Evolv Technologies Holdings, Inc. (EVLV): 5 FORCES Analysis [Nov-2025 Updated]

You're digging into Evolv Technologies Holdings, Inc. (EVLV) right now, and frankly, assessing this AI-driven security firm in late 2025 is a balancing act. While the company secured a strong recurring revenue base-hitting $117.2 million in Annual Recurring Revenue by Q3-the competitive environment is defintely fierce, facing powerful customers and established rivals. Below, I map out the five forces, from supplier leverage to the threat of cheaper substitutes, giving you the precise, analyst-level view you need to understand the real pressures on their $142-$145 million revenue guidance.

Evolv Technologies Holdings, Inc. (EVLV) - Porter's Five Forces: Bargaining power of suppliers

When you look at the supply side for Evolv Technologies Holdings, Inc. (EVLV), you're looking at a classic high-tech hardware/software integration challenge. The power of the suppliers here is definitely not negligible, but the recent move to outsource manufacturing is a calculated step to manage that power.

Reliance on specialized component suppliers for advanced sensors.

Evolv Technologies Holdings, Inc. builds AI-based security screening systems, which means the bill of materials includes highly specialized components, likely advanced sensors and processing units necessary for its proprietary algorithms. While we don't have a specific dollar breakdown of sensor costs versus total Cost of Goods Sold (COGS) for the fiscal year 2025, the complexity of the technology implies that suppliers for these critical parts hold significant leverage. If a key sensor supplier faced production issues, it would directly impact Evolv Technologies Holdings, Inc.'s ability to meet its raised 2025 revenue outlook of $142-$145 Million. Remember, Evolv Technologies Holdings, Inc. reported Q3 '25 revenue of $42.9 million, so any disruption is felt immediately against that scale.

Strategic shift to Plexus (Nov 2025) as a contract manufacturer helps scale but creates a single point of failure.

The decision to partner with Plexus Corp. on November 6, 2025, is a clear attempt to mitigate some supplier risk while addressing scale. Plexus brings significant muscle to the table, boasting 26 facilities and over 20,000 team members globally. This partnership is designed to provide increased production capacity and leverage Plexus's procurement efficiencies, which should, in theory, lower the per-unit cost of components over time. However, consolidating a significant portion of the hardware production under one contract manufacturer, even a large one like Plexus, introduces a new form of concentration risk. You're trading many small supplier risks for one large, strategic partner risk.

Here's a quick look at the scale of the manufacturing shift:

Component standardization is low due to proprietary AI integration.

The core value proposition of Evolv Technologies Holdings, Inc. is its AI-driven detection. This proprietary nature means component specifications are not off-the-shelf commodity parts. As documented in their June 2025 filings, all of Evolv Technologies Holdings, Inc.'s products are built to Evolv Technologies Holdings, Inc.'s specification, work instructions and testing protocols. This lack of standardization means that switching suppliers for key parts is not a simple plug-and-play operation; it requires significant engineering validation, which keeps the power with the incumbent specialized supplier.

The reliance on specialized inputs is evident in the nature of their product line, which has now scanned over 3 billion people since 2019. This requires consistent, high-specification hardware.

Supplier power is moderate due to the need for high-quality, reliable hardware.

Supplier power settles in the moderate range for Evolv Technologies Holdings, Inc. It's not high because the company is now large enough-with an Ending ARR of $117.2 million as of Q3 2025-to demand better terms and leverage the scale of its contract manufacturer, Plexus. Furthermore, Evolv Technologies Holdings, Inc. maintains a relatively clean balance sheet with a debt-to-equity ratio of only 0.15, giving it negotiating room. Still, the power remains elevated because:

• The technology demands high-quality, reliable hardware.
• Component purchasing is managed by the contract manufacturer's sourcing team to leverage global scale.
• The proprietary nature of the AI integration limits the pool of qualified suppliers.

You need suppliers who can meet the quality bar set by Plexus's commitment to supply chain excellence. Finance: draft 13-week cash view by Friday.

Evolv Technologies Holdings, Inc. (EVLV) - Porter's Five Forces: Bargaining power of customers

You're analyzing Evolv Technologies Holdings, Inc. (EVLV) and the customer power dynamic is a crucial piece of the puzzle. Honestly, for a company selling mission-critical security infrastructure into public-facing sectors, the bargaining power of the customer is significant, though tempered by the nature of the installed base.

Customer Profile and ROI Pressure

Evolv Technologies Holdings, Inc.'s customer base is concentrated in large, public-facing entities like K-12 schools and venues such as stadiums. These organizations, especially public ones, operate under intense scrutiny regarding public funds and safety outcomes. This means they demand a clear, demonstrable Return on Investment (ROI) for the security systems they purchase. The sheer scale of their operations-screening millions of visitors daily across over 1,000 customers as of Q3 2025-means any perceived underperformance translates to significant reputational and operational risk for Evolv Technologies Holdings, Inc.

The stickiness of the customer relationship is partially demonstrated by the fact that as of Q1 2025, Evolv Technologies Holdings, Inc. was active in 20 of the 100 largest U.S. school districts. Securing and maintaining these large anchor accounts is a testament to the perceived value, but it also means these customers have the leverage to negotiate terms based on performance benchmarks.

Switching Costs and Customer Lock-In

While initial purchasing power is high, the bargaining power for future contract renewals is significantly mitigated by high switching costs. Deploying Evolv Technologies Holdings, Inc.'s systems involves deep integration into the customer's physical security workflow, plus the necessary training for staff to operate and maintain the systems. Moving away from a fully integrated system like this isn't just about swapping hardware; it's about retraining personnel and re-engineering established security protocols. That integration and training create a powerful customer lock-in effect.

The most concrete evidence of this lock-in, and thus reduced annual negotiation leverage, comes from the post-FTC resolution period. You need to look at the numbers from that March 2025 event:

This 92% retention rate following a mandated cancellation window is a powerful indicator that, despite the initial high hurdle to purchase, the operational reality of using the system creates significant inertia against switching. If switching were easy or cheap, that number would likely be much lower.

The Role of Long-Term Contracts

The shift toward a subscription-based model inherently reduces the customer's annual negotiation leverage. When a significant portion of revenue is locked in via long-term subscription contracts, the customer's ability to demand deep discounts during annual reviews lessens, as the core revenue stream is already secured. Evolv Technologies Holdings, Inc.'s financial structure reflects this stability:

• Ending Annual Recurring Revenue (ARR) stood at $117.2 million in Q3 2025.
• This ARR base was up 25% year-over-year as of Q3 2025.
• Subscription revenue accounted for 82% of total revenue as of Q1 2025.

That $117.2 million ARR base provides Evolv Technologies Holdings, Inc. with predictable cash flow, meaning customers can't easily hold the entire revenue stream hostage annually. They negotiate on expansion, service tiers, or renewal terms, but the baseline commitment is already established. Still, you can't ignore the initial high-stakes negotiation required to secure that first multi-year contract with a major school district or stadium operator.

Here's the quick math: High initial ROI pressure meets high switching costs, resulting in strong post-event retention. Finance: draft the Q4 2025 cash flow forecast by Friday.

Evolv Technologies Holdings, Inc. (EVLV) - Porter's Five Forces: Competitive rivalry

The competitive rivalry facing Evolv Technologies Holdings, Inc. (EVLV) is intense, stemming from a market that values both established trust and technological leaps. You see this pressure clearly when looking at the incumbents.

High intensity with established players like OSI Systems and Smith Detection.

The rivalry is definitely high because you have established players like OSI Systems and Smith Detection, who lean heavily on their existing certifications and robust after-sales support networks to keep their market share. For instance, as of mid-2025, OSI Systems was reported to have a record backlog of USD 1.8 billion. Smith Detection, meanwhile, is still launching next-generation hardware, like their computed tomography shoe scanners announced in September 2025. Evolv Technologies Holdings, Inc. is fighting against this established base while trying to grow its own revenue, which management guided to be between $142 million to $145 million for the full year 2025.

The competitive landscape in the broader security screening market is quite crowded. While I cannot independently verify the exact figure, the framework suggests Evolv Technologies Holdings, Inc. faces over 47 active competitors in the broader security space, which forces constant pressure on pricing and innovation.

Differentiation relies heavily on superior AI performance and visitor throughput speed.

Evolv Technologies Holdings, Inc. attempts to carve out space by betting its entire value proposition on AI superiority. The company differentiates itself, alongside players like Liberty Defense, through AI-centric platforms promising lower false positives and faster deployment. This focus on speed is critical; in fact, the Federal Trade Commission alleged Evolv Technologies Holdings, Inc. claimed its system could cut labor costs by 70% compared to traditional metal detectors. Evolv Technologies Holdings, Inc. touts its scale as proof of performance, having screened over 3 billion visitors to date. Still, the FTC action highlights the risk: if the AI performance doesn't meet the advertised claims, the competitive edge erodes quickly.

The company faces over 47 active competitors in the broader security space.

The sheer number of players means that even niche wins are hard-fought. The top five participants in the global security screening market collectively accounted for around 40-50% of the global market share in 2024. This leaves the remaining share highly fragmented among many smaller vendors, all competing for the same budget dollars. Evolv Technologies Holdings, Inc.'s strategy to combat this fragmentation is its shift to a subscription model, evidenced by its Q2 2025 Annual Recurring Revenue (ARR) reaching $110.5 million, up 27% year-over-year.

Rivalry is focused on winning large, multi-year contracts in key verticals like education and healthcare.

The battleground is often these large, sticky, multi-year deals. Evolv Technologies Holdings, Inc. has shown success here, announcing a $15 million contract with Gwinnett County Public Schools in Q2 2025. Furthermore, as of late 2024, the company served over 1,200 school buildings. The healthcare vertical is also a focus, with nearly 450 hospital buildings served as of the end of 2024. Winning these large contracts is essential because they feed the high-margin ARR stream. Here is a quick look at some of the financial metrics tied to this growth strategy as of mid-2025:

The focus on securing these large, multi-year commitments means that while Evolv Technologies Holdings, Inc. is still reporting a net loss of $(40.5) million for Q2 2025, the growth in ARR suggests that once these customers renew, the rivalry becomes less about initial acquisition and more about maintaining service quality.

Finance: draft 13-week cash view by Friday.

Evolv Technologies Holdings, Inc. (EVLV) - Porter's Five Forces: Threat of substitutes

The threat of substitutes for Evolv Technologies Holdings, Inc. (EVLV) remains a significant factor in the competitive dynamics of the security screening market. You need to weigh the perceived technological leap against the cost and operational inertia of existing methods.

Moderate to High from traditional security methods like metal detectors and manual screening

Traditional security methods, like walk-through metal detectors and manual bag checks, present a persistent, moderate to high threat. This is largely due to their established presence and lower initial cost structure. While Evolv Technologies Holdings, Inc. claims one Express system can replace 10 traditional metal detectors, the installed base of older technology is vast, especially across its core education market, which accounts for half of its business, with scanners in over 800 schools across 40 states. The FTC alleged that Evolv claimed to cut labor costs by 70% compared to metal detectors, which can require up to two to five individuals per lane to operate. Still, the sheer volume of these lower-tech deployments means they are the default substitute for many budget-conscious organizations.

Low-tech substitutes are significantly cheaper, appealing to budget-constrained customers

The cost differential is stark, making low-tech substitutes highly appealing to budget-constrained customers. Conventional metal detectors from brands like Cha and Garrett were reported to cost less than $10,000 with no subscription component as of mid-2023. In contrast, Evolv Technologies Holdings, Inc.'s leasing model was cited with costs around $2,500 to $3,000 per month per gate under a 4-year lease, equating to approximately $120,000 over that term. This massive upfront cost difference is a major hurdle, even if Evolv Technologies Holdings, Inc.'s total cost of ownership (TCO) over time, factoring in labor savings, is lower. The immediate capital outlay for a substitute is far less burdensome.

Evolv's subscription model (ARR) is a substitute for one-time capital expenditure purchases

Evolv Technologies Holdings, Inc.'s strategic shift to a subscription model directly substitutes the traditional one-time capital expenditure (CapEx) purchase model common with hardware-heavy security solutions. This transition builds predictable revenue, which is excellent for long-term valuation, but it alters the immediate comparison for buyers. Subscription revenue is the engine here; by the end of Q3 2025, Annual Recurring Revenue (ARR) stood at $117.2 million, marking 25% YoY growth. In Q1 2025, subscription revenue already accounted for 82% of the total revenue. However, the mix can still favor CapEx substitutes; in Q2 2025, units purchased represented 57% of unit activity, up from 41% the prior year, showing that one-time purchases remain a significant part of the mix, which can temporarily depress the ARR growth relative to total revenue growth. Management expects this to flip, with ARR growth outpacing total revenue growth in 2026.

New, non-AI-based threat detection technologies could disrupt the market

The market is not static, and new entrants or established players developing non-AI-based, yet advanced, detection technologies pose a disruptive threat. For instance, some competitors focus on advanced magnetic data analysis combined with 3D camera motion data, aiming for a low Total Cost of Ownership (TCO) without relying on the same AI architecture. Furthermore, the FTC complaint highlighted that Evolv Technologies Holdings, Inc. advised customers to add conveyor belts and manual diversion measures to reduce false alarms, effectively making the system more like traditional, lower-cost metal detectors. This suggests that hybrid or enhanced low-tech solutions, which might not carry the same AI premium or regulatory scrutiny, can serve as a viable substitute.

• Evolv Technologies Holdings, Inc. ended Q3 2025 with $56.2 million in cash, cash equivalents, and marketable securities.
• The company expects to be cash-flow positive in Q4 2025.
• Evolv Technologies Holdings, Inc. is investing approximately $2 million in 2025 to enhance internal controls.
• The company raised its 2025 revenue guidance to between $142 million and $145 million.
• Evolv Technologies Holdings, Inc. reported four consecutive quarters of positive adjusted EBITDA as of Q3 2025.

Evolv Technologies Holdings, Inc. (EVLV) - Porter's Five Forces: Threat of new entrants

You're looking at the barriers to entry for Evolv Technologies Holdings, Inc. (EVLV) in the security screening space, and honestly, it's a mixed bag. New competitors face significant hurdles, but the lure of this growing market means we can't be complacent.

The initial capital required to compete is substantial, creating a moderate barrier. Developing the proprietary AI and sensor technology that Evolv Technologies Holdings, Inc. (EVLV) uses isn't cheap. For context, building a custom, specialized AI solution can cost upwards of \$1 million, and for highly accurate, safety-critical systems, R&D expenditures can run into the billions, as seen with other complex AI applications. Even developing advanced AI surveillance software can cost between \$100,000 and \$1 million. This high upfront investment in research and development definitely weeds out many smaller players.

Regulatory and certification hurdles strongly favor incumbents like Evolv Technologies Holdings, Inc. (EVLV). The company holds the U.S. Department of Homeland Security (DHS) SAFETY Act Designation as a Qualified Anti-Terrorism Technology (QATT). This designation offers specific liability protections for terrorism-related claims, which is a major differentiator. A new entrant would need to spend considerable time and resources to achieve this same status, and losing such a designation could cause material financial and reputational harm.

Still, the market itself is undeniably attractive, which pulls in potential rivals. Evolv Technologies Holdings, Inc. (EVLV) management raised its full-year revenue guidance for 2025 to be between \$132 to \$135 million, representing 27% to 30% growth over 2024. This growth is supported by a strong installed base, with Annual Recurring Revenue (ARR) hitting \$110.5 million as of June 30, 2025. For the third quarter of 2025, revenue reached \$42.9 million. The sheer size of the market opportunity justifies the risk for well-funded competitors.

The biggest risk, in my view, comes from established tech giants. These firms possess deep pockets and existing expertise in computer vision and AI, potentially allowing them to bypass some of the hardware development barriers or acquire smaller players. They could enter with a software-first solution, focusing on integrating advanced AI screening capabilities into existing or new hardware platforms. The overall AI video surveillance market is projected to grow from US\$17.66 billion in 2024 to US\$21.81 billion by the end of 2025, a scale that attracts major technology players looking to expand their enterprise security footprint.

Here's a quick look at the financial context supporting the market attractiveness and R&D barrier:

The key elements that define the threat level are:

• High R&D spend required for proprietary AI/sensor tech.
• DHS SAFETY Act Designation provides incumbent protection.
• Market growth attracts deep-pocketed, established tech firms.
• New entrants must replicate multi-billion dollar R&D efforts.
• Evolv Technologies Holdings, Inc. achieved 12% adjusted EBITDA margin in Q3 2025.

If onboarding new large-scale deployments takes longer than expected, the perceived advantage of the SAFETY Act Designation could erode as competitors gain traction. Finance: review the capital expenditure plan for Q1 2026 R&D against competitor funding announcements by January 31st.