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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 June 30, 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 August 9, 2024 the registrant had 12,782,928 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

18

Item 3.

Qualitative and Quantitative Disclosures About Market Risk

30

Item 4.

Controls and Procedures

30

PART II.

OTHER INFORMATION

 

Item 1

Legal Proceedings

31

Item 1A.

Risk Factors

31

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

60

Item 6.

Exhibits

60

Exhibit Index

61

Signatures

62

 

 

 

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)

 

 

 

June 30,

 

 

December 31,

 

 

 

2024

 

 

2023

 

 

 

(unaudited)

 

 

 

 

Assets

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

Cash and cash equivalents

 

$

9,790

 

 

$

5,703

 

Accounts receivable and contract assets, net

 

 

35,705

 

 

 

30,700

 

Prepaid expenses and other current assets

 

 

3,541

 

 

 

3,902

 

Total current assets

 

 

49,036

 

 

 

40,305

 

Property and equipment, net

 

 

21,396

 

 

 

21,028

 

Operating lease right-of-use assets

 

 

2,297

 

 

 

2,315

 

Goodwill

 

 

34,213

 

 

 

34,213

 

Intangible assets, net

 

 

35,037

 

 

 

36,938

 

Other assets

 

 

3,902

 

 

 

3,909

 

Total assets

 

$

145,881

 

 

$

138,708

 

Liabilities and Stockholders' Equity

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

Accounts payable

 

$

2,448

 

 

$

3,031

 

Accrued expenses and other current liabilities

 

 

8,434

 

 

 

8,521

 

Line of credit

 

 

7,000

 

 

 

7,000

 

Deferred revenue, short-term

 

 

42,985

 

 

 

41,265

 

Total current liabilities

 

 

60,867

 

 

 

59,817

 

Deferred revenue, long-term

 

 

6,446

 

 

 

812

 

Deferred tax liability

 

 

1,333

 

 

 

1,226

 

Other liabilities

 

 

1,620

 

 

 

2,096

 

Total liabilities

 

 

70,266

 

 

 

63,951

 

Commitments and contingencies (Note 15)

 

 

 

 

 

 

Stockholders' equity

 

 

 

 

 

 

Common stock: $0.005 par value; 500,000,000 shares authorized;
12,782,928 and 12,761,448 shares issued and outstanding as of June 30, 2024 and December 31, 2023, respectively

 

 

64

 

 

 

64

 

Additional paid-in capital

 

 

174,662

 

 

 

170,139

 

Accumulated deficit

 

 

(98,779

)

 

 

(95,118

)

Accumulated other comprehensive loss

 

 

(332

)

 

 

(328

)

Total stockholders' equity

 

 

75,615

 

 

 

74,757

 

Total liabilities and stockholders' equity

 

$

145,881

 

 

$

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 June 30,

 

 

Six Months Ended June 30,

 

 

 

2024

 

 

2023

 

 

2024

 

 

2023

 

Revenues

 

$

26,960

 

 

$

22,075

 

 

$

52,370

 

 

$

42,695

 

Costs

 

 

 

 

 

 

 

 

 

 

 

 

Cost of revenues

 

 

10,781

 

 

 

9,413

 

 

 

21,052

 

 

 

18,656

 

Impairment of property and equipment

 

 

106

 

 

 

 

 

 

358

 

 

 

72

 

Total costs

 

 

10,887

 

 

 

9,413

 

 

 

21,410

 

 

 

18,728

 

Gross profit

 

 

16,073

 

 

 

12,662

 

 

 

30,960

 

 

 

23,967

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

Sales and marketing

 

 

7,322

 

 

 

7,443

 

 

 

14,434

 

 

 

13,291

 

Research and development

 

 

3,468

 

 

 

3,057

 

 

 

7,028

 

 

 

5,710

 

General and administrative

 

 

5,880

 

 

 

5,513

 

 

 

12,710

 

 

 

10,129

 

Change in fair value of contingent consideration

 

 

(554

)

 

 

(999

)

 

 

(554

)

 

 

(1,005

)

Total operating expenses

 

 

16,116

 

 

 

15,014

 

 

 

33,618

 

 

 

28,125

 

Operating loss

 

 

(43

)

 

 

(2,352

)

 

 

(2,658

)

 

 

(4,158

)

Other income (expense), net

 

 

 

 

 

 

 

 

Interest income (expense), net

 

 

(61

)

 

 

52

 

 

 

(183

)

 

 

106

 

Other expense, net

 

 

(414

)

 

 

(53

)

 

 

(472

)

 

 

(91

)

Total other income (expense), net

 

 

(475

)

 

 

(1

)

 

 

(655

)

 

 

15

 

Loss before income taxes

 

 

(518

)

 

 

(2,353

)

 

 

(3,313

)

 

 

(4,143

)

Provision for income taxes

 

 

234

 

 

 

344

 

 

 

348

 

 

 

344

 

Net loss

 

$

(752

)

 

$

(2,697

)

 

$

(3,661

)

 

$

(4,487

)

Net loss per share, basic and diluted

 

$

(0.06

)

 

$

(0.22

)

 

$

(0.29

)

 

$

(0.37

)

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

 

 

12,792,952

 

 

 

12,224,501

 

 

 

12,781,910

 

 

 

12,238,432

 

 

See accompanying notes to condensed consolidated financial statements.

3


 

SoundThinking, Inc.

Condensed Consolidated Statements of Comprehensive Loss

(In thousands)

(Unaudited)

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2024

 

 

2023

 

 

2024

 

 

2023

 

Net loss

 

$

(752

)

 

$

(2,697

)

 

$

(3,661

)

 

$

(4,487

)

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

Change in foreign currency translation adjustment, net of taxes

 

 

12

 

 

 

(56

)

 

 

(4

)

 

 

(73

)

Comprehensive loss

 

$

(740

)

 

$

(2,753

)

 

$

(3,665

)

 

$

(4,560

)

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

 

 

Income (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

 

Exercise of stock options

 

 

5,640

 

 

 

 

 

 

5

 

 

 

 

 

 

 

 

 

5

 

Repurchase of common stock

 

 

(134,150

)

 

 

 

 

 

(1,999

)

 

 

 

 

 

 

 

 

(1,999

)

Issuance of common stock from ESPP purchases

 

 

36,586

 

 

 

 

 

 

444

 

 

 

 

 

 

 

 

 

444

 

Issuance of common stock from RSUs vested

 

 

81,684

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

 

 

 

 

 

3,146

 

 

 

 

 

 

 

 

 

3,146

 

Foreign currency translation income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

12

 

 

 

12

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(752

)

 

 

 

 

 

(752

)

Balance at June 30, 2024

 

 

12,782,928

 

 

$

64

 

 

$

174,662

 

 

$

(98,779

)

 

$

(332

)

 

$

75,615

 

 

 

 

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

 

Exercise of stock options

 

 

4,097

 

 

 

 

 

 

17

 

 

 

 

 

 

 

 

 

17

 

Repurchase of common stock

 

 

(100,401

)

 

 

 

 

 

(2,392

)

 

 

 

 

 

 

 

 

(2,392

)

Issuance of common stock from ESPP purchases

 

 

25,193

 

 

 

 

 

 

483

 

 

 

 

 

 

 

 

 

483

 

Issuance of common stock from RSUs vested

 

 

56,666

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

 

 

 

 

 

2,479

 

 

 

 

 

 

 

 

 

2,479

 

Foreign currency translation loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(56

)

 

 

(56

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

(2,697

)

 

 

 

 

 

(2,697

)

Balance at June 30, 2023

 

 

12,229,335

 

 

$

62

 

 

$

155,251

 

 

$

(96,887

)

 

$

(363

)

 

$

58,063

 

 

See accompanying notes to condensed consolidated financial statements.

5


 

SoundThinking, Inc.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

 

 

 

Six Months Ended June 30,

 

 

 

2024

 

 

2023

 

Cash flows from operating activities:

 

 

 

 

 

 

Net loss

 

$

(3,661

)

 

$

(4,487

)

Adjustments to reconcile net loss to net cash provided by operating activities:

 

 

 

 

 

 

Depreciation of property and equipment

 

 

3,126

 

 

 

3,419

 

Amortization of intangible assets

 

 

1,929

 

 

 

2,160

 

Impairment of property and equipment

 

 

358

 

 

 

72

 

Stock-based compensation

 

 

6,073

 

 

 

4,699

 

Change in fair value of contingent consideration

 

 

(554

)

 

 

(1,005

)

Loss on disposal of property and equipment

 

 

5

 

 

 

 

Deferred taxes

 

 

107

 

 

 

168

 

Allowance for credit losses

 

 

50

 

 

 

252

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Accounts receivable and contract assets

 

 

(5,055

)

 

 

3,104

 

Prepaid expenses and other assets

 

 

368

 

 

 

(561

)

Accounts payable

 

 

(728

)

 

 

(432

)

Accrued expenses and other liabilities

 

 

20

 

 

 

(1,359

)

Deferred revenue

 

 

7,353

 

 

 

(4,725

)

Net cash provided by operating activities

 

 

9,391

 

 

 

1,305

 

Cash flows from investing activities:

 

 

 

 

 

 

Purchase of property and equipment

 

 

(3,717

)

 

 

(3,216

)

Investment in intangible and other assets

 

 

(31

)

 

 

(50

)

Net cash used in investing activities

 

 

(3,748

)

 

 

(3,266

)

Cash flows from financing activities:

 

 

 

 

 

 

Payment of contingent consideration liability

 

 

 

 

 

(1,500

)

Proceeds from exercise of stock options

 

 

5

 

 

 

144

 

Repurchases of common stock

 

 

(1,999

)

 

 

(3,648

)

Proceeds from employee stock purchase plan

 

 

444

 

 

 

483

 

Net cash used in financing activities

 

 

(1,550

)

 

 

(4,521

)

Change in cash and cash equivalents

 

 

4,093

 

 

 

(6,482

)

Effect of exchange rate on cash and cash equivalents

 

 

(6

)

 

 

(72

)

Cash and cash equivalents at beginning of year

 

 

5,703

 

 

 

10,479

 

Cash and cash equivalents at end of period

 

$

9,790

 

 

$

3,925

 

 

 

 

 

 

 

 

Supplemental cash flow disclosures:

 

 

 

 

 

 

Property and equipment purchases included in accounts payable

 

$

614

 

 

$

528

 

 

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 June 30, 2024, the Company had approximately 250 customers and to date has 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 176 cities and 18 universities and corporations as of June 30, 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.

In July 2024 the Company announced a strategic partnership to create and launch a new end-to-end vehicle and License Plate Reader (LPR) public safety solution, ‘PlateRanger, Powered by Rekor.’ This collaboration brings together two industry leaders, combining SoundThinking's expertise in acoustic gunshot detection and investigative solutions with Rekor's best-in-class vehicle LPR solutions. PlateRanger is expected to be positioned as a part of the SafetySmart™ platform starting in September 2024, marking SoundThinking's expansion into the growing LPR market.

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 filed with the SEC on April 1, 2024.

7


 

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.

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 June 30, 2024, the Company had approximately $9.0 million deposited with one of the Company's domestic financial institutions, and $32,000 each deposited with the Company's other two domestic financial institutions, for which only $250,000 per bank is insured under FDIC limits.

Concentration of Accounts Receivable and Contract Assets – At June 30, 2024, two customers accounted for 24% and 11% of the Company’s total accounts receivable and contract assets, net. At December 31, 2023, two customers accounted for 24% and 10%, of the Company’s total accounts receivable and contract assets, net.

Concentration of Revenues – For the three months ended June 30, 2024, two customers accounted for 25% and 10% of the Company’s total revenues. For the three months ended June 30, 2023, two customers accounted for 25% and 9% of the Company’s total revenues. For the six months ended June 30, 2024, two customers accounted for 26% and 10% of the Company’s total revenues. For the six months ended June 30, 2023, two customers accounted for 26% 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.

The Company evaluates all Accounting Standards Update (“ASU”) updates recently issued by the Financial Accounting Standards Board (“FASB”) for consideration of their applicability. Any recently issued ASUs not listed below were assessed and determined to either not be applicable, or have not had, or are not expected to have, a material impact on our condensed consolidated financial statements. The Company did not adopt any new accounting standards during

8


 

the six months ended June 30, 2024. During the three and six months ended June 30, 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 FASB issued 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 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):

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

2024

 

 

2023

 

 

2024

 

 

2023

 

Beginning balance

$

50,752

 

 

$

37,459

 

 

$

42,077

 

 

$

43,720

 

   New billings

 

24,887

 

 

 

23,309

 

 

 

57,924

 

 

 

37,457

 

   Revenue recognized during the year from beginning balance

 

(19,550

)

 

 

(14,505

)

 

 

(29,051

)

 

 

(26,071

)

   Revenue recognized during the year from new billings

 

(6,658

)

 

 

(7,263

)

 

 

(21,519

)

 

 

(16,111

)

   Foreign currency impact

 

 

 

 

(5

)

 

 

 

 

 

 

Ending balance

$

49,431

 

 

$

38,995

 

 

$

49,431

 

 

$

38,995

 

The following table presents remaining performance obligations for contractually committed revenues as of June 30, 2024 (in thousands):

Remainder of 2024

 

 

 

 

 

 

$

39,068

 

2025

 

 

 

 

 

 

 

41,744

 

2026

 

 

 

 

 

 

 

21,102

 

2027

 

 

 

 

 

 

 

4,542

 

Thereafter

 

 

 

 

 

 

 

1,920

 

Total

 

 

 

 

 

 

$

108,376

 

 

9


 

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 June 30, 2024 and amounts under contract that will be invoiced after June 30, 2024.

During the three months ended June 30, 2024, the Company recognized revenues of $26.3 million from customers in the United States, and $0.7 million from customers in the Bahamas, South Africa and Uruguay. During the three months ended June 30, 2023, the Company recognized revenues of $21.6 million from customers in the United States, and $0.5 million from customers in the Bahamas and South Africa.

During the six months ended June 30, 2024, the Company recognized revenues of $51.1 million from customers in the United States, and $1.3 million from customers in the Bahamas, South Africa and Uruguay. During the six months ended June 30, 2023, the Company recognized revenues of $41.8 million from customers in the United States, and $0.9 million from customers in the Bahamas and South Africa.

During the three months ended June 30, 2024, the Company recognized revenues of $26.0 million from monthly subscription, maintenance and support services, and $1.0 million from professional software development services. During the six months ended June 30, 2024, the Company recognized revenues of $50.6 million from monthly subscription, maintenance and support services, and $1.8 million from professional software development services.

During the three months ended June 30, 2023, the Company recognized revenues of $20.9 million from monthly subscription, maintenance and support services, and $1.2 million from professional software development services. During the six months ended June 30, 2023, the Company recognized revenues of $40.4 million from monthly subscription, maintenance and support services, and $2.3 million from professional software development services.

 

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 14, 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.

10


 

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 9 years.

There were no acquisition-related expenses during the three and six months ended June 30, 2024 or 2023.

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 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 June 30, 2023 would have been $22.5 million and $3.3 million, respectively. The unaudited pro forma combined revenue and net loss for the six months ended June 30, 2023 would have been $43.5 million and $5.7 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”). In May 2023, the Company renamed LEEDS to Technologic Solutions, LLC (“Technologic”). 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"). During the first quarter of 2023,

11


 

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 six months ended June 30, 2023, the fair value of the contingent consideration was decreased by $1.0 million, based upon adjustments to recorded liabilities as a result of revised 2023 forecasted revenues as of June 30, 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. During the six months ended June 30, 2024, the fair value of the contingent consideration was decreased by $0.6 million, based upon adjustments to recorded liabilities as a result of revised 2024 and 2025 forecasted revenues as of June 30, 2024. During the year ended December 31, 2023, the fair value of the contingent consideration was decreased by $2.4 million based upon revised estimated 2024 and 2025 revenue targets, as of December 31, 2023.

The changes in the fair value of contingent consideration liabilities for the six months ended June 30, 2024 and 2023 are as follows (in thousands):

 

 

Six Months Ended June 30,

 

 

 

2024

 

 

2023

 

Beginning balance

 

$

554

 

 

$

4,746

 

Payment of contingent consideration liability

 

 

 

 

 

(1,500

)

Change in fair value of contingent consideration

 

 

(554

)

 

 

(1,005

)

Ending balance

 

$

 

 

$

2,241

 

There were no transfers into or out of Level III during the three and six months ended June 30, 2024 and 2023.

 

Note 6. Goodwill

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

 

June 30,

 

 

December 31,

 

 

2024

 

 

2023

 

Beginning balance

$

34,213

 

 

$

22,971

 

Acquisition of SafePointe (Note 4 - Acquisitions)

 

 

 

 

11,242

 

Ending balance

$

34,213

 

 

$

34,213

 

 

 

 

 

 

 

 

12


 

Note 7. Intangible Assets, Net

Intangible assets consist of the following (in thousands):

 

 

June 30, 2024

 

 

Weighted-Average Amortization Period (in years)

Gross

 

 

Accumulated Amortization

 

 

Net

 

Customer relationships

14

$

25,470

 

 

$

(5,387

)

 

$

20,083

 

Acquired software technology

9

 

16,340

 

 

 

(3,055

)

 

 

13,285

 

Patents and intellectual property

4

 

1,994

 

 

 

(1,319

)

 

 

675

 

Tradename

6

 

1,100

 

 

 

(106

)

 

 

994

 

  Total intangible assets, net

 

$

44,904

 

 

$

(9,867

)

 

$

35,037

 

 

 

 

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 $1.5 million for the three months ended June 30, 2024 and June 30, 2023, respectively. Intangible amortization expense was approximately $1.9 million and $2.2 million for the six months ended June 30, 2024 and June 30, 2023, respectively.

The following table presents future intangible asset amortization as of June 30, 2024 (in thousands):

Remainder of 2024

 

 

 

 

 

$

1,905

 

2025

 

 

 

 

 

 

3,819

 

2026

 

 

 

 

 

 

3,802

 

2027

 

 

 

 

 

 

3,802

 

2028

 

 

 

 

 

 

3,736

 

Thereafter

 

 

 

 

 

 

17,973

 

  Total

 

 

 

 

 

$

35,037

 

 

Note 8. Details of Certain Condensed Consolidated Balance Sheet Accounts