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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 September 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 November 7, 2024 the registrant had 12,588,530 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 (Unaudited)

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 Unaudited Condensed Consolidated Financial Statements

7

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

19

Item 3.

Qualitative and Quantitative Disclosures About Market Risk

31

Item 4.

Controls and Procedures

31

PART II.

OTHER INFORMATION

 

Item 1

Legal Proceedings

32

Item 1A.

Risk Factors

32

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

61

Item 3.

Defaults Upon Senior Securities

61

Item 4.

Mine Safety Disclosures

61

Item 5.

Other Information

61

Item 6.

Exhibits

61

Exhibit Index

62

Signatures

63

 

 

 

1


 

PART I. FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements (Unaudited)

SoundThinking, Inc.

Condensed Consolidated Balance Sheets

(In thousands, except share and per share data)

 

 

 

September 30,

 

 

December 31,

 

 

 

2024

 

 

2023

 

 

 

(unaudited)

 

 

 

 

Assets

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

Cash and cash equivalents

 

$

15,257

 

 

$

5,703

 

Accounts receivable and contract assets, net

 

 

25,857

 

 

 

30,700

 

Prepaid expenses and other current assets

 

 

5,256

 

 

 

3,902

 

Total current assets

 

 

46,370

 

 

 

40,305

 

Property and equipment, net

 

 

20,979

 

 

 

21,028

 

Operating lease right-of-use assets

 

 

2,088

 

 

 

2,315

 

Goodwill

 

 

34,213

 

 

 

34,213

 

Intangible assets, net

 

 

34,148

 

 

 

36,938

 

Other assets

 

 

3,934

 

 

 

3,909

 

Total assets

 

$

141,732

 

 

$

138,708

 

Liabilities and Stockholders' Equity

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

Accounts payable

 

$

2,687

 

 

$

3,031

 

Line of credit

 

 

4,000

 

 

 

7,000

 

Deferred revenue, short-term

 

 

43,458

 

 

 

41,265

 

Accrued expenses and other current liabilities

 

 

9,455

 

 

 

8,521

 

Total current liabilities

 

 

59,600

 

 

 

59,817

 

Deferred revenue, long-term

 

 

6,070

 

 

 

812

 

Deferred tax liability

 

 

1,358

 

 

 

1,226

 

Other liabilities

 

 

1,378

 

 

 

2,096

 

Total liabilities

 

 

68,406

 

 

 

63,951

 

Commitments and contingencies (Note 15)

 

 

 

 

 

 

Stockholders' equity

 

 

 

 

 

 

Common stock: $0.005 par value; 500,000,000 shares authorized;
12,558,536 and 12,761,448 shares issued and outstanding as of September 30, 2024 and December 31, 2023, respectively

 

 

63

 

 

 

64

 

Additional paid-in capital

 

 

173,771

 

 

 

170,139

 

Accumulated deficit

 

 

(100,219

)

 

 

(95,118

)

Accumulated other comprehensive loss

 

 

(289

)

 

 

(328

)

Total stockholders' equity

 

 

73,326

 

 

 

74,757

 

Total liabilities and stockholders' equity

 

$

141,732

 

 

$

138,708

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

2


 

SoundThinking, Inc.

Condensed Consolidated Statements of Operations

(In thousands, except share and per share data)

(Unaudited)

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2024

 

 

2023

 

 

2024

 

 

2023

 

Revenues

 

$

26,250

 

 

$

23,977

 

 

$

78,620

 

 

$

66,672

 

Costs

 

 

 

 

 

 

 

 

 

 

 

 

Cost of revenues

 

 

10,979

 

 

 

10,225

 

 

 

32,031

 

 

 

28,881

 

Impairment of property and equipment

 

 

54

 

 

 

 

 

 

412

 

 

 

72

 

Total costs

 

 

11,033

 

 

 

10,225

 

 

 

32,443

 

 

 

28,953

 

Gross profit

 

 

15,217

 

 

 

13,752

 

 

 

46,177

 

 

 

37,719

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

Sales and marketing

 

 

7,181

 

 

 

6,289

 

 

 

21,615

 

 

 

19,580

 

Research and development

 

 

3,413

 

 

 

3,186

 

 

 

10,441

 

 

 

8,896

 

General and administrative

 

 

5,669

 

 

 

5,677

 

 

 

18,379

 

 

 

15,806

 

Change in fair value of contingent consideration

 

 

 

 

 

82

 

 

 

(554

)

 

 

(923

)

Restructuring expense

 

 

 

 

 

 

 

 

346

 

 

 

 

Total operating expenses

 

 

16,263

 

 

 

15,234

 

 

 

50,227

 

 

 

43,359

 

Operating loss

 

 

(1,046

)

 

 

(1,482

)

 

 

(4,050

)

 

 

(5,640

)

Other income (expense), net

 

 

 

 

 

 

 

 

Interest income (expense), net

 

 

7

 

 

 

(42

)

 

 

(176

)

 

 

64

 

Other expense, net

 

 

(82

)

 

 

(51

)

 

 

(208

)

 

 

(142

)

Total other expense, net

 

 

(75

)

 

 

(93

)

 

 

(384

)

 

 

(78

)

Loss before income taxes

 

 

(1,121

)

 

 

(1,575

)

 

 

(4,434

)

 

 

(5,718

)

Provision for income taxes

 

 

319

 

 

 

299

 

 

 

667

 

 

 

643

 

Net loss

 

$

(1,440

)

 

$

(1,874

)

 

$

(5,101

)

 

$

(6,361

)

Net loss per share, basic and diluted

 

$

(0.11

)

 

$

(0.15

)

 

$

(0.40

)

 

$

(0.52

)

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

 

 

12,688,850

 

 

 

12,480,830

 

 

 

12,750,664

 

 

 

12,320,119

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

3


 

SoundThinking, Inc.

Condensed Consolidated Statements of Comprehensive Loss

(In thousands)

(Unaudited)

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2024

 

 

2023

 

 

2024

 

 

2023

 

Net loss

 

$

(1,440

)

 

$

(1,874

)

 

$

(5,101

)

 

$

(6,361

)

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

Change in foreign currency translation adjustment, net of taxes

 

 

43

 

 

 

1

 

 

 

39

 

 

 

(72

)

Comprehensive loss

 

$

(1,397

)

 

$

(1,873

)

 

$

(5,062

)

 

$

(6,433

)

See accompanying notes to unaudited 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

 

Exercise of stock options

 

 

14,125

 

 

 

 

 

 

54

 

 

 

 

 

 

 

 

 

54

 

Repurchase of common stock

 

 

(284,790

)

 

 

(1

)

 

 

(3,999

)

 

 

 

 

 

 

 

 

(4,000

)

Issuance of common stock from RSUs vested

 

 

46,273

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

 

 

 

 

 

3,054

 

 

 

 

 

 

 

 

 

3,054

 

Foreign currency translation income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

43

 

 

 

43

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(1,440

)

 

 

 

 

 

(1,440

)

Balance at September 30, 2024

 

 

12,558,536

 

 

$

63

 

 

$

173,771

 

 

$

(100,219

)

 

$

(289

)

 

$

73,326

 

 

 

 

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

 

Exercise of stock options

 

 

3,054

 

 

 

 

 

 

3

 

 

 

 

 

 

 

 

 

3

 

Repurchase of common stock

 

 

(93,012

)

 

 

 

 

 

(1,947

)

 

 

 

 

 

 

 

 

(1,947

)

Issuance of common stock from RSUs vested

 

 

27,014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock from acquisitions

 

 

554,217

 

 

 

2

 

 

 

11,289

 

 

 

 

 

 

 

 

 

11,291

 

Stock-based compensation

 

 

 

 

 

 

 

 

2,573

 

 

 

 

 

 

 

 

 

2,573

 

Foreign currency translation loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1

 

 

 

1

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(1,874

)

 

 

 

 

 

(1,874

)

Balance at September 30, 2023

 

 

12,720,608

 

 

$

64

 

 

$

167,169

 

 

$

(98,761

)

 

$

(362

)

 

$

68,110

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

5


 

SoundThinking, Inc.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

 

 

 

Nine Months Ended September 30,

 

 

 

2024

 

 

2023

 

Cash flows from operating activities:

 

 

 

 

 

 

Net loss

 

$

(5,101

)

 

$

(6,361

)

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

 

 

 

 

 

 

Depreciation of property and equipment

 

 

4,670

 

 

 

5,101

 

Amortization of intangible assets

 

 

2,892

 

 

 

2,953

 

Impairment of property and equipment

 

 

412

 

 

 

72

 

Stock-based compensation

 

 

9,127

 

 

 

7,272

 

Change in fair value of contingent consideration

 

 

(554

)

 

 

(923

)

Loss on disposal of property and equipment

 

 

5

 

 

 

 

Deferred taxes

 

 

132

 

 

 

252

 

Allowance for credit losses

 

 

126

 

 

 

276

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Accounts receivable and contract assets

 

 

4,717

 

 

 

7,122

 

Prepaid expenses and other assets

 

 

(1,380

)

 

 

(407

)

Accounts payable

 

 

(424

)

 

 

1,689

 

Accrued expenses and other liabilities

 

 

1,007

 

 

 

(479

)

Deferred revenue

 

 

7,450

 

 

 

(5,932

)

Net cash provided by operating activities

 

 

23,079

 

 

 

10,635

 

Cash flows from investing activities:

 

 

 

 

 

 

Purchase of property and equipment

 

 

(4,962

)

 

 

(4,350

)

Investment in intangible and other assets

 

 

(105

)

 

 

(440

)

Business acquisition, net of cash acquired

 

 

 

 

 

(10,995

)

Net cash used in investing activities

 

 

(5,067

)

 

 

(15,785

)

Cash flows from financing activities:

 

 

 

 

 

 

Payment of contingent consideration liability

 

 

 

 

 

(1,500

)

Proceeds from exercise of stock options

 

 

59

 

 

 

147

 

Repurchases of common stock

 

 

(5,999

)

 

 

(5,595

)

Payments on line of credit

 

 

(3,000

)

 

 

 

Proceeds from line of credit

 

 

 

 

 

7,000

 

Proceeds from employee stock purchase plan

 

 

444

 

 

 

483

 

Net cash (used in) provided by financing activities

 

 

(8,496

)

 

 

535

 

Change in cash and cash equivalents

 

 

9,516

 

 

 

(4,615

)

Effect of exchange rate on cash and cash equivalents

 

 

38

 

 

 

(64

)

Cash and cash equivalents at beginning of year

 

 

5,703

 

 

 

10,479

 

Cash and cash equivalents at end of period

 

$

15,257

 

 

$

5,800

 

 

 

 

 

 

 

 

Supplemental disclosure of non-cash financing activities:

 

 

 

 

 

 

Property and equipment purchases included in accounts payable

 

$

549

 

 

$

224

 

Fair value of contingent consideration for acquisitions

 

$

 

 

$

2,994

 

Fair value of common stock issued as consideration for acquisitions

 

$

 

 

$

11,291

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

6


 

SoundThinking, Inc.

Notes to Unaudited 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 September 30, 2024, the Company had approximately 302 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 177 cities and 18 universities and corporations as of September 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.

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 unaudited 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 unaudited 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 unaudited 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 unaudited 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 unaudited condensed consolidated financial statements for events requiring recording or disclosure in the unaudited condensed consolidated financial statements.

Use of Estimates

The preparation of unaudited 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 September 30, 2024, the Company had approximately $14.2 million, $0.2 million and $4,000 deposited with the Company's three domestic financial institutions, for which only $250,000 per bank is insured under FDIC limits.

Concentration of Accounts Receivable and Contract Assets – At September 30, 2024, one customer accounted for 25% 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 September 30, 2024, two customers accounted for 23% and 11% of the Company’s total revenues. For the three months ended September 30, 2023, two customers accounted for 24% and 9% of the Company’s total revenues. For the nine months ended September 30, 2024, two customers accounted for 25% and 11% of the Company’s total revenues. For the nine months ended September 30, 2023, two customers accounted for 25% and 9% 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 unaudited condensed consolidated financial statements. The Company did not adopt any new accounting standards during the nine months ended September 30, 2024. During the three and nine months ended September 30, 2024, there

8


 

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 unaudited 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 September 30,

 

 

Nine Months Ended September 30,

 

 

2024

 

 

2023

 

 

2024

 

 

2023

 

Beginning balance

$

49,431

 

 

$

38,995

 

 

$

42,077

 

 

$

43,720

 

   Deferred revenues acquired (Note 4 - Acquisitions)

 

 

 

 

557

 

 

 

 

 

 

557

 

   New billings

 

25,149

 

 

 

22,351

 

 

 

83,074

 

 

 

59,809

 

   Revenue recognized during the year from beginning balance

 

(18,537

)

 

 

(14,284

)

 

 

(38,361

)

 

 

(33,357

)

   Revenue recognized during the year from new billings

 

(6,515

)

 

 

(9,273

)

 

 

(37,262

)

 

 

(32,383

)

Ending balance

$

49,528

 

 

$

38,346

 

 

$

49,528

 

 

$

38,346

 

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

Remainder of 2024

 

 

 

 

 

 

$

35,785

 

2025

 

 

 

 

 

 

 

45,905

 

2026

 

 

 

 

 

 

 

27,658

 

2027

 

 

 

 

 

 

 

6,891

 

Thereafter

 

 

 

 

 

 

 

1,923

 

Total

 

 

 

 

 

 

$

118,162

 

 

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

During the three months ended September 30, 2024, the Company recognized revenues of $26.0 million from customers in the United States, and $0.3 million from customers in the Bahamas, South Africa and Uruguay. During the three months ended September 30, 2023, the Company recognized revenues of $23.5 million from customers in the United States, and $0.5 million from customers in the Bahamas and South Africa.

During the nine months ended September 30, 2024, the Company recognized revenues of $77.7 million from customers in the United States, and $0.9 million from customers in the Bahamas, South Africa and Uruguay. During the nine months ended September 30, 2023, the Company recognized revenues of $65.3 million from customers in the United States, and $1.4 million from customers in the Bahamas and South Africa.

During the three months ended September 30, 2024, the Company recognized revenues of $25.6 million from monthly subscription, maintenance and support services, and $0.7 million from professional software development services. During the nine months ended September 30, 2024, the Company recognized revenues of $76.2 million from monthly subscription, maintenance and support services, and $2.4 million from professional software development services.

During the three months ended September 30, 2023, the Company recognized revenues of $22.5 million from monthly subscription, maintenance and support services, and $1.5 million from professional software development services. During the nine months ended September 30, 2023, the Company recognized revenues of $63.0 million from monthly subscription, maintenance and support services, and $3.7 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