SOUNDTHINKING INC

Previous wording

We are a leading public safety technology company that combines data-driven solutions and strategic advisory services for law enforcement and civic leadership. In April 2023, we introduced our SafetySmart TM platform that includes five data-driven tools consisting of: (i) our flagship product, ShotSpotter® (formerly ShotSpotter Respond), a leading outdoor gunshot detection, location and alerting system trusted by 171 cities and 18 universities and corporations as of March 31, 2024, (ii) CrimeTracer™ (formerly COPLINK X) a leading law enforcement search engine that enables investigators to search through more than one billion criminal justice records from across jurisdictions to generate tactical leads and quickly make intelligent connections to solve cases, (iii) CaseBuilder™ (formerly ShotSpotter Investigate) a one-stop investigative management system for tracking, reporting, and collaborating on cases, (iv) ResourceRouter™ (formerly ShotSpotter Connect), which directs the deployment of patrol and community anti-violence resources in an objective way to help maximize the impact of limited resources and improve community safety, and (v) SafePointe™, an AI-based weapons detection system, that we added when we acquired SafePointe in August 2023. We also offer other security solutions within our flagship product offering ShotSpotter, including ShotSpotter for Highways, ShotSpotter for Campus and ShotSpotter for Corporate that are typically smaller-scale deployments of ShotSpotter vertically marketed to universities, corporate campuses, highways, and key infrastructure centers to mitigate risk and enhance security by notifying authorities of outdoor gunfire incidents, saving critical minutes for first responders to arrive. SoundThinking Labs supports innovative uses of our technology to help protect wildlife and the environment.

Current wording

We are a leading public safety technology company that combines data-driven solutions and strategic advisory services for law enforcement and civic leadership. In April 2023, we introduced our SafetySmart TM platform that includes five data-driven tools consisting of: (i) our flagship product, ShotSpotter® (formerly ShotSpotter Respond), a leading outdoor gunshot detection, location and alerting system trusted by 176 cities and 18 universities and corporations as of June 30, 2024, (ii) CrimeTracer™ (formerly COPLINK X) a leading law enforcement search engine that enables investigators to search through more than one billion criminal justice records from across jurisdictions to generate tactical leads and quickly make intelligent connections to solve cases, (iii) CaseBuilder™ (formerly ShotSpotter Investigate) a one-stop investigative management system for tracking, reporting, and collaborating on cases, (iv) ResourceRouter™ (formerly ShotSpotter Connect), which directs the deployment of patrol and community anti-violence resources in an objective way to help maximize the impact of limited resources and improve community safety, and (v) SafePointe™, an AI-based weapons detection system, that we added when we acquired SafePointe in August 2023. We also offer other security solutions within our flagship product offering ShotSpotter, including ShotSpotter for Highways, ShotSpotter for Campus and ShotSpotter for Corporate that are typically smaller-scale deployments of ShotSpotter vertically marketed to universities, corporate campuses, highways, and key infrastructure centers to mitigate risk and enhance security by notifying authorities of outdoor gunfire incidents, saving critical minutes for first responders to arrive. SoundThinking Labs supports innovative uses of our technology to help protect wildlife and the environment.

Previous wording

We offer our solutions on a software-as-a-service subscription model to our customers. We generate annual subscription revenues from the deployment of ShotSpotter on a per-square-mile basis. Our security solutions, ShotSpotter for Highways, ShotSpotter for Campus, and ShotSpotter for Corporate are typically sold on a subscription basis, each with a customized deployment plan. CaseBuilder, ResourceRouter, and CrimeTracer are also sold on a subscription basis generally customized based on the number of sworn officers in a particular city. We generate annual subscription revenues from the deployment of SafePointe on a per-lane basis, a lane being the detection area of an entryway. As of March 31, 2024, we had ShotSpotter, ShotSpotter for Campus, and ShotSpotter for Corporate coverage areas under contract for 1,169 square miles, of which 1,159 square miles had gone live. Coverage areas under contract for ShotSpotter included 171 cities and coverage areas under contract for ShotSpotter for Campus and ShotSpotter for Corporate included 18 campuses/sites across the United States, South Africa and the Bahamas, including some of the largest cities in the United States. As of March 31, 2024, we had 166 SafePointe lanes under contract. Most of our revenues are attributable to customers based in the United States.

Current wording

We offer our solutions on a software-as-a-service subscription model to our customers. We generate annual subscription revenues from the deployment of ShotSpotter on a per-square-mile basis. Our security solutions, ShotSpotter for Highways, ShotSpotter for Campus, and ShotSpotter for Corporate are typically sold on a subscription basis, each with a customized deployment plan. CaseBuilder, ResourceRouter, and CrimeTracer are also sold on a subscription basis generally customized based on the number of sworn officers in a particular city. We generate annual subscription revenues from the deployment of SafePointe on a per-lane basis, a lane being the detection area of an entryway. As of June 30, 2024, we had ShotSpotter, ShotSpotter for Campus, and ShotSpotter for Corporate coverage areas under contract for 1,184 square miles, of which 1,171 square miles had gone live. Coverage areas under contract for ShotSpotter included 176 cities and coverage areas under contract for ShotSpotter for Campus and ShotSpotter for Corporate included 18 campuses/sites across the United States, South Africa, Uruguay and the Bahamas, including some of the largest cities in the United States. As of June 30, 2024, we had 179 SafePointe lanes under contract. Most of our revenues are attributable to customers based in the United States.

Previous wording

We generated revenues of $25.4 million and $20.6 million for the three months ended March 31, 2024 and 2023, respectively, representing an increase of 23%. For the three months ended March 31, 2024 and 2023 revenues from ShotSpotter represented approximately 69%, and 71% of total revenues, respectively. Our two current largest customers, the City of New York and the City of Chicago, each accounted for 26% and 10%, respectively, of our total revenues for the three months ended March 31, 2024. The City of New York and the City of Chicago each accounted for 27% and 10%, respectively, of our total revenues for the three months ended March 31, 2023.

Current wording

We generated revenues of $27.0 million and $22.1 million for the three months ended June 30, 2024 and 2023, respectively, representing an increase of 22%. For the three months ended June 30, 2024 and 2023 revenues from ShotSpotter represented approximately 69% and 73% of total revenues, respectively. Our two current largest customers, the City of New York and the City of Chicago, accounted for 25% and 10%, respectively, of our total revenues for the three months ended June 30, 2024. The City of New York and the City of Chicago accounted for 25% and 9%, respectively, of our total revenues for the three months ended June 30, 2023.

Previous wording

For the three months ended March 31, 2024 and 2023, revenues generated within the United States (including Puerto Rico and the U.S. Virgin Islands) accounted for $24.8 million and $20.2 million, respectively, or 97% and 98% of total revenues, respectively.

Current wording

For the three months ended June 30, 2024 and 2023, revenues generated within the United States (including Puerto Rico and the U.S. Virgin Islands) accounted for $26.3 million and $21.6 million, respectively, or 98% of total revenues for both periods. For the six months ended June 30, 2024 and 2023, revenues generated within the United States (including Puerto Rico and the U.S. Virgin Islands) accounted for $51.1 million and $41.8 million, respectively, or 98% of total revenues for both periods.

Previous wording

We had a net loss of $2.9 million and $1.8 million for the three months ended March 31, 2024 and 2023, respectively. Our accumulated deficit was $98.0 million and $95.1 million at March 31, 2024 and December 31, 2023, respectively.

Current wording

We had a net loss of $0.8 million and $2.7 million for the three months ended June 30, 2024 and 2023, respectively. We had a net loss of $3.7 million and $4.5 million for the six months ended June 30, 2024 and 2023, respectively. Our accumulated deficit was $98.8 million and $95.1 million at June 30, 2024 and December 31, 2023, respectively.

Previous wording

We have focused on rapidly growing our business and believe that our future growth is dependent on many factors, including our ability to increase our customer base, expand the coverage of our solutions among our existing customers, expand our international presence, increase sales of our other solutions and retain our customers. Our future growth will primarily depend on the market acceptance for outdoor gunshot detection solutions. Challenges we face in this regard include our target customers not having access to adequate funding sources, the fact that contracting with government entities can be complex, expensive and time-consuming, the fact that our typical sales cycle is often very long and difficult to estimate accurately, and the fact that negative publicity about our company can and has caused current and potential future customers to evaluate the sales of our solutions more than in the past. We expect international sales cycles to be even longer than our domestic sales cycles. To combat these challenges, we increase awareness of our solutions, invest in new sales and marketing campaigns, often in different languages for international sales, hire additional sales representatives to drive sales to continue to maintain our position as a market leader, and invest in research and development. In addition, we believe that entering into strategic partnerships with other service providers to cities and municipalities offers another potential avenue for expansion.

Current wording

We have focused on rapidly growing our business and believe that our future growth is dependent on many factors, including our ability to increase our customer base, expand the coverage of our solutions among our existing customers, expand our international presence, increase sales of our other solutions and retain our customers. Our future growth will primarily depend on the market acceptance for outdoor gunshot detection solutions. Challenges we face in this regard include our target customers not having access to adequate funding sources, the fact that contracting with government entities can be complex, expensive and time-consuming, the fact that our typical sales cycle is often very long and difficult to estimate accurately, and the fact that negative publicity about our company can and has caused current and potential future customers to evaluate the sales of our solutions more than in the past. We expect international sales cycles to be even longer than our domestic sales cycles. To combat these challenges, we are increasing awareness of our solutions, investing in new sales and marketing campaigns, often in different languages for international sales, hiring additional sales representatives to drive sales to continue to maintain our position as a market leader, and investing in research and development. In addition, we believe that entering into strategic partnerships with other service providers to cities and municipalities offers another potential avenue for expansion.

Previous wording

We will also focus on expanding our business by introducing new products and services to existing customers, such as ResourceRouter, CrimeTracer and as a result of our acquisition in August 2023 of SafePointe, an AI-driven weapon detection system, and acquiring intellectual property assets. We believe that developing and acquiring products for law enforcement in adjacent categories is a path for additional growth. We believe our large and growing installed base of police departments who trust SoundThinking’s products, support, and way of doing business provide revenue growth opportunities. The ability to cross-sell new products provides an opportunity to grow revenues per customer and lifetime value. Challenges we face in this area include ensuring our new products are reliable, integrated well with other SoundThinking solutions, and priced and serviced appropriately. In some cases, we will need to bring in new skill sets to properly develop, market, sell or service these new products depending on the categories they represent.

Current wording

We will also focus on expanding our business by introducing new products and services to existing customers, such as ResourceRouter, CrimeTracer and, as a result of our acquisition in August 2023 of SafePointe, an AI-driven weapon detection system, and acquiring intellectual property assets. We believe that developing and acquiring products for law enforcement in adjacent categories is a path for additional growth. We believe our large and growing installed base of police departments who trust SoundThinking’s products, support, and way of doing business provide revenue growth opportunities. The ability to cross-sell new products provides an opportunity to grow revenues per customer and lifetime value. We continue to see robust cross-selling momentum, with Newport News adding our CrimeTracer and CaseBuilder solutions to complement our ShotSpotter and ResourceRouter solutions that they have already implemented. Challenges we face in this area include ensuring our new products are reliable, integrated well with other SoundThinking solutions, and priced and serviced appropriately. In some cases, we will need to bring in new skill sets to properly develop, market, sell or service these new products depending on the categories they represent.

Previous wording

Net new “go-live” cities and universities represent the number of cities and universities covered by deployments of our gunshot detection ShotSpotter solution that were formally approved by customers during the period, both from initial and expanded customer deployments, net of cities and universities that ceased to be “live” during the period due to customer cancellations. New cities and universities include deployed coverage areas that may have been sold, or booked, in a prior period. We focus on net new “go-live” cities and universities as a key business metric to measure our operational performance and market penetration. Our net new “go-live” cities and universities in the three months ended March 31, 2024 and 2023 were as follows:

Current wording

Net new “go-live” cities and universities represent the number of cities and universities covered by deployments of our gunshot detection ShotSpotter solution that were formally approved by customers during the period, both from initial and expanded customer deployments, net of cities and universities that ceased to be “live” during the period due to customer cancellations. New cities and universities include deployed coverage areas that may have been sold, or booked, in a prior period. We focus on net new “go-live” cities and universities as a key business metric to measure our operational performance and market penetration. Our net new “go-live” cities and universities in the three and six months ended June 30, 2024 and 2023 were as follows:

Previous wording

We generate annual subscription revenues from the deployment of ShotSpotter on a per-square-mile basis and generate annual subscription revenues from the deployment of SafePointe on a per-lane basis, a lane being the detection area of an entryway. Our security solutions, ShotSpotter for Highways, ShotSpotter for Campus, ShotSpotter for Corporate as well as CaseBuilder are typically sold on a subscription basis, each with a customized deployment plan.

Current wording

We generate annual subscription revenues from the deployment of ShotSpotter on a per-square-mile basis and generate annual subscription revenues from the deployment of SafePointe on a per-lane basis, a lane being the detection area of an entryway. Our security solutions, ShotSpotter for Highways, ShotSpotter for Campus, ShotSpotter for Corporate as well as CaseBuilder are typically sold on a subscription basis, each with a customized deployment plan. ResourceRouter and CrimeTracer are also sold on a subscription basis generally customized based on the number of sworn officers in a particular city.

Previous wording

Our income taxes are based on the amount of our taxable income and enacted federal, state and foreign tax rates, adjusted for allowable credits, deductions and the valuations allowance against deferred tax assets, as applicable. A $0.1 million provision for income taxes was recorded in the three months ended March 31, 2024. There was no provision for income taxes in the three months ended March 31, 2023.

Current wording

Our income taxes are based on the amount of our taxable income and enacted federal, state and foreign tax rates, adjusted for allowable credits, deductions and the valuations allowance against deferred tax assets, as applicable. A $0.2 million provision for income taxes was recorded in the three months ended June 30, 2024. A $0.3 million provision for income taxes was recorded in the three months ended June 30, 2023.

Previous wording

The increase in revenues of $4.8 million was primarily attributable to a $4.2 million increase in revenues from new customers, expansion of existing customer coverage areas, contributions from the SafePointe acquisition and an increase of $0.6 million in professional services revenue. We went live in ten new ShotSpotter cities and one university and expanded in two current cities during the three months ended March 31, 2024.

Current wording

The increase in revenues of $9.7 million was primarily attributable to a $7.1 million increase in revenues from new customers, expansion of existing customer coverage areas, contributions from the SafePointe acquisition in the third quarter of 2023 and an increase of $2.6 million in professional services revenue. We went live in 13 new ShotSpotter cities and one university and expanded in six current cities, two commercial customers and one university during the six months ended June 30, 2024.

Previous wording

The increase in cost of revenues of $1.1 million was due primarily to an increase in product costs due to the increase in our customer base and an increase in personnel costs.

Current wording

The increase in cost of revenues of $2.4 million was due primarily to an increase in product costs due to the increase in our customer base and an increase in personnel costs due to our SafePointe acquisition in the third quarter of 2023.

Previous wording

Sales and marketing expense increased by $1.3 million, primarily due to salaries, commissions and other personnel costs as a result of increased headcount and increased revenue.

Current wording

Sales and marketing expense increased by $1.1 million, primarily due to salaries, commissions and other personnel costs as a result of increased headcount and increased revenue. This includes $0.4 million in additional expense as a result of our SafePointe acquisition in the third quarter of fiscal 2023.

Previous wording

Research and development expense increased by $0.9 million, primarily due to increased headcount.

Current wording

Research and development expense increased by $1.3 million, primarily due to increased headcount, of which $0.7 million is attributable to our SafePointe acquisition.

Previous wording

General and administrative expense increased by $2.2 million and was due primarily to increased personnel-related costs, legal costs and increases in travel costs, insurance and other costs.

Current wording

General and administrative expense increased by $2.6 million and was due primarily to increased personnel-related costs, and increases in travel costs, insurance and other costs.

Previous wording

The increase in other expense, net was due to interest expense related to the line of credit balance of $7.0 million.

Current wording

The increase in other expense, net was primarily due to a one-time restructuring expense of $0.3 million comprised of workforce reduction severance and other employee separation-related costs and restructuring costs related to a lease termination for a location that was no longer in use. The increase was also due to interest expense related to the line of credit of $0.3 million in the six months ended June 30, 2024. The line of credit was primarily used to fund our acquisition of SafePointe.

Previous wording

Our operations have been financed primarily through net proceeds from the sale of equity, debt financing arrangements and cash from operating activities. Our principal source of liquidity is cash and cash equivalents totaling $8.5 million and accounts receivable of $35.2 million as of March 31, 2024. On March 31, 2024, our available credit facility was approximately $18.0 million and we had $7.0 million outstanding on our line of credit, which was primarily used to fund our acquisition of SafePointe.

Current wording

Our operations have been financed primarily through net proceeds from the sale of equity, debt financing arrangements and cash from operating activities. Our principal source of liquidity is cash and cash equivalents totaling $9.8 million and accounts receivable of $35.7 million as of June 30, 2024. On June 30, 2024, our available credit facility was approximately $18.0 million and we had $7.0 million outstanding on our line of credit, which was primarily used to fund our acquisition of SafePointe. On August 1, 2024, we repaid $3.0 million on our line of credit. Following this payment, we have an outstanding balance of $4.0 million on our line of credit.

Previous wording

We believe our existing cash and cash equivalents, our available credit facility and cash flow from operations will be sufficient to meet our working capital and capital expenditure requirements for at least the next 12 months. We believe that despite our negative working capital, the costs to perform the short-term deferred revenue is relatively low compared to the balance of $44.8 million. However, should additional working capital be needed, we can utilize our unused credit facility. We believe that we will meet longer term expected future working capital and capital expenditure requirements through a combination of cash flows from operating activities, available cash balances and our available credit facility. Our future capital requirements may vary materially from those currently planned and will depend on many factors, including our rate of revenue growth, the timing and extent of spending on sales and marketing, the expansion of sales and marketing activities, the timing of new product introductions, market acceptance of our products and overall economic conditions. We may also seek additional capital to fund our operations, including through the sale of equity or debt financings. To the extent that we raise additional capital through the future sale of equity, the ownership interest of our stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our existing common stockholders. The incurrence of debt financing would result in debt service obligations and the instruments governing such debt could provide for operating and financing covenants that would restrict our operations. Additionally, there is no guarantee debt or equity financing will be available to us on terms that are favorable to us, or at all.

Current wording

We believe our existing cash and cash equivalents, our available credit facility and cash flow from operations will be sufficient to meet our working capital and capital expenditure requirements for at least the next 12 months. We believe that the costs to perform the short-term deferred revenue is relatively low compared to the balance of $43.0 million. However, should additional working capital be needed, we can utilize our unused credit facility. We believe that we will meet longer term expected future working capital and capital expenditure requirements through a combination of cash flows from operating activities, available cash balances and our available credit facility. Our future capital requirements may vary materially from those currently planned and will depend on many factors, including our rate of revenue growth, the timing and extent of spending on sales and marketing, the expansion of sales and marketing activities, the timing of new product introductions, market acceptance of our products and overall economic conditions. We may also seek additional capital to fund our operations, including through the sale of equity or debt financings. To the extent that we raise additional capital through the future sale of equity, the ownership interest of our stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our existing common stockholders. The incurrence of debt financing would result in debt service obligations and the instruments governing such debt could provide for operating and financing covenants that would restrict our operations. Additionally, there is no guarantee debt or equity financing will be available to us on terms that are favorable to us, or at all.

Previous wording

There were no repurchases during the three months ended March 31, 2024. As of March 31, 2024, $19.4 million remains available under the 2022 Repurchase Program.

Current wording

During the six months ended June 30, 2024, we repurchased 134,150 shares of our common stock at an average price of $14.86 per share for approximately $2.0 million, under the 2022 Repurchase Program. The repurchases were made in open market transactions using cash on hand, and all of the shares repurchased were retired. As of June 30, 2024, $17.4 million remains available under the 2022 Repurchase Program.

Previous wording

In September 2018, we entered into our Umpqua Credit Agreement, initially providing for borrowing capacity of $10.0 million. The agreement was amended in November 2022 to increase the size of our available credit facility to $25.0 million with an expiration date of October 15, 2024. An additional amendment occurred in February 2024 to extend the expiration date to October 15, 2025. The revolving loan facility is for general working capital purposes. Our available credit facility as of March 31, 2024 was $18.0 million. On March 31, 2024 and December 31, 2023, there was $7.0 million outstanding on our line of credit. The Umpqua Credit Agreement subjects us to certain restrictive and financial covenants, see the risk entitled “The incurrence of debt may impact our financial position and subject us to additional financial and operating restrictions”in Part II, Item 1A, Risk Factors, included in this Quarterly Report on Form 10-Q. We are in compliance with all the covenants under the Umpqua Credit Agreement as of March 31, 2024.

Current wording

In September 2018, we entered into our Umpqua Credit Agreement, initially providing for borrowing capacity of $10.0 million. The agreement was amended in November 2022 to increase the size of our available credit facility to $25.0 million with an expiration date of October 15, 2024. An additional amendment occurred in February 2024 to extend the expiration date to October 15, 2025. The revolving loan facility is for general working capital purposes. Our available credit facility as of June 30, 2024 was $18.0 million. On June 30, 2024 and December 31, 2023, there was $7.0 million outstanding on our line of credit. On August 1, 2024, we repaid $3.0 million on our line of credit. Following this payment, we have an outstanding balance of $4.0 million on our line of credit. The Umpqua Credit Agreement subjects us to certain restrictive and financial covenants, see the risk entitled “The incurrence of debt may impact our financial position and subject us to additional financial and operating restrictions”in Part II, Item 1A, Risk Factors, included in this Quarterly Report on Form 10-Q. We are in compliance with all covenants under the Umpqua Credit Agreement as of June 30, 2024.

Previous wording

The following table presents a summary of our cash flows for the three months ended March 31, 2024 and 2023 (in thousands):

Current wording

The following table presents a summary of our cash flows for the six months ended June 30, 2024 and 2023 (in thousands):

Previous wording

Investing activities used $2.1 million in the three months ended March 31, 2024. This was primarily driven by investments in property and equipment installed for our solutions in customer coverage areas. Investing activities used $1.6 million in the three months ended March 31, 2023, for investments in installed property and equipment.

Current wording

Investing activities used $3.8 million in the six months ended June 30, 2024. This was primarily driven by investments in property and equipment installed for our solutions in customer coverage areas. Investing activities used $3.3 million in the six months ended June 30, 2023, primarily for investments in installed property and equipment.

Previous wording

Financing activities in the three months ended March 31, 2024 reflect a draw down and repayment of $3.0 million on our line of credit. Financing activities used $2.6 million in the three months ended March 31, 2023. This was driven by the payout of $1.5 million in contingent consideration relating to our Technologic acquisition and $1.2 million in payments for repurchases of our common stock, offset by $0.1 million in proceeds from the exercise of stock options.

Current wording

Financing activities used $1.6 million in the six months ended June 30, 2024, and reflect common stock repurchases of approximately $2.0 million, offset by $0.4 million in proceeds from our employee purchase plan. Financing activities used $4.5 million in the six months ended June 30, 2023. This was driven by $3.6 million in payments for repurchases of our common stock and the payout of $1.5 million for the Technologic contingent consideration offset by $0.5 million in proceeds from our employee stock plan purchase and $0.1 million in proceeds from the exercise of stock options.