ssti-10q_20190630.htm

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

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.

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 2, 2019, the registrant had 11,477,165 shares of common stock, $0.005 par value per share, outstanding.

	June 30,			December 31,
	2019			2018
	(Unaudited)
Assets
Current assets
Cash and cash equivalents	$	27,432		$	10,218
Accounts receivable and unbilled revenue		8,967			15,267
Prepaid expenses and other current assets		2,202			1,527
Restricted cash		—			60
Total current assets		38,601			27,072
Property and equipment, net		16,834			16,504
Operating lease right-of-use asset		697			—
Goodwill		1,379			1,379
Intangible assets, net		237			242
Other assets		1,596			1,922
Total assets	$	59,344		$	47,119
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable	$	1,099		$	1,307
Deferred revenue, short-term		21,988			23,102
Accrued expenses and other current liabilities		4,209			4,427
Total current liabilities		27,296			28,836
Deferred revenue, long-term		1,133			1,060
Other liabilities		467			76
Total liabilities		28,896			29,972
Stockholders' equity
Common stock		57			55
Additional paid-in capital		127,870			114,618
Accumulated deficit		(97,352	)		(97,377	)
Accumulated other comprehensive loss		(127	)		(149	)
Total stockholders' equity		30,448			17,147
Total liabilities and stockholders' equity	$	59,344		$	47,119


	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
Revenues	$	10,260		$	8,927		$	19,853		$	15,834
Costs
Cost of revenues		4,277			3,589			8,281			6,897
Impairment of property and equipment		—			361			—			361
Total costs		4,277			3,950			8,281			7,258
Gross profit		5,983			4,977			11,572			8,576
Operating expenses
Sales and marketing		2,439			2,195			5,068			3,749
Research and development		1,374			1,255			2,668			2,491
General and administrative		1,880			1,824			3,866			3,852
Total operating expenses		5,693			5,274			11,602			10,092
Operating income (loss)		290			(297	)		(30	)		(1,516	)
Other income (expense), net
Interest income, net		171			22			204			49
Other expense, net		(52	)		(76	)		(109	)		(75	)
Total other income (expense), net		119			(54	)		95			(26	)
Income (loss) before income taxes		409			(351	)		65			(1,542	)
Provision for income taxes		22			18			40			44
Net income (loss)	$	387		$	(369	)	$	25		$	(1,586	)
Net income (loss) per share, basic	$	0.03		$	(0.03	)	$	0.00		$	(0.15	)
Net income (loss) per share, diluted	$	0.03		$	(0.03	)	$	0.00		$	(0.15	)
Weighted average shares used in computing net income (loss) per share, basic		11,365,472			10,589,038			11,186,371			10,329,874
Weighted average shares used in computing net income (loss) per share, diluted		11,973,476			10,589,038			11,857,346			10,329,874

	Common Stock				Additional Paid-in		Accumulated			Accumulated Other Comprehensive			Total Stockholders'
	Shares		Par Value		Capital		Deficit			Income (Loss)			Equity
Balance at December 31, 2018		10,864,722	$	55	$	114,618	$	(97,377	)	$	(149	)	$	17,147
Exercise of stock options		177,408		1		218		—			—			219
Issuance of common stock upon secondary offering, net of costs		250,000		1		10,553		—			—			10,554
Issuance of common stock from RSUs vested		28,790		—		—		—			—			—
Stock-based compensation		—		—		754		—			—			754
Other comprehensive loss		—		—		—		—			(13	)		(13	)
Net loss		—		—		—		(362	)		—			(362	)
Balance at March 31, 2019		11,320,920	$	57	$	126,143	$	(97,739	)	$	(162	)	$	28,299
Exercise of stock options		65,960		—		129		—			—			129
Issuance of common stock in connection with exercise of warrants		12,225		—		51		—			—			51
Issuance of common stock from ESPP purchase		53,508		—		642		—			—			642
Issuance of common stock from RSUs vested		24,072		—		—		—			—			—
Stock-based compensation		—		—		905		—			—			905
Other comprehensive income		—		—		—		—			35			35
Net income		—		—		—		387			—			387
Balance at June 30, 2019		11,476,685	$	57	$	127,870	$	(97,352	)	$	(127	)	$	30,448



	Common Stock				Additional Paid-in		Accumulated			Accumulated Other Comprehensive			Total Stockholders'
	Shares		Par Value		Capital		Deficit			Income (Loss)			Equity
Balance at December 31, 2017		9,827,129	$	48	$	109,708	$	(97,595	)	$	1		$	12,162
Exercise of stock options		486,588		3		340		—			—			343
Issuance of common stock in connection with exercise of warrants		16,129		—		—		—			—			—
Stock-based compensation		—		—		427		—			—			427
Other comprehensive income		—		—		—		—			29			29
Cumulative effect of change in accounting principle		—		—		—		3,025			—			3,025
Net loss		—		—		—		(1,217	)		—			(1,217	)
Balance at March 31, 2018		10,329,846	$	51	$	110,475	$	(95,787	)	$	30		$	14,769
Exercise of stock options		66,628		—		108		—			—			108
Issuance of common stock in connection with exercise of warrants		272,309		1		988		—			—			989
Issuance of common stock from ESPP purchase		43,624		1		420		—			—			421
Issuance of common stock from RSU's vested		47,312		—		—		—			—			—
Stock-based compensation		—		—		648		—			—			648
Other comprehensive loss		—		—		—		—			(133	)		(133	)
Net loss		—		—		—		(369	)		—			(369	)
Balance at June 30, 2018		10,759,719	$	53	$	112,639	$	(96,156	)	$	(103	)	$	16,433

	Six Months Ended June 30,
	2019			2018
Cash flows from operating activities:
Net income (loss)	$	25		$	(1,586	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization		2,402			1,775
Impairment of property and equipment		—			361
Stock-based compensation		1,659			1,075
Changes in operating assets and liabilities:
Accounts receivable		6,299			(2,431	)
Prepaid expenses and other assets		(621	)		(568	)
Accounts payable		(514	)		1,105
Accrued expenses and other current liabilities		(510	)		(702	)
Deferred revenue		(1,049	)		134
Net cash provided by (used in) operating activities		7,691			(837	)
Cash flows from investing activities:
Purchase of property and equipment		(2,363	)		(5,643	)
Investment in intangible and other assets		(39	)		(26	)
Net cash used in investing activities		(2,402	)		(5,669	)
Cash flows from financing activities:
Proceeds from issuance of common stock upon secondary offering		11,247			—
Payments of offering costs		(445	)		—
Proceeds from exercise of stock options		348			451
Proceeds from exercise of warrants		51			989
Proceeds from employee stock purchase plan		642			421
Net cash provided by financing activities		11,843			1,861
Increase (decrease) in cash, cash equivalents and restricted cash		17,132			(4,645	)
Effect of exchange rate on cash and cash equivalents		22			(81	)
Cash, cash equivalents and restricted cash at beginning of year		10,278			19,597
Cash, cash equivalents and restricted cash at end of period	$	27,432		$	14,871
Supplemental cash flow disclosures:
Deferred offering costs included in other assets	$	—		$	66

ShotSpotter, Inc. (the “Company”) provides precision-policing solutions for law enforcement to help deter gun violence and make cities, campuses and facilities safer. The company’s flagship product, ShotSpotter Flex, is the leading outdoor gunshot detection, location and forensic system trusted by more than 100 cities. ShotSpotter Missions uses machine learning-driven analysis to help strategically plan patrol missions and tactics for maximum crime deterrence. ShotSpotter Labs is the Company’s effort to support innovative uses of its technology to help protect wildlife and the environment. The Company offers its solutions on a SaaS-based subscription model to its customers.

The Company’s principal executive offices are located in Newark, California. The Company has two wholly-owned subsidiaries, ShotSpotter (Pty) Ltd. formed in South Africa and ShotSpotter Colombia S.A.S. which was formed in Colombia in March 2019.

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 condensed consolidated financial statements include the results of the Company and its wholly-owned subsidiaries. All significant intercompany transactions have been eliminated during consolidation.

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, stockholder’s equity and cash flows for the interim periods, but are not necessarily indicative of the results of operations to be anticipated for the full year 2019 or any future period.

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 of tangible and intangible assets, stock-based compensation expense, and accounting for revenue recognition and income taxes. 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.

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 cash deposits at one domestic and two 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. 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.

Concentration of Accounts Receivable –As of June 30, 2019, one customer accounted for 24% of the Company’s accounts receivable. Fluctuations in accounts receivable result from timing of the Company’s execution of contracts and collection of related payments. As of December 31, 2018, one customer accounted for 77% of the Company’s accounts receivable.

Concentration of Revenues –For the three months ended June 30, 2019, two customers accounted for 20% and 14% of the Company’s total revenues. For the three months ended June 30, 2018, two customers accounted for 24% and 14% of the Company’s total revenues.

For the six months ended June 30, 2019, two customers accounted for 21% and 14% of the Company’s total revenues. For the six months ended June 30, 2018, two customers accounted for 22% and 16% 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.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). There have been further amendments, including practical expedients, with the issuance of ASU 2018-01 in January 2018, ASU 2018-11 in July 2018 and ASU 2018-20 in December 2018. The amended guidance requires the recognition of lease assets and lease liabilities on the balance sheet for those leases with terms in excess of 12 months and currently classified as operating leases. Disclosure of key information about leasing arrangements is required. Effective January 1, 2019, the Company adopted Topic 842. The Company elected the optional transition method which allows entities to continue to apply historical accounting guidance in the comparative periods presented in the year of adoption.

At transition, lessees and lessors may elect to apply a package of practical expedients permitting entities not to reassess: (i) whether any expired or existing contracts are or contain leases; (ii) lease classification for any expired or existing leases and (iii) whether initial direct costs for any expired or existing leases qualify for capitalization under the amended guidance. These practical expedients must be elected as a package and consistently applied. The Company has elected to apply the package of practical expedients upon adoption.

The Company’s operating lease for its corporate headquarters office is impacted by the new standard and upon adoption, the Company recognized a right-of-use asset of $0.9 million and related lease liabilities totaling $0.9 million. See Note 11, Leases.

In July 2017, the FASB issued ASU 2017-11, Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480), Derivatives and Hedging (Topic 815). The amendments in Part I of ASU 2017-11 change the classification analysis of certain equity-linked financial instruments (or embedded features) with down round features. When determining whether certain financial instruments should be classified as liabilities or equity instruments, a down round feature no longer precludes equity classification when assessing whether the instrument is indexed to an entity’s own stock. The amendments also clarify existing disclosure requirements for equity-classified instruments. The amendments in Part I of this ASU are effective for the Company as of January 1, 2019. The amendments in Part II of ASU 2017-11 replace the indefinite deferral of certain guidance in Topic 480 with a scope exception. The amendments in Part II of ASU 2017-11 do not require any transition guidance. The Company adopted Part I of this ASU as of January 1, 2019 and the adoption did not have any impact on the consolidated financial statements.

As of December 31, 2018, the Company had total short-term and long-term deferred revenue of $24.2 million. During the three months ended June 30, 2019, the Company recognized $9.2 million in revenue from the beginning deferred revenue balance and $1.0 million from new billings, and added $8.8 million to total short-term and long-term deferred revenue from new billings. During the six months ended June 30, 2019, the Company recognized $15.7 million in revenue from the beginning deferred revenue balance and $4.0 million from new billings, and added $18.7 million to total short-term and long-term deferred revenue from new billings.

As of January 1, 2018, upon the adoption of Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“Topic 606”), the Company had total short-term and long-term deferred revenue of $17.3 million. During the three months ended June 30, 2018, the Company recognized $6.4 million in revenue from the beginning deferred revenue balance and $2.3 million from new billings, and added $8.1 million to total short-term and long-term deferred revenue from new billings. During the six months ended June 30, 2018, the Company recognized $11.7 million in revenue from the beginning deferred revenue of $18.1 million and $3.9 million from new billings, and added $15.8 million to total short-term and long-term deferred revenue from new billings.

As of June 30, 2019, the Company has estimated remaining performance obligations for contractually committed revenues of $17.7 million, $25.2 million, $15.5 million, and $0.9 million that will be recognized during the remainder of the year ending December 31, 2019, and years ended December 31, 2020, 2021, and 2022 through 2024, respectively. The timing of revenue recognition includes estimates of go live dates for contracts not yet live. Contractually committed revenue includes deferred revenue as of June 30, 2019 and amounts under contract that will be invoiced after June 30, 2019.

During the three months ended June 30, 2019, the Company recognized revenues of $9.9 million from customers in the United States, $0.4 million from customers in South Africa and the Bahamas. During the six months ended June 30, 2019, the Company recognized revenues of $19.2 million from customers in the United States, $0.7 million from customers in South Africa and the Bahamas.

During the three months ended June 30, 2018, the Company recognized revenues of $8.7 million from customers in the United States and $0.2 million from a customer in South Africa. During the six months ended June 30, 2018, the Company recognized revenues of $15.3 million from customers in the United States and $0.5 million from a customer in South Africa.

Accounts receivable, net consist of trade accounts receivables from the Company’s customers, net of allowance for doubtful accounts if deemed necessary. Accounts receivable are recorded as the invoiced amount. The Company does not require collateral or other security for accounts receivable. Unbilled revenue consists of revenue recognized in advance of invoicing the customer.

In October 2018, upon the acquisition of certain technology, referred to as HunchLab, from Azavea, Inc., the Company recognized a contingent consideration liability classified within Level III of the fair value hierarchy because some of the inputs used in its measurement were neither directly or indirectly observable. The Company estimates the fair value of the contingent consideration based on management’s estimates of (i) the probability of achieving the relevant revenue targets and (ii) the timing of achieving such targets. There were no material changes in fair value of contingent consideration for the three and six months ended June 30, 2019.

During the six months ended June 30, 2019, the Company recognized $0.3 million in revenues from ShotSpotter Labs projects with charitable organizations that have received donations from one of the Company’s directors and from a significant shareholder of the Company.

The Company is authorized to issue 500,000,000 shares of common stock, with a par value of $0.005 and each outstanding share of common stock is entitled to one vote.

As of June 30, 2019, there were 11,476,685 shares of common stock issued and outstanding. As of December 31, 2018, there were 10,864,722 shares of common stock issued and outstanding.

The Company is authorized to issue 20,000,000 shares of preferred stock, with a par value of $0.005. As of June 30, 2019, there were no shares of preferred stock issued and outstanding.

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

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

Delaware	47-0949915
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
7979 Gateway Blvd., Suite 210 Newark, California	94560
(Address of principal executive offices)	(Zip Code)

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

		Page
PART I.	FINANCIAL INFORMATION
Item 1.	Condensed Consolidated Financial Statements (Unaudited)	2
	Condensed Consolidated Balance Sheets as of June 30, 2019 and December 31, 2018	2
	Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2019 and 2018	3
	Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and six months ended June 30, 2019 and 2018	4
	Condensed Consolidated Statements of Stockholders’ Equity for the three and six months ended June 30, 2019 and 2018	5
	Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2019 and 2018	6
	Notes to Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16
Item 3.	Qualitative and Quantitative Disclosures About Market Risk	26
Item 4.	Controls and Procedures	26
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	28
Item 1A.	Risk Factors	28
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	53
Item 6.	Exhibits	53
Exhibit Index		54
Signatures		55

	June 30,		December 31,
	2019		2018
Personnel-related accruals	$	2,180	$	2,603
Royalties payable		93		130
Professional fees		222		396
Sales/ use tax payable		216		273
Contingent consideration		750		750
Operating lease liability		289		—
Deferred rent		—		24
Other		459		251
	$	4,209	$	4,427

	Three Months Ended					Six Months Ended
	June 30,					June 30,
	2019		2018			2019		2018
Net income (loss)	$	387	$	(369	)	$	25	$	(1,586	)
Other comprehensive income (loss):
Change in foreign currency translation adjustment, net		35		(133	)		23		(104	)
Comprehensive income (loss)	$	422	$	(502	)	$	48	$	(1,690	)