Quarterly report pursuant to Section 13 or 15(d)

Revenue Recognition

v3.23.3
Revenue Recognition
 6 Months Ended
Jun. 30, 2023
Revenue Recognition and Deferred Revenue [Abstract]  
Revenue Recognition 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, (3) professional services, and (4) license fees related to a distribution and license agreement with the Company's primary contract manufacturer. 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 June 30, 2023
Less than 1 year Greater than 1 year Total
Product revenue $ 3,050  $ —  $ 3,050 
Subscription revenue 42,140  92,099  134,239 
Service revenue 17,883  43,124  61,007 
Total revenue $ 63,073  $ 135,223  $ 198,296 
The amount of minimum future leases is based on expected income recognition. As of June 30, 2023, future minimum payments on noncancelable leases are as follows (in thousands):
Year Ending December 31:
2023 (six months remaining) $ 21,253 
2024 41,340 
2025 37,364 
2026 26,748 
2027 7,511 
Thereafter 23 
$ 134,239 
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 June 30, 2023 and December 31, 2022, the Company had $4.7 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 $5.3 million and $12.1 million during the three and six months ended June 30, 2023 that was included in the December 31, 2022 deferred revenue balance. The Company recognized revenue of $2.2 million and $4.7 million during the three and six months ended June 30, 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 (12,140)
Revenue deferred 36,253 
Balance at June 30, 2023 $ 60,081 
The following table presents the Company’s components of lease revenue (in thousands):
Three Months Ended
June 30,		 Six Months Ended
June 30,
2023 2022 2023 2022
Revenue from sales-type leases $ —  $ —  $ —  $ 1,106 
Interest income on lease receivables 51  61  104  110 
Lease income - operating leases 7,964  4,006  14,430  7,010 
Total lease revenue $ 8,015  $ 4,067  $ 14,534  $ 8,226 
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 under interest income 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 less than $0.1 million and $0.2 million during the three and six months ended June 30, 2023, respectively. Revenue related to leases entered into with related parties were $0.2 million and $0.3 million during the three and six months ended June 30, 2022, respectively.

Disaggregated Revenue

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

Three Months Ended
June 30,		 Six Months Ended
June 30,
2023 2022 2023 2022
Product revenue $ 7,243  $ 4,146  $ 15,997  $ 9,340 
Leased equipment 7,964  4,006  14,430  7,010 
SaaS, maintenance, and other revenue 4,121  729  6,899  1,097 
Professional services 497  189  1,080  333 
Total revenue $ 19,825  $ 9,070  $ 38,406  $ 17,780 

Commissions
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 $10.3 million and $9.0 million as of June 30, 2023 and December 31, 2022, respectively. During the three months ended June 30, 2023 and 2022, the Company recognized commission expense of $1.5 million and $0.9 million, respectively. During the six months ended June 30, 2023 and 2022, the Company recognized commission expense of $3.1 million and $1.2 million, respectively.