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Evolv Technologies (EVLV) - 2024 Q4 - Annual Report
EVLVEvolv Technologies (EVLV)2025-04-28 21:04

Financial Performance - The company reported net losses of 108.0millionand108.0 million and 54.0 million for the years ended December 31, 2023 and 2024, respectively, with an accumulated deficit of 354.7millionasofDecember31,2024[98].−Thecompanyhasnotbeenprofitablehistoricallyandmaynotachieveormaintainprofitabilityinthefuture,withsignificantuncertaintiesaffectingfutureoperatingresults[98].−Thecompanyintendstoretainfutureearningsforbusinessdevelopmentanddoesnotplantopaycashdividendsfortheforeseeablefuture[224].−Themarketpriceofthecompany′scommonstockhasbeenhighlyvolatile,influencedbyvariousfactorsincludingfinancialperformanceandregulatoryinquiries[219].−Futuresalesofcommonstockbyexistingsecurityholderscouldleadtoadeclineinthemarketpriceofthecompany′ssecurities[225].InternalControlsandCompliance−Thecompanyidentifiedmaterialweaknessesininternalcontroloverfinancialreporting,leadingtorestatementsoffinancialstatementsforthefiscalyearsendedDecember31,2022and2023[94].−Thecompanyhasrestateditspreviouslyissuedfinancialstatementsduetomisstatements,whichhasexposedittoadditionalrisksanduncertainties[92].−Thecompanyissubjecttoongoinglegalproceedingsandinvestigationsrelatedtoitsfinancialreportingandinternalcontrols[93].−ThecompanyiscurrentlyunderinvestigationbytheSECregardingitssalespractices,whichmayimpactrevenuerecognitionandothermetrics[209].−ThecompanyhasreceivedrequestsfordocumentsfromtheSECandtheU.S.Attorney′sOfficerelatedtotheongoinginvestigationandiscooperatingwiththeseinquiries[210].MarketandCompetition−Increasedcompetitionmayleadtopricingpressures,affectingsalespricesandprofitability[120].−Thecompetitivelandscapeinthephysicalsecuritysolutionsmarketposeschallengesforcustomeracquisitionandretention,withcompetitorshavinggreaterresources[148].−TheevolvingmarketforAI−basedweaponsdetectionmaynotgrowasexpected,withtraditionalsecuritysolutionsstilldominatingenterprisebudgets[139].−CustomeradoptionandretentionratesforAI−basedproductsaredifficulttopredict,andanyreductionindemandcouldadverselyaffectrevenueandfinancialresults[141].ResearchandDevelopment−Thecompanyexpectstocontinuesubstantialinvestmentsinresearchanddevelopmentandsalesandmarketing,includingexpandingitssalesorganization[99].−Strategicinvestmentsinresearchanddevelopment,sales,andmarketingareexpected,butcostswillberecognizedearlierthantheanticipatedbenefits[119].−Significantinvestmentinresearchanddevelopmentisnecessarytoaddressevolvingsecurityrisks,butthismayalsoriskrenderingexistingproductsobsolete[154].LegalandRegulatoryRisks−Thecompanyfacespotentiallegalliabilitiesfromacquisitions,whichcouldadverselyimpactitsbusinessandfinancialconditionifacquiredbusinessesdonotmeetexpectations[127].−LegalframeworksforAIgovernanceareunsettled,andpotentialregulationscoulddisruptoperationsandimposeadditionalcostsonthecompany[144].−Non−compliancewithdataprivacylawscouldleadtogovernmentalenforcementactions,litigation,andreputationaldamage,adverselyaffectingbusinessoperations[196].−Thecompanyfacespotentialliabilitiesfromthird−partyactionsrelatedtodataprivacy,whichcouldnecessitatechangesinbusinesspractices[197].OperationalChallenges−Thecompanymayfaceincreasedcostsandoperationalchallengesduetorelianceonthird−partytechnologyandcomponents[91].−Supplychaindisruptionsandrelianceonthird−partymanufacturersposeriskstoproductionandoperationalefficiency[108][112].−Businessoperationsarevulnerabletodisruptionsfromnaturaldisasters,includingclimate−relatedevents,whichcouldsignificantlydelayproductshipmentsandinstallations[231].−Concernsaboutterrorism,politicalturmoil,andepidemicdiseasescouldnegativelyimpacttheoperationsofthecompany′sfacilitiesandthoseofitscontractmanufacturers,suppliers,andcustomers[232].CustomerRelationsandSales−Asignificantportionofrevenueisgeneratedfromproductsalestonewcustomersandadditionalsalestoexistingcustomers,withsalescycleslastingseveralmonths[101].−Thecompanyfaceschallengesinattractingandretainingnewcustomersandsellingadditionalproductstoexistingcustomers[103].−Thecompanymusteffectivelymanagerelationshipswithresellerpartnerstoensuresuccessfulmarketinganddistributionofproducts[105][107].Cybersecurity−Cybersecuritythreatsareconstantlyevolving,requiringthecompanytoallocateadditionalresourcestostrengthendefensesagainstpotentialbreaches[162].−Cybersecurityincidentscanleadtothemisappropriationordestructionofcriticaldata,impactingbusinessoperationsandcustomertrust[165].−Thecompanyhasexperiencedcyber−attacksbuthasnotyetfacedmaterialadverseimpactsonitsoperationsorfinancialcondition[166].IntellectualProperty−Thecompany’sabilitytoprotectitsintellectualpropertyrightsiscrucialformaintainingitscompetitiveposition,withpotentialchallengesinenforcingtheserights[175].−Legalactionstoenforceintellectualpropertyrightscouldresultinsubstantialcostsanddivertresourcesfromcorebusinessoperations[177].−Thecompanymayfacesignificantdamagesandlegalcostsiffoundtoinfringethird−partyintellectualpropertyrights,whichcouldharmitsfinancialcondition[180].TaxandFinancialObligations−Changesintaxlaws,suchastherecentU.S.InflationReductionAct,couldadverselyaffectthecompany′staxobligationsandeffectivetaxrates[201].−Thecompanymayfaceadditionalcostsandliabilitiesduetocompliancewithanti−corruptionlawsandexportcontrols,whichcouldimpactfinancialcondition[202].−AsofDecember31,2024,thecompanyhadfederalnetoperatinglosscarryforwardsof354.7 million as of December 31, 2024[98]. - The company has not been profitable historically and may not achieve or maintain profitability in the future, with significant uncertainties affecting future operating results[98]. - The company intends to retain future earnings for business development and does not plan to pay cash dividends for the foreseeable future[224]. - The market price of the company's common stock has been highly volatile, influenced by various factors including financial performance and regulatory inquiries[219]. - Future sales of common stock by existing security holders could lead to a decline in the market price of the company's securities[225]. Internal Controls and Compliance - The company identified material weaknesses in internal control over financial reporting, leading to restatements of financial statements for the fiscal years ended December 31, 2022 and 2023[94]. - The company has restated its previously issued financial statements due to misstatements, which has exposed it to additional risks and uncertainties[92]. - The company is subject to ongoing legal proceedings and investigations related to its financial reporting and internal controls[93]. - The company is currently under investigation by the SEC regarding its sales practices, which may impact revenue recognition and other metrics[209]. - The company has received requests for documents from the SEC and the U.S. Attorney's Office related to the ongoing investigation and is cooperating with these inquiries[210]. Market and Competition - Increased competition may lead to pricing pressures, affecting sales prices and profitability[120]. - The competitive landscape in the physical security solutions market poses challenges for customer acquisition and retention, with competitors having greater resources[148]. - The evolving market for AI-based weapons detection may not grow as expected, with traditional security solutions still dominating enterprise budgets[139]. - Customer adoption and retention rates for AI-based products are difficult to predict, and any reduction in demand could adversely affect revenue and financial results[141]. Research and Development - The company expects to continue substantial investments in research and development and sales and marketing, including expanding its sales organization[99]. - Strategic investments in research and development, sales, and marketing are expected, but costs will be recognized earlier than the anticipated benefits[119]. - Significant investment in research and development is necessary to address evolving security risks, but this may also risk rendering existing products obsolete[154]. Legal and Regulatory Risks - The company faces potential legal liabilities from acquisitions, which could adversely impact its business and financial condition if acquired businesses do not meet expectations[127]. - Legal frameworks for AI governance are unsettled, and potential regulations could disrupt operations and impose additional costs on the company[144]. - Non-compliance with data privacy laws could lead to governmental enforcement actions, litigation, and reputational damage, adversely affecting business operations[196]. - The company faces potential liabilities from third-party actions related to data privacy, which could necessitate changes in business practices[197]. Operational Challenges - The company may face increased costs and operational challenges due to reliance on third-party technology and components[91]. - Supply chain disruptions and reliance on third-party manufacturers pose risks to production and operational efficiency[108][112]. - Business operations are vulnerable to disruptions from natural disasters, including climate-related events, which could significantly delay product shipments and installations[231]. - Concerns about terrorism, political turmoil, and epidemic diseases could negatively impact the operations of the company's facilities and those of its contract manufacturers, suppliers, and customers[232]. Customer Relations and Sales - A significant portion of revenue is generated from product sales to new customers and additional sales to existing customers, with sales cycles lasting several months[101]. - The company faces challenges in attracting and retaining new customers and selling additional products to existing customers[103]. - The company must effectively manage relationships with reseller partners to ensure successful marketing and distribution of products[105][107]. Cybersecurity - Cybersecurity threats are constantly evolving, requiring the company to allocate additional resources to strengthen defenses against potential breaches[162]. - Cybersecurity incidents can lead to the misappropriation or destruction of critical data, impacting business operations and customer trust[165]. - The company has experienced cyber-attacks but has not yet faced material adverse impacts on its operations or financial condition[166]. Intellectual Property - The company’s ability to protect its intellectual property rights is crucial for maintaining its competitive position, with potential challenges in enforcing these rights[175]. - Legal actions to enforce intellectual property rights could result in substantial costs and divert resources from core business operations[177]. - The company may face significant damages and legal costs if found to infringe third-party intellectual property rights, which could harm its financial condition[180]. Tax and Financial Obligations - Changes in tax laws, such as the recent U.S. Inflation Reduction Act, could adversely affect the company's tax obligations and effective tax rates[201]. - The company may face additional costs and liabilities due to compliance with anti-corruption laws and export controls, which could impact financial condition[202]. - As of December 31, 2024, the company had federal net operating loss carryforwards of 20.1 million, which begin to expire in 2033, and an additional $203.3 million that do not expire but are limited to offsetting up to 80% of taxable income in any given year[213].