms of thinking about, you know, the kind of rule of thumb as we are going forward in the second half of the year and into 2027 and beyond, you know, if you have, let's say, a representative $100,000 deal on a unit, you know, what portion of that mix would you expect, you know, for ARR on a purchase deal, and then what portion on a full subscription deal? Thank you.

Look, in a full subscription deal, the entire value, Jeremy, is inside ARR. On the purchase deal, we recognize the revenue upfront upon shipment, and you see that inside our, you know, product line. Then the balance you'll see within, you know, services where we deliver the, both the software and the services. Since we provide white glove service to our customers when we pair those systems. In terms of your proportion, you know, question, you know, if we, if we take your hypothetical, you know, $100,000, it would be about 30%-40% of that as product revenue, and then the balance of it would be in recurring revenue.

Got it. If I could sneak one in real quick. Your adjusted gross margin, 52%, you know, the highest you've seen here in a few quarters since you made the pricing change. Should we expect your adjusted gross margin to continue to track higher here in Q2 and then in the second half of the year?

Jeremy, this is Chris. I'll take that. Yeah, it was 52% here in Q1. We're expecting closer to the mid-fifties for the balance of the year. I don't wanna get into quarter by quarter, but for the full year, closer to the mid-fifties, which would obviously indicate improvement from where we are now.

Thanks so much for taking the questions. Congrats.

Just as a reminder. You bet, Jeremy. Thank you. Just as a reminder for you and everybody else, gross margin is also dependent on our mix. As the customer demand dictates, more subscription mix will mean better gross margins, 'cause those COGS are spread over the full seven-year useful life.

For a purchase deal, of course, we recognize that hardware cost upfront in period one instead of over board time. Again, that's just a dynamic and why we call out the mix that's built within the forecast we give.

Thanks, John.

Our next question comes from Eric Martinuzzi with Lake Street Capital Markets. Please unmute your line and ask your question.

Yeah. I just wanted to revisit the guidance. Is the upward revision to the revenue and the unchanged on the Adjusted EBITDA margin, is that because that's primarily, you know, purchase driven?

Yes. Yes, that is a significant driver and why you're seeing that effect. The same reasons Chris just mentioned. More purchase subscription deals do bring in more revenue into the period, and you're seeing that reflected, you know, partially in the call upon the guidance that we have. It comes with additional costs, you know, in the period, which is why you're seeing what you're seeing in that period.

Right.

John also mentioned some of the investments in critical talent and hiring as well, as well as our systems and processes, which we can talk about. The purchase mix is the biggest driver to your question.

Okay. Then, just the eXpedite success, it was great to see those stats that you pointed out. That was very helpful. Do any of your competitors have a similar product to eXpedite?

There are other X-ray bag scanning products in the market. That market's been quite, you know, mature and been around for a long time. You know, we really believe in the product that we have and the combination of autonomous. What we mean by that, it does not require a human to view X-ray images. That's done completely by our proprietary AI model that we deploy to the machine. The speed, we designed the machine from ground up, so we can run the conveyor at a significantly higher speed because no human has to review the images. There's actually not even a screen to look at images on the device. It's also integrated to our overall security platform. What does that mean in layman's terms? That means one operator can look at alerts from both the walk-through system and Express, as well as from eXpedite.

You don't have to add extra tablets or potentially, depending on the operating environment, extra people to look at different screens. If I have a bag alert, I have a person alert, I see both of that in one place. Finally, it's integrated to our single cloud portal. Customers can see statistics on how many people entered, how many got stopped, as well as for the bags inside it. When you think about all those things together, we think we have a very differentiated solution.

All right. Thank you.

As a reminder if you would like to ask a question, simply click on the Raise Hand button that can be found at the bottom of your screen. Once you've been called on, please unmute yourself and begin to ask your question. We'll take our next question from Shaul Eyal with TD Cowen. Please unmute your line and ask your question.

Thank you so much. Good afternoon. Can you hear me, guys?

Yeah. Hi, Shaul. You bet.

Thank you so much. Good afternoon. Congrats on a solid start to 2026 and the improved revenue guidance. John, how are you using AI internally at Evolv? Maybe as my follow-up, thanks for the color on beefing of your bench. Can I ask also, what are the rest of your hiring plans for fiscal 2026 as you balance growth and profitability?

Yes. Let's go through both the questions. Your first question about using AI in operations. I assume you're talking about, you know, generative AI and the various platforms that are available. First, I would state that, you know, we are not a pure SaaS, you know, company. What I mean by that is we have a combination of hardware that we design from the ground up, the software that runs on that hardware, the AI models that actually make decisions if something's not a threat or non-threat. All of that is designed and built in-house, and we control that stack, you know, end to end, which we believe is a strong position to go be in.

I say that because we look at generative AI as a tailwind to our business in terms of what efficiency gains it can bring in terms of time to market for products, in terms of automating the tedious and the mundane, and we're leaning in to using those capabilities inside our company to make it a better business and make it as efficient as we can be. As well as part of the work that we're putting in in terms of governance around those kind of new solutions and guardrails to make sure we do so in an appropriate way. In short, we see it as an opportunity as we scale to grow efficiency within the organization.

On your second question about the comments that I made in hiring plans, it was a considerable effort here in Q1, looking at what needs the business are going forward, and I'm personally thrilled about the people we brought in across the organizations. You know, these are senior leadership positions that I outlined in my prepared comments, and I'm really hopeful for the impact they're going to make over the course of the year. As far as hiring plans, you know, for the rest of the year, they're really around scaling the business.

We make these critical talent hires that we have, and as we look forward, just balancing the commitment that we've made that we will grow operating expenses at a lower rate, you know, than revenue, but we will continue to invest, as we've outlined, with those kind of guardrails in place because of the opportunity we see in front of us.

Thank you so much.

Our next question comes from Michael Latimore with Northland Capital Markets. Please go ahead and ask your question.

All right, great. Thank you. Yeah, congrats on the great results. I guess just maybe talking a little bit about sales cycle this year. You seen any change in the sales cycle? It seems like you know, a lot of macro events might have raised some incremental concerns. Also when you're selling eXpedite and Express together, does that change the sales cycle faster, shorter? Just a little more color on that would be great.

In regards to sales cycle, we haven't made any specific commentary about any changes, and we won't today. What I would say is to the, to some of the specific of that in your question, you know, in general, I see two types of sales cycles that occur. You know, there are the sales cycles that are in response to an acute event that occur, and those can be very rapid. We've talked about some of those over the last few, you know, earnings calls. Something occurs, and a customer wants to do the best that they can to try to prevent that from happening again. You have more traditional, you know, sales cycles that could take longer, the traditional enterprise, you know, sales cycles that have budgeting and approvals in there, and that's pretty consistent.

I'd say one thing to remember about us is that you will do with that dynamic, that they sort of fall in one of those two, you know, camps that occur.

Great.

I'm sorry if you had a second question.

Let's see. Yeah, I guess, you've called out the upgrade to Gen2 a couple times. Can you just elaborate a little bit on that? Is that, you know, customers that are upgrading early, like before their renewals and then, you know, kind of what's the catalyst for the upgrades? You know, how many have upgraded to that so far?

I'll comment that quickly, but I now remember the second part of your first question. You asked about eXpedite in terms of, you know, sales cycle. We're thrilled with eXpedite. eXpedite was purpose designed to address a specific problem that we saw customers have, and that is managing alert rates in environments that have a significant amount of bags. I shared some commentary about a specific customer and their operating environment, has, you know, seen, I just view that as an opportunity, especially in some verticals like education, to potentially shorten sales cycles, because lower alert rates usually mean less burden and overhead for a client and the things they have to think about when they deploy.

In terms of your questions on upgrades, so far on upgrades that have been actioned, this includes the renewals that were early, 60% of those customers upgraded to our Gen2 unit, and we're thrilled with that. When they do that, they're committing for a new four-year subscription, which maximizes the remaining performance obligation that we get. We're pleased with those trends and the overall renewal motion and execution that we're putting together.

Mike, this is Chris. I'd add one more thing on your eXpedite question, just in case it isn't obvious. You talked about sales cycles. It also allows us to sell often, not always, two units instead of one. Our customer acquisition costs come down, and we get more subscriptions working to produce in what we believe is a very difficult-to-match performance in the marketplace.

When you sell Express and eXpedite together, you know, it's a bigger sale, so but that doesn't elongate the sales cycle?

It, for a given sales cycle, if we're selling two units instead of one and two subscriptions instead of one, those unit economics are attractive. I guess I would just say it that way.

Gotcha. Okay, great. Looking forward to the analyst event.

Great. Yeah, we are too.

That was your last question. I'd now like to turn the call over to John for closing remarks.

I just wanna take a moment to extend my personal thanks to our customers who put their trust in Evolv every day. We recognize what the importance of what we do, and we take that extremely seriously. I wanna thank our investors for believing in us and the journey that we're on, and also for our employees for the support, dedication, and sacrifices they make as we continue to grow and mature and evolve. Our mission is an important one. We focus on it every day. It's not lip service. It is what we do and what drives the decisions that we make. We focus on that mission and bringing it to as many customers as we can, while at the same time building the absolute best business in Evolv that we can do. Thank you for joining our call.

Thank you for joining. This concludes today's call. You may now disconnect.

Good afternoon, and welcome to the Evolv Technology Fourth 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 your host for today's call, Brian Norris, Senior Vice President of Finance and Investor Relations for Evolv Technology. Please go ahead, sir.

Thank you, operator, and good afternoon, everybody. Welcome to today's call. I'm joined by John Kedzierski, our President and Chief Executive Officer, and Chris Kutsor, our Chief Financial Officer. Earlier today, after the market closed, we issued a press release detailing our fourth quarter results and our 2026 outlook. The release is filed with the SEC and available in the investor relations section of our website. During today's call, we will make forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements relate to our current expectations and views of future events, but not limited to statements regarding our expectations for future growth, our ability to gain new customers and renew and expand existing customers, future demand for our products, and our ability to meet our business 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 from these forward-looking statements because of a number of risks and uncertainties, including without limitation, the risk factors set forth under the caption Risk Factors in our annual report on Form 10-K for the year ended December 31st, 2025, filed with the SEC earlier today. The forward-looking statements made today represent our views as of March 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.

Please note that our commentary today will also include non-GAAP financial measures, which 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. These measures include adjusted gross profit, adjusted gross margin, adjusted operating expenses, adjusted operating income, adjusted EBITDA and adjusted EBITDA margin, along with adjusted earnings and adjusted earnings per diluted share. Reconciliations between these non-GAAP measures and the most directly comparable GAAP measures can be found in the press release that we issued earlier today. Please note that our definition of these measures may be different than similarly titled metrics presented by other companies.

We will be discussing other metrics such as annual recurring revenue or ARR, and remaining performance obligation or RPO, both of which we believe are helpful to investors in understanding the progress we are making as a business. Before I turn things over to John, I'd like to highlight an upcoming event for our investors. We will be hosting our 2026 Investor Day on June 9th, 2026. The event will be webcast live on the Investor Relations section of our website, and we will share additional details as we get closer to the date. We look forward to providing a deeper update on our strategy, product innovation, and long-term financial framework at that time. With that, I'd like to turn the call over to John.

Thank you, Brian, and thanks to everyone for joining us today. As I reflect on the progress we made in 2025, I'm reminded that everything we achieved began with the trust and partnership of our customers and was made possible by the steady, determined efforts of our entire team. Over the past year, we strengthened the consistency and stability of our operations while continuing to build a scalable, high growth, hardware-enabled subscription business with increasingly predictable and durable results. We're doing this in a global security environment that is materially more complex than it was even a few years ago. Threat levels across public venues, schools, workplaces, and critical infrastructure have continued to escalate, increasing the importance of security solutions that are not only effective but scalable, consistent, and operationally reliable. That backdrop reinforces our belief that customer demand for modern technology-enabled security solutions will continue to expand.

I want to take a moment to address all the discussion of generative AI and what I believe that means for the future of software and Software as a Service or SaaS. It's incredible what the latest large language models can do. It's hard to utilize those models, especially in the area of software creation, and not ask yourself if pure SaaS is vulnerable to disruption. We are not pure SaaS. We are unique. We use a tight combination of hardware, sensors, proprietary datasets, and software that enables our AI models to make rapid decisions at customer locations. We control our full solution stack. We design our own hardware from the ground up, from the geometry of the coils we use to generate our electromagnetic fields to how we capture and process the data those fields create. We develop the software that runs on that proprietary hardware.

We are able to use the unique data our systems create to train proprietary AI models that make rapid decisions to differentiate many types of weapons from many everyday benign items. Our thousands of deployed systems are cloud connected, so we have access, with our customers' permission, to the data created by those systems. We use that data to evaluate our new models against real, not simulated, scans so that we can best understand what their real-world impact is likely to be. Our solution stack is truly end to end. We believe that companies that control their end-to-end solution stack of hardware, software, and data will have a moat that can be defended. Our stack is ours. We have spent more than a decade building it. We control it. We sell our solution to customers as weapons detection as a service.

By signing up for that service, customers gain access to the hardware, the software that runs it, the AI models that make threat determinations, and our on-site services to keep our systems operating as designed. At the end of 2025, all of that translated into 8,000 systems deployed, screening over 4 million people per day. Since the launch of Evolv Express, our technology has been used to screen more than 4 billion people worldwide. Yes, that's billion with a B. The more customers that sign up, the more real-world data we can use to evaluate our AI models in different verticals and environments. That data is not useful to anyone but Evolv and its customers. Because without our unique hardware and software, you simply could not use it.

Over time, this combination of deployed systems, operational learning, and long-term customer relationships supports recurring revenue through multiyear subscription contracts, drives ARR growth, and builds RPO, or remaining performance obligation. Our fourth quarter results reflect continued execution of this approach. We ended 2025 with annual recurring revenue, or ARR, of $120.5 million, reflecting growth of 21% year-over-year. As we will discuss in more detail momentarily, we expect this rate of growth to accelerate in 2026 as growth in our recurring revenue base begins to outpace growth in total revenue. Revenue in Q4 was $38.5 million, up 32% year-over-year. For the full year, revenue was $145.9 million, representing growth of 40% year-over-year.

Growth in the fourth quarter and the full year reflected strong new customer acquisitions, continued expansion within existing customers, and a step-up of approximately $15 million in the second half of product revenue resulting from our decision to directly fulfill purchase subscriptions. We reported our fifth consecutive quarter of positive adjusted EBITDA with adjusted EBITDA margin of 4.7% in Q4 and 7.6% for the full year. We reported positive adjusted EBITDA of $11.1 million in 2025 compared to a loss of $21 million in 2024, a $32 million improvement in adjusted EBITDA on an absolute dollar basis. Total cash, cash equivalents, and marketable securities increased by $12.8 million sequentially in Q4 2025 to $69 million, reflecting strong cash collection effort and discipline around working capital management. We believe this highlights the cash-generating potential of the business over the long term.

We welcomed over 60 new customers in Q4 and now serve over 1,200 customers globally. We continue to see a strong trend of existing customers upgrading to our Gen2 Express platform. These upgrades, together with solid end market demand, drove a 13% year-over-year increase in RPO to $293.4 million at the end of Q4. Beyond the financial results, we continue to deliver real, measurable value to the growing number of communities that rely on us. That starts with our customers detecting and tagging an average of 500 firearms daily. At its core, weapon screening isn't just about what's detected. It's about creating a culture of safety where students, staff, and families know that violence prevention is taken seriously.

By serving as a visible, everyday layer in a comprehensive school safety plan, our technology can help deter threats before they escalate and reinforce expectations for a safe learning environment, even on days when no weapon is found. Just last month at a Georgia school customer, a student arrived on campus carrying a knife. Our system flagged the threat, and when school police investigated further, they discovered a loaded handgun and drugs in the student's car. Parents there described the incident as a clear message to the community that the system works. In a high school in Oregon, our solutions identified a student attempting to bring a loaded handgun through the school entrance. Staff were able to intervene immediately, secure the weapon, and keep the school operating without ever needing to initiate a lockdown.

These are two more examples from opposite sides of the country that demonstrate how proactive weapon screening not only stops dangerous items from entering schools but also strengthens overall campus safety every single day. In the fourth quarter, we added 12 new school districts across the U.S. as well as three universities in New York, Massachusetts, and Texas. For the year, we added 65 new education customers, and we're proud to have screened approximately 300 million students and visitors. In the healthcare sector, we are advancing a critical industry transformation by enabling hospitals to strengthen safety through a rigorous, layered security model designed to address one of their most pressing risk areas. Hospitals remain among the most dangerous workplaces in the United States, accounting for nearly 70% of all reported workplace violence incidents. Our solutions provide threat detection at key access points while maintaining efficient, patient-centric entry experiences.

Recent customer additions include William P. Clements Jr. University Hospital in Texas, the University of Oklahoma Medical Center, and Mosaic Life Care at St. Joseph in Missouri. As adoption in healthcare continues to expand, our technology now supports the screening of over 1 million patients, healthcare workers and visitors each day across medical facilities nationwide. Staying in healthcare, we are pleased to announce a new partnership with the American Hospital Association, under which Evolv has been designated a preferred provider for hospitals and health systems nationwide. This designation marks an important milestone in our healthcare strategy and validates the critical role our technology plays in protecting patients, clinicians, and visitors.

Through this collaboration, we will engage directly with AHA's nearly 5,000 member hospitals and 43,000 individual members across events, thought leadership platforms, and key industry forums, reinforcing our shared commitment to safer, more secure, and more welcoming healthcare environments. Shifting to sports and live entertainment, we continue to expand our presence with over a dozen new customers in the fourth quarter, including seven professional football teams, reflecting continued demand for modern, efficient screening solutions across practice and training facilities. Teams are increasingly turning to Evolv as they look for ways to manage high volume entry points with speed, reliability, and a better experience for players, staff, media, and fans. Each new deployment reinforces our position as a trusted partner in complex, high throughput settings where security and efficiency must coexist.

Our market leadership extends well beyond the five major professional leagues, where we have already established a leadership position. We added 65 new sports and live entertainment customers in 2025. We also saw continued strength in renewals and Gen2 upgrades in this market as well. TD Garden, home to the Boston Celtics and the Boston Bruins, upgraded to Gen2 Express for walk-through screening and added four eXpedite systems for autonomous x-ray screening of bags. Crypto.com Arena upgraded to Gen2 and added an additional eXpedite. Other notable renewals and upgrades include the Houston Astros, Houston Texans, St. Louis City SC, and the Philadelphia Eagles. Across this segment, the combination of new customers, expanding partnerships, and high-value Gen2 upgrades highlights the strength of our market position. Today, we proudly screen nearly 1.5 million sports and live entertainment visitors every day.

Another key market where we are seeing growing momentum is in the workplace. Across commercial office buildings, distribution centers, warehouses, and manufacturing facilities, security leaders are increasingly focused on protecting employees and visitors in environments where high volume foot traffic can create real operational risk. Companies are under growing pressure to strengthen corporate security programs without disrupting productivity. Our ability to provide fast and effective screening is resonating with enterprises that are modernizing outdated systems. In the fourth quarter, we added multiple new Fortune 500 companies, including one of the 10 largest banks in the world, a top 25 U.S. retailer, a Fortune 100 healthcare innovator, a major insurance and financial services company, and a multinational medical technology company.

These wins underscore the growing demand we're seeing from large-scale enterprises that view workplace safety as a strategic imperative, and they highlight our growing role in securing the modern workplace. We are proud to be the trusted security provider for over 30 of the Fortune 500. The momentum we're seeing across these key markets reinforces the trust customers are placing in Evolv as their long-term security partner. Building on that foundation, we've continued to invest in broadening our product portfolio, and nowhere is that more evident than the early success of eXpedite, our autonomous AI-based bag screening solution. eXpedite is resonating across environments where patrons bring bags and our customers want to screen 100% of those bags without slowing down entry. Whether in education, healthcare, industrial workplaces, or sports entertainment.

After just its first full year in market, we now have 65 eXpedite customers, or about 5% of our base of 1,200 customers. Adoption is coming from both existing and new customers. In the fourth quarter, 16 brand new Evolv customers purchased eXpedite, and 11 of them also purchased Express, creating meaningful customer acquisition cost tailwinds as we land multiproduct relationships from day one. Early deployments show a strong promise in balancing threat detection with significantly lower false alarm rates. This helps security teams focus on real threats while maintaining a smooth flow for students, staff, and visitors. We continue to believe eXpedite will drive stronger attach rates, customer expansion, and deeper subscription stickiness by enabling organizations to run all screening operations through a single cloud-connected platform. Before I hand things over to Chris, I want to share some context around our outlook.

We continue to see strong momentum across the business. Our pipeline remains healthy and execution is tracking well. For those reasons, we are raising our initial outlook for 2026. We expect to end 2026 with comfortably over 10,000 units deployed. We are modeling full year revenue of $172 million-$178 million, above the $160 million-$165 million range we shared last November, with ARR growth in the range of 20%-25%. While we continue investing in innovation and our product portfolio, we also expect to deliver modestly expanded adjusted EBITDA margins to the high single digits. 2025 is about strengthening our foundation, clarifying priorities, sharpening execution, and positioning the company for the future. As we look ahead, 2026 is about building the engine for durable long-term growth.

We believe weapon screening could become as common in certain types of buildings as sprinkler systems and intrusion alarms are today, not as a luxury, but as standard infrastructure. Getting there will require relentless innovation in weapon detection accuracy, form factor, and cost. We believe we are well-positioned to lead the industry on all three. Through continued investment in AI, expansion within our installed base, new product adoption, and disciplined market expansion, we are building the long-term architecture of a scaled global security platform. With that, I'll turn it over to Chris to walk through our financial results and the details behind our outlook.

Thanks, John. Good afternoon, everybody. I'm gonna review our fourth quarter and full year results in more detail and then walk through our thoughts for 2026. Q4 revenue was $38.5 million, an increase of 32% year-over-year. All of our Q4 revenue streams performed in line with our expectations. Product revenue declined slightly from Q3, reflecting some of the one-time benefit in Q3 and trail off into Q4 from what was the largest deal in the company's history and had a heavier product mix. Subscription revenue was modestly lower due to the timing of a short-term subscription contract in connection with a major international sporting event in the summer of 2025, which provided a lift in both Q2 and Q3. License fee and other revenue declined as we completed the transition away from our legacy distributor licensing model.

Overall, our top-line results demonstrate solid underlying growth and continued consistency in the business. Adjusted gross margin was 50% in Q4 compared to 62% in the same period last year. There are a couple of drivers worth digging into. First, as we discussed on our last call, the shift to direct fulfillment of our purchase subscription orders creates near-term gross margin headwind. This dynamic is exactly what we planned for. While it brings lower gross margin in the initial quarter of a new transaction, the direct model delivers higher gross profit dollars over the life of the contract, along with higher revenue, ARR, RPO, and cash flow compared to the legacy distribution model. Another driver to gross margins in the period was an accrual for approximately $1 million for a targeted parts upgrade and proactive field service work.

Moving down the P&L, Q4 adjusted operating expenses, which excludes stock-based compensation, loss on impairment of equipment, and certain other one-time expenses, were $23.8 million compared to $23.1 million in the fourth quarter of last year, reflecting growth of 3% year-over-year. This contrasts with our 32% year-over-year growth in revenue in Q4, highlighting the leverage in our business model. Q4 adjusted EBITDA, which excludes stock-based compensation and other one-time items, was a positive $1.8 million in Q4 2025 compared to $400,000 in the fourth quarter of last year. This resulted in adjusted EBITDA margin of 4.7% in the fourth quarter of 2025. Visibility improved again in Q4, driven by another strong booked to deployed unit ratio. As a result, we began 2026 with a record level of units in backlog.

Looking at the summary of our full year results. As John mentioned, ARR at December 31st was $120.5 million, reflecting growth of 21% year-over-year. This was fueled by new customer growth and expanding deployments across our customer base. Total revenue was $145.9 million, reflecting growth of approximately $42 million, up 40% year-on-year, primarily driven by strength and demand. The growth was further compounded by approximately $15 million of year-over-year growth in revenue from our shift to directly fulfilling the hardware portion of our purchase subscription orders, which we told you about in Q3.

This change captured more revenue and more gross profit dollars, albeit at a lower gross margin percentage in the second half of 2025. Adjusted EBITDA for the full year 2025 was $11.1 million or 7.6%. This is up $32.1 million from the prior year loss of $21 million on higher revenue and improved margins. Remaining performance obligation or RPO was $293.4 million at the end of the fourth quarter compared to $259.1 million at the end of Q4 last year. We continued to see a strong trend of customers upgrading to our Gen2 Express platform. These upgrades, which include a new four-year subscription term, together with solid end market demand, drove this 13% year-over-year increase.

Moving forward, we expect RPO growth to begin to accelerate, supported by increasing end market demand and by bringing back more revenue in-house through our direct purchase fulfillment motion, which we've discussed with investors over the last six months. Turning to the balance sheet. Cash, cash equivalents, and marketable securities increased $12.8 million sequentially to $69 million. This primarily reflected enhanced cash conversion in the quarter, driven by stronger collection activity and continued discipline around working capital management.

Turning to 2026. As John highlighted, the fundamentals of our business remain strong with robust customer demand. When combined with the foundational changes we made to our business model, we expect ARR growth to begin outpacing revenue growth. Let me expand on the context behind our outlook for 2026.

We are currently modeling full year 2026 revenue of approximately $172 million-$178 million compared to our prior guidance of $160 million-$165 million, representing year-over-year growth of approximately 18%-22%. We are currently modeling about a 50/50 mix between purchase subscription and pure subscription in 2026. Changes in mix will affect revenue, ARR, RPO, and our margins. We expect to exit 2026 with annual recurring revenue of approximately $145 million-$150 million, representing growth of about 20%-25% year-over-year. I want to remind investors that we ended 2025 with about $120 million in ending ARR. That creates a solid baseline for 2026, which means we're coming into the year with about 70% of our revenue guidance in hand on day one.

As we think about revenue growth across 2025 and into 2026, it's helpful to frame how that profile is being shaped by the fulfillment model change we implemented in mid-2025, which we've discussed the past several quarters. In light of that, this is how we see the year unfolding. In Q1, we expect revenue growth rate to be in the high 30s due to the installation of the record backlog we entered the year with and the step-up in one-time product revenue on direct purchase transactions compared to the prior year. As we move into Q2, we expect modest sequential revenue decline as prior year product backlog is consumed in Q1.

As we enter the second half of the year, we will mark the one-year anniversary of our purchase fulfillment change. Despite the expiration of the step-up effect on product revenue, we still expect second half revenue to be modestly higher than the first half. Overall, our 2026 outlook reflects a business that is capturing more of the economic value that it creates while continuing to build a larger base of recurring revenue, increasing visibility through ARR and RPO, and delivering a more durable and predictable revenue profile over time.

We remain committed to investing in growth in a responsible way that grows revenues faster than total expenses in 2026 and are modeling full year adjusted EBITDA margins to expand from 7.6% in 2025 and to grow into the high single digits for the full year 2026, which includes approximately $1 million headwind on memory chip costs. Finally, a word on our long-term operating model. As we've shared with investors on prior earnings calls, that model, which previously showed a long-term adjusted EBITDA margins in the range of 10%-15%, is now outdated. We now believe continued growth and operational improvements will drive greater long-term leverage in the business. We look forward to sharing more information on that topic at our Investor Day, June 9th. More to come.

Before we open the call for Q&A, let me turn the call back over to John for a few closing remarks.

Customers, dedication of our employees, the support of our partners, and the confidence of our shareholders. As we look ahead, we see significant opportunity to further scale the platform and unlock additional leverage, and we look forward to sharing more at our 2026 Investor Day. We are proud to be building technology that truly matters, helping keep people safe where they work, learn, live, and play. With that, we're happy to open the call for questions.

Terrific. Operator, we'd like to open the call now for Q&A.

We will now begin Q&A. For today's session, we'll be utilizing the Raise Hand feature. If you'd like to ask a question, simply click on the Raise Hand button at the bottom of your screen. Once you've been called on, please unmute yourself and begin to ask your question. Please limit to one question and one follow-up before jumping back in the queue. Thank you. We will now pause a moment to assemble the queue.

Your first question comes from Jeremy Hamblin with Craig-Hallum. You may now unmute your line and ask your question.

Thank you, and congratulations to the team on a great year and quarter. I wanted to just start by, you know, understanding you raised the revenue guidance pretty significantly. I wanna understand the context for you had a bit more modest sequential ARR growth in Q4. Now you are raising your ARR growth from 20% to 22.5% at the midpoint. Just wanna understand, there's been a lot of change in your pricing model, and the fulfillment obviously for purchase deals.

Can you help us just to understand, you know, how that's likely to play out in terms of maybe ARR per unit? You know, how that's played out, you know, in 2025 and now into 2026. Are you likely to get ARR acceleration in the back half of the year as you're getting higher, you know, value per unit installed? Color that you can share, you know, again, in context of the very strong raised revenue guidance.

Yes, Jeremy, that's correct. We do anticipate ARR to accelerate throughout the year. The changes that we made last year in bringing purchase subscription back in-house, at the same time we also changed pricing, where we lowered the upfront price of hardware, the one-time price, and we raised the price of our software and services. That will take time to go out through the year. I'll remind you that mix also drives the rate of ARR growth as subscription compared to purchase subscription, where subscription is higher ARR.

Got it. That's helpful. Then just wanna understand, and it's a little bit related, I'm thinking from the last question, but in terms of your gross margin curve, you know, you saw your subscription gross margins sequentially improve like 700 basis points. Your service gross margins, however, declined about 900 basis points. Overall gross margins were a little bit lower than street expectations. Again, is that captured by the change in pricing model? How should we be thinking about overall adjusted gross margins to trend over the course of 2026?

Thanks, Jeremy. I'll take this one to start. We do expect gross margins to be in line or slightly better in 2026 versus 2025, first of all. Related to the first part of your question, there is more gross profit dollars now being pushed into RPO in future periods compared to where it has been in the past because of everything we just talked about. I won't revisit that, but that is a conscious and direct effect of the actions we took that we're pleased with because of course more dollars come with it, more gross profit dollars, more revenue, et cetera. Otherwise we have of course the other thing we highlighted, about $1 million accrual for some targeted service costs that we incurred in the period as well. It was a one-timer.

Got it. Last one from me, and then I'll hop out of the queue. You also have your Plexus relationship that's gonna turn on here in 2026. You know, when do you expect production from Plexus to begin, and what quarter do you think that it will start to flow into the financials given inventory turns in your current position?

When we announced the Plexus deal in Q3 and Q4, we stated that the schedule was to get to full ramp with Plexus in the second half of 2026. I'm pleased, Jeremy, that we're on that schedule. We still expect that, you know, same timing. We do expect that transition, as we've said before, to be a slight tailwind to gross margin over time, and I think there's some working capital improvements that can be had there as well.

Thanks so much for taking my questions. Best wishes.

Thank you.

Your next question comes from Eric Martinuzzi with Lake Street Capital Markets. Please unmute your line and ask your question.

Yeah. The cash flow is very good in Q4. For the year, obviously the $18.7 million in 2025. Just curious to try and see if there's any linkage here that we can draw, because there's so many moving parts in the revenue, between the adjusted EBITDA forecast for 2026, which, you know, I'm coming up with a midpoint of $14 million in 2026 for adjusted EBITDA. Is there any way to connect that to your expectations for cash from ops in 2026?

Yeah. Thanks, Eric. There's a couple things there. We did have a very strong Q4 cash generation quarter, which we're proud of. That was both working capital efficiency, but a very strong focus in delivery of cash collections. We've talked about 2025 being a foundational year, implementing new process and improvements, and cash flow and cash collections was one of those areas. We did take some steps there that were more 2025 and won't be repeated going into 2026. The quarter was a very strong cash collection, some of which isn't repeatable going forward. In terms of cash flow for 2026, we haven't shaped 2026 or forecasted it at this point. I would say, however, a couple things. Very proud of Q4.

We do expect to be cash flow positive in the second half of 2026. The first half is going to be shaped as well by our Q1 incremental cash costs of our incentive payments from the prior year. When you take all of that, John and I are very focused on improving cash flow going forward, both in 2026 and beyond. With all of that baked in, I think you can expect improved trajectory with more specifics to come.

Is the expectation that cash flow will be greater in 2026 than 2025?

Absent the, again, the incremental $7 million that I'm expecting in Q1 for prior year incentives, that's incremental compared to the prior year payments, I am expecting cash flow improvement. I think it's gonna be close. I'll get back to you later in the year on whether I'm gonna call that, you know, slightly down or cash flow neutral.

Got it. Thanks for taking my questions.

Welcome

As a reminder, if you'd like to ask a question, simply click on the Raise Hand button at the bottom of your screen. Your next question comes from Shaul Eyal with TD Cowen. Please unmute your line and ask your question.

Thank you. Thank you, guys. Congrats on strong completion of 2025. Can you guys talk to us about the mix between new logos and existing customers this quarter? I know you touched on that briefly, but maybe any additional color will be greatly appreciated.

Yeah. We added about 60 new customers in the quarter, and that took our total count to over 1,200 customers, which we're extremely proud of and reflects the strength we're seeing in customer adoption of our solution. You know, just historically, we're always seeing a close to a 50/50 split of our new orders coming from new customers and existing customers expanding, which we think is a great testament to the strength of our solution. We highlighted that we now have over 30 Fortune 500 customers, and we're really encouraged by the uptake of eXpedite. Not only the new logos that we're bringing on with eXpedite, but also the attachment that we're seeing between eXpedite and Express.

Got it. Chris and John, what are the hiring plans for fiscal 2026 as the business is clearly scaling and accelerating, but also, you know, EBITDA is gradually nicely expanding. Just thinking out loud here, what are your hiring plans in terms of headcount? Thank you.

We're encouraged by what we're seeing inside the market and the security environment overall, and we are investing to capture that growth, and that's reflected in us raising guidance here as we look into 2026. We are gonna make investments in R&D and sales and marketing. We still have some work to do in G&A on the operational side of the business, as Chris communicated in the middle of last, you know, year. We're committed to doing that in a responsible way. What does that mean to us? We're gonna grow top line faster than we grow expenses, and you see that in us expanding our EBITDA margins in 2026.

One piece of color I would add here, especially if you dig into the 10-K, et al., and you look at actual headcount. Our headcount is approximately flat to where we left, where we started the year, despite the reduction in force that was put in place in Q1. A significant amount of the people that were added back were brought in-house for what used to be done by expensive consultants and contractors. We insourced a significant amount of services of our customers, and that's something we wanna control and touch our customers directly with anyway. That's a net trade from paying contractors to adding people in-house. We did the same thing, on a few G&A places as well, where we added headcount instead of paying external consulting firms to do the work for us.

While some headcount might shift, it didn't, doesn't commensurate with additional spend. Underpinning what John said, but I wanted to triangulate that in case you're looking at some headcount numbers in the K.

Perfect.

I think we have time for one more.

Appreciate it.

Go ahead. Finish your question.

Go ahead, Shaul.

Your next question.

You know, I was saying thank you so much for that. This is extremely helpful. Appreciate it. Thank you.

Welcome.

Your next question comes from Alex Latimore with Northland. Please unmute your line and ask your question.

Hi, guys. Alex Latimore here on for Michael Latimore. Great call here. I just had two questions. First one is, what % of bookings are you seeing from current customers versus new customers throughout the year? What do you expect in 2026?

It's been approximately 50/50 of customers expanding versus net new customer acquisition, and we anticipate that to continue.

Awesome. One other unrelated question here. Do you see the AHA certification that you have now accelerating the hospital deals this year?

We're very excited about that partnership. Absolutely, as we look forward, we continue to think that healthcare is gonna be a growth vertical. This is an additional tailwind on top of what you saw in the state of California, where they've mandated advanced weapon screening across that state to be implemented by 2027. We also recently saw what's happening in Georgia, where Georgia has a bill going through the legislature, it has not yet passed, that would mandate weapon screening inside all schools. We fervently believe that all schools should have weapon screening. We look at these two case examples where regulations are coming down mandating technology as ours, as a tailwind as we look into 2027 and the future of our business and beyond.

Understood. That's all from me. Thanks, guys.

Perfect, Alex. Thank you. John, you wanna close it out?

Thank you. We're really excited about where we left 2025. As we look forward in 2026, you see the excitement and the strength that we see in our business and our pipeline, the improved execution that we built in Q4 in raising our overall guide, the changes that we put into the business, allowing us to capture all the revenue on purchased subscriptions and adjust pricing for long-term value are coming into the market as we had forecast. As we look into the second half of the year, building additional scale with our new contract manufacturing partner, Plexus, makes us very optimistic. Overall, we're building a very strong business.

This is a hardware-enabled SaaS business that combines our proprietary hardware that generates proprietary data that we can use to continue to strengthen our models, and we monetize that in long-term recurring revenue as you see in our RPO or remaining performance obligation. We look forward to sharing more details about the long-term outlook of our business at our upcoming Investor Day. Thank you very much for your participation.

Thank you for joining. This concludes today's call. You may now disconnect.