AI Screening Will Expand Public Safety Applications

Key Takeaways

• Heightened demand for advanced security and regulatory mandates drive strong growth potential for recurring subscription revenue across diverse markets.
  
• Transition to a subscription model increases earnings visibility and profitability, supported by high customer retention and expanding existing accounts.
  
• Elevated leadership turnover, financial oversight risks, and regulatory scrutiny jeopardize internal stability, margin strength, and long-term profitability amid evolving market and compliance pressures.

Catalysts

Provides artificial intelligence (AI)-based weapons detection for security screening in the United States and internationally.

• The growing focus on public safety-particularly in schools, hospitals, and live entertainment venues-combined with heightened awareness from recent high-profile security incidents, is driving consistent and increasing demand for advanced security screening; with Evolv's market penetration still below 10% in all key verticals, this presents a significant runway for long-term subscription and revenue growth.
  
• Accelerating adoption of AI-powered, frictionless screening systems-fueled by customer expectations for contactless, seamless entry experiences-positions Evolv ahead of legacy solutions, supporting expansion into new markets and verticals, which increases the company's total addressable market and future revenue potential.
  
• Regulatory changes and mandates (e.g., California's hospital law requiring automated weapons detection by March 2027, and potential similar legislation in other states) create a strong multi-year adoption tailwind, likely converting regulatory compliance into sustained new customer wins and growth in recurring revenue.
  
• Evidence of improving sales execution, high customer retention (90–92% retention of units and revenue post-FTC resolution), and strong expansion within the existing customer base (with ~50% of new bookings from expansions) point to rising net revenue retention and improved earnings visibility in future periods.
  
• The strategic shift to a pure subscription model-maximizing ARR and recurring gross margins, even at the expense of short-term upfront revenue-enhances future-year revenue visibility, drives long-term profitability, and supports higher net margins through operating leverage.

Evolv Technologies Holdings Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Evolv Technologies Holdings's revenue will grow by 17.6% annually over the next 3 years.
• Analysts are not forecasting that Evolv Technologies Holdings will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate Evolv Technologies Holdings's profit margin will increase from -39.1% to the average US Electronic industry of 9.0% in 3 years.
• If Evolv Technologies Holdings's profit margin were to converge on the industry average, you could expect earnings to reach $16.6 million (and earnings per share of $0.09) by about July 2028, up from $-44.4 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 97.7x on those 2028 earnings, up from -23.7x today. This future PE is greater than the current PE for the US Electronic industry at 23.8x.
• Analysts expect the number of shares outstanding to grow by 4.09% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.64%, as per the Simply Wall St company report.

Evolv Technologies Holdings Future Earnings Per Share Growth

Risks

• Recent organizational turnover, with significant leadership changes across CEO, CFO, CAO, General Counsel, CRO, and VP of Supply Chain roles, and the need to rebuild trust following regulatory scrutiny and a financial restatement, signal potential instability in internal controls and culture, which could pose risks to financial oversight and weaken operating margins or earnings.
  
• The business model's heavy reliance on high customer retention and recurring subscription revenue-especially in core markets such as education and healthcare-could expose revenue and cash flow to downside if renewal rates or expansion among existing customers decelerate from current high levels, particularly as market penetration matures.
  
• Industry adoption of AI-powered physical security is in the early innings, but longer-term shifts-such as declining foot traffic in public venues (due to increased remote work, virtual events, or demographic changes)-could materially reduce addressable market size and limit long-term revenue growth.
  
• Elevated R&D and operational investments are necessary to maintain technological differentiation; however, sustained operating losses, compressed adjusted gross margins (notably with further mix shift toward pure subscription), and increased CapEx requirements may limit flexibility for future innovation, pressuring net margins and long-term profitability.
  
• The risk of increased regulatory scrutiny-due to privacy concerns over AI and biometric surveillance in public spaces-as well as the potential for data breaches or cybersecurity incidents, could increase compliance and liability costs or slow customer adoption, negatively impacting both revenue growth and earnings.

Valuation

• The analysts have a consensus price target of $7.062 for Evolv Technologies Holdings based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $8.25, and the most bearish reporting a price target of just $5.5.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $184.7 million, earnings will come to $16.6 million, and it would be trading on a PE ratio of 97.7x, assuming you use a discount rate of 7.6%.
• Given the current share price of $6.43, the analyst price target of $7.06 is 9.0% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.