Five months after Evolv Technologies Holdings, Inc. (EVLV), a maker of weapons detection security screening solutions, warned investors it would restate the previous three years of financials, an internal investigation revealed a cover up related to the improper recognition of millions of dollars.

Though Evolv’s board found the vast majority of revenue in question was prematurely rather than incorrectly recognized, it also found senior finance and accounting personnel were aware of allegations of improper revenue recognition as early as the second quarter of 2024 but did not share the allegations with the company’s auditor or audit committee.

The revelations were made in a filing warning investors Evolv would not file its annual report on time as the company is still working to restate years of financials and key metrics.

It’s unclear exactly how much revenue was improperly recognized or when as Evolv disclosed the improperly recognized revenue on a net basis only— meaning the preliminary figure of improperly recognized revenue has been offset by amounts appropriately recognized in subsequent periods in 2022, 2023, and through June 30, 2024:

“...the sales transactions at issue resulted in premature or incorrect revenue recognition of approximately $3 million compared to its previous disclosed estimate of between $4 million to $6 million.”

The $3 million in improperly recognized revenue is approximately:

—5.4% of 2022 sales
—.7% of 2023 sales
—2.9% of estimated 2024 sales

Presumably, the senior finance and accounting personnel aware of the internally raised allegations of impropriety were let go in the recent restructuring that reduced Evolv’s headcount by 14%.

However, the latest filing does not confirm whether these employees— or those who withheld information from the Audit Committee and Auditor— are still with the company or if any executive bonuses will be clawed back.

Evolv CEO Peter George and CFO Mark Donohue each received cash bonuses in 2023 based, in part, on hitting certain revenue targets.

With an Enterprise Value (EV) of approximately $400 million, Evolv is priced as if it will grow annual sales to more than $2.4 billion, up from an estimated $101.6 million in 2024. To justify its current share price of $3.03 our Reverse DCF— which quantifies investor expectations embedded in the current share price— indicates Evolv must:

—Grow sales 45% annually between 2026-2034, compared to the company’s estimated 2024 and 2025 sales growth of 26.4% and 25.9%, respectively
—Increase NOPAT margin to 12%, higher than our 2023 estimate of (112.8%) and our 3-year average estimate of 163.6%)
—Increase Invested Capital (IC) Turns to 1.2, up from our 3-year average estimate of 0.75

Notably, the current share price also implies Kopin increases Return on Invested Capital (ROIC) to 14.4% from our 2023 estimate of (58.3%) and 3-year average estimate of (109.8%):