SoundThinking(SSTI) - 2025 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements This section presents SoundThinking, Inc.'s unaudited condensed consolidated financial statements for the period ended June 30, 2025, covering balance sheets, operations, comprehensive loss, equity, cash flows, and detailed notes Condensed Consolidated Balance Sheets The Condensed Consolidated Balance Sheets show a slight decrease in total assets and liabilities from December 31, 2024, to June 30, 2025, while total stockholders' equity increased | Metric | June 30, 2025 (unaudited) | December 31, 2024 | | :-------------------------------- | :-------------------------- | :------------------ | | Total assets | $134,776 (in thousands) | $136,793 (in thousands) | | Total liabilities | $60,255 (in thousands) | $64,394 (in thousands) | | Total stockholders' equity | $74,521 (in thousands) | $72,399 (in thousands) | Condensed Consolidated Statements of Operations The Condensed Consolidated Statements of Operations show decreased revenues and increased net loss for Q2 2025, while H1 2025 saw increased revenues but a wider net loss | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Revenues | $25,889 (in thousands) | $26,960 (in thousands) | $54,238 (in thousands) | $52,370 (in thousands) | | Gross profit | $13,795 (in thousands) | $16,073 (in thousands) | $30,389 (in thousands) | $30,960 (in thousands) | | Operating loss | $(2,943) (in thousands) | $(43) (in thousands) | $(4,147) (in thousands) | $(2,658) (in thousands) | | Net loss | $(3,120) (in thousands) | $(752) (in thousands) | $(4,604) (in thousands) | $(3,661) (in thousands) | | Net loss per share, basic and diluted | $(0.24) | $(0.06) | $(0.36) | $(0.29) | Condensed Consolidated Statements of Comprehensive Loss The Condensed Consolidated Statements of Comprehensive Loss reflect the net loss adjusted for other comprehensive income/loss, primarily foreign currency translation adjustments | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net loss | $(3,120) (in thousands) | $(752) (in thousands) | $(4,604) (in thousands) | $(3,661) (in thousands) | | Other comprehensive loss | $2 (in thousands) | $12 (in thousands) | $28 (in thousands) | $(4) (in thousands) | | Comprehensive loss | $(3,118) (in thousands) | $(740) (in thousands) | $(4,576) (in thousands) | $(3,665) (in thousands) | Condensed Consolidated Statements of Stockholders' Equity Stockholders' Equity increased from December 2024 to June 2025, driven by stock-based compensation despite net losses, detailing changes in common stock, paid-in capital, and accumulated deficit | Metric | Balance at January 1, 2025 | Balance at June 30, 2025 | | :-------------------------- | :------------------------- | :----------------------- | | Common Stock Shares | 12,634,485 | 12,788,631 | | Par Value | $64 (in thousands) | $64 (in thousands) | | Additional Paid-in Capital | $177,021 (in thousands) | $183,719 (in thousands) | | Accumulated Deficit | $(104,298) (in thousands) | $(108,902) (in thousands) | | Total Stockholders' Equity | $72,399 (in thousands) | $74,521 (in thousands) | - Stock-based compensation contributed $3,404 thousand (Q1 2025) and $3,841 thousand (Q2 2025) to additional paid-in capital[19] - Repurchases of common stock amounted to $504 thousand (Q1 2025) and $470 thousand (Q2 2025)[19] Condensed Consolidated Statements of Cash Flows Cash flows shifted from operating cash provided in 2024 to used in 2025, mainly due to decreased deferred revenue and accruals, while investing and financing activities continued to use cash | Cash Flow Activity | Six Months Ended June 30, 2025 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | | :------------------------------------ | :-------------------------------------------- | :-------------------------------------------- | | Net cash provided by (used in) operating activities | $(1,424) | $9,391 | | Net cash used in investing activities | $(2,290) | $(3,748) | | Net cash used in financing activities | $(547) | $(1,550) | | Net change in cash and cash equivalents | $(4,261) | $4,093 | | Cash and cash equivalents at end of period | $8,950 (in thousands) | $9,790 (in thousands) | - The decrease in net cash from operating activities by $10.8 million was primarily due to an $8.1 million decrease in deferred revenue and a $2.2 million decrease in personnel-related accruals[164] - Investing activities used $2.3 million for property and equipment in H1 2025[166] - Financing activities used $0.6 million, reflecting $1.0 million in stock repurchases offset by $0.4 million from the employee stock purchase plan[168] Notes to Condensed Consolidated Financial Statements These notes explain the company's business, accounting policies, revenue recognition, fair value, intangible assets, and other financial items, including new pronouncements and equity plans Note 1. Organization and Description of Business SoundThinking, Inc. provides precision-policing and security solutions via its SafetySmart™ platform to approximately 335 customers and 2,100 agencies, primarily on a SaaS subscription model - As of June 30, 2025, the Company had approximately 335 customers and worked with approximately 2,100 agencies[25] - The SafetySmart™ platform includes six data-driven tools: ShotSpotter®, CrimeTracer™, CaseBuilder™, ResourceRouter™, PlateRanger™ (introduced July 2024), and SafePointe™[26] - Solutions are offered on a software-as-a-service subscription model[26] Note 2. Summary of Significant Accounting Policies Financial statements adhere to U.S. GAAP and SEC rules, relying on estimates, with credit and revenue concentrations noted, and new accounting pronouncements under assessment - One customer accounted for 32% of total accounts receivable and contract assets, net, as of June 30, 2025[35] - One customer accounted for 31% of total revenues for the six months ended June 30, 2025[36] - New accounting pronouncements, ASU 2023-09 (Income Tax Disclosures) and ASU 2024-03 (Expense Disaggregation Disclosures), are effective for fiscal years beginning after December 15, 2024, and January 1, 2027, respectively, with no material impact expected from ASU 2023-09[38][39][40] Note 3. Revenue Related Disclosures Deferred revenue slightly decreased in H1 2025, with $4.3 million catch-up revenue from NYPD renewals, and most revenue from US monthly subscription services | Metric | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------ | :----------------------------- | :----------------------------- | | Deferred Revenue, Beginning balance | $44,233 (in thousands) | $42,077 (in thousands) | | New billings | $50,362 (in thousands) | $57,924 (in thousands) | | Revenue recognized from beginning balance | $(23,484) (in thousands) | $(29,051) (in thousands) | | Revenue recognized from new billings | $(27,581) (in thousands) | $(21,519) (in thousands) | | Deferred Revenue, Ending balance | $43,530 (in thousands) | $49,431 (in thousands) | - Remaining performance obligations for contractually committed revenues as of June 30, 2025, totaled $99.9 million[41] - The Company recognized approximately $4.3 million of catch-up revenue during the six months ended June 30, 2025, including $3.5 million from NYPD contract renewals[47] | Revenue Source | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------ | :----------------------------- | :----------------------------- | | Monthly subscription, maintenance and support services | $53,600 (in thousands) | $50,600 (in thousands) | | Professional software development services | $700 (in thousands) | $1,800 (in thousands) | Note 4. Fair Value Measurements Contingent consideration for the SafePointe acquisition was nil as of June 30, 2025 and 2024, as the earnout was not probable, with a $0.6 million change recognized in 2024 - The fair value of contingent consideration liabilities for the SafePointe acquisition was nil as of June 30, 2025 and 2024, as the earnout was not probable of being earned[49] - A change in fair value of contingent consideration of $0.6 million was recognized during the three and six months ended June 30, 2024[49] Note 5. Intangible Assets, Net Net intangible assets decreased from $33.2 million at December 31, 2024, to $31.3 million at June 30, 2025, primarily due to amortization, with customer relationships and acquired software technology as largest components | Intangible Asset Category | June 30, 2025 (Net) | December 31, 2024 (Net) | | :-------------------------- | :------------------ | :---------------------- | | Customer relationships | $18,244 (in thousands) | $19,163 (in thousands) | | Acquired software technology | $11,574 (in thousands) | $12,429 (in thousands) | | Patents and intellectual property | $576 (in thousands) | $657 (in thousands) | | Tradename | $872 (in thousands) | $933 (in thousands) | | Total intangible assets, net | $31,266 (in thousands) | $33,182 (in thousands) | - Intangible amortization expense was approximately $0.9 million for the three months ended June 30, 2025, and $1.9 million for the six months ended June 30, 2025[53] Note 6. Details of Certain Condensed Consolidated Balance Sheet Accounts This note details key balance sheet accounts, showing increased accounts receivable, decreased contract assets, and lower accrued expenses primarily due to personnel-related accruals | Account | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | | :-------------------------------- | :----------------------------- | :------------------------------- | | Accounts receivable | $27,714 | $19,635 | | Contract assets | $3,573 | $6,104 | | Allowance for credit losses | $(544) | $(275) | | Total Accounts receivable and contract assets, net | $30,743 | $25,464 | | Prepaid software and licenses | $2,356 | $1,306 | | Prepaid insurance | $154 | $1,069 | | Deferred commissions (long-term) | $2,742 | $3,152 | | Personnel-related accruals | $5,410 | $8,252 | | Total accrued expenses and other current liabilities | $7,153 | $10,216 | Note 7. Related Party Transactions Revenues from SoundThinking Labs projects with charitable organizations, linked to a former director and a significant stockholder, decreased significantly in 2025 compared to 2024 | Period | Revenues from SoundThinking Labs projects (in thousands) | | :-------------------------- | :----------------------------------------------------- | | Three Months Ended June 30, 2025 | $7 | | Three Months Ended June 30, 2024 | $47 | | Six Months Ended June 30, 2025 | $18 | | Six Months Ended June 30, 2024 | $80 | Note 8. Restructuring In Q2 2024, the Company restructured, reducing its workforce by 3% and terminating a building lease, incurring $0.4 million in expenses, with no restructuring activity in H1 2025 - In Q2 2024, the Company restructured, eliminating 3% of its workforce and terminating a building lease[58] - Restructuring expenses in Q2 2024 totaled $0.4 million ($0.3 million for workforce, $0.1 million for lease termination)[59] - No restructuring activity occurred during the six months ended June 30, 2025[60] Note 9. Stock Repurchase Program The Company repurchased $1.0 million of common stock (65,063 shares) in H1 2025, a decrease from $2.0 million (134,150 shares) in H1 2024 | Period | Shares Repurchased | Total Cost (in thousands) | Average Price per Share | | :-------------------------- | :----------------- | :------------------------ | :---------------------- | | Six Months Ended June 30, 2025 | 65,063 | $1,000 | $14.92 | | Six Months Ended June 30, 2024 | 134,150 | $2,000 | $14.86 | Note 10. Net Income (Loss) per Share Net loss per share, basic and diluted, increased significantly for both Q2 and H1 2025 due to higher net losses, with potentially dilutive shares excluded as anti-dilutive | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net loss | $(3,120) (in thousands) | $(752) (in thousands) | $(4,604) (in thousands) | $(3,661) (in thousands) | | Weighted-average shares outstanding | 12,712,191 | 12,792,952 | 12,680,456 | 12,781,910 | | Net loss per share, basic and diluted | $(0.24) | $(0.06) | $(0.36) | $(0.29) | - Potentially dilutive shares totaling 4,385,471 (2025) and 2,878,929 (2024) were excluded from diluted EPS calculation as they were anti-dilutive[64] Note 11. Equity Incentive Plans Equity incentive plans include stock options, RSUs, and PSUs, with 631,724 more shares reserved for the 2017 Plan in January 2025, and total stock-based compensation expense reaching $7.2 million for H1 2025 - The number of shares reserved for issuance under the 2017 Equity Incentive Plan increased by 631,724 shares on January 1, 2025[65][66] | Metric | Six Months Ended June 30, 2025 | | :------------------------------------ | :----------------------------- | | Stock Options Outstanding (Dec 31, 2024) | 1,774,388 | | Stock Options Granted | 95,275 | | Stock Options Outstanding (June 30, 2025) | 1,772,338 | | Unvested RSUs (Dec 31, 2024) | 966,131 | | RSUs Granted | 1,852,388 | | Unvested RSUs (June 30, 2025) | 2,592,981 | | Expense Category | Three Months Ended June 30, 2025 (in thousands) | Three Months Ended June 30, 2024 (in thousands) | Six Months Ended June 30, 2025 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | | :-------------------------- | :---------------------------------------------- | :---------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Cost of revenues | $620 | $399 | $1,268 | $839 | | Sales and marketing | $574 | $584 | $1,165 | $1,185 | | Research and development | $444 | $303 | $837 | $605 | | General and administrative | $2,203 | $1,860 | $3,975 | $3,444 | | Total Stock-based compensation | $3,841 | $3,146 | $7,245 | $6,073 | Note 12. Financing Arrangements The Company has a $25.0 million revolving loan facility with Umpqua Bank, with $4.0 million outstanding and $21.0 million available as of June 30, 2025, and was in compliance with all covenants - Revolving credit commitment of $25.0 million with Umpqua Bank, maturing October 15, 2025[75] - As of June 30, 2025, $4.0 million was outstanding on the line of credit, with $21.0 million available[76] - The Company was in compliance with all covenants of the Umpqua Credit Agreement as of June 30, 2025[76] Note 13. Commitments and Contingencies The Company may face legal proceedings and claims, making provisions for probable and estimable liabilities, as unfavorable outcomes could materially affect its business, operating results, financial condition, and cash flows - The Company may become subject to legal proceedings, demands, and claims in the normal course of business[77] - Provisions for legal liabilities are made when probable and reasonably estimable[77] - An unfavorable outcome in litigation could result in substantial damages or prevent the sale of certain products, materially affecting the business[78] Note 14. Segment Reporting The Company operates as a single operating segment, with the President and CEO reviewing financial information on a consolidated basis - The Company operates as a single operating segment[79] - The President and CEO reviews financial information on a consolidated basis[79] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses SoundThinking's financial condition and operational results for H1 2025 and 2024, covering revenues, costs, expenses, liquidity, and capital Overview SoundThinking, Inc. offers public safety technology via its SafetySmart™ platform, including ShotSpotter® and SafePointe™, operating on a SaaS model with ShotSpotter as the primary revenue driver - SoundThinking, Inc. (formerly ShotSpotter, Inc.) provides public safety technology, including ShotSpotter®, CrimeTracer™, CaseBuilder™, ResourceRouter™, PlateRanger™, and SafePointe™[82] - Solutions are offered on a software-as-a-service subscription model, with ShotSpotter comprising approximately 68% of total revenues for the three months ended June 30, 2025[85][90] - As of June 30, 2025, ShotSpotter coverage areas under contract exceeded 1,086 square miles across 179 cities and 22 campuses/sites, and SafePointe had 264 lanes under contract[85] - Net new 'go-live' cities and universities were 5 for the three months and 9 for the six months ended June 30, 2025[98] Components of Results of Operations This section details SoundThinking's financial results, including revenue, cost of revenues, and operating expenses, highlighting contract terms, invoicing, and AI investments, with anticipated rising costs due to inflation and growth Revenues Revenues primarily derive from subscription services for ShotSpotter and other solutions, recognized ratably over contract terms, with upfront invoicing leading to deferred revenue and catch-up revenue upon renewal - Revenues are primarily from subscription services, recognized ratably over 1-3 year contract terms[100][101] - Set-up fees, if material, are recognized ratably over three to five years[101] - Invoicing for ShotSpotter is generally 50% upon contract execution and 50% upon 'go-live' date, with all advance billings recorded as deferred revenue[103] - Catch-up revenue is recognized when renewal processes are completed after contract expiration[106] Costs Cost of revenues includes sensor network depreciation, operations, support, personnel, and stock-based compensation, with impairment from lost customers, and expected increases due to growth, AI investments, and tariffs - Cost of revenues includes depreciation of acoustic sensor networks, communication, hosting, IRC operations, customer support, training, personnel, stock-based compensation, and allocated overheads[111] - Impairment of property and equipment is primarily from write-offs of sensor networks for lost customers[112] - Cost of revenues is expected to increase due to installed base growth, AI investments, and tariffs on components from Greater China[113] Operating Expenses Operating expenses (sales, marketing, R&D, G&A) are expected to increase in absolute dollars due to growth and AI investments, but decrease as a percentage of revenues, with R&D focusing on new hardware and AI, and G&A rising for internal control compliance - Total operating expenses are expected to increase in absolute dollars due to growth and investments in AI, but decrease as a percentage of revenues over time[117] - Research and development efforts focus on new lower-cost sensor hardware, new features, improved functionality, and AI/ML integration for solutions like ResourceRouter, CrimeTracer, CaseBuilder, PlateRanger, and SafePointe[120][121][124] - General and administrative expenses are expected to increase due to growth and compliance with the requirement for an auditor attestation report on internal control over financial reporting for fiscal year 2025[125][126] Other Income (Expense), Net Other income (expense), net, primarily includes interest income, interest expense, and local/franchise tax expenses - Other income (expense), net, primarily consists of interest income, interest expense, and local and franchise tax expenses[128] Income Taxes Income taxes are based on taxable income and enacted tax rates, adjusted for credits and deductions, with a valuation allowance maintained against deferred tax assets, and new tax laws being evaluated for potential impact - Income taxes are based on taxable income, enacted federal, state, and foreign tax rates, adjusted for credits and deductions[129] - A valuation allowance is maintained against deferred tax assets, with realizability assessed based on future taxable income[131] - The Company is evaluating the impact of the One Big Beautiful Bill Act of 2025, enacted July 4, 2025, on its consolidated financial statements[132] Results of Operations SoundThinking's results show a 4% revenue decrease and 315% net loss increase for Q2 2025 due to Chicago contract non-renewal and higher costs, while H1 2025 revenues rose 4% but net loss widened 26% Comparison of Three Months Ended June 30, 2025 and 2024 Q2 2025 revenues decreased 4% to $25.9 million due to Chicago contract non-renewal, while costs and R&D rose, sales/marketing fell, and G&A increased, resulting in a 315% wider net loss of $3.1 million | Metric | 2025 (in thousands) | 2024 (in thousands) | Change ($) | Change (%) | | :------------------------------------ | :------------------ | :------------------ | :--------- | :--------- | | Revenues | $25,889 | $26,960 | $(1,071) | -4% | | Cost of revenues | $12,058 | $10,781 | $1,277 | 12% | | Gross profit | $13,795 | $16,073 | $(2,278) | -14% | | Sales and marketing | $6,525 | $7,322 | $(797) | -11% | | Research and development | $3,746 | $3,468 | $278 | 8% | | General and administrative | $6,467 | $5,880 | $587 | 10% | | Operating loss | $(2,943) | $(43) | $(2,900) | 6744% | | Net loss | $(3,120) | $(752) | $(2,368) | 315% | - Revenue decrease of $1.1 million was primarily due to a $2.8 million reduction from the non-renewal of the City of Chicago contract, partially offset by $1.9 million in new bookings and expansions[134] - Cost of revenues increased by $1.3 million due to headcount, maintenance, reimbursable product costs, and AI capability investments[135] - General and administrative expense increased by $0.6 million due to $0.3 million in equity expense and $0.5 million in accounting fees for internal control compliance[138][139] Comparison of Six Months Ended June 30, 2025 and 2024 H1 2025 revenues increased 4% to $54.2 million from new bookings and NYPD renewals, offset by Chicago non-renewal, while costs, R&D, and G&A rose, sales/marketing fell, leading to a 26% wider net loss of $4.6 million | Metric | 2025 (in thousands) | 2024 (in thousands) | Change ($) | Change (%) | | :------------------------------------ | :------------------ | :------------------ | :--------- | :--------- | | Revenues | $54,238 | $52,370 | $1,868 | 4% | | Cost of revenues | $23,776 | $21,052 | $2,724 | 13% | | Gross profit | $30,389 | $30,960 | $(571) | -2% | | Sales and marketing | $13,784 | $14,434 | $(650) | -5% | | Research and development | $7,811 | $7,028 | $783 | 11% | | General and administrative | $12,941 | $12,710 | $231 | 2% | | Operating loss | $(4,147) | $(2,658) | $(1,489) | 56% | | Net loss | $(4,604) | $(3,661) | $(943) | 26% | - Revenue increase of $1.9 million was due to $4.1 million in new bookings/expansions and $2.8 million catch-up revenue from NYPD renewals, offset by a $5.2 million reduction from the Chicago contract non-renewal[144] - Cost of revenues increased by $2.7 million due to IT costs ($1.0M), maintenance ($0.8M), reimbursable product costs ($0.4M), and headcount/other expenses ($0.4M) related to AI investments[145] - Research and development expense increased by $0.8 million, primarily due to $0.5 million in consulting for SafePointe and $0.4 million in IT expense for AI capabilities[148] Liquidity and Capital Resources SoundThinking's liquidity relies on $9.0 million cash, $30.7 million accounts receivable, and a $21.0 million credit facility, deemed sufficient for 12 months, with $1.0 million common stock repurchased in H1 2025 - Principal liquidity sources: $9.0 million in cash and cash equivalents and $30.7 million in accounts receivable as of June 30, 2025[153] - Available credit facility of approximately $21.0 million as of June 30, 2025, with $4.0 million outstanding[153] - The Company believes existing cash, credit facility, and operating cash flow will meet requirements for at least the next 12 months[154] - Repurchased $1.0 million of common stock (65,063 shares) in H1 2025; $12.5 million remains available under the 2022 Repurchase Program[160] Cash Flows Net cash used in operating activities was $1.4 million for H1 2025, a significant shift from $9.4 million provided in H1 2024, mainly due to reduced deferred revenue and accruals, with investing and financing activities also using cash | Cash Flow Activity | Six Months Ended June 30, 2025 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | | :------------------------------------ | :-------------------------------------------- | :-------------------------------------------- | | Net cash provided by (used in) operating activities | $(1,424) | $9,391 | | Net cash used in investing activities | $(2,290) | $(3,748) | | Net cash used in financing activities | $(547) | $(1,550) | | Net change in cash and cash equivalents | $(4,261) | $4,093 | - Operating cash flow decreased by $10.8 million, primarily due to an $8.1 million decrease in deferred revenue and a $2.2 million decrease in personnel-related accruals[164] - Investing activities used $2.3 million for property and equipment in H1 2025[166] - Financing activities used $0.6 million, reflecting $1.0 million in stock repurchases offset by $0.4 million from the employee stock purchase plan[168] Critical Accounting Estimates Critical accounting estimates for accounts receivable, assets, contingent consideration, stock-based compensation, and income taxes remain consistent with the 2024 Form 10-K, with no material changes as of June 30, 2025 - Critical accounting estimates include valuation of accounts receivable, tangible and intangible assets, contingent consideration, stock-based compensation, and income taxes[32][169] - No material changes to critical accounting policies and estimates from the 2024 Annual Report on Form 10-K as of June 30, 2025[170] Recently Issued Accounting Pronouncements Refer to Note 2, Summary of Significant Accounting Policies, for information on recently issued accounting pronouncements - Refer to Note 2 for details on recently issued accounting pronouncements[171] Item 3. Qualitative and Quantitative Disclosures About Market Risk The Company's market risk exposure primarily stems from fluctuations in interest rates, foreign exchange rates, and inflation, with no material changes during H1 2025 compared to the 2024 Annual Report on Form 10-K - Market risk exposure is primarily due to fluctuations in interest rates, foreign exchange rates, and inflation[173] - No material changes in market risk during the six months ended June 30, 2025, compared to the 2024 Annual Report on Form 10-K[174] Item 4. Controls and Procedures Management concluded disclosure controls were ineffective as of June 30, 2025, due to an unremediated material weakness in data completeness and accuracy, though financial statements are fairly presented, with ongoing remediation Evaluation of Disclosure Controls and Procedures The CEO and CFO concluded disclosure controls were ineffective as of June 30, 2025, due to an unremediated material weakness in internal control, though management believes financial statements are fairly presented - Disclosure controls and procedures were not effective as of June 30, 2025, due to an unremediated material weakness[175] - Management believes the material weakness did not adversely affect reported operating results or financial condition, and financial statements are fairly presented[176] Changes in Internal Control over Financial Reporting There were no material changes in the Company's internal control over financial reporting during Q2 2025, while remediation efforts for the identified material weakness continue - No material changes in internal control over financial reporting during the quarter ended June 30, 2025[177] Inherent Limitations on Effectiveness of Controls Management acknowledges that control systems provide only reasonable, not absolute, assurance against all errors and fraud, and may become inadequate over time due to changing conditions or deteriorating compliance - Control systems provide only reasonable, not absolute, assurance that objectives are met[178] - Inherent limitations mean misstatements due to error or fraud may occur and not be detected[178] Material Weakness in Internal Control Over Financial Reporting A material weakness was identified in the design of controls for verifying the completeness and accuracy of data supporting consolidated financial statements as of June 30, 2025, creating a reasonable possibility of material misstatement - A material weakness was identified in the design of controls for verifying completeness and accuracy of data used in financial statements[180] - This weakness creates a reasonable possibility of material misstatement not being prevented or detected on a timely basis[179] Remediation Plan The Company initiated measures to remediate the material weakness, including documenting processes, training personnel, and monitoring controls for data verification, but there is no assurance of full remediation or prevention of recurrence - Remediation measures include fully documenting processes, training personnel, and monitoring controls for data verification[182] - There is no assurance that the material weakness will be fully remediated or prevented from re-occurring[182] PART II. OTHER INFORMATION Item 1. Legal Proceedings Legal proceedings information is incorporated by reference from Note 13, Commitments and Contingencies, in the condensed consolidated financial statements - Legal proceedings information is incorporated by reference from Note 13, Commitments and Contingencies[183] Item 1A. Risk Factors This section outlines significant risks for SoundThinking, covering growth, public safety business, strategic, operational, legal, regulatory, and stock ownership aspects, including managing growth, third-party reliance, and market penetration Summary of Risk Factors Investing in SoundThinking's common stock involves high risks, including challenges in business growth, service interruptions, market entry, customer funding, fluctuating results, unprofitability, and complexities of government contracts - Key risks include failure to grow, service interruptions, inability to sell into new markets, dependence on customer funding, and significant quarterly result fluctuations[185] - Additional risks cover unprofitability, need for capital, complexities of government contracts, lengthy sales cycles, and changes in federal funding[185] - Risks also include false positive alerts, negative publicity, economic downturns, liability risks, data privacy concerns, intellectual property protection, and cybersecurity threats[187] Risks Related to Our Growth SoundThinking's growth depends on expanding its customer base, coverage, and markets, while managing macroeconomic pressures and AI investments, with unpredictable quarterly results and growth management failures posing significant risks - Growth depends on acquiring new customers, expanding coverage, international footprint, and new vertical markets (e.g., healthcare, casino gaming)[187] - Failure to manage growth effectively, including investments in sales, marketing, R&D, and AI, could impair solution performance and reduce customer satisfaction[189][190] - Quarterly results are highly unpredictable due to factors like customer base expansion/contraction, contract renewals (e.g., Chicago non-renewal), sales timing, customer budgets, and macroeconomic conditions[191] - Revenue recognition is ratable over subscription terms (1-3 years), meaning sales fluctuations are not immediately reflected, and new sales revenue is recognized slowly[195] Risks Related to Our Public Safety Business Success relies on sales to government entities, susceptible to funding, political changes, and public perception, with complex contracting, lengthy sales cycles, and federal funding changes posing risks, while false positives, negative publicity, and privacy concerns can damage reputation - Success depends on sales to government agencies and universities, which are affected by funding availability, political changes, and public perception[202] - Contracting with government entities is complex, expensive, and time-consuming, with potential for delays, non-renewals, and compliance challenges[204][205] - False positive gunshot alerts or missed weapon detections, or negative publicity (e.g., VICE Media lawsuit, NYC Comptroller report), can harm reputation and growth[214][215][217] - Economic uncertainties, political changes, and concerns over privacy/surveillance (e.g., City of Toronto decision) can limit customer funding and market adoption[219][224] Strategic and Operational Risks Strategic and operational risks include new market expansion challenges, solution failures, service interruptions, debt covenants, acquisition risks, dependence on key personnel, limited supplier reliance, AI usage challenges, and international expansion risks - Inability to sell solutions into new markets (e.g., healthcare, casino gaming) or cross-sell to existing customers could hinder revenue growth[226] - Failures of solutions (e.g., missed threat detection) could result in injury, loss of life, reputational harm, and litigation[230] - Service interruptions from technology issues, third-party hosting, IRC operations, or wireless carrier reliance could negatively impact business and customer satisfaction[231][232][236] - The revolving credit facility subjects the company to restrictive and financial covenants, and an event of default could have a material adverse effect[244][245] - Acquisition strategy (e.g., SafePointe) carries risks of integration failure, higher costs, diversion of management attention, and unforeseen liabilities[252][253] - Reliance on a single manufacturer for proprietary ShotSpotter sensors and a limited number of suppliers creates supply chain risks[279] - Use of generative AI tools introduces operational challenges, legal liability (e.g., copyright, privacy), reputational concerns, and competitive risks due to evolving technology and regulatory uncertainty[285][286][288] - International expansion exposes the company to currency fluctuations, data residency requirements, compliance with local laws, and geopolitical risks[292] Legal and Regulatory Risks SoundThinking is subject to stringent data privacy and security laws, contractual obligations, and industry standards, with non-compliance leading to regulatory actions, litigation, and reputational harm, while reliance on third-party data, tax law changes, NOL limitations, IP protection failures, and AI usage pose significant legal risks - Subject to stringent and evolving U.S. and foreign data privacy and security laws (e.g., GDPR, CCPA, PIPL), contractual obligations, and industry standards[305][306][307][310] - Non-compliance or perceived failures can lead to regulatory investigations, litigation, fines, reputational harm, and restrictions on data processing[305][317] - Reliance on third-party data suppliers and registration as a data broker increase compliance risks, especially with laws like California's Delete Act[312][313][314] - Changes in tax laws (e.g., One Big Beautiful Bill Act) or adverse interpretations could impact business and financial performance[318] - Ability to use net operating losses (NOLs) is subject to limitations (e.g., Section 382 of the Code, state-level suspensions)[320] - Failure to protect intellectual property (patents, trade secrets) or claims of infringement by third parties could be costly, divert resources, and limit technology use[321][322][329][331] - Use of generative AI tools poses risks to proprietary software (e.g., copyright ownership, confidential information disclosure, third-party IP infringement claims)[332][333] Risks Related to the Ownership of Our Common Stock An unremediated material weakness in internal control could affect investor confidence and financial reporting, while stock price volatility, repurchases, increased costs from accelerated filer status, and anti-takeover provisions pose risks to common stock ownership - An unremediated material weakness in internal control over financial reporting as of June 30, 2025, could adversely affect investor confidence and financial reporting accuracy[336][337] - The market price of common stock is volatile, influenced by operating results, analyst estimates, federal funding changes, and macroeconomic conditions[340][341][343] - Stock repurchases could increase stock price volatility and diminish cash reserves, with no guarantee of enhancing long-term stockholder value[342] - Becoming an accelerated filer effective December 31, 2025, will increase costs and demands on management for compliance with Section 404(b) of Sarbanes-Oxley Act[344][345] - Anti-takeover provisions in charter documents and Delaware law could make company acquisition more difficult and limit stockholders' ability to replace management[346][347] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds No unregistered sales of equity securities or specific use of proceeds are reported, but the Company repurchased 31,570 shares for $0.5 million in Q2 2025 under its stock repurchase program, with $12.45 million remaining - No unregistered sales of equity securities or specific use of proceeds reported[353][354] | Period | Total Number of Shares Purchased | Average Price Paid per Share | Dollar Value of Shares that May Yet Be Purchased Under the Program (in thousands) | | :-------------------------- | :------------------------------- | :--------------------------- | :---------------------------------------------------------------- | | April 1, 2025 - April 30, 2025 | — | — | $12,919 | | May 1, 2025 - May 31, 2025 | 20,193 | $14.78 | $12,620 | | June 1, 2025 - June 30, 2025 | 11,377 | $14.94 | $12,450 | | Total (Q2 2025) | 31,570 | $14.84 | | - The stock repurchase program, approved in November 2022 for up to $25 million, has no expiration date[355] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including organizational documents, certifications of principal executive and financial officers, and XBRL-related documents - Exhibits include Amended and Restated Certificate of Incorporation, Certificate of Change of Registered Agent, Amended and Restated Bylaws[358] - Certifications of Principal Executive Officer and Principal Financial Officer pursuant to Section 302 and Section 906 of the Sarbanes-Oxley Act of 2002 are included[358] - XBRL Instance Document, Taxonomy Extension Schema, and Cover Page are also filed[358] Signatures The report was duly signed on August 13, 2025, by Ralph A. Clark, President and Chief Executive Officer, and Alan R. Stewart, Chief Financial Officer, pursuant to the requirements of the Securities Exchange Act of 1934 - The report was signed on August 13, 2025[362][363] - Signed by Ralph A. Clark, President and Chief Executive Officer, and Alan R. Stewart, Chief Financial Officer[363]