Quarterly report pursuant to Section 13 or 15(d)

Revenue Recognition

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Revenue Recognition
 3 Months Ended
Mar. 31, 2023
Revenue Recognition and Deferred Revenue [Abstract]  
Revenue Recognition Revenue RecognitionThe 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 shipment to the customer. 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, 2023.
Less than 1 year Greater than 1 year Total
Product revenue $ 5,435  $ —  $ 5,435 
Subscription revenue 31,659  67,413  99,072 
Service revenue 15,930  41,376  57,306 
Total revenue $ 53,024  $ 108,789  $ 161,813 
The amount of minimum future leases is based on expected income recognition. As of March 31, 2023, future minimum payments on noncancelable leases are as follows (in thousands):
Year Ending December 31:
2023 (nine months remaining) $ 23,898 
2024 30,446 
2025 26,586 
2026 16,060 
2027 2,065 
Thereafter 17 
$ 99,072 
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 time. As of March 31, 2023 and December 31, 2022, the Company had $3.3 million and $2.9 million in current portion of contract assets and $0.7 million and $1.4 million in contract assets, noncurrent on the condensed consolidated balance sheets, respectively.

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 revenue of $6.9 million during the three months ended March 31, 2023 that was included in the December 31, 2022 deferred revenue balance. The Company recognized revenue of $2.5 million during the three months ended March 31, 2022 that was included in the December 31, 2021 deferred revenue balance.
The following table provides a rollforward of deferred revenue (in thousands):
Balance at December 31, 2022 $ 35,968 
Revenue recognized in relation to the beginning of the year contract liability balance (6,887)
Revenue deferred 15,644 
Balance at March 31, 2023 $ 44,725 
The following table presents the Company’s components of lease revenue (in thousands):
Three Months Ended
March 31,
2023 2022
Revenue from sales-type leases $ —  $ 1,106 
Interest income on lease receivables 53  49 
Lease income - operating leases 6,466  3,004 
Total lease revenue $ 6,519  $ 4,159 
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. Revenue related to leases entered into with related parties were $0.2 million and $0.1 million during the three months ended March 31, 2023 and 2022, respectively.

Disaggregated Revenue

The following table presents the Company’s revenue by revenue stream (in thousands):

Three Months Ended
March 31,
2023 2022
Product revenue $ 8,754  $ 5,194 
Leased equipment 6,466  3,004 
SaaS, maintenance, and other revenue 2,778  368 
Professional services 583  144 
Total revenue $ 18,581  $ 8,710 

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 $9.7 million and $9.0 million as of March 31, 2023 and December 31, 2022, respectively. During the three months ended March 31, 2023 and 2022, the Company amortized commission expense of $1.6 million and $0.4 million, respectively.