Business context and reporting period
Filing identity: The supplied filing is ShotSpotter, Inc.’s unaudited Form 10-Q for the quarter ended March 31, 2018—not a filing under the name SoundThinking, Inc. The company provides gunshot-detection services through SaaS subscriptions, primarily to public-sector customers.
At quarter-end, ShotSpotter reported 79 public-safety customers covering approximately 550 square miles in 90 cities and municipalities, and eight security customers covering nine campuses. Seven security customers had deployments live on eight campuses. The company added 47 net new live square miles, versus 29 in Q1 2017.
Financial performance and position
| Metric | Q1 2018 | Q1 2017 / prior date |
|---|---|---|
| Revenue | $6.907 million | $4.562 million; up 51% |
| Gross profit / margin | $3.599 million / 52% | $1.887 million / 41% |
| Operating loss | $1.219 million | $1.185 million |
| Net loss | $1.217 million | $1.561 million |
| Operating cash flow | $(2.224) million | $(1.875) million |
| Investing cash flow | $(2.995) million | $(1.084) million |
| Cash and cash equivalents, March 31 | $14.732 million | $19.567 million at December 31, 2017 |
| Total liabilities | $23.111 million | $24.036 million at December 31, 2017 |
Revenue growth was attributed mainly to expanded coverage by existing customers and new customers. Gross margin improved as revenue grew faster than costs, including fixed costs. Operating expenses increased 57% to $4.818 million, led by general and administrative expense, which rose 118% to $2.028 million. Management cited higher public-company legal and accounting costs, litigation expense, increased hiring, and directors’ and officers’ insurance.
Operating cash use reflected a $2.439 million increase in receivables and the quarterly net loss, partly offset by noncash depreciation and amortization and higher deferred revenue. Capital spending was primarily for deploying customer infrastructure. The company had no outstanding debt after repaying its borrowing in 2017; Q1 2018 financing cash inflow was mainly option exercises. Cash, cash equivalents and restricted cash totaled $14.762 million at quarter-end.
Material changes and accounting
Effective January 1, 2018, the company adopted ASC Topic 606 using the modified retrospective method. The opening adjustment reduced accumulated deficit by $3.0 million, reduced deferred revenue by $1.2 million and capitalized $1.8 million of commissions. For Q1, adoption increased reported revenue by $53,000 and reduced sales and marketing expense by $141,000; without the change, net loss would have been $1.305 million rather than $1.217 million. The company reported $17.0 million of estimated remaining performance obligations for the rest of 2018, $12.1 million for 2019, $9.7 million for 2020, $6.8 million for 2021, and $0.5 million for 2022–2024 combined. Timing includes estimated go-live dates.
Accounts receivable rose to $6.367 million from $3.928 million at year-end. One customer represented 30% of receivables at March 31. Two customers each represented 18% of quarterly revenue, compared with two customers representing 17% and 10% in Q1 2017. The weighted-average share count increased substantially year over year, in part reflecting the 2017 IPO and conversion of preferred stock, so per-share comparisons should be read in that context.
Outlook, risks and contingencies
No specific revenue or earnings guidance is provided. Management said cash and expected operating cash flows should fund working capital and capital expenditures for at least the next 12 months. It expects near-term losses and increases in operating expenses, including sales and marketing, research and development, and general and administrative costs. It expects cost of revenue to increase in absolute dollars but potentially decline as a percentage of revenue as the installed base grows.
Key risks include lengthy government sales and renewal cycles, dependence on customer budgets and public funding, customer and receivables concentration, expansion and execution risks in security and international markets, and reliance on a single contract manufacturer for proprietary sensors. The filing also discusses service interruptions, cybersecurity and privacy concerns, false-positive or missed alerts, sensor replacement needs as wireless networks change, and exposure to natural disasters.
Three former contractors claim entitlement to options for 350,000 shares and seek approximately $6.5 million in damages plus punitive damages and other costs. The company disputes the claims; a proposed amended complaint was awaiting a hearing scheduled for June 14, 2018. The filing says the outcome and any loss range cannot be reasonably estimated. In April 2018, after quarter-end, the company issued 268,294 shares upon warrant exercise for $1.0 million.
Most important facts for investors to verify
- Confirm the issuer identity: this 10-Q is filed by ShotSpotter, Inc., despite the request metadata naming SoundThinking, Inc.
- Track whether revenue growth, live-area additions and customer renewals continue, especially given reliance on government funding and concentrated customers.
- Monitor receivables, collections, deferred revenue and cash use; quarterly operating and investing activities used $5.219 million combined.
- Assess the impact of Topic 606 and commission capitalization when comparing reported results with prior periods.
- Follow the contractors’ litigation and any change in the company’s estimate or disclosure of potential exposure.
- Evaluate whether higher operating costs, sensor capital spending and supplier/network risks affect the path to profitability.