Quarterly report pursuant to Section 13 or 15(d)

Fair Value Measurements

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Fair Value Measurements
 3 Months Ended
Mar. 31, 2024
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 March 31, 2024
Level 1 Level 2 Level 3 Total
Assets:
Money market funds $ 23,771  $ —  $ —  $ 23,771 
Treasury bills —  41,378  —  41,378 
$ 23,771  $ 41,378  $ —  $ 65,149 
Liabilities:
Contingent earn-out liability $ —  $ —  $ 22,220  $ 22,220 
Contingently issuable common stock liability —  —  6,003  6,003 
Public Warrant liability 8,738  —  —  8,738 
$ 8,738  $ —  $ 28,223  $ 36,961 
Fair Value Measurements as of December 31, 2023
Level 1 Level 2 Level 3 Total
Assets:
Money market funds $ 57,829  $ —  $ —  $ 57,829 
Treasury bills —  51,289  —  51,289 
$ 57,829  $ 51,289  $ —  $ 109,118 
Liabilities:
Contingent earn-out liability $ —  $ —  $ 29,119  $ 29,119 
Contingently issuable common stock liability —  —  6,530  6,530 
Public Warrant liability 10,889  —  —  10,889 
$ 10,889  $ —  $ 35,649  $ 46,538 
Money market funds are included in cash and cash equivalents on the condensed consolidated balance sheets. As of March 31, 2024, U.S. treasury bills with maturities less than 3 months, which totaled $5.0 million, are included in cash and cash equivalents, while treasury bills with maturities greater than 3 months, which totaled $36.4 million, are reflected as marketable securities. As of December 31, 2023, all outstanding treasury bills, which totaled $51.3 million, had maturities greater than 3 months and 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.
The carrying amounts of cash and cash equivalents, accounts receivable, restricted cash, accounts payable, accrued liabilities, and other accrued expenses approximate fair value because of their short maturity.
During each of the three months ended March 31, 2024 and 2023, 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, 2023. 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 March 31, 2024, 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 March 31, 2024 were as follows: 85% expected stock price volatility, a risk-free rate of return of 4.6%, a 25% likelihood of change in control and a remaining term of 1.9 years.
The following table provides a rollforward of the contingent earn-out liability (in thousands):
Balance at December 31, 2023 $ 29,119 
Change in fair value (6,899)
Balance at March 31, 2024 $ 22,220 
Valuation of Contingently Issuable Common Stock
Prior to the Merger, certain NHIC stockholders owned 4,312,500 shares of NHIC Class B common stock which were converted into shares of the Company's stock in connection with the Merger (the “Founder Shares”). Of these 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 will 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, 2023. 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 March 31, 2024, 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 March 31, 2024 were as follows: 95% expected stock price volatility, a risk-free rate of return of 4.5%, a 25% likelihood of change in control and a remaining term of 2.3 years.
The following table provides a rollforward of the contingently issuable common shares (in thousands):
Balance at December 31, 2023 $ 6,530 
Change in fair value (527)
Balance at March 31, 2024 $ 6,003 
Valuation of Public Warrant Liability
In connection with the closing of the Merger, the Company assumed warrants to purchase 14,325,000 shares of common stock (the “Public Warrants”) 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 March 31, 2024, 14,324,893 Public Warrants are outstanding.
The following table provides a rollforward of the public warrant liability (in thousands):
Balance at December 31, 2023 $ 10,889 
Change in fair value (2,151)
Balance at March 31, 2024 $ 8,738