Quarterly report pursuant to Section 13 or 15(d)

Business Acquisition

Business Acquisition
9 Months Ended
Sep. 30, 2022
Business Combinations [Abstract]  
Business Acquisition

Note 4. Business Acquisition

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 early adopted this ASU effective 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 consideration agreement based on forecasted 2022 and 2023 Forensic Logic revenues. If 2022 Forensic Logic revenues exceed $7.0 million, the contingent consideration payable may be $3.75 million up to a maximum of $9.5 million. An additional amount up to $10.5 million in contingent consideration may be payable based on Forensic Logic’s revenues generated during 2023. Any amounts due are payable within approximately 120 days after the end of 2022 and 2023. The estimated fair value of the contingent consideration on the date of acquisition was $12.4 million, resulting in a total estimated purchase consideration of $31.6 million. The acquisition enabled the Company to broaden its suite of precision-policing solutions and cloud-based investigative platforms to offer its customers.

The following table summarizes the assignment of fair value to the identified assets and liabilities recorded as of the acquisition date, January 3, 2022 (in thousands):


Cash and cash equivalents






Accounts receivable and contract asset, net






Property and equipment, net






Operating lease right-of-use assets






Software technology












Customer relationships












Other assets






Accrued expenses and other current liabilities






Operating lease liabilities






Deferred revenue






Total estimated consideration






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 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 nine months ended September 30, 2022 and the remainder was incurred during the year ended December 31, 2021. There were no acquisition-related expenses in the three months ended September 30, 2022.

The unaudited pro forma combined revenue and net loss 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 respective periods. 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 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 September 30, 2021 would have been $16.3 million and $1.7 million, respectively. The unaudited pro forma combined revenue and net loss for the nine months ended September 30, 2021 would have been $49.0 million and $3.9 million, respectively.