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:
(Exact Name of Registrant as Specified in its Charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer |
(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 |
Trading Symbol(s) |
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 August 9, 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 |
18 |
Item 3. |
30 |
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Item 4. |
30 |
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PART II. |
OTHER INFORMATION |
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Item 1 |
Legal Proceedings |
31 |
Item 1A. |
Risk Factors |
31 |
Item 2. |
60 |
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Item 6. |
60 |
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61 |
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62 |
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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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June 30, |
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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 June 30, |
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Six Months Ended June 30, |
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2024 |
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2023 |
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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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$ |
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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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— |
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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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( |
) |
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( |
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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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( |
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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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( |
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Other expense, net |
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( |
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( |
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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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( |
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( |
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Loss before income taxes |
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( |
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( |
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( |
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( |
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Provision for income taxes |
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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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Net loss per share, basic and diluted |
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$ |
( |
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$ |
( |
) |
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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 June 30, |
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Six Months Ended June 30, |
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2024 |
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2023 |
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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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$ |
( |
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$ |
( |
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Other comprehensive income (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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( |
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Comprehensive loss |
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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.
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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Income (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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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 ESPP purchases |
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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 income |
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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 June 30, 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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( |
) |
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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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 ESPP purchases |
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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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( |
) |
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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( |
) |
Balance at June 30, 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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Six Months Ended June 30, |
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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 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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Loss on disposal of property and equipment |
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— |
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Deferred taxes |
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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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( |
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Accrued expenses and other liabilities |
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( |
) |
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Deferred revenue |
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( |
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Net cash provided by operating activities |
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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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( |
) |
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 exercise of stock options |
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Repurchases of common stock |
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( |
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( |
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Proceeds from employee stock purchase plan |
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Net cash used in financing activities |
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( |
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( |
) |
Change in cash and cash equivalents |
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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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( |
) |
Cash and cash equivalents at beginning of year |
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Cash and cash equivalents 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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||
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
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
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
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
Concentration of Accounts Receivable and Contract Assets – At June 30, 2024,
Concentration of Revenues – For the three months ended June 30, 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.
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):
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Three Months Ended June 30, |
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Six Months Ended June 30, |
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2024 |
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2023 |
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2024 |
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2023 |
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Beginning balance |
$ |
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$ |
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$ |
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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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( |
) |
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( |
) |
Revenue recognized during the year from new billings |
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( |
) |
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( |
) |
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( |
) |
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( |
) |
Foreign currency impact |
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— |
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( |
) |
|
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— |
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— |
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Ending balance |
$ |
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$ |
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$ |
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$ |
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The following table presents remaining performance obligations for contractually committed revenues as of June 30, 2024 (in thousands):
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$ |
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Total |
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$ |
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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 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 $
During the six months ended June 30, 2024, the Company recognized revenues of $
During the three months ended June 30, 2024, the Company recognized revenues of $
During the three months ended June 30, 2023, the Company recognized revenues of $
Note 4. Acquisitions
SafePointe, LLC
During the third quarter of 2023, the Company completed the acquisition of
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 |
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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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( |
) |
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 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 $
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,
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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 six months ended June 30, 2024 and 2023 are as follows (in thousands):
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Six Months Ended June 30, |
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2024 |
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2023 |
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Beginning balance |
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$ |
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$ |
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Payment of contingent consideration liability |
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— |
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( |
) |
Change in fair value of contingent consideration |
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( |
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( |
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Ending balance |
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$ |
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$ |
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There were
Note 6. Goodwill
The change in goodwill is as follows (in thousands):
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June 30, |
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December 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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Acquisition of SafePointe (Note 4 - Acquisitions) |
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Ending balance |
$ |
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$ |
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Note 7. Intangible Assets, Net
Intangible assets consist of the following (in thousands):
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June 30, 2024 |
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Weighted-Average Amortization Period (in years) |
Gross |
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Accumulated Amortization |
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Net |
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Customer relationships |
$ |
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$ |
( |
) |
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$ |
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Acquired software technology |
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( |
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Patents and intellectual property |
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( |
) |
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Tradename |
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( |
) |
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Total intangible assets, net |
|
$ |
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$ |
( |
) |
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$ |
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December 31, 2023 |
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Weighted-Average Amortization Period (in years) |
Gross |
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Accumulated Amortization |
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Net |
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Customer relationships |
$ |
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$ |
( |
) |
|
$ |
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Acquired software technology |
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( |
) |
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Patents |
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( |
) |
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Tradename |
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( |
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Total intangible assets, net |
|
$ |
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$ |
( |
) |
|
$ |
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Intangible amortization expense was approximately $
The following table presents future intangible asset amortization as of June 30, 2024 (in thousands):
Remainder of 2024 |
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$ |
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2025 |
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2026 |
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2027 |
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2028 |
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Thereafter |
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Total |
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$ |
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Note 8. Details of Certain Condensed Consolidated Balance Sheet Accounts