Security tech company Evolv investigates sales misconduct, warning recent financials are unreliable

[October 26, 2024]  NEW YORK (AP) — Evolv is warning its shareholders to no longer rely on recent financial statements, as the security technology company investigates employee misconduct related to “certain sales."

In a Friday announcement, Evolv disclosed that a group of independent board directors is currently conducting an internal investigation into the company's sales practices. While this investigation is ongoing, the committee has found that at least some sales were “subject to extra-contractual terms and conditions” and were not shared with accounting personnel.

The committee has also determined that certain employees were engaged with this misconduct, but no further specifics were shared Friday. Evolv notes the investigation is trying to determine if this misconduct impacted revenue reports and other financial metrics, and if so, when senior personnel became aware.

As a result, the company is telling shareholders that financial statements between the second quarter or 2022 and that of 2024 are no longer reliable. Evolv's next earnings report will also be delayed.

The investigating committee estimates that the sales transactions at issue resulted in premature or incorrect revenue recognition of about $4 million to $6 million through the end of June, Evolv said, although that could change pending the conclusion of the investigation.

The company added that it's reported these issues to the U.S. Securities Exchange Commission.

The Waltham, Massachusetts-based company previously reported in August that second-quarter revenue was $25.5 million, an increase of 29% compared to $19.8 million for the second quarter of 2023.

The Evolv Express weapons detection system lights up red during a demonstration, May 25, 2022, in New York. (AP Photo/Mary Altaffer, File)

“We recognize the importance of timely and accurate financial disclosures and are working expeditiously to conclude our thorough investigation," Evolv's board said in a prepared statement — adding that it was “committed to taking whatever remedial actions are necessary.”

Evolv provides security screening technology powered by artificial intelligence. The company manufacturers portal weapons scanners that were used as part of a pilot testing program inside some New York City subway stations this summer, for example.

That program faced ample criticism, however, and questions of efficacy. Recently released police data showed that the scanners did not detect any passengers with firearms — and had more than 100 false alerts over the one-month test.

Beyond the sales practices investigation announced Friday, Evolv has faced other legal issues. That includes separate federal probes into its marketing practices led by the Federal Trade Commission and the SEC.

And earlier this year, investors filed a class-action lawsuit, accusing company executives of overstating the devices’ capabilities and claiming that “Evolv does not reliably detect knives or guns.”

In afternoon trading, shares of the company slid 38% to $2.52.

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