Evolv Technology (EVLV) Q3 2026 earnings review
Evolv adds recurring revenue faster, but new customer wins drop
Evolv Technology, a maker of AI-powered weapons-screening scanners, accelerated its recurring contract additions even as new customer wins slowed. Reported revenue rose 10% from a year ago, or 34% by our math when excluding last year's one-time contract and license items. Chief executive John Kedzierski lifted the bottom of the full-year revenue and operating profit ranges while generating positive free cash flow.
| Underlying revenue growth (excluding Q3'25 one-offs) | +34% 10.5% reported growth from a year ago |
|---|---|
| Annual recurring revenue (ARR) | $140.5M +20% from a year ago; +$7.8M from last quarter |
| Free cash flow | $3.2M -$11.5M a year ago |
| Full-year revenue outlook | Raised $1M middle of the range: 26% growth |
⚖️ Verdict: 🟢 Bullish
The story got better because third-quarter net new recurring revenue stepped up to $7.8 million, putting the year-end target within reach after three quarters of slower additions. One caution: the company added only 51 new customers, down from 70 last quarter, and booked $4.8 million in legal and regulatory expenses that widened its net loss.
The question now is whether Evolv can lift annual recurring revenue growth from 20% to its 24% year-end target without a rebound in new customer additions. Either higher prices and upgrades across existing venues carry the fourth quarter, or the drop in new customer wins caps recurring growth at 20%. Fourth-quarter net new recurring revenue against the $8.5 million needed by our math will decide it.
🐂 Bull Case
New Recurring Revenue Stepped Up Toward Target
Evolv tracks annual recurring revenue (ARR), the yearly value of its active subscription and service contracts. For three quarters, ARR grew 20% from a year ago, and quarterly additions ran between $3.3 million and $6.8 million. To hit its $148 million to $150 million year-end target, the security-screening company needed to add about $8 million per quarter in the second half by our math.
In the third quarter, the company added $7.8 million of net new ARR, reaching $140.5 million. Chief executive John Kedzierski said Evolv "strengthened our renewal and expansion motion highlighted by strong net revenue retention in the quarter". The press release did not update customer counts for Evolv eXpedite, its autonomous bag scanner, or renewal upgrade rates for second-generation Express scanners, which remain positives to check in the quarterly filing.
What to watch: fourth-quarter net new ARR against the $8.5 million needed by our math to hit the middle of the full-year outlook. Reaching that figure will lift annual recurring growth to 24% and support Kedzierski's goal "with revenue growth expected to ramp toward an approximately 25% CAGR through 2031".
Underlying Revenue Grew 34% Past One-Offs
Headline revenue growth slowed from 34% in the second quarter to 10.5% in the third quarter, reaching $47.3 million. Kedzierski noted the company delivered this result "against a challenging prior-year comparison, as last year's results included the largest contract in our history". Beyond that $3.0 million order, the year-ago quarter also included $3.0 million of distributor license fees and $1.5 million of short-term rentals.
Excluding those $7.5 million of one-time items from the prior year, revenue from continuing operations grew 34% from a year ago by our math. Product revenue rose 33% to $12.3 million and service revenue climbed 22% to $9.5 million, while legacy license and other revenue dropped 67% to $1.0 million. That underlying pace shows demand did not stall when the company lapped last summer's fulfillment transition.
What to watch: fourth-quarter total revenue against the $46.1 million implied by the middle of the full-year outlook. Hitting that level will mean 20% growth from a year ago on a clean comparison without distributor license fees.
Deferred Revenue Rebounded and Lifted Free Cash
For three quarters, Evolv's deferred revenue — cash customers have been billed for service not yet delivered — stayed near $92 million even as total contract backlog grew. In the third quarter, total deferred revenue jumped 16% from last quarter to $106.8 million by our math. That billing rebound brought in $18.0 million of operating cash flow during the quarter, up from $3.5 million a year earlier.
After spending $13.3 million on property and equipment — mostly screening units leased to customers — and $1.4 million on software development, the company generated $3.2 million of free cash flow. That compares with an $11.5 million free cash outflow a year ago, lifting total cash and marketable securities by $3.5 million from last quarter to $66.9 million.
What to watch: fourth-quarter operating cash flow and customer collections in the annual report. Collecting the $50.4 million of accounts receivable will determine whether free cash flow stays positive as Evolv funds more leased screening units.
🐻 Bear Case
New Customer Additions Dropped as Legal Costs Returned
Kedzierski said the quarter showed progress toward "building a stronger, more scalable and increasingly predictable business". Yet two numbers in the tables moved the wrong way. Evolv added 51 new customers in the third quarter, down from 70 in the second quarter and 62 a year ago, matching the lowest quarterly addition in the past two years.
At the same time, general and administrative expenses — corporate overhead and legal bills — jumped 10.1 percentage points of revenue from a year ago to 39.4% by our math, or $18.7 million. That increase came from $4.8 million of legal and regulatory costs tied to past investigations and restatements, which widened the GAAP operating loss from $8.6 million a year ago to $14.4 million.
What to watch: new customer additions and legal settlement disclosures in the fourth-quarter report. Another quarter near 50 new customers will leave Evolv reliant on existing accounts for growth while legal bills continue to drain cash.
Upfront Hardware Sales Keep Gross Margin Near 51%
Evolv sells its Evolv Express weapons-screening systems under two models: pure subscription, where it owns the hardware, and purchase subscription, where the customer buys the hardware upfront and pays a recurring software fee. Because Evolv now fulfills purchase-subscription orders directly rather than through a distributor, it records low-margin hardware sales on its own books.
- Gross margin excluding one-offs: 50.8%, up 0.2 percentage points from a year ago but below the first half's 51.6%
- Product gross margin (cost of making the hardware): 8.8% on $12.3 million of product sales by our math
- Subscription gross margin: 59.8% on $24.5 million of subscription revenue by our math
Management said last quarter that second-half gross margin excluding one-offs would hold steady with the first half's 51.6%, so the third quarter fell 0.8 percentage points short. What to watch: fourth-quarter gross margin excluding one-offs. A reading below 51% will show hardware costs and upfront equipment mix are offsetting higher-margin software renewals.
Risks this quarter didn't answer
Three standing risks from prior quarters received no new figures in the third-quarter earnings release because the company has not yet published its conference call remarks or quarterly filing.
- Average revenue per deployed unit: ARR growth of 20% has trailed ~30% unit growth because redeployed first-generation units and Evolv eXpedite bag scanners carry lower prices; the call remarks will show whether third-quarter price increases narrowed that gap.
- Component and manufacturing costs at contract manufacturer Plexus: previously flagged as a 0.5-point gross margin headwind; the quarterly filing will show whether supply costs rose.
- Securities and Exchange Commission marketing investigation: the release added $4.8 million in legal and regulatory expenses, and Note 13 of the filing will show how much relates to the open SEC matter versus settled shareholder suits.
💲 Other KPIs
Total contracted revenue not yet recognized rose $13.2 million from last quarter, or 4.2%, and grew 12.5% from a year ago by our math. Annual growth slowed from 17.1% in the second quarter because last year's third quarter included the largest customer contract in the company's history.
Money owed by customers for billed contracts climbed 63.5% from $30.8 million at the end of 2025 by our math, and rose from $42.7 million in the first quarter. Over the first nine months of 2026, uncollected billings absorbed $19.7 million of operating cash flow alongside the jump in deferred revenue.
Weighted average diluted shares rose 4.8% from a year ago by our math, slowing from 9.0% annual dilution in the second quarter. Stock-based compensation remained high at $6.9 million, or 14.6% of third-quarter revenue, which the weapons-screening provider excludes from its adjusted profit measures.
🔮 Guidance
Raised at the bottom end. The middle of the range moved up $1 million to $183.5 million, or 25.8% growth for the year, with the range "dependent on the mix of new unit deployments between purchase subscription and pure subscription models". By our math, that leaves $46.1 million for the fourth quarter, up 19.7% from a year ago. It is the third raise this year, and each is smaller than the last after the mid-year step: +$2.5M, +$5.0M, +$1.0M.
Unchanged. The plan still calls for 23% to 25% growth in annual recurring revenue by December 31, 2026, up from 19.9% in the third quarter. By our math, reaching the $149 million middle of the range requires $8.5 million of net new recurring revenue in the fourth quarter, above the third quarter's $7.8 million and more than double the $3.3 million added in last year's fourth quarter.
Raised by $0.5 million at both ends. The plan keeps full-year profit before interest, taxes, depreciation, and stock-based compensation in the high single digits as a share of sales (8.7% at the middle of the ranges by our math). With $13.1 million already earned in the first nine months, the outlook leaves $2.9 million for the fourth quarter by our math, or a 6.2% margin against the third quarter's 10.0%.
❓ Key Questions
Why did new customer additions drop to 51?
New customer wins fell from 70 in the second quarter to 51 in the third, while net new recurring revenue hit a two-year high of $7.8 million. Management did not disclose how much of that recurring growth came from existing customer expansions versus price increases.
What caused the $4.8 million legal and regulatory charge?
Non-recurring legal and regulatory expenses jumped from $0.9 million in the second quarter to $4.8 million in the third. Investors need to know whether this reflects lower expected insurance recoveries on settled lawsuits or a reserve for the open SEC marketing investigation.
How many customers now use the Evolv eXpedite scanner?
Adoption of the Evolv eXpedite autonomous bag scanner reached over 100 customers in the second quarter, up from roughly 6% of customers in the first quarter. The third-quarter release gave no customer or cross-sell numbers for the product.
Why does the outlook point to lower fourth-quarter profit margins?
By our math, the raised full-year outlook leaves $2.9 million of adjusted EBITDA for the fourth quarter, or 6.2% of implied revenue compared with 10.0% in the third quarter. Management has not explained whether higher hardware mix or sales hiring drives that step-down.