Business Context and Reporting Period
ShotSpotter, Inc. (referred to as "SOUNDTHINKING, INC." in metadata) filed this Form 8-K on September 27, 2018, reporting the entry into a material definitive agreement. The company is incorporated in Delaware and operates from Newark, California.
Key Financial Metrics and Debt Structure
The filing details a new Credit Agreement with Umpqua Bank intended for general working capital purposes. Key terms include:
- Revolving Facility: Up to $10.0 million available for borrowing.
- Letter of Credit Subfacility: Up to $3.0 million (outstanding amounts reduce the Revolving Facility availability).
- Collateral: Borrowings are secured by substantially all company assets.
- Interest Rates: Base rate (Prime or LIBOR + 1.0%) or LIBOR (30, 60, or 90 days) plus 2.0% per annum.
- Letter of Credit Fee: 2.0% per annum fronting fee.
- Maturity Date: September 27, 2020.
- Incremental Facility: Option to increase the Revolving Facility to $25.0 million subject to conditions and bank approval.
Material Changes and Covenants
The primary material change is the establishment of the Umpqua Credit Agreement. The agreement imposes specific financial covenants that the company must maintain at the end of each fiscal quarter:
- Debt-to-EBITDA Ratio: Consolidated funded debt (excluding unsecured convertible notes) to Consolidated EBITDA must not exceed 3.50 to 1.00.
- Interest Coverage Ratio: Consolidated EBITDA to interest charges must be at least 2.00 to 1.00.
- Liquidity Requirement: Minimum unrestricted cash deposit of $5.0 million with Umpqua Bank, with at least $2.0 million in a demand deposit account.
- Profitability Requirement: Minimum net profit after taxes of at least $1.00, commencing with the fiscal quarter ending December 31, 2018.
The agreement also includes negative covenants restricting the company's ability to incur additional indebtedness, pay dividends, redeem stock, or engage in mergers and acquisitions outside the ordinary course of business.
Guidance, Risks, and Contingencies
The filing does not provide specific revenue guidance or management commentary on future performance beyond the terms of the credit agreement. Risks associated with this filing include:
- Default Events: Failure to make timely payments, breach of covenants, insolvency, or a "change of control" could trigger default.
- Operational Restrictions: Negative covenants limit strategic flexibility regarding capital structure and corporate actions.
- Collateral Risk: Substantially all company assets are pledged as security for the debt.
Investor Verification Checklist
- Verify the company's current cash position to ensure compliance with the $5.0 million minimum unrestricted cash covenant.
- Review recent financial statements to assess the ability to meet the minimum net profit after taxes of $1.00 starting Q4 2018.
- Confirm the company's current Consolidated EBITDA to ensure the debt-to-EBITDA ratio remains below 3.50 to 1.00.
- Check for any existing unsecured convertible notes that are excluded from the debt covenant calculation.
- Monitor for any "change of control" events that could constitute an event of default.