Quarterly report pursuant to Section 13 or 15(d)

Fair Value Measurements

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Fair Value Measurements
 6 Months Ended
Jun. 30, 2022
Fair Value Disclosures [Abstract]  
Fair Value Measurements 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 June 30, 2022
Level 1 Level 2 Level 3 Total
Assets:
Money market funds $ 232,785  $ —  $ —  $ 232,785 
$ 232,785  $ —  $ —  $ 232,785 
Liabilities:
Contingent earn-out liability $ —  $ —  $ 18,697  $ 18,697 
Contingently issuable common stock liability —  —  3,816  3,816 
Public Warrant liability —  —  5,587  5,587 
$ —  $ —  $ 28,100  $ 28,100 
Fair Value Measurements as of December 31, 2021
Level 1 Level 2 Level 3 Total
Assets:
Money market funds $ 297,536  $ —  $ —  $ 297,536 
$ 297,536  $ —  $ —  $ 297,536 
Liabilities:
Contingent earn-out liability $ —  $ —  21,206  $ 21,206 
Contingently issuable common stock liability —  —  5,264  5,264 
Public Warrant liability —  —  11,030  11,030 
$ —  $ —  $ 37,500  $ 37,500 
As of June 30, 2022 and December 31, 2021, money market funds are included in cash and cash equivalents on the condensed consolidated balance sheets.
During each of the three and six months ended June 30, 2022 and 2021, there were no transfers between Level 1, Level 2 and Level 3.
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 liability upon the closing of the Merger and are remeasured each reporting period. As of June 30, 2022, no milestones have been achieved.
The fair value of the contingent earn-out is calculated 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. The significant assumptions used in the Monte Carlo model as of June 30, 2022 were as follows: 95% expected stock price volatility, a drift rate of 3%, a 25% likelihood of change in control and a remaining term of 3.7 years.
The following table provides a rollforward of the contingent earn-out liability (in thousands):
December 31, 2021 $ 21,206
Change in fair value (2,509)
June 30, 2022 $ 18,697
Valuation of Contingently Issuable Common Stock
Prior to the Merger, certain NHIC shareholders owned 4,312,500 Founder Shares. 1,897,500 shares vested at the closing of the Merger, 517,500 shares were transferred back to NHIC and then contributed to Give Evolv LLC, and the remaining 1,897,500 outstanding shares shall vest 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 contingently issuable common stock was recorded at fair value as contingent shares on the closing of the Merger and are remeasured each reporting period. As of June 30, 2022, no milestones have been achieved.
The fair value of the contingently issued common shares is 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. The significant assumptions used in the Monte Carlo model as of June 30, 2022 were as follows: 95% expected stock price volatility, a drift rate of 3%, a 25% likelihood of change in control and a remaining term of 4.0 years.
The following table provides a rollforward of the contingently issuable common shares (in thousands):
December 31, 2021 $ 5,264 
Change in fair value (1,448)
June 30, 2022 $ 3,816 
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.
The following table provides a rollforward of the public warrant liability (in thousands):
December 31, 2021 $ 11,030
Change in fair value (5,443)
June 30, 2022 $ 5,587