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00

014

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2021

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from               to

Commission File Number: 001-38107

 

ShotSpotter, Inc.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

47-0949915

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer
Identification No.)

7979 Gateway Blvd., Suite 210

Newark, California

94560

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (510) 794-3100

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

 

 

 

Common stock, par value $0.005 per share

SSTI

The Nasdaq Capital Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

 

Accelerated filer

 

Non-accelerated filer

 

☒  

 

Smaller reporting company

 

Emerging growth company

 

 

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  ☒

As of April 30, 2021, the registrant had 11,675,721 shares of common stock, $0.005 par value per share, outstanding.

 

 

 


 

Table of Contents

 

Page

PART I.

FINANCIAL INFORMATION

 

Item 1.

Condensed Consolidated Financial Statements

2

Condensed Consolidated Balance Sheets

2

Condensed Consolidated Statements of Operations

3

Condensed Consolidated Statements of Comprehensive Income

4

 

Condensed Consolidated Statements of Stockholders’ Equity

5

Condensed Consolidated Statements of Cash Flows

6

Notes to Condensed Consolidated Financial Statements

7

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

15

Item 3.

Qualitative and Quantitative Disclosures About Market Risk

26

Item 4.

Controls and Procedures

26

PART II.

OTHER INFORMATION

 

Item 1A.

Risk Factors

26

Item 6.

Exhibits

55

Exhibit Index

56

Signatures

57

 

 

 

1


 

PART I. FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

ShotSpotter, Inc.

Condensed Consolidated Balance Sheets

(In thousands)

 

 

 

March 31, 2021

 

 

December 31, 2020

 

 

 

(Unaudited)

 

 

 

 

Assets

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

Cash and cash equivalents

 

$

10,940

 

 

$

16,043

 

Accounts receivable and contract asset

 

 

16,806

 

 

 

12,921

 

Prepaid expenses and other current assets

 

 

1,954

 

 

 

2,172

 

Total current assets

 

 

29,700

 

 

 

31,136

 

Property and equipment, net

 

 

15,221

 

 

 

15,346

 

Operating lease right-of-use assets

 

 

753

 

 

 

882

 

Goodwill

 

 

2,816

 

 

 

2,811

 

Intangible assets, net

 

 

14,294

 

 

 

14,540

 

Other assets

 

 

1,659

 

 

 

1,605

 

Total assets

 

$

64,443

 

 

$

66,320

 

Liabilities and Stockholders' Equity

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

Accounts payable

 

$

1,404

 

 

$

1,192

 

Deferred revenue, short-term

 

 

24,672

 

 

 

24,174

 

Accrued expenses and other current liabilities

 

 

3,686

 

 

 

5,613

 

Total current liabilities

 

 

29,762

 

 

 

30,979

 

Deferred revenue, long-term

 

 

336

 

 

 

405

 

Other liabilities

 

 

574

 

 

 

631

 

Total liabilities

 

 

30,672

 

 

 

32,015

 

 

 

 

 

 

 

Commitments and contingencies (Note 13)

 

 

 

 

 

 

Stockholders' equity

 

 

 

 

 

 

Preferred stock: $0.005 par value; 20,000,000 shares authorized; no shares issued and outstanding as of December 31, 2021 and 2020

 

$

 

 

$

 

Common stock: $0.005 par value; 500,000,000 shares authorized;
11,618,484 and 11,538,998 shares issued and outstanding as of March 31, 2021 and December 31, 2020, respectively

 

 

58

 

 

 

58

 

Additional paid-in capital

 

 

128,175

 

 

 

128,771

 

Accumulated deficit

 

 

(94,275

)

 

 

(94,354

)

Accumulated other comprehensive loss

 

 

(187

)

 

 

(170

)

Total stockholders' equity

 

 

33,771

 

 

 

34,305

 

Total liabilities and stockholders' equity

 

$

64,443

 

 

$

66,320

 

See accompanying notes to condensed consolidated financial statements.

2


 

ShotSpotter, Inc.

Condensed Consolidated Statements of Operations

(In thousands, except share and per share data)

(Unaudited)

 

 

 

 

 

 

 

Three Months Ended
March 31,

 

 

 

2021

 

 

2020

 

Revenues

 

$

15,013

 

 

$

10,458

 

Costs

 

 

 

 

 

 

Cost of revenues

 

 

6,300

 

 

 

4,342

 

Impairment of property and equipment

 

 

25

 

 

 

 

Total costs

 

 

6,325

 

 

 

4,342

 

Gross profit

 

 

8,688

 

 

 

6,116

 

Operating expenses

 

 

 

 

 

 

Sales and marketing

 

 

3,935

 

 

 

2,516

 

Research and development

 

 

1,713

 

 

 

1,352

 

General and administrative

 

 

2,871

 

 

 

2,271

 

Total operating expenses

 

 

8,519

 

 

 

6,139

 

Operating income (loss)

 

 

169

 

 

 

(23

)

Other income (expense), net

 

 

 

 

 

 

Interest income, net

 

 

11

 

 

 

93

 

Other expense, net

 

 

(52

)

 

 

(58

)

Total other income (expense), net

 

 

(41

)

 

 

35

 

Income before income taxes

 

 

128

 

 

 

12

 

Provision (benefit) for income taxes

 

 

49

 

 

 

(1

)

Net income

 

$

79

 

 

$

13

 

Net income per share, basic

 

$

0.01

 

 

$

0.00

 

Net income per share, diluted

 

$

0.01

 

 

$

0.00

 

Weighted average shares used in computing net income per share, basic

 

 

11,584,605

 

 

 

11,337,491

 

Weighted average shares used in computing net income per share, diluted

 

 

11,898,362

 

 

 

11,715,426

 

 

See accompanying notes to condensed consolidated financial statements.

3


 

ShotSpotter, Inc.

Condensed Consolidated Statements of Comprehensive Income

(In thousands)

(Unaudited)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2021

 

 

2020

 

Net income

 

$

79

 

 

$

13

 

Other comprehensive income (loss):

 

 

 

 

 

 

Change in foreign currency translation adjustment, net

 

 

(17

)

 

 

(227

)

Comprehensive income (loss)

 

$

62

 

 

$

(214

)

 

See accompanying notes to condensed consolidated financial statements.

4


 

ShotSpotter, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

(In thousands, except share data)

(Unaudited)

 

 

Common Stock

 

 

Additional
Paid-in

 

 

Accumulated

 

 

Accumulated
Other
Comprehensive

 

 

Total
Stockholders'

 

 

 

Shares

 

 

Par Value

 

 

Capital

 

 

Deficit

 

 

Loss

 

 

Equity

 

Balance at January 1, 2021

 

 

11,538,998

 

 

$

58

 

 

$

128,771

 

 

$

(94,354

)

 

$

(170

)

 

$

34,305

 

Exercise of stock options

 

 

60,600

 

 

 

 

 

 

213

 

 

 

 

 

 

 

 

 

213

 

Issuance of common stock in connection with exercise of warrants

 

 

50,716

 

 

 

 

 

 

8

 

 

 

 

 

 

 

 

 

8

 

Issuance of common stock from RSUs vested

 

 

24,332

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Repurchase of common stock

 

 

(56,162

)

 

 

 

 

 

(2,192

)

 

 

 

 

 

 

 

 

(2,192

)

Stock-based compensation

 

 

 

 

 

 

 

 

1,375

 

 

 

 

 

 

 

 

 

1,375

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(17

)

 

 

(17

)

Net income

 

 

 

 

 

 

 

 

 

 

 

79

 

 

 

 

 

 

79

 

Balance at March 31, 2021

 

 

11,618,484

 

 

$

58

 

 

$

128,175

 

 

$

(94,275

)

 

$

(187

)

 

$

33,771

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Additional
Paid-in

 

 

Accumulated

 

 

Accumulated
Other
Comprehensive

 

 

Total
Stockholders'

 

 

 

Shares

 

 

Par Value

 

 

Capital

 

 

Deficit

 

 

Loss

 

 

Equity

 

Balance at January 1, 2020

 

 

11,314,150

 

 

$

57

 

 

$

122,907

 

 

$

(95,579

)

 

$

(134

)

 

$

27,251

 

Exercise of stock options

 

 

17,543

 

 

 

 

 

 

57

 

 

 

 

 

 

 

 

 

57

 

Issuance of common stock in connection with exercise of warrants

 

 

46,939

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock from RSUs vested

 

 

20,297

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

 

 

 

 

 

887

 

 

 

 

 

 

 

 

 

887

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(227

)

 

 

(227

)

Net income

 

 

 

 

 

 

 

 

 

 

 

13

 

 

 

 

 

 

13

 

Balance at March 31, 2020

 

 

11,398,929

 

 

$

57

 

 

$

123,851

 

 

$

(95,566

)

 

$

(361

)

 

$

27,981

 

 

See accompanying notes to condensed consolidated financial statements.

5


 

ShotSpotter, Inc.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2021

 

 

2020

 

Cash flows from operating activities:

 

 

 

 

 

 

Net income

 

$

79

 

 

$

13

 

Adjustments to reconcile net income to net cash (used in) provided by operating activities:

 

 

 

 

 

 

Depreciation of property and equipment

 

 

1,393

 

 

 

1,343

 

Amortization of intangible assets

 

 

259

 

 

 

24

 

Impairment of property and equipment

 

 

25

 

 

 

 

Stock-based compensation

 

 

1,375

 

 

 

887

 

Loss on disposal of property and equipment

 

 

 

 

 

2

 

Provision for accounts receivable

 

44

 

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Accounts receivable and contract asset

 

 

(3,929

)

 

 

6,570

 

Prepaid expenses and other assets

 

 

134

 

 

 

310

 

Accounts payable

 

 

145

 

 

 

(562

)

Accrued expenses and other current liabilities

 

 

(1,451

)

 

 

(491

)

Deferred revenue

 

 

430

 

 

 

(2,370

)

Net cash (used in) provided by operating activities

 

 

(1,496

)

 

 

5,726

 

Cash flows from investing activities:

 

 

 

 

 

 

Purchase of property and equipment

 

 

(1,233

)

 

 

(1,117

)

Investment in intangible and other assets

 

 

(13

)

 

 

(24

)

Proceeds from business acquisition purchase price adjustment

 

 

15

 

 

 

 

Net cash used in investing activities

 

 

(1,231

)

 

 

(1,141

)

Cash flows from financing activities:

 

 

 

 

 

 

Payment of contingent consideration liability

 

 

(403

)

 

 

(347

)

Proceeds from exercise of stock options

 

 

213

 

 

 

58

 

Repurchases of common stock

 

 

(2,192

)

 

 

 

Proceeds from exercise of warrants

 

 

8

 

 

 

 

Net cash used in financing activities

 

 

(2,374

)

 

 

(289

)

Increase (decrease) in cash and cash equivalents

 

 

(5,101

)

 

 

4,296

 

Effect of exchange rate on cash and cash equivalents

 

 

(2

)

 

 

(169

)

Cash and cash equivalents at beginning of year

 

 

16,043

 

 

 

24,550

 

Cash and cash equivalents at end of period

 

$

10,940

 

 

$

28,677

 

 

 

 

 

 

 

 

Supplemental disclosure of non-cash financing activities:

 

 

 

 

 

 

Property and equipment purchases included in accounts payable

 

$

590

 

 

$

623

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes to condensed consolidated financial statements.

6


 

ShotSpotter, Inc.

Notes to Condensed Consolidated Financial Statements

Note 1. Organization and Description of Business

ShotSpotter, Inc. (the “Company”) provides precision-policing solutions for law enforcement and security personnel to help prevent and reduce gun violence and make cities, campuses and facilities safer. The Company’s flagship product, ShotSpotter Respond is the leading outdoor gunshot detection, location and alerting system trusted by 120 cities. ShotSpotter Connect creates crime forecasts designed to enable more precise and effective use of patrol resources to deter crime. The Company’s case management solution, ShotSpotter Investigate, is a cloud-based investigative platform to help law enforcement agencies modernize every phase of an investigation and accelerate case work with easy-to-use software tools. The Company offers its solutions on a SaaS-based subscription model to its customers. ShotSpotter Labs is the Company’s effort to support innovative uses of its technology to help protect wildlife and the environment.

The Company’s principal executive offices are located in Newark, California. The Company has five wholly-owned subsidiaries globally, including in South Africa, Colombia, Brazil and Mexico.

Note 2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Certain information and note disclosures normally included in the consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. The condensed consolidated financial statements include the results of the Company and its wholly owned subsidiaries. All significant intercompany transactions have been eliminated upon consolidation.

The accompanying condensed consolidated financial statements and related financial information should be read in conjunction with the consolidated financial statements filed with the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 (“Annual Report”).

In the opinion of management, the accompanying condensed consolidated financial statements reflect all normal recurring adjustments necessary to present fairly the financial position, results of operations, comprehensive income, stockholders’ equity and cash flows for the interim periods, but are not necessarily indicative of the results of operations or cash flows to be anticipated for the full year 2021 or any future period. The Company has evaluated subsequent events occurring after the date of the condensed consolidated financial statements for events requiring recording or disclosure in the condensed consolidated financial statements.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and reported amounts of revenues and expenses during the reporting period. On an ongoing basis, management evaluates its significant estimates, including the valuation of accounts receivable, the lives and realization of tangible and intangible assets, contingent consideration liabilities, stock-based compensation expense, customer life, accounting for revenue recognition, contingent liabilities related to legal matters, and income taxes including deferred taxes and valuation allowance. Management bases its estimates on historical experience and on various other market-specific and relevant assumptions it believes to be reasonable under the circumstances. Actual results could differ from those estimates and such differences could be material to the Company’s financial position and results of operations.

The Company records net deferred tax assets to the extent the Company believes these assets will more likely than not be realized. In making such a determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. In the event the Company determines that it would be able to realize its deferred assets in the future in excess of their net recorded amount, the Company makes an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes.

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Concentrations of Risk

Credit Risk – Financial instruments that potentially subject the Company to concentration of credit risk consisted primarily of cash and cash equivalents and accounts receivable from trade customers. The Company maintains its cash deposits at three domestic and two international financial institutions. The Company is exposed to credit risk in the event of default by a financial institution to the extent that cash and cash equivalents are in excess of the amount insured by the Federal Deposit Insurance Corporation. The Company generally places its cash and cash equivalents with high-credit quality financial institutions. To date, the Company has not experienced any losses on its cash and cash equivalents.

Concentration of Accounts Receivable and Contract Asset – At March 31, 2021, two customers accounted for 35% and 29% of the Company’s total accounts receivable, respectively. At March 31, 2020, one customer accounted for 26% of the Company’s total accounts receivable.

Concentration of Revenues – For the three months ended March 31, 2021, two customers accounted for 34% and 13% of the Company’s total revenues, respectively. For the three months ended March 31, 2020, two customers accounted for 19% and 13% of the Company’s total revenues, respectively.

Concentration of Suppliers The Company relies on a limited number of suppliers and contract manufacturers. In particular, a single supplier is currently the sole manufacturer of the Company’s proprietary sensors.

Accounting Pronouncements Recently Adopted

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740), simplifying the accounting for income taxes by removing certain exceptions to the general principles. The Company adopted this ASU as of January 1, 2021. The adoption of this ASU did not have any impact on the Company’s condensed consolidated financial statements

In June 2016, the FASB issued ASU 2016-13, Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The amendments in this ASU replace the incurred loss impairment methodology in current GAAP with a methodology that reflects current expected credit loss (“CECL”) and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The Company adopted this ASU as of January 1, 2021. The adoption of this ASU did not have a material impact on the Company’s condensed consolidated financial statements. 

Note 3. Revenue Related Disclosures

The changes in deferred revenue were as follows (in thousands):

 

 

 

 

 

Three Months Ended

 

 

 

 

 

March 31, 2021

 

Balance at the beginning of period

 

 

 

$

24,578

 

   New billings

 

 

 

 

15,432

 

   Revenue recognized during the year from balance at the beginning of the year

 

 

 

 

(10,103

)

   Revenue recognized during the year from new billings

 

 

 

 

(4,898

)

   Foreign currency impact

 

 

 

 

(1

)

Balance at end of period

 

 

 

$

25,008

 

 

The following table presents remaining performance obligations for contractually committed revenues as of March 31, 2021 (in thousands):

 

Remainder of 2021

 

 

 

$

34,403

 

2022

 

 

 

 

11,174

 

2023

 

 

 

 

4,985

 

Thereafter

 

 

 

 

2,560

 

Total

 

 

 

$

53,122

 

 

8


 

The timing of revenue recognition includes estimates of go-live dates for contracts not yet live. Contractually committed revenue includes deferred revenue as of March 31, 2021 and amounts under contract that will be invoiced after March 31, 2021. 

During the three months ended March 31, 2021, the Company recognized revenues of $14.8 million from customers in the United States, and $0.2 million from customers in the Bahamas and South Africa. During the three months ended March 31, 2020, the Company recognized revenues of $10.3 million from customers in the United States and $0.2 million from customers in South Africa and the Bahamas.

During the three months ended March 31, 2021, the Company recognized revenues of $13.3 million from monthly subscription, maintenance and support services, and $1.7 million from professional software development services. During the three months ended March 31, 2020, all recognized revenues were from subscription, maintenance and support services.

Note 4. Business Acquisition

LEEDS

On November 24, 2020, the Company completed the acquisition of 100% of the membership interests in LEEDS, LLC ("LEEDS") for a purchase consideration of $21.6 million in cash, subject to working capital adjustments, and $2.0 million in 63,901 units of ShotSpotter common stock. The purchase consideration also included a contingent earnout agreement. Up to $2.5 million in contingent earnout will be payable based on LEEDS' revenues generated during 2021. An additional amount up to $2.5 million contingent earnout will be payable based on LEEDS' revenues during 2022. The amounts will be determined and paid within approximately 90 days after the end of 2021 and 2022, respectively. The preliminary fair value of the contingent earnout is $0.2 million, resulting in a total estimated purchase consideration of $23.8 million. The acquisition will enable the Company to broaden its suite of precision policing solutions to offer its customers.

The following table summarizes the final purchase price allocation (in thousands):

 

Cash and cash equivalents

 

$

7,044

 

Accounts receivable and contract asset, net

 

 

1,060

 

Property and equipment, net

 

 

161

 

Operating lease right-of-use asset

 

 

225

 

Goodwill

 

 

1,437

 

Customer relationship

 

 

14,410

 

Other asset

 

 

45

 

Accrued expenses and other current liabilities

 

 

(458

)

Other liabilities

 

 

(98

)

Total purchase consideration

 

$

23,826

 

 

Goodwill primarily represents the value of the employee workforce as well as cash flows from future customers. The Company expects to deduct the amortization of goodwill and intangible assets for tax purposes. A portion of the amortization deduction will commence upon settlement of contingent consideration and contingent liabilities.

The Company valued the customer relationship asset using the income approach. Significant assumptions include forecasts of revenues, cost of revenues, research and development expense, sales and marketing expense, general and administrative expense and estimated customer attrition rates. The Company discounted the cash flows at 7%, reflecting the risk profile of the asset. The customer relationship asset will be amortized over an estimated useful life of 15 years.

Acquisition-related expenses totaled $0.8 million, $0.2 million of which were included in general and administrative expense for the three months ended March 31, 2021. The remaining $0.6 million was expensed in 2020.

Note 5. Fair Value Measurements

In October 2018, upon the acquisition of certain technology, referred to as HunchLab, from Azavea, Inc., the Company recognized a contingent consideration liability classified within Level III of the fair value hierarchy because

9


 

some of the inputs used in its measurement were neither directly nor indirectly observable. In January 2020 and February 2021, based on the relevant revenues earned during the second and third year respectively, of the three-year contingent consideration period, the Company paid $0.3 million and $0.4 million respectively, to Azavea, Inc., resulting in a reduction of the contingent consideration liability.

In November 2020, using a Monte Carlo Simulation approach, the Company estimated the fair value of the contingent consideration at the acquisition date of LEEDS to be $0.2 million. There have been no changes in the assumptions or fair value of the contingent consideration liability at March 31, 2021.

The changes in the fair value of contingent consideration liability for the three months ended March 31, 2021 and 2020 is as follows (in thousands):

 

 

 

For the Three Months Ended March 31,

 

 

 

2021

 

 

2020

 

Balance, beginning of period

 

$

573

 

 

$

750

 

Payment of contingent consideration liability

 

 

(403

)

 

 

(347

)

Balance, end of period

 

$

170

 

 

$

403

 

 

Note 6. Goodwill

The changes in goodwill for the three months ended March 31, 2021 is as follows (in thousands):

 

 

 

Three Months Ended

 

 

 

March 31, 2021

 

Balance, December 31, 2020

 

$

2,811

 

Measurement period adjustment

 

 

5

 

Balance, March 31, 2021

 

$

2,816

 

 

Note 7. Intangible Assets, net

 

Intangible assets are as follows (in thousands):

 

 

March 31, 2021

 

 

 

Gross

 

 

Accumulated Amortization

 

 

Net

 

Customer relationships

 

$

14,570

 

 

$

(393

)

 

$

14,177

 

Patents

 

 

1,172

 

 

 

(1,054

)

 

 

118

 

    Total intangible assets, net

 

$

15,742

 

 

$

(1,447

)

 

$

14,294

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2020

 

 

 

Gross

 

 

Accumulated Amortization

 

 

Net

 

Customer relationships

 

$

14,570

 

 

$

(147

)

 

$

14,423

 

Patents

 

 

1,158

 

 

 

(1,041

)

 

 

117

 

    Total intangible assets, net

 

$

15,728

 

 

$

(1,188

)

 

$

14,540

 

 

 

Intangible amortization expense was $259,000 and $24,000 for the three months ended March 31, 2021 and 2020, respectively.

 

The following table presents future intangible asset amortization as of March 31, 2021 (in thousands):

 

10


 

Remainder of 2021

 

$

791

 

 2022

 

 

1,027

 

 2023

 

 

1,005

 

 2024

 

 

983

 

 2025

 

 

978

 

 Thereafter

 

 

9,510

 

Total

 

$

14,294

 

 

Note 8. Details of Certain Condensed Consolidated Balance Sheet Accounts

Accounts receivable and contract assets (in thousands):

 

 

 

March 31,

 

 

December 31,

 

 

 

2021

 

 

2020

 

Accounts receivable

 

$

16,726

 

 

$

12,459

 

Contract asset

 

 

197

 

 

 

536

 

Allowance for potential credit losses

 

 

(117

)

 

 

(74

)

 

 

$

16,806

 

 

$

12,921

 

 

Prepaid expenses and other current assets (in thousands):

 

 

 

March 31,

 

 

December 31,

 

 

 

2021

 

 

2020

 

Prepaid software and licenses

 

$

672

 

 

$

653

 

Prepaid insurance

 

 

236

 

 

 

561

 

Other prepaid expenses

 

 

196

 

 

 

135

 

Deferred commissions

 

 

760

 

 

 

715

 

Other

 

 

90

 

 

 

108

 

 

 

$

1,954

 

 

$

2,172

 

 

Other assets (long-term) (in thousands):

 

 

 

March 31,

 

 

December 31,

 

 

 

2021

 

 

2020

 

Deferred commissions

 

$

1,565

 

 

$

1,465

 

Other

 

 

94

 

 

 

140

 

 

 

$

1,659

 

 

$

1,605

 

 

Accrued expenses and other current liabilities (in thousands):

 

 

 

March 31,

 

 

December 31,

 

 

 

2021

 

 

2020

 

Personnel-related accruals

 

$

2,761

 

 

$

4,217

 

Royalties payable

 

 

21

 

 

 

55

 

Professional fees

 

 

224

 

 

 

92

 

Sales/ use tax payable

 

 

34

 

 

 

46

 

Contingent consideration liability

 

 

 

 

 

403

 

Operating lease liabilities

 

 

388

 

 

 

484

 

Other

 

 

258

 

 

 

316

 

 

$

3,686

 

 

$

5,613

 

 

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Other liabilities (long-term) (in thousands):

 

 

 

March 31,

 

 

December 31,

 

 

 

2021

 

 

2020

 

Operating lease liabilities

 

$

404

 

 

$

461

 

Other

 

 

170

 

 

 

170

 

 

$

574

 

 

$

631

 

 

Note 9. Related Party Transactions

During the three months ended March 31, 2021 and 2020, the Company recognized $36,000 and $0.1 million, respectively, in revenues from ShotSpotter Labs projects with charitable organizations that have received donations from one of the Company’s directors and one of the Company’s significant stockholders.

 

Note 10. Stock Repurchase Program

During the three months ended March 31, 2021, the Company repurchased 56,162 shares of its common stock at an average price of $39.02 per share for $2.2 million. The repurchases were made in open market transactions using cash on hand, and all of the shares repurchased were retired. At March 31, 2021, $4.5 million remained available for repurchase under the Company's stock repurchase program.

Note 11. Net Income per Share

The computation of basic net income per share is based on the weighted-average number of shares of common stock outstanding during each period. The computation of diluted net income per share is based on the weighted-average number of shares outstanding during the period plus, when their effect is dilutive, incremental shares consisting of shares subject to stock options, restricted stock units, employee stock purchase plan purchase rights and warrants.

The following table summarizes the computation of basic and diluted net income per share (in thousands, except share and per share data):

 

 

 

Three Months Ended
March 31,

 

 

 

2021

 

 

2020

 

Numerator:

 

 

 

 

 

 

Net income

 

$

79

 

 

$

13

 

Denominator:

 

 

 

 

 

 

Weighted-average shares outstanding, basic

 

 

11,584,605

 

 

 

11,337,491

 

Dilutive effect of common stock equivalents

 

 

313,757

 

 

 

377,935

 

Weighted-average shares outstanding, diluted

 

 

11,898,362

 

 

 

11,715,426

 

Net income per share, basic

 

$

0.01

 

 

$

0.00

 

Net income per share, diluted

 

$

0.01

 

 

$

0.00

 

Anti-dilutive employee share-based awards, excluded

 

 

544,815

 

 

 

579,601

 

 

12


 

Note 12. Equity Incentive Plans

Stock options:

A summary of option activities under the 2005 Plan and 2017 Plan during the three months ended March 31, 2021 is as follows:

 

 

 

Number
of Options
Outstanding

 

 

Weighted
Average
Exercise
Price

 

Outstanding as of December 31, 2020

 

 

813,242

 

 

$

24.58

 

Granted

 

 

65,132

 

 

$

38.46

 

Exercised

 

 

(60,600

)

 

$

3.53

 

Canceled

 

 

(3,234

)

 

$

40.11

 

Outstanding as of March 31, 2021

 

 

814,540

 

 

$

27.20

 

 

Restricted stock units:

A summary of restricted stock unit ("RSU") activities under the 2017 Plan during the three months ended March 31, 2021 is as follows:

 

 

 

Number of Restricted Stock Units

 

 

Weighted
Average
Grant Date Fair Value per RSU

 

 

Nonvested at December 31, 2020

 

 

141,508

 

 

$

29.67

 

 

Granted

 

 

64,408

 

 

$

37.26

 

 

Vested

 

 

(24,332

)

 

$

22.21

 

 

Nonvested at March 31, 2021

 

 

181,584

 

 

$

33.36

 

 

 

2017 Employee Stock Purchase Plan

There were no shares issued under the 2017 ESPP during the three months ended March 31, 2021 as there was no purchase date during this period.

Total stock-based compensation expense associated with the 2005 Plan, 2017 Plan and 2017 ESPP is recorded in the condensed consolidated statements of operations and was allocated as follows (in thousands):

 

 

 

Three Months Ended March 31,

 

 

 

2021

 

 

2020

 

Cost of revenues

 

$

392

 

 

$

217

 

Sales and marketing

 

 

371

 

 

 

256

 

Research and development

 

 

181

 

 

 

102

 

General and administrative

 

 

431

 

 

 

312

 

Total

 

$

1,375

 

 

$

887

 

 

Note 13. Commitments and Contingencies

Contingencies

On August 28, 2018, Silvon S. Simmons (the “Plaintiff”) amended a complaint against the City of Rochester, New York and various city employees, filed in the United States District Court, Western District of New York, to add the Company and employees as a defendant. The amended complaint alleges conspiracy to violate plaintiff’s civil rights, denial of the right to a fair trial, and malicious prosecution. The Plaintiff claims that ShotSpotter colluded with the City of Rochester to fabricate and create gunshot alert evidence to secure Plaintiff’s conviction. On the basis of the allegations, the Plaintiff has petitioned for compensatory and punitive damages and other costs and expenses, including attorney’s fees. The Company believes that the Plaintiff’s claims are without merit and is disputing them vigorously.

13


 

The Company may become subject to legal proceedings, as well as demands and claims that arise in the normal course of business. Such claims, even if not meritorious, could result in the expenditure of significant financial and management resources. The Company makes a provision for a liability relating to legal matters when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. These provisions are reviewed and adjusted to include the impacts of negotiations, estimated settlements, legal rulings, advice of legal counsel, and other information and events pertaining to a particular matter.

An unfavorable outcome on any litigation matters could require payment of substantial damages, or, in connection with any intellectual property infringement claims, could require the Company to pay ongoing royalty payments or could prevent the Company from selling certain of our products. As a result, a settlement of, or an unfavorable outcome on, any of the matters referenced above or other litigation matters could have a material adverse effect on the Company’s business, operating results, financial condition and cash flows.

The COVID-19 pandemic has resulted in a substantial curtailment of business activities worldwide and is causing weakened economic conditions, both in the United States and many countries abroad. As part of intensifying efforts to contain the spread of COVID-19, many companies and state, local and foreign governments have imposed restrictions, including shelter-in-place orders and travel bans. While some of these companies and jurisdictions have started to relax such restrictions, in some cases, the restrictions were put back in place after having been lifted. The Company understands that the ongoing COVID-19 pandemic, associated travel restrictions and social distancing requirements may continue to have an adverse impact on its results of operations. While the ultimate economic impact of the COVID-19 pandemic is highly uncertain, the Company expects that its business and results of operations, including its revenues, earnings and cash flows from operations, may be adversely impacted for at least the balance of 2021.

The Company may be adversely affected by increasing social unrest, protests against racial inequality, protests against police brutality and movements such as “Defund the Police”. These events may directly or indirectly affect police agency budgets and funding available to current and potential customers. Participants in these events may also attempt to create the perception that the Company’s solutions are contributing to the “problem”, which may adversely affect the Company, its business and results of operations, including its revenues, earnings and cash flows from operations.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis of our financial condition and results of operations together with our unaudited condensed consolidated financial statements and accompanying notes included in this Quarterly Report on Form 10-Q and the financial statements and accompanying notes and other financial information in the Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, filed with the Securities and Exchange Commission (“SEC”) on March 29, 2021. This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Exchange Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These statements are often identified by the use of words such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “project,” “will,” “would” or the negative or plural of these words or similar expressions or variations. Such forward-looking statements are subject to a number of risks, uncertainties, assumptions and other factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified herein, those discussed in the subsection titled “Impact of COVID-19 and Social Unrest on our Business” below, as well as the section titled “Risk Factors” set forth in Part II, Item 1A of this Quarterly Report on Form 10-Q and in our other SEC filings. You should not rely upon forward-looking statements as predictions of future events. Furthermore, such forward-looking statements speak only as of the date of this report. Except as required by law, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements.

Overview

We provide precision-policing and security solutions for law enforcement and security personnel to help prevent and reduce gun violence and make cities, campuses and facilities safer. Our flagship public safety solution, ShotSpotter Respond, is the leading outdoor gunshot detection, location and alerting system. Our patrol management software, ShotSpotter Connect, creates crime forecasts designed to enable more precise and effective use of patrol resources to deter crime. Our security solutions, ShotSpotter SecureCampus and ShotSpotter SiteSecure, are designed to help law enforcement and security personnel serving universities and corporations, mitigate risk and enhance security by notifying authorities of a potential outdoor gunfire incident, saving critical minutes for first responders to arrive. ShotSpotter Investigate™, adds case management to our expanding suite of precision policing technology solutions and provides agencies with a cloud-based investigative digital case folder and analytical and collaboration tools to improve case closure rates. In 2019, we created a new technology innovation unit, ShotSpotter Labs, to expand our efforts supporting innovative uses of our technology to help protect wildlife and the environment. 

Our gunshot detection solutions consist of highly-specialized, cloud-based software integrated with proprietary, internet-enabled sensors designed to detect outdoor gunfire. The speed and accuracy of our gunfire alerts enable law enforcement and security personnel to consistently and quickly respond to shooting events including those unreported through 911, which can increase the chances of apprehending the shooter, providing timely aid to victims, and identifying witnesses before they scatter, as well as aid in evidentiary collection and serve as an overall deterrent. When a potential gunfire incident is detected by our sensors, our system precisely locates where the incident occurred and applies machine classification combined with human review to analyze and validate the incident. An alert containing a location on a map and critical information about the incident is sent directly to subscribing law enforcement or security personnel through any internet-connected computer and to iPhone or Android mobile devices.

Our software sends validated gunfire data along with the audio of the triggering sound to our Incident Review Center (“IRC”), where our trained incident review specialists are on duty 24 hours a day, seven days a week, 365 days a year to screen and confirm actual gunfire incidents. Our trained incident review specialists can supplement alerts with additional tactical information, such as the potential presence of multiple shooters or the use of high-capacity weapons. Gunshot incidents reviewed by our IRC result in alerts typically sent within approximately 45 seconds of the receipt of the gunfire incident.

We generate annual subscription revenues from the deployment of ShotSpotter Respond on a per-square-mile basis. Our security solutions, ShotSpotter SecureCampus and ShotSpotter SiteSecure, are typically sold on a subscription basis, each with a customized deployment plan. Our ShotSpotter Connect solution is also sold on a subscription basis. We expect our ShotSpotter Investigate solutions will be as well. As of March 31, 2021, we had coverage areas under contract in 120 cities and 11 campuses/sites worldwide across the United States, South Africa and the Bahamas, including three of the ten largest cities in the United States.

15


 

As a result of the COVID-19 pandemic, work-from-home and travel ban policies designed to protect the health of employees, and related government-mandated restrictions, our ability to deploy customer solutions since mid-March 2020 has been adversely impacted. While this disruption is currently expected to be temporary, there is considerable uncertainty around the magnitude or duration.

While we intend to continue to devote resources to increase sales of our solutions, we expect that revenues from our ShotSpotter Respond solution will continue to comprise a substantial majority of our revenues for the foreseeable future. ShotSpotter Labs projects are generally conducted in coordination with a sponsoring charitable organization. These projects may or may not be revenue-producing. When they are revenue-producing, they will generally be sold on a cost-plus basis. As such, ShotSpotter Labs projects will normally produce gross margins significantly lower than our ShotSpotter Respond solutions. Additionally, in early 2020, we added new pricing programs for Tier 4 and 5 law enforcement agencies (those with fewer than 100 sworn officers) that allow them to contract for our gunshot detection solutions to cover a footprint of less than three square miles, using standardized coverage parameters, at a discounted annual subscription rate.

Since our founding 25 years ago, ShotSpotter has been and continues to be a purpose-led company. We are a mission-driven organization that is focused on improving public safety outcomes. We accomplish this by earning the trust of law enforcement and providing them solutions to help them better engage and strengthen the police-community relationships in fulfilling their sworn obligation equally to serve and protect all. Our inspiration comes from our principal founder, Dr. Bob Showen, who believes that the highest and best use of technology is to promote social good. We are committed to developing comprehensive, respectful, and engaged partnerships with law enforcement agencies, elected officials and communities focused on making a positive difference in the world.

We enter into subscription agreements on a term basis that typically range from one to five years in duration, with the majority having a contract term of one year. Substantially all of our sales are to governmental agencies and universities, which often undertake a prolonged contract evaluation process that affects the size or the timing of our sales contracts and may likewise increase our customer acquisition costs. For a discussion of the risks associated with our sales cycle, see risks entitled “Our sales cycle can be unpredictable, time-consuming and costly, and our inability to successfully complete sales could harm our business” and “Because we generally recognize our subscription revenues ratably over the term of our contract with a customer, fluctuations in sales will not be fully reflected in our operating results until future periods” in Item 1A, Risk Factors, included in this Quarterly Report on Form 10-Q.

We rely on a limited number of suppliers and contract manufacturers to produce components of our solutions. We have no long-term contracts with these manufacturers and purchase from them on a purchase-order basis. Our outsourced manufacturers generally procure the components directly from third-party suppliers. Although we use a limited number of suppliers and contract manufacturers, we believe that we could find alternate suppliers or manufacturers if circumstances required us to do so, in part because a significant portion of the components required by our solutions is available off the shelf. For a discussion of the risks associated with our limited number of suppliers, see risk entitled “We rely on a limited number of suppliers and contract manufacturers, and our proprietary ShotSpotter sensors are manufactured by a single contract manufacturer” in Item 1A, Risk Factors, included in this Quarterly Report on Form 10-Q.

We generated revenues of $15.0 million and $10.5 million for the three months ended March 31, 2021 and 2020, respectively, a year-over-year increase of 44%. Revenues from ShotSpotter Respond during the three months ended March 31, 2021 and 2020, represented approximately 75% and 97% of total revenues, respectively. Our two current largest customers, the City of New York and the City of Chicago, accounted for 34% and 13%, respectively, of our total revenues for the three months ended March 31, 2021, and 13% and 19%, respectively, of our total revenues for the three months ended March 31, 2020.

For the three months ended March 31, 2021 and 2020, revenues generated within the United States accounted for $14.8 million and $10.3 million, or 99% and 98%, respectively, of total revenues. For the three months ended March 31, 2021 and 2020, revenues derived from our customers located outside the United States accounted for $0.2 million, for both periods, and 1% and 2%, respectively, of total revenues.

We had net income of $0.08 million and $0.01 million for the three months ended March 31, 2021 and 2020, respectively. Our accumulated deficit was $94.3 million and $94.4 million at March 31, 2021 and December 31, 2020, respectively.

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We have focused on rapidly growing our business and believe that its 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 pres