EVOLV TECHNOLOGIES HOLDINGS, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q) | MarketScreener

2022-08-20 04:43:01 By : Ms. Sharon Fu

Additional information regarding COVID-19 risks appear in the "Risk Factors" section of our Annual Report on Form 10-K for the year ended December 31, 2021.

Key Factors Affecting Our Operating Results

Pricing, Product Cost and Margins

Additional information regarding Contingently Issuable Common Stock vesting provisions and accounting treatment appear in Note 2 of our consolidated financial statements for the year ended December 31, 2021 of our Annual Report on Form 10-K.

Components of Results of Operations

We recognize cost of revenue in the same manner that the related revenue is recognized.

Cost of product revenue consists primarily of costs paid to third party manufacturers, labor costs (including stock-based compensation), and shipping costs.

A provision for the estimated cost related to warranty is recognized as necessary. Our estimate of costs to service the warranty obligations is based on historical experience and expectations of future conditions. As of June 30, 2022, the warranty accrual was less than $0.1 million.

Gross Profit and Gross Margin

Our gross profit is calculated based on the difference between our revenues and cost of revenues. Gross margin is the percentage obtained by dividing gross profit by our revenue. Our gross profit and gross margin are, or may be, influenced by a number of factors, including:

We expect our gross margins to fluctuate over time, depending on the factors described above.

Loss From Impairment of Property and Equipment

Interest expense includes cash interest paid on our long-term debt and amortization of deferred financing fees and costs.

Interest income relates to interest earned on money market funds and interest earned on our lease receivables for our Evolv Express units.

Change in Fair Value of Derivative Liability

Change in Fair Value of Contingent Earn-out Liability

Change in Fair Value of Contingently Issuable Common Stock Liability

Change in Fair Value of Public Warrant Liability

Change in Fair Value of Common Stock Warrant Liability

Our income tax provision consists of an estimate for U.S. federal and state income taxes based on enacted rates, as adjusted for allowable credits, deductions, uncertain tax positions, changes in deferred tax assets and liabilities and changes

Comparison of the Three Months Ended June 30, 2022 and 2021

The following table summarizes our results of operations for the three months ended June 30, 2022 and 2021, (in thousands):

Revenue, Cost of Revenue and Gross Profit

Loss From Impairment of Property and Equipment

Interest income of $0.5 million for the three months ended June 30, 2022 related primarily to interest earned on money market funds. No interest income was earned for the three months ended June 30, 2021.

Loss on Extinguishment of Debt

Change in Fair Value of Derivative Liability

Change in Fair Value of Contingent Earn-out Liability

Change in Fair Value of Contingently Issuable Common Stock Liability

Change in Fair Value of Public Warrant Liability

Change in Fair Value of Common Stock Warrant Liability

Comparison of the Six Months ended June 30, 2022 and 2021

The following table summarizes our results of operations for the six months ended June 30, 2022 and 2021, (in thousands):

Revenue, Cost of Revenue and Gross Profit

The increase in personnel related expenses is due to an increase in payroll costs and stock-based compensation resulting from new hires in our research and development function during the second half of 2021 and the first half of

Loss From Impairment of Property and Equipment

Interest expense was $0.3 million for the six months ended June 30, 2022, compared to $5.7 million for the six months ended June 30, 2021. The decrease was primarily due to interest expense on the Convertible Notes during the six

months ended June 30, 2021. The Convertible Notes converted to the Company's common stock upon closing of the Merger in July 2021.

Interest income of $0.6 million for the six months ended June 30, 2022 related primarily to interest earned on money market funds. No interest income was earned for the six months ended June 30, 2021.

Loss on Extinguishment of Debt

Change in Fair Value of Derivative Liability

Change in Fair Value of Contingent Earn-out Liability

Change in Fair Value of Contingently Issuable Common Stock Liability

Change in Fair Value of Public Warrant Liability

Change in Fair Value of Common Stock Warrant Liability

Change in the fair value of the common stock warrant liability was $(0.9) million for the six months ended June 30, 2021, resulting from quarterly mark-to-market adjustments. The common stock warrant liability was derecognized in connection with the closing of the Merger in July 2021.

PIPE Investment and Proceeds from the closing of the Merger

In July 2021, we received gross proceeds of $300.0 million from our PIPE Investment, as well as $84.9 million in proceeds, net of redemptions received in connection with the closing of the Merger.

Material Cash Requirements for Known Contractual and Other Obligations

Table of Contents noncancelable operating lease amount to $2.7. See Note 6 to our condensed consolidated financial statements for the six months ended June 30, 2022.

Net increase (decrease) in cash, cash equivalents and restricted cash

Changes in operating assets and liabilities for the six months ended June 30, 2022 are primarily related to the following:

•$5.8 million increase in accounts receivable primarily due to higher sales and the timing of billings to customers;

•$3.5 million increase in inventory primarily due to increased production of units to meet customer demand;

•$9.7 million increase in prepaid expense and other current assets primarily due to deposits paid to the Company's contract manufacturer, offset by

•$6.0 million increase in deferred revenue due to a higher volume of sales.

Changes in operating assets and liabilities for the six months ended June 30, 2021 are primarily related to the following:

•$1.3 million increase in accounts receivable primarily due to higher sales and the timing of billings to customers;

•$7.3 million increase in prepaid expense and other current assets primarily due to prepaid subscriptions and insurance, offset by

•$3.5 million increase in accounts payable due to increased sales and marketing and general and administrative expenses due to the growth in business and anticipation of the Merger, as well as timing of vendor payments.

During the six months ended June 30, 2021, cash used in investing activities was $8.0 million, consisting of the purchases of property and equipment.

During the six months ended June 30, 2022, cash provided by financing activities was $0.4 million, consisting of proceeds from the exercise of stock options.

Critical Accounting Policies and Estimates

© Edgar Online, source Glimpses