During after-hours trading last Friday, the stock price of Evolv Technologies Holdings, Inc. (NASDAQ: EVLV) had a minor comeback, rising 6.81% to $2.64. The stock saw a steep 39.76% drop during regular trading, closing at $2.47, before this bounce. The company’s revelation of revenue recognition irregularities involving specific workers set off the slump.
Findings of Sales Misconduct
Evolv Technologies (EVLV) declared on October 25, 2024, that anomalies in its sales procedures had been discovered during an internal investigation. The business will have to restate its financial accounts for a two-year period as a result. EVLV cautioned stakeholders and shareholders not to depend on several of its earlier financial reporting.
Additionally, Evolv will delay filing its quarterly report on Form 10-Q for the period ending September 30, 2024, as the investigation unfolds.
Internal Investigation and Findings
The Board of Directors formed an ad hoc committee consisting of independent directors to oversee an investigation into the company’s sales practices. The inquiry focuses on whether some product and subscription sales to channel partners and end users involved extra-contractual terms that affected revenue recognition.
According to preliminary investigations, certain sales were subject to secret terms, including those involving one of Evolv’s biggest partners. PricewaterhouseCoopers LLP (PwC), an independent auditing firm, the audit committee, and the company’s accounting staff were not given access to these.
The committee concluded that these erroneous recognitions resulted in false financial reporting between the second quarter of 2022 and the second quarter of 2024, which in turn caused either early or wrong revenue recognition. Most of the income is recognized prematurely rather than improperly, and the expected impact on revenue ranges from $4 million to $6 million.
SEC Involvement and Future Updates
The U.S. Securities and Exchange Commission (SEC), which is already looking into the matter independently, has been notified of the findings by Evolv Technologies. EVLV continues to assist the SEC in its investigation. Following the conclusion of the internal inquiry and the timely filing of the postponed quarterly report, more developments will be given.
