Evolv Technologies Holdings, Inc. (EVLV) Earnings Call Transcript & Summary

Good afternoon, and welcome to the Evolv Technology Second Quarter Earnings Results Conference Call. [Operator Instructions] 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, and good afternoon, everyone. 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. Earlier today, we issued a press release detailing our second quarter results and our updated 2026 outlook. This release is available on the Investor Relations section of our website and has been filed with the Securities and Exchange Commission. 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 regarding our business, strategy, growth opportunities, customer activity, strategic partnerships, product demand and financial 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 a number of factors, including those described under the caption Risk Factors in our annual report on Form 10-K for the year ended December 31, 2025, filed with the SEC on March 10, 2026, and our quarterly report on Form 10-Q for the quarter ended June 30, 2026, which we filed with the SEC earlier today. The forward-looking statements made today represent our views as of August 11, 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 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 adjusted 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. In addition, we will discuss annual recurring revenue, or ARR, remaining performance obligation, or RPO, and net revenue retention, or NRR, which we believe provide useful insights into the business. We define ARR as the sum of subscription revenue and the recurring service revenue related to purchase subscriptions for the final month of the quarter, all multiplied by 12. RPO represents estimated revenues expected to be recognized in the future, which are related to performance obligations that are either unsatisfied or partially satisfied as of the end of the reporting period. We define NRR as recurring revenue in the last month of the quarter, divided by recurring revenue from the year ago month for the same customer base, inclusive of churn and expansions. Before I turn things over to John, I'd like to briefly highlight some of the investor outreach plans for the second half of 2026. We plan to be at 4 institutional investor conferences, including the Lake Street Investor Conference in September, the Craig-Hallum Alpha Select Conference in November, the UBS Global Technology Conference in December and the Northland Capital Conference later in December. As always, we welcome the opportunity to engage with both existing and prospective shareholders. If you would like additional information, please feel free to contact me at bnorris@evolvtechnology.com. With that, I'd like to turn the call over to John.

Good afternoon, and thank you for joining us. Before we discuss our second quarter results, I'd like to briefly revisit a few themes from our Investor Day in June. At Investor Day, we shared our perspective on the long-term growth potential we see in front of the company. We discussed our belief in the large and underpenetrated markets we serve, our differentiated technology and the opportunity we see to expand adoption across a broad range of end markets. We estimate there are more than 700,000 serviceable doorways across the markets that we serve today. With about 9,200 units deployed, our current penetration remains well below 5% highlighting the substantial runway for future growth. Against that backdrop, we outlined a path to growing revenue to more than $500 million by 2031, representing a compound annual growth rate of approximately 25% over the next 5 years. While we expect growth to vary from year-to-year based on factors such as deployment timing, product mix and customer buying behavior, we remain confident in the long-term opportunity ahead. We also discussed a path to achieving adjusted EBITDA margins of at least 25%. Taken together, we believe this represents a path to becoming a Rule of 50 business, a combination of top line growth and bottom line profitability that we believe reflects the strength of our business model and the scale of the opportunity ahead. Importantly, we believe the foundation for that framework is already in place today through our growing base of contracted recurring revenue and more than $300 million of remaining performance obligation, or RPO, which carries attractive long-term gross margins. At its core, Evolv is a hardware-enabled subscription business that generates high-margin long-term recurring revenue. We are built around physical security, not digital workflows. We are a leader in what we believe is one of the largest and least penetrated segments of the public safety market, AI-powered weapons detection. Our platform combines proprietary hardware, software, AI models, data and services into a single integrated solution delivered through multiyear subscription agreements, typically 4 years in duration. These long-term contracts create a growing base of contracted future revenue and visibility that differs meaningfully from many software businesses. While advances in AI and agentic technologies may reshape portions of the software industry, they do not replace proprietary hardware, real-world data, operational expertise and long-term customer relationships that underpin our business. We use AI to help protect people and places, not screens and code. We view the second quarter of 2026 as another step toward achieving these Rule of 50 objectives. New customer acquisition remained healthy, renewal trends continue to strengthen and customers increasingly adopted additional platform capabilities such as eXpedite. While significant opportunity remains ahead of us, we are encouraged by our progress and remain confident in our long-term outlook. With that in context, let me briefly summarize our second quarter results. Revenue in the second quarter was up 34% year-over-year, reflecting strong new customer wins and continued expansion within our existing customers. We ended the quarter with annual recurring revenue up 20% year-over-year, reflecting the compounding impact of the growth in our deployed unit base. Adjusted EBITDA margin expanded to 10.1% in Q2 compared to 6.5% in the second quarter of last year. Of note, total adjusted EBITDA in the first half of 2026 doubled compared to the first half of 2025. We added 70 new customers during the quarter, marking our strongest quarter in 2 years for new customer additions. What makes this result particularly encouraging is that approximately 60% of unit bookings during the quarter came from existing customers. Together, these results highlight both our ability to deepen relationships with existing customers and continuing to add new logos at a healthy pace. We're pleased to report that we now have customers in all 50 U.S. states and across North America, including Canada and Mexico. This milestone reflects both the versatility of our platform and the growing global demand for solutions that enhance safety without creating friction for visitors. As we outlined at Investor Day, we expect an increasing portion of our growth over the next 5 years to come from markets outside the United States, with early progress expected later in the year. Today, our solutions screening nearly 5 million people each day, reflecting the growing scale and global reach of the Evolv platform. Our net revenue retention remained comfortably above 100% in the second quarter, reflecting continued success renewing and expanding existing customer relationships. Finally, remaining performance obligation was up 4.5% sequentially to $312.6 million, reflecting strong end market demand, continued multiproduct adoption and strong renewal upgrades to our Gen2 Express platform. Our RPO provides visibility into future revenues and reinforces one of the key strengths of our model, a large and expanding base of contracted revenue expected to be recognized over the coming years. Our RPO now exceeds 1.7x our full year revenue outlook, underscoring the visibility and durability embedded in our model. In the second quarter of 2026, we saw strong demand across our core education market. We added 23 new education customers across 13 states. These wins spanned K-12 schools, higher education institutions and state education agencies, demonstrating the broad applicability of our solutions across a diverse range of educational environments. Today, we are proud to support approximately 1,800 schools across the country, including 24 of the top 100 largest school districts in the United States. We continue to see strong adoption of our Gen2 Express platform with customers signing new 4-year contracts to upgrade from Gen1 deployments. We also continue to see a supportive policy and funding environment for school safety investments. Alongside federal grant programs, we are monitoring school safety funding and legislative initiatives across nearly a dozen states, creating potential opportunities to expand access to modern security solutions. Importantly, these efforts are being driven by demand from policymakers, educators and local communities, underscoring the long-term importance of school safety nationwide. In health care, we added 8 new customers, ranging from community hospitals to regional health systems, including Alberta Health Services, Canada's largest integrated health care system, further strengthening our position in the Canadian market while demonstrating the scalability of our platform across a diverse range of health care environments. As workplace violence remains a significant challenge across the health care sector, providers are increasingly prioritizing technologies that enhance security while preserving the open access and efficient visitor flow that are fundamental to care delivery. Today, we support approximately 800 hospitals, reflecting the growing recognition that health care organizations can improve safety without compromising the patient, visitor and staff experience. In sports and live entertainment, we added more new customers across professional hockey, basketball and football, including the Pro Football Hall of Fame in Canton, Ohio. These organizations are investing in security solutions that enhance both safety and the fan experience by enabling faster and more efficient venue entry without compromising threat detection. We also supported the 2026 FIFA World Cup through a short-term subscription deployment spanning Q2 and Q3 with installations at match venues, fan festivals and transportation hubs, including New York Penn Station. During the nearly 40-day tournament, Evolv screened more than 3.5 million fans, demonstrating the scalability of our platform and further strengthening global awareness of the Evolv brand. We're also pleased to announce the recent collection of Evolv by Northwestern University's New Ryan Field, one of the most anticipated venue openings in college sports. Following a rigorous evaluation process, Ryan Sports Development selected Evolv to help deliver the fan arrival experience at what is believed to be the most expensive college football stadium ever built, representing an investment of approximately $870 million. We believe this win reflects a broader trend across college athletics, where leading institutions are increasingly investing in the same fan experience, operational capabilities and security infrastructure traditionally associated professional sports venues. We're proud to support a growing roster of leading universities, including The University of North Carolina, BYU, Boston College, The University of Nebraska, The University of Texas and now Northwestern's new Ryan Field. As schools continue to modernize their facilities and elevate the game day experience, we believe security is becoming an increasingly important component of the overall fan journey and that Evolv is well positioned to support that evolution. We also continue to see momentum in the workplace across corporate headquarters, distribution centers and critical infrastructure. During the quarter, we added 2 additional Fortune 500 companies, including a leading grocery retailer with one of the largest distribution networks in the United States and one of the country's largest off-price retail chains. These wins further expand our footprint within large enterprise environments where organizations are seeking to enhance security while maintaining efficient operations and positive employee and visitor experiences. Today, we are proud to serve as a trusted weapon screening partner for over 30 Fortune 500 companies. The momentum we're seeing across these markets reinforces our belief that customers increasingly view Evolv as a security platform rather than a point solution. eXpedite, our autonomous AI-powered bag screening solution continues to gain traction in environments where customers want to screen bags without slowing entry. Increasingly, customers are looking to conduct bag screening as part of a single integrated security workflow and eXpedite is purpose-built for that model. We now have over 100 eXpedite customers, representing approximately 8% of our total customer base, up from 2% a year ago. In the second quarter, approximately 70% of new customers who purchased eXpedite also bought Evolv Express. We've now also cross-sold eXpedite into more than 40 existing Evolv Express customers. Customers have now screened more than 20 million bags with Evolv eXpedite and now averaging approximately 90,000 bags each day. We believe eXpedite represents a compelling expansion opportunity, allowing us to effectively stack ARPUs, while creating additional leverage on our customer acquisition investments. Importantly, as our installed base continues to expand, we are accumulating a growing body of security and screening data that can be used to help improve product performance, strengthen our AI models and create opportunities for additional software-driven capabilities. We believe this data advantage enhances outcomes for customers, supports future software innovation and reinforces our long-term competitive position. During the first half of the year, we delivered significant enhancements to the eXpedite platform through software innovation. These enhancements help customers optimize security operations, improve the visitor experience and make more informed decisions about staffing and screening workflows. As customers increasingly see the value of managing both walk-through and bag screening through a single cloud-connected platform, we believe there remains a meaningful opportunity for account expansion, deeper platform adoption and stronger subscription retention over time. Turning to operations. I'm pleased to report that we have onboarded Plexus, our new global contract manufacturing partner and have now begun shipping product through their facilities. This represents an important milestone in our manufacturing strategy and positions us to scale production capacity, extend our global reach, enhance operational resiliency and over time, reduce bill of material costs through greater procurement leverage and manufacturing efficiencies. With respect to the broader supply chain environment, we continue to actively manage through the well-documented semiconductor supply constraints and remain confident in our ability to execute against our full year deployment plans. 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 expect to end 2026 with comfortably over 10,000 units deployed, which would reflect net deployed unit growth of about 30% year-over-year. We are raising full year revenue guidance to 23% to 27% year-over-year compared to our previous forecast of 20% to 23%. While we continue to invest in innovation and operations, we continue to expect to deliver expanded adjusted EBITDA margins in 2026 compared to 2025. As we look to the balance of 2026, we expect continued growth in deployed units, ARR, revenue, adjusted EBITDA and RPO. Importantly, the combination of strong new customer additions, growing multiproduct adoption and continued operating leverage gives us confidence in both our updated 2026 outlook and the long-term framework we outlined at Investor Day. With that, I'll turn it over to Chris to walk through our second quarter financial results and updated outlook in greater detail.

Thanks, John, and good afternoon, everyone. I'm going to cover our second quarter results in more detail and then share our updated outlook for 2026. Revenue in Q2 was $43.8 million, an increase of 34% year-over-year. This primarily reflected strong underlying demand for our solutions and the now fully completed transition to the direct fulfillment model, which created a temporary year-over-year tailwind to product revenue as a larger portion of revenue was recognized upfront relative to prior periods. While the step-up in dollars is permanent, the year-over-year comps will normalize beginning here in Q3 as we've now anniversaried both the fulfillment and the pricing changes, which we implemented on July 1, 2025. As a result, we expect future year-over-year comparisons to provide a cleaner view as to the underlying operating performance of the business. To be clear, we expect revenue growth to more closely align with deployed unit growth, subject to normal fluctuations driven by deployment timing, pricing, product mix and the timing of short-term rental agreements. ARR or annual recurring revenue at June 30, 2026, was $132.7 million, reflecting growth of 20% year-over-year. Growth in ARR was driven by strong new customer acquisition, expanding deployments within the installed base and continued strength in renewal activity, which drove net revenue retention comfortably above 100%. Adjusted gross margin was 51% in Q2, consistent with Q1. Moving down the P&L. Adjusted operating expenses, which excludes stock-based compensation, loss on impairment of equipment and certain other onetime expenses were $25 million compared to $21.6 million in the second quarter of last year, reflecting growth of 16% year-over-year. The increase reflects continued investments in product innovation and go-to-market capacity, higher commission expense associated with our revenue growth and targeted investments in IT systems and personnel to support scale and efficiency in the business. Q2 adjusted EBITDA, which excludes stock-based compensation and other onetime items, was $4.4 million compared to $2.1 million in the second quarter of last year. This resulted in adjusted EBITDA margin of 10.1% compared to 6.5% in the second quarter of last year. Importantly, adjusted EBITDA margins expanded 160 basis points sequentially and 360 basis points year-over-year despite continued investment in product development, commercial resources and operational infrastructure, demonstrating the operating leverage inherent in our model. Remaining performance obligation, or RPO, was $312.6 million at the end of the second quarter, reflecting growth of 4.5% sequentially. We continue to see strong demand for Gen2 Express with customers increasingly choosing to upgrade their existing deployments. This, combined with solid end market demand, contributed to continued RPO growth during the quarter. We continue to expect RPO growth to accelerate over time, supported by increasing end market demand, favorable renewal activity, expansion within the installed base and the higher level of contracted revenue associated with our current fulfillment model. We continue to believe the gross margin profile of our remaining performance obligation is an important indicator of future earnings potential. As we discussed at our Investor Day, the contracted revenue reflected in our RPO carries an estimated gross margin profile of approximately 66%, well above our current reported gross margin. This difference reflects the economics of the purchase subscription model, where the majority of the hardware costs are recognized immediately and upfront, while a significant portion of the associated software and services revenue remains contracted and will be recognized over future periods. As a result, we believe our RPO represents a substantial pool of future contracted revenue with attractive margin characteristics that supports our confidence in the long-term profitability and earnings leverage of the business. Turning to the balance sheet. Cash, cash equivalents, marketable securities and restricted cash increased about $2 million sequentially to $63 million. The positive cash flow in Q2 is a quarter ahead of our expectations, driven by improved profitability and strong cash collections in the quarter. We expect to remain cash flow positive through the balance of the year. However, we may selectively choose to invest an additional $2 million to $4 million into inventory safety stock to enhance supply chain readiness and support anticipated customer demand. We would expect that any such investment would be largely opportunistic and timing related in nature. 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 are taking hold. We are raising our full year 2026 outlook for revenue to $180 million to $185 million compared to our prior guidance of $175 million to $180 million. This represents year-over-year growth of approximately 23% to 27%. Our upwardly revised revenue outlook reflects both continued strength in customer demand, pricing and ARPU trends as well as a higher mix of purchase subscriptions, which increases the year 1 revenue recognition. We are raising our estimate for year-end annual recurring revenue to be approximately $148 million to $150 million, representing 23% to 25% year-over-year growth. Our updated forecast reflects stronger-than-anticipated renewal performance, which is driving higher net revenue retention, helping to offset the impact to ARR that's driven by the higher mix of purchase subscriptions relative to pure subscriptions in the second half of the year. At the midpoint of our outlook, we expect second half revenue to be modestly higher than H1 and up year-over-year with ARR growth outpacing revenue growth in the second half. Remember, these prior period growth comparisons reflect the changes to our pricing and fulfillment model that were implemented in mid-2025 as discussed on prior earnings calls. These changes have now lapped a year, so future variances will be more comparable. This updated outlook and H2 strong demand underpins the 23% to 27% annual growth that we expect for 2026 and the same fundamentals underlying our long-term growth expectations of approximately 25% revenue growth, which we outlined in June at our Investor Day. We continue to expect strong unit growth with second half deployment exceeding first half deployments and growing approximately 30% year-over-year. We expect gross margins in the second half to remain consistent with first half levels throughout the remainder of '26. Our 2026 outlook reflects the impact of 3 factors on gross margin. First, we are seeing a higher mix of purchase subscriptions, which is a little more of a point to the gross margin headwind I just mentioned. We are now forecasting 60% of new full year deployed units to be via purchase subscription versus 55% that we assumed in our last guidance issued in May. As a reminder, with purchase subscription transaction, we recognize all of the hardware costs immediately while deferring software and services revenue into future RPO. Second, we are seeing stronger demand than anticipated for Gen2 upgrades, which drive new 4-year contracts and higher RPO. While these upgrades enhance long-term value, they also create a temporary margin headwind as returned Gen1 units incur freight, refurbishment and depreciation costs during the period between upgrade and redeployment. These higher Gen2 upgrades and associated Gen1 costs are just under 1 point of gross margin headwind. We expect these costs to convert to significant revenue and cash as these Gen1s are redeployed in the future. Finally, we are seeing modestly higher component and supply chain costs than we originally anticipated, as seen across the tech industry, which is approximately 0.5 point of gross margin headwind. I'd also remind investors that Evolv eXpedite is still progressing along its cost reduction curve and has not yet fully benefited from the bill of material optimization and supply chain efficiencies that we expect to achieve as adoption continues to grow. While these factors are combining to create near-term pressure on gross margin, we are also expecting some tailwinds to gross margin to emerge. We continue to realize manufacturing efficiencies and scale benefits through our new contract manufacturing partner, and we have recently implemented pricing increases across our product lines of Express and eXpedite. As those higher price points are reflected in new deployments and renewals, we expect them to support gross margin expansion over time as those higher prices become increasingly reflected in our revenue. Overall, our 2026 outlook reflects a business that is capturing more of the economic value that it creates, generating stronger renewal outcomes, increasing visibility through ARR and RPO and delivering a more durable and predictable financial profile over time. We're continuing to invest thoughtfully in the capabilities needed to support the long-term vision that we outlined at our Investor Day. This includes targeted investments in selling and marketing to expand our market presence, R&D to accelerate innovation and reduce false alarms and the systems and processes needed to operate at greater scale. Importantly, even as we increase investment in these areas, we expect full year adjusted EBITDA to be in the range of $15 million to $16 million, with margins in the high single digits for 2026, up from 7.6% in 2025. In summary, we believe Q2 marked another quarter of strong growth, customer and revenue retention, profitability and operating leverage. The drivers underlying the long-term framework that we outlined at Investor Day continue to perform in line with our expectations. And while we're not providing guidance beyond 2026, we remain confident in the opportunity ahead and in our ability to deliver against the long-term financial framework and Rule of 50 objectives that we shared in June. With that, I'll turn things back over to Brian for Q&A.

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

[Operator Instructions] Our first question will come from Jeremy Hamblin with Craig-Hallum.

Congratulations on strong results and momentum in the business. I thought I would just start with some of the commentary around ARR growth and then the commentary around the unit growth that you're seeing where you discussed comfortably over 10,000 units deployed at the end of the year. But can you just discuss those 2 things, kind of the ARR growth rate that you're seeing and whether or not ARR growth as a percentage you expect as you now lap the change in fulfillment and the pricing change from '25, if that should also pick up in growth. But just kind of the comparison between the unit growth and the ARR growth.

Jeremy, yes, thanks for the question. This is Chris. A couple of things to unpack there. We do expect ARR growth to continue to accelerate from here as we've talked about compared to the past with some of the changes we've made to the business, pricing included from the prior year. When you talk about the unit growth percentage, and we talked about that at about approximately 30% for the quarter and the year compared to ARR growth of approximately 25% -- 23% to 25% for the year or 20% for the quarter. Those are diverging, I think, is part of your question. One of the things to consider is the fact that those are different is as we would have expected. And the reason we expect it is we have a broader portfolio today than we did in the year ago period in which we're comparing the growth rates. We've now added our Gen1 units that are increasingly coming back from customers that are upgrading to Gen2. So as customers upgrade to Gen2, they sign a new 4-year contract. That's very good, good for the business, good for RPO and everything else that goes with it, but they give us back Gen1. And that's been happening at an ever greater pace than we were expecting. That's the good news. The flip side to that is, as those Gen1s come back, we store them, we bring them back, and we will redeploy those to customers at a lower ARPU. And we've been doing that in the first half, and we'll continue to do that in the second half and beyond. Well, those Gen1 units, of course, have a lower ARPU than the comparison Gen2s in the prior period. Let me also talk about eXpedite. eXpedite was launched at a lower price point. We've seen it have significant demand, as we've talked about every quarter since it's been out. That has a slightly lower price than does Express. So when you compare eXpedite ARPU to Express ARPU, those are also different. However, as we mentioned in our prepared remarks, we have also implemented a price increase across the board and with a little bit more of that to eXpedite such that eXpedite and Express going forward will be more closely aligned than they are today. So I just wanted to recap all of that. The difference between ARR and unit growth is as we would have expected because we are selling Gen1 units at a lower ARPU and eXpedite has been lower, and that will be converging with Express. So I'm glad you asked it. That was something we talked about in prepared remarks because we thought that could be a question. Hopefully, I answered it. John, I don't know if you got anything to add. Otherwise, Jeremy, we can take it back to your -- if you have a follow-up.

Great. Unless John is adding something, just wanted to ask about kind of the legislative environment. So you have HB 1023 in Georgia. You have legislation in California, in the health care side. And I believe the legislation in Georgia has been tabled until their state Senate returns in January. But just wanted to get a sense of whether or not there are other things we should be paying attention to on the legislative side here in 2026? And then how is this potentially making progress in some other states like, let's say, Florida and Texas, where you may have a little bit less penetration today than you do in some other geographies in the Southeast, let's say, like the Carolinas or Georgia?

Jeremy, we think that what happened in California organically and what's in progress in Georgia because as you know, that bill has not been booted on yet in the Georgia Senate and the latest information that I have is an encouraging sign that a technology like ours can become standardized and even regulated in the places that it makes a big impact. And there are plenty of examples that we can see from our lives where a new safety and security technology becomes not only commonplace, but expected over time. And I look at what's happening in California and Georgia as a proof point of that, just like airbags are expected in tight vehicles and sprinkler systems in certain buildings, and I could keep going on the presence of body camps on police officers. We weren't involved in either those situations in California and Georgia. But as we mentioned at Investor Day, we think we're in a position now to make our voice heard on what the potential positive impact of our technology is, and you're going to see us be more assertive in those areas.

Great. And then just the question on the progress in Florida and Texas.

I don't have any specific update on Florida and Texas.

Our next question will come from Eric Martinuzzi with Lake Street Capital.

Yes. My congrats as well on the quarter and the guide. It looks like the business is in pretty good shape here. I wanted to talk about the Plexus relationship here. As far as your thoughts about there may be a potential inventory buy. How are we doing components-wise? If you could give a layer deeper on both availability as well as cost.

We are on track with the schedule that we've communicated regarding the moving to Plexus. When we announced the deal late last year, we had said that we'll be transitioning throughout the first half of 2026. And in the second half of 2026, the majority of our units would be shipping from Plexus facilities. And I'm pleased that we are on that schedule, and that is what's happening today with the majority of our orders being fulfilled from units that are built at Plexus. As we commented in the prepared remarks, we're not immune to the challenges that are well publicized around supply chains, particularly around electronics, but I'm proud of the efforts we made in collaboration with Plexus and the line of sight that we have to hit the revenue guidance that we provided. We continue to work through it every day and making sure that we're in our best position to fulfill the demand that we're capturing.

Just a follow-up there. Chris, you commented that it seemed like a pretty specific dollar amount. Is this something that is already in the works as far as the inventory investment kind of in advanced commit in order to lock up supply at a certain price, that $2 million to $4 million range?

No, there is nothing imminent. That comes with scanning the market and participating over the last 6 months and learning what an opportunity might look like. So it is a possibility, not a probability at this point.

Our next question will come from Michael Latimore with Northland Capital Markets.

Great results there. I guess just 2 on the financials. How many Gen1 customers do you expect to upgrade this year? And then on the price change, what is the magnitude to the change you're seeing? Is it across the board, all products, all verticals?

Sorry, Eric, (sic) [ Mike ] can you repeat the last part of your question? I missed the last part.

Yes. On the price change, what is the rough magnitude of the price change? And is that across the board, like all products, all verticals?

Yes. So -- go ahead, John.

I'll take this one. So regarding your question on the Gen1 to Gen2 upgrade activity, what we've provided publicly in prior calls is that to date, and that was as of Q2 call, about 60% of our existing customers that were renewing had upgraded to Gen1. They like the form factor of that product, the performance of that product inside that environment. So that is as much information as we provided that renewals transacted to date was approximately 60% into Gen2. In terms of the price increase, it was across the board. We've implemented a more diligent process to have regular price reviews to make sure we're pricing appropriately for value as well as what we're seeing around the horizon in terms of costs. I would call out eXpedite separately because again, the price increase was across the board on Express and eXpedite and associated piece parts. On eXpedite, we introduced that product about 1.5 years ago and made it generally available. I would say that we introduced it at an introductory type price. It was a new solution developed specifically to address the unique circumstances around verticals such as schools, and workplaces and some health care environments where people are entering with bags that contain large amounts of what we call clutter. It is various electronics like laptops, AirPods, tablets and chargers that can contribute to a higher false positive rate. 1.5 years later, we're really pleased with the traction that we've seen in the eXpedite product, not only in terms of customer adoption, as we shared in our prepared remarks, but also in the impact on customers' entry. We've shared some statistics on the clearance rate that customers are seeing, clearance rate, meaning the amount of people that walk through without ever being stopped for either their bag or for something on their person. And we think it's the right time to adjust the price of eXpedite to be more in line than it already was with Express to reflect the value that, that product provides.

[Operator Instructions] Our next question will come from Shaul Eyal with TD Cowen.