What happened

Shares of Evolv Technologies Holdings (EVLV -1.24%) surged on Friday and gained 31.9% at their highest point in trading during the day through 1 p.m. ET, according to data provided by S&P Global Market Intelligence.

Evolv, which builds weapons-detection security systems powered by artificial intelligence (AI), reported big numbers for its second quarter after market close on Thursday and attracted multiple analyst upgrades soon after. 

So what

Here are some important numbers from Evolv's second-quarter earnings report:

  • Revenue was up 119% year over year to around $20 million.
  • Annual recurring revenue (ARR) as of the end of the second quarter was up 160% year over year to $54 million.
  • Remaining performance obligations (RPO) jumped year over year to $198 million.
  • The net loss rose to nearly $67 million from $25.7 million in the year-ago quarter.

The two biggest numbers are ARR and RPO. Evolv builds touchless security-screening systems and sensors to detect weapons. Its systems are installed at big public spaces like tourist attractions, stadiums, workplaces, schools, and hospitals.

Evolv sells its products directly and leases them, too, and it primarily sells them under multiyear security-as-a-service subscriptions, which generate recurring and predictable revenue.

ARR is the subscription and recurring-service revenue related to subscriptions for the final month of a quarter normalized to a one-year period. RPO is the estimated revenue Evolv expects to generate in the future from performance obligations that were unmet or partly satisfied as of the end of a quarter. Each piece of equipment that is sold or leased with embedded software is counted as one performance obligation.

A surge in ARR and RPO, therefore, reflects strong demand and revenue potential for Evolv.

Now what

Thanks to a solid second quarter, Evolv raised its outlook for the full year and now expects to generate revenue between $70 million and $75 million in 2023 versus its previous guidance of $60 million to $65 million. The company also boosted its adjusted gross margin guidance to a range of 38% to 42% for the year.

Forget adjusted gross margin, though: You simply want to focus on Evolv's gross margin under generally accepted accounting principles (GAAP), which was impressive at 37% in the second quarter.

With those numbers, Evolv stock won several analyst upgrades Friday morning, including from Craig-Hallum, which upped its price target on the stock to $10 per share from $7, according to TheFly.com. Not surprisingly, the stock also attracted investor attention on Friday.