SoundThinking(SSTI) - 2022 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements Q1 2022 unaudited financials show significant changes, primarily from the January 2022 Forensic Logic acquisition Condensed Consolidated Balance Sheets Total assets increased to $110.2 million by March 31, 2022, primarily due to the Forensic Logic acquisition Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Total Assets | $110,204 | $72,304 | | Cash and cash equivalents | $8,852 | $15,636 | | Goodwill | $23,171 | $2,816 | | Intangible assets, net | $29,220 | $13,564 | | Total Liabilities | $61,429 | $38,489 | | Deferred revenue, short-term | $33,886 | $26,235 | | Accrued expenses and other current liabilities | $12,952 | $6,680 | | Total Stockholders' Equity | $48,775 | $33,815 | - The increase in Goodwill to $23.2 million is primarily due to the acquisition of Forensic Logic, which added $20.4 million[50] - Intangible assets increased significantly due to the Forensic Logic acquisition, which added assets such as software technology ($7.1M), tradenames ($1.0M), and customer relationships ($8.2M)[41] Condensed Consolidated Statements of Operations Q1 2022 revenues grew 41% to $21.2 million, resulting in a net income of $387,000, a substantial increase from Q1 2021 Q1 Statement of Operations Summary (in thousands, except per share data) | Metric | Q1 2022 | Q1 2021 | | :--- | :--- | :--- | | Revenues | $21,214 | $15,013 | | Gross Profit | $12,924 | $8,688 | | Total Operating Expenses | $12,492 | $8,519 | | Operating Income | $432 | $169 | | Net Income | $387 | $79 | | Net Income per Share, diluted | $0.03 | $0.01 | Condensed Consolidated Statements of Cash Flows Q1 2022 operating cash flow was positive $1.3 million, a reversal from Q1 2021, with $6.5 million used in investing activities for an acquisition Q1 Cash Flow Summary (in thousands) | Cash Flow Activity | Q1 2022 | Q1 2021 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $1,283 | $(1,496) | | Net cash used in investing activities | $(6,526) | $(1,231) | | Net cash used in financing activities | $(1,621) | $(2,374) | | Decrease in cash, cash equivalents | $(6,864) | $(5,101) | - The primary use of cash in investing activities was $4.6 million for a business acquisition, net of cash acquired[21] - Financing activities included $1.6 million for repurchases of common stock[21] Notes to Condensed Consolidated Financial Statements Notes detail the $31.6 million Forensic Logic acquisition, significant customer concentration, and Q1 2022 common stock repurchases - On January 3, 2022, the company acquired Forensic Logic for total estimated consideration of $31.6 million, comprising $4.9M cash, $14.3M in stock, and an estimated $12.4M in contingent earnout[40][41] - For Q1 2022, two customers accounted for 38% and 10% of total revenues, respectively, indicating significant customer concentration[34] - The company repurchased 57,623 shares of its common stock for $1.6 million during the quarter, with $1.4 million remaining available under the repurchase program[60] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes Q1 2022's 41% revenue growth to new customers and the Forensic Logic acquisition, despite ongoing pandemic and supply chain risks Overview The company expanded its precision-policing solutions with the Forensic Logic acquisition, achieving 41% revenue growth in Q1 2022, noting high customer concentration - Acquired Forensic Logic in January 2022 to enhance its suite of precision policing technology solutions, adding lead generation to its case management offerings[85] - Revenues grew 41% year-over-year to $21.2 million for the three months ended March 31, 2022[89] - Customer concentration remains high, with the City of New York and the City of Chicago representing 38% and 10% of total revenues, respectively, in Q1 2022[89] Results of Operations Q1 2022 saw revenues increase by $6.2 million (41%), gross profit by 49%, and operating expenses by 47%, with G&A rising due to legal fees Comparison of Operations (in thousands) | Line Item | Q1 2022 | Q1 2021 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Revenues | $21,214 | $15,013 | $6,201 | 41% | | Gross Profit | $12,924 | $8,688 | $4,236 | 49% | | Total Operating Expenses | $12,492 | $8,519 | $3,973 | 47% | | Income from Operations | $432 | $169 | $263 | 156% | | Net Income | $387 | $79 | $308 | 390% | - The $6.2 million revenue increase was driven by new customers, existing customer expansions, Forensic Logic's revenue contribution, and a delayed contract amendment[133] - General and Administrative expenses increased by $1.4 million, primarily due to a $0.9 million rise in legal expenses related to the lawsuit against VICE Media for defamation[138] Liquidity and Capital Resources The company's $8.9 million cash and $20.0 million loan facility provide sufficient liquidity, with cash used for the Forensic Logic acquisition and stock repurchases - As of March 31, 2022, the company had $8.9 million in cash and cash equivalents and access to a $20.0 million revolving loan facility, with no amounts outstanding[141] - The acquisition of Forensic Logic includes a contingent earnout of up to $9.5 million payable based on 2022 revenues and up to $10.5 million based on 2023 revenues[145] - During Q1 2022, the company repurchased 57,623 shares for $1.6 million, leaving $1.5 million available under the program[147] Item 3. Qualitative and Quantitative Disclosures About Market Risk No material changes occurred in market risk exposure during Q1 2022, with primary risks remaining interest rate, foreign exchange rate, and inflation fluctuations - There were no material changes in market risk during Q1 2022 compared to the disclosures in the 2021 Annual Report on Form 10-K[161] Item 4. Controls and Procedures Management concluded disclosure controls were effective as of March 31, 2022, while integrating internal controls of the newly acquired Forensic Logic - The CEO and CFO concluded that as of March 31, 2022, the company's disclosure controls and procedures were effective[162] - Following the January 2022 acquisition of Forensic Logic, the company is continuing to integrate its internal controls into ShotSpotter's control structure[163] PART II. OTHER INFORMATION Item 1A. Risk Factors Significant risks include ongoing COVID-19 impacts, supply chain disruptions, reliance on government contracts, social unrest, reputational damage, and intellectual property concerns - The COVID-19 pandemic continues to pose a material adverse risk, with potential impacts on customer funding, supply chain disruptions (specifically semiconductor chips), and deployment delays[168][172] - Social unrest and movements like "Defund the Police" may directly or indirectly affect police agency budgets and funding available to current and potential customers[191] - The business is exposed to reputational risk from real or perceived false positive/negative alerts and negative publicity, such as the lawsuit filed against VICE Media for alleged defamation[210][212] - The company relies on a single contract manufacturer for its proprietary sensors and faces risks from component shortages, particularly semiconductor chips[266][267] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company issued $14.3 million in common stock for the Forensic Logic acquisition and repurchased $1.6 million of its own stock during Q1 2022 - Issued 464,540 shares of common stock valued at $14.3 million as part of the Forensic Logic acquisition on January 3, 2022, in an unregistered sale[331] Issuer Purchases of Equity Securities (Q1 2022) | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | Jan 2022 | — | — | | Feb 2022 | — | — | | Mar 2022 | 57,623 | $28.34 | | Total | 57,623 | $28.34 | Item 6. Exhibits This section indexes all exhibits filed with the Form 10-Q, including CEO and CFO certifications and Inline XBRL documents - The Exhibit Index lists documents filed with the report, including certifications from the Principal Executive Officer and Principal Financial Officer as required by the Sarbanes-Oxley Act[337]