SoundThinking(SSTI) - 2020 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements (Unaudited) Unaudited Q1 2020 consolidated financial statements detail a 9% revenue increase and a shift to net income Condensed Consolidated Balance Sheets The March 31, 2020 balance sheet shows slight decreases in assets and liabilities, with a modest increase in equity Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Cash and cash equivalents | $28,677 | $24,550 | | Accounts receivable and contract asset | $7,313 | $13,883 | | Total Assets | $57,842 | $60,571 | | Deferred revenue, short-term | $24,091 | $26,360 | | Total Liabilities | $29,861 | $33,320 | | Total Stockholders' Equity | $27,981 | $27,251 | Condensed Consolidated Statements of Operations Q1 2020 revenues grew 9% to $10.5 million, narrowing operating loss and achieving net income Q1 2020 vs. Q1 2019 Statement of Operations (in thousands) | Metric | Three Months Ended Mar 31, 2020 | Three Months Ended Mar 31, 2019 | | :--- | :--- | :--- | | Revenues | $10,458 | $9,593 | | Gross Profit | $6,116 | $5,589 | | Operating Loss | $(23) | $(320) | | Net Income (Loss) | $13 | $(362) | | Net Income (Loss) per Share, Diluted | $0.00 | $(0.03) | Condensed Consolidated Statements of Comprehensive Loss Q1 2020 comprehensive loss of $214,000 was mainly due to foreign currency translation adjustments Comprehensive Loss (in thousands) | Item | Three Months Ended Mar 31, 2020 | Three Months Ended Mar 31, 2019 | | :--- | :--- | :--- | | Net Income (Loss) | $13 | $(362) | | Change in foreign currency translation adjustment, net | $(227) | $(13) | | Comprehensive Loss | $(214) | $(375) | Condensed Consolidated Statements of Cash Flows Net cash from operations decreased to $5.7 million in Q1 2020, with changes in investing and financing activities Cash Flow Summary (in thousands) | Activity | Three Months Ended Mar 31, 2020 | Three Months Ended Mar 31, 2019 | | :--- | :--- | :--- | | Net cash provided by operating activities | $5,726 | $8,905 | | Net cash used in investing activities | $(1,141) | $(930) | | Net cash provided by (used in) financing activities | $(289) | $11,339 | | Increase in cash | $4,296 | $19,314 | Notes to Condensed Consolidated Financial Statements Notes detail accounting policies, business model, key risks, performance obligations, and COVID-19's adverse impact - The company's business is providing precision-policing solutions, with its flagship product being ShotSpotter Flex, an outdoor gunshot detection system offered on a SaaS-based subscription model[26] - Significant customer concentration exists. In Q1 2020, two customers accounted for 19% and 13% of total revenues. At March 31, 2020, one customer accounted for 26% of total accounts receivable[33] - The company has a single supplier for its proprietary sensors, representing a concentration of supplier risk[34] - As of March 31, 2020, the company had $29.3 million in contractually committed revenues expected to be recognized during the remainder of 2020, but notes considerable uncertainty in timing due to the COVID-19 pandemic[39] - The COVID-19 pandemic has negatively impacted operations, particularly due to the inability to deploy new 'go-live' miles since mid-March 2020, and is expected to materially adversely impact results for the rest of 2020[75] - In April 2020, the company entered into a five-year lease for an office in Washington D.C. to establish a presence and a satellite Incident Review Center[77] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q1 2020 performance, noting revenue growth, reduced 'go-live' miles, and COVID-19's adverse impact Overview and Key Metrics The company provides precision-policing solutions, with ShotSpotter Flex dominating revenue and 5 net new 'go-live' square miles in Q1 2020 - As of March 31, 2020, the company had coverage for approximately 760 square miles under contract, with 735 miles having gone live[82] - Revenues from the ShotSpotter Flex solution represented approximately 97% of total revenues for the three months ended March 31, 2020[86] Net New 'Go-Live' Square Miles | Period | Miles Added | | :--- | :--- | | Q1 2020 | 5 | | Q1 2019 | 12 | Impact of COVID-19 on our Business Management expects COVID-19 to materially impact business for 2020, causing deployment delays and funding challenges - The company has been unable to deploy new 'go-live' miles since mid-March 2020 due to COVID-19 restrictions[98] - Expected adverse impacts from COVID-19 include: - Delays in deploying new 'go-live' miles - Customer funding challenges affecting contract renewals and new sales - Possible supply chain disruptions - Decreased productivity from work-from-home policies[99] Results of Operations Q1 2020 revenues grew 9% to $10.5 million, improving operating loss and achieving net income despite modest expense increases Results of Operations Comparison (in thousands) | | 2020 | % of Revenues | 2019 | % of Revenues | Change $ | Change % | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Revenues | $10,458 | 100% | $9,593 | 100% | $865 | 9% | | Gross profit | $6,116 | 58% | $5,589 | 58% | $527 | 9% | | Sales and marketing | $2,516 | 24% | $2,629 | 27% | $(113) | (4)% | | Operating loss | $(23) | — | $(320) | (3%) | $297 | 93% | | Net income (loss) | $13 | — | $(362) | (4%) | $375 | 104% | - The $0.9 million revenue increase was primarily due to new customers and expansions of existing coverage areas, offset by COVID-19 related deployment and renewal delays[123] Liquidity and Capital Resources The company maintains strong liquidity with $28.7 million in cash and an undrawn $10.0 million credit facility - As of March 31, 2020, the company had $28.7 million in cash and cash equivalents and access to an undrawn $10.0 million credit facility[131] - The company did not repurchase any shares in Q1 2020. As of March 31, 2020, $8.3 million remained authorized for repurchase under the existing program[54][136] - Net cash from operating activities decreased by $3.2 million year-over-year, primarily due to the timing of contract execution and collections[139] Item 3. Qualitative and Quantitative Disclosures About Market Risk No material changes occurred in market risk during Q1 2020, with interest and foreign exchange rates remaining primary risks - There were no material changes in the company's market risk during the three months ended March 31, 2020, compared to the disclosures in the 2019 Annual Report on Form 10-K[149] Item 4. Controls and Procedures Management concluded disclosure controls were effective as of March 31, 2020, with no material changes in internal control - The CEO and CFO concluded that as of March 31, 2020, the company's disclosure controls and procedures were effective[150] - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, internal controls[151] PART II. OTHER INFORMATION Item 1A. Risk Factors This section details significant business risks, including COVID-19's adverse effect, government contract dependence, and supply chain issues - The COVID-19 pandemic is identified as a primary risk, expected to materially and adversely impact business for at least the remainder of 2020 due to deployment delays, customer funding challenges, and supply chain disruptions[155] - The business is highly dependent on sales to government entities, which involves complex, expensive, and time-consuming procurement processes and is subject to budget availability[157][159] - The company relies on a single contract manufacturer for its proprietary ShotSpotter sensors and a limited number of suppliers for components, creating supply chain risk[226] - The company must upgrade its sensors from 3G to LTE technology, which is estimated to cost between $4.0 million and $6.0 million in total and will require significant capital expenditures[222] - Privacy and surveillance concerns, even if based on misconceptions about the technology's capabilities, may deter potential customers and harm business growth[225] - The company's certificate of incorporation includes an exclusive forum provision, designating the Court of Chancery of Delaware for most stockholder disputes and federal district courts for Securities Act claims[291][292] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds On March 25, 2020, the company issued 46,939 common shares via a cashless warrant exercise - On March 25, 2020, the company issued 46,939 shares of common stock upon the cashless exercise of a warrant with an exercise price of $13.20 per share[294] Item 6. Exhibits This section provides an index of the exhibits filed with the Form 10-Q, including certifications by the CEO and CFO, and XBRL data files