Annual report pursuant to Section 13 and 15(d)

Fair Value Measurements

v3.24.0.1
Fair Value Measurements
 12 Months Ended
Dec. 31, 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 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 
Fair Value Measurements at December 31, 2022
Level 1 Level 2 Level 3 Total
Assets:
Money market funds $ 149,971  $ —  $ —  $ 149,971 
$ 149,971  $ —  $ —  $ 149,971 
Liabilities:
Long-term debt including current portion $ —  $ 29,683  $ —  $ 29,683 
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  $ 29,683  $ 17,610  $ 53,417 
Money market funds are included in cash and cash equivalents on the consolidated balance sheets. 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 years ended December 31, 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. 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 at each reporting period. As of December 31, 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 December 31, 2023 were as follows: 90% expected stock price volatility, a risk-free rate of return of 4.2%, a 25% likelihood of change in control, and a remaining term of 2.2 years.
The following table provides a rollforward of the contingent earn-out liability (in thousands):
Balance at December 31, 2021 $ 21,206 
Change in fair value (6,988)
Balance at December 31, 2022 $ 14,218 
Change in fair value 14,901 
Balance at December 31, 2023 $ 29,119 
Valuation of Contingently Issuable Common Stock
Prior to the Merger, certain NHIC shareholders owned 4,312,500 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 (see Note 2). The Company’s contingently issuable common stock was recorded at fair value as contingent shares on the closing of the Merger and will be remeasured at each reporting period. As of December 31, 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 December 31, 2023 were as follows: 90% expected stock price volatility, a risk-free rate of return of 4.1%, a 25% likelihood of change in control, and a remaining term of 2.5 years.
The following table provides a rollforward of the contingently issuable common shares (in thousands):
Balance at December 31, 2021 $ 5,264 
Change in fair value (1,872)
Balance at December 31, 2022 $ 3,392 
Change in fair value 3,138 
Balance at December 31, 2023 $ 6,530 
Valuation of Public Warrant Liability
Upon the closing of the Merger, the Company assumed the Public Warrants to purchase shares of the Company’s common stock. The Public Warrants are publicly traded and the initial fair value of the public warrants were based on the closing price as reported by Nasdaq on the date of the Merger and remeasured at each reporting period.
The following table provides a rollforward of the public warrant liability (in thousands):
Balance at December 31, 2021 $ 11,030 
Change in fair value (4,906)
Balance at December 31, 2022 $ 6,124 
Change in fair value 4,765 
Balance at December 31, 2023 $ 10,889