10-Q

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, 2022

☐ 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.)
39300 Civic Center Dr., Suite 300 Fremont, California	94538
(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, 2022 the registrant had 12,141,630 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 (Loss)	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	16
Item 3.	Qualitative and Quantitative Disclosures About Market Risk	27
Item 4.	Controls and Procedures	27
PART II.	OTHER INFORMATION
Item 1A.	Risk Factors	28
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	57
Item 6.	Exhibits	57
Exhibit Index		58
Signatures		59

PART I. FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

ShotSpotter, Inc.

Condensed Consolidated Balance Sheets

(In thousands, except share and per share data)


	March 31,			December 31,
	2022			2021
	(Unaudited)
Assets
Current assets
Cash and cash equivalents	$	8,852		$	15,636
Accounts receivable and contract asset, net		21,256			16,134
Prepaid expenses and other current assets		2,456			2,504
Total current assets		32,564			34,274
Property and equipment, net		18,707			17,409
Operating lease right-of-use assets		3,961			2,323
Goodwill		23,171			2,816
Intangible assets, net		29,220			13,564
Other assets		2,581			1,918
Total assets	$	110,204		$	72,304
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable	$	2,449		$	1,587
Deferred revenue, short-term		33,886			26,235
Accrued expenses and other current liabilities		12,952			6,680
Total current liabilities		49,287			34,502
Deferred revenue, long-term		1,623			474
Other liabilities		10,519			3,513
Total liabilities		61,429			38,489
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 March 31, 2022 and December 31, 2021		—			—
Common stock: $0.005 par value; 500,000,000 shares authorized; 12,141,630 and 11,703,430 shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively		61			58
Additional paid-in capital		147,277			132,780
Accumulated deficit		(98,398	)		(98,785	)
Accumulated other comprehensive loss		(165	)		(238	)
Total stockholders' equity		48,775			33,815
Total liabilities and stockholders' equity	$	110,204		$	72,304

See accompanying notes to condensed consolidated financial statements.

ShotSpotter, Inc.

Condensed Consolidated Statements of Operations

(In thousands, except share and per share data)

(Unaudited)


	Three Months Ended March 31,
	2022			2021
	(Unaudited)
Revenues	$	21,214		$	15,013
Costs
Cost of revenues		8,290			6,300
Impairment of property and equipment		—			25
Total costs		8,290			6,325
Gross profit		12,924			8,688

Operating expenses
Sales and marketing		5,576			3,935
Research and development		2,627			1,713
General and administrative		4,289			2,871
Total operating expenses		12,492			8,519
Operating income		432			169
Other income (expense), net
Interest income, net		8			11
Other expense, net		(53	)		(52	)
Total other income (expense), net		(45	)		(41	)
Income before income taxes		387			128
Provision for income taxes		—			49
Net income	$	387		$	79
Net income per share, basic	$	0.03		$	0.01
Net income per share, diluted	$	0.03		$	0.01
Weighted average shares used in computing adjusted net income per share, basic		12,156,968			11,584,605
Weighted average shares used in computing adjusted net income per share, diluted		12,315,806			11,898,362

See accompanying notes to condensed consolidated financial statements.

ShotSpotter, Inc.

Condensed Consolidated Statements of Comprehensive Income

(In thousands)

(Unaudited)


	Three Months Ended March 31,
	2022		2021
Net income	$	387	$	79
Other comprehensive income (loss):
Change in foreign currency translation adjustment		73		(17	)
Comprehensive income	$	460	$	62

See accompanying notes to condensed consolidated financial statements.

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' Equity/
	Shares			Par Value		Capital			Deficit			Income (Loss)			(Deficit)
Balance at January 1, 2022		11,703,430		$	58	$	132,780		$	(98,785	)	$	(238	)	$	33,815
Exercise of stock options		8,528			—		13			—			—			13
Repurchase of common stock		(57,623	)		—		(1,634	)		—			—			(1,634	)
Issuance of common stock from RSUs vested		22,755			—		—			—			—			—
Issuance of common stock for acquisition		464,540		3			14,263			—			—			14,266
Stock-based compensation		—			—		1,855			—			—			1,855
Other comprehensive income		—			—		—			—		73				73
Net income		—			—		—		387				—			387
Balance at March 31, 2022		12,141,630		$	61	$	147,277		$	(98,398	)	$	(165	)	$	48,775


	Common Stock					Additional Paid-in			Accumulated			Accumulated Other Comprehensive			Total Stockholders' Equity/
	Shares			Par Value		Capital			Deficit			Income (Loss)			(Deficit)
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

See accompanying notes to condensed consolidated financial statements.

ShotSpotter, Inc.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)


	Three Months Ended March 31,
	2022			2021
Cash flows from operating activities:
Net income	$	387		$	79
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation of property and equipment		1,487			1,393
Amortization of intangible assets		695			259
Impairment of property and equipment		—			25
Stock-based compensation		1,855			1,375
Provision for accounts receivable		77			44
Changes in operating assets and liabilities:
Accounts receivable and contract asset		(4,976	)		(3,929	)
Prepaid expenses and other assets		(439	)		134
Accounts payable		—			145
Accrued expenses and other current liabilities		(1,220	)		(1,451	)
Deferred revenue		3,417			430
Net cash provided by (used in ) operating activities		1,283			(1,496	)
Cash flows from investing activities:
Purchase of property and equipment		(1,900	)		(1,233	)
Investment in intangible and other assets		(8	)		(13	)
Business acquisition, net of cash acquired		(4,618	)		15
Net cash used in investing activities		(6,526	)		(1,231	)
Cash flows from financing activities:
Payment of contingent consideration liability		—			(403	)
Proceeds from exercise of stock options		13			213
Repurchases of common stock		(1,634	)		(2,192	)
Proceeds from exercise of warrants		—			8
Net cash used in financing activities		(1,621	)		(2,374	)
Decrease in cash, cash equivalents and restricted cash		(6,864	)		(5,101	)
Effect of exchange rate on cash and cash equivalents		80			(2	)
Cash, cash equivalents and restricted cash at beginning of year		15,636			16,043
Cash, cash equivalents and restricted cash at end of year	$	8,852		$	10,940

Supplemental cash flow disclosures:
Cash paid for income taxes	$	—		$	—
Supplemental disclosure of non-cash financing activities:
Property and equipment purchases included in accounts payable	$	731		$	590
Fair value of contingent consideration	$	12,400		$	—
Fair value of common stock issued as consideration for business acquisition	$	14,266		$	—

See accompanying notes to condensed consolidated financial statements.

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 over 130 cities as of March 31, 2022. 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, and search and analysis solution, COPLINK X, are cloud-based investigative platforms 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 Software as a Service, ("SaaS"), 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 Fremont, California. The Company has five wholly-owned subsidiaries.

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, 2021 (“Annual Report”) filed with the SEC on March 29, 2022.

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 (loss), 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 2022 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 any related 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.

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 two domestic and four 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 and other local country government agencies. 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, 2022, two customers accounted for 38% and 15% of the Company’s total accounts receivable, respectively. At December 31, 2021, one customer accounted for 65% of the Company’s total accounts receivable.

Concentration of Revenues – For the three months ended March 31, 2022, two customers accounted for 38% and 10% of the Company’s total revenues, respectively. For the three months ended March 31, 2021, two customers accounted for 34% 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.

Note 3. Revenue Related Disclosures

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


	Three Months Ended March 31,
	2022			2021
Beginning balance	$	26,709		$	24,578
Deferred revenues acquired (Note 4 - Business Acquisitions)	$	5,382		$	—
New billings		24,527			15,432
Revenue recognized during the year from beginning balance		(9,825	)		(10,103	)
Revenue recognized during the year from new billings		(11,292	)		(4,898	)
Foreign currency impact		8			(1	)
Ending balance	$	35,509		$	25,008

The following table presents remaining performance obligations for contractually committed revenues as of March 31, 2022 (in thousands):


2022	$	40,844
2023		34,805
2024		23,213
Thereafter		12,954
Total	$	111,816

The timing of certain revenue recognition included in the table above is based on estimates of go-live dates for contracts not yet live. Contractually committed revenue includes deferred revenue as of March 31, 2022 and amounts under contract that will be invoiced after March 31, 2022.

During the three months ended March 31, 2022, the Company recognized revenues of $20.8 million from customers in the United States, and $0.4 million from customers in the Bahamas and South Africa. 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, 2022, the Company recognized revenues of $19.0 million from monthly subscription, maintenance and support services, and $2.2 million from professional software development services. 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.

Note 4. Business Acquisitions

In October 2021, the Financial Accounting Standards Board issued Accounting Standards Update ("ASU") 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts from Customers. ASU 2021-08 aimed to improve the accounting for acquired revenue contracts with customers in a business combination by addressing diversity in practice and inconsistency related to recognition of an acquired contract liability and the effect of payment terms on subsequent revenue recognized by the acquirer. These amendments were effective prospectively for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company adopted this ASU on January 1, 2022.

On January 3, 2022, the Company completed the acquisition of 100% of the membership interests in Forensic Logic, LLC (“Forensic Logic”) for purchase consideration of $4.9 million in cash, subject to working capital adjustments, and $14.3 million in 464,540 shares of ShotSpotter common stock based on the closing price on the date of acquisition. The purchase consideration also included a contingent earnout agreement. Up to $9.5 million in contingent earnout will be payable based on Forensic Logic’s revenues generated during 2022. An additional amount up to $10.5 million contingent earnout will be payable based on Forensic Logic’s revenues during 2023. The amounts are payable within approximately 120 days after the end of 2022 and 2023, respectively. The estimated fair value of the contingent earnout on the date of acquisition is $12.4 million, resulting in a total estimated purchase consideration of $31.6 million. The acquisition will enable the Company to broaden its suite of precision policing solutions and cloud-based investigative platforms to offer its customers.

The following table summarizes the allocation of the purchase price as of the acquisition date, January 3, 2022 (in thousands):


Cash and cash equivalents	$	303
Accounts receivable and contract asset, net		220
Property and equipment, net		200
Operating lease right-of-use asset		1,893
Software technology		7,140
Tradename		1,000
Customer relationships		8,200
Goodwill		20,355
Other asset		186
Accrued expenses and other current liabilities		(635	)
Operating lease liabilities		(1,893	)
Deferred revenue		(5,382	)
Total estimated consideration	$	31,587

The purchase price allocation above is final except for measure period adjustments which may be required in the future following purchase price adjustments related to working capital true-up. Goodwill primarily represents the value of cash flows from future customers and the employee workforce. 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 intangible assets using income-based

approaches. Significant assumptions included forecasts of revenues, cost of revenues, research and development expense, sales and marketing expense, general and administrative expense, technology lives, royalty rates, working capital rates, customer attrition rates and other estimates. The Company discounted the cash flows at 24%, reflecting the risk profile of the assets.

Acquisition-related expenses totaled $0.6 million, of which $0.1 million is included in general and administrative expense for the quarter ended March 31, 2022 and the remainder was incurred during the year ended December 31, 2021.

The unaudited pro forma combined revenue and net income presented below have been prepared as if the Company had acquired Forensic Logic on January 1, 2021. The unaudited pro forma financial information has been derived from the consolidated statements of operations of the Company and Forensic Logic for the below period. The historical financial information has been adjusted in the unaudited combined pro forma information based upon currently available information and certain estimates and assumptions. The actual effect of the transactions ultimately may differ from the pro forma adjustments included herein. However, management believes that the assumptions used to prepare the pro forma adjustments provide a reasonable basis for presenting the significant effects of the transactions as currently contemplated and that the pro forma adjustments are factually supportable, give appropriate effect to the expected impact of events that are directly attributable to the transactions, and reflect those items expected to have a continuing impact on the Company. The unaudited pro forma financial information as presented below is for informational purposes only and is not necessarily indicative of the results of operations that would have been achieved if the acquisition had taken place on January 1, 2021.

The unaudited pro forma combined revenue and net loss for the three months ended March 31, 2021 would have been $16.4 million and $1.1 million, respectively.

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 some of the inputs used in its measurement were neither directly nor indirectly observable. In February 2021, based on the relevant revenues earned during the three-year contingent consideration period, the Company paid $0.4 million, 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. During the fourth quarter of fiscal 2021, the fair value of the contingent consideration was increased by $1.3 million based upon estimated 2022 revenue targets, representing an adjustment to the most likely outcome expected for the liability. There have been no changes in the assumptions or fair value of the LEEDS contingent consideration liability during the three months ended March 31, 2022.

In January 2022, using a Monte Carlo Simulation approach, the Company estimated the fair value of the contingent consideration liability classified within Level III of the fair value hierarchy at the acquisition of Forensic Logic to be $12.4 million.

The changes in the fair value of contingent consideration liability for the three months ended March 31, 2022 and 2021 are as follows (in thousands):


	Three Months Ended March 31,
	2022		2021
Beginning balance	$	1,500	$	573
Payment of contingent consideration liability		—		(403	)
Change in fair value of contingent consideration		—		—
Contingent consideration - Forensic Logic ( Note 4 - Business Acquisitions)		12,400		—
Ending balance	$	13,900	$	170

There were no transfers into or out of Level III during the three months ended March 31, 2022 and 2021. As of March 31, 2022, contingent consideration of $6.7 million is included in Accrued expenses and other current liabilities in the condensed consolidated balance sheet as it is forecasted that the achievement of milestones will occur within the next 12 months, and $7.2 million is included in Other liabilities in the condensed consolidated balance sheet.

Note 6. Goodwill

The change in goodwill is as follows (in thousands):



	March 31, 2022		December 31, 2021
Beginning balance	$	2,816	$	2,811
Acquisition of Forensic Logic (see Note 4—Business Acquisitions)		20,355		—
Change during the period		—		5
Ending balance	$	23,171	$	2,816

Note 7. Intangible Assets, net

Intangible assets consist of the following (in thousands):


	March 31, 2022
	Gross	Accumulated Amortization	Net
Customer relationships	$