Evolv Technologies Holdings, Inc. Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Stock-Based Compensation

Stock-Based Compensation

12 Months Ended

Dec. 31, 2023

Share-Based Payment Arrangement [Abstract]

2021 Equity Incentive Plan

The Company’s 2021 Equity Incentive Plan (the “2021 Plan”) provides for the Company to grant incentive stock options or nonqualified stock options, restricted stock awards, restricted stock units, performance stock units, and other stock-based awards to employees, officers, directors, and non-employees of the Company. A total of 21,177,295 shares of common stock were initially authorized under the 2021 Plan, subject to annual evergreen increases of up to 5% of total common shares outstanding as of the end of the prior year. As of December 31, 2023, 14,007,370 shares were available for future grant under the 2021 Plan. Shares, units, and options that are expired, forfeited, canceled, or otherwise terminated without having been fully exercised will be available for future grant under the 2021 Plan. In addition, shares of common stock that are tendered to the Company by a participant to exercise an award are added to the number of shares of common stock available for future grants.

The 2021 Plan is administered by the Board of Directors or, at the discretion of the Board of Directors, by a committee of the Board of Directors. The exercise prices, vesting, and other restrictions are determined at the discretion of the Board of Directors, or its committee if so delegated, except that the exercise price per share of stock options may not be less than 100% of the fair market value of a share of common stock on the date of grant and the term of the stock option may not be greater than ten years. Stock options granted to employees, officers, members of the Board of Directors and non-employees vesting terms are determined on an individual basis on the date of grant. Prior to the closing of the Merger, the Company’s Board of Directors valued the Company’s common stock, taking into consideration its most recently available valuation of common stock performed by third parties as well as additional factors which may have changed since the date of the most recent contemporaneous valuation through the date of grant. After the closing of the Merger, the fair value of each share of common stock underlying stock-based awards is based on the closing price of our common stock as reported by Nasdaq on the date of grant.

Stock Options

The following table presents, on a weighted average basis, the assumptions used in the Black-Scholes option-pricing model to determine the grant-date fair value of stock options granted during the years ended December 31, 2023 and 2022:


	Year Ended December 31,
	2023		2022
Risk-free interest rate	4.2	%	1.6	%
Expected term (in years)	6.1		6.1
Expected volatility	87.5	%	75.0	%
Expected dividend yield	0.0	%	0.0	%

The following tables summarize the Company’s stock option activity under the 2021 Equity Incentive Plan (in thousands, except for share and per share data):


	Number of Shares	Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value
Outstanding as of December 31, 2021	20,769,130	$	0.39
Granted	2,262,925	3.49
Exercised	(1,896,975)	0.43
Forfeited	(710,707)	0.42
Expired	(27,549)	0.42
Outstanding as of December 31, 2022	20,396,824	$	0.73
Granted	2,840,421	3.12
Exercised	(1,735,978)	0.38
Forfeited	(1,164,932)	1.72
Expired	(11,807)	0.42
Outstanding as of December 31, 2023	20,324,528	$	1.04	6.0	$	74,768

Vested and expected to vest as of December 31, 2023	20,324,528	$	1.04	6.0	$	74,768
Options exercisable as of December 31, 2023	16,114,401	$	0.67	5.4	$	65,339

The aggregate intrinsic value of options is calculated as the difference between the exercise price of the stock options and the fair value of the Company’s common stock for those options that had exercise prices lower than the fair value of the Company’s common stock.

The weighted average grant date fair value of stock options granted was $2.35 and $2.32 during the years ended December 31, 2023 and 2022, respectively. The aggregate intrinsic value of the stock options exercised was $8.7 million and $4.4 million during the years ended December 31, 2023 and 2022, respectively.

Restricted Stock Units

The following table summarizes the Company’s restricted stock units activity under its existing restricted stock unit plan:


	Number of Shares	Grant Date Fair Value
Outstanding as of December 31, 2021	1,951,924	$	6.76
Granted	7,613,472	3.26
Vested	(565,774)	6.72
Forfeited	(1,497,677)	5.15
Outstanding as of December 31, 2022	7,501,945	$	3.54
Granted	9,477,014	3.48
Vested	(2,833,155)	3.55
Forfeited	(1,099,125)	3.54
Outstanding as of December 31, 2023	13,046,679	$	3.49

During the years ended December 31, 2023 and 2022, the aggregate grant-date fair value of restricted stock units issued under the 2021 Plan was $33.0 million and $24.9 million, respectively. RSUs generally vest ratably over a three year period subject to the grantee's continued service through the applicable vesting date. During the year ended December 31, 2023 and 2022, the total fair value of shares vested was $10.1 million and $3.8 million, respectively.

Performance Stock Units

The following table summarizes the Company's performance stock units activity under its existing performance stock units plan:


	Number of Shares	Grant Date Fair Value
Outstanding as of December 31, 2021	—	$	—
Granted	947,000	2.65
Vested	—	—
Forfeited	(83,000)	2.65
Outstanding as of December 31, 2022	864,000	$	2.65
Granted	—	—
Vested	(432,000)	2.65
Forfeited	(52,000)	2.67
Outstanding as of December 31, 2023	380,000	$	2.64

Based upon the terms of the award agreements and achievement of the performance goal, 50% of the applicable performance stock units vested on January 1, 2023 and 50% on January 1, 2024, subject to the grantee’s continued service through the applicable vesting date.

2021 Employee Stock Purchase Plan

In July 2021, the Company’s Board of Directors adopted the 2021 Employee Stock Purchase Plan (“2021 ESPP”), which was subsequently approved by the Company’s stockholders and became effective on July 16, 2021. The 2021 ESPP authorizes the initial issuance of up to 3,435,748 shares of the Company’s common stock to eligible employees of the Company or, as designated by the Company’s Board of Directors, employees of a related company. The 2021 ESPP provides that the number of shares reserved and available for issuance under the 2021 ESPP will automatically increase each January 1, beginning on January 1, 2022 and ending on (and including) January 1, 2032, by an amount equal to the lesser of (i) 1% of the outstanding number of shares of common stock on the immediately preceding December 31 and (ii) such smaller number of shares as determined by the Company’s Board of Directors. As of December 31, 2023, 6,315,248 shares of the Company’s common stock were available for future issuance. The Company’s Board of Directors may from time to time grant or provide for the grant to eligible employees of options to purchase common stock under the 2021 ESPP during a specific offering period. As of December 31, 2023, no offerings have been approved.

Finback Common Stock Warrants

The Company utilized a Black-Scholes pricing model to determine the grant-date fair value of the Finback Common Stock Warrants. The assumptions used are presented in the following table:


Warrants - Black Scholes
Risk-free interest rate	0.4	%
Expected term (in years)	3.0
Expected volatility	23.9	%
Expected dividend yield	—	%

In January 2021, the Company granted warrants (the "Finback Common Stock Warrants") to purchase 2,552,913 shares of the Company's Class A common stock at an exercise price of $0.42 per share to Finback Evolv OBH, LLC ("Finback"), a consulting group affiliated with one of the Company's stockholders. The Finback Common Stock Warrants vest upon meeting certain sales criteria as defined in a business development agreement (the "Finback BDA"), which has a term of 3 years. The Finback BDA expired on January 1, 2023, subject to a 1-year "tail period" expiring on January 1, 2024. During the tail period, the Finback Common Stock Warrants will continue to vest related to any sale consummated by the Company for which it is determined Finback provided services prior to January 1, 2023 in furtherance of the sale. The Finback Common Stock Warrants expire in January 2031. The Finback Common Stock Warrants are accounted for under ASC 718 Compensation – Stock Compensation as the warrants vest upon certain performance conditions being met. On the date of issuance, the Finback Common Stock Warrants were valued at $19.5 million.

Upon the closing of the Merger, vested Finback Common Stock Warrants automatically converted into 131,713 shares of the Company’s common stock. As of December 31, 2023, 117,423 Finback Common Stock Warrants were exercisable at a total aggregate intrinsic value of $0.5 million. The remaining 1,199,904 Finback Common Stock Warrants are unvested and have a total unrecognized grant date fair value of $9.1 million. As of December 31, 2023, 1,103,873 of the Finback common stock warrants were exercised. The Company recognizes compensation expense for the Finback Common Stock Warrants when the warrants become vested based on meeting the specified sales criteria. During the years ended December 31, 2023 and 2022, the Company recorded $3.1 million and $4.5 million, respectively, of stock-based compensation expense within sales and marketing expense related to the Finback Common Stock Warrants.

Stock-Based Compensation

Stock-based compensation expense was classified in the consolidated statements of operations and comprehensive loss as follows (in thousands):


	Year Ended December 31,
	2023		2022
Cost of revenue	$	583	$	829
Research and development	4,284		4,009
Sales and marketing	9,387		10,038
General and administrative	9,897		7,622
Total stock-based compensation expense	$	24,151	$	22,498

Stock-based compensation expense by award type recognized in the consolidated statements of operations and comprehensive loss was as follows (in thousands):


	Year Ended December 31,
	2023		2022
Stock options	$	2,925	$	1,594
Earn-out shares	2,073		6,499
Warrants	3,147		4,523
RSUs and PSUs	16,006		9,882
Total stock-based compensation expense	$	24,151	$	22,498

Total unrecognized compensation expense related to stock options and restricted stock units as of December 31, 2023, was $40.8 million, which is expected to be recognized over a weighted average period of 2.1 years. Total unrecognized compensation expense related to earn-out shares associated with the share-based compensation arrangement as of December 31, 2023, was $0.2 million, which is expected to be recognized over a weighted average period of 0.5 years.