Comeback Season: Evolv Eyes Positive FCF, 40% ARR Growth, and Reputational Revival in '25 ($EVLV)

The unloved physical security company has exceptional tech, continued momentum, and likely releases 3 quarters of earnings over the next 2 months.

$EVLV is an AI-driven weapons detection company with best-in-class tech, overshadowed by a 2024 that was a true annus horribilis. The company was mired in FTC investigation and accounting issues, leading to delayed financials and a discarded, shorted, and unloved stock.

Yet the core business is fine. Evolv’s technology is best-in-class, and the company has been executing. Strong leadership has replaced blundering prior management. The FTC investigation cleared with little real impact. Evolv’s accounting issues should clear within weeks, per a recent filing.

With three quarters of earnings to be released by May ‘19th (the first two of which will be filed simultaneously), the company should shed its delinquent filer status. It also will be communicating its financial performance to the market and resuming IR for the first time in >6 months. The price could quickly return to >$4.5, where shares were trading in before the company’s ‘24 issues. Continued execution could see the price reach $6+ just by trading in-line with peers, instead of at a distressed multiple. The stock is also highly shorted. In fact, short interest is at an all time—despite the upcoming catalysts—which makes little sense.

With nothing positive priced in, a strong catalyst path, and mostly mechanical shorts, Evolv’s 2025 might become, comparatively, an annus mirabilis.

Macro

Given the events of “Liberation Day”, it’s worth prefacing everything with three “macro points” as they will certainly be top-of-mind.

1. Evolv is a domestic manufacturer, headquartered in Waltham, MA. Per IR, their supply chain exposure is essentially de minimis. Caveat: IR teams are likely to understate tariff impacts at this moment.

   

2. Evolv’s only true like-for-like competitor is CEIA’s OpenGate. CEIA is Italian, with most of its manufacturing located in Italy. Obviously, supply chain issues and tariffs threaten more than just the end-stage manufacturing plant, but for the U.S. end-market, I would rather be a domestic product right now, all things considered.

3. Compared to CEIA, Evolv has premium pricing along w/ a certified pre-owned program. They aim to pass along any costs for customers who want the latest tech and will accept paying more, while not churning customers with tightening budgets, but rather shifting them to certified pre-owned.

Tech Overview

Evolv’s main product is “Express,” a touch-less security screening system that uses AI and sensor technology to detect concealed weapons. It has screened more than 1 billion people since 2019. The company has also introduced “Expedite,” a new AI bag scanning product that should unlock growth—which I examine in a later section.

Express is the flagship product. If you’d like to deeply understand the offering, you can watch this 45 minute video (it does require passing along your contact information). For a simpler summary, see below.

Express solves several problems:

1. It is far better to have a machine learning algorithm classifying dangerous weapons than a human watching a screen. Humans are prone to fatigue, distraction, and mistakes.

2. Express is unobtrusive, allowing for people to walk through without stopping or removing personal items. This helps to solve the bottleneck problem at, e.g., a school. Imagine going through airport-tier security, where you have to deal with the false alarms and cool-down periods of a metal detector, just to make it to your first period class. For a customer like a sports stadium, this also means more natural flow of people, a better experience, and more consumption. Evolv allows up to 4000 people/hour to be screened by its dual system.

3. Unlike a pure metal detector, Express can identify non-metallic threats.

4. Express identifies precisely where on the body a weapon is located, so that removal and investigation is more efficient, without an invasive pat-down. It also flags exactly who is the offender so the flow can continue.

5. By offering the above benefits, you can reach a comparable level of security with fewer operators, therefore saving on costs despite a higher initial price. For example, imagine operating three metal detectors with three personnel, vs. one Evolv system with one operator.

6. Deterrence—particularly with schools—is worth noting. I do think the “advanced AI” has more of a deterrent factor than a typical metal detector, especially one which cannot detect diverse types of weapons or non-metallic weapons.

The following screenshot sums up the technology value prop:

The results are also actually quite impactful. I’m writing this on April 3rd, 2025. Today alone multiple news stories have been released describing situations where Express helped avert potential crisis:

The best way to validate the company’s tech, to my mind, is simply to see who chooses to use it amongst its three primary use cases: schools, event venues, stadiums, and hospitals. For example, here’s a selection of blue-chip stadium customers:

If you consider many of these venues, the absolute worst case scenario for them would be a mass shooting. For example, Disney uses Evolv—can you imagine how concerned they are about security at their parks? An incident would almost certainly be impactful to the tune of billions. To further diligence the tech, the most effective strategy is to simply call various customers and talk to them about their Evolv experience—something I believe very few investors do.

Catalyst Path

Why am I long now? For one, we have strong clues that updated financials are about to come out...

The NASDAQ granted the company until May 19th to update its financials. However, the company still filed FORM 12b-25 (Notice of Late Filing) on April 1st, as is required even when a company has an exchange-granted extension. The company used this filing to reveal four key facts which have gone overlooked.

1. We know that we will get a 10-Q and 10-K filing simultaneously.

2. Relatedly, we know that, per full compliance by May 19th, we should also expect the Q1’25 filing soon after the dual filing

3. We know that the financial restatement process is nearly completed.

4. Most importantly, we know that the revenue was pulled-forward, but the vast majority of it has now been recognized by the company, and we know that the affected revenues are substantially smaller than what was initially anticipated:

I am not a corporate lawyer, but it strikes me as bizarre to use all of this language, and to identify the precise (lower) amount of impacted revenue if you weren’t basically about to file—there’s simply no reason to include this language otherwise, especially when they have been granted an exchange-extension.

Additionally, they would have to file another FORM 12b-25 if they did not file before April 15th. So, it’s not as if this was their one chance to communicate with the market. Why not just wait until you actually had the finalized and signed-off financials, and file then, unless you were certain?

Therefore, I expect we will see a filing either this week or Monday or Tuesday next week, before the April 15th “deadline” for the next form NT-10Q. I do not think the filing of the 10Q and 10K will occur in May, as I’d expect them to simply have filed all financial statements at once about this point. If not, it doesn’t necessarily mean anything negative—although I would question what management have been doing—but it does compress the catalyst path even further.

Once filing occurs, I believe that the fundamental mechanical and technical pressures on the name then reverse:

1. The company will be eligible for inclusion in more hedge fund portfolios.

2. The company will exit several mechanical short baskets.

3. TD Cowen will likely resume equity research coverage.

4. The company will begin IR activities—per conversations with other investors, it seems like management knows the importance of conducting market outreach and hitting the road.

   1. To this end, the company is clearly interesting in communicating with the market—and recently added an ex-Millennium PM, now running his family office, to its BOD.

   2. I would also note that the company’s IR head has a pretty astounding track record, and will know exactly how to manage the company’s new outreach. The last 6 companies he worked in an IR capacity for, stretching back 20+ years, were all acquired. This is more of a fun tidbit, but it’s pretty clear he knows how to pick where he works.

Upcoming Financials

When numbers are released, what will they actually look like? We have a few clues. We don’t have any current financial information since July ‘24, since the filing for the period ending September ‘24, initially due in November ‘24, is still delinquent. Consider the archive website as of July 24, which shows 4000 units deployed:

However, a January 23rd, 2025 press release provided a business update, with the information that 6000 units had been deployed:

Annualizing, we would get approximately 1880 new subscriptions added over 2025. I think this number might actually be a bit conservative, as 2024’s issues certainly were not conducive to operational efficiency. Of course, a global slowdown would generally be a headwind for any company, so let’s stick with this number.

It’s a bit tricky to determine exactly how much in ARR each unit represents. I would defer to this table from a truly excellent write-up on the name:

For simplicity, and per talks with other investors, I am going to assume a mixed $20,000 / subscription ARR number. This would yield (without sequential growth) to Evolv adding $38,000,000 in revenues in ‘25. Management previously guided to $100M and results seem to underwrite that, given the high Q4 subscriotion adds and retention. So the company is growing ARR at nearly 40%. To be conservative, let’s assume it grows ARR at 30-40% in ‘25.

The company is guiding to cash-flow positivity by the end of ‘25 per its recent business update. We also know that it has restructured its org structure a bit, laying off 14% of staff, while actively hiring new quota-based sales staff for the first time in months:

To me, this probably sees them exit ‘25 with having achieved the “Rule of 40”, with 10%+ EBITDA and 30-40% growth.

How Did We Get Here?

Chapter 1: Evolv vs. IPVM

IPVM is a physical security consultancy that tests security products and reviews them. If you Google “Evolv technology + IPVM,” you’ll notice two things. The first is that they have produced a shocking amount of articles and video about Evolv (over 100!), and that their articles are anything but charitable.

IPVM’s investigations really boil down to two things. First, Evolv engaged in very aggressive marketing—and made claims which seem imprudent. IPVM correctly called these out as inappropriate. Second, IPVM highlighted that Evolv may miss certain weapons such as smaller knives, which they again did not make abundantly clear, particularly several years ago. To me, this latter point gets back to the above “school example”. The articles have largely stopped at this point—perhaps a sign that Evolv’s marketing is now more appropriate.

I won’t speculate as to why IPVM wrote so many articles, or as to if any other entities stood to benefit, but something does seem a bit extreme. Writing the 1st or even 5th article on the same company truly seems like quality, in-depth reporting. But after article 99, it seems pretty likely something went on behind-the-scenes.

Evolv has offered several rebuttals of IPVM. Many of IPVM’s claims have been misleading or false:

There’s a good bit of scuttlebutt around this, as discussed in this great VIC article. The speculation is that the feud began Evolv refused to share its technology with IPVM, citing trade secrets.

To be clear, I have no idea what has really gone down between these entities. I do know that Evolv engaged in unethical and aggressive market, and IPVM engaged in meaningful initial reporting that evolved into a surprisingly dedicated campaign. Trying to find an unbiased third party, I consulted Tegus.

The founder of IngressoTek, which scans 4 million people yearly, had interesting comments on Evolv and IPVM—calling IPVM’s work “hit pieces”. This same expert notes that OpenGate—an Evolv competitor—”loves” to bring up the IPVM pieces, which I suppose you would expect. Keep in mind in this interview he explains that he marginally prefers OpenGate to Evolv… so it’s unlikely he is simply being interviewed strategically to provide a bull case for Evolv:

Ironically (and as discussed in the next section), the FTC investigation which likely began due to IPVM’s work—which, again to their credit, did identify overly aggressive marketing from Evolv—did not challenge the efficacy of Evolv’s technology or AI-powered scanners.

FTC issues

This IPVM video is a good example of the tenor of Evolv’s initial marketing (and how it has become increasingly conservative post-investigation).

The FTC opened an investigation into Evolv’s aggressive marketing. The investigation ended in November 2024 without Evolv admitting any wrongdoing and without any fines or penalties. The FTC did not challenge the efficacy of Evolv’s technology or AI-powered scanners.

However, it did conclude the company’s marketing was far too aggressive. As part of the settlement, certain Evolv K-12 customers (around 8% of base at the time) were given contract cancellation options for a 60 day period. This period has been resolved, and Evolv disclosed that 92% of these customers have remained. The revenue impact was less than 500k.

Accounting Issues

Far more concerning to me than the FTC issues or technology fearmongering are accounting issues. Evolv opened an investigation into its accounting practices in September 2024 after discovering issues with its sales practices that impacted revenue recognition. At the beginning of the investigation, it was estimated 4-6m of revenues were pulled forward; this was a timing related issue, not fraudulent sales. The upshot was that this led to the disclosure of material weakness—and the termination of the CFO and CEO.

This issue continues to be an issue for the company. From a stock price perspective, as I’ll explore in the next section, being a delinquent filer is a massive overhang. However this issue should clear quite literally any day now.

Subway Debacle

A far less consequential mishap, but perhaps the most telling one with regard to the quality of Evolv’s old management, involves a 30-day trial of Express in NYC’s subway system. When this trial failed, it led to several embarrassing headlines:

Shockingly, per this interview, the former Evolv CEO knew that their scanners would be ineffective underground due to electromagnetic interference (e.g. from railways), and yet still chose to go ahead with the partnership!

It seems likely he simply assessed that the worst case scenario was that he could talk about a “partnership” with the NYPD. The miscalculation was that the story wouldn’t be picked up. This underscores the point that, for many years, Evolv was a case study of mismanagement.

Assessing the Damage

The IPVM, FTC, Accounting and NYPD issues have deeply dissuaded investors. What’s fascinating is that customers—who interact with Evolv products every day, and who need to ensure safety and security—seem nonplussed. Stoic_point does excellent work tracking news articles that frequently come out when Evolv deploys scanners. This Twitter search highlights these data (feel free to scroll through).

What the above issues investigation did do, however, is make this a very hard name to pitch to a portfolio manager. Unless they happened to have prior knowledge of the technology, EVLV 0.00%↑ gets thrown in the too-hard pile, especially as there was always the chance that the FTC would find something more severe than aggressive advertising.

While the FTC issues represent a reputational challenge for would-be active price setters, the accounting issues are far more impactful, as they introduce a severe mechanical challenge. From a mechanical perspective:

• Index and Benchmark Exclusions:

  • Many indices and ETFs have strict inclusion criteria that require companies to be in full regulatory compliance. A delinquent filer or one with a material weakness may be removed from an index, forcing funds that track that index to sell the stock.

• Fund Investment Mandates:

  • Institutional and mutual funds often operate under mandates that restrict investments to companies meeting certain governance and reporting standards. When a company violates these standards, these funds are either prevented from initiating new positions or must liquidate existing holdings, leading to forced selling.

• Risk Management Protocols

  • Investment managers routinely adjust their portfolios to maintain a specific risk profile. Compliance lapses can trigger automatic risk management measures—such as reducing exposure to stocks with heightened regulatory or operational risks—resulting in additional selling pressure.

• Contractual and Regulatory Constraints

  • Some investment vehicles are contractually obligated or regulated to invest only in companies that meet certain reporting standards. Once a company is flagged, these rules can force a rapid exit from positions regardless of the company’s underlying fundamentals.

From a market outreach perspective:

• The company cannot engage in IR

• Analysts (specifically TD Cowen) drop coverage

What’s fascinating is that I believe all of these issues will soon reverse in short order upon filing. The mechanical outflows will become neutral (if not positive). The company will hit the road and begin IR activities. TD Cowen will resume coverage. And, with clean financials, a strong product, and exceptional new leadership, the company begins to look extremely cheap.

Shorts are Offsides

When accounting issues were identified, but before the closure of the FTC investigation, Evolv traded from $4 to a low of $2.15 on massive volume:

In the two week period after the FTC resolution was announced, Evolv moved back up from 2.6 to 4.48:

In early January, Evolv management presented a business update, wherein they reaffirmed their outlook and guided to positive free cash flow by the end of ‘25. As you can probably expect by now, the stock again jumped, this time from $3.22 to $4.18:

To me, these patterns of sudden jumps indicate that there are marginal buyers, who understand when these issues resolve and understand the company fundamentally, but they are washed out by mechanical sellers (for all the reasons discussed above). Surprisingly, though, short interest has continually crept upward and now sits at all time highs (even before Liberation Day).

The following sums up my feelings quite well; keep in mind Stoic Point is a 5%+ owner and 13-D filer in the name:

Evolv screens as a perfect short—as long as it is a delinquent filer. There’s little to superficially suggest that shorting say 25 bps of the name would cause a problem for any individual short.

However, when dozens of desks think and screen similarly, but don’t consider the particular float dynamics, they can actually propel DTC and Short Interest quite high. While superficially, only ~16% of the float is short, the large insider ownership from both management and committed investors has pushed days to cover to over 11. Considering the below catalyst path, I could not be paid to be short this name!

Growth Opportunities

• With DOE money returning to the states, and with Red States actually more likely to spend on public safety in schools (e.g. more open to security vs. privacy concerns), Evolv should continue to sign school districts.

  • For example, imagine a Texas public safety bill like the below, but focused on schools:

• Evolv essentially has a limitless use case. The real limit is what entities are funded enough to use its products, and safety conscious enough to feel the need. This includes:

  • All schools, stadiums, event centers, train stations, hospitals, schools, school stadiums, office buildings, public malls, etc.

  • Just to give a sense of the growth opportunity, Evolv is currently in over 800 schools, but there are over 115,000 in the entire US. Almost every school has multiple staff tasked with ensuring safety, and Evolv could complement these staff, or in some cases, potentially make them redundant.

The other main growth channel, besides continued execution, is their new product, Expedite. Expedite essentially takes the express model, and applies it to bag scanning. That is to say, a security staff member does not need to continually watch a screen. I think that this too would lead to better results, save money, and catch more weapons.

It is too early to say how large of growth driver this could be, but it opens up still more revenue channels. From my talks with other investors, it appears early adoption is positive. Here is a demo of Expedite.

Valuation

Evolv’s current valuation does not reflect the company’s recurring revenue scale or improved outlook. At around $2.9 per share, EVLV’s market capitalization is only ~$458 million. With ~$32M in cash and no debt, the enterprise value (EV) is roughly $426M. That equates to about 3× NTM EV/ARR (using ~$140M NTM revenues).

For context, public SaaS companies in 2023 traded around (median) 7.5x revenue. You could argue for a stronger multiple for Evolv’s entrenchment and growth rate.

Trading in-line with peer multiples, Evolv’s EV would be $800M+ or around $5.5-$6. Currently Evolv trades more like a distressed asset, which does make sense for a company in distress. It’s just that the distress may be short-lived.

Unicorn startups in AI-driven security have commanded valuations of 10×+ ARR in funding rounds. Evolv itself, when it went public via SPAC in 2021, was initially valued around $1.3B (far above today’s ~$0.5B). A strategic acquirer in the security or defense industry could also see considerable value in Evolv’s unique dataset (billions of scans) and AI capabilities, potentially paying a premium. Thus, our baseline upside case (50–80%) could be conservative if Evolv executes well.

One potential acquirer would be Motorola Solutions ($MSI). Evolv’s new CEO is from Motorola, and worked directly under Motorola leadership. Above 10% of Evolv’s revenue comes from Motorola as they are a key distribution partner. And, Motorola’s head of M&A is actually on the Evolv board!

My read is that Motorola would like a cleaner, non-delinquent, and cash flow positive, company, before potentially considering an acquisition. However it does seem to be a distinct potential acquirer, given the deep ties and the fact it is the North American leader in physical security.

Tech Concerns, Revisited

This sounds fairly positive right?

Yet misleadingly the article was run with the headline: “JCPS sees drop in guns with new detection system but not all weapons being caught.”

The point really is—just talk to customers. Ask about their experience. If you read an article, read it carefully. The fair comparison is not to perfection, but to a human operator, manning a slow and inconvenient metal detector, staring at a screen, making $15 an hour, causing a line.

Key Management

Evolv’s CFO is an interim CFO from forensic financial firm AlixPartners. This is due to the fact that they appear solely focused on getting these filings done. He seems excellent. We don’t know yet who the full-time CFO will be.

Evolv’s CEO John Kedzierski seems like an (unproven) rockstar. John is a 23-year Motorola Solutions veteran who previously served on Evolv’s board. At Motorola, John led global enterprise sales and previously headed Motorola’s video security & access control division. I’d encourage investors to watch this video and read the below expert interviews:

Risk Factors

• Evolv is like an airbag. No one cares about it until it fails. You don’t hear about the 1000s of working airbags—you hear about the airbag that didn’t deploy. Thus, Evolv will forever face some degree of headline risk.

  • For example, imagine an attacker walked through an entrance where no Evolv machine was installed at a stadium using Evolv, and committed a shooting. Would headlines note this?

    • Nope—they would probably read “Disgrace as AI fails to stop shooting!!!”.

• If Evolv fails to complete its restatement and file the delayed 10-Q/10-K by Nasdaq’s deadline, it would be an unmitigated disaster. It is the one thing the company should be focused on doing.

  • This seems unlikely given the engagement of outside help, and the messaging in the recent filing. However it is not impossible given the history. I’d give this a <5% chance.

• Market Adoption and Competition: Evolv’s growth, especially in the critical K-12 segment, could be impacted by external factors. For example, if school security budgets tighten (or conversely, if a funding boost that helped demand in recent years wanes), sales cycles could slow. This is a concern if DOE funding flowing to states is a headwind, and not a tailwind as I expect.

• Competitors like OpenGate both undercut Evolv on price and also sow concern based on the past FTC claims. If competition is not managed, OpenGate could claim market share. This has not seemed to be a significant issue yet, but it is something to watch carefully.

• Recession

  • We have no idea what’s going to happen. There’s a risk that stadiums etc. “downshift” to OpenGate.

    • I believe OpenGate is worse tech. It doesn’t show where on body item might be so need to do a pat down, which doesn’t look good for the Disneys of the world. It also has issues operating in certain weather conditions.

      • That being said, these are likely sacrifices some customers would make, especially in a recession. A recession would not help Evolv.

• Early Acquisition

  • Motorola could acquire for far too low a price, as Evolv is not a controlled company.

Summary

Evolv has the opportunity to turn things around in ‘25. After filing, Evolv will have clean financials. We should get 3 quarters of filings in the next 6-7 weeks alone!

Renewed analyst coverage, current status, IR, and management hitting the road should help. Given the current depressed valuation, ~3× NTM EV/ARR could easily expand to 7x EV/ARR. There’s a lot of room here to the upside. Rerating likely would be accelerated by shorts covering and investors returning.

What makes this a compelling setup is really the fact that the downside appears quite limited. I can’t imagine a worse case scenario than what occurred in ‘24, and what has been priced in. For now, the focus is on the imminent catalysts: deliver the audited financials, become current, and show investors that Evolv is back on a credible, growth trajectory.

Evolv is trying to usher in better physical security, but may soon become a better security itself.

____________________________________________________________________________

Disclaimer: The information provided in this article is for informational purposes only and should not be considered investment advice. Investing involves risk, including the potential loss of principal. The author holds a material position of the security discussed. The author may buy or sell at any time and without prior notice. The author is not a registered investment advisor and does not provide personalized investment advice. Always conduct your own research and consider your investment objectives and risk tolerance before making any investment decisions. The author and publisher shall not be liable for any actions taken based on the information provided in this article.