00
014
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
(Mark One)
For the quarterly period ended
OR
For the transition period from to
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Securities registered pursuant to Section 12(b) of the Act:
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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.
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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 |
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Accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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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
As of April 30, 2021, the registrant had
Table of Contents
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PART I. |
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Item 1. |
2 |
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2 |
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3 |
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4 |
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5 |
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6 |
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7 |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. |
26 |
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Item 4. |
26 |
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PART II. |
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Item 1A. |
26 |
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Item 6. |
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56 |
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57 |
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1
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
ShotSpotter, Inc.
Condensed Consolidated Balance Sheets
(In thousands)
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March 31, 2021 |
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December 31, 2020 |
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(Unaudited) |
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Assets |
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Current assets |
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Cash and cash equivalents |
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$ |
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$ |
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Accounts receivable and contract asset |
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Prepaid expenses and other current assets |
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Total current assets |
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Property and equipment, net |
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Operating lease right-of-use assets |
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Goodwill |
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Intangible assets, net |
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Other assets |
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Total assets |
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$ |
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$ |
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Liabilities and Stockholders' Equity |
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Current liabilities |
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Accounts payable |
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$ |
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$ |
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Deferred revenue, short-term |
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Accrued expenses and other current liabilities |
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Total current liabilities |
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Deferred revenue, long-term |
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Other liabilities |
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Total liabilities |
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Commitments and contingencies (Note 13) |
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Stockholders' equity |
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Preferred stock: $ |
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$ |
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$ |
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Common stock: $ |
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Additional paid-in capital |
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Accumulated deficit |
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( |
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( |
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Accumulated other comprehensive loss |
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( |
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( |
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Total stockholders' equity |
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Total liabilities and stockholders' equity |
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$ |
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$ |
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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)
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Three Months Ended |
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2021 |
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2020 |
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Revenues |
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$ |
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$ |
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Costs |
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Cost of revenues |
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Impairment of property and equipment |
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— |
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Total costs |
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Gross profit |
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Operating expenses |
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Sales and marketing |
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Research and development |
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General and administrative |
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Total operating expenses |
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Operating income (loss) |
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( |
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Other income (expense), net |
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Interest income, net |
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Other expense, net |
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( |
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( |
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Total other income (expense), net |
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( |
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Income before income taxes |
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Provision (benefit) for income taxes |
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( |
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Net income |
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$ |
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$ |
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Net income per share, basic |
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$ |
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$ |
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Net income per share, diluted |
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$ |
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$ |
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Weighted average shares used in computing net income per share, basic |
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Weighted average shares used in computing net income per share, diluted |
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See accompanying notes to condensed consolidated financial statements.
3
ShotSpotter, Inc.
Condensed Consolidated Statements of Comprehensive Income
(In thousands)
(Unaudited)
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Three Months Ended |
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March 31, |
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2021 |
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2020 |
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Net income |
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$ |
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$ |
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Other comprehensive income (loss): |
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Change in foreign currency translation adjustment, net |
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( |
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( |
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Comprehensive income (loss) |
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$ |
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$ |
( |
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See accompanying notes to condensed consolidated financial statements.
4
ShotSpotter, Inc.
Condensed Consolidated Statements of Stockholders’ Equity
(In thousands, except share data)
(Unaudited)
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Common Stock |
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Additional |
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Accumulated |
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Accumulated |
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Total |
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Shares |
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Par Value |
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Capital |
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Deficit |
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Loss |
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Equity |
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Balance at January 1, 2021 |
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$ |
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$ |
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$ |
( |
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$ |
( |
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$ |
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Exercise of stock options |
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— |
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— |
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— |
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Issuance of common stock in connection with exercise of warrants |
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— |
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— |
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— |
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Issuance of common stock from RSUs vested |
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— |
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— |
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— |
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— |
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— |
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Repurchase of common stock |
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( |
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— |
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( |
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— |
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— |
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( |
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Stock-based compensation |
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— |
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— |
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— |
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— |
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Other comprehensive loss |
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— |
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— |
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— |
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— |
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( |
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( |
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Net income |
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— |
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— |
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— |
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— |
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Balance at March 31, 2021 |
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$ |
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$ |
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$ |
( |
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$ |
( |
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$ |
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Common Stock |
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Additional |
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Accumulated |
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Accumulated |
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Total |
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Shares |
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Par Value |
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Capital |
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Deficit |
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Loss |
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Equity |
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Balance at January 1, 2020 |
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$ |
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$ |
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$ |
( |
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$ |
( |
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$ |
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Exercise of stock options |
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— |
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— |
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— |
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Issuance of common stock in connection with exercise of warrants |
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— |
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— |
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— |
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— |
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— |
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Issuance of common stock from RSUs vested |
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— |
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— |
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— |
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— |
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— |
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Stock-based compensation |
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— |
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— |
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— |
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— |
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Other comprehensive loss |
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— |
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— |
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— |
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— |
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( |
) |
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( |
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Net income |
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— |
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— |
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— |
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— |
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Balance at March 31, 2020 |
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$ |
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$ |
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$ |
( |
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$ |
( |
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$ |
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See accompanying notes to condensed consolidated financial statements.
5
ShotSpotter, Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
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Three Months Ended March 31, |
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2021 |
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2020 |
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Cash flows from operating activities: |
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Net income |
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$ |
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$ |
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Adjustments to reconcile net income to net cash (used in) provided by operating activities: |
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Depreciation of property and equipment |
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Amortization of intangible assets |
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Impairment of property and equipment |
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Stock-based compensation |
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Loss on disposal of property and equipment |
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Provision for accounts receivable |
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Changes in operating assets and liabilities: |
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Accounts receivable and contract asset |
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( |
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Prepaid expenses and other assets |
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Accounts payable |
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( |
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Accrued expenses and other current liabilities |
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( |
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( |
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Deferred revenue |
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( |
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Net cash (used in) provided by operating activities |
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( |
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Cash flows from investing activities: |
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Purchase of property and equipment |
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( |
) |
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( |
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Investment in intangible and other assets |
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( |
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( |
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Proceeds from business acquisition purchase price adjustment |
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— |
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Net cash used in investing activities |
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( |
) |
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( |
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Cash flows from financing activities: |
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Payment of contingent consideration liability |
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( |
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( |
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Proceeds from exercise of stock options |
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Repurchases of common stock |
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( |
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Proceeds from exercise of warrants |
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Net cash used in financing activities |
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( |
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( |
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Increase (decrease) in cash and cash equivalents |
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( |
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Effect of exchange rate on cash and cash equivalents |
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( |
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( |
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Cash and cash equivalents at beginning of year |
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Cash and cash equivalents at end of period |
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$ |
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$ |
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Supplemental disclosure of non-cash financing activities: |
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Property and equipment purchases included in accounts payable |
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$ |
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$ |
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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
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.
7
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,
Concentration of Revenues – For the three months ended March 31, 2021,
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):
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Three Months Ended |
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March 31, 2021 |
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Balance at the beginning of period |
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$ |
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New billings |
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Revenue recognized during the year from balance at the beginning of the year |
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( |
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Revenue recognized during the year from new billings |
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( |
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Foreign currency impact |
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( |
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Balance at end of period |
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$ |
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The following table presents remaining performance obligations for contractually committed revenues as of March 31, 2021 (in thousands):
Remainder of 2021 |
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$ |
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2022 |
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2023 |
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Thereafter |
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Total |
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$ |
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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 $
During the three months ended March 31, 2021, the Company recognized revenues of $
Note 4. Business Acquisition
LEEDS
On
The following table summarizes the final purchase price allocation (in thousands):
Cash and cash equivalents |
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$ |
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Accounts receivable and contract asset, net |
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Property and equipment, net |
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Operating lease right-of-use asset |
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Goodwill |
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Customer relationship |
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Other asset |
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Accrued expenses and other current liabilities |
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( |
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Other liabilities |
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( |
) |
Total purchase consideration |
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$ |
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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
Acquisition-related expenses totaled $
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 $
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 $
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):
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For the Three Months Ended March 31, |
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2021 |
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2020 |
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Balance, beginning of period |
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$ |
|
|
$ |
|
||
Payment of contingent consideration liability |
|
|
( |
) |
|
|
( |
) |
Balance, end of period |
|
$ |
|
|
$ |
|
||
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 |
|
$ |
|
|
Measurement period adjustment |
|
|
|
|
Balance, March 31, 2021 |
|
$ |
|
|
Note 7. Intangible Assets, net
Intangible assets are as follows (in thousands):
|
March 31, 2021 |
|
||||||||||
|
|
Gross |
|
|
Accumulated Amortization |
|
|
Net |
|
|||
Customer relationships |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||
Patents |
|
|
|
|
|
( |
) |
|
|
|
||
Total intangible assets, net |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||
|
|
|
|
|
|
|
|
|
|
|||
|
December 31, 2020 |
|
||||||||||
|
|
Gross |
|
|
Accumulated Amortization |
|
|
Net |
|
|||
Customer relationships |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||
Patents |
|
|
|
|
|
( |
) |
|
|
|
||
Total intangible assets, net |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||
Intangible amortization expense was $
The following table presents future intangible asset amortization as of March 31, 2021 (in thousands):
10
Remainder of 2021 |
|
$ |
|
|
2022 |
|
|
|
|
2023 |
|
|
|
|
2024 |
|
|
|
|
2025 |
|
|
|
|
Thereafter |
|
|
|
|
Total |
|
$ |
|
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 |
|
$ |
|
|
$ |
|
||
Contract asset |
|
|
|
|
|
|
||
Allowance for potential credit losses |
|
|
( |
) |
|
|
( |
) |
|
|
$ |
|
|
$ |
|
||
Prepaid expenses and other current assets (in thousands):
|
|
March 31, |
|
|
December 31, |
|
||
|
|
2021 |
|
|
2020 |
|
||
Prepaid software and licenses |
|
$ |
|
|
$ |
|
||
Prepaid insurance |
|
|
|
|
|
|
||
Other prepaid expenses |
|
|
|
|
|
|
||
Deferred commissions |
|
|
|
|
|
|
||
Other |
|
|
|
|
|
|
||
|
|
$ |
|
|
$ |
|
||
Other assets (long-term) (in thousands):
|
|
March 31, |
|
|
December 31, |
|
||
|
|
2021 |
|
|
2020 |
|
||
Deferred commissions |
|
$ |
|
|
$ |
|
||
Other |
|
|
|
|
|
|
||
|
|
$ |
|
|
$ |
|
||
Accrued expenses and other current liabilities (in thousands):
|
|
March 31, |
|
|
December 31, |
|
||
|
|
2021 |
|
|
2020 |
|
||
Personnel-related accruals |
|
$ |
|
|
$ |
|
||
Royalties payable |
|
|
|
|
|
|
||
Professional fees |
|
|
|
|
|
|
||
Sales/ use tax payable |
|
|
|
|
|
|
||
Contingent consideration liability |
|
|
|
|
|
|
||
Operating lease liabilities |
|
|
|
|
|
|
||
Other |
|
|
|
|
|
|
||
|
|
$ |
|
|
$ |
|
||
11
Other liabilities (long-term) (in thousands):
|
|
March 31, |
|
|
December 31, |
|
||
|
|
2021 |
|
|
2020 |
|
||
Operating lease liabilities |
|
$ |
|
|
$ |
|
||
Other |
|
|
|
|
|
|
||
|
|
$ |
|
|
$ |
|
||
Note 9. Related Party Transactions
During the three months ended March 31, 2021 and 2020, the Company recognized $
Note 10. Stock Repurchase Program
During the three months ended March 31, 2021, the Company repurchased
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 |
|
|||||
|
|
2021 |
|
|
2020 |
|
||
Numerator: |
|
|
|
|
|
|
||
Net income |
|
$ |
|
|
$ |
|
||
Denominator: |
|
|
|
|
|
|
||
Weighted-average shares outstanding, basic |
|
|
|
|
|
|
||
Dilutive effect of common stock equivalents |
|
|
|
|
|
|
||
Weighted-average shares outstanding, diluted |
|
|
|
|
|
|
||
Net income per share, basic |
|
$ |
|
|
$ |
|
||
Net income per share, diluted |
|
$ |
|
|
$ |
|
||
Anti-dilutive employee share-based awards, excluded |
|
|
|
|
|
|
||
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 |
|
|
Weighted |
|
||
Outstanding as of December 31, 2020 |
|
|
|
|
$ |
|
||
Granted |
|
|
|
|
$ |
|
||
Exercised |
|
|
( |
) |
|
$ |
|
|
Canceled |
|
|
( |
) |
|
$ |
|
|
Outstanding as of March 31, 2021 |
|
|
|
|
$ |
|
||
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 |
|
|
||
Nonvested at December 31, 2020 |
|
|
|
|
$ |
|
|
||
Granted |
|
|
|
|
$ |
|
|
||
Vested |
|
|
( |
) |
|
$ |
|
|
|
Nonvested at March 31, 2021 |
|
|
|
|
$ |
|
|
||
2017 Employee Stock Purchase Plan
There were
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 |
|
$ |
|
|
$ |
|
||
Sales and marketing |
|
|
|
|
|
|
||
Research and development |
|
|
|
|
|
|
||
General and administrative |
|
|
|
|
|
|
||
Total |
|
$ |
|
|
$ |
|
||
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.
14
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.
16
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