Quarterly report pursuant to Section 13 or 15(d)

Fair Value Measurements

v3.23.3
Fair Value Measurements
9 Months Ended
Sep. 30, 2023
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, 2023
Level 1 Level 2 Level 3 Total
Assets:
Money market funds $ 73,171  $ —  $ —  $ 73,171 
Treasury bills —  49,372  —  49,372 
$ 73,171  $ 49,372  $ —  $ 122,543 
Liabilities:
Contingent earn-out liability $ —  $ —  $ 31,571  $ 31,571 
Contingently issuable common stock liability —  —  6,952  6,952 
Public Warrant liability 11,469  —  —  11,469 
$ 11,469  $ —  $ 38,523  $ 49,992 
Fair Value Measurements as of December 31, 2022
Level 1 Level 2 Level 3 Total
Assets:
Money market funds $ 149,971  $ —  $ —  $ 149,971 
$ 149,971  $ —  $ —  $ 149,971 
Liabilities:
Contingent earn-out liability $ —  $ —  $ 14,218  $ 14,218 
Contingently issuable common stock liability —  —  3,392  3,392 
Public Warrant liability 6,124  —  —  6,124 
$ 6,124  $ —  $ 17,610  $ 23,734 
Money market funds are included in cash and cash equivalents on the condensed consolidated balance sheets. U.S. treasury bills with maturities less than 3 months, which totaled $9.9 million as of September 30, 2023, are included in cash and cash equivalents, while treasury bills with maturities greater than 3 months, which totaled $39.5 million as of September 30, 2023, are reflected as marketable securities. The fair value of the treasury bills, which are classified as Level 2 securities, is calculated by a third-party pricing service and is based on estimates obtained from various sources.
The Company may also value its non-financial assets and liabilities, including items such as inventories and property and equipment, at fair value on a non-recurring basis if it is determined that impairment has occurred. Such fair value measurements use significant unobservable inputs and are classified as Level 3.
During each of the three and nine months ended September 30, 2023 and 2022, 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 stockholders, 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, 2022. 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, 2023, 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, 2023 were as follows: 87.5% expected stock price volatility, a risk-free rate of return of 4.9%, a 25% likelihood of change in control and a remaining term of 2.4 years.
The following table provides a rollforward of the contingent earn-out liability (in thousands):
Balance at December 31, 2022 $ 14,218 
Change in fair value 17,353 
Balance at September 30, 2023 $ 31,571 
Valuation of Contingently Issuable Common Stock
Prior to the Merger, certain NHIC stockholders owned 4,312,500 shares of NHIC Class B common stock (the "Founder Shares"). Upon the closing of the Merger, NHIC Class A and Class B common stock became the Company's common stock. 1,897,500 Founder Shares vested at the closing of the Merger, 517,500 Founder Shares were transferred back to NHIC and then contributed to Give Evolv LLC, and the remaining 1,897,500 outstanding Founder Shares are contingently issuable and 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, 2022. The Company’s contingently issuable common shares were recorded at fair value on the closing of the Merger and are remeasured each reporting period. As of September 30, 2023, 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, 2023 were as follows: 87.5% expected stock price volatility, a risk-free rate of return of 4.8%, a 25% likelihood of change in control and a remaining term of 2.8 years.
The following table provides a rollforward of the contingently issuable common shares (in thousands):
Balance at December 31, 2022 $ 3,392 
Change in fair value 3,560 
Balance at September 30, 2023 $ 6,952 
Valuation of Public Warrant Liability
In connection with the closing of the Merger, the Company assumed warrants (the "Public Warrants") to purchase 14,325,000 shares of common stock at an exercise price of $11.50. The Public Warrants are immediately exercisable and expire in July 2026. The Public Warrants are classified as a liability and are subsequently remeasured to fair value at each reporting date based on the closing price as reported by Nasdaq on the last date of the reporting period. As of September 30, 2023, 14,324,893 Public Warrants are outstanding.
The following table provides a rollforward of the public warrant liability (in thousands):
Balance at December 31, 2022 $ 6,124 
Change in fair value 5,345 
Balance at September 30, 2023 $ 11,469