Quarterly report pursuant to Section 13 or 15(d)

Revenue Recognition

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Revenue Recognition
 9 Months Ended
Sep. 30, 2022
Revenue Recognition and Deferred Revenue [Abstract]  
Revenue Recognition Revenue Recognition
The Company recognizes revenue in accordance with Accounting Standards Codification 606 – Revenue from Contracts with Customers (“ASC 606”). Under ASC 606, revenue is recognized when a customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. In order to achieve this core principle, the Company applies the following five steps when recording revenue: (1) identify the contract, or contracts, with the customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract and (5) recognize revenue when, or as, performance obligations are satisfied.

The Company derives revenue from (1) subscription arrangements generally accounted for as operating leases under ASC 842 and (2) from the sale of products, inclusive of SaaS and maintenance and (3) professional services. The Company’s arrangements are generally noncancelable and nonrefundable after ownership passes to the customer for product sales and upon installation for subscriptions. Revenue is recognized net of sales tax.

Remaining Performance Obligations

The following table includes estimated revenues expected to be recognized in the future related to performance obligations that are unsatisfied (or partially satisfied) as of September 30, 2022.
Less than 1 year Greater than 1 year Total
Product revenue $ 4,087  $ —  $ 4,087 
Subscription revenue 22,682  49,935  72,617 
Service revenue 9,061  23,642  32,703 
Total revenue $ 35,830  $ 73,577  $ 109,407 
The amount of minimum future leases is based on expected income recognition. As of September 30, 2022, future minimum payments on noncancelable leases are as follows (in thousands):
Year Ending December 31:
2022 (three months remaining) $ 5,734 
2023 22,403 
2024 20,956 
2025 17,067 
2026 6,377 
Thereafter 80 
$ 72,617 
Contract Balances from Contracts with Customers

Contract assets arise from unbilled amounts in customer arrangements when revenue recognized exceeds the amount billed to the customer and the Company’s right to payment is conditional and not only subject to the passage of time. As of September 30, 2022 and December 31, 2021, the Company had $5.3 million and $1.5 million in current portion of contract assets and $1.5 million and $3.4 million in contract assets, noncurrent on the condensed consolidated balance sheets, respectively.

Contract liabilities represent the Company’s obligation to transfer goods or services to a customer for which it has received consideration (or the amount is due) from the customer. The Company has a contract liability related to service revenue, which consists of amounts that have been invoiced but that have not been recognized as revenue. Amounts expected to be recognized as revenue within 12 months of the balance sheet date are classified as current deferred revenue
and amounts expected to be recognized as revenue beyond 12 months of the balance sheet date are classified as deferred revenue, noncurrent. The Company recognized revenue of $1.3 million and $6.0 million during the three and nine months ended September 30, 2022, respectively, that was included in the 2021 deferred revenue balance. The Company recognized revenue of $0.5 million and $2.3 million during the three and nine months ended September 30, 2021, respectively, that was included in the 2020 deferred revenue balance.

The following table provides a rollforward of deferred revenue (in thousands):
Balance at December 31, 2021 $ 9,074 
Revenue recognized 5,995 
Revenue deferred 10,017 
Balance at September 30, 2022 $ 25,086 
The following table presents the Company’s components of lease revenue (in thousands):
Three Months Ended
September 30,		 Nine Months Ended
September 30,
2022 2021 2022 2021
Revenue from sales-type leases $ 29  $ —  $ 1,341  $ — 
Interest income on lease receivables 60  —  170  — 
Lease income - operating leases 5,198  2,312  12,208  5,060 
Total lease revenue $ 5,287  $ 2,312  $ 13,719  $ 5,060 
The revenue from sales-type leases is related to the Evolv Express units where the lease term is for the major part of the economic life of the underlying equipment and is classified as product revenue in the condensed consolidated statements of operations and comprehensive loss. The interest income on lease receivables is classified as other income (expense), net in the condensed consolidated statements of operations and comprehensive loss. The lease income from operating leases is related to the leased equipment under subscription arrangements and is classified as subscription revenue in the condensed consolidated statements of operations and comprehensive loss.

Disaggregated Revenue

The following table presents the Company’s revenue by revenue stream (in thousands):

Three Months Ended
September 30,		 Nine Months Ended
September 30,
2022 2021 2022 2021
Product revenue $ 9,839  $ 5,395  $ 19,179  $ 10,279 
Leased equipment 5,198  2,312  12,208  5,060 
SaaS and Maintenance revenue 1,180  300  2,277  662 
Professional services and other revenue 313  417  646  794 
Total revenue $ 16,530  $ 8,424  $ 34,310  $ 16,795 

Contract Acquisition Costs

The Company incurs and pays commissions on product sales. The Company applies the practical expedient for contracts less than one year to expense the commission costs in the period in which they were incurred. Commissions on product sales and services are expensed in the period in which the related revenue is recognized. Commissions on subscription arrangements and maintenance are expensed ratably over the life of the contract. The Company had a deferred asset related to commissions of $7.0 million and $5.4 million as of September 30, 2022 and December 31, 2021,
respectively. During the three months ended September 30, 2022 and 2021, the Company amortized commission expense of $1.2 million and $1.4 million, respectively. During the nine months ended September 30, 2022 and 2021, the Company amortized commission expense of $2.4 million and $2.0 million, respectively.

Give Evolv LLC

Upon the closing of the Merger, the NHIC Founders transferred 517,500 shares of its common stock to Evolv NewHold Benefit LLC (“ENHB”), which represented the initial contribution to be used to pay for the donation of Evolv’s Express units to public venues and institutions, primarily schools in locations that might not otherwise be able to afford weapon detection security screening systems and related products and services. In September 2021, ENHB was renamed to Give Evolv LLC (“Give Evolv”). Give Evolv is deemed an entity under common control and a consolidating entity as it is under the same management as the Company. As such, the shares held by Give Evolv are not considered outstanding or issued.

For such arrangements, Give Evolv generally purchases the related products and services from Evolv Technologies, Inc. through an intercompany transaction using the available donated proceeds from the transfer of common stock upon the closing of the Merger. Evolv Technologies, Inc. will be responsible for the delivery of the units, in addition to providing related services, such as installation, training, and maintenance. Consideration transferred to Evolv Technologies, Inc. for the related products and services may be in the form of common stock or cash. Shares of common stock may be sold to generate funds for the purposes of paying for the donated goods and services. The sales transactions between Evolv Technologies, Inc. and Give Evolv eliminate in consolidation.

During the nine months ended September 30, 2022, the Company donated six Evolv Express units to schools, resulting in $0.2 million in general and administrative expense in the Company’s condensed consolidated statements of operations and comprehensive loss. No Evolv Express units were donated during the nine months ended September 30, 2021.