(Updates with company statement in the third paragraph, settlement details throughout, share price movement in first and final paragraphs.)

Evolv Technologies (EVLV) stock closed 2.4% higher on Tuesday and continued to climb in after-hours trade after the security systems company announced a tentative agreement with the federal regulators to settle allegations that it overstated the ability of its artificial intelligence-powered security screening system to detect and prevent weapons in school settings.

Under terms of the proposed settlement order filed Tuesday with the US District Court in Massachusetts, Evolv agreed to stop making unsupported or misleading claims about its Evolv Express security tools. The company also did not admit nor deny any of the FTC allegations.

Company officials said they worked with the FTC to resolve this matter, adding it was "pleased" the agency did not challenge the fundamental effectiveness of its Express detection system or require Evolv to pay a monetary fine.

The settlement covers school customers who bought Evolv's Express security system between April 2022 through June 2023. The company had deployed more than 4,500 Express units through the end of 2023, roughly double the number it placed in schools by December 2022, according to its most recent annual report.

Evolv Technologies shares briefly dropped as much as 16% after the FTC announced the settlement before recovering for a higher close. The stock was climbing more than 6% in Tuesday's after-hours session.