SoundThinking(SSTI) - 2020 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION This section presents the company's unaudited condensed consolidated financial statements and management's analysis Item 1. Condensed Consolidated Financial Statements The company presents its unaudited condensed consolidated financial statements for the period ended June 30, 2020, showing decreased assets and liabilities, improved net income, and positive operating cash flow Condensed Consolidated Balance Sheets This section details the company's financial position, including assets, liabilities, and equity, as of June 30, 2020, and December 31, 2019 Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2020 (Unaudited) | December 31, 2019 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $25,824 | $24,550 | | Accounts receivable and contract asset | $7,839 | $13,883 | | Total current assets | $36,250 | $40,197 | | Total assets | $56,406 | $60,571 | | Liabilities & Stockholders' Equity | | | | Deferred revenue, short-term | $21,957 | $26,360 | | Total current liabilities | $26,621 | $32,424 | | Total liabilities | $27,538 | $33,320 | | Total stockholders' equity | $28,868 | $27,251 | | Total liabilities and stockholders' equity | $56,406 | $60,571 | Condensed Consolidated Statements of Operations This section presents the company's revenues, gross profit, operating income, and net income for the three and six months ended June 30, 2020 and 2019 Condensed Consolidated Statements of Operations Highlights (in thousands) | Metric | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :--- | :--- | :--- | :--- | :--- | | Revenues | $11,277 | $10,260 | $21,735 | $19,853 | | Gross profit | $6,924 | $5,983 | $13,040 | $11,572 | | Operating income (loss) | $910 | $290 | $887 | $(30) | | Net income | $866 | $387 | $879 | $25 | | Net income per share, diluted | $0.07 | $0.03 | $0.08 | $0.00 | Condensed Consolidated Statements of Cash Flows This section outlines the company's cash inflows and outflows from operating, investing, and financing activities for the six months ended June 30, 2020 and 2019 Condensed Consolidated Statements of Cash Flows Highlights (in thousands) | Cash Flow Activity | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :--- | :--- | :--- | | Net cash provided by operating activities | $5,213 | $7,691 | | Net cash used in investing activities | $(2,334) | $(2,402) | | Net cash provided by (used in) financing activities | $(1,456) | $11,843 | | Increase in cash and cash equivalents | $1,423 | $17,132 | | Cash and cash equivalents at end of period | $25,824 | $27,432 | Notes to Condensed Consolidated Financial Statements This section provides detailed explanations and disclosures supporting the condensed consolidated financial statements - The company's main product is ShotSpotter Flex, a leading outdoor gunshot detection system, with other solutions for campuses, infrastructure, patrol management, and environmental protection, primarily on a SaaS-based subscription model[23] - Significant customer concentration exists, with two customers accounting for 19% and 12% of total revenues in Q2 2020, and three customers representing 30%, 12%, and 10% of total accounts receivable as of June 30, 2020[31][32] - The company relies on a single supplier as the sole manufacturer for its proprietary sensors[33] - As of June 30, 2020, the company has estimated remaining performance obligations of $55.7 million for contractually committed revenues, to be recognized through 2025, including $19.7 million for the remainder of 2020 and $26.1 million for 2021[38] - In May 2019, the Board approved a stock repurchase program for up to $15 million, with 74,520 shares repurchased for $1.6 million during the six months ended June 30, 2020, leaving $6.7 million available[52][53] - The company is involved in a lawsuit alleging collusion to fabricate gunshot alert evidence, which it believes is without merit[73] - The COVID-19 pandemic is expected to adversely impact operations for at least the balance of 2020, causing deployment delays, customer funding challenges, and potential supply chain disruptions[76] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial performance, highlighting revenue growth driven by new customers and expansions, improved gross profit margin, and increased net income, while detailing significant risks from the COVID-19 pandemic and social unrest Overview This section provides a general description of the company's business, primary products, customer base, and operational context - The company's flagship product, ShotSpotter Flex, is the primary revenue driver, accounting for approximately 96% of total revenues in the first six months of 2020[88] - As of June 30, 2020, the company had coverage for approximately 770 square miles under contract across 109 cities and 13 campuses/sites, with 761 square miles having gone live[83] - The company's two largest customers, the City of Chicago and the City of New York, accounted for 19% and 13% of total revenues, respectively, for the first six months of 2020[88] - The COVID-19 pandemic has adversely impacted the company's ability to deploy customer solutions since mid-March 2020 due to work-from-home policies and travel restrictions[83] Results of Operations This section analyzes the company's financial performance, including revenues, gross profit, and net income, for the reported periods Comparison of Three Months Ended June 30, 2020 and 2019 (in thousands) | Metric | 2020 | 2019 | Change $ | Change % | | :--- | :--- | :--- | :--- | :--- | | Revenues | $11,277 | $10,260 | $1,017 | 10% | | Gross Profit | $6,924 | $5,983 | $941 | 16% | | Operating Income | $910 | $290 | $620 | 214% | | Net Income | $866 | $387 | $479 | 124% | - The $1.0 million revenue increase in Q2 2020 was primarily due to new customers and expansions, offset by COVID-19 related deployment and renewal delays, with 76 net new square miles going live since June 30, 2019[127] Comparison of Six Months Ended June 30, 2020 and 2019 (in thousands) | Metric | 2020 | 2019 | Change $ | Change % | | :--- | :--- | :--- | :--- | :--- | | Revenues | $21,735 | $19,853 | $1,882 | 9% | | Gross Profit | $13,040 | $11,572 | $1,468 | 13% | | Operating Income (Loss) | $887 | $(30) | $917 | 3,057% | | Net Income | $879 | $25 | $854 | 3,416% | - For the first six months of 2020, general and administrative expenses increased by $0.7 million (19%) primarily due to higher personnel-related costs, business insurance, and legal expenses[141] Liquidity and Capital Resources This section discusses the company's cash position, credit facilities, and cash flow activities, highlighting its ability to meet short-term and long-term obligations - The company's principal source of liquidity is cash and cash equivalents, totaling $25.8 million as of June 30, 2020[144] - The company has a $10.0 million credit facility, with no amounts outstanding as of June 30, 2020[144] - Net cash provided by operating activities decreased by $2.5 million to $5.2 million for the first six months of 2020, primarily due to the timing of contract execution, billings, and collections[152] - During Q2 2020, the company repurchased 74,520 shares of its common stock for $1.6 million under its stock repurchase program[149] Item 3. Qualitative and Quantitative Disclosures About Market Risk The company states that its market risk exposure is primarily from fluctuations in interest rates and foreign exchange rates, with no material changes during the six months ended June 30, 2020 - The company's primary market risk exposures are from fluctuations in interest rates and foreign exchange rates[162] - There were no material changes in market risk during the first six months of 2020[163] Item 4. Controls and Procedures Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of June 30, 2020, with no material changes in internal control over financial reporting during the quarter - Management concluded that as of June 30, 2020, the company's disclosure controls and procedures were effective[164] - No changes in internal control over financial reporting occurred during the quarter ended June 30, 2020, that have materially affected, or are reasonably likely to materially affect, internal controls[165] PART II. OTHER INFORMATION This section covers additional disclosures including risk factors, equity security sales, and required exhibits Item 1A. Risk Factors The company outlines significant risks to its business, including the adverse effects of the COVID-19 pandemic and social unrest, dependence on government sales, reliance on limited suppliers, technology upgrades, and privacy concerns - The COVID-19 pandemic is expected to have a material adverse effect, causing delays in deploying new 'go-live' miles, creating funding challenges for customers, disrupting the supply chain, and decreasing employee productivity[169] - Increasing social unrest and movements like 'Defund the Police' may directly or indirectly affect police agency budgets and funding available to customers[170][171] - The company's business depends on sales to government entities, which have complex, expensive, and time-consuming procurement processes and are subject to budget constraints[172][174] - The company relies on a single contract manufacturer for its proprietary ShotSpotter sensors and a limited number of suppliers for key components, creating supply chain risk[240] - The company must upgrade its sensors from 3G to LTE technology as carriers discontinue 3G service, estimated to cost between $4.0 million and $6.0 million in total[237] - Perceived privacy concerns regarding government surveillance may deter potential customers from purchasing the company's solutions[239] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company reports no unregistered sales of equity securities during the period, but repurchased 74,520 shares for $1.6 million under its stock repurchase program, with $6.7 million remaining available Issuer Purchases of Equity Securities (Q2 2020) | Period | Total Shares Purchased | Average Price Paid per Share | Value of Shares Remaining for Purchase (in thousands) | | :--- | :--- | :--- | :--- | | April 2020 | — | — | $8,282 | | May 2020 | 74,520 | $21.65 | $6,668 | | June 2020 | — | — | $6,668 | | Total | 74,520 | $21.65 | $6,668 | Item 6. Exhibits This section provides an index of the exhibits filed with the Form 10-Q, including certifications by the Principal Executive Officer and Principal Financial Officer, and Inline XBRL documents - This section lists all exhibits filed as part of the quarterly report, including officer certifications and XBRL data files[310][313]