Quarterly report pursuant to Section 13 or 15(d)

Fair Value Measurements

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Fair Value Measurements
 9 Months Ended
Sep. 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 September 30, 2022
Level 1 Level 2 Level 3 Total
Assets:
Money market funds $ 198,610  $ —  $ —  $ 198,610 
$ 198,610  $ —  $ —  $ 198,610 
Liabilities:
Contingent earn-out liability $ —  $ —  $ 11,452  $ 11,452 
Contingently issuable common stock liability —  —  2,735  2,735 
Public Warrant liability 6,733  —  —  6,733 
$ 6,733  $ —  $ 14,187  $ 20,920 
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 
$ 11,030  $ —  $ 26,470  $ 37,500 
As of September 30, 2022 and December 31, 2021, money market funds are included in cash and cash equivalents on the condensed consolidated balance sheets.
The fair value classification of the public warrant liability as of December 31, 2021 and September 30, 2022 has been updated to Level 1. During each of the three and nine months ended September 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 September 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 September 30, 2022 were as follows: 90% expected stock price volatility, a risk-free rate of return of 4.2%, a 25% likelihood of change in control and a remaining term of 3.4 years.
The following table provides a rollforward of the contingent earn-out liability (in thousands):
December 31, 2021 $ 21,206
Change in fair value (9,754)
September 30, 2022 $ 11,452
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 September 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 September 30, 2022 were as follows: 90% expected stock price volatility, a risk-free rate of return of 4.2%, a 25% likelihood of change in control and a remaining term of 3.8 years.
The following table provides a rollforward of the contingently issuable common shares (in thousands):
December 31, 2021 $ 5,264 
Change in fair value (2,529)
September 30, 2022 $ 2,735 
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 fair value is remeasured each reporting period based on the closing price as reported by Nasdaq on the last date of the reporting period.
The following table provides a rollforward of the public warrant liability (in thousands):
December 31, 2021 $ 11,030
Change in fair value (4,297)
September 30, 2022 $ 6,733