10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of May 5, 2023 the registrant had 12,245,301 shares of common stock, $0.005 par value per share, outstanding.

Note 1. Organization and Description of Business

In April 2023, ShotSpotter, Inc. changed its name to SoundThinking, Inc. (the “Company”), reflecting its broader impact on public safety through a growing set of industry-leading law enforcement tools and community-focused solutions. As part of the rebrand, the Company introduced its SafetySmart PlatformTM that includes four data-driven tools including its flagship product, ShotSpotter® (formerly ShotSpotter Respond), the leading outdoor gunshot detection, location and alerting system trusted by over 155 cities and over 20 universities and corporations as of March 31, 2023. CrimeTracer™ (formerly COPLINK X) is a leading law enforcement search engine that enables investigators to search through more than 1 billion criminal justice records from across jurisdictions to generate tactical leads and quickly make intelligent connections to solve crimes. CaseBuilder™ (formerly ShotSpotter Investigate) is a one-stop investigative management system for tracking, reporting, and collaborating on cases. And ResourceRouter™ (formerly ShotSpotter Connect) directs the deployment of patrol and community anti-violence resources in an objective way to help maximize the impact of limited resources and improve community safety. The Company offers its solutions on a software-as-a-service subscription model to its customers. SoundThinking Labs supports innovative uses of the Company's technology to help protect wildlife and the environment. Additionally, we provide maintenance and support services and professional software development services to a single customer, through a sales channel intermediary.

The Company’s principal executive offices are located in Fremont, California. The Company has five wholly-owned subsidiaries.

Note 2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Certain information and note disclosures normally included in the consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. The condensed consolidated financial statements include the results of the Company and its wholly-owned subsidiaries. All significant intercompany transactions have been eliminated upon consolidation.

The accompanying condensed consolidated financial statements and related financial information should be read in conjunction with the consolidated financial statements filed with the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 (“Annual Report”) filed with the Securities and Exchange Commission on March 14, 2023.

In the opinion of management, the accompanying condensed consolidated financial statements reflect all normal recurring adjustments necessary to present fairly the financial position, results of operations, comprehensive income (loss), stockholders’ equity and cash flows for the interim periods, but are not necessarily indicative of the results of operations or cash flows to be anticipated for the full year 2023 or any future period. The Company has evaluated subsequent events occurring after the date of the condensed consolidated financial statements for events requiring recording or disclosure in the condensed consolidated financial statements.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and reported amounts of revenues and expenses during the reporting period. On an ongoing basis, management evaluates its significant estimates, including the valuation of accounts receivable, the lives and realization of tangible and intangible assets, contingent consideration liabilities, stock-based compensation expense, customer life, accounting for revenue recognition, contingent liabilities related to legal matters, and income taxes including deferred taxes and any related valuation allowance. In particular, the Company's contingent consideration liabilities are subject to significant estimates surrounding forecasts of certain revenues and other factors. Management bases its estimates on historical experience and on various other market-specific and relevant assumptions it believes to be reasonable under the circumstances. Actual results could

differ from those estimates and such differences could be material to the Company’s financial position and results of operations.

The Company records net deferred tax assets to the extent the Company believes these assets will more likely than not be realized. In making such a determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. In the event the Company determines that it would be able to realize its deferred assets in the future in excess of their net recorded amount, the Company makes an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes.

Concentrations of Risk

Credit Risk – Financial instruments that potentially subject the Company to concentration of credit risk consisted primarily of cash and cash equivalents and accounts receivable from trade customers. The Company maintains its deposits of cash and cash equivalents at two domestic and four international financial institutions. The Company is exposed to credit risk in the event of default by a financial institution to the extent that cash and cash equivalents are in excess of the amount insured by the Federal Deposit Insurance Corporation ("FDIC") and other local country government agencies. The Company generally places its cash and cash equivalents with high-credit quality financial institutions. To date, the Company has not experienced any losses on its cash and cash equivalents. As of March 31, 2023, the Company had $3.8 million and $25,000 on hand in separate respective accounts with the Company's two domestic financial institutions, for which only $250,000 per bank is insured under FDIC limits.

Concentration of Accounts Receivable and Contract Asset – At March 31 2023, three customers accounted for 27%, 20% and 16% of the Company’s total accounts receivable and contract asset, respectively. At March 31, 2022, two customers accounted for 38% and 15% of the Company’s total accounts receivable and contract asset.

Concentration of Revenues – For the three months ended March 31, 2023, two customers accounted for 27% and 10% of the Company’s total revenues, respectively. For the three months ended March 31, 2022, two customers accounted for 38% and 10% of the Company’s total revenues, respectively.

Concentration of Suppliers – The Company relies on a limited number of suppliers and contract manufacturers. In particular, a single supplier is currently the sole manufacturer of the Company’s proprietary sensors.

Recent Accounting Pronouncements Adopted

In June 2016, the Financial Accounting Standards Board ("FASB”) issued Accounting Standards Update ("ASU") 2016-13, Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The amendments in this ASU replace the incurred loss impairment methodology in current U.S. GAAP with a methodology that reflects current expected credit loss and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The guidance was effective at the beginning of the Company’s first quarter of fiscal 2023. The Company adopted this ASU effective January 1, 2023. The adoption of this ASU did not have a material impact on the Company's consolidated financial statements.

Note 3. Revenue Related Disclosures

The changes in deferred revenue were as follows (in thousands):


	Three Months Ended March 31,
	2023			2022
Beginning balance	$	43,721		$	26,709
Deferred revenues acquired (Note 4 - Business Acquisitions)		—			5,382
New billings		14,149			24,527
Revenue recognized during the year from beginning balance		(14,987	)		(9,825	)
Revenue recognized during the year from new billings		(5,429	)		(11,292	)
Foreign currency impact		5			8
Ending balance	$	37,459		$	35,509

The following table presents remaining performance obligations for contractually committed revenues as of March 31, 2023 (in thousands):


Remainder of 2023	$	53,915
2024		37,584
2025		17,099
Thereafter		7,099
Total	$	115,697

The timing of certain revenue recognition included in the table above is based on estimates of go-live dates for contracts not yet live. Contractually committed revenue includes deferred revenue as of March 31, 2023 and amounts under contract that will be invoiced after March 31, 2023.

During the three months ended March 31, 2023, the Company recognized revenues of $20.2 million from customers in the United States, and $0.4 million from customers in the Bahamas and South Africa. During the three months ended March 31, 2022, the Company recognized revenues of $20.8 million from customers in the United States, and $0.4 million from customers in the Bahamas and South Africa.

During the three months ended March 31, 2023, the Company recognized revenues of $19.5 million from monthly subscription, maintenance and support services, and $1.1 million from professional software development services. During the three months ended March 31, 2022, the Company recognized revenues of $19.0 million from monthly subscription, maintenance and support services, and $2.2 million from professional software development services.

Note 4. Business Acquisition

During the first quarter of 2022, the Company completed the acquisition of 100% of the membership interests in Forensic Logic, LLC (“Forensic Logic”) for purchase consideration of $4.9 million in cash, subject to working capital adjustments, and $14.3 million in the form of 464,540 shares of the Company's common stock based on the closing price on the date of acquisition. The purchase consideration also included a contingent earnout payable based on Forensic Logic’s revenues generated during 2022 and 2023. The acquisition date fair value of the contingent earnout was $12.4 million, resulting in a total purchase consideration of $31.6 million.

The following table summarizes the assignment of fair value to the identified assets and liabilities recorded as of the acquisition date (in thousands):


Cash and cash equivalents	$	303
Accounts receivable and contract asset, net		220
Property and equipment, net		200
Operating lease right-of-use assets		1,893
Software technology		7,140
Tradename		1,000
Customer relationships		8,400
Goodwill		20,155
Other assets		186
Accrued expenses and other current liabilities		(635	)
Operating lease liabilities		(1,893	)
Deferred revenue		(5,382	)
Total estimated consideration	$	31,587

Goodwill primarily represents the value of cash flows from future customers and the employee workforce. The Company expects to deduct the amortization of goodwill and intangible assets for tax purposes. A portion of the amortization deduction will commence upon settlement of contingent consideration liabilities. The Company valued the intangible assets using income-based approaches. Significant assumptions included forecasts of revenues, cost of revenues, research and development expense, sales and marketing expense, general and administrative expense,

technology lives, royalty rates, working capital rates, customer attrition rates and other estimates. The Company discounted the cash flows at 24%, reflecting the risk profile of the assets.

Acquisition-related expenses totaled $0.6 million, of which $0.1 million is included in general and administrative expense for the three months ended March 31, 2022.

Note 5. Fair Value Measurements

In November 2020, using a Monte Carlo Simulation approach, and Level III of the fair value hierarchy established by Accounting Standards Codification (“ASC”) 820-10-35-37, the Company estimated the fair value of the contingent consideration liability associated with its acquisition of LEEDS LLC (“LEEDS”) to be $0.2 millions as of the acquisition date. During the fourth quarter of 2021, the fair value of the contingent consideration was increased by $1.3 million based upon estimated 2022 revenue targets, representing an adjustment to the most likely outcome expected for the liability. During the three months ended March 31, 2023, the Company paid the $1.5 million LEEDS contingent consideration balance.

In January 2022, using a Monte Carlo Simulation approach and Level III of the fair value hierarchy established by ASC 820-10-35-37, the Company estimated the fair value of the contingent consideration liability associated with its acquisition of Forensic Logic to be $12.4 million as of the acquisition date. During the year ended December 31, 2022, and the first quarter of 2023, the fair value of the contingent consideration was decreased by $9.2 million based upon revised estimated 2022 and 2023 revenue targets due to delays in certain expected contracts by a small number of significant potential customers.

The changes in the fair value of contingent consideration liabilities for the quarters ended March 31 are as follows (in thousands):


	Three Months Ended March 31,
	2023			2022
Beginning balance	$	4,746		$	1,500
Payment of contingent consideration liability		(1,500	)		—
Change in fair value of contingent consideration		(6	)		12,400
Ending balance	$	3,241		$	13,900

There were


Delaware	47-0949915
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
39300 Civic Center Dr., Suite 300 Fremont, California	94538
(Address of principal executive offices)	(Zip Code)


Title of each class	Trading Symbol(s)	Name of each exchange on which registered

Common stock, par value $0.005 per share	SSTI	The Nasdaq Capital Market


		Page
PART I.	FINANCIAL INFORMATION
Item 1.	Condensed Consolidated Financial Statements	2
	Condensed Consolidated Balance Sheets	2
	Condensed Consolidated Statements of Operations	3
	Condensed Consolidated Statements of Comprehensive Income (Loss)	4
	Condensed Consolidated Statements of Stockholders’ Equity	5
	Condensed Consolidated Statements of Cash Flows	6
	Notes to Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16
Item 3.	Qualitative and Quantitative Disclosures About Market Risk	26
Item 4.	Controls and Procedures	26
PART II.	OTHER INFORMATION
Item 1A.	Risk Factors	27
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	56
Item 6.	Exhibits	56
Exhibit Index		57
Signatures		58


	March 31,			December 31,
	2023			2022
	Unaudited
Assets
Current assets
Cash and cash equivalents	$	5,075		$	10,479
Accounts receivable and contract asset, net		26,721			30,957
Prepaid expenses and other current assets		3,474			3,225
Total current assets		35,270			44,661
Property and equipment, net		22,361			21,988
Operating lease right-of-use assets		3,012			3,240
Goodwill		22,971			22,971
Intangible assets, net		26,671			27,318
Other assets		2,807			2,570
Total assets	$	113,092		$	122,748
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable	$	2,520		$	1,633
Deferred revenue, short-term		35,620			41,907
Accrued expenses and other current liabilities		6,649			9,965
Total current liabilities		44,789			53,505
Deferred revenue, long-term		1,839			1,813
Deferred tax liability		685			685
Other liabilities		5,550			5,800
Total liabilities		52,863			61,803
Commitments and contingencies (Note 14)
Stockholders' equity
Preferred stock: $0.005 par value; 20,000,000 shares authorized; no shares issued and outstanding as of March 31, 2023 and December 31, 2022, respectively		—			—
Common stock: $0.005 par value; 500,000,000 shares authorized; 12,243,780 and 12,243,929 shares issued and outstanding as of March 31, 2023 and December 31, 2022, respectively		62			62
Additional paid-in capital		154,664			153,573
Accumulated deficit		(94,190	)		(92,400	)
Accumulated other comprehensive loss		(307	)		(290	)
Total stockholders' equity		60,229			60,945
Total liabilities and stockholders' equity	$	113,092		$	122,748


	Three Months Ended March 31,
	2023			2022
Revenues	$	20,620		$	21,214
Costs
Cost of revenues		9,243			8,290
Impairment of property and equipment		72		—
Total costs		9,315			8,290
Gross profit		11,305			12,924

Operating expenses
Sales and marketing		5,848			5,576
Research and development		2,653			2,627
General and administrative		4,616			4,289
Change in fair value of contingent consideration		(6	)	—
Total operating expenses		13,111			12,492
Operating income (loss)		(1,806	)		432
Other income (expense), net
Interest income, net		54			8
Other expense, net		(38	)		(53	)
Total other income (expense), net		16			(45	)
Income (loss) before income taxes		(1,790	)		387
Provision for income taxes		—			—
Net income (loss)	$	(1,790	)	$	387
Net income (loss) per share, basic	$	(0.15	)	$	0.03
Net income (loss) per share, diluted	$	(0.15	)	$	0.03
Weighted-average shares used in computing net income (loss) per share, basic		12,252,517			12,156,968
Weighted-average shares used in computing net income (loss) per share, diluted		12,252,517			12,315,806


Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
Emerging growth company	☐


	Common Stock					Additional Paid-in			Accumulated			Accumulated Other Comprehensive			Total Stockholders'
	Shares			Par Value		Capital			Deficit			Loss			Equity
Balance at January 1, 2023		12,243,929		$	62	$	153,573		$	(92,400	)	$	(290	)	$	60,945
Exercise of stock options		10,063			—		127			—			—			127
Repurchase of common stock		(35,369	)		—		(1,256	)		—			—			(1,256	)
Issuance of common stock from RSUs vested		25,157			—		—			—			—			—
Stock-based compensation		—			—		2,220			—			—			2,220
Foreign currency translation loss		—			—		—			—			(17	)		(17	)
Net loss		—			—		—			(1,790	)		—			(1,790	)
Balance at March 31, 2023		12,243,780		$	62	$	154,664		$	(94,190	)	$	(307	)	$	60,229