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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

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

For the quarterly period ended March 31, 2024

OR

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

For the transition period from to

Commission File Number: 001-38107

 

SoundThinking, Inc.

(Exact Name of Registrant as Specified in its Charter)

 

 

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)

Registrant’s telephone number, including area code: (510) 794-3100

 

Securities registered pursuant to Section 12(b) of the Act:

 

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

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.

 

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

 

 

 

 

 

 

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 8, 2024 the registrant had 12,793,456 shares of common stock, $0.005 par value per share, outstanding.

 

 

 


 

Table of Contents

 

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 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

17

Item 3.

Qualitative and Quantitative Disclosures About Market Risk

27

Item 4.

Controls and Procedures

27

PART II.

OTHER INFORMATION

 

Item 1

Legal Proceedings

28

Item 1A.

Risk Factors

28

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

57

Item 6.

Exhibits

57

Exhibit Index

58

Signatures

59

 

 

 

1


 

PART I. FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

SoundThinking, Inc.

Condensed Consolidated Balance Sheets

(In thousands, except share and per share data)

 

 

 

March 31,

 

 

December 31,

 

 

 

2024

 

 

2023

 

 

 

(unaudited)

 

 

 

 

Assets

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

Cash and cash equivalents

 

$

8,524

 

 

$

5,703

 

Accounts receivable and contract assets, net

 

 

35,201

 

 

 

30,700

 

Prepaid expenses and other current assets

 

 

3,507

 

 

 

3,902

 

Total current assets

 

 

47,232

 

 

 

40,305

 

Property and equipment, net

 

 

21,429

 

 

 

21,028

 

Operating lease right-of-use assets

 

 

2,078

 

 

 

2,315

 

Goodwill

 

 

34,213

 

 

 

34,213

 

Intangible assets, net

 

 

35,995

 

 

 

36,938

 

Other assets

 

 

4,025

 

 

 

3,909

 

Total assets

 

$

144,972

 

 

$

138,708

 

Liabilities and Stockholders' Equity

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

Accounts payable

 

$

2,260

 

 

$

3,031

 

Accrued expenses and other current liabilities

 

 

7,101

 

 

 

8,521

 

Line of credit

 

 

7,000

 

 

 

7,000

 

Deferred revenue, short-term

 

 

44,817

 

 

 

41,265

 

Total current liabilities

 

 

61,178

 

 

 

59,817

 

Deferred revenue, long-term

 

 

5,935

 

 

 

812

 

Deferred tax liability

 

 

1,267

 

 

 

1,226

 

Other liabilities

 

 

1,833

 

 

 

2,096

 

Total liabilities

 

 

70,213

 

 

 

63,951

 

Commitments and contingencies (Note 13)

 

 

 

 

 

 

Stockholders' equity

 

 

 

 

 

 

Common stock: $0.005 par value; 500,000,000 shares authorized;
12,793,168 and 12,761,448 shares issued and outstanding as of March 31, 2024 and December 31, 2023, respectively

 

 

64

 

 

 

64

 

Additional paid-in capital

 

 

173,066

 

 

 

170,139

 

Accumulated deficit

 

 

(98,027

)

 

 

(95,118

)

Accumulated other comprehensive loss

 

 

(344

)

 

 

(328

)

Total stockholders' equity

 

 

74,759

 

 

 

74,757

 

Total liabilities and stockholders' equity

 

$

144,972

 

 

$

138,708

 

 

See accompanying notes to condensed consolidated financial statements.

2


 

SoundThinking, Inc.

Condensed Consolidated Statements of Operations

(In thousands, except share and per share data)

(Unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

 

2024

 

 

2023

 

 

Revenues

 

$

25,410

 

 

$

20,620

 

 

Costs

 

 

 

 

 

 

 

Cost of revenues

 

 

10,271

 

 

 

9,243

 

 

Impairment of property and equipment

 

 

252

 

 

 

72

 

 

Total costs

 

 

10,523

 

 

 

9,315

 

 

Gross profit

 

 

14,887

 

 

 

11,305

 

 

 

 

 

 

 

 

 

Operating expenses

 

 

 

 

 

 

 

Sales and marketing

 

 

7,112

 

 

 

5,848

 

 

Research and development

 

 

3,560

 

 

 

2,653

 

 

General and administrative

 

 

6,830

 

 

 

4,616

 

 

Change in fair value of contingent consideration

 

 

 

 

 

(6

)

 

Total operating expenses

 

 

17,502

 

 

 

13,111

 

 

Operating loss

 

 

(2,615

)

 

 

(1,806

)

 

Other income (expense), net

 

 

 

 

 

Interest income (expense), net

 

 

(122

)

 

 

54

 

 

Other expense, net

 

 

(58

)

 

 

(38

)

 

Total other income (expense), net

 

 

(180

)

 

 

16

 

 

Loss before income taxes

 

 

(2,795

)

 

 

(1,790

)

 

Provision for income taxes

 

 

114

 

 

 

 

 

Net loss

 

$

(2,909

)

 

$

(1,790

)

 

Net loss per share, basic and diluted

 

$

(0.23

)

 

$

(0.15

)

 

Weighted-average shares used in computing net loss per share, basic and diluted

 

 

12,770,988

 

 

 

12,252,517

 

 

 

See accompanying notes to condensed consolidated financial statements.

3


 

SoundThinking, Inc.

Condensed Consolidated Statements of Comprehensive Loss

(In thousands)

(Unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

Net loss

 

$

(2,909

)

 

$

(1,790

)

Other comprehensive loss:

 

 

 

 

 

 

Change in foreign currency translation adjustment, net of taxes

 

 

(16

)

 

 

(17

)

Comprehensive loss

 

$

(2,925

)

 

$

(1,807

)

 

See accompanying notes to condensed consolidated financial statements.

 

4


 

SoundThinking, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

(In thousands, except share data)

(Unaudited)

 

 

 

Common Stock

 

 

Additional
Paid-in

 

 

Accumulated

 

 

Accumulated
Other
Comprehensive

 

 

Total
Stockholders'

 

 

 

Shares

 

 

Par Value

 

 

Capital

 

 

Deficit

 

 

Loss

 

 

Equity

 

Balance at January 1, 2024

 

 

12,761,448

 

 

$

64

 

 

$

170,139

 

 

$

(95,118

)

 

$

(328

)

 

$

74,757

 

Issuance of common stock from RSUs vested

 

 

31,720

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

 

 

 

 

 

2,927

 

 

 

 

 

 

 

 

 

2,927

 

Foreign currency translation loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(16

)

 

 

(16

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

(2,909

)

 

 

 

 

 

(2,909

)

Balance at March 31, 2024

 

 

12,793,168

 

 

$

64

 

 

$

173,066

 

 

$

(98,027

)

 

$

(344

)

 

$

74,759

 

 

 

 

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

 

 

See accompanying notes to condensed consolidated financial statements.

5


 

SoundThinking, Inc.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

Cash flows from operating activities:

 

 

 

 

 

 

Net loss

 

$

(2,909

)

 

$

(1,790

)

Adjustments to reconcile net loss to net cash provided by (used in ) operating activities:

 

 

 

 

 

 

Depreciation of property and equipment

 

 

1,573

 

 

 

1,771

 

Amortization of intangible assets

 

 

965

 

 

 

661

 

Impairment of property and equipment

 

 

252

 

 

 

72

 

Stock-based compensation

 

 

2,927

 

 

 

2,220

 

Change in fair value of contingent consideration

 

 

 

 

 

(6

)

Deferred taxes

 

 

41

 

 

 

 

Allowance for credit losses

 

 

126

 

 

 

25

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Accounts receivable and contract assets

 

 

(4,627

)

 

 

4,211

 

Prepaid expenses and other assets

 

 

278

 

 

 

(486

)

Accounts payable

 

 

(886

)

 

 

219

 

Accrued expenses and other liabilities

 

 

(1,438

)

 

 

(1,834

)

Deferred revenue

 

 

8,675

 

 

 

(6,261

)

Net cash provided by (used in) operating activities

 

 

4,977

 

 

 

(1,198

)

Cash flows from investing activities:

 

 

 

 

 

 

Purchase of property and equipment

 

 

(2,134

)

 

 

(1,537

)

Investment in intangible and other assets

 

 

(6

)

 

 

(23

)

Net cash used in investing activities

 

 

(2,140

)

 

 

(1,560

)

Cash flows from financing activities:

 

 

 

 

 

 

Payment of contingent consideration liability

 

 

 

 

 

(1,500

)

Proceeds from line of credit

 

 

3,000

 

 

 

 

Proceeds from exercise of stock options

 

 

 

 

 

127

 

Repurchases of common stock

 

 

 

 

 

(1,256

)

Payment of line of credit

 

 

(3,000

)

 

 

 

Net cash used in financing activities

 

 

 

 

 

(2,629

)

Change in cash, cash equivalents and restricted cash

 

 

2,837

 

 

 

(5,387

)

Effect of exchange rate on cash and cash equivalents

 

 

(16

)

 

 

(17

)

Cash, cash equivalents and restricted cash at beginning of year

 

 

5,703

 

 

 

10,479

 

Cash, cash equivalents and restricted cash at end of period

 

$

8,524

 

 

$

5,075

 

 

 

 

 

 

 

 

Supplemental cash flow disclosures:

 

 

 

 

 

 

Property and equipment purchases included in accounts payable

 

$

584

 

 

$

1,074

 

 

See accompanying notes to condensed consolidated financial statements.

6


 

SoundThinking, Inc.

Notes to Condensed Consolidated Financial Statements

Note 1. Organization and Description of Business

 

SoundThinking, Inc. (the “Company”) brings the power of digital transformation to law enforcement and security personnel by providing precision-policing and security solutions, combining data-driven solutions and strategic advisory services for law enforcement and civic leadership. As of March 31, 2024, the Company had approximately 250 customers and to date have worked with approximately 2,100 agencies to help drive more efficient, effective, and equitable public safety outcomes.

In April 2023, the Company introduced its SafetySmart™ platform that includes five data-driven tools consisting of (i) its flagship product, ShotSpotter® (formerly ShotSpotter Respond), the leading outdoor gunshot detection, location and alerting system trusted by 171 cities and 18 universities and corporations as of March 31, 2024, (ii) CrimeTracer™ (formerly COPLINK X), a leading law enforcement search engine that enables investigators to search through more than one billion criminal justice records across jurisdictions to generate tactical leads and quickly make intelligent connections to solve crimes, (iii) CaseBuilder™ (formerly ShotSpotter Investigate), a one-stop investigative management system for tracking, reporting, and collaborating on cases, (iv) ResourceRouter™ (formerly ShotSpotter Connect) that 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, and (v) SafePointe™, an AI-based weapons detection system that the Company added when it acquired SafePointe, LLC (“SafePointe”) in August 2023. The Company offers its solutions on a software-as-a-service subscription model to its customers.

ShotSpotter for Highways, ShotSpotter for Campus and ShotSpotter for Corporate, are typically smaller-scale deployments of ShotSpotter vertically marketed to universities, corporate campuses, highways, and key infrastructure centers to mitigate risk and enhance security by notifying authorities of outdoor gunfire incidents, saving critical minutes for first responders to arrive. In 2019, the Company created a technology innovation unit, SoundThinking Labs, to expand its efforts supporting innovative uses of its technology to help protect wildlife and the environment. Additionally, the Company provides maintenance and support services and professional software development services to two customers, through sales channel intermediaries.

The Company’s principal executive offices are located in Fremont, California. The Company has six 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, 2023 (“Annual Report”) filed with the SEC on April 1, 2024.

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 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 2024 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.

7


 

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 would make 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 three 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, 2024, the Company had approximately $7.6 million, $0.3 million and $27,000, deposited with the Company's three domestic financial institutions, for which only $250,000 per bank is insured under FDIC limits.

Concentration of Accounts Receivable and Contract Assets – At March 31, 2024, two customers accounted for 25% and 21% of the Company’s total accounts receivable and contract assets, net. At December 31, 2023, two customers accounted for 24% and 10%, respectively, of the Company’s total accounts receivable and contract assets, net.

Concentration of Revenues – For the three months ended March 31, 2024, two customers accounted for 26% and 10% of the Company’s total revenues. For the three months ended March 31, 2023, two customers accounted for 27% and 10% of the Company’s total revenues.

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.

During the three months ended March 31, 2024, there were no changes to the Company’s significant accounting policies described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, except as follows:

Recent Accounting Pronouncements Not Yet Effective

Improvements to Income Tax Disclosures

In December 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-09, Improvements to Income Tax Disclosures (“ASU 2023-09”). ASU 2023-09 enhances the transparency of income tax disclosures, primarily by requiring public business entities to disclose on an annual basis, specific categories in the rate reconciliation tabular presentation, as well as by providing additional information for reconciling items that meet a quantitative threshold. The ASU also requires disaggregated disclosures of federal, state and foreign income taxes

8


 

paid. The new guidance is effective for fiscal years beginning after December 15, 2024. The Company does not expect implementation of the new guidance to have a material impact on its condensed consolidated financial statements.

Improvements to Reportable Segment Disclosures

In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which enhances prior reportable segment disclosure requirements in part by requiring entities to disclose significant expenses related to their reportable segments. The guidance also requires disclosure of the Chief Operating Decision Maker's (“CODM”) position for each segment and detail of how the CODM uses financial reporting to assess their segment’s performance. The new guidance is effective for fiscal years beginning after December 15, 2023, and for interim periods within fiscal years beginning after December 15, 2024, on a retrospective basis, with early adoption permitted. The Company does not expect implementation of the new guidance to have a material impact on its consolidated financial statements.

 

Note 3. Revenue Related Disclosures

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

 

March 31,

 

 

2024

 

 

2023

 

Beginning balance

$

42,077

 

 

$

43,721

 

   New billings

 

33,242

 

 

 

14,149

 

   Revenue recognized during the year from beginning balance

 

(14,347

)

 

 

(14,987

)

   Revenue recognized during the year from new billings

 

(10,220

)

 

 

(5,429

)

   Foreign currency impact

 

 

 

 

5

 

Ending balance

$

50,752

 

 

$

37,459

 

The following table presents remaining performance obligations for contractually committed revenues as of March 31, 2024 (in thousands):

Remainder of 2024

 

 

$

59,125

 

2025

 

 

 

33,158

 

2026

 

 

 

16,135

 

Thereafter

 

 

 

5,340

 

Total

 

 

$

113,758

 

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, 2024 and amounts under contract that will be invoiced after March 31, 2024.

During the three months ended March 31, 2024, the Company recognized revenues of $24.8 million from customers in the United States, and $0.6 million from customers in the Bahamas, South Africa and Uruguay. 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, 2024, the Company recognized revenues of $25.3 million from monthly subscription, maintenance and support services, and $0.1 million from professional software development services. 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.

 

9


 

Note 4. Acquisitions

SafePointe, LLC

During the third quarter of 2023, the Company completed the acquisition of 100% of the membership interests in SafePointe for purchase consideration of $11.4 million in cash, subject to working capital adjustments, of which $1.1 million is indemnification escrow cash, and $11.2 million in the form of 549,579 shares of the Company's common stock based on the closing price on the date of acquisition, of which $1.1 million is indemnification escrow stock. The purchase consideration also included a contingent earnout payable based on SafePointe’s revenues generated during 2023 through 2025. The Company borrowed $7.0 million under the Umpqua Credit Agreement (See Note 12, Financing Arrangements) to partially fund the purchase consideration. The acquisition date fair value of the contingent earnout was $3.0 million, resulting in a total purchase consideration of $25.6 million. Up to $11.5 million in earnout would be payable based on SafePointe’s revenues generated during the remainder of 2023 and during the years ended December 31, 2024 and 2025. The SafePointe acquisition was accounted for as a business acquisition in accordance with ASC 805, Business Combinations. The acquisition allows the Company to enter the AI-based weapons detection market.

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

 

 

$

394

 

Accounts receivable and contract assets

 

 

 

370

 

Property and equipment, net

 

 

 

717

 

Customer relationships

 

 

 

2,500

 

Software technology

 

 

 

9,200

 

Tradename

 

 

 

1,100

 

Goodwill

 

 

 

11,242

 

Other assets

 

 

 

101

 

Accrued expenses and other current liabilities

 

 

 

(52

)

Deferred revenue

 

 

 

(581

)

Net assets acquired

 

 

 

24,991

 

Escrow claim

 

 

 

581

 

Total estimated consideration

 

 

$

25,572

 

 

 

 

 

 

The goodwill recognized was primarily attributed to increased synergies that are expected to be achieved from the integration of SafePointe and 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 20.9%, reflecting the risk profile of the assets.

The Company will amortize the acquired customer relationships for 12 years, the acquired software technology for 11 years and the acquired tradename for nine years.

There were no acquisition-related expenses during the three months ended March 31, 2024 and 2023, respectively.

The unaudited pro forma combined revenue and net loss presented below have been prepared as if the Company had acquired SafePointe on January 1, 2023 and is for informational purposes only and is not necessarily indicative of the results of operations that would have been achieved if the acquisition had taken place on January 1, 2023. The unaudited pro forma financial information has been derived from the consolidated statements of operations of the Company and SafePointe for the below period. The historical financial information has been adjusted in the unaudited combined pro forma information based upon currently available information and certain estimates and assumptions. The actual effect of the transactions ultimately may differ from the pro forma adjustments included herein. However, management believes that the assumptions used to prepare the pro forma adjustments provide a reasonable basis for presenting the significant effects of the transactions as currently contemplated and that the pro forma adjustments are factually supportable, give

10


 

appropriate effect to the expected impact of events that are directly attributable to the transactions, and reflect those items expected to have a continuing impact on the Company.

The unaudited pro forma combined revenue and net loss for the three months ended March 31, 2023 would have been $21.0 million and $2.4 million, respectively.

 

Note 5. Fair Value Measurements

In November 2020, the Company estimated the fair value of the contingent consideration liability associated with its acquisition of LEEDS, LLC (“LEEDS”). This fair value measurement was classified as Level III within the fair value hierarchy as prescribed by Accounting Standards Codification 820-10-35-37 ("ASC 820, Fair Value Measurement"). In May 2023, the Company renamed LEEDS to Technologic Solutions, LLC (“Technologic”). During the first quarter of 2023, the Company paid the $1.5 million Technologic contingent consideration balance, in full settlement of its obligations under the purchase agreement.

In January 2022, 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, using a Monte Carlo simulation approach with asset and revenue volatility of 60.0% and 28.0%, respectively. This fair value measurement is classified as Level III within the fair value hierarchy as prescribed by ASC 820, Fair Value Measurement. During the three months ended March 31, 2023, the fair value of the contingent consideration was decreased by $0.01 million, based upon adjustments to recorded liabilities as a result of revised 2023 forecasted revenues as of March 31, 2023. As a result of actual revenue recognized in the year ended December 31, 2023, the Company did not pay any amounts under the contingent consideration and no further contingent payments remain.

In August 2023, the Company estimated the fair value of the contingent consideration liability associated with its acquisition of SafePointe to be $3.0 million as of the acquisition date, using a Monte Carlo simulation approach with asset and revenue volatility of 76.1% and 25.8%, respectively. This fair value measurement is classified as Level III within the fair value hierarchy as prescribed by ASC 820, Fair Value Measurement.

The changes in the fair value of contingent consideration liabilities for the three months ended March 31, 2024 and 2023 are as follows (in thousands):

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

Beginning balance

 

$

554

 

 

$

4,747

 

Payment of contingent consideration liability

 

 

 

 

 

(1,500

)

Change in fair value of contingent consideration

 

 

 

 

 

(6

)

Ending balance

 

$

554

 

 

$

3,241

 

There were no transfers into or out of Level III during the three months ended March 31, 2024 and 2023. As of March 31, 2024, the SafePointe contingent consideration of approximately $0.6 million is included in other liabilities in the condensed consolidated balance sheet.

Note 6. Goodwill

The change in goodwill is as follows (in thousands):

 

March 31,

 

 

December 31,

 

 

2024

 

 

2023

 

Beginning balance

$

34,213

 

 

$

22,971

 

Acquisition of SafePointe (Note 4 - Acquisitions)

 

 

 

 

11,242

 

Ending balance

$

34,213

 

 

$

34,213

 

 

 

 

 

 

 

 

11


 

Note 7. Intangible Assets, Net

Intangible assets consist of the following (in thousands):

 

 

March 31, 2024

 

 

Weighted Average Amortization Period (in years)

Gross

 

 

Accumulated Amortization

 

 

Net

 

Customer relationships

14

$

25,470

 

 

$

(4,927

)

 

$

20,543

 

Acquired software technology

9

 

16,340

 

 

 

(2,627

)

 

 

13,713

 

Patents and intellectual property

4

 

1,988

 

 

 

(1,273

)

 

 

715

 

Tradename

6

 

2,100

 

 

 

(1,076

)

 

 

1,024

 

  Total intangible assets, net

 

$

45,898

 

 

$

(9,903

)

 

$

35,995

 

 

 

 

December 31, 2023

 

 

Weighted Average Amortization Period (in years)

Gross

 

 

Accumulated Amortization

 

 

Net

 

Customer relationships

14

$

25,470

 

 

$

(4,467

)

 

$

21,003

 

Acquired software technology

9

 

16,340

 

 

 

(2,199

)

 

 

14,141

 

Patents

4

 

1,966

 

 

 

(1,227

)

 

 

739

 

Tradename

6

 

2,100

 

 

 

(1,045

)

 

 

1,055

 

  Total intangible assets, net

 

$

45,876

 

 

$

(8,938

)

 

$

36,938

 

Intangible amortization expense was approximately $1.0 million and $0.7 million for the three months ended March 31, 2024 and March 31, 2023, respectively.

The following table presents future intangible asset amortization as of March 31, 2024 (in thousands):

Remainder of 2024

 

 

 

 

 

$

2,857

 

2025

 

 

 

 

 

 

3,818

 

2026

 

 

 

 

 

 

3,801

 

2027

 

 

 

 

 

 

3,801

 

2028

 

 

 

 

 

 

3,736

 

Thereafter

 

 

 

 

 

 

17,982

 

  Total

 

 

 

 

 

$

35,995

 

 

Note 8. Details of Certain Condensed Consolidated Balance Sheet Accounts

Accounts receivable and contract assets, net (in thousands):

 

March 31,

 

 

December 31,

 

 

2024

 

 

2023

 

Accounts receivable

$

25,961

 

 

$

24,574

 

Contract assets

 

9,366

 

 

 

6,225

 

Allowance for credit losses

 

(126

)

 

 

(99

)

 

$

35,201

 

 

$

30,700

 

 

12


 

Prepaid expenses and other current assets (in thousands):

 

March 31,

 

 

December 31,

 

 

2024

 

 

2023

 

Deferred commissions

$

1,385

 

 

$

1,295

 

Prepaid software and licenses

 

946

 

 

 

1,147

 

Short-term deposits

 

467

 

 

 

406

 

Prepaid insurance

 

399

 

 

 

806

 

Other

 

310

 

 

 

248

 

 

$

3,507

 

 

$

3,902

 

Other assets (long-term) (in thousands):

 

March 31,

 

 

December 31,

 

 

2024

 

 

2023

 

Deferred commissions

$

3,275

 

 

$

3,205

 

Escrow claim (Note 4 - Acquisitions)

 

581

 

 

 

581

 

Other

 

169

 

 

 

123

 

 

$

4,025

 

 

$

3,909

 

Accrued expenses and other current liabilities (in thousands):

 

March 31,

 

 

December 31,

 

 

2024

 

 

2023

 

Personnel-related accruals

$

4,818

 

 

$

6,500

 

Operating lease liabilities

 

981

 

 

 

964

 

Professional fees

 

371

 

 

 

407

 

Sales/use tax payable

 

125

 

 

 

100

 

State income tax payable

 

201

 

 

 

128

 

Other

 

605

 

 

 

422

 

$

7,101

 

 

$

8,521

 

Other liabilities (long-term) (in thousands):

 

March 31,

 

 

December 31,

 

 

2024

 

 

2023

 

Operating lease liabilities

$

1,279

 

 

$

1,542

 

Contingent consideration liability

 

554

 

 

 

554

 

$

1,833

 

 

$

2,096

 

 

 

 

 

 

 

 

Note 9. Related Party Transactions

During the three months ended March 31, 2024, the Company recognized approximately $33 in revenues from SoundThinking Labs projects with charitable organizations that have received donations from one of the Company’s former directors and from one of the Company’s significant stockholders. There were no related party transactions in the three months ended March 31, 2023.

Note 10. Net Income (Loss) per Share

The computation of basic net income (loss) per share is based on the weighted-average number of shares of common stock outstanding during each period. The computation of diluted net income (loss) per share is based on the weighted-average number of shares outstanding during the period plus, when their effect is dilutive, incremental shares consisting of shares subject to stock options, restricted stock units, employee stock purchase plan purchase rights and warrants.

13


 

The following table summarizes the computation of basic and diluted net income (loss) per share (in thousands, except share and per share data):

 

Three Months Ended March 31,

 

 

2024

 

 

2023

 

Numerator:

 

 

 

 

 

Net loss

$

(2,909

)

 

$

(1,790

)

Denominator:

 

 

 

 

 

Weighted-average shares outstanding, basic and diluted

 

12,770,988

 

 

 

12,252,517

 

Net loss per share, basic and diluted

$

(0.23

)

 

$

(0.15

)

The following potentially dilutive shares outstanding at the end of the periods presented were excluded in the calculation of diluted net loss per share as the effect would have been anti-dilutive:

 

March 31,

 

 

2024

 

 

2023

 

Options to purchase common stock

 

1,819,731

 

 

 

1,461,481

 

Unvested restricted stock units

 

1,085,127

 

 

 

337,259

 

Total

 

2,904,858

 

 

 

1,798,740

 

 

Note 11. Equity Incentive Plans

Stock options

A summary of option activities under the 2005 Stock Plan, as amended in January 2010 and November 2012 (the "2005 Plan") and 2017 Equity Incentive Plan (the “2017 Plan") during the three months ended March 31, 2024 is as follows:

 

 

Number
of Options
Outstanding

 

 

Weighted
Average
Exercise
Price

 

 

Weighted
Average
Grant Date Fair Value per Option

 

 

Aggregate Intrinsic Value Exercised (in thousands)

 

Outstanding at December 31, 2023

 

 

1,789,431

 

 

$

26.83

 

 

 

 

 

 

 

Granted

 

 

51,667

 

 

$

17.74

 

 

$

10.81

 

 

 

 

Exercised

 

 

 

 

$

 

 

 

 

 

$

 

Canceled

 

 

(21,367

)

 

$

25.86

 

 

 

 

 

 

 

Outstanding at March 31, 2024

 

 

1,819,731

 

 

$

26.59

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Under an “evergreen” provision, the number of shares of common stock reserved for issuance under the 2017 Plan will automatically increase on January 1 of each year, beginning on January 1, 2018 and ending on and including January 1, 2027, by 5% of the total number of shares of the Company's common stock outstanding on December 31 of the preceding calendar year or a lesser number of shares determined by the Board. In accordance with the evergreen provision,

14


 

the number of shares of common stock reserved for issuance under the 2017 Plan was increased on January 1, 2024 by 638,072 shares, which was equal to 5% of the total number of shares of common stock outstanding on December 31, 2023.

Restricted stock units

A summary of restricted stock unit ("RSU") activities under the 2017 Plan during the three months ended March 31, 2024 is as follows:

 

 

Number
of RSUs

 

 

Weighted
Average
Grant Date Fair Value per RSU

 

 

Aggregate Fair Value of RSUs Vested (in thousands)

 

Unvested RSUs at December 31, 2023

 

 

298,361

 

 

$

27.58

 

 

 

 

Granted

 

 

817,408

 

 

$

17.74

 

 

 

 

Vested

 

 

(30,642

)

 

$

29.08

 

 

$

4,897

 

Forfeited

 

 

 

 

$

 

 

 

 

Unvested RSUs at March 31, 2024

 

 

1,085,127

 

 

$

20.18

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Performance-based restricted stock units:

During the three months ended March 31, 2024, the Company granted to members of the Company's management team RSU awards with performance-based vesting conditions (“PSUs”), totaling 544,228 shares at a grant date fair value of $17.74 per share, the closing stock price on the grant date. These PSUs vest in one installment on the certification date, which shall occur as soon as administratively practicable following the end of 2026, based on the satisfaction of certain Company performance criteria in 2026, as determined by the Compensation and Human Capital Committee of the Board of Directors of the Company. Compensation expense related to the PSUs is estimated each period based on the fair value of the target stock unit at the grant date and the most probable level of achievement of the performance conditions. Compensation expense related to these awards was approximately $0.1 million for the three months ended March 31, 2024.

2017 Employee Stock Purchase Plan

There were no shares of common stock issued under the 2017 Employee Stock Purchase Plan ("2017 ESPP") during the three months ended March 31, 2024. The 2017 ESPP contains an “evergreen” provision that provides for an automatic annual share increase on January 1 of each year, in an amount equal to the lesser of (1) 2% of the total number of shares of common stock outstanding on December 31st of the preceding calendar year, (2) 150,000 shares or (3) such number of shares as determined by the Board. In accordance with the evergreen provision, the number of shares of common stock reserved for issuance under the 2017 ESPP was increased on January 1, 2024 by 150,000 shares. The number of shares available for grant under the 2017 ESPP was 778,343 as of March 31, 2024.

Total stock-based compensation expense associated with the 2005 Plan, 2017 Plan and 2017 ESPP is recorded in the condensed consolidated statements of operations and was allocated as follows (in thousands):

 

Three Months Ended March 31,

 

 

2024

 

 

2023

 

Cost of revenues

$

440

 

 

$

474

 

Sales and marketing

 

601

 

 

 

439

 

Research and development

 

302

 

 

 

295

 

General and administrative

 

1,584

 

 

 

1,012

 

Total

$

2,927

 

 

$

2,220

 

 

Note 12. Financing Arrangements

On September 27, 2018, the Company entered into a Credit Agreement with Umpqua Bank (the “Umpqua Credit Agreement”), which allowed the Company to borrow up to $10.0 million under a revolving loan facility (the “Revolving Facility”). On November 23, 2022, the Company entered into a Fifth Amendment to the Umpqua Credit Agreement (the “Amendment”), which amended the terms of the Umpqua Credit Agreement to, among other things, (1) extend the maturity date from November 27, 2022 to October 15, 2024

15


 

, (2) increase the revolving credit commitment from $20.0 million to $25.0 million, (3) increase the letter of credit sub-facility from $6.0 million to $7.5 million, (4) remove the minimum profitability covenants and (5) replace the LIBOR index rate with a Term Secured Overnight Financing Rate index rate. On February 7, 2024, the Company entered into a Sixth Amendment to extend the expiration date to October 15, 2025.

Any amounts outstanding under the letter of credit sub-facility reduce the amount available for the Company to borrow under the Revolving Facility. The available loan facility as of March 31, 2024 and December 31, 2023 was approximately $18.0 million, for both periods. As of March 31, 2024 and December 31, 2023, there was $7.0 million outstanding on the Company's line of credit, which the Company borrowed in August 2023 to partially fund the acquisition of SafePointe. The interest expense recorded for the three months ended March 31, 2024 was $0.1 million, based on a weighted-average interest rate of 7.33%.

Note 13. Commitments and Contingencies

Contingencies

On August 28, 2018, Silvon S. Simmons (the “Plaintiff”) amended a complaint against the City of Rochester, New York and various city employees, filed in the United States District Court, Western District of New York, to add the Company and employees as a defendant. The amended complaint alleges conspiracy to violate the Plaintiff’s civil rights, denial of the right to a fair trial, and malicious prosecution. The Plaintiff claims that the Company colluded with the City of Rochester to fabricate and create gunshot alert evidence to secure Plaintiff’s conviction. On the basis of the allegations, the Plaintiff has petitioned for compensatory and punitive damages and other costs and expenses, including attorney’s fees. The Company believes that the Plaintiff’s claims are without merit and has disputed them vigorously. Following a motion for summary judgment by the Company on September 13, 2023, the court removed the Company as a defendant from the litigation. The Plaintiff then lost its case against the City of Rochester, New York at trial and may appeal.

 

The Company may become subject to legal proceedings, as well as demands and claims that arise in the normal course of business. Such claims, even if not meritorious, could result in the expenditure of significant financial and management resources. The Company makes a provision for a liability relating to legal matters when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. These provisions are reviewed and adjusted to include the impacts of negotiations, estimated settlements, legal rulings, advice of legal counsel, and other information and events pertaining to a particular matter.

An unfavorable outcome on any litigation matters could require payment of substantial damages, or, in connection with any intellectual property infringement claims, could require the Company to pay ongoing royalty payments or could prevent the Company from selling certain of its products. As a result, a settlement of, or an unfavorable outcome on, any of the matters referenced above or other litigation matters could have a material adverse effect on the Company’s business, operating results, financial condition and cash flows.

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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion and analysis of our financial condition and results of operations together with our unaudited condensed consolidated financial statements and accompanying notes included in this Quarterly Report on Form 10-Q and the financial statements and accompanying notes and other financial information in the Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, filed with the Securities and Exchange Commission (“SEC”) on April 1, 2024. This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These statements are often identified by the use of words such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “project,” “will,” “would” or the negative or plural of these words or similar expressions or variations. Such forward-looking statements are subject to a number of risks, uncertainties, assumptions and other factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified herein, those discussed in the section titled “Risk Factors” set forth in Part II, Item 1A of this Quarterly Report on Form 10-Q and in our other SEC filings. You should not rely upon forward-looking statements as predictions of future events. Furthermore, such forward-looking statements speak only as of the date of this report. Except as required by law, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements.

Overview

We are a leading public safety technology company that combines data-driven solutions and strategic advisory services for law enforcement and civic leadership. In April 2023, we introduced our SafetySmartTM platform that includes five data-driven tools consisting of: (i) our flagship product, ShotSpotter® (formerly ShotSpotter Respond), a leading outdoor gunshot detection, location and alerting system trusted by 171 cities and 18 universities and corporations as of March 31, 2024, (ii) CrimeTracer™ (formerly COPLINK X) a leading law enforcement search engine that enables investigators to search through more than one billion criminal justice records from across jurisdictions to generate tactical leads and quickly make intelligent connections to solve cases, (iii) CaseBuilder™ (formerly ShotSpotter Investigate) a one-stop investigative management system for tracking, reporting, and collaborating on cases, (iv) ResourceRouter™ (formerly ShotSpotter Connect), which 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, and (v) SafePointe™, an AI-based weapons detection system, that we added when we acquired SafePointe in August 2023. We also offer other security solutions within our flagship product offering ShotSpotter, including ShotSpotter for Highways, ShotSpotter for Campus and ShotSpotter for Corporate that are typically smaller-scale deployments of ShotSpotter vertically marketed to universities, corporate campuses, highways, and key infrastructure centers to mitigate risk and enhance security by notifying authorities of outdoor gunfire incidents, saving critical minutes for first responders to arrive. SoundThinking Labs supports innovative uses of our technology to help protect wildlife and the environment.

Our gunshot detection solutions consist of highly-specialized, cloud-based software integrated with proprietary, internet-enabled sensors designed to detect outdoor gunfire. The speed and accuracy of our gunfire alerts enable law enforcement and security personnel to consistently and quickly respond to shooting events including those unreported through 911, which can increase the chances of apprehending the shooter, providing timely aid to victims, and identifying witnesses before they scatter, as well as aid in evidence collection and serve as an overall deterrent. When a potential gunfire incident is detected by our sensors, our system precisely locates where the incident occurred and applies machine classification combined with human review to analyze and validate the incident. An alert containing a location on a map and critical information about the incident is sent directly to subscribing law enforcement or security personnel through any internet-connected computer and to iPhone or Android mobile devices.

Our software sends gunfire data along with the audio of the triggering sound to our Incident Review Center (“IRC”), where our trained incident review specialists are on duty 24 hours a day, seven days a week, 365 days a year to screen and confirm actual gunfire incidents. Our trained incident review specialists can supplement alerts with additional tactical information, such as the potential presence of multiple shooters or the use of high-capacity weapons. Gunshot incidents reviewed by our IRC result in alerts typically sent within approximately 45 seconds of the receipt of the gunfire incident.

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We offer our solutions on a software-as-a-service subscription model to our customers. We generate annual subscription revenues from the deployment of ShotSpotter on a per-square-mile basis. Our security solutions, ShotSpotter for Highways, ShotSpotter for Campus, and ShotSpotter for Corporate are typically sold on a subscription basis, each with a customized deployment plan. CaseBuilder, ResourceRouter, and CrimeTracer are also sold on a subscription basis generally customized based on the number of sworn officers in a particular city. We generate annual subscription revenues from the deployment of SafePointe on a per-lane basis, a lane being the detection area of an entryway. As of March 31, 2024, we had ShotSpotter, ShotSpotter for Campus, and ShotSpotter for Corporate coverage areas under contract for 1,169 square miles, of which 1,159 square miles had gone live. Coverage areas under contract for ShotSpotter included 171 cities and coverage areas under contract for ShotSpotter for Campus and ShotSpotter for Corporate included 18 campuses/sites across the United States, South Africa and the Bahamas, including some of the largest cities in the United States. As of March 31, 2024, we had 166 SafePointe lanes under contract. Most of our revenues are attributable to customers based in the United States.

While we intend to continue to devote resources to increase sales of our other solutions, we expect that revenues from ShotSpotter will continue to comprise a majority of our revenues for the foreseeable future. SoundThinking Labs projects are generally conducted in coordination with a sponsoring charitable organization and may or may not be revenue-producing. When they are revenue-producing, they will generally be sold on a cost-plus basis. As such, SoundThinking Labs projects will normally produce gross margins significantly lower than most of our other solutions. Additionally, we offer pricing programs for Tier 4 and 5 law enforcement agencies (those with fewer than 100 sworn officers) that allow them to contract for our gunshot detection solutions to cover a footprint of less than three square miles, using standardized coverage parameters, at a discounted annual subscription rate.

Since our founding over 27 years ago, we have been a purpose-led company. We are a mission-driven organization that focuses on improving public safety outcomes. We accomplish this by earning the trust of law enforcement and providing solutions to help them better engage and strengthen the police-community relationships in fulfilling their sworn obligation to equally serve and protect all. Our inspiration comes from our principal founder, Dr. Bob Showen, who believes that the highest and best use of technology is to promote social good. We are committed to developing comprehensive, respectful, and engaged partnerships with law enforcement agencies, elected officials and communities focused on making a positive difference in the world.

We enter into subscription agreements that typically range from one to three years in duration. Substantially all of our sales are to governmental agencies and universities, which often undertake a prolonged contract evaluation process that affects the size or the timing of our sales contracts and may likewise increase our customer acquisition costs.

We rely on a limited number of suppliers and contract manufacturers to produce components of our solutions. We have no long-term contracts with these manufacturers and purchases from them are generally on a purchase order basis. Although we use a limited number of suppliers and contract manufacturers, we believe that we could find alternate suppliers or manufacturers if circumstances required us to do so, in part because a portion of the components required by our solutions are available off the shelf.

We generated revenues of $25.4 million and $20.6 million for the three months ended March 31, 2024 and 2023, respectively, representing an increase of 23%. For the three months ended March 31, 2024 and 2023 revenues from ShotSpotter represented approximately 69%, and 71% of total revenues, respectively. Our two current largest customers, the City of New York and the City of Chicago, each accounted for 26% and 10%, respectively, of our total revenues for the three months ended March 31, 2024. The City of New York and the City of Chicago each accounted for 27% and 10%, respectively, of our total revenues for the three months ended March 31, 2023.

For the three months ended March 31, 2024 and 2023, revenues generated within the United States (including Puerto Rico and the U.S. Virgin Islands) accounted for $24.8 million and $20.2 million, respectively, or 97% and 98% of total revenues, respectively.

We had a net loss of $2.9 million and $1.8 million for the three months ended March 31, 2024 and 2023, respectively. Our accumulated deficit was $98.0 million and $95.1 million at March 31, 2024 and December 31, 2023, respectively.

We have focused on rapidly growing our business and believe that our future growth is dependent on many factors, including our ability to increase our customer base, expand the coverage of our solutions among our existing customers, expand our international presence, increase sales of our other solutions and retain our customers. Our future growth will

18


 

primarily depend on the market acceptance for outdoor gunshot detection solutions. Challenges we face in this regard include our target customers not having access to adequate funding sources, the fact that contracting with government entities can be complex, expensive and time-consuming, the fact that our typical sales cycle is often very long and difficult to estimate accurately, and the fact that negative publicity about our company can and has caused current and potential future customers to evaluate the sales of our solutions more than in the past. We expect international sales cycles to be even longer than our domestic sales cycles. To combat these challenges, we increase awareness of our solutions, invest in new sales and marketing campaigns, often in different languages for international sales, hire additional sales representatives to drive sales to continue to maintain our position as a market leader, and invest in research and development. In addition, we believe that entering into strategic partnerships with other service providers to cities and municipalities offers another potential avenue for expansion.

We will also focus on expanding our business by introducing new products and services to existing customers, such as ResourceRouter, CrimeTracer and as a result of our acquisition in August 2023 of SafePointe, an AI-driven weapon detection system, and acquiring intellectual property assets. We believe that developing and acquiring products for law enforcement in adjacent categories is a path for additional growth. We believe our large and growing installed base of police departments who trust SoundThinking’s products, support, and way of doing business provide revenue growth opportunities. The ability to cross-sell new products provides an opportunity to grow revenues per customer and lifetime value. Challenges we face in this area include ensuring our new products are reliable, integrated well with other SoundThinking solutions, and priced and serviced appropriately. In some cases, we will need to bring in new skill sets to properly develop, market, sell or service these new products depending on the categories they represent.

With respect to international sales, we believe that we have the potential to expand our coverage within existing areas, and to pursue opportunities in Latin America and other regions of the world. By adding additional sales resources in strategic locations, we believe we will be better positioned to reach these markets. However, we recognize that we have limited international operational experience and currently operate in a limited number of regions outside of the United States. Operating successfully in international markets will require significant resources and management attention and will subject us to additional regulatory, economic, and political risks. We may face additional challenges that may delay contract execution related to negotiating with governments in transition, the use of third-party integrations and consultants. Moreover, we anticipate that different political and regulatory considerations that vary across different jurisdictions could extend or make more difficult to predict the length of what is already a lengthy sales cycle.

Net New “Go-Live” Cities and Universities

Net new “go-live” cities and universities represent the number of cities and universities covered by deployments of our gunshot detection ShotSpotter solution that were formally approved by customers during the period, both from initial and expanded customer deployments, net of cities and universities that ceased to be “live” during the period due to customer cancellations. New cities and universities include deployed coverage areas that may have been sold, or booked, in a prior period. We focus on net new “go-live” cities and universities as a key business metric to measure our operational performance and market penetration. Our net new “go-live” cities and universities in the three months ended March 31, 2024 and 2023 were as follows:

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

Net new “go-live” cities and universities

 

 

9

 

 

 

6

 

Components of Results of Operations

Presentation of Financial Statements

Our condensed consolidated financial statements include the accounts of our wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.

Revenues

We generate annual subscription revenues from the deployment of ShotSpotter on a per-square-mile basis and generate annual subscription revenues from the deployment of SafePointe on a per-lane basis, a lane being the detection area of an entryway. Our security solutions, ShotSpotter for Highways, ShotSpotter for Campus, ShotSpotter for Corporate as well as CaseBuilder are typically sold on a subscription basis, each with a customized deployment plan.

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ResourceRouter, and CrimeTracer are also sold on a subscription basis generally customized based on the number of sworn officers in a particular city.

We derive the majority of our revenues from subscription services. We recognize subscription fees ratably, on a straight-line basis, over the term of the subscription, which for new customers is typically one to three years in length. Customer contracts may include one-time fees for the set-up of our sensors in the customer’s coverage areas, training, and third-party integration licenses. If the set-up fees are deemed to be a material right, they are recognized ratably over three to five years depending on the contract term. Training and third-party integration license fees are recognized upon delivery.