Evolv ‘remains focused on customers’ during investigation

WALTHAM, Mass.—Evolv Technology remains “committed to our mission of making people and places safe” amid an internal investigation involving allegations of misconduct during sales transactions that has led to the company delaying its Q3 financials. 

On Oct. 25, the manufacturer of AI-based weapons detection technology announced that employees “engaged in misconduct” during sales transactions covering a nearly two-year period, following a preliminary committee investigation. 

“Evolv and its board of directors recognize the importance of timely and accurate financial disclosures,” the company said in a statement to Security Systems News. “The board has formed an ad hoc committee of independent directors, which has engaged outside legal and accounting experts and is working expeditiously to conduct a thorough investigation and to prepare amendments to the company’s financial statements and related filings.”  

Evolv noted that the board is “committed to taking whatever remedial actions are necessary so that we can provide reliable information to our key stakeholders. The company will provide an update as soon as it can.”  

Under investigation is whether certain sales of products and subscriptions to channel partners and end users were subject to extra-contractual terms and conditions that impacted revenue recognition and other metrics, and if so, when senior company personnel became aware of these issues. 

While the ad hoc committee conducts its investigation, Evolv noted that it is business as usual as it looks to reach the Rule of 40, which serves as an indicator of sustainable growth and effective cost management. Scoring at or above 40% signals to prospective buyers that the company has long-term potential.  

“In the meantime, we remain focused on serving our customers,” the company said. “The fundamentals of our business remain strong, and we are seeing demand for our products and services that is in line with our internal forecasts and consistent with our long-term expectations of advancing our distribution model and achieving the Rule of 40.” 

The preliminary committee determined that the accounting for certain sales transactions 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 committee determined that these misstatements impacted certain financial statements prepared for these periods, and that the recognition of revenue in the proper periods will impact each of those financial statements. 

Currently, the committee estimates that, on a net basis through June 30, 2024, sales transactions at issue “resulted in premature or incorrect revenue recognition of approximately $4 million to $6 million.” 

Based on the committee’s recommendation, the board determined that Evolv’s previously issued consolidated financial statements and other financial data for the fiscal years ending Dec. 31, 2022, and Dec. 31, 2023, contained in its annual report and its condensed consolidated financial statements for the quarters and year-to-date periods ending June 30, 2022, Sept. 30, 2022, March 31, 2023, June 30, 2023, Sept. 30, 2023, March 31, 2024 and June 30, 2024, contained in its quarterly reports should no longer be relied upon because of these misstatements.