Evolv Technologies Holdings, Inc.EVLV
Evolv Technologies Holdings, Inc. Income Taxes Disclosure
Income Taxes
The components of the Company’s loss before income tax expense are as follows (in thousands):
| Year Ended December 31, | |||||||||||||||||
| 2024 | 2023 | 2022 | |||||||||||||||
| (Restated) | (Restated) | ||||||||||||||||
| United States | $ | (54,046) | $ | (108,055) | $ | (86,149) | |||||||||||
| Foreign | 29 | 58 | (646) | ||||||||||||||
| Loss before income tax provision | $ | (54,017) | $ | (107,997) | $ | (86,795) | |||||||||||
Income tax expense is comprised of the following (in thousands):
| Year Ended December 31, | |||||||||||||||||
| 2024 | 2023 | 2022 | |||||||||||||||
| Current: | |||||||||||||||||
| Federal | $ | — | $ | — | $ | — | |||||||||||
| State | — | 27 | — | ||||||||||||||
| Foreign | — | 24 | — | ||||||||||||||
| Total current income tax expense | $ | — | $ | 51 | $ | — | |||||||||||
| Deferred: | |||||||||||||||||
| Federal | $ | — | $ | — | $ | — | |||||||||||
| State | — | — | — | ||||||||||||||
| Foreign | — | — | — | ||||||||||||||
| Total deferred income tax expense | $ | — | $ | — | $ | — | |||||||||||
| Total income tax expense | $ | — | $ | 51 | $ | — | |||||||||||
The effective tax rate differs from the U.S. federal statutory rate primarily due to the full valuation allowance maintained on the Company’s net deferred tax assets and non-deductible fair value adjustments for the years ended December 31, 2024, 2023, and 2022. A reconciliation of the U.S. federal statutory income tax rate to the Company’s effective income tax rate is as follows:
| Year Ended December 31, | |||||||||||||||||
| 2024 | 2023 | 2022 | |||||||||||||||
| (Restated) | (Restated) | ||||||||||||||||
| Federal statutory income tax rate | 21.0 % | 21.0 % | 21.0 % | ||||||||||||||
| State income taxes, net of federal benefit | 7.7 | 3.4 | 3.4 | ||||||||||||||
| Federal and state research and development tax credits | (0.1) | — | (1.2) | ||||||||||||||
| Change in fair value of contingent earn-out liability and contingently issuable common stock liability | 9.9 | (4.4) | 3.3 | ||||||||||||||
| Change in valuation allowance | (42.9) | (17.1) | (23.5) | ||||||||||||||
| Change in uncertain tax positions | (0.1) | (0.4) | — | ||||||||||||||
| Change in tax rate | 3.3 | 0.7 | (0.1) | ||||||||||||||
| Stock-based compensation | 1.1 | (0.6) | (0.2) | ||||||||||||||
| Non-deductible compensation | 0.5 | (2.4) | (2.5) | ||||||||||||||
| Permanent differences | (0.2) | (0.1) | (0.2) | ||||||||||||||
| Other | (0.2) | (0.1) | — | ||||||||||||||
| Effective income tax rate | 0.0 | % | 0.0 | % | 0.0 | % | |||||||||||
Net deferred tax assets consisted of the following (in thousands):
| December 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| (Restated) | |||||||||||
| Deferred tax assets: | |||||||||||
| Net operating loss carryforwards | $ | 57,450 | $ | 41,914 | |||||||
| Research and development tax credit carryforwards | 3,594 | 3,802 | |||||||||
| Capitalized research and development costs | 15,868 | 13,043 | |||||||||
| Accrued expenses | 9,991 | 7,236 | |||||||||
| Deferred revenue | 22,531 | 18,324 | |||||||||
| Lease liability | 3,848 | 351 | |||||||||
| Other | 2,960 | 1,304 | |||||||||
| Total deferred tax assets | 116,242 | 85,974 | |||||||||
| Valuation allowance | (106,268) | (83,113) | |||||||||
| Total deferred tax assets, net of valuation allowance | 9,974 | 2,861 | |||||||||
| Deferred tax liabilities: | |||||||||||
| Depreciation and amortization | (6,250) | (2,542) | |||||||||
| Right of use lease asset | (3,706) | (302) | |||||||||
| Other | (18) | (17) | |||||||||
| Total deferred tax liabilities | (9,974) | (2,861) | |||||||||
| Net deferred tax assets | $ | — | $ | — | |||||||
As of December 31, 2024, the Company had federal net operating loss carryforwards of $20.1 million, which begin to expire in 2033. These losses were generated before 2018 and are subject to a 20-year carryforward period under
the tax rules in effect at that time. The Company also had federal net operating loss carryforwards of $203.3 million and $144.1 million (as restated) as of December 31, 2024 and 2023, respectively, which do not expire but are generally limited to offsetting up to 80% of taxable income in any given year. These amounts were generated after 2017 and are subject to the provisions of the Tax Cuts and Jobs Act, which eliminated the expiration period but imposed a limitation on usage.
The Company had state net operating loss carryforwards of $201.1 million and $142.8 million (as restated) as of December 31, 2024 and 2023, respectively, which may be available to offset future state taxable income and which begin to expire in 2033, depending on jurisdiction-specific rules. Additionally, as of December 31, 2024 and 2023, the Company had United Kingdom net operating loss carryforwards of approximately $1.7 million and $1.6 million (as restated), respectively, which do not expire under current UK tax law.
As of December 31, 2024, the Company had gross U.S. federal and state research and development and other tax credit carryforwards of $2.4 million and $1.5 million, respectively, which may be available to offset future tax liabilities and the majority of which begin to expire in 2033 and 2030, respectively. As of December 31, 2023, the Company had gross U.S. federal and state research and development and other tax credit carryforwards of $2.5 million and $1.6 million, respectively, which may be available to offset future tax liabilities and the majority of which begin to expire in 2033 and 2029, respectively.
Utilization of the U.S. federal and state net operating loss carryforwards and research and development tax credit carryforwards may be subject to a substantial annual limitation under Sections 382 and 383 of the Internal Revenue Code of 1986, and corresponding provisions of state law, due to ownership changes that have occurred previously or that could occur in the future. These ownership changes may limit the amount of carryforwards that can be utilized annually to offset future taxable income or tax liabilities. In general, an ownership change, as defined by Section 382, results from transactions increasing the ownership of certain stockholders or public groups in the stock of a corporation by more than 50% over a three-year period. If the Company has experienced a change of control, as defined by Section 382, at any time since inception, utilization of the net operating loss carryforwards or research and development tax credit carryforwards would be subject to an annual limitation under Section 382, which is determined by first multiplying the value of the Company’s stock at the time of the ownership change by the applicable long-term tax-exempt rate, and then could be subject to additional adjustments. Any limitation may result in the expiration of a portion of the net operating loss carryforwards or research and development tax credit carryforwards before utilization.
The Company believes that an ownership change within the meaning of section 382 occurred on July 16, 2021, in connection with the Merger. Based on the estimated annual limitation, the company would have been able to fully utilize all of its Section 382-limited net operating losses and tax credit carryforwards in the 2022 tax year. The Company believes that no additional ownership changes have occurred since then.
The Company considered the evidence of its history of cumulative net operating losses incurred since inception, as well as other positive and negative evidence bearing upon its ability to realize deferred tax assets in respect of our net operating loss carryforwards, and has concluded that it is more likely than not that the Company will not realize the benefits of the deferred tax assets. Accordingly, a full valuation allowance has been established against the net deferred tax assets as of December 31, 2024 and 2023. If or when recognized, the tax benefits related to any reversal of the valuation allowance on deferred tax assets as of December 31, 2024, will be accounted for as follows: approximately $104.1 million will be recognized as a reduction of income tax expense and $2.2 million will be recorded as an increase in equity. The Company reevaluates the positive and negative evidence at each reporting period.
Changes in the valuation allowance for deferred tax assets related primarily to the increase in net operating loss carryforwards and capitalized R&D costs and were as follows (in thousands):
| December 31, | |||||||||||||||||
| 2024 | 2023 | 2022 | |||||||||||||||
| (As Restated) | (As Restated) | ||||||||||||||||
| Valuation allowance as of beginning of year | $ | 83,113 | $ | 64,677 | $ | 43,966 | |||||||||||
| Additions charged to provision for income taxes | 23,155 | 18,436 | 20,427 | ||||||||||||||
| Additions charged to equity | — | — | 332 | ||||||||||||||
| Currency translation and other | — | — | (48) | ||||||||||||||
| Valuation allowance as of end of year | $ | 106,268 | $ | 83,113 | $ | 64,677 | |||||||||||
The Company accounts for income tax uncertainties in accordance with ASC 740 Income Taxes, which prescribes a recognition threshold and measurement criteria for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Benefits from tax positions should be recognized in the financial statements only when it is more likely than not that the tax position will be sustained upon examination by the appropriate taxing authority that would have full knowledge of all relevant information. A tax position that meets the more likely than not recognition threshold is measured at the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement. Tax positions that previously failed to meet the more likely than not recognition threshold should be recognized in the first subsequent financial reporting period in which that threshold is met. Previously recognized tax positions that no longer meet the more likely than not recognition threshold should be derecognized in the first subsequent financial reporting period in which that threshold is no longer met. ASC 740 also provides guidance on the accounting for and disclosure of liabilities for uncertain tax positions, interest and penalties. The Company’s policy is to record interest and penalties related to income taxes as part of its income tax provision.
The following table summarizes the activity related to the Company’s uncertain tax positions (excluding interest and penalties and related tax attributes) (in thousands):
| December 31, | |||||||||||||||||
| 2024 | 2023 | 2022 | |||||||||||||||
| Balance at beginning of fiscal year | $ | 428 | $ | — | $ | — | |||||||||||
| Gross increases related to prior year tax positions | 20 | 407 | — | ||||||||||||||
| Foreign exchange and others | (1) | 21 | — | ||||||||||||||
| Balance at end of fiscal year | $ | 447 | $ | 428 | $ | — | |||||||||||
The Company’s liability for uncertain tax positions as of December 31, 2024, includes $0.4 million related to amounts that, if recognized, would affect the effective tax rate (excluding related interest and penalties).
The Company files income tax returns as prescribed by the tax laws of the jurisdictions in which it operates. In the normal course of business, the Company is subject to examination by federal, state, and non-US jurisdictions, where applicable. The Company is open to future tax examinations in the US under statute from 2021 to the present; however, carryforward attributes that were generated before 2021 may still be adjusted upon examination by federal, state, or local tax authorities if they either have been or will be used in a future period. The Company is also subject to future tax examinations under UK statute for the period from 2021 to the present, with a standard look-back period of 4 years, extendable to 6 years in cases of carelessness. The Company has not received notice of examination in any jurisdiction for any tax year open under statute.
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Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2024 | Apr 28, 2025 | Showing above |
| 2021 | Mar 28, 2022 | |
About Income Taxes Disclosures
The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.
Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.