NEW YORK — Evolv has cautioned its shareholders against relying on its recent financial disclosures due to an ongoing investigation into employee misconduct associated with specific sales activities.
In a statement released on a Friday, the security technology firm noted that an independent board committee is examining the company’s sales practices. The preliminary findings indicate that some sales have been conducted under “extra-contractual terms and conditions” that were not communicated to the accounting team.
This investigative committee has identified specific employees implicated in the misconduct; however, no detailed information was made available. Evolv stated that the inquiry aims to ascertain whether these improper activities affected revenue reports and other financial indicators, and when upper management became aware of these issues.
Consequently, Evolv has informed shareholders that financial statements from the second quarter of 2022 through the second quarter of 2024 should no longer be considered trustworthy. The upcoming earnings report for the company will also be postponed as a result of this situation.
The committee believes that the questionable sales transactions may have led to premature or incorrect revenue recognition, ranging from approximately $4 million to $6 million up until the end of June; however, this figure is subject to change pending the conclusion of the investigation.
Moreover, the company has reported these findings to the U.S. Securities and Exchange Commission. In an earlier announcement in August, Evolv had indicated that its revenue for the second quarter totaled $25.5 million, marking a 29% increase compared to $19.8 million for the same quarter in 2023.
Evolv’s board emphasized the significance of providing timely and accurate financial disclosures, stating that they aim to expedite their thorough investigation and are committed to undertaking necessary remedial actions.
Evolv specializes in security screening technology that utilizes artificial intelligence. For instance, the company produces portal weapons scanners that were part of a pilot program implemented in some New York City subway stations over the summer.
This pilot program, however, received substantial criticism, particularly regarding its effectiveness. Recent police data indicated that the scanners failed to identify any passengers carrying firearms, alongside generating over 100 false alerts during the one-month test period.
In addition to the sales practices investigation disclosed on Friday, Evolv is also dealing with other legal challenges. This includes separate federal inquiries into its marketing strategies being conducted by the Federal Trade Commission and the SEC.
Earlier this year, a class-action lawsuit was filed by investors who accused the company’s executives of exaggerating the devices’ capabilities, with claims that “Evolv does not reliably detect knives or guns.”
Following the announcement, Evolv’s stock experienced a significant decline, falling 38% to $2.52 during afternoon trading.