Evolv Technologies Holdings, Inc. Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

Fair Value Measurements

Fair Value Measurements

9 Months Ended

Sep. 30, 2023

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

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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