Evolv Technology announces the results of its internal investigation

Evolv Technology today announced the results of the internal investigation previously disclosed on October 25, 2024, into certain sales practices that impacted revenue recognition and other metrics.

Results of the Internal Investigation

The investigation is being conducted by an ad hoc committee of independent directors of the Board of Directors and with the assistance of Debevoise & Plimpton LLP as its legal counsel, Cleary Gottlieb Steen & Hamilton LLP as its independent legal counsel, and Ankura Consulting Group as its forensic accounting firm.

Based on the results of the investigation to date, the Ad Hoc Committee concluded that accounting for certain transactions, including sales to one of the company’s largest channel partners, was inaccurate and that, among other things, revenue was prematurely or incorrectly recognized in connection with financial statements prepared for the periods between the second quarter of 2022 and the second quarter of 2024 (the “affected periods”). The company is continuing to evaluate the impact on internal control over financial reporting and expects to report one or more additional material weaknesses in internal control over financial reporting related to this matter.

The Ad Hoc Committee’s previously disclosed estimate that, on a net basis (taking into account revenue that was prematurely recognized but offset by amounts appropriately recognized in subsequent periods), the sales transactions at issue have resulted in premature or incorrect revenue recognition of $4 million to $6 million through June 30, 2024, has not changed, and it is still the case that the vast majority of such revenue was prematurely rather than incorrectly recognized and is expected to be recognized in future periods.

The Ad Hoc Committee confirmed that the errors in revenue recognition did not impact the company’s cash position. The company had cash, cash equivalents, marketable securities, and restricted cash of approximately $56 million as of the quarter ended September 30, 2024, which was consistent with the company’s internal forecasts. The company had no debt as of the end of the quarter.

The Ad Hoc Committee’s key findings also include the following:

• As previously disclosed, certain sales of products and subscriptions to channel partners and end users, including sales to one of its largest channel partners, were subject to extra-contractual terms and conditions that impacted revenue recognition and other metrics. In addition, the Ad Hoc Committee determined that some of these extra-contractual terms and conditions were not shared with the company’s accounting personnel and that certain company personnel engaged in misconduct in connection with those transactions. Furthermore, these extra-contractual terms and conditions were withheld from the Audit Committee of the Board and the company’s independent registered public accounting firm, PricewaterhouseCoopers LLP (“PWC”).

• In addition to the preliminary findings disclosed on October 25, 2024, the investigation found that certain accounting personnel were aware of indications of those extra-contractual terms and conditions during affected periods and that related allegations were raised internally in July 2024 and known to senior finance and accounting personnel, but those allegations were not escalated to the Audit Committee of the Board or communicated to PWC prior to the filing of the company’s second quarter 2024 financial statements.

The investigation is largely complete, and the Board does not expect these key findings to change.

Organizational Changes

The Board has determined that new leadership is critical to moving the company forward. Mark Donohue, the company’s Chief Financial Officer and principal financial officer and principal accounting officer, resigned. To date, as a result of the investigation, four other employees, including personnel from the company’s sales, accounting, and finance departments, were terminated or resigned.

Retention of AlixPartners to Provide Interim Support and Expedite Reporting Process

The company has engaged AlixPartners LLP (“AlixPartners”), a leading global business advisory firm, to provide interim finance and accounting support and assist with and expedite the timely preparation of the company’s restated financial statements and related filings.

Dave Rawden from AlixPartners, a seasoned financial expert with decades of experience serving in senior financial roles, has been appointed as Interim Chief Financial Officer.

Planned Remedial Actions

"The Board and management team intend to take further remedial actions over the coming months to enhance risk management, strengthen internal controls, and ensure timely and accurate financial reporting. In addition, the Board intends to take steps to further enhance Board oversight and composition and promote corporate governance and compensation best practices.

The Board, commenting on the internal investigation, stated:

We are grateful for the diligent work of the Ad Hoc Committee, the guidance of our outside experts, the tireless effort from our senior management, the continued dedication of our employees, and the patience of our shareholders and other stakeholders throughout this process.

With the investigation concluding, our attention has turned to addressing the issues that led to the misconduct, ensuring that future financial disclosures are timely and accurate, releasing our financial results for the third quarter of 2024, and preparing restated financials for the affected periods. We are committed to pursuing remedial actions that we believe will enhance the reliability of our financial statements and help prevent these issues from occurring in the future.

We are confident that Evolv is well positioned to continue its important work and to achieve its strategic objectives. The Board embraces the Company’s mission of making the world safer and will continue to take steps to advance our vision while delivering long-term value for all stakeholders."