SoundThinking(SSTI) - 2024 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Condensed Consolidated Financial Statements The condensed consolidated financial statements for the six months ended June 30, 2024, show a 23% increase in revenue year-over-year, leading to a narrowed net loss of $3.7 million compared to $4.5 million in the prior year. Total assets grew to $145.9 million, supported by increased cash and accounts receivable. Cash flow from operations saw a significant improvement, increasing to $9.4 million from $1.3 million in the first half of 2023, primarily driven by changes in deferred revenue Condensed Consolidated Balance Sheets As of June 30, 2024, total assets increased to $145.9 million from $138.7 million at year-end 2023, primarily due to a rise in cash and cash equivalents and accounts receivable. Total liabilities also grew to $70.3 million from $64.0 million, largely driven by a significant increase in long-term deferred revenue. Total stockholders' equity remained relatively stable at $75.6 million Condensed Consolidated Balance Sheet Highlights (in thousands) | Balance Sheet Item | June 30, 2024 (unaudited) | December 31, 2023 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $9,790 | $5,703 | | Accounts receivable and contract assets, net | $35,705 | $30,700 | | Total current assets | $49,036 | $40,305 | | Total assets | $145,881 | $138,708 | | Liabilities & Stockholders' Equity | | | | Total current liabilities | $60,867 | $59,817 | | Deferred revenue, long-term | $6,446 | $812 | | Total liabilities | $70,266 | $63,951 | | Total stockholders' equity | $75,615 | $74,757 | Condensed Consolidated Statements of Operations For the three and six months ended June 30, 2024, revenues increased by 22% and 23% respectively compared to the same periods in 2023. The company reported a significantly reduced net loss of $0.8 million for the quarter and $3.7 million for the six-month period, compared to losses of $2.7 million and $4.5 million in the prior-year periods, reflecting improved operational efficiency and higher gross profit Statement of Operations Summary (in thousands, except per share data) | Metric | Q2 2024 | Q2 2023 | YTD 2024 | YTD 2023 | | :--- | :--- | :--- | :--- | :--- | | Revenues | $26,960 | $22,075 | $52,370 | $42,695 | | Gross Profit | $16,073 | $12,662 | $30,960 | $23,967 | | Operating Loss | $(43) | $(2,352) | $(2,658) | $(4,158) | | Net Loss | $(752) | $(2,697) | $(3,661) | $(4,487) | | Net Loss Per Share | $(0.06) | $(0.22) | $(0.29) | $(0.37) | Condensed Consolidated Statements of Cash Flows For the six months ended June 30, 2024, net cash provided by operating activities was $9.4 million, a substantial improvement from $1.3 million in the same period of 2023, primarily due to a large increase in deferred revenue. Net cash used in investing activities was $3.7 million, while financing activities used $1.6 million, mainly for stock repurchases. The company's cash and cash equivalents increased by $4.1 million during the period Cash Flow Summary for Six Months Ended June 30 (in thousands) | Cash Flow Activity | 2024 | 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $9,391 | $1,305 | | Net cash used in investing activities | $(3,748) | $(3,266) | | Net cash used in financing activities | $(1,550) | $(4,521) | | Change in cash and cash equivalents | $4,093 | $(6,482) | Notes to Condensed Consolidated Financial Statements The notes detail the company's business operations, accounting policies, and financial components. Key disclosures include a breakdown of revenue, which is primarily subscription-based and concentrated in the U.S., and details on the 2023 acquisition of SafePointe. The company also disclosed a workforce restructuring in Q2 2024, an active stock repurchase program, and its financing arrangements, including a $25 million revolving credit facility - The company's SafetySmart™ platform includes ShotSpotter®, CrimeTracer™, CaseBuilder™, ResourceRouter™, and SafePointe™. A new License Plate Reader solution, 'PlateRanger', is expected to launch in September 2024 through a strategic partnership[12] - As of June 30, 2024, the company had $108.4 million in remaining performance obligations for contractually committed revenues[26] - In Q2 2024, the company restructured its workforce, eliminating 3% of its total headcount and terminating a lease, resulting in restructuring expenses of approximately $0.4 million[48] - The company has a $25.0 million revolving credit facility, of which $7.0 million was outstanding as of June 30, 2024. The facility's expiration was extended to October 15, 2025[58] Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes the 22% quarterly revenue growth to new customers, expansion of existing coverage, and contributions from the SafePointe acquisition. Gross profit margin improved from 57% to 60% year-over-year for the quarter. The company's operating loss narrowed significantly due to revenue growth and controlled operating expenses. Liquidity remains strong, with $9.8 million in cash and $18.0 million available on its credit facility. Management believes existing resources are sufficient to meet needs for at least the next 12 months Overview The company provides a suite of public safety technologies under its SafetySmart™ platform. Revenue increased 22% to $27.0 million for Q2 2024. A significant portion of revenue is concentrated with its two largest customers, the City of New York (25%) and the City of Chicago (10%). The company continues to focus on expanding its customer base, cross-selling solutions, and growing its international presence Revenue Growth Summary | Period | Revenue (in millions) | YoY Growth | | :--- | :--- | :--- | | Q2 2024 | $27.0 | 22% | | H1 2024 | $52.4 | 23% | - The City of New York and the City of Chicago accounted for 25% and 10% of total revenues, respectively, for the three months ended June 30, 2024[74] - The company's strategic growth factors include increasing its customer base, expanding existing customer coverage, growing internationally, and cross-selling its suite of solutions[77][78] Results of Operations Comparing Q2 2024 to Q2 2023, revenues rose by $4.9 million, driven by new customers, expansions, and the SafePointe acquisition. Gross profit increased by $3.4 million, and the gross margin improved to 60% from 57%. Operating expenses remained relatively flat, leading to a substantial reduction in operating loss from $2.4 million to just $43 thousand. For the six-month period, revenue grew $9.7 million, and operating loss decreased from $4.2 million to $2.7 million Comparison of Operations for Three Months Ended June 30 (in thousands) | Line Item | 2024 | 2023 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Revenues | $26,960 | $22,075 | $4,885 | 22% | | Gross Profit | $16,073 | $12,662 | $3,411 | 27% | | Total operating expenses | $16,116 | $15,014 | $1,102 | 7% | | Operating loss | $(43) | $(2,352) | $2,309 | (98%) | - The $4.9 million Q2 revenue increase was driven by a $3.5 million increase from new customers, expansions, and the SafePointe acquisition, plus a $1.4 million increase in professional services revenue[101] Comparison of Operations for Six Months Ended June 30 (in thousands) | Line Item | 2024 | 2023 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Revenues | $52,370 | $42,695 | $9,675 | 23% | | Gross Profit | $30,960 | $23,967 | $6,993 | 29% | | Total operating expenses | $33,618 | $28,125 | $5,493 | 20% | | Operating loss | $(2,658) | $(4,158) | $1,500 | (36%) | Liquidity and Capital Resources The company's principal sources of liquidity are its $9.8 million in cash and cash equivalents and an $18.0 million available credit facility. Net cash from operations for the first six months of 2024 was $9.4 million, a significant increase from $1.3 million in the prior year. The company used $2.0 million for its stock repurchase program in the first half of 2024, with $17.4 million remaining available. Management believes current liquidity is sufficient for at least the next 12 months - As of June 30, 2024, the company had $9.8 million in cash and cash equivalents and $18.0 million available under its credit facility[119] - Net cash provided by operating activities increased by $8.1 million to $9.4 million for the six months ended June 30, 2024, compared to the same period in 2023, primarily due to a $12.1 million increase in deferred revenue[127] - During the first six months of 2024, the company repurchased 134,150 shares for $2.0 million. As of June 30, 2024, $17.4 million remains available under the 2022 Stock Repurchase Program[124] Qualitative and Quantitative Disclosures About Market Risk The company reports no material changes in its market risk exposure during the first six months of 2024. Its primary market risks continue to be fluctuations in interest rates, foreign exchange rates, and inflation - There were no material changes in the company's market risk during the six months ended June 30, 2024, compared to the end of 2023[134] Controls and Procedures Based on an evaluation by management, including the CEO and CFO, the company's disclosure controls and procedures were deemed effective as of June 30, 2024. There were no material changes in internal control over financial reporting during the quarter - Management concluded that as of June 30, 2024, the company's disclosure controls and procedures were effective[135] - No changes occurred in the company's internal control over financial reporting during the quarter ended June 30, 2024, that have materially affected, or are reasonably likely to materially affect, internal controls[136] PART II. OTHER INFORMATION Legal Proceedings The company references Note 15 of the financial statements, which details a civil rights lawsuit against the City of Rochester where the company was initially named as a defendant. The court granted a motion for summary judgment, and the company was removed as a defendant from the litigation - In a lawsuit filed by Silvon S. Simmons, the court granted the company's motion for summary judgment on September 13, 2023, removing SoundThinking as a defendant from the litigation[59] Risk Factors The company outlines significant risks to its business, including dependence on government contracts and funding, lengthy and complex sales cycles, and potential negative publicity. Key operational risks involve service interruptions from third-party providers, competition, and challenges in international expansion. The company also highlights risks related to data privacy, cybersecurity, intellectual property protection, and potential stock price volatility - A summary of key risk factors includes reliance on government funding, potential service interruptions from third-party providers, challenges in penetrating new markets, lengthy sales cycles, and the risk of not maintaining profitability[140] - The company's contract with the City of Chicago, which represented 10% of total revenues for the first six months of 2024, is in effect until November 2024, and there is no guarantee of renewal[149] - Cyber-attacks, malicious internet activity, and other threats to information technology systems are identified as significant risks that could disrupt operations and harm the company's reputation[141][168] Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities. Under its publicly announced stock repurchase program, the company repurchased 134,150 shares of its common stock for a total of approximately $2.0 million during the second quarter of 2024 Issuer Purchases of Equity Securities (Q2 2024) | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | April 2024 | — | — | | May 2024 | 47,584 | $14.95 | | June 2024 | 86,566 | $14.81 | | Total | 134,150 | $14.86 | - As of June 30, 2024, approximately $17.4 million remained available for future repurchases under the 2022 Stock Repurchase Program[196] Exhibits This section provides an index of the exhibits filed with the Form 10-Q, including the company's amended and restated certificate of incorporation, bylaws, director compensation policy, and officer certifications - The Exhibit Index lists all documents filed with the Form 10-Q, including CEO and CFO certifications and XBRL data files[197]