UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
(Mark One)
For the quarterly period ended
OR
For the transition period from to
Commission File Number:
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(Address of principal executive offices) |
(Zip Code) |
Registrant’s telephone number, including area code: (
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
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Name of each exchange on which registered |
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The |
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.
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).
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 |
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Accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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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
Table of Contents
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PART I. |
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Item 1. |
2 |
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2 |
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3 |
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4 |
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5 |
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6 |
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7 |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
17 |
Item 3. |
27 |
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Item 4. |
27 |
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PART II. |
OTHER INFORMATION |
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Item 1 |
Legal Proceedings |
28 |
Item 1A. |
Risk Factors |
28 |
Item 2. |
57 |
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Item 6. |
57 |
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58 |
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59 |
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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)
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March 31, |
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December 31, |
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2024 |
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2023 |
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(unaudited) |
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Assets |
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Current assets |
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Cash and cash equivalents |
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$ |
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$ |
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Accounts receivable and contract assets, net |
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Prepaid expenses and other current assets |
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Total current assets |
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Property and equipment, net |
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Operating lease right-of-use assets |
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Goodwill |
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Intangible assets, net |
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Other assets |
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Total assets |
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$ |
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$ |
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Liabilities and Stockholders' Equity |
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Current liabilities |
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Accounts payable |
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$ |
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$ |
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Accrued expenses and other current liabilities |
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Line of credit |
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Deferred revenue, short-term |
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Total current liabilities |
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Deferred revenue, long-term |
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Deferred tax liability |
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Other liabilities |
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Total liabilities |
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Stockholders' equity |
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Common stock: $ |
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Additional paid-in capital |
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Accumulated deficit |
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( |
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( |
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Accumulated other comprehensive loss |
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( |
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( |
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Total stockholders' equity |
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Total liabilities and stockholders' equity |
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$ |
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$ |
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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)
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Three Months Ended March 31, |
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2024 |
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2023 |
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Revenues |
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$ |
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$ |
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Costs |
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Cost of revenues |
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Impairment of property and equipment |
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Total costs |
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Gross profit |
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Operating expenses |
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Sales and marketing |
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Research and development |
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General and administrative |
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Change in fair value of contingent consideration |
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( |
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Total operating expenses |
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Operating loss |
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( |
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( |
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Other income (expense), net |
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Interest income (expense), net |
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( |
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Other expense, net |
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( |
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( |
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Total other income (expense), net |
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( |
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Loss before income taxes |
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( |
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( |
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Provision for income taxes |
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— |
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Net loss |
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$ |
( |
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$ |
( |
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Net loss per share, basic and diluted |
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$ |
( |
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$ |
( |
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Weighted-average shares used in computing net loss per share, basic and diluted |
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See accompanying notes to condensed consolidated financial statements.
3
SoundThinking, Inc.
Condensed Consolidated Statements of Comprehensive Loss
(In thousands)
(Unaudited)
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Three Months Ended March 31, |
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2024 |
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2023 |
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Net loss |
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$ |
( |
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$ |
( |
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Other comprehensive loss: |
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Change in foreign currency translation adjustment, net of taxes |
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( |
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( |
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Comprehensive loss |
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$ |
( |
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$ |
( |
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See accompanying notes to condensed consolidated financial statements.
4
SoundThinking, Inc.
Condensed Consolidated Statements of Stockholders’ Equity
(In thousands, except share data)
(Unaudited)
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Common Stock |
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Additional |
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Accumulated |
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Accumulated |
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Total |
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Shares |
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Par Value |
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Capital |
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Deficit |
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Loss |
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Equity |
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Balance at January 1, 2024 |
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$ |
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$ |
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$ |
( |
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$ |
( |
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$ |
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Issuance of common stock from RSUs vested |
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— |
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— |
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— |
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— |
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— |
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Stock-based compensation |
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— |
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— |
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— |
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— |
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Foreign currency translation loss |
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— |
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— |
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— |
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— |
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( |
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( |
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Net loss |
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— |
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— |
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— |
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( |
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— |
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( |
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Balance at March 31, 2024 |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
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$ |
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Common Stock |
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Additional |
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Accumulated |
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Accumulated |
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Total |
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Shares |
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Par Value |
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Capital |
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Deficit |
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Loss |
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Equity |
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Balance at January 1, 2023 |
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$ |
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$ |
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$ |
( |
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$ |
( |
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$ |
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Exercise of stock options |
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— |
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— |
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— |
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Repurchase of common stock |
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( |
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— |
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( |
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— |
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— |
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( |
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Issuance of common stock from RSUs vested |
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— |
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— |
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— |
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— |
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— |
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Stock-based compensation |
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— |
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— |
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— |
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— |
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Foreign currency translation loss |
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— |
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— |
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— |
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— |
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( |
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( |
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Net loss |
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— |
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— |
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— |
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( |
) |
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— |
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( |
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Balance at March 31, 2023 |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
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$ |
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See accompanying notes to condensed consolidated financial statements.
5
SoundThinking, Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
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Three Months Ended March 31, |
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2024 |
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2023 |
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Cash flows from operating activities: |
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Net loss |
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$ |
( |
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$ |
( |
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Adjustments to reconcile net loss to net cash provided by (used in ) operating activities: |
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Depreciation of property and equipment |
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Amortization of intangible assets |
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Impairment of property and equipment |
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Stock-based compensation |
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Change in fair value of contingent consideration |
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— |
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( |
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Deferred taxes |
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— |
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Allowance for credit losses |
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Changes in operating assets and liabilities: |
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Accounts receivable and contract assets |
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( |
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Prepaid expenses and other assets |
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( |
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Accounts payable |
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( |
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Accrued expenses and other liabilities |
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( |
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( |
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Deferred revenue |
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( |
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Net cash provided by (used in) operating activities |
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( |
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Cash flows from investing activities: |
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Purchase of property and equipment |
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( |
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( |
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Investment in intangible and other assets |
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( |
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( |
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Net cash used in investing activities |
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( |
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( |
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Cash flows from financing activities: |
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Payment of contingent consideration liability |
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— |
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( |
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Proceeds from line of credit |
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— |
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Proceeds from exercise of stock options |
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— |
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Repurchases of common stock |
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— |
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( |
) |
Payment of line of credit |
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( |
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— |
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Net cash used in financing activities |
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— |
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( |
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Change in cash, cash equivalents and restricted cash |
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( |
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Effect of exchange rate on cash and cash equivalents |
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( |
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( |
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Cash, cash equivalents and restricted cash at beginning of year |
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Cash, cash equivalents and restricted cash at end of period |
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$ |
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$ |
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Supplemental cash flow disclosures: |
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Property and equipment purchases included in accounts payable |
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$ |
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$ |
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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
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
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
The Company’s principal executive offices are located in Fremont, California. The Company has
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
Concentration of Accounts Receivable and Contract Assets – At March 31, 2024,
Concentration of Revenues – For the three months ended March 31, 2024,
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):
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March 31, |
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2024 |
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2023 |
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Beginning balance |
$ |
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$ |
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New billings |
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Revenue recognized during the year from beginning balance |
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( |
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( |
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Revenue recognized during the year from new billings |
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( |
) |
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( |
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Foreign currency impact |
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— |
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Ending balance |
$ |
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$ |
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The following table presents remaining performance obligations for contractually committed revenues as of March 31, 2024 (in thousands):
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$ |
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Total |
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$ |
|
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 $
During the three months ended March 31, 2024, the Company recognized revenues of $
9
Note 4. Acquisitions
SafePointe, LLC
During the third quarter of 2023, the Company completed the acquisition of
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 |
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$ |
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|
Accounts receivable and contract assets |
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Property and equipment, net |
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Customer relationships |
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Software technology |
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Tradename |
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Goodwill |
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Other assets |
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Accrued expenses and other current liabilities |
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( |
) |
Deferred revenue |
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( |
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Net assets acquired |
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Escrow claim |
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Total estimated consideration |
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$ |
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|
|
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
The Company will amortize the acquired customer relationships for
There were
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 $
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 $
In January 2022, the Company estimated the fair value of the contingent consideration liability associated with its acquisition of Forensic Logic to be $
In August 2023, the Company estimated the fair value of the contingent consideration liability associated with its acquisition of SafePointe to be $
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 |
|
$ |
|
|
$ |
|
||
Payment of contingent consideration liability |
|
|
— |
|
|
|
( |
) |
Change in fair value of contingent consideration |
|
|
— |
|
|
|
( |
) |
Ending balance |
|
$ |
|
|
$ |
|
||
There were
Note 6. Goodwill
The change in goodwill is as follows (in thousands):
|
March 31, |
|
|
December 31, |
|
||
|
2024 |
|
|
2023 |
|
||
Beginning balance |
$ |
|
|
$ |
|
||
Acquisition of SafePointe (Note 4 - Acquisitions) |
|
|
|
|
|
||
Ending balance |
$ |
|
|
$ |
|
||
|
|
|
|
|
|
||
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 |
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
Acquired software technology |
|
|
|
|
( |
) |
|
|
|
|||
Patents and intellectual property |
|
|
|
|
( |
) |
|
|
|
|||
Tradename |
|
|
|
|
( |
) |
|
|
|
|||
Total intangible assets, net |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||
|
|
December 31, 2023 |
|
|||||||||
|
Weighted Average Amortization Period (in years) |
Gross |
|
|
Accumulated Amortization |
|
|
Net |
|
|||
Customer relationships |
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
Acquired software technology |
|
|
|
|
( |
) |
|
|
|
|||
Patents |
|
|
|
|
( |
) |
|
|
|
|||
Tradename |
|
|
|
|
( |
) |
|
|
|
|||
Total intangible assets, net |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||
Intangible amortization expense was approximately $
The following table presents future intangible asset amortization as of March 31, 2024 (in thousands):
Remainder of 2024 |
|
|
|
|
|
$ |
|
|
2025 |
|
|
|
|
|
|
|
|
2026 |
|
|
|
|
|
|
|
|
2027 |
|
|
|
|
|
|
|
|
2028 |
|
|
|
|
|
|
|
|
Thereafter |
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
$ |
|
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 |
$ |
|
|
$ |
|
||
Contract assets |
|
|
|
|
|
||
Allowance for credit losses |
|
( |
) |
|
|
( |
) |
|
$ |
|
|
$ |
|
||
12
Prepaid expenses and other current assets (in thousands):
|
March 31, |
|
|
December 31, |
|
||
|
2024 |
|
|
2023 |
|
||
Deferred commissions |
$ |
|
|
$ |
|
||
Prepaid software and licenses |
|
|
|
|
|
||
Short-term deposits |
|
|
|
|
|
||
Prepaid insurance |
|
|
|
|
|
||
Other |
|
|
|
|
|
||
|
$ |
|
|
$ |
|
||
Other assets (long-term) (in thousands):
|
March 31, |
|
|
December 31, |
|
||
|
2024 |
|
|
2023 |
|
||
Deferred commissions |
$ |
|
|
$ |
|
||
Escrow claim (Note 4 - Acquisitions) |
|
|
|
|
|
||
Other |
|
|
|
|
|
||
|
$ |
|
|
$ |
|
||
Accrued expenses and other current liabilities (in thousands):
|
March 31, |
|
|
December 31, |
|
||
|
2024 |
|
|
2023 |
|
||
Personnel-related accruals |
$ |
|
|
$ |
|
||
Operating lease liabilities |
|
|
|
|
|
||
Professional fees |
|
|
|
|
|
||
Sales/use tax payable |
|
|
|
|
|
||
State income tax payable |
|
|
|
|
|
||
Other |
|
|
|
|
|
||
|
$ |
|
|
$ |
|
||
Other liabilities (long-term) (in thousands):
|
March 31, |
|
|
December 31, |
|
||
|
2024 |
|
|
2023 |
|
||
Operating lease liabilities |
$ |
|
|
$ |
|
||
Contingent consideration liability |
|
|
|
|
|
||
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
||
Note 9. Related Party Transactions
During the three months ended March 31, 2024, the Company recognized approximately $
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 |
$ |
( |
) |
|
$ |
( |
) |
Denominator: |
|
|
|
|
|
||
Weighted-average shares outstanding, basic and diluted |
|
|
|
|
|
||
Net loss per share, basic and diluted |
$ |
( |
) |
|
$ |
( |
) |
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 |
|
|
|
|
|
||
Unvested restricted stock units |
|
|
|
|
|
||
Total |
|
|
|
|
|
||
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 |
|
|
Weighted |
|
|
Weighted |
|
|
Aggregate Intrinsic Value Exercised (in thousands) |
|
||||
Outstanding at December 31, 2023 |
|
|
|
|
$ |
|
|
|
|
|
|
|
||||
Granted |
|
|
|
|
$ |
|
|
$ |
|
|
|
|
||||
Exercised |
|
|
— |
|
|
$ |
— |
|
|
|
|
|
$ |
— |
|
|
Canceled |
|
|
( |
) |
|
$ |
|
|
|
|
|
|
|
|||
Outstanding at March 31, 2024 |
|
|
|
|
$ |
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Under an “evergreen” provision, the number of shares of common stock reserved for issuance under the 2017 Plan will automatically increase on
14
the number of shares of common stock reserved for issuance under the 2017 Plan was increased on January 1, 2024 by
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 |
|
|
Weighted |
|
|
Aggregate Fair Value of RSUs Vested (in thousands) |
|
|||
Unvested RSUs at December 31, 2023 |
|
|
|
|
$ |
|
|
|
|
|||
Granted |
|
|
|
|
$ |
|
|
|
|
|||
Vested |
|
|
( |
) |
|
$ |
|
|
$ |
|
||
Forfeited |
|
|
— |
|
|
$ |
— |
|
|
|
|
|
Unvested RSUs at March 31, 2024 |
|
|
|
|
$ |
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|||
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
2017 Employee Stock Purchase Plan
There were
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 |
$ |
|
|
$ |
|
||
Sales and marketing |
|
|
|
|
|
||
Research and development |
|
|
|
|
|
||
General and administrative |
|
|
|
|
|
||
Total |
$ |
|
|
$ |
|
||
Note 12. Financing Arrangements
On
15
, (2) increase the revolving credit commitment from $
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 $
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.
16
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.
17
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.
19
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.