UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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TABLE OF CONTENTS
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PART I | Financial Information | |||
Item 1. | Financial Statements | |||
F-1 | ||||
Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited) | F-2 | |||
F-3 | ||||
F-4 | ||||
F-5 | ||||
Management’s Discussion and Analysis of Financial Condition and Results of Operations | 1 | |||
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18 | ||||
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FORWARD LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q may be forward-looking statements. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “targets,” “projects,” “contemplates,” “believes,” “estimates,” “forecasts,” “predicts,” “potential” or “continue” or the negative of these terms or other similar expressions. Forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to statements regarding our results of operations and financial position, business strategy, plans and prospects, existing and prospective products, research and development costs, timing and likelihood of success, and plans and objectives of management for future operations and results.
The forward-looking statements in this Quarterly Report on Form 10-Q are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. Forward-looking statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements, including, without limitation expectations regarding the Company’s strategies and future financial performance, including its future business plans or objectives, prospective performance and opportunities and competitors, revenues, products and services, pricing, operating expenses, market trends, liquidity, cash flows and uses of cash, capital expenditures; the Company’s history of losses and lack of profitability; the Company’s reliance on third party contract manufacturing; the rate of innovation required to maintain competitiveness in the markets in which the Company competes; the competitiveness of the market in which the Company competes; the ability for the Company to obtain, maintain, protect and enforce the Company’s intellectual property rights; the concentration of the Company’s revenues on a single solution; the Company’s ability to timely design, produce and launch its solutions, the Company’s ability to invest in growth initiatives and pursue acquisition opportunities; the limited liquidity and trading of the Company’s securities; geopolitical risk and changes in applicable laws or regulations; the possibility that the Company may be adversely affected by other economic, business, and/or competitive factors; operational risk; risk that the COVID-19 pandemic, including variants, vaccine roll-out efforts, and local, state, and federal responses to addressing the pandemic may have an adverse effect on the Company’s business operations, as well as the Company’s financial condition and results of operations; litigation and regulatory enforcement risks, including the diversion of management time and attention and the additional costs and demands on resources, and the important factors discussed in Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021. The forward-looking statements in this Quarterly Report on Form 10-Q are based upon information available to us as of the date of this Quarterly Report on Form 10-Q, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.
You should read this Quarterly Report on Form 10-Q and the documents that we reference in this Quarterly Report on Form 10-Q and have filed as exhibits to this Quarterly Report on Form 10-Q with the understanding that our actual future results, levels of activity, performance and achievements may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements. These forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained in this Quarterly Report on Form 10-Q, whether as a result of any new information, future events or otherwise.
GENERAL
We may announce material business and financial information to our investors using our investor relations website at https://ir.evolvtechnology.com/. We therefore encourage investors and others interested in Evolv to review the information that we make available on our website, in addition to following our filings with the SEC, webcasts, press releases and conference calls. Information contained on our website is not part of this Quarterly Report on Form 10-Q.
EVOLV TECHNOLOGIES HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
(Unaudited)
March 31, | December 31, | |||||
2022 |
| 2021 | ||||
Assets |
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Current assets: |
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Cash and cash equivalents | $ | | $ | | ||
Restricted cash | | | ||||
Accounts receivable, net |
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Inventory |
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Current portion of contract assets | | | ||||
Current portion of commission asset |
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Prepaid expenses and other current assets |
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Total current assets |
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Restricted cash, noncurrent | | | ||||
Contract assets, noncurrent |
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Commission asset, noncurrent | | | ||||
Property and equipment, net |
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Operating lease right-of-use assets | | — | ||||
Other assets | | | ||||
Total assets | $ | | $ | | ||
Liabilities and Stockholders’ Equity |
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Current liabilities: |
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Accounts payable | $ | | $ | | ||
Accrued expenses and other current liabilities |
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Current portion of deferred revenue |
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Current portion of deferred rent |
| — |
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Current portion of long-term debt |
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Current portion of operating lease liabilities | | — | ||||
Total current liabilities |
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Deferred revenue, noncurrent |
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Deferred rent, noncurrent | — | | ||||
Long-term debt, noncurrent |
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Operating lease liabilities, noncurrent | | — | ||||
Contingent earn-out liability |
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Contingently issuable common stock liability | | | ||||
Public warrant liability | | | ||||
Total liabilities |
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Commitments and contingencies (Note 20) |
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Stockholders’ equity: |
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Preferred stock, $ |
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Common stock, $ |
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Additional paid-in capital |
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Accumulated deficit |
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Stockholders’ equity |
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Total liabilities and stockholders’ equity | $ | | $ | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
F-1
EVOLV TECHNOLOGIES HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(In thousands, except share and per share amounts)
(Unaudited)
Three Months Ended March 31, | |||||||
2022 | 2021 | ||||||
Revenue: | |||||||
Product revenue | $ | | $ | | |||
Subscription revenue | | | |||||
Service revenue | | | |||||
Total revenue | | | |||||
Cost of revenue: | |||||||
Cost of product revenue | | | |||||
Cost of subscription revenue | | | |||||
Cost of service revenue | | | |||||
Total cost of revenue | | | |||||
Gross profit | | | |||||
Operating expenses: | |||||||
Research and development | | | |||||
Sales and marketing | | | |||||
General and administrative | | | |||||
Loss from impairment of property and equipment | | — | |||||
Total operating expenses | | | |||||
Loss from operations | ( |
| ( | ||||
Other income (expense), net: | |||||||
Interest expense | ( |
| ( | ||||
Interest income | | — | |||||
Change in fair value of derivative liability | — | ( | |||||
Change in fair value of contingent earn-out liability | | — | |||||
Change in fair value of contingently issuable common stock liability | | — | |||||
Change in fair value of public warrant liability | | — | |||||
Change in fair value of common stock warrant liability | — | ( | |||||
Total other income (expense), net | |
| ( | ||||
Net loss and comprehensive loss – basic and diluted | ( | ( | |||||
Net loss per share – basic and diluted | ( | ( | |||||
Weighted average common shares outstanding – basic and diluted | | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
F-2
EVOLV TECHNOLOGIES HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND
STOCKHOLDERS' EQUITY (DEFICIT)
(In thousands, except share amounts)
(Unaudited)
Convertible | Additional | Total | ||||||||||||||||||
Preferred Stock | Common Stock | Paid-in | Accumulated | Stockholders’ | ||||||||||||||||
| Shares |
| Amount |
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| Shares |
| Amount |
| Capital |
| Deficit |
| Equity (Deficit) | ||||||
Balance at December 31, 2021 | — | $ | — | | $ | | $ | | $ | ( | $ | | ||||||||
Issuance of common stock upon net exercise of stock options | — | — | | — | | — | | |||||||||||||
Issuance of common stock upon vesting of restricted stock units | — | — | | — | — | — | — | |||||||||||||
Stock-based compensation expense | — | — | — | — | | — | | |||||||||||||
Net loss |
| — |
| — |
| — |
| — |
| — |
| ( |
| ( | ||||||
Balance at March 31, 2022 |
| — | $ | — |
| | $ | | $ | | $ | ( | $ | | ||||||
Balance at December 31, 2020 |
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Issuance of warrants to purchase common stock |
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Issuance of common stock upon exercise of stock options |
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Stock-based compensation expense |
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Net loss |
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| — |
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| ( |
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Balance at March 31, 2021 |
| | $ | |
| | $ | | $ | | $ | ( | $ | ( | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
F-3
EVOLV TECHNOLOGIES HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Three Months Ended March 31, | ||||||
2022 |
| 2021 | ||||
Cash flows from operating activities: |
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Net loss | $ | ( | $ | ( | ||
Adjustments to reconcile net loss to net cash used in operating activities: |
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Depreciation and amortization expense |
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Write down of inventory | | — | ||||
Adjustment to property and equipment for sales type leases | ( | — | ||||
Loss from impairment of property and equipment | | — | ||||
Stock-based compensation |
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Noncash interest expense |
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Noncash lease expense | | — | ||||
Recovery of allowance for doubtful accounts | — | ( | ||||
Change in fair value of derivative liability | — | | ||||
Change in fair value of common stock warrant liability | — | | ||||
Change in fair value of earn-out liability | ( | — | ||||
Change in fair value of contingently issuable common stock | ( | — | ||||
Change in fair value of public warrant liability | ( | — | ||||
Changes in operating assets and liabilities | ||||||
Accounts receivable |
| ( |
| ( | ||
Inventory |
| ( |
| ( | ||
Commission assets |
| ( |
| ( | ||
Contract assets | | ( | ||||
Prepaid expenses and other current assets |
| ( |
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Accounts payable |
| ( |
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Deferred revenue |
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Deferred rent |
| ( |
| ( | ||
Accrued expenses and other current liabilities | ( | | ||||
Operating lease liabilities |
| ( |
| — | ||
Net cash used in operating activities |
| ( |
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Cash flows from investing activities: |
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Development of internal-use software | ( | — | ||||
Purchases of property and equipment |
| ( |
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Net cash used in investing activities |
| ( |
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Cash flows from financing activities: |
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Proceeds from exercise of stock options |
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Repayment of financing obligations |
| — |
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Proceeds from long-term debt, net of issuance costs | — | | ||||
Net cash provided by financing activities |
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Net increase (decrease) in cash, cash equivalents and restricted cash |
| ( |
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Cash, cash equivalents and restricted cash |
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Cash, cash equivalents and restricted cash at beginning of period |
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Cash, cash equivalents and restricted cash at end of period | $ | | $ | | ||
Supplemental disclosure of cash flow information | ||||||
Cash paid for interest | $ | | $ | | ||
Supplemental disclosure of non-cash activities |
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Transfer of inventory to property and equipment | $ | | $ | — | ||
Capital expenditures incurred but not yet paid | | — | ||||
Issuance of equity classified warrants | — | | ||||
Reconciliation of cash, cash equivalents and restricted cash: | ||||||
Cash and cash equivalents | $ | | $ | | ||
Restricted cash | | — | ||||
Restricted cash, noncurrent | | — | ||||
Total cash, cash equivalents and restricted cash shown in the statements of cash flows | $ | | $ | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
F-4
EVOLV TECHNOLOGIES HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Nature of the Business and Basis of Presentation
Evolv Technologies Holdings, Inc. (the “Company”), a Delaware corporation, is a global leader in AI-based weapons detection for security screening. The Company’s mission is to make the world a safer and more enjoyable place to work, learn, and play. The Company is democratizing security by making it seamless for gathering spaces to address the chronic epidemic of escalating gun violence, mass shootings and terrorist attacks in a cost-effective manner while improving the visitor experience. The Company is headquartered in Waltham, Massachusetts.
As used in this Quarterly Report on Form 10-Q, unless otherwise indicated or the context otherwise requires, references to “we,” “us,” “our,” the “Company” and “Evolv” refer to the consolidated operations of Evolv Technologies Holdings, Inc. and its wholly owned subsidiaries, which include Evolv Technologies, Inc., Evolv Technologies UK Ltd. and Give Evolv LLC. References to “NHIC” refer to the company prior to the consummation of the Merger (as defined in Note 3) and references to “Legacy Evolv” refer to Evolv Technologies, Inc. dba Evolv Technology, Inc. prior to the consummation of the Merger.
Basis of presentation
The condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and include the accounts of the Company and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. Any reference in these notes to applicable guidance is meant to refer to the authoritative GAAP as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Update (“ASU”) of the Financial Accounting Standards Board (“FASB”).
All share and per share amounts contained herein for periods prior to the Merger have been retroactively adjusted to give effect to the Exchange Ratio (as defined in Note 3), unless otherwise indicated.
Unaudited Interim Financial Information
The accompanying unaudited condensed consolidated financial statements as of March 31, 2022, and for the three months ended March 31, 2022 and 2021 have been prepared on the same basis as the audited annual consolidated financial statements as of December 31, 2021 and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary for the fair statement of the Company’s financial position as of March 31, 2022 and the results of its operations for the three months ended March 31, 2022 and 2021 and cash flows for the three months ended March 31, 2022 and 2021. The results for the three months ended March 31, 2022 are not necessarily indicative of results to be expected for the year ending December 31, 2022, any other interim periods, or any future year or period.
2. Summary of Significant Accounting Policies
Significant Accounting Policies
The significant accounting policies and estimates used in preparation of the unaudited condensed consolidated financial statements are described in the Company’s audited consolidated financial statements as of and for the year ended December 31, 2021, and the notes thereto, which are included in our Annual Report on Form 10-K. There have been no material changes to the Company’s significant accounting policies during the three months ended March 31, 2022 outside of the items as described below.
F-5
EVOLV TECHNOLOGIES HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Leases as a Lessee
Prior to January 1, 2022, the Company accounted for leases in accordance with ASC 840, Leases. At lease inception, the Company determined if an arrangement was an operating or capital lease. For operating leases, the Company recognized rent expense, inclusive of rent escalation, on a straight-line basis over the lease term.
Effective on January 1, 2022, the Company accounts for leases in accordance with ASC 842, Leases. At contract inception, the Company determines if an arrangement is or contains a lease. A lease conveys the right to control the use of an identified asset for a period of time in exchange for consideration. If determined to be or contain a lease, the lease is assessed for classification as either an operating or finance lease at the lease commencement date, defined as the date on which the leased asset is made available for use by the Company (when the Company is the lessee). Where the Company is the lessee, for each lease with a term greater than twelve months, the Company records a right-of-use asset and lease liability.
A right-of-use asset represents the economic benefit conveyed to the Company by the right to use the underlying asset over the lease term. A lease liability represents the obligation to make lease payments arising from the use of the asset over the lease term. Lease liabilities are measured at lease commencement and calculated as the present value of the future lease payments in the contract using the rate implicit in the contract, when available. If an implicit rate is not readily determinable, the Company uses an incremental borrowing rate measured as the rate at which the Company could borrow, on a fully collateralized basis, a commensurate loan in the same currency over a period consistent with the lease term at the commencement date. Right-of-use assets are measured as the amount of the initial lease liability plus initial direct costs and prepaid lease payments, less lease incentives granted by the lessor. The lease term is measured as the noncancelable period in the contract, adjusted for any options to extend or terminate when it is reasonably certain the Company will extend the lease term via such options based on an assessment of economic factors present as of the lease commencement date. The Company elected the practical expedient to not recognize leases with a lease term of twelve months or less.
Components of a lease are split into three categories: lease components, non-lease components, and non-components. The fixed and in-substance fixed contract consideration (including any consideration related to non-components) are allocated, based on the respective relative fair values, to the lease components and non-lease components. The Company has elected the practical expedient to account for lease and non-lease components together as a single lease component for all underlying assets and allocate all of the contract consideration to the lease component only.
The Company’s operating leases are presented in the condensed consolidated balance sheet as operating lease right-of-use assets, classified as noncurrent assets, and operating lease liabilities, classified as current and noncurrent liabilities. Operating lease expense is recognized on a straight-line basis over the lease term. Variable costs associated with a lease, such as maintenance and utilities, are not included in the measurement of the lease liabilities and right-of-use assets but rather are expensed when the events determining the amount of variable consideration to be paid have occurred.
Subscription Revenue - Leases as Lessor
In addition to selling our products directly to customers, we also derive revenue from leasing our equipment, which we classify as subscription revenue. Lease terms are typically
The accounting provisions we use to classify transactions as sales-type are: (i) whether the lease transfers ownership of the equipment by the end of the lease term, (ii) whether the lease grants the customer an option to purchase the equipment and the customer is reasonably certain to do so, (iii) whether the lease term is for the major part of the economic life of the underlying equipment, (iv) whether the present value of the lease payments, and any residual value guaranteed by the customer that is not already reflected in the lease payments, is equal to or greater than substantially all of the fair market value of the equipment at the commencement of the lease, and (v) whether the equipment is specific to the customer and of such a specialized nature that it is expected to have no alternative use to the Company at the end of
F-6
EVOLV TECHNOLOGIES HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
the lease term. Leasing arrangements meeting any of these conditions are accounted for as sales-type leases and revenue attributable to the lease component is recognized in a manner consistent with the equipment sales and the related equipment is derecognized with the associated expense presented as a cost of revenue. Leasing arrangements that do not meet the criteria for classification as a sales-type lease will be accounted for as a direct-financing lease if the following two conditions are met: (i) the present value of the lease payments, and any residual value guaranteed by the customer that is not already reflected in the lease payments and any other third party unrelated to the Company, is equal to or greater than substantially all of the fair market value of the equipment at the commencement of the lease, and (ii) it is probable that the Company will collect the lease payments and amounts necessary to satisfy a residual value guarantee. Leasing arrangements that do not meet any of the sales-type lease classification criteria are accounted for as operating leases and revenue is recognized straight-line over the term of the lease.
The Company considers the economic life of most of our products to be
Generally, lease arrangements include both lease and non-lease components. The lease component relates to the customer’s right-to-use the equipment over the lease term. The non-lease components relate to (1) distinct services, such as SaaS and maintenance, (2) any add-on accessories, and (3) installation and training. Installation and training are included in service revenue as described below, and add-on accessories are included in product revenue. Because the equipment, SaaS, and maintenance components of a subscription arrangement are recognized as revenue over the same time period and in the same pattern, the Company elected the practical expedient to aggregate non-lease components with the associated lease component and account for the combined component as an operating lease for all underlying asset classes. In the evaluation of whether the lease component (equipment) or the non-lease components associated with the lease component (SaaS and maintenance) is the predominant component, the Company determined that the lease component is predominant as customers would clearly be expected to ascribe more value to the use of the security equipment than that of the SaaS and maintenance services. Therefore, the Company will account for the combined lease component under ASC 842. The equipment lease and SaaS/maintenance performance obligations are classified as a single category of subscription revenue in the condensed consolidated statements of operations and comprehensive loss. The installation and training services represent distinct services provided to customers. These activities are considered separate performance obligations to the customer and therefore are considered non-lease components. As installation and training services are performed prior to lease commencement, the timing and pattern of transfer for these services differ from that of the lease component (i.e., security hardware) and are not eligible to be combined.
We exclude from variable payments all lessor costs that are explicitly required to be paid directly by a lessee on behalf of the lessor to a third party. Revenue related to leases entered into with related parties were $
Installation and training are generally billed to the lessee as part of the lease contract billing, according to various contractual terms. The installation and training costs incurred by the Company are accounted for as a fulfillment cost and are included in the cost of services revenue in the condensed consolidated statements of operations and comprehensive loss.
Recently Adopted Accounting Pronouncements
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”), as subsequently amended (collectively “ASC 842”). The guidance amends the existing accounting standards for lease accounting, including requirements for lessees to recognize assets and liabilities related to long-term leases on the balance sheet and expanding disclosure requirements regarding leasing arrangements. For lessees, leases will be classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement. Lessors are required to classify leases as a sales-type, direct financing, or operating lease. A lease is a sales-type lease if it effectively transfers control of the underlying asset to the lessee as indicated by any one of five criteria being met. All leases that are not sales-type or direct financing leases will be classified as operating leases. In July 2018, the FASB issued additional guidance, which offers a transition option to entities adopting ASC 842 in which entities can elect to
F-7
EVOLV TECHNOLOGIES HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
apply the new guidance using a modified retrospective approach at the beginning of the year in which the new lease standard is adopted. The Company utilized this transition option whereby financial information for prior periods presented before the ASC 842 effective date will not be updated. In November 2019, the FASB issued ASU 2019-10 deferring the effective date for private entities (also applicable for public companies that qualify as emerging growth companies) for fiscal years beginning after December 15, 2020, and interim periods within fiscal years beginning after December 15, 2021. In June 2020, the FASB issued ASU 2020-05 which further defers the effective date for private entities for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022.
The Company adopted this guidance effective January 1, 2022. ASC 842 provides several optional practical expedients in transition. The Company applied the ‘package of practical expedients’ which allow the Company to not reassess whether existing or expired arrangements contain a lease, the lease classification of existing or expired leases, or whether previous initial direct costs would qualify for capitalization under ASC 842.
The adoption of ASC 842 resulted in the recognition of operating lease liabilities of $
In December 2019, the FASB issued ASU 2019 12, Income Taxes (ASC 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which is intended to simplify various areas related to accounting for income taxes. ASU 2019 12 removes certain exceptions to the general principles in ASC 740 and also clarifies and amends existing guidance to improve consistent application. For public entities the guidance is effective for annual reporting periods beginning after December 15, 2020 and for interim periods within those fiscal years. For non-public entities, the guidance is effective for annual reporting periods beginning after December 15, 2021 and for interim periods within years beginning after December 15, 2022, with early adoption permitted. The Company adopted this guidance effective January 1, 2022 and the adoption of this guidance did not have a material impact on its condensed consolidated financial statements and related disclosures.
In August 2020, the FASB issued ASU 2020-06, “Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity,” which simplifies and clarifies certain calculation and presentation matters related to convertible and equity and debt instruments. Specifically, ASU 2020-06 removes requirements to separately account for conversion features as a derivative under ASC Topic 815 and removing the requirement to account for beneficial conversion features on such instruments. ASU 2020-06 also provides clearer guidance surrounding disclosure of such instruments and provides specific guidance for how such instruments are to be incorporated in the calculation of Diluted EPS. The guidance under ASU 2020-06 is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020. The Company adopted this guidance effective January 1, 2022 and the adoption of this guidance did not have a material impact on its condensed consolidated financial statements and related disclosures.
Recently Issued Accounting Pronouncements
The Company qualifies as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012 and has elected not to “opt out” to the extended transition related to complying with new or revised accounting standards, which means that when a standard is issued or revised and it has different application dates for public and nonpublic companies, the Company will adopt the new or revised standard at the time nonpublic companies adopt the new or revised standard and will do so until such time that the Company either (1) irrevocably elects to “opt out” of such extended transition period or (2) no longer qualifies as an emerging growth company. The Company may choose to early adopt any new or revised accounting standards whenever such early adoption is permitted for nonpublic companies.
F-8
EVOLV TECHNOLOGIES HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments — Credit Losses (Topic 326) (“ASU 2016-13”). The new standard adjusts the accounting for assets held at amortized cost basis, including marketable securities accounted for as available for sale, and trade receivables. The standard eliminates the probable initial recognition threshold and requires an entity to reflect its current estimate of all expected credit losses. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial assets to present the net amount expected to be collected. For public entities except smaller reporting companies, the guidance is effective for annual reporting periods beginning after December 15, 2019 and for interim periods within those fiscal years. In November 2019, the FASB issued ASU No. 2019-10, which deferred the effective date for non-public entities to annual reporting periods beginning after December 15, 2022, including interim periods within those fiscal years. Early application is allowed. The Company expects to adopt this guidance effective January 1, 2023, and it is currently evaluating the impact on its condensed consolidated financial statements and related disclosures.
In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which amends ASC 805 to add contract assets and contract liabilities to the list of exceptions to the recognition and measurement principles that apply to business combinations and to require that an entity (acquirer) recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606. The amendments in ASU 2021-08 are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years and should be applied prospectively to business combinations occurring on or after the effective date of the amendments. Early adoption of the amendments is permitted, including adoption in an interim period. The Company expects to adopt this guidance effective January 1, 2023, and it is currently evaluating the impact on its condensed consolidated financial statements and related disclosures.
Out-of-Period Adjustment
3. Merger with NHIC and Related Transactions
On July 16, 2021, we consummated the business combination (the “Merger”), contemplated by the Agreement and Plan of Merger, dated March 5, 2021, with NHIC Sub Inc. (“Merger Sub”), a wholly-owned subsidiary of NewHold Investment Corp. (“NHIC”), a special purpose acquisition company, which is our legal predecessor, and Evolv Technologies, Inc. dba Evolv Technology, Inc. (“Legacy Evolv”), as amended by that certain First Amendment to Agreement and Plan of Merger dated June 5, 2021 by and among NHIC, Merger Sub and Legacy Evolv (the “Amendment” and as amended, the “Merger Agreement”). Pursuant to the Merger Agreement, Merger Sub was merged with and into Legacy Evolv, with Legacy Evolv surviving the Merger as a wholly owned subsidiary of NHIC. Upon the closing of the Merger, NHIC changed its name to Evolv Technologies Holdings, Inc. Evolv Technologies Holdings, Inc. became the successor entity to NHIC pursuant to Rule 12g-3(a) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
The transaction was accounted for as a “reverse recapitalization” in accordance with GAAP. Under this method of accounting, NHIC was treated as the “acquired” company for financial reporting purposes. This determination was primarily because subsequent to the Merger, Legacy Evolv’s shareholders have a majority of the voting power of the combined company, Legacy Evolv comprises all of the ongoing operations of the combined entity, Legacy Evolv comprises a majority of the governing body of the combined company, and Legacy Evolv’s senior management comprises all of the senior management of the combined company. Accordingly, for accounting purposes, this
F-9
EVOLV TECHNOLOGIES HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
transaction was treated as the equivalent of Legacy Evolv issuing shares for the net assets of NHIC, accompanied by a recapitalization. The shares and net loss per common share, prior to the Merger, have been retroactively restated as shares reflecting the Exchange Ratio established in the Merger. The net assets of NHIC were recorded at historical costs, with
Evolv had previously indicated that it would list units (consisting of
Upon closing of the Merger each share of NHIC Class B common stock issued and outstanding immediately prior to the effective time of the Merger, which totaled
In addition, pursuant to the Merger Agreement, certain Legacy Evolv Shareholders became entitled to receive up to
Upon closing of the Merger:
● | all of |
● | all of |
● | all of |
● | all of |
On the closing date of the Merger, each share of Legacy Evolv common stock then issued and outstanding was canceled and the holders thereof in exchange received
All outstanding warrants exercisable for common stock in Legacy Evolv (other than warrants that expired, were exercised or were deemed automatically net exercised immediately prior to the Merger) were exchanged for warrants exercisable for the Company’s common stock with the same terms and conditions except adjusted by the Exchange Ratio.
All outstanding stock options of Legacy Evolv common stock, totaling
F-10
EVOLV TECHNOLOGIES HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Prior to the completion of the Merger, the Company entered into subscription agreements (collectively, the “PIPE Investment”) with certain parties subscribing for shares of the Company’s common stock (the “Subscribers”) pursuant to which the Subscribers agreed to purchase. Pursuant to the PIPE Investment, the Company issued
The proceeds, net of redemptions, received from the Merger were $
4. Fair Value Measurements
The following tables present information about the Company’s financial assets and liabilities measured at fair value on a recurring basis and indicate the level of the fair value hierarchy used to determine such fair values (in thousands):
Fair Value Measurements at March 31, 2022 | ||||||||||||
| Level 1 |
| Level 2 |
| Level 3 |
| Total | |||||
Assets: | ||||||||||||
Money market funds | $ | | $ | — | $ | — | $ | | ||||
$ | | $ | — | $ | — | $ | | |||||
Liabilities: |
|
|
|
|
|
|
| |||||
Contingent earn-out liability | $ | — | $ | — | $ | | $ | | ||||
Contingently issuable common stock liability | — | — | | | ||||||||
Public Warrant liability | — | — | | | ||||||||
$ | — | $ | — | $ | | $ | |
Fair Value Measurements as of December 31, 2021 | ||||||||||||
| Level 1 |
| Level 2 |
| Level 3 |
| Total | |||||
Assets: | ||||||||||||
Money market funds | $ | | $ | — | $ | — | $ | | ||||
$ | | $ | — | $ | — | $ | | |||||
Liabilities: |
|
|
|
|
|
|
| |||||
Contingent earn-out liability | $ | — | $ | — | $ | | $ | | ||||
Contingently issuable common stock liability | — | — | | | ||||||||
Public Warrant liability | — | — | | | ||||||||
$ | — | $ | — | $ | | $ | |
As of March 31, 2022 and December 31, 2021, respectively, money market funds are included in cash and cash equivalents on the condensed consolidated balance sheets.
During the three months ended March 31, 2022 and 2021, respectively, there were
Valuation of Contingent Earn-out
Pursuant to the Merger Agreement, the Legacy Evolv shareholders, immediately prior to the Merger, were entitled to receive additional shares of the Company’s common stock upon the Company achieving certain milestones as described in Note 2 of our consolidated financial statements of our Annual Report on Form 10-K for the year ended December 31, 2021. The Company’s contingent earn-out shares were recorded at fair value as contingent earn-out
F-11
EVOLV TECHNOLOGIES HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
liability upon the closing of the Merger and are remeasured at each reporting period. As of March 31, 2022,
The estimated fair value of the initial contingent earn-out was determined using a Monte Carlo analysis in order to simulate the future path of the Company’s stock price over the earn-out period. The carrying amount of the liability may fluctuate significantly and actual amounts paid may be materially different from the liability’s estimated value. As of March 31, 2022, the contingent earn-out was revalued using a similar Monte Carlo analysis. The significant assumptions to the model as of December 31, 2021 were as follows:
The following table provides a rollforward of the contingent earn-out liability (in thousands):
Balance at December 31, 2021 | $ | | |
Change in fair value |
| ( | |
Out-of-period adjustment | | ||
Balance at March 31, 2022 | $ | |
Valuation of Contingently Issuable Common Stock
Prior to the Merger, certain NHIC shareholders owned
The estimated fair value of the initial contingently issued common shares was determined using a Monte Carlo analysis in order to simulate the future path of the Company’s stock price over the vesting period. The carrying amount of the liability may fluctuate significantly and actual amounts paid may be materially different from the liability’s estimated value. As of March 31, 2022, the contingently issuable common shares were revalued using a similar Monte Carlo analysis. The significant assumptions to the model as of December 31, 2021 were as follows:
The following table provides a rollforward of the contingently issuable common shares (in thousands):
Balance at December 31, 2021 | $ | | |
Change in fair value |
| ( | |
Balance at March 31, 2022 | $ | |
Valuation of Public Warrant Liability
Upon the closing of the Merger, the Company assumed the Public Warrants to purchase shares of the Company’s common stock (see Note 13). The Public Warrants are publicly traded and the initial fair value of the public warrants were based on the closing price as reported by Nasdaq on the date of the Merger and remeasured at each reporting period.
F-12
EVOLV TECHNOLOGIES HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following table provides a rollforward of the public warrant liability (in thousands):
Balance at December 31, 2021 | $ | | |
Change in fair value |
| ( | |
Balance at March 31, 2022 | $ | |
5. Revenue Recognition
The Company recognizes revenue in accordance with Accounting Standards Codification 606 – Revenue from Contracts with Customers (“ASC 606”). Under ASC 606, revenue is recognized when a customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. In order to achieve this core principle, the Company applies the following five steps when recording revenue: (1) identify the contract, or contracts, with the customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract and (5) recognize revenue when, or as, performance obligations are satisfied.
The Company derives revenue from (1) subscription arrangements generally accounted for as operating leases under ASC 842 and (2) from the sale of products, inclusive of SaaS and maintenance and (3) professional services. The Company’s arrangements are generally noncancelable and nonrefundable after ownership passes to the customer for product sales and upon installation for subscriptions. Revenue is recognized net of sales tax.
Remaining Performance Obligations
The following table includes estimated revenues expected to be recognized in the future related to performance obligations that are unsatisfied (or partially satisfied) as of March 31, 2022.
| Less than 1 year |
| Greater than 1 year |
| Total | ||||
Product revenue |
| $ | |
| $ | |
| $ | |
Subscription revenue |
| |
| |
| | |||
Service revenue |
| | — | | |||||
Maintenance revenue | | | | ||||||
Total revenue | $ | | $ | | $ | |
The amount of minimum future leases is based on expected income recognition. As of March 31, 2022, future minimum payments on noncancelable leases are as follows (in thousands):
Future operating lease component: |
|
| |
Year Ending December 31: | |||
2022 (nine months remaining) | $ | | |
2023 |
| | |
2024 |
| | |
2025 |
| | |
2026 | | ||
Thereafter |
| | |
$ | |
Contract Balances from Contracts with Customers
Contract assets arise from unbilled amounts in customer arrangements when revenue recognized exceeds the amount billed to the customer and the Company’s right to payment is conditional and not only subject to the passage of
F-13
EVOLV TECHNOLOGIES HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
time. As of March 31, 2022 and December 31, 2021, the Company had $
Contract liabilities represent the Company’s obligation to transfer goods or services to a customer for which it has received consideration (or the amount is due) from the customer. The Company has a contract liability related to service revenue, which consists of amounts that have been invoiced but that have not been recognized as revenue. Amounts expected to be recognized as revenue within 12 months of the balance sheet date are classified as current deferred revenue and amounts expected to be recognized as revenue beyond 12 months of the balance sheet date are classified as deferred revenue, noncurrent. The Company recognized $
The following table provides a rollforward of deferred revenue (in thousands):
Balance at December 31, 2021 | $ | | |
Revenue recognized |
| ( | |
Revenue deferred |
| | |
Balance at March 31, 2022 | $ | |
The following table presents the Company’s components of lease revenue (in thousands):
Three Months Ended March 31, | |||||
2022 | 2021 | ||||
Revenue from sales-type leases | $ | | $ | — | |
Interest income on lease receivables | |
| — | ||
Lease income - operating leases | | | |||
Total lease revenue | $ | | $ | |
The revenue from sales-type leases is related to the Evolv Express units where the lease term is for the major part of the economic life of the underlying equipment and is classified as product revenue in the condensed consolidated statements of operations and comprehensive loss. The interest income on lease receivables is classified as other income (expense), net in the condensed consolidated statements of operations and comprehensive loss. The lease income from operating leases is related to the leased equipment under subscription arrangements and is classified as subscription revenue in the condensed consolidated statements of operations and comprehensive loss.
Disaggregated Revenue
The following table presents the Company’s revenue by revenue stream (in thousands):
Three Months Ended March 31, | ||||||
2022 |
| 2021 | ||||
Product revenue | |
| | |||
Leased equipment | |
| | |||
SaaS and Maintenance revenue | |
| | |||
Professional services revenue | | | ||||
Total revenue | $ | | $ | |
F-14
EVOLV TECHNOLOGIES HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Contract Acquisition Costs
The Company incurs and pays commissions on product sales. The Company applies the practical expedient for contracts less than one year to expense the commission costs in the period in which they were incurred. Commissions on product sales and services are expensed in the period in which the related revenue is recognized. Commissions on subscription arrangements and maintenance are expensed ratably over the life of the contract. The Company had a deferred asset related to commissions of $
Give Evolv LLC
Upon the closing of the Merger, the NHIC Founders transferred
For such arrangements, Give Evolv generally purchases the related products and services from Evolv Technologies, Inc. through an intercompany transaction using the available donated proceeds from the transfer of common stock upon the closing of the Merger. Evolv Technologies, Inc. will be responsible for the delivery of the units, in addition to providing related services, such as installation, training, and maintenance. Consideration transferred to Evolv Technologies, Inc. for the related products and services may be in the form of common stock or cash. Shares of common stock may be sold to generate funds for the purposes of paying for the donated goods and services. The sales transactions between Evolv Technologies, Inc. and Give Evolv eliminate in consolidation.
During the three months ended March 31, 2022, the Company donated
6. Leases
Company Headquarters (Waltham, MA)
In April 2021, the Company entered a sublease agreement for office and storage space for its corporate headquarters located at 500 Totten Pond Road in Waltham, MA. The sublease has an initial term of
Storage Facilities
The Company additionally leases
F-15
EVOLV TECHNOLOGIES HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following tables contains a summary of the lease costs recognized under ASC 842 and other information pertaining to the Company’s operating leases for the three months ended March 31, 2022.
The components of lease cost under ASC 842 were as follows (in thousands):
Operating lease cost |
| $ | |
Supplemental disclosure of cash flow information related to leases was as follows (in thousands):
Cash paid for amounts included in the measurement of lease liabilities |
| $ | |
The weighted-average remaining lease term and discount rate were as follows:
Weighted average remaining lease term (in years) |
| |||
Weighted average discount rate |
| | % |
Future annual lease payments under non-cancelable operating leases as of March 31, 2022 were as follows (in thousands):
Year Ended December 31: |
| ||
2022 (remaining nine months) |
| $ | |
2023 | | ||
2024 | | ||
Total future lease payments | $ | | |
Less: imputed interest | ( | ||
Present value of operating lease liability | $ | |
Rent expense for the three months ended March 31, 2021 was approximately $
Future annual lease payments under non-cancelable operating leases as of December 31, 2021 under ASC 840 were as follows (in thousands):
Year Ended December 31: |
| ||
2022 |
| $ | |
2023 | | ||
2024 | | ||
Total | $ | |
7. Accounts Receivable
Allowance for Doubtful Accounts
As of March 31, 2022 and December 31, 2021, the Company’s allowance for doubtful accounts of $
F-16
EVOLV TECHNOLOGIES HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Allowance for Doubtful Accounts | |||
Balance at December 31, 2021 | $ | ( | |
Provisions |
| | |
Write-offs, net of recoveries |
| | |
Balance at March 31, 2022 | $ | ( |
8. Inventory
Inventory consisted of the following (in thousands):
March 31, | December 31, | |||||
| 2022 |
| 2021 | |||
Raw materials | $ | | $ | | ||
Finished goods |
| |
| | ||
Total | $ | | $ | |
9. Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consisted of the following (in thousands):
| March 31, | December 31, | ||||
| 2022 |
| 2021 | |||
Prepaid deposits | $ | | $ | | ||
Prepaid insurance | | | ||||
Prepaid subscriptions | | | ||||
Other |
| |