SOUNDTHINKING, INC. 10-K

Item 7. 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 consolidated financial statements and accompanying notes included in this Annual Report on Form 10-K. This Annual Report on Form 10-K contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities 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 section titled “Risk Factors” set forth in Part I, Item 1A of this Annual Report on Form 10-K 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 are a leading public safety technology company that combines data-driven solutions and strategic advisory services for law enforcement and civic leadership. In April 2023, we changed the company name, ShotSpotter, Inc., to SoundThinking, Inc., reflecting our broader impact on public safety through a growing set of industry-leading law enforcement tools and community-focused solutions. As part of the rebranding, we introduced our SafetySmart TM platform that includes five data-driven tools consisting of: (i) our flagship product, ShotSpotter ® (formerly ShotSpotter Respond), our leading outdoor gunshot detection, location and alerting system trusted by 170 cities and 19 universities and corporations as of December 31, 2023, (ii) CrimeTracer™ (formerly COPLINK X) a leading law enforcement search engine that enables investigators to search through more than one billion criminal justice records from across jurisdictions to generate tactical leads and quickly make intelligent connections to solve cases, (iii) CaseBuilder™ (formerly ShotSpotter Investigate) a one-stop investigative management system for tracking, reporting, and collaborating on cases, (iv) ResourceRouter ™ (formerly ShotSpotter Connect), which directs the deployment of patrol and community anti-violence resources in an objective way to help maximize the impact of limited resources and improve community safety, and (v) SafePointe ™, an AI-based weapons detection system, that we added when we acquired SafePointe in August 2023. We also offer other security solutions within our flagship product offering ShotSpotter, including ShotSpotter for Highways, ShotSpotter for Campus and ShotSpotter for Corporate that are typically smaller-scale deployments of ShotSpotter vertically marketed to universities, corporate campuses, highways, and key infrastructure centers to mitigate risk and enhance security by notifying authorities of outdoor gunfire incidents, saving critical minutes for first responders to arrive. SoundThinking Labs supports innovative uses of the Company's 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 evidence 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 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. 61 Gunshot incidents reviewed by our IRC result in alerts typically sent within approximately 45 seconds of the receipt of the gunfire incident. We offer our solutions on a software-as-a-service subscription model to our customers. We generate annual subscription revenues from the deployment of ShotSpotter on a per-square-mile basis. Our security solutions, ShotSpotter for Highways, ShotSpotter for Campus, and ShotSpotter for Corporate are typically sold on a subscription basis, each with a customized deployment plan. Our ResourceRouter solution, CaseBuilder Crime Gun (formerly ShotSpotter GCM™) an offering of CaseBuilder focused on gun violence, and CrimeTracer are also sold on a subscription basis generally customized based on the number of sworn officers in a particular city. We generate annual subscription revenues from the deployment of SafePointe on a per-lane basis, a lane being the detection area between two lanes. As of December 31, 2023, we had ShotSpotter, ShotSpotter for Campus, and ShotSpotter for Corporate coverage areas under contract for over 1,160 square miles, of which over 1,120 square miles had gone live. Coverage areas under contract for ShotSpotter included 170 cities and coverage areas under contract for ShotSpotter for Campus and ShotSpotter for Corporate included 19 campuses/sites across the United States, South Africa and the Bahamas, including some of the largest cities in the United States. As of December 31, 2023, we had 158 SafePointe lanes under contract. Most of our revenues are attributable to customers based in the United States. While we intend to continue to devote resources to increase sales of our solutions, we expect that revenues from ShotSpotter will continue to comprise a majority of our revenues for the foreseeable future. SoundThinking Labs projects are generally conducted in coordination with a sponsoring charitable organization and may or may not be revenue-producing. When they are revenue-producing, they will generally be sold on a cost-plus basis. As such, SoundThinking Labs projects will normally produce gross margins significantly lower than most of our other solutions. Additionally, in early 2021, 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. We acquired LEEDS, LLC (“LEEDS”) in November 2020 to expand our suite of solutions and introduce CaseBuilder. CaseBuilder is our case management solution that helps automate investigative work and improve case clearance rates – addressing an inefficiency problem for many agencies that have had to rely on multiple disparate systems to work cases. Using the software, investigators benefit from a single digital case folder that includes all elements related to a case. Analytical and collaboration tools help investigators connect the dots and share information faster while reporting helps package cases for command staff and prosecutors. In May 2023, we renamed LEEDS to Technologic Solutions, LLC (“Technologic”). In January 2022, we acquired Forensic Logic, a leading provider of cloud-based data services to U.S. law enforcement and public safety to enable powering the industry's most advanced search and analysis technology. We believe combining lead generation from Forensic Logic with our CaseBuilder case management solution, and utilizing CrimeTracer, can accelerate crime solving solutions and improve clearance rates. In August 2023, we acquired SafePointe, a provider of an AI-driven next-generation concealed weapons detection solution and added this technology to our SafetySmart platform. Since our founding over 27 years ago, SoundThinking has been and continues to be a purpose-led company. We are a mission-driven organization that focuses on improving public safety outcomes. We accomplish this by earning the trust of law enforcement and providing solutions to help them better engage and strengthen the police-community relationships in fulfilling their sworn obligation 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 that typically range from one to three years in duration. 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. 62 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 purchases from them are generally on a purchase order basis. 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 portion of the components required by our solutions are available off the shelf. We generated revenues of $92.7 million, $81.0 million, and $58.2 million for the years ended December 31, 2023, 2022, and 2021, respectively, representing year-over-year increases of 14% and 39%. For the years ended December 31, 2023, 2022, and 2021, revenues from ShotSpotter represented approximately 70%, 69% and 82% of total revenues, respectively. Our two current largest customers, the City of New York, and the City of Chicago each accounted for 25% and 9%, respectively, of our total revenues for the year ended December 31, 2023. The City of New York and the City of Chicago each accounted for 30% and 10%, respectively, of our total revenues for the year ended December 31, 2022. The City of New York and the City of Chicago each accounted for 28% and 14%, respectively, of our total revenues for the year ended December 31, 2021. Substantially all of our revenues for the years ended December 31, 2023, 2022, and 2021 were derived from customers within the United States (including Puerto Rico and the U.S. Virgin Islands). We had net loss of $2.7 million for the year ended December 31, 2023, net income of $6.4 million for the year ended December 31, 2022, and net loss of $4.4 million for the year ended December 31, 2021. Our accumulated deficit was $95.1 million and $92.4 million as of December 31, 2023 and 2022, respectively. During the year ended December 31, 2023, the fair value of the contingent consideration that we recorded in connection with our acquisition of Forensic Logic, decreased by $3.2 million, based upon adjustments to recorded liabilities as a result of actual revenues. During the year ended December 31, 2023, the fair value of the contingent consideration that we recorded in connection with our acquisition of SafePointe decreased by $2.4 million. This adjustment was prompted by revised revenue estimates for 2024 and 2025, which were incorporated into our fair value methodology. The balance sheet within the consolidated financial statements as of and for the year ended December 31, 2023 within this Annual Report Form 10-K have been revised since our financial results for the year were reported in our earnings press release (the “Earnings Press Release”) and included in our Current Report on Form 8-K dated February 27, 2024. The changes were the result of changes to our purchase price accounting for our acquisition of SafePointe, which we acquired in the third quarter of 2023. These changes impacted goodwill, accounts receivable and contract assets, and deferred revenue reflected on our balance sheet as of December 31, 2023, which were $34.2 million, $30.7 million and $42.1 million, respectively, as compared to the $33.7 million, $31.6 million and $41.9 million, respectively, initially reported in the Earnings Press Release in our Current Report on Form 8-K dated February 27, 2024. Additionally, we recorded an escrow claim receivable of $0.6 million. The information in this Annual Report on Form 10-K amends and supersedes the disclosures in the Earnings Press Release. We have focused on rapidly growing our business and believe that our 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 presence, increase sales of our security solutions and retain our customers. Our future growth will primarily depend on the market acceptance for outdoor gunshot detection solutions. Challenges we face in this regard include our target customers not having access to adequate funding sources, the fact that contracting with government entities can be complex, expensive and time-consuming, the fact that our typical sales cycle is often very long and difficult to estimate accurately and the fact that negative publicity about our company can and has caused current and potential future customers to evaluate the sales of our solutions more than in the past. We expect international sales cycles to be even longer than our domestic sales cycles. To combat these challenges, we invest in research and development, increase awareness of our solutions, invest in new sales and marketing campaigns, often in different languages for international sales, and hire additional sales representatives to drive sales to continue to maintain our position as a market leader. In addition, we believe that entering into strategic partnerships with other service providers to cities and municipalities offers another potential avenue for expansion. 63 We will also focus on expanding our business by introducing new products and services to existing customers, such as ResourceRouter, CrimeTracer and as a result of our acquisition of SafePointe, an AI-driven weapon detection system and acquiring intellectual property assets. We believe that developing and acquiring products for law enforcement in adjacent categories is a path for additional growth. We believe our large and growing installed base of police departments who trust SoundThinking’s products, support, and way of doing business provide revenue growth opportunities. The ability to cross-sell new products provides an opportunity to grow revenues per customer and lifetime value. Challenges we face in this area include ensuring our new products are reliable, integrated well with other SoundThinking solutions, and priced and serviced appropriately. In some cases, we will need to bring in new skill sets to properly develop, market, sell or service these new products depending on the categories they represent. Consistent with this strategy, we expanded our suite of solutions with the acquisitions of Technologic, Forensic Logic and SafePointe. With respect to international sales, we believe that we have the potential to expand our coverage within existing areas, and to pursue opportunities in Latin America and other regions of the world. By adding additional sales resources in strategic locations, we believe we will be better positioned to reach these markets. However, we recognize that we have limited international operational experience and currently operate in a limited number of regions outside of the United States. Operating successfully in international markets will require significant resources and management attention and will subject us to additional regulatory, economic, and political risks. We may face additional challenges that may delay contract execution related to negotiating with governments in transition, the use of third-party integrations and consultants. Moreover, we anticipate that different political and regulatory considerations that vary across different jurisdictions could extend or make more difficult to predict the length of what is already a lengthy sales cycle. Key Business Metrics December 31, 2023 2022 Revenue retention rate 107 % 124 % Sales and marketing spend per $1.00 of new annualized contract value $ 0.52 $ 0.40 Net new "go-live" square miles 155 102 Net new "go-live" cities 25 16 Annual recurring revenue (in millions) $ 95.4 $ 79.7 Revenue Retention Rate We calculate our revenue retention rate annually by dividing the (a) total revenues for such year from those customers who were customers during the corresponding prior year by (b) the total revenues from all customers in the corresponding prior year. For the purposes of calculating our revenue retention rate, we count as customers all entities with which we had contracts in the applicable year. Revenue retention rate for any given period does not include revenues attributable to customers first acquired during such period. We focus on our revenue retention rate because we believe that this metric provides insight into revenues related to and retention of existing customers. If our revenue retention rate for a year exceeds 100%, as it did in the years presented above, this indicates a low churn and means that the revenues retained during the year, including from customer expansions, more than offset the revenues that we lost from customers that did not renew their contracts during the year. As further evidence of our low churn, since our initial public offering in June 2017, we have added over 650 miles of ShotSpotter coverage while losing approximately 15 miles of coverage. Sales and Marketing Spend per $1.00 of New Annualized Contract Value We calculate sales and marketing spend annually as the total sales and marketing expense during a year divided by the first 12 months of contract value for contracts entered into during the same year. We use this metric to measure the efficiency of our sales and marketing efforts in acquiring customers, renewing customer contracts, and expanding their coverage areas. Net New “Go-Live” Square Miles 64 Net new “go-live” square miles represent the square miles covered by deployments of our gunshot detection solutions that were formally approved by customers during the year, both from initial and expanded customer deployments, net of square miles that ceased to be “live” during the year due to customer cancellations. New square miles include deployed square miles that may have been sold, or booked, in prior years. We focus on net new “go-live” square miles as a key business metric to measure our operational performance and inform strategic decisions. Net New “Go-Live” Cities Net new “go-live” cities represent the number of cities covered by deployments of our gunshot detection solutions that were formally approved by customers during the year, both from initial and expanded customer deployments, net of cities that ceased to be “live” during the year due to customer cancellations. New cities include deployed coverage areas that may have been sold, or booked, in a prior period. We focus on net new “go-live” cities as a key business metric to measure our operational performance and market penetration. Annual Recurring Revenue We calculate our annual recurring revenue for a year based on the expected GAAP revenue for the year from contracts that are in effect on January 1st of such year, assuming all such contracts that are due for renewal during the year renew as expected on or near their renewal date, and including contracts executed during the year after January 1st, but for which GAAP revenue recognition starts January 1st of the year. Components of Results of Operations Revenues We generate annual subscription revenues from the deployment of ShotSpotter on a per-square-mile basis and generate annual subscription revenues from the deployment of SafePointe on a per-lane basis, a lane being the detection area between two sensors. Our security solutions, ShotSpotter for Highways, ShotSpotter for Campus, ShotSpotter for Corporate as well as CaseBuilder are typically sold on a subscription basis, each with a customized deployment plan. Our ResourceRouter solution, CaseBuilder Crime Gun (formerly ShotSpotter GCM™) and CrimeTracer are also sold on a subscription basis generally customized based on the number of sworn officers in a particular city. We derive the majority of our revenues from subscription services. We recognize subscription fees ratably, on a straight-line basis, over the term of the subscription, which for new customers is typically initially one to three years in length. Customer contracts include one-time set-up fees for the set-up of our sensors in the customer’s coverage areas, training, and third-party integration licenses. If the set-up fees are deemed to be a material right, they are recognized ratably over three to five years depending on the contract term. Training and third-party integration license fees are recognized upon delivery. We also generate revenues through sales to two customers through sales channel intermediaries that include enhanced services. One sales channel intermediary contract through Technologic includes (i) a single on-premise software license for our proprietary software technology and related maintenance and support services and (ii) professional software development services, such as for software development and testing for product feature enhancements, by executing supplementary work orders. The second sales channel intermediary contract includes an enterprise CaseBuilder solution with supplemental professional services to integrate CaseBuilder with the customer's existing systems that will remain in place. For ShotSpotter sales to cities, we generally invoice customers for 50% of the total contract value when the contract is fully executed and for the remaining 50% when the subscription service is operational and ready to go live – that is, when the customer has acknowledged the completion of all the deliverables in the signed customer acceptance form. For SafePointe, we generally invoice the first year's subscription price when the contract is fully executed. For ShotSpotter for Highways, ShotSpotter for Campus, ShotSpotter for Corporate and CrimeTracer, we generally invoice customers 100% of the total contract value when the subscription service is operational, which is often soon after contract execution. All fees billed in advance of services being delivered are recorded as deferred revenue. The timing of when new miles go live can be uncertain and, as a result, can have a significant impact on the levels of revenues and deferred revenue from quarter to quarter. 65 For ShotSpotter, our pricing model is based on a per-square-mile basis. For SafePointe, our pricing model is based on a per-lane basis. For ShotSpotter for Highways, ShotSpotter for Campus, ShotSpotter for Corporate and CaseBuilder, our pricing model is on a customized-site basis. For ResourceRouter, CaseBuilder Crime Gun (formerly ShotSpotter GCM™) and CrimeTracer, pricing is currently customized, generally tied to the number of sworn police officers in a particular agency. We may also offer discounts or other incentives in conjunction with all ShotSpotter sales in an effort to introduce the product, accelerate sales or extend renewals for a longer contract term. As a result of our process for invoicing contracts and renewals upon execution, our cash flow from operations and accounts receivable can fluctuate due to timing of contract execution and timing of deployment. We generally invoice subscription service renewals for 100% of the total contract value when the renewal contract is executed. Renewal fees are recognized ratably over the term of the renewal, which is typically one year. While most of our customers elect to renew their agreements, in some cases, they may not be able to obtain the proper approvals or funding to complete the renewal prior to expiration. For these customers, we stop recognizing subscription revenues at the end of the current contract term, even though we may continue to provide services for a period of time until the renewal process is completed. Once the renewal is complete, we then recognize subscription revenues for the period between the expiration of the original term of the agreement and the completion of the renewal process in the month in which the renewal is executed. If a customer declines to renew its subscription prior to the end of the contract term, remaining setup fees, if any, are immediately recognized. Through Forensic Logic, we generate revenues from subscriptions of CrimeTracer, cloud-based data services for advanced search and analysis tools. We also provide access to this technology platform to an intermediary to either be resold or combined with their own materials, software and/or services, to create an integrated solution that is provided to their end-user customers. We recognize this revenue net of margins paid to the intermediary. We also generate revenues from CaseBuilder Crime Gun, a first-of-its-kind digital case management solution that automates the process by which key information is input, captured and used to identify associated gun crime cases leading to the identification of persons of interest. Subscriptions for CaseBuilder Crime Gun recognize revenue similar to our ShotSpotter and CrimeTracer products. With the acquisition of SafePointe, we generate revenues from subscriptions of our AI-based weapons detection system based on the number of entryways, or lanes, being covered. It is likely that international deployments may have different payment and billing terms due to their local laws, restrictions or other customary terms and conditions. SoundThinking Labs projects may or may not be revenue-producing. When they are revenue-producing, they are generally sold on a cost-plus basis. We anticipate that, due to rising costs of inflation, our customers may experience increased expenditures resulting in budget shortfalls and changes in their business cycle, which may cause delays in their ability to approve proposals for contracts. Costs Costs include the cost of revenues and impairment of property and equipment. Cost of revenues primarily includes depreciation expense associated with capitalized customer acoustic sensor networks, communication expenses, costs related to hosting our service applications, costs related to operating our IRC, providing remote and on-site customer support and maintenance and forensic services, providing customer training and onboarding services, certain personnel and related costs of operations, stock-based compensation and allocated overheads that include information technology, facility and equipment depreciation costs. Cost of revenues for our SafePointe solution are similar except that depreciation of the capitalized customer equipment is smaller due to the lower costs of SafePointe customer equipment. Impairment of property and equipment is primarily attributable to our write-off of the remaining book value of sensor networks related to customers lost. 66 In the near term, we expect our cost of revenues to increase in absolute dollars as our installed base increases, although certain of our costs of revenues are fixed and do not need to increase commensurate with increases in revenues. In addition, depreciation expense associated with deployed equipment is recognized over the first five years from the go live date. We also expect cost of revenues to increase in absolute dollars as we continue to invest in our customer success capabilities to drive growth and value for our customers. For revenues generated through the sale of a proprietary software license and related maintenance and support services and professional software development services, cost of revenues generally includes employee compensation costs that are relatively fixed, third-party contractor costs, allocated facility costs and overhead, and the costs of billable expenses such as travel and lodging. The unpredictability of the timing of entering into significant professional services agreements may cause significant fluctuations in our costs which, in turn, may impact our quarterly financial results. The cost of revenues for CrimeTracer, ResourceRouter and CaseBuilder is generally related to employee compensation costs and data center hosting services, both of which are relatively fixed. Operating Expenses Operating expenses consist of sales and marketing, research and development, and general and administrative expenses. Consultants, salaries, bonuses, stock-based compensation expense and other personnel costs are the most significant components of each of these expense categories. We include stock-based compensation expense incurred in connection with the grant of stock options and restricted stock units to the applicable operating expense category based on the equity award recipient’s functional area. We are focused on executing on our growth strategy. As a result, in the near term we expect our total operating expenses to increase in absolute dollars as we incur additional expenses due to growth. Although our operating expenses will fluctuate, we expect that over time, they will generally decrease as a percentage of revenues. Sales and Marketing Sales and marketing expenses primarily consist of personnel-related costs attributable to our sales and marketing personnel, commissions earned by our sales personnel, marketing expenses for trade shows and lead generation programs, consulting fees and travel and facility-related costs. We expect sales and marketing expense will increase in the near-term in absolute dollars as we continue to grow our organization and may fluctuate from quarter to quarter based on the timing of commission expense, marketing campaigns and tradeshows. Research and Development Research and development expenses primarily consist of personnel-related costs attributable to our research and development personnel, consulting fees and allocated facilities and general operational overhead. We have devoted our product development efforts primarily to develop new lower-cost sensor hardware, develop new features, improve functionality of our solutions, and adapt to new technologies or changes to existing technologies. We are investing in engineering resources to support further development of ResourceRouter, CrimeTracer, CaseBuilder and SafePointe. The focus of this effort will be in the areas of data science modeling, user experience, core application functionality and backend infrastructure improvements, including integration of ShotSpotter gunshot data to enhance forecasting of gun violence. We are also investing in research and development resources in conjunction with our SoundThinking Labs projects and initiatives. The initial focus of these efforts is to develop innovative sensor applications as well as to test and expand the functionality of our outdoor sensors in challenging environmental conditions. 67 In the near term, we expect our research and development expenses to increase in absolute dollars and as a percentage of revenues as we increase our research and development headcount to further strengthen our software and invest in the development of our services. We will continue to invest in research and development to leverage our large and growing database of acoustic events, which includes those from both gunfire and non-gunfire. We also intend to leverage third-party artificial intelligence and our own evolving cognitive and analytical applications to improve the efficiency of our solutions. Certain of these applications and outputs may expand the platform of services that we will be able to offer our customers. General and Administrative General and administrative expenses primarily consist of personnel-related costs attributable to our executive, finance, and administrative personnel, legal, litigation, strategic communications, accounting and other professional services fees, and other corporate expenses and allocated overhead. In the near term, we expect our general and administrative expenses to increase in both absolute dollars and as a percentage of revenues as we grow our business. Change in Fair Value of Contingent Consideration Change in fair value of contingent consideration primarily consists of increases or decreases in our contingent consideration liabilities recorded for potential earnouts from our acquisitions of Forensic Logic, Technologic and SafePointe. The changes result from revenue actuals and revised revenue estimates utilized in the fair value methodology to estimate the contingent liability for the earnouts. Other Income (Expense), Net Other income (expense), net, consisted primarily of interest income and local and franchise tax expenses. Income Taxes Our income taxes are based on the amount of our income before tax and enacted federal, state and foreign tax rates, adjusted for allowable credits and deductions, as applicable. Historically, our income tax expense has been at the state level. We continually monitor all positive and negative evidence regarding the realization of our deferred tax assets and may record assets when it becomes more likely than not, that they will be realized, which may impact the expense or benefit from income taxes. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. We regularly assess the likelihood that the deferred tax assets will be recovered from future taxable income. We consider projected future taxable income and ongoing tax planning strategies, then record a valuation allowance to reduce the carrying value of the net deferred taxes to an amount that is more likely than not able to be realized. Based upon our assessment of all available evidence, including the previous three years of income before tax after permanent items, estimates of future profitability, and our overall prospects of future business, we have determined that it is more likely than not that we will not be able to realize a portion of the deferred tax assets in the future. We will continue to assess the potential realization of deferred tax assets on an annual basis, or an interim basis if circumstances warrant. If our actual results and updated projections vary significantly from the projections used as a basis for this determination, we may need to change the valuation allowance against the gross deferred tax assets. 68 Results of Operations The following table sets forth our consolidated statements of operations data for the years ended December 31, 2023 and 2022 (in thousands): As a % of As a % of Change 2023 Revenues 2022 Revenues $ % Revenues $ 92,717 100 % $ 81,003 100 % $ 11,714 14 % Costs Cost of revenues 39,988 43 % 34,218 42 % 5,770 17 % Total costs 39,988 43 % 34,218 42 % 5,770 17 % Gross profit 52,729 57 % 46,785 58 % 5,944 13 % Operating expenses: Sales and marketing 26,959 29 % 22,416 28 % 4,543 20 % Research and development 12,138 13 % 10,026 12 % 2,112 21 % General and administrative 20,557 22 % 15,750 19 % 4,807 31 % Change in fair value of contingent consideration (5,686 ) (6 %) (9,154 ) (11 %) 3,468 (38 %) Total operating expenses 53,968 58 % 39,038 48 % 14,930 38 % Operating income (loss) (1,239 ) (1 %) 7,747 10 % (8,986 ) (116 %) Other expense, net (275 ) — (195 ) — (80 ) -41 % Provision for income taxes 1,204 1 % 1,167 1 % 37 3 % Net income (loss) $ (2,718 ) (3 %) $ 6,385 8 % $ (9,103 ) (143 %) Revenues The increase of $11.7 million was primarily attributable to an $11.6 million increase in revenues from new customers and expansions of existing customer coverage areas, and a $1.0 million increase in revenues from SafePointe which was acquired in the third quarter of 2023. This was partially offset by a decrease of $0.9 million. Specifically, the revenues from monthly support contracts for the twelve months ending December 31, 2022, were higher due to additional revenues generated from a contract amendment that was delayed from late 2021 and executed in January 2022. We went live in 25 new ShotSpotter cities. We expanded in 16 current customer sites, two current universities and one current corporate solution during the year ended December 31, 2023. Costs The increase in costs of $5.8 million was due primarily to a $4.7 million increase in product costs due to the increase in our customer base and an increase of $1.1 million in material and other costs following our acquisition of SafePointe in the third quarter of 2023. Gross Profit Gross profit as a percentage of revenues decreased compared with the prior year primarily as a result of lower margins from SafePointe which was acquired in the third quarter of 2023. Operating Expenses Sales and Marketing Expense Sales and marketing expense increased by $4.5 million and was primarily due to a $1.4 million increase in personnel costs, a $0.8 million increase in tradename asset amortization related to our Forensic Logic acquisition, $0.8 million increase in marketing expense, a $0.7 million increase in consulting and commission expenses, a $0.3 million increase in credit loss expense, and a $0.5 million increase in other costs. 69 Research and Development Expense Research and development expense increased by $2.1 million and was primarily due to a $1.7 million increase in personnel-related costs due to increased headcount and a $0.4 million increase in consulting and outside services expense and other costs. General and Administrative Expense General and administrative expense increased by $4.8 million and was primarily due to a $2.3 million increase in consulting and outside services that included acquisition expenses related to our acquisition of SafePointe in the third quarter of 2023, increased legal expense and increased consulting expense for contract employees, a $2.0 million increase in personnel costs and a $0.5 million increase in office expense including insurance costs and other costs. Change in Fair Value of Contingent Consideration The fair value of contingent consideration related to our acquisitions decreased by $5.7.million during the year ended December 31, 2023. This was due to a decrease in the fair value of the Forensic Logic contingent consideration liability of $3.2 million, based upon adjustments to recorded liabilities as a result of actual revenues. This also reflected a decrease in the fair value of the SafePointe contingent consideration liability of $2.5 million, based upon revised 2024 and 2025 revenue estimates utilized in the fair value methodology to estimate the contingent liability for the earnouts. Other Income (Expense), Net Other income (expense) did not increase materially compared with the prior year. Income Taxes Our income taxes are based on the amount of our taxable income and enacted federal, state, and foreign tax rates, adjusted for allowable credits, deductions and the valuations allowance against deferred tax assets, as applicable. Our provision for state income taxes did not increase materially from the prior year. Comparison of the Years Ended December 31, 2022 and 2021 For discussion of our 2022 results and a comparison with 2021 results please refer to Part II, Item 7, "Management's Discussion and Analysis of Financial Conditions and Results of Operations" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 that was filed with the SEC on March 14, 2023 (the "2022 Form 10-K"). Liquidity and Capital Resources Sources of Funds Our operations have been financed primarily through net proceeds from the sale of equity, debt financing arrangements and cash from operating activities. Our principal source of liquidity is cash and cash equivalents totaling $5.7 million as of December 31, 2023. On December 31, 2023, our available credit facility was approximately $18.0 million and we had $7.0 million outstanding on our line of credit, which was primarily used to fund our acquisition of SafePointe. We believe our existing cash and cash equivalent balances, our available credit facility and cash flow from operations will be sufficient to meet our working capital and capital expenditure requirements for at least the next 12 months. We believe that despite our negative working capital, the costs to perform the short-term deferred revenue is relatively low compared to the balance of $41.3 million. However, should additional working capital be needed, we can utilize our unused credit facility. We believe that we will meet longer term expected future working capital and capital expenditure requirements through a combination of cash flows from operating activities, available cash balances and our available credit facility. Our future capital requirements may vary materially from those currently planned and will depend on many factors, including our rate of revenues growth, the timing and extent of spending on sales and marketing, the expansion of sales and marketing activities, the timing of new product introductions, market acceptance of our products, and overall economic conditions. We may also seek additional capital to fund our 70 operations, including through the sale of equity or debt financings. To the extent that we raise additional capital through the future sale of equity, the ownership interest of our stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our existing common stockholders. The incurrence of debt financing would result in debt service obligations and the instruments governing such debt could provide for operating and financing covenants that would restrict our operations. Additionally, there is no guarantee that debt or equity financing will be available to us on terms that are favorable to us, or at all. Use of Funds Our historical uses of cash have primarily consisted of cash used for operating activities, such as expansion of our sales and marketing operations, research and development activities and other working capital needs, and cash used in investing activities, such as property and equipment expenditures to install infrastructure in customer cities in order to deliver our solutions and acquisitions. Our expected material cash requirements are similar to our historical uses of cash as well as in connection with contingent earnouts, our stock repurchase program and repayment of any outstanding debt obligations under our credit facility, each as described below. In August 2023, we completed the acquisition of SafePointe for purchase consideration of $25.6 million, consisting of $11.4 million in cash, subject to working capital adjustments, and the issuance of 549,579 shares of our common stock that was valued at $11.2 million at the time of acquisition. We used $7.0 million of our credit facility to complete this acquisition. The purchase consideration also included contingent consideration valued at $3.0 million at the time of acquisition, which is related to a contingent earnout payable of up to $11.5 million based on SafePointe's revenues generated during the remainder of 2023 through 2025. Any earned amounts will be payable within approximately 120 days after the end of the target year. In August 2023, we entered into an agreement to purchase patents, source codes and a customer list for $0.5 million in cash and $0.1 million in the form of 4,638 shares of our common stock, based on the closing price on the date of purchase. In January 2022, we acquired Forensic Logic for purchase consideration of $31.6 million, consisting of $4.9 million in cash, subject to working capital adjustments, 464,540 shares of our common stock that were valued at $14.3 million at the time of the acquisition. The purchase consideration also included an earnout. The acquisition date fair value of the contingent earnout was $12.4 million, payable in cash based on Forensic Logic's revenues generated during the years ended December 31, 2022 and 2023. The earnout for 2022 and 2023 was not earned, so no amounts will be paid. In November 2020, we completed the acquisition of Technologic for purchase consideration of $21.6 million in cash, subject to working capital adjustments, and the issuance of 63,901 shares of our common stock that were valued at $2.0 million at the time of the acquisition. The purchase consideration also included an earnout payable based on Technologic's revenues generated during the years ended December 31, 2021 and 2022. The earnout for 2021 was not earned, so no amounts were paid in respect of this earnout in 2022. The $1.5 million contingent earnout for 2022 was earned and paid in March 2023. Stock Repurchase Program In May 2019, our board of directors approved a stock repurchase program for up to $15.0 million of our common stock. During the year ended December 31, 2022, we repurchased 106,992 shares of our common stock at an average price of $28.81 per share for $3.1 million and used up the remaining balance under the May 2019 stock repurchase program in the third quarter ended September 30, 2022. These repurchases were made in open market transactions using cash on hand, and all of the shares repurchased were retired. In November 2022, our board of directors approved a new stock repurchase program (the "2022 Repurchase Program") for up to $25.0 million of our common stock. The shares may be repurchased from time to time in open market transactions, in privately negotiated transactions or by other methods in accordance with federal securities laws. The actual timing, number and value of shares repurchased under the program will be determined by management in its discretion and will depend on a number of factors, including the market price of our common stock, general market and economic conditions and applicable legal requirements. The stock repurchase program does not obligate us to purchase any particular amount of common stock and may be suspended or discontinued at any time. 71 During the year ended December 31, 2023, we repurchased 228,782 shares of our common stock under the 2022 Repurchase Program at an average price of $24.41 per share for approximately $5.6 million. The repurchases were made in open market transactions using cash on hand, and all of the shares repurchased were retired. As of December 31, 2023, $19.4 million remains available under the 2022 Repurchase Program. Credit Facility In September 2018, we entered into our Umpqua Credit Agreement, initially providing for borrowing capacity of $10.0 million. The agreement was amended in November 2022 to increase the size of our available credit facility to $25.0 million with an expiration date of October 15, 2024 and to increase the letter of credit sub-facility to $7.5 million. In February 2024, we amended the Umpqua Credit Agreement to extend the maturity date from October 15, 2024 to October 15, 2025. The revolving loan facility is for general working capital purposes. Our available credit facility as of December 31, 2023 was approximately $18.0 million. On December 31, 2023, there was $7.0 million outstanding on our line of credit. The Umpqua Credit Agreement subjects us to certain restrictive and financial covenants, see the risk entitled “The incurrence of debt may impact our financial position and subject us to additional financial and operating restrictions ” in Part II, Item 1A, Risk Factors , included in this Annual Report on Form 10-K . We are in compliance with all the covenants under the Umpqua Credit Agreement as of December 31, 2023. Cash Flows Comparison of Years Ended December 31, 2023 and 2022 The following table presents a summary of our cash flows for the years ended December 31, 2023 and 2022 (in thousands): Year Ended December 31, 2023 2022 Net cash provided by (used in): Operating activities $ 10,951 $ 12,184 Investing activities (16,485 ) (15,539 ) Financing activities 795 (1,749 ) Net change in cash and cash equivalents $ (4,739 ) $ (5,104 ) As of December 31, 2023 and 2022, $0.5 million and $0.9 million in cash was held by our consolidated foreign subsidiaries, respectively. Operating Activities Our net income (loss) and cash flows provided by operating activities are significantly influenced by our increase in headcount to support our growth, increase in legal, outside services fees, and sales and marketing expenses, and our ability to bill and collect in a timely manner. Net cash provided by operating activities decreased $1.2 million in the year ended December 31, 2023 compared to net cash provided in the same period of 2022, primarily due to a decrease of $13.8 million in the change of deferred revenue and a decrease of $1.0 million in the change of accrued and other liabilities offset by a $13.8 million increase in collections. Investing Activities Our investing activities consist primarily of capital expenditures to install our solutions in customer coverage areas, purchases of property and equipment, and investments in intangible assets and business acquisitions. Investing activities used $16.5 million and $15.5 million in the years ended December 31, 2023 and 2022, respectively. We completed our acquisition of SafePointe for approximately $11.0 million in cash, net of $0.4 million cash acquired at closing during the year ended December 31, 2023. We completed our acquisition of Forensic Logic for approximately $4.6 million in cash, net of $0.3 million cash acquired at closing during the year ended December 31, 2022. 72 Financing Activities Cash generated by financing activities includes net proceeds from the exercise of stock options and warrants and proceeds from the employee stock purchase plan (“ESPP”) purchases, offset by payments for repurchases of our common stock and debt issuance and financing costs. Financing activities provided $0.8 million in cash during the year ended December 31, 2023. This was primarily due to $7.0 million in proceeds from our line of credit which was primarily used to fund our acquisition of SafePointe, approximately $0.2 million in proceeds from the exercise of stock options and $0.7 million in proceeds from ESPP purchases, offset by $5.6 million in payments for repurchases of our common stock, and $1.5 million in contingent liability payments. Comparison of the Years Ended December 31, 2022 and 2021 A discussion of changes in our cash flows from the year ended December 31, 2021 to the year ended December 31, 2022 can be found in Part II, Item 7, "Management's Discussion and Analysis of Financial Conditions and Results of Operations" of the 2022 Form 10-K. Off-Balance Sheet Arrangements As of December 31, 2023, we did not have any relationships, material commitments or obligations with unconsolidated organizations or financial partnerships, such as structured finance or special purpose entities, that were established for the purpose of facilitating off-balance sheet arrangements. We do not engage in off-balance sheet financing arrangements. In addition, we do not engage in trading activities involving non-exchange traded contracts. Critical Accounting Estimates and Policies Our consolidated financial statements are prepared in accordance with United States generally accepted accounting principles. The preparation of our consolidated financial statements requires us to make estimates, assumptions and judgments that affect the reported amounts of revenues, assets, liabilities, costs, and expenses. We base our estimates and assumptions on historical experience and other factors that we believe to be reasonable under the circumstances and evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates. Our most critical accounting policies are summarized below. See Note 2, Summary of Significant Accounting Policies , to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for a description of our other significant accounting policies. Revenue Recognition Revenue Recognition We generate annual subscription revenues from the deployment of ShotSpotter Respond on a per-square-mile basis and generate annual subscription revenues from the deployment of SafePointe on a per-lane basis, a lane being the detection area between two sensors. Our security solutions within ShotSpotter, ShotSpotter for Highways, ShotSpotter for Campus and ShotSpotter for Corporate as well as CaseBuilder and CrimeTracer, are typically sold on a subscription basis, each with a customized deployment plan. Our ResourceRouter, CaseBuilder Crime Gun and CrimeTracer solutions are also sold on a subscription basis generally customized based on the number of sworn officers in a particular city. We generate substantially all of our revenues from the sale of ShotSpotter subscription services, in which gunshot data generated by company-owned sensors and software is sold to our customers through a cloud-based hosting application for a specified contract period. Typically, the initial contract period is one to three years in length. The subscription contract is generally noncancelable without cause and these service arrangements do not provide the customer with the right to take possession of the hardware or software supporting the subscription service at any time. A small portion of our revenues are generated from the delivery of setup services to install company-owned sensors in the customer’s coverage area and other services including training and licenses to integrate with third-party applications. 73 We generally invoice customers for 50% of the total contract value when the contract is fully executed and for the remaining 50% when the subscription service is operational and ready to go live – that is, when the customer has acknowledged the completion of all the deliverables in the signed customer acceptance form. We generally invoice subscription service renewals for 100% of the total contract value when the renewal contract is executed. For the public safety solution, the pricing model is based on a per-square-mile basis. For security solutions, the pricing model is on a customized-site basis. For case management and search engine solutions, the pricing model is currently customized, generally tied to the number of sworn police officers in a particular city. As a result of the process for invoicing contracts and renewals upon execution, cash flows from operations and accounts receivable can fluctuate due to timing of contract execution and timing of deployment. We recognize revenues upon the satisfaction of performance obligations. At contract inception, we assess the services promised in our contracts with customers and identify a performance obligation for each promise to transfer a good or service (or bundle of services) to the customer that is distinct. To identify the performance obligations, we consider all of the services promised in the contract regardless of whether they are explicitly stated or are implied by customary business practices. We determined that the subscription services, training, and licenses to integrate with third-party applications are each distinct services that represent separate performance obligations. The setup activities are not distinct from the subscription service and are combined into the subscription service performance obligation. However, setup fees may provide a material right to the customer that has influence over the customers' decision to renew. All setup fees are assessed on a quantitative and qualitative basis to determine whether they represent a distinct performance obligation. The total contract value is allocated to each performance obligation identified based on the standalone selling price of the service and any discounts are allocated pro-rata to the identified performance obligations. For contracts that have an original duration of one year or less, we use the practical expedient applicable to such contracts and do not consider the time value of money. We believe revenue recognition for gunshot detection services is subject to uncertainty because of the timing of renewal contracts or work orders. Revenues from subscription services are recognized ratably, on a straight-line basis, over the term of the subscription. Revenues from material rights are recognized ratably over the period in which they are determined to provide a material right to the customer, which is generally three years. Revenues from training and licenses to integrate with third-party applications are recognized upon delivery which generally occurs when the subscription service is operational and ready to go live. Subscription renewal fees are recognized ratably over the term of the renewal, which is typically one year. While most customers elect to renew their agreements, in some cases, they may not be able to obtain the proper approvals or funding to complete the renewal prior to expiration. For these customers, we stop recognizing subscription revenues at the end of the current contract term, even though services may continue to be provided for a period of time until the renewal process is completed. Once the renewal is complete, we recognize subscription revenues for the period between the expiration of the original term of the agreement and the completion of the renewal process in the month in which the renewal is executed. If a customer declines to renew its subscription, the remaining fees from material rights, if any, are immediately recognized. Revenue Recognition – Software License, Maintenance and Support, and Professional Services We also generate revenues from the sale of (i) a software license and related maintenance and support services of our proprietary software technology and (ii) professional software development services to a single customer, through a sales channel intermediary. We have been serving this customer for more than ten years. The sales channel intermediary contract includes software licensing and related maintenance and support services. The contract also provides for the procurement of professional services, such as for software development and testing for product feature enhancements, by executing supplementary work orders. We recognize revenue from the software license and related maintenance and support services revenues upon the satisfaction of performance obligations. We determined that the term-based software license should be combined with the maintenance and support services as a single performance obligation. The nature of the maintenance and support services, inclusive of our obligation to provide additional, unspecified software functionality over the license term, in allowing this single customer to be flexible in utilizing the customized software to respond to the changing regulatory environment, are critical to the customer’s ability to derive benefit and value from the license. Contractually, we provide continuous access to the software, maintenance and support services, helpdesk, and 74 technical support over the contract term, hence a time-elapsed method is used to recognize revenue. There is a fixed and variable component to the maintenance and support services. Revenues from the software license and fixed maintenance and support services are recognized ratably over the term of the contract because our obligation to provide the license and related support services is uniform over the license term. The variable portion is based on time and materials provided for higher-level technical support. We generally invoice for both the fixed and time and materials services a month in arrears. For our time and materials services, we have elected the right-to-invoice practical expedient, allowing us to recognize revenue based on the amount we have the right to invoice the customer, provided that amount directly corresponds with the value of our completed performance to date. This approach results in revenue recognition as we perform the services and incurs the costs. If this customer does not renew prior to the contract term expiring, we stop recognizing revenues at the end of the current contract term, even though services may continue to be provided for a period of time until the renewal process is completed. Once the renewal is complete, we recognize the revenues for the period between the expiration of the original contract term and the completion of the renewal process in the month in which the renewal is executed. Professional services revenue consists of fees typically associated with the design, development, and testing of product feature enhancements requested by the customer. The customer procures additional development services as needed, and generally based upon annual development plans negotiated by and between the customer and us. Professional services do not result in significant customization of the maintenance and support services and are considered distinct services. All, and any part of the output, of our professional services towards such product feature enhancements, belong to the customer. The contract price and billing schedule are stated in each work order and we generally invoice in monthly installments upon the commencement of each work order. We also have a contract for an enterprise CaseBuilder solution through a second sales channel intermediary that includes supplemental professional services to integrate CaseBuilder with the customer's existing systems that will remain in place. This contract includes fixed fees for these professional services. We satisfy the performance obligations for these professional services over time as the performance of work typically creates or enhances an asset that the customer controls as the asset is created or enhanced. As these product feature enhancements each have a fixed contract fee, we recognize revenue over time proportionally as work is performed, based on cumulative resource costs incurred as a percentage of total forecast costs for the project. Management uses significant judgment in making these estimates, which affect the timing of revenue recognition, including how much revenue to recognize in each period, and in estimating the timing of revenue recognition for remaining performance obligations. Gross Versus Net Presentation Our single software license and related service agreement was facilitated through a sales channel intermediary. We present the total value of the billings to the customer as revenue (or gross) and that portion of the billings to the customer retained by the sales channel intermediary as a sales cost which is included in sales and marketing in the accompanying statement of operations, as we have determined that we are the principal in the arrangement. Our conclusion is based on our role in controlling the goods and services consumed by the end-customer throughout the license term or development life cycle, combined with our control over the price charged to the end-user for such goods and services, and the inability of the sales channel intermediary to direct or control the services provided to the customer. The fees paid to the sales channel intermediary are expensed as incurred as it relates to a period of performance of one year, and the sales channel intermediary is paid the same rate of commission on license term renewals or additional professional services that are sold to the customer. Stock-Based Compensation We recognize stock-based compensation expense for equity awards granted to our employees, directors, and consultants that can be settled in shares of our common stock. Stock-based compensation expense is based on the 75 grant date fair value estimate for each award as determined by our board of directors. We recognize these compensation costs on a straight-line basis over the requisite service period of the award. Restricted stock unit awards are valued using the grant date market closing price of our common stock as traded on the Nasdaq Capital Market . We estimate the fair value of stock option awards at the date of grant using the Black-Scholes option pricing model, which was developed for use in estimating the value of traded options that have no vesting restrictions and are freely transferable. The fair values generated by the model may not be indicative of the actual fair values of our awards as it does not consider other factors important to those stock-based payment awards, such as continued employment, periodic vesting requirements and limited transferability. Business Acquisitions We allocate the fair value of purchase consideration to the tangible assets acquired, liabilities assumed and intangible assets acquired based on their estimated fair values. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill. When determining the fair values of assets acquired and liabilities assumed, management makes significant estimates and assumptions, especially with respect to intangible assets and contingent consideration liabilities. Critical estimates in valuing such intangible assets include, but not limited to, future expected cash flows from customer relationships and developed technology and discount rates. Critical estimates in valuing contingent consideration liabilities include, but are not limited to, revenues estimates and discount rates. Goodwill Goodwill represents the excess of amounts paid over the fair value of net assets acquired from a business acquisition. Goodwill is tested for impairment at the reporting unit level (operating segment or one level below an operating segment) on an annual basis (October 1) and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value. These events or circumstances could include a significant change in the business climate, legal factors, operating performance indicators, competition, or sale or disposition of a significant portion of a reporting unit. Application of the goodwill impairment test requires judgment, including the identification of reporting units and determination of the fair value of each reporting unit. We have concluded there is only one reporting unit for purposes of performing the goodwill impairment test. The fair value of each reporting unit is estimated primarily through the use of market capitalization as a key input. This analysis involves calculating our market capitalization, which is derived from multiplying our closing stock price by the number of outstanding shares, and then comparing it against the net asset value. The estimates used to calculate the fair value of a reporting unit change from year to year based on operating results, market conditions, and other factors. Changes in these estimates and assumptions could materially affect the determination of fair value and goodwill impairment. We performed our annual test for goodwill impairment as of October 1, 2023 and concluded that no impairment charge was necessary. Income Taxes We account for income taxes under the asset and liability approach. Under this method, deferred tax assets, including those related to tax loss carryforwards and credits, and deferred tax liabilities are determined based on the differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. We recognize the tax benefit for an uncertain tax position when it meets the more likely than not threshold for recognition. A valuation allowance is recorded to reduce deferred tax assets when management cannot conclude that it is more likely than not that the deferred tax asset will be recovered. The valuation allowance is determined by assessing both positive and negative evidence to determine whether it is more likely than not that deferred tax assets are recoverable; such assessment is required on a jurisdiction-by-jurisdiction basis. Significant judgment is required in determining whether the valuation allowance should be recorded against deferred tax assets. In assessing the need for or release of a valuation allowance, we consider all available evidence including past operating results and estimates of future taxable income. 76 Item 7A. QUALITATIVE AND QUANTITAT IVE DISCLOSURES ABOUT MARKET RISK Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. Our market risk exposure is primarily the result of fluctuations in interest rates and foreign exchange rates as well as, to a lesser extent, inflation. Interest Rate Risk We are exposed to interest rate risk in the ordinary course of our business. At December 31, 2023, the outstanding balance of our Credit Agreement was $7.0 million, which bears interest at a variable rate. At December 31, 2023, the rate in effect was approximately 7.3%. Based on the outstanding balance of our Credit Agreement at December 31, 2023, a 100 basis point increase in the interest rate would increase interest expense by $0.1 million annually. Our cash includes cash in readily available checking and money market accounts. These securities are not dependent on interest rate fluctuations that may cause the principal amount of these assets to fluctuate. We had cash and cash equivalents of $5.7 million as of December 31, 2023, which consists entirely of bank deposits. We do not enter into investments for trading or speculative purposes and have not used any derivative financial instruments to manage our interest rate risk exposure. Foreign Currency Exchange Risk We have foreign currency risks related to our revenues and operating expenses denominated in currencies other than our functional currency, the U.S. dollar, principally the South African Rand. Movements in foreign currencies in which we transact business could significantly affect future net earnings. However, if the average value of the South African Rand had been 10% higher relative to the U.S. dollar during 2023, 2022 or 2021, it would not have resulted in a significant impact to our results of operations for the years ended December 31, 2023, 2022 or 2021. To date, we have not engaged in any hedging strategies. As our international operations grow, we will continue to reassess our approach to manage our risk relating to fluctuations in foreign currency rate. Inflation Risk We do not believe that inflation has had a material effect on our business, financial condition, or results of operations. If our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through price increases. Our inability or failure to do so could harm our business, financial condition, and results of operations. 77 Item 8. FINANCIAL STATEMEN TS AND SUPPLEMENTARY DATA INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Report of Independent Registered Public Accounting Firm [PCAOB ID No. 23 ] 78 Consolidated Balance Sheets 81 Consolidated Statements of Operations 82 Consolidated Statements of Comprehensive Income (Loss) 83 Consolidated Statements of Stockholders’ Equity 84 Consolidated Statements of Cash Flows 85 Notes to Consolidated Financial Statements 86 Report of Independent R egistered Public Accounting Firm To the Stockholders and the Board of Directors of SoundThinking, Inc.: Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of SoundThinking, Inc. (the "Company") as of December 31, 2023 and 2022, the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity, and cash flows, for each of the three years in the period ended December 31, 2023, and the related notes (collectively referred to as the "consolidated financial statements"). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. 78 Critical Audit Matters The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. SafePointe, LLC Acquisition – Fair Value of Intangible Assets Critical Audit Matter Description As discussed in Note 4 to the consolidated financial statements, on August 18, 2023, the Company accounted for the SafePointe, LLC acquisition as a business combination. The Company allocated a portion of the purchase price to an acquired software technology and customer relationship, which were assigned acquisition-date fair values of $9.2 million and $2.5 million, respectively. We identified the fair value of the software technology and customer relationship associated with the acquisition as a critical audit matter. A high degree of subjective auditor judgment was involved in evaluating certain inputs to the relief from royalty and multi-period excess earnings methods used to determine the fair value software technology and customer relationships. The key input used in the relief from royalty method was the royalty rate. The key input used in the multi-period excess earnings method was the attrition assumption. There was limited observable market information and the calculated fair value of the assets was sensitive to possible changes in these key inputs. How We Addressed the Matter in Our Audit The primary procedures we performed to address this critical audit matter included substantively testing, with the assistance of firm personnel with expertise in the application of fair value and valuation methodologies, the appropriateness of the inputs used in management’s process for determining the fair value of the identifiable intangibles, which included the following procedures: • Obtained management’s purchase price allocation detailing fair values assigned to the acquired tangible and intangible assets and purchase consideration. • Obtained the valuation report prepared by a valuation specialist engaged by management to assist in the purchase price allocation, including determination of fair values assigned to acquired identifiable intangible assets. We reviewed the qualifications of the specialist and tested the key inputs in the valuation methods. • Utilized an internal valuation specialist to assist the engagement team in evaluating: the methodologies used and whether they were acceptable for the underlying acquisitions and whether such methodologies were being applied correctly, the appropriateness of the royalty rate and attrition assumption used by independently calculating the amounts based on comparable guideline companies, comparable rates for market participants and also other transactions. • Evaluated the Company’s forecasted future cash flows for acquired business by reviewing historical results and obtaining audit evidence for future expected customer growth as well as the reasonableness of other key assumptions used by management. • Performed inquiries of personnel at SafePointe, LLC that were highly involved in the development of the forecasts to evaluate the reasonableness of revenue and margin forecasts. SafePointe, LLC Acquisition – Contingent Consideration 79 Critical Audit Matter Description As discussed in Note 4 to the consolidated financial statements, on August 18, 2023, the Company accounted for the SafePointe, LLC acquisition as a business combination. The acquisition included contingent consideration, which had an acquisition date fair value of $3 million. We identified the fair value of the contingent consideration associated with the acquisition as a critical audit matter. A high degree of subjective auditor judgment was involved in evaluating certain inputs to the Monte Carlo simulation used to determine the fair value of the contingent consideration. The key inputs used in the Monte Carlo simulation were the revenue discount rate, revenue volatility and payment discount rate. There was limited observable market information and the calculated fair value of the liability was sensitive to possible changes in these key inputs. How We Addressed the Matter in Our Audit The primary procedures we performed to address this critical audit matter included substantively testing, with the assistance of firm personnel with expertise in the application of fair value and valuation methodologies, the appropriateness of the inputs used in management’s process for determining the fair value of the identifiable contingent consideration, which included the following procedures: • Obtained management’s purchase price allocation detailing fair values assigned to the acquired tangible and intangible assets and purchase consideration • Obtained the valuation report prepared by a valuation specialist engaged by management to assist in the purchase price allocation, including determination of fair values assigned to acquired identifiable intangible assets. We reviewed the qualifications of the specialist and tested the key inputs in the valuation methods. • Utilized an internal valuation specialist to assist the engagement team in evaluating: the methodologies used and whether they were acceptable for the underlying acquisitions and whether such methodologies were being applied correctly, the appropriateness of the revenue discount rate, revenue volatility, payment discount rate, royalty rate and attrition assumption used by independently calculating the amounts based on comparable guideline companies, comparable rates for market participants and also other transactions. • Evaluated the Company’s forecasted future revenue for the acquired business by reviewing historical results and obtaining audit evidence for future expected customer growth as well as the reasonableness of other key assumptions used by management. • Performed inquiries of personnel at SafePointe, LLC that were highly involved in the development of the forecasts to evaluate the reasonableness of revenue and margin forecasts. We have served as the Company's auditor since 2017. Baker Tilly US, LLP Minneapolis, MN April 1, 2024 80 SoundThinking, Inc. Consolida ted Balance Sheets (In thousands, except share and per share data) December 31, 2023 2022 Assets Current assets Cash and cash equivalents $ 5,703 $ 10,479 Accounts receivable and contract assets, net 30,700 30,957 Prepaid expenses and other current assets 3,902 3,225 Total current assets 40,305 44,661 Property and equipment, net 21,028 21,988 Operating lease right-of-use assets 2,315 3,240 Goodwill 34,213 22,971 Intangible assets, net 36,938 27,318 Other assets 3,909 2,570 Total assets $ 138,708 $ 122,748 Liabilities and Stockholders' Equity Current liabilities Accounts payable $ 3,031 $ 1,633 Accrued expenses and other current liabilities 8,521 9,965 Line of credit 7,000 — Deferred revenue, short-term 41,265 41,907 Total current liabilities 59,817 53,505 Deferred revenue, long-term 812 1,813 Deferred tax liability 1,226 685 Other liabilities 2,096 5,800 Total liabilities 63,951 61,803 Commitments and contingencies (Note 17) Stockholders' equity Preferred stock: $ 0.005 par value; 20,000,000 shares authorized; no shares issued and outstanding as of December 31, 2023 and 2022, respectively — — Common stock: $ 0.005 par value; 500,000,000 shares authorized; 12,761,448 and 12,243,929 shares issued and outstanding as of December 31, 2023 and 2022, respectively 64 62 Additional paid-in capital 170,139 153,573 Accumulated deficit ( 95,118 ) ( 92,400 ) Accumulated other comprehensive loss ( 328 ) ( 290 ) Total stockholders' equity 74,757 60,945 Total liabilities and stockholders' equity $ 138,708 $ 122,748 See accompanying notes to consolidated financial statements. 81 SoundThinking, Inc. Consolidated S tatements of Operations (In thousands, except share and per share data) Year Ended December 31, 2023 2022 2021 Revenues $ 92,717 $ 81,003 $ 58,155 Costs Cost of revenues 39,874 34,218 25,611 Impairment of property and equipment 114 — 25 Total costs 39,988 34,218 25,636 Gross profit 52,729 46,785 32,519 Operating expenses Sales and marketing 26,959 22,416 15,479 Research and development 12,138 10,026 7,035 General and administrative 20,557 15,750 12,744 Change in fair value of contingent consideration ( 5,686 ) ( 9,154 ) 1,330 Total operating expenses 53,968 39,038 36,588 Operating income (loss) ( 1,239 ) 7,747 ( 4,069 ) Other income (expense), net Interest income (expense), net ( 48 ) 45 38 Other expense, net ( 227 ) ( 240 ) ( 344 ) Total other expense, net ( 275 ) ( 195 ) ( 306 ) Income (loss) before income taxes ( 1,514 ) 7,552 ( 4,375 ) Provision for income taxes 1,204 1,167 56 Net income (loss) $ ( 2,718 ) $ 6,385 $ ( 4,431 ) Net income (loss) per share, basic $ ( 0.22 ) $ 0.52 $ ( 0.38 ) Net income (loss) per share, diluted $ ( 0.22 ) $ 0.52 $ ( 0.38 ) Weighted-average shares used in computing net income (loss) per share, basic 12,425,132 12,171,609 11,647,558 Weighted-average shares used in computing net income (loss) per share, diluted 12,425,132 12,317,707 11,647,558 See accompanying notes to consolidated financial statements. 82 ShotSpotter, Inc. Consolidated State ments of Comprehensive Income (Loss) (In thousands) Year Ended December 31, 2023 2022 2021 Net income (loss) $ ( 2,718 ) $ 6,385 $ ( 4,431 ) Other comprehensive loss: Change in foreign currency translation adjustment, net of taxes ( 38 ) ( 52 ) ( 68 ) Comprehensive income (loss) $ ( 2,756 ) $ 6,333 $ ( 4,499 ) See accompanying notes to consolidated financial statements. 83 SoundThinking Inc. Consolidated Statements of St ockholders’ Equity (In thousands, except share data) Common Stock Additional Paid-in Accumulated Accumulated Other Comprehensive Total Stockholders' Equity/ Shares Par Value Capital Deficit Loss (Deficit) Balance at December 31, 2020 11,538,998 58 128,771 ( 94,354 ) ( 170 ) 34,305 Exercise of stock options 97,702 — 898 — — 898 Issuance of common stock in connection with exercise of warrants 50,716 — 8 — — 8 Repurchase of common stock ( 95,151 ) — ( 3,601 ) — — ( 3,601 ) Issuance of common stock from ESPP purchases 30,193 — 832 — — 832 Vesting of restricted stock units 80,972 — — — — — Stock-based compensation — — 5,872 — — 5,872 Foreign currency translation loss — — — — ( 68 ) ( 68 ) Net loss — — — ( 4,431 ) — ( 4,431 ) Balance at December 31, 2021 11,703,430 58 132,780 ( 98,785 ) ( 238 ) 33,815 Exercise of stock options 41,819 1 537 — — 538 Repurchase of common stock ( 106,992 ) — ( 3,084 ) — — ( 3,084 ) Issuance of common stock from ESPP purchases 33,161 — 797 — — 797 Vesting of restricted stock units 107,971 — — — — — Issuance of common stock for acquisition 464,540 3 14,263 — — 14,266 Stock-based compensation — — 8,280 — — 8,280 Foreign currency translation loss — — — — ( 52 ) ( 52 ) Net income — — — 6,385 — 6,385 Balance at December 31, 2022 12,243,929 62 153,573 ( 92,400 ) ( 290 ) 60,945 Exercise of stock options 19,021 — 150 — — 150 Repurchase of common stock ( 228,782 ) — ( 5,595 ) — — ( 5,595 ) Issuance of common stock from ESPP purchases 37,824 — 740 — — 740 Vesting of restricted stock units 135,239 — — — — — Issuance of common stock for acquisition 554,217 2 11,289 — — 11,291 Stock-based compensation — — 9,982 — — 9,982 Foreign currency translation loss — — — — ( 38 ) ( 38 ) Net loss — — — ( 2,718 ) — ( 2,718 ) Balance at December 31, 2023 12,761,448 $ 64 $ 170,139 $ ( 95,118 ) $ ( 328 ) $ 74,757 See accompanying notes to consolidated financial statements. 84 SoundThinking, Inc. Consolidated S tatements of Cash Flows (In thousands) Year Ended December 31, 2023 2022 2021 Cash flows from operating activities: Net income (loss) $ ( 2,718 ) $ 6,385 $ ( 4,431 ) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation of property and equipment 6,718 6,400 5,795 Amortization of intangible assets 3,920 2,799 1,032 Impairment of property and equipment 114 — 25 Stock-based compensation 9,982 8,282 5,872 Change in fair value of contingent consideration ( 5,686 ) ( 9,154 ) 1,330 Deferred taxes 541 685 — Allowance for credit losses 99 ( 74 ) — Changes in operating assets and liabilities: Accounts receivable and contract assets 619 ( 14,530 ) ( 3,213 ) Prepaid expenses and other assets ( 1,357 ) ( 1,168 ) ( 673 ) Accounts payable 1,094 ( 18 ) 354 Accrued expenses and other liabilities ( 149 ) 947 1,588 Deferred revenue ( 2,226 ) 11,630 2,143 Net cash provided by operating activities 10,951 12,184 9,822 Cash flows from investing activities: Purchase of property and equipment ( 5,053 ) ( 10,915 ) ( 7,840 ) Investment in intangible and other assets ( 437 ) ( 6 ) ( 59 ) Business acquisition, net of cash acquired ( 10,995 ) ( 4,618 ) 15 Net cash used in investing activities ( 16,485 ) ( 15,539 ) ( 7,884 ) Cash flows from financing activities: Payment of contingent consideration liability ( 1,500 ) — ( 403 ) Proceeds from line of credit 7,000 — — Proceeds from exercise of stock options 150 538 898 Repurchases of common stock ( 5,595 ) ( 3,084 ) ( 3,601 ) Proceeds from exercise of warrants — — 8 Proceeds from employee stock purchase plan 740 797 832 Net cash provided by (used in) financing activities 795 ( 1,749 ) ( 2,266 ) Change in cash, cash equivalents and restricted cash ( 4,739 ) ( 5,104 ) ( 328 ) Effect of exchange rate on cash and cash equivalents ( 37 ) ( 53 ) ( 79 ) Cash, cash equivalents at beginning of year 10,479 15,636 16,043 Cash, cash equivalents at end of year $ 5,703 $ 10,479 $ 15,636 Supplemental cash flow disclosures: Property and equipment purchases included in accounts payable $ 477 $ 404 $ 563 Estimated fair value of contingent consideration for business combination at closing $ 2,994 $ 12,400 $ — Fair value of common stock issued as consideration for acquisitions $ 11,291 $ 14,266 $ — See accompanying notes to consolidated financial statements. 85 SoundThinking, Inc. Notes to Consoli dated Financial Statements Note 1. Organization and Description of Business SoundThinking, Inc. (the “Company”) brings the power of digital transformation to law enforcement and security personnel by providing precision-policing and security solutions, combining data-driven solutions and strategic advisory services for law enforcement and civic leadership. As of December 31, 2023, the Company had approximately 250 customers and to date have worked with approximately 2,100 agencies to he lp drive more efficient, effective, and equitable public safety outcomes. In April 2023, the Company's name changed to SoundThinking, Inc., reflecting its broader impact on public safety through a growing set of industry-leading law enforcement tools and community-focused solutions. As part of the rebrand, the Company introduced its SafetySmart™ platform that includes five data-driven tools consisting of (i) its flagship product, ShotSpotter® (formerly ShotSpotter Respond), the leading outdoor gunshot detection, location and alerting system trusted by 170 cities and 19 universities and corporation s as of December 31, 2023, (ii) CrimeTracer™ (formerly COPLINK X), a leading law enforcement search engine that enables investigators to search through more than one billion criminal justice records from across jurisdictions to generate tactical leads and quickly make intelligent connections to solve crimes, (iii) CaseBuilder™ (formerly ShotSpotter Investigate), a one-stop investigative management system for tracking, reporting, and collaborating on cases, (iv) ResourceRouter™ (formerly ShotSpotter Connect) that directs the deployment of patrol and community anti-violence resources in an objective way to help maximize the impact of limited resources and improve community safety, and (v) SafePointe™, an AI-based weapons detection system, that the Company added when it acquired SafePointe, LLC (“SafePointe”) in August 2023. The Company offers its solutions on a software-as-a-service subscription model to its customers. ShotSpotter for Highways, ShotSpotter for Campus and ShotSpotter for Corporate, are typically smaller-scale deployments of ShotSpotter vertically marketed to universities, corporate campuses, highways, and key infrastructure centers to mitigate risk and enhance security by notifying authorities of outdoor gunfire incidents, saving critical minutes for first responders to arrive. In 2019, the Company created a technology innovation unit, SoundThinking Labs, to expand its efforts supporting innovative uses of its technology to help protect wildlife and the environment. Additionally, the Company provides maintenance and support services and professional software development services to two customers, through sales channel intermediaries. The Company’s principal executive offices are located in Fremont, California. The Company has six wholly-owned subsidiaries. Note 2. Summary of Significant Accounting Policies Basis of Presentation The accompanying 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 financial reporting. In the opinion of management, the accompanying 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 86 year ended December 31, 2023, but are not necessarily indicative of the results of operations or cash flows to be anticipated for any future period. The consolidated financial statements include the results of the Company and its wholly-owned subsidiaries. All significant intercompany transactions have been eliminated during consolidation. The Company has evaluated subsequent events occurring after the date of the consolidated financial statements for events requiring recording or disclosure in the consolidated financial statements. Use of Estimates The preparation of 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 and goodwill, contingent consideration liabilities, stock-based compensation expense, customer life, 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. Revenue Recognition – Subscription Services The Company generates annual subscription revenues from the deployment of ShotSpotter on a per-square-mile basis and generates annual subscription revenues from the deployment of SafePointe on a per-lane basis. The Company's three security solutions, ShotSpotter for Highways, ShotSpotter for Campus and ShotSpotter for Corporate, as well as CaseBuilder, CrimeTracer and ResourceRouter are typically sold on a subscription basis, each with a customized deployment plan. The Company generates a majority of its revenues from the sale of ShotSpotter subscription services, in which gunshot data generated by Company-owned sensors and software is sold to customers through a cloud-based hosting application for a specified contract period. Typically, the initial contract period is one to three years in length. The subscription contract is generally noncancelable without cause. Generally, these service arrangements do not provide the customer with the right to take possession of the hardware or software supporting the subscription service at any time. A small portion of the Company’s revenues are generated from the delivery of setup services to install Company-owned sensors in the customer’s coverage area and other services including training and a license to integrate with third-party applications. For ShotSpotter, the Company generally invoices customers for 50 % of the total contract value when the contract is fully executed and for the remaining 50 % when the subscription service is operational and ready to go live – that is, when the customer has acknowledged the completion of all the deliverables in the signed customer acceptance form. If it is a multi-year contract, the Company invoices 50 % of the first-year fees upon contract execution and the remaining 50 % of the first-year fees when the service is operational and ready to go live. The following years are invoiced 100 % at each annual anniversary. For SafePointe, the Company generally invoices the first year's subscription price when the contract is fully executed. For ShotSpotter for Highways, ShotSpotter for Campus, ShotSpotter for Corporate, CaseBuilder and CrimeTracer, the Company generally invoices subscription service renewals for 100 % of the total contract value when the renewal contract is executed. All fees billed in advance of services being delivered are recorded as deferred revenue. For ShotSpotter, the pricing model is based on a per-square-mile basis. For SafePointe, the pricing model is based on a per-lane basis. For ShotSpotter for Highways, ShotSpotter for Campus, ShotSpotter for Corporate and CaseBuilder, the pricing model is on a customized-site basis. For ResourceRouter and CrimeTracer, pricing is currently customized, generally tied to the number of sworn police officers in a particular city. The Company may also offer discounts or other incentives in conjunction with all ShotSpotter sales in an effort to introduce the product, accelerate sales or extend renewals for a longer contract term. As a result of the process for invoicing contracts and 87 renewals upon execution, cash flows from operations and accounts receivable can fluctuate due to timing of contract execution and timing of deployment. The Company recognizes revenues upon the satisfaction of performance obligations. At contract inception, the Company assesses the services promised in its contracts with customers and identifies a performance obligation for each promise to transfer to the customer a good or service (or bundle of services) that is distinct. To identify the performance obligations, the Company considers all of the services promised in the contract regardless of whether they are explicitly stated or are implied by customary business practices. The Company determined that the subscription services, training, and licenses to integrate with third-party applications are each distinct and represent separate performance obligations. The setup activities are not distinct from the subscription service and are combined into the subscription service performance obligation. However, setup fees may provide a material right to the customer that has influence over the customer's decision to renew. The total contract value is allocated to each performance obligation identified based on the standalone selling price of the service. Discounts are allocated pro-rata to the identified performance obligations. Revenues from subscription services are recognized ratably, on a straight-line basis, over the term of the subscription. Revenues from material rights are recognized ratably over the period in which they are determined to provide a material right to the customer, which is generally the longer of the estimated customer life or contract, which is typically three years . Revenues from training and third-party integration license fees are recognized upon delivery which generally occurs when the subscription service is operational and ready to go live. Subscription renewal fees are recognized ratably over the term of the renewal, which is typically one year . While most customers elect to renew their agreements, in some cases, they may not be able to obtain the proper approvals or funding to complete the renewal prior to expiration. For these customers, the Company stops recognizing subscription revenues at the end of the current contract term, even though services may continue to be provided for a period of time until the renewal process is completed. Once the renewal is complete, the Company recognizes subscription revenues for the period between the expiration of the original term of the agreement and the completion of the renewal process in the month in which the renewal is executed. If a customer declines to renew its subscription, then the remaining fees from material rights, if any, are immediately recognized. The Company capitalizes certain incremental costs of obtaining a contract, which includes sales commissions, based on the first-year fee upon booking of a new contract. These capitalized commissions are amortized on a straight-line basis over the expected customer life, which is determined to be five years . As there are not commensurate commissions earned on renewals of the subscription services, the Company recognizes the commissions as expense when the renewal invoice is paid instead of capitalizing them. Amortization of capitalized commissions is included in sales and marketing expense and was $ 1.1 million, $ 0.8 million, and $ 0.7 million for the years ended December 31, 2023, 2022 and 2021, respectively. Revenue Recognition – Software License, Maintenance and Support, and Professional Services Through Technologic, the Company generates revenues through the sale of (i) a proprietary software license and maintenance and support services and (ii) professional software development services to a single customer, through a sales channel intermediary. The sales channel intermediary contract includes a renewable subscription for software and related maintenance and support services. The contract also provides for the procurement of professional services, such as for software development and testing for product feature enhancements, by executing supplementary work orders. The Company recognizes revenue from the software license and related maintenance and support services revenues upon the satisfaction of performance obligations. It determined that the term-based software license should be combined with the maintenance and support services as a single performance obligation. The nature of the maintenance and support services, inclusive of the Company's obligation to provide additional, unspecified software functionality over the license term, in allowing this single customer to be flexible in utilizing the customized software to respond to the changing regulatory environment, are critical to the customer’s ability to derive benefit and value from the license. Contractually, the Company provides continuous access to the software, maintenance and support services, helpdesk, and technical support over the contract term, hence a time-elapsed method is used to recognize revenue. There is a fixed and variable component to the maintenance and support services. Revenues from the software 88 license and fixed maintenance and support services are recognized ratably over the term of the contract because the Company's obligation to provide the license and related support services is uniform over the license term. The variable portion is based on time and materials provided for higher-level technical support. For the time and materials component, the Company has elected the right-to-invoice practical expedient, allowing it to recognize revenue based on the amount it has the right to invoice the customer, provided that amount directly corresponds with the value of its completed performance to date. This approach results in revenue recognition as the Company performs the services and incurs the costs. The Company generally invoices for both the fixed and time and materials services a month in arrears. If this customer does not renew prior to the contract term expiring, the Company stops recognizing revenues at the end of the current contract term, even though services may continue to be provided for a period of time until the renewal process is completed. Once the renewal is complete, revenues are recognized for the period between the expiration of the original contract term and the completion of the renewal process in the month in which the renewal is executed. Professional services revenue consists of fees typically associated with the design, development and testing of product feature enhancements requested by the customer. The customer procures additional development services as needed, and generally based upon annual development plans negotiated by and between the customer and the Company. Professional services do not result in significant customization of the maintenance and support services and are considered distinct services. All, and any part of the output, of the Company’s professional services towards such product feature enhancements, belong to the customer. Accordingly, the Company satisfies the performance obligations over time as the performance of work typically creates or enhances an asset that the customer controls as the asset is created or enhanced. The Company also has a contract for an enterprise CaseBuilder solution through a second sales channel intermediary that includes supplemental professional services to integrate CaseBuilder with the customer's existing systems that will remain in place. As these professional services each have a fixed contract fee, the Company recognizes revenue over time proportionally as work is performed, based on cumulative resource costs incurred as a percentage of total forecast costs for the project. Management uses significant judgment in making these estimates, which affect the timing of revenue recognition, including how much revenue to recognize in each period, and in estimating the timing of revenue recognition for remaining performance obligations (see Note 3). Gross Versus Net Presentation The Company’s single software license on premise instance and related maintenance and support service agreement was facilitated through a sales channel intermediary. The Company presents the total value of the billings to the end-user as revenue (or gross) and that portion of the billings to the customer retained by the sales channel intermediary as a sales cost which is included in sales and marketing in the accompanying statement of operations, as the Company determined that it is the principal in the arrangement. The Company’s conclusion is based on its role in controlling the goods and services consumed by the end-customer throughout the license term or development life cycle, combined with its control over the price charged to the end-user for such goods and services, and the inability of the sales channel intermediary to direct or control the services provided to the customer. The fees paid to the sales channel intermediary are expensed as incurred as it relates to a period of performance of one year, and the sales channel intermediary is paid the same rate of commission on license term renewals or additional professional services that are sold to the customer. Costs Costs include the cost of revenues and charges for impairment of property and equipment. Cost of revenues primarily include depreciation expense associated with capitalized customer acoustic sensor networks, communication expenses, costs related to hosting the Company's service application, costs related to operating its Incident Review Center (the “IRC”), providing remote and on-site customer support and maintenance and forensic services, personnel and related costs of operations, stock-based compensation and allocated facilities and general operational overhead, 89 which includes information technology, facility and equipment depreciation costs. The Company expenses all costs as incurred for services that are not recoverable under an enforceable contract. Advertising and Public Relations Costs Advertising and public relations costs are expensed as incurred. Advertising and public relations costs were $ 2.0 million, $ 1.5 million, and $ 1.3 million for the years ended December 31, 2023 , 2022 and 2021, respectively, and were included in sales and marketing expense in the consolidated statements of operations. Research and Development Costs Research and development costs are expensed as incurred and consisted primarily of salaries and benefits, consultant fees, certain facilities costs, and other direct costs associated with the continued development of the Company’s solutions. Product development costs are expensed as incurred until technological feasibility has been established, which the Company defines as the completion of all planning, designing, coding, and testing activities that are necessary to establish products that meet design specifications including functions, features and technical performance requirements. The Company has determined that technological feasibility for its software products is reached shortly before they are released for sale. Costs incurred after technological feasibility is established are not significant, and accordingly the Company expenses all research and development costs when incurred. The Company capitalizes the cost of technology acquired through a business combination based on the fair value of the assets acquired. Cash and Cash Equivalents Cash and cash equivalents include all cash and highly liquid investments with an original maturity of three months or less. At December 31, 2023 and 2022, the Company’s cash and cash equivalents consisted of cash deposited in financial institutions. Restricted cash Cash balances that are legally, contractually or otherwise restricted as to withdrawal or usage are considered restricted cash. The Company had no restricted cash balances at December 31, 2023 and December 31, 2022. Foreign Currency The functional currency for the Company’s foreign subsidiaries is the local currency. The assets and liabilities of the subsidiary are translated into U.S. dollars using the exchange rate as of each balance sheet date. Revenues and expenses are translated at the average exchange rates for the period. Gains and losses from translations are recognized in foreign currency translation included in accumulated other comprehensive income (loss) in the accompanying consolidated balance sheets. Foreign currency exchange gains and losses that are realized are recorded in other expense, net, in the accompanying consolidated statements of operations. Accounts Receivable and Contract Assets, Net Accounts receivable, net consist of trade accounts receivables from the Company’s customers, net of allowance for credit losses if deemed necessary, and are recorded at the invoiced amount. Accounts receivable also consists of trade accounts receivables (net of any commissions) from the sales channel intermediary through which the Company provides software license, maintenance and support, and professional services. The Company does not require collateral or other security for accounts receivable. Contract assets consist of revenues recognized in advance of invoicing the customer for amounts that the Company has the right to invoice. The Company does not charge interest on accounts receivable that are past due. The Company periodically evaluates the collectability of its accounts receivable and provides an allowance for credit losses based on the Company’s historical experience. At December 31, 2023, the Company has an allowance for credit losses of $ 0.1 million. There was no allowance as of December 31, 2022. 90 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 deposits of cash and cash equivalents at three 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 ("FDIC") 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. As of December 31, 2023, the Company had approximately $ 5.1 million, $ 40,000, and $ 8,000 deposited with the Company's three domestic financial institutions for which $ 250,000 is insured per institution under FDIC limits. Concentration of Accounts Receivable and Contract Assets — At December 31, 2023, two customers accounted for 24 % and 10 % of the Company’s total accounts receivable. At December 31, 2022, two customers accounted for 23 % and 17 % of the Company’s total accounts receivable. Concentration of Revenues — For the year ended Dece mber 31, 2023, two customers accounted for 25 % and 9 %, respectively, of the Company’s revenues. For the year ended December 31, 2022, two customers accounted for 30 % and 10 %, respectively, of the Company’s revenues. For the year ended December 31, 2021, two customers accounted for 28 % and 14 %, respectively, of the Company’s revenues. 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. Business Acquisitions The Company allocates the fair value of purchase consideration to the tangible assets acquired, liabilities assumed, and intangible assets acquired based on their estimated fair values. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill. When determining the fair values of assets acquired and liabilities assumed, management makes significant estimates and assumptions, especially with respect to intangible assets and contingent consideration liabilities. Acquisition-related expenses are recognized separately from the business combination and are recognized as general and administrative expense as incurred. Goodwill Goodwill represents the excess of amounts paid over the fair value of net assets acquired from an acquisition. Goodwill is tested for impairment at the reporting unit level (the Company has one reporting segment and tests at the company level) on an annual basis (October 1) and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value. These events or circumstances could include a significant change in the business climate, legal factors, operating performance indicators, competition, or sale or disposition of a significant portion of a reporting unit. The Company operates as one reportable segment. It performed its annual test for goodwill impairment as of October 1, 2023 and concluded 91 that no goodwill impairment charge was necessary. Since inception through December 31, 2023, the Company has no t recorded any goodwill impairment. Intangible Assets Intangible assets consist of customer relationships, software technology, tradename and acquired patents and capitalized legal fees related to obtaining patents. Patent assets are stated at cost, less accumulated amortization. Customer relationships, tradename and software technology are recorded at fair value as of the date of the acquisition. Intangible assets are amortized on an attribution method, over their expected useful lives, which range from three years for patents, eight to 11 years for software technology, nine years for tradename, and seven to 15 years for customer relationships. Property and Equipment, net Property and equipment, net, is stated at cost, less accumulated depreciation, and amortization. The Company depreciates property and equipment using the straight-line method over their estimated useful lives, ranging from three to five years . Leasehold improvements are amortized over the shorter of the asset’s useful life or the remaining lease term. Costs incurred to develop software for internal use and for the Company’s solutions are capitalized and amortized over such software’s estimated useful life. Internally developed software costs capitalized during all periods presented have not been material. Impairment of Long-Lived Assets The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability is measured by comparing the carrying amount of the asset group to the group's future undiscounted cash flows expected to be generated from the existing service potential of the asset group for the period of time consistent with the remaining life of the group's primary asset. If such assets are determined to be impaired, the impairment to be recognized is measured as the amount by which the carrying amount of the assets exceeds the future undiscounted net cash flows arising from the assets. Assets to be disposed of are reported at the lower of their carrying amounts or fair value less cost to sell. Royalty Expense In 2009, the Company entered into a license agreement with a third-party relating to a patented gunshot digital imaging system that facilitates integration with certain third-party systems. The terms of the license agreement require the Company to pay a one-time fee of $ 5,000 for each license sold to a customer allowing the customer to integrate their ShotSpotter service with a third-party application, such as a video management system, with a minimum annual amount due of $ 75,000 . In 2023, the Company incurred $ 155,000 related to this agreement. In 2023, 2022, and 2021, the Company incurred only the $ 75,000 minimum amount. The license agreement terminated in November 2023 . Fair Value Measurements The Company uses a three-level hierarchy for fair value measurements based on the nature of inputs used in the valuation of an asset or liability as of the measurement date. The three-level hierarchy prioritizes, within the measurement of fair value, the use of market-based information over entity-specific information. Fair value focuses on an exit price and is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The inputs or methodology used for valuing 92 financial instruments are not necessarily an indication of the risks associated with investing in those financial instruments. The three-level hierarchy for fair value measurements is defined as follows: Level I — Inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets. Level II — Inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. Level III — Inputs to the valuation methodology are unobservable and supported by little or no market data. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs. An asset’s or a liability’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Stock-Based Compensation The Company generally grants options to purchase shares of its common stock to its employees, directors and non-employees for a fixed number of shares with an exercise price equal to the fair value of the underlying shares at the grant date. All stock option grants are accounted for using the fair value method, and stock-based compensation expense is recognized ratably over the requisite service period as the underlying options vest. The Company uses the Black-Scholes option pricing model to measure the fair value of its stock options. The Company estimates the grant date fair value of its common stock options using the following assumptions: Expected Term — The expected term represents the weighted-average period that the stock-based compensation awards are expected to be outstanding. It was calculated based on the Company's historical experience with its stock option grants. Risk-Free Interest Rate — The risk-free interest rate is based on the yield on U.S. Treasury yield curve in effect at the grant date. Expected Volatility —The expected volatility is based on the historical volatility of the Company’s stock. Dividend Yield — Expected dividend yield is based on the Company's dividend policy at the time the options were granted. The Company does not plan to pay any dividends in the foreseeable future. Consequently, it has historically used an expected dividend yield of zero . The Company uses the market closing price of its common stock as traded on the Nasdaq Capital Market to determine fair value of its common stock for use in the Black-Scholes option pricing model. The Company generally grants unvested restricted stock unit awards to non-employee directors and executive management for a fixed number of shares and a fixed vesting schedule. The restricted stock unit awards are valued 93 using the closing price on the date of grant and stock-based compensation is recognized ratably over the requisite service period. Forfeitures are recognized as and when they occur. Segment Information The chief operating decision maker is the Company's Chief Executive Officer, who allocates resources and assesses financial performance based upon discrete financial information at the consolidated level. There are no segment managers who are held accountable by the chief operating decision maker, or anyone else, for operations, operating results and planning for levels or components below the consolidated unit level. Accordingly, the Company has determined that it operates as a single operating and reportable segment . Leases The Company leases office space under operating leases with expiration dates through 2027 . The Company determines whether an arrangement constitutes a lease at inception and records lease liabilities and right-of-use assets on our consolidated balance sheets at lease commencement. We measure lease liabilities based on the present value of the total lease payments not yet paid discounted based on the more readily determinable of the rate implicit in the lease or our incremental borrowing rate, which is the estimated rate the Company would be required to pay for a collateralized borrowing equal to the total lease payments over the term of the lease. Operating lease right-of-use assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease and are included in operating lease right-of-use assets, accrued expenses and other current liabilities and other liabilities (long term) on the Company’s consolidated balance sheets. The Company has made an accounting policy election to not recognize short-term leases, or leases that have a lease term of 12 months or less at commencement date, within its consolidated balance sheets and to recognize those lease payments in the consolidated statements of operations and comprehensive income (loss) on a straight-line basis over the lease term. Income Taxes The Company records income taxes in accordance with the liability method of accounting. Deferred taxes are recognized for the estimated taxes ultimately payable or recoverable based on enacted tax law. The Company establishes a valuation allowance to reduce the deferred tax assets when it is more likely than not that a deferred tax asset will not be realizable. Changes in tax rates are reflected in the tax provision as they occur. 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. In accounting for uncertainty in income taxes, the Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more likely than not threshold, the amount recognized in the consolidated financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority . The Company recognizes interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. Net Income (Loss) per Share Basic net income (loss) per share is calculated by dividing net income (loss) by the weighted-average number of common shares outstanding during the period. Diluted net income (loss) per share is computed by dividing net income (loss) by the weighted-average number of common shares and common stock equivalents outstanding during 94 the period. Common stock equivalents are only included when their effect is dilutive. Common stock equivalents include unvested restricted stock units, convertible preferred stock, warrants and outstanding stock options. Recent Accounting Pronouncements Adopted In June 2016, the Financial Accounting Standards Board ("FASB”) issued Accounting Standards Update ("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 U.S. GAAP with a methodology that reflects current expected credit loss and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The guidance was effective at the beginning of the Company’s first quarter of fiscal 2023. The Company adopted this ASU effective January 1, 2023 . The adoption of this ASU did not have a material impact on the Company's consolidated financial statements. Recent Accounting Pronouncements Not Yet Effective Improvements to Reportable Segment Disclosures In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which enhances prior reportable segment disclosure requirements in part by requiring entities to disclose significant expenses related to their reportable segments. The guidance also requires disclosure of the Chief Operating Decision Maker's (“CODM”) position for each segment and detail of how the CODM uses financial reporting to assess their segment’s performance. The new guidance is effective for fiscal years beginning after December 15, 2023, and for interim periods within fiscal years beginning after December 15, 2024, on a retrospective basis, with early adoption permitted. The Company does not expect implementation of the new guidance to have a material impact on its consolidated financial statements. Improvements to Income Tax Disclosures In December 2023, the FASB issued ASU 2023-09, “Improvements to Income Tax Disclosures” (“ASU 2023-09”). ASU 2023-09 enhances the transparency of income tax disclosures, primarily by requiring public business entities to disclose on an annual basis, specific categories in the rate reconciliation tabular presentation, as well as by providing additional information for reconciling items that meet a quantitative threshold. The ASU also requires disaggregated disclosures of federal, state and foreign income tax taxes paid. The new guidance is effective for fiscal years beginning after December 15, 2023. The Company expects the adoption of this guidance will modify its disclosures, but will not have an impact on the Company's financial position and results of operations. Note 3. Revenue Related Disclosures The changes in deferred revenue were as follows (in thousands): Year Ended December 31, 2023 2022 Beginning balance $ 43,720 $ 26,709 Deferred revenues acquired (Note 4 - Acquisitions) 581 5,382 New billings 87,918 91,453 Revenue recognized during the year from beginning balance ( 36,761 ) ( 31,180 ) Revenue recognized during the year from new billings ( 53,381 ) ( 48,643 ) Foreign currency impact — ( 1 ) Ending balance $ 42,077 $ 43,720 ​ 95 The following table presents remaining performance obligations for contractually committed revenues as of December 31, 2023 (in thousands): 2024 $ 69,935 2025 30,886 2026 15,683 Thereafter 2,840 Total $ 119,344 The timing of 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 December 31, 2023 and amounts under contract that will be invoiced after December 31, 2023. During the year ended December 31, 2023, the Company recognized revenues of $ 90.8 million from customers in the United States, and $ 1.9 million from customers in South Africa, the Bahamas and Uruguay. During the year ended December 31, 2022, the Company recognized revenues of $ 80.2 million from customers in the Unit ed States and $ 0.8 million from customers in South Africa and the Bahamas. During the year ended December 31, 2021, the Company recognized revenues of $ 57.3 million from customers in the United States and $ 0.9 million from customers in South Africa and the Bahamas. During the year ended December 31, 2023 , the Company recognized revenues of $ 87.5 million from monthly subscription, maintenance, and support services, and $ 5.2 million from professional software development services. During the year ended December 31, 2022, the Company recognized revenues of $ 75.4 million from monthly subscription, maintenance, and support services and $ 5.6 million from professional software development services. During the year ended December 31, 2021, the Company recognized revenues of $ 54.7 million from monthly subscription, maintenance, and support services and $ 3.4 million from professional software development services. Note 4. Acquisitions SafePointe, LLC During the third quarter of 2023, the Company completed the acquisition of 100 % of the membership interests in SafePointe for purchase consideration of $ 11.4 million in cash, subject to working capital adjustments, of which $ 1.1 million is indemnification escrow cash, and $ 11.2 million in the form of 549,579 shares of the Company's common stock based on the closing price on the date of acquisition, of which $ 1.1 million is indemnification escrow stock. The purchase consideration also included a contingent earnout payable based on SafePointe’s revenues generated during 2023 through 2025. The acquisition date fair value of the contingent earnout was $ 3.0 m illion, resulting in a total purchase consideration of $ 25.6 million. Up to $ 11.5 million in earnout will be payable based on SafePointe’s revenues generated during the remainder of 2023 and the years ended December 31, 2024 and 2025. The Company expects to recover some amounts through escrow claims under the terms of the membership purchase agreement. The Company borrowed $ 7.0 million under the Umpqua Credit Agreement (See Note 9, Financing Arrangements ) to partially fund the purchase consideration. The SafePointe acquisition was accounted for as a business acquisition in accordance with ASC 805, Business Combinations . The acquisition allows the Company to enter the AI-based weapons detection market. 96 The following table summarizes the assignment of fair value to the identified assets and liabilities recorded as of the acquisition date (in thousands): Cash and cash equivalents $ 394 Accounts receivable and contract assets 370 Property and equipment, net 717 Customer relationships 2,500 Software technology 9,200 Tradename 1,100 Goodwill 11,242 Other assets 101 Accrued expenses and other current liabilities ( 52 ) Deferred revenue ( 581 ) Net assets acquired 24,991 Escrow claim 581 Total estimated consideration $ 25,572 The goodwill recognized was primarily attributed to increased synergies that are expected to be achieved from the integration of SafePointe and 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 commences 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 20.9 %, reflecting the risk profile of the assets. The Company will amortize the acquired customer relationships for 12 years, the acquired software technology for 11 years and the acquired tradename for 9 years. Acquisition-related expenses were $ 0.8 million for the year ended December 31, 2023, and are included in general and administrative expense. Forensic Logic, LLC During the first quarter of 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 the form of 464,540 shares of the Company's common stock based on the closing price on the date of acquisition. The purchase consideration also included a contingent earnout payable based on Forensic Logic’s revenues generated during 2022 and 2023. The acquisition date fair value of the contingent earnout was $ 12.4 million, resulting in a total purchase consideration of $ 31.6 million. The Forensic Logic acquisition was accounted for as a business acquisition in accordance with ASC 805, Business Combinations . 97 The following table summarizes the assignment of fair value to the identified assets and liabilities recorded as of the acquisition date (in thousands): Cash and cash equivalents $ 303 Accounts receivable and contract assets 220 Property and equipment, net 200 Operating lease right-of-use assets 1,893 Software technology 7,140 Tradename 1,000 Customer relationships 8,400 Goodwill 20,155 Other assets 186 Accrued expenses and other current liabilities ( 635 ) Operating lease liabilities ( 1,893 ) Deferred revenue ( 5,382 ) Total estimated consideration $ 31,587 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, researc h 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 $ 0.1 million for the year ended December 31, 2022, which is included in general and administrative expense. Pro Forma Information The unaudited pro forma combined revenue and net income presented below have been prepared as if the Company had acquired SafePointe and Forensic Logic on January 1, 2021 and 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 financial information has been derived from the consolidated statements of operations of the Company, SafePointe and Forensic Logic for the below 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 combined revenue for the years ended December 31, 2023, 2022 and 2021 would have been $ 93.9 million, $ 81.8 million and $ 64.8 million, respectively. The unaudited pro forma combined net income (loss) for the years ended December 31, 2023, 2022 and 2021, would have been $( 4.2 ) million, $ 4.4 million and $( 9.2 ) million, respectively. Note 5. Fair Value Measurements In November 2020, the Company estimated the fair value of the contingent consideration liability associated with its acquisition of LEEDS, LLC (“LEEDS”). This fair value measurement was classified as Level III within the fair value hierarchy as prescribed by Accounting Standards Codification 820-10-35-37 ("ASC 820, Fair Value Measuremen t"). In May 2023, the Company renamed LEEDS to Technologic Solutions, LLC (“Technologic”). During the first quarter of 2023, the Company paid the $ 1.5 million Technologic contingent consideration balance, in full settlement of its obligations under the purchase agreement. 98 In January 2022, the Company estimated the fair value of the contingent consideration liability associated with its acquisition of Forensic Logic to be $ 12.4 million as of the acquisition date, using a Monte Carlo simulation approach with asset and revenue volatility of 60.0 % and 28.0 %, respectively. This fair value measurement is classified as Level III within the fair value hierarchy as prescribed by ASC 820, Fair Value Measurement . During the years ended December 31, 2023 and 2022, the fair value of the contingent consideration was decreased b y $ 3.2 million and $ 9.2 million, respectively, based upon adjustments to recorded liabilities as a result of actual revenues. As a result of actual revenue recognized, the company did no t pay any amounts under the contingent consideration and no further contingent payments remain. In August 2023, the Company estimated the fair value of the contingent consideration liability associated with its acquisition of SafePointe to be $ 3.0 million as of the acquisition date, using a Monte Carlo simulation approach with asset and revenue volatility of 76.1 % and 25.8 %, respectively. This fair value measurement is classified as Level III within the fair value hierarchy as prescribed by ASC 820, Fair Value Measurement . During the year ended December 31, 2023, the fair value of the contingent consideration was decreased by $ 2.4 million based upon revised estimated 2024 and 2025 revenue targets. The changes in the fair value of the aggregate contingent consideration liability are summarized below (in thousands): Year Ended December 31, 2023 2022 Beginning balance $ 4,746 $ 1,500 Payment of contingent consideration liability ( 1,500 ) — Contingent consideration - Forensic Logic (Note 4 - Acquisitions) — 12,400 Contingent consideration - SafePointe (Note 4 - Acquisitions) 2,994 — Change in fair value of contingent consideration ( 5,686 ) ( 9,154 ) Ending balance $ 554 $ 4,746 There were no transfers into or out of Level III during the year ended December 31, 2023 and 2022. Note 6. Goodwill The changes in goodwill for 2023 and 2022 are as follows (in thousands): December 31, December 31, 2023 2022 Beginning balance $ 22,971 $ 2,816 Acquisition of Forensic Logic (Note 4 - Acquisitions) — 20,155 Acquisition of SafePointe (Note 4 - Acquisitions) 11,242 — Ending balance $ 34,213 $ 22,971 99 The Company has no t recorded any goodwill impairment charges through December 31, 2023. Note 7. Intangible Assets, net Intangible assets as of December 31, 2023 and 2022 are as follows (in thousands): December 31, 2023 Gross Accumulated Amortization Net Customer relationships 25,470 ( 4,467 ) 21,003 Acquired software technology 16,340 ( 2,199 ) 14,141 Patents and intellectual property 1,966 ( 1,227 ) 739 Tradename 2,100 ( 1,045 ) 1,055 Total intangible assets, net $ 45,876 $ ( 8,938 ) $ 36,938 December 31, 2022 Gross Accumulated Amortization Net Customer relationships $ 22,970 $ ( 2,760 ) $ 20,210 Acquired software technology 7,140 ( 1,015 ) 6,125 Patents 1,227 ( 1,133 ) 94 Tradename 1,000 ( 111 ) 889 Total intangible assets, net $ 32,337 $ ( 5,019 ) $ 27,318 Intangible amortization expense was $ 3.9 million, $ 2.8 million, and $ 1.0 million for the years ended December 31, 2023, 2022 and 2021, respectively. The following table presents future intangible asset amortization as of December 31, 2023 (in thousands): 2024 3,856 2025 3,842 2026 3,805 2027 3,790 2028 3,736 Thereafter 17,909 Total $ 36,938 Note 8. Details of Certain Consolidated Balance Sheet Accounts Prepaid expenses and other current assets (in thousands): December 31, December 31, 2023 2022 Deferred commissions $ 1,295 $ 1,040 Prepaid software and licenses 1,147 647 Prepaid insurance 806 724 Other prepaid expenses 199 236 Short-term deposits 406 363 Other 49 215 $ 3,902 $ 3,225 100 Accounts receivable and contract assets, net (in thousands): December 31, December 31, 2023 2022 Accounts receivable $ 24,574 $ 28,790 Contract assets 6,225 2,167 Allowance for credit losses ( 99 ) — $ 30,700 $ 30,957 Other assets (in thousands): December 31, December 31, 2023 2022 Deferred commissions $ 3,205 $ 2,552 Escrow claim (Note 4 - Acquisitions) 581 — Other 123 18 $ 3,909 $ 2,570 Property and equipment, net (in thousands): December 31, December 31, 2023 2022 Deployed equipment $ 50,467 $ 44,700 Construction in progress 3,513 5,267 Computer equipment 2,771 2,359 Software 1,238 1,314 Furniture and fixtures 1,189 472 Leasehold improvements 979 934 Vehicles 263 258 60,420 55,304 Accumulated depreciation and amortization ( 39,392 ) ( 33,316 ) $ 21,028 $ 21,988 Depreciation and amortization expense during the years ended December 31, 2023, 2022 and 2021 was $ 6.7 million, $ 6.4 million, and $ 5.8 million, respectively. Accrued expenses and other current liabilities (in thousands): December 31, December 31, 2023 2022 Personnel-related accruals $ 6,500 $ 5,971 Contingent consideration liability — 1,500 Operating lease liabilities 964 868 Professional fees 407 441 Sales/use tax payable 100 257 State income tax payable 128 385 Other 422 543 $ 8,521 $ 9,965 101 Other liabilities (long-term) (in thousand): December 31, December 31, 2023 2022 Operating lease liabilities $ 1,542 $ 2,554 Contingent consideration liability 554 3,246 $ 2,096 $ 5,800 Note 9. Financing Arrangements The Company has a Credit Agreement with Umpqua Bank (the "Credit Agreement"), which allows borrowings of up to $ 25.0 million under a revolving facility and provides for a letter of credit sub-facility of up to $ 7.5 million. As of December 31, 2023, the Credit Agreement expired on October 15, 2024 . On February 12, 2024, the Company entered into an amendment to the Credit Agreement extending the maturity date to October 15, 2025 . Borrowings under the Credit Agreement are secured by substantially all of the assets of the Company. Any amounts outstanding under the letter of credit sub-facility reduce the amount available for the Company to borrow under the Revolving Facility. Under the Credit Agreement, the Company has the option to select an interest rate based on either (1) a base rate, which fluctuates daily and is the greater of (a) the prime rate in effect as of any date of determination and (b) the SOFR rate as of such date of determination plus 1.0 % per annum or (2) a SOFR rate, which can be for a period of 30 , 90 or 180 days at the Company’s option and is equal to the SOFR rate as published by CME Group Benchmark Administration Limited, in each case plus 2.0 % per annum. Any letters of credit issued under the Credit Agreement will be subject to a fee of 2.0 % per annum. Borrowings under the Credit Agreement may be repaid and re-borrowed at any time prior to termination of the Credit Agreement. The Company is subject to certain financial covenants in the Credit Agreement, which include: (1) maintaining a ratio of consolidated funded debt, excluding the amount of any unsecured convertible notes issued by the Company, to consolidated earnings before income tax, depreciation and amortization (“Consolidated EBITDA”) of not greater than 3.00 to 1.00 measured at the end of each fiscal quarter and (2) maintaining a ratio of Consolidated EBITDA to interest charges of at least 2.00 to 1.00 measured at the end of each fiscal quarter. The Company was in compliance with its covenants as of December 31, 2023. The Credit Agreement contains various negative covenants that limit, subject to certain exclusions, the Company’s ability to incur indebtedness, make loans, invest in or secure the obligations of other parties, pay or declare dividends, make distributions with respect to the Company's securities, redeem outstanding shares of the Company’s stock, create subsidiaries, materially change the nature of its business, enter into related party transactions, engage in mergers and business combinations, the acquisition or transfer of Company assets outside of the ordinary course of business, grant liens or enter into collateral relationships involving company assets or reincorporate, reorganize or dissolve the Company. The available loan facility as of December 31, 2023 and December 31, 2022 was approximately $ 18.0 million and $ 20.0 million, respectively. As of December 31 , 2023, there was $ 7.0 million outstanding on the Company's line of credit, which the Company borrowed in August 2023 to partially fund the acquisition of SafePointe. There were no amounts outstanding on December 31, 2022. The interest expense recorded for the year ended December 31, 2023 was $ 0.2 million, based on a weighted-average interest rate of 7.32 %. Note 10. Related Party Transactions During the year ended December 31, 2023, 2022 and 2021, the Company recogniz ed $ 0.1 mil lion, $ 0.8 million, and $ 0.1 million in revenues, respectively, from SoundThinking Labs projects with charitable organizations that have received donations from one of the Company’s directors and one of the Company’s significant shareholders. 102 Note 11. Income Taxes The domestic and foreign components of net income (loss) before income tax were as follows (in thousands): Year Ended December 31, 2023 2022 2021 Domestic $ ( 1,596 ) $ 7,583 $ ( 4,280 ) Foreign 82 ( 31 ) ( 95 ) Net income (loss) before income tax $ ( 1,514 ) $ 7,552 $ ( 4,375 ) The provision (benefit) for income tax consists of the following (in thousands): Year Ended December 31, ​ 2023 2022 2021 Current: Federal $ — $ — $ — State 656 455 — Foreign 7 27 6 Total 663 482 6 Deferred: Federal 277 316 — State 264 369 — Foreign — — 50 Total 541 685 50 Total provision (benefit) for income tax $ 1,204 $ 1,167 $ 56 A reconciliation of income taxes at the statutory federal income tax rate to income tax expense included in the accompanying consolidated statements of operations is as follows (in thousands): December 31, 2023 2022 2021 Income tax (benefit) at statutory rate $ ( 312 ) $ 1,545 $ ( 919 ) Change in valuation allowance ( 76 ) ( 1,715 ) 1,288 Indefinite-lived asset (goodwill) 541 685 — State tax 354 239 ( 288 ) Change in deferred 616 415 ( 27 ) Stock-based compensation 197 111 62 Research and development credits ( 369 ) ( 271 ) ( 160 ) Foreign rate differential 23 43 7 Other 230 115 93 Total $ 1,204 $ 1,167 $ 56 103 Temporary differences that gave rise to significant portions of the Company’s deferred tax assets and liabilities as of December 31, 2023 and 2022 were as follows (in thousands): Year Ended December 31, 2023 2022 Deferred tax assets: Net operating losses $ 15,302 $ 17,255 Stock-based compensation 4,094 2,974 Section 174 capitalized expenditures 3,820 1,918 Research and development credits 3,359 2,917 Accruals and reserves 1,127 1,022 Deferred revenue and contract costs 482 625 Gross deferred tax assets 28,184 26,711 Valuation allowance ( 25,953 ) ( 25,343 ) Net deferred tax assets 2,231 1,368 Deferred tax liabilities: Fixed assets and intangibles ( 317 ) ( 624 ) Goodwill ( 3,140 ) ( 1,429 ) Total deferred tax liabilities, net $ ( 1,226 ) $ ( 685 ) In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The Company regularly assesses the likelihood that the deferred tax assets will be recovered from future taxable income. The Company considers projected future taxable income and ongoing tax planning strategies, then records a valuation allowance to reduce the carrying value of the net deferred taxes to an amount that is more likely than not able to be realized. Based upon the Company’s assessment of all available evidence, including the previous three years of U.S.-based taxable income and loss after permanent items, estimates of future profitability, and the Company’s overall prospects of future business, the Company determined that it is more likely than not that the Company will not be able to realize a portion of the deferred tax assets in the future. The Company will continue to assess the potential realization of deferred tax assets on an annual basis, or an interim basis if circumstances warrant. If the Company’s actual results and updated projections vary significantly from the projections used as a basis for this determination, the Company may need to change the valuation allowance against the gross deferred tax assets. Management determined that a valuation allowance of $ 26.0 million and $ 25.3 million was required as of December 31, 2023 and 2022, respectively. The valuation allowance changed by $ 0.6 million during the year ended December 31, 2023. This is different than 2023, which includes an increase to the valuation allowance related to ASC 805 Business Combination accounting and to certain changes in temporary differences that give rise to deferred tax liabilities related to indefinite-lived intangible assets. At December 31, 2023 and 2022, the Company had available net operating loss carryforwards of approximately $ 57.9 million and $ 67.1 million, respectively, for federal income tax purposes, of which $ 53.1 million were generated before 2018 and will begin to expire in 2029 . The remaining net operating losses of $ 4.9 million can be carried forward indefinitely under the Tax Cuts and Jobs Act. The Company continually monitors all positive and negative evidence regarding the realization of its deferred tax assets and may record assets when it becomes more likely than not, than they will be realized, which may impact the expense or benefit from income taxes. At December 31, 2023 and 2022, the net operating losses for state purposes are $ 42.7 million and $ 43.8 million, respectively, and will begin to expire in 2024 if not utilized. As of December 31, 2023, the Company had available for carryover, research and experimental credits of approximately $ 2.0 million for federal income tax purposes and $ 1.7 million for California income tax purposes, which are available to reduce future income taxes. The federal research and experimental tax credits will begin to expire, if not utilized, in 2027. The California research and experimental tax credits carry forward indefinitely until utilized. 104 Section 382 of the Internal Revenue Code of 1986 (the “Code”), as amended, and similar California regulations impose substantial restrictions on the utilization of net operating losses and tax credits in the event of an “ownership change” of a corporation. Accordingly, the Company’s ability to utilize net operating losses and credit carryforwards may be limited as the result of such an “ownership change” as defined in the Code. Uncertain Tax Positions The Company applied FASB ASC 740-10-50, Accounting for Uncertainty in Income Tax , which prescribes a recognition threshold and measurement attributes for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. A reconciliation of the beginning and ending amounts of unrecognized uncertain tax positions is as follows (in thousands): Balance as of December 31, 2021 $ 954 Increases for current year tax positions 140 Decreases for prior year tax positions ( 11 ) Balance as of December 31, 2022 1,083 Increases for current year tax positions 187 Decreases for prior year tax positions ( 29 ) Balance as of December 31, 2023 $ 1,241 Of the total unrecognized tax benefits at December 31, 2023, no amount will impact the Company's effective tax rate because the uncertain amounts have a valuation allowance recorded against them. The Company does not anticipate that there will be a substantial change in unrecognized tax benefits within the next 12 months. The Company recognizes interest and penalties related to unrecognized tax positions within the income tax expense line in the accompanying consolidated statements of operations. There were no accrued interest and penalties associated with uncertain tax positions as of December 31, 2023 and 2022. The Company files federal and state income tax returns in the United States, certain United States territories, and certain foreign jurisdictions. The statues of limitations remain open for 2009 through 2023 for federal and state purposes in the United States. and certain U.S. territories. Years beyond the normal statutes of limitations remain open to audit by tax authorities due to tax attributes generated in earlier years which are being carried forward and may be audited in subsequent years when utilized. 105 Note 12. Capital Stock Common Stock The Company is authorized to issue 500,000,000 shares of common stock with a par value of $ 0.005 per share. At December 31, 2023 and 2022, there were 12,761,448 and 12,243,929 shares of common stock issued and outstanding, respectively. Holders of common stock have voting rights equal to one vote per share of common stock held and are entitled to receive any dividends as may be declared from time to time by the Board. At December 31, 2023, shares of common stock reserved for future issuance were as follows: Options outstanding 1,789,431 Shares available for future grant 1,329,884 Unvested restricted stock units 298,361 Total 3,417,676 Preferred Stock The Company is authorized to issue 20,000,000 shares of preferred stock, with a par value of $ 0.005 . At December 31, 2023 and 2022, there was no preferred stock issued or outstanding. Stock Repurchase Program In May 2019, the Company's board of directors adopted a stock repurchase program for up to $ 15.0 million of our common stock. In November 2022, the Company’s board of directors approved a new stock repurchase program for up to $ 25.0 million of the Company’s common stock. Although the board of directors has authorized the stock repurchase program, it does not obligate the Company to repurchase any specific dollar amount or number of shares, there is no expiration date for the stock repurchase program, and the stock repurchase program may be modified, suspended or terminated at any time and for any reason. During the year ended December 31, 2023, the Company repurchased 228,782 shares of its common stock at an average price of $ 24.41 per share for $ 5.6 million. During the year ended December 31, 2022, the Company repurchased 106,992 shares of its common stock at an average price of $ 28.81 per share for $ 3.1 million and used up the remaining balance under the stock repurchase program authorized in May 2019. The repurchases were made in open market transactions using cash on hand, and all of the shares repurchased were retired. Note 13. Net Income (Loss) per Share The following table summarizes the computation of basic and diluted net income (loss) per share (in thousands, except share and per share data): Year Ended December 31, 2023 2022 2021 Numerator: Net income (loss) $ ( 2,718 ) $ 6,385 $ ( 4,431 ) Denominator: Weighted-average shares outstanding, basic 12,425,132 12,171,609 11,647,558 Weighted-average shares outstanding, diluted 12,425,132 12,317,707 11,647,558 Net income (loss) per share, basic $ ( 0.22 ) $ 0.52 $ ( 0.38 ) Net income (loss) per share, diluted $ ( 0.22 ) $ 0.52 $ ( 0.38 ) 106 The following potentially dilutive shares outstanding at the end of the periods presented were excluded in the calculation of diluted net income (loss) per share as the effect would have been anti-dilutive: Year Ended December 31, 2023 2022 2021 Options to purchase common stock 1,789,431 1,015,497 783,928 Unvested restricted stock units 298,361 97,275 128,810 Total 2,087,792 1,112,772 912,738 Note 14. Equity Incentive Plans In February 2005, the Company adopted the 2005 Stock Plan, as amended in January 2010 and November 2012 (the “2005 Plan”). Under the 2005 Plan provisions, the Company was authorized to grant incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock units ("RSUs"), and shares of restricted stock. In May 2017, the Board and the Company’s stockholders approved the 2017 Equity Incentive Plan (the “2017 Plan”). As a result of the adoption of the 2017 Plan, no further grants may be made under the 2005 Plan. The 2017 Plan provides for the issuance of stock options, RSUs and other awards to employees, directors, and consultants of the Company. The 2017 Plan includes an evergreen provision that provides for the number of shares of common stock reserved for issuance under the 2017 Plan to automatically increase on January 1 of each year by the lesser of (1) 5 % of the number of shares of the Company’s common stock outstanding on December 31 of the preceding calendar year or (2) such number of shares as determined by the board of directors. The following table summarizes the activity of shares available for grant under the 2017 Equity Incentive Plan: Shares available for grant at December 31, 2022 1,527,374 Increase in accordance with the evergreen provision 612,196 Options issued during the year ( 724,841 ) Canceled during the year 172,602 RSUs granted ( 257,447 ) Shares available for grant at December 31, 2023 1,329,884 Stock Options Incentive stock options may only be granted to Company employees and may only be granted with an exercise price not less than the fair value of the common stock, or not less than 110 % of fair value when the grant is issued to a person who, at the time of grant, owns stock representing more than 10 % of the voting power of all classes of stock. Non-statutory stock options may be granted to Company employees, directors, and consultants, and may be granted at a price per share not less than fair value on the date of the grant. 107 Options granted under the 2005 Plan and 2017 Plan generally vest over four years and expire no later than 10 years from the grant date. The 2005 Plan and 2017 Plan grants the board of directors' discretion to determine when the options granted will become exercisable. Compensation expense for stock options is based upon the estimated fair value of the awards. The fair value of stock option grants is determined using the Black-Scholes option pricing model which requires the use of certain assumed inputs. The assumed inputs used to determine the fair value of stock options granted for the years ended December 31, 2023, 2022, and 2021 are set forth below: Year Ended December 31, 2023 2022 2021 Fair value of common stock $ 18.74 -$ 32.89 $ 16.30 -$ 37.00 $ 31.12 -$ 48.05 Expected term (in years) 6 6 6 Risk-free interest rate 3.46 %- 4.80 % 1.54 %- 4.18 % 0.45 %- 1.62 % Expected volatility 62 %- 63 % 63 %- 64 % 65 %- 67 % Expected dividend yield — — — A summary of stock option activities during 2023, 2022 and 2021 is as follows: Number of Options Outstanding Weighted Average Exercise Price Weighted Average Grant Date Fair Value per Option Aggregate Intrinsic Value Exercised (in thousands) Outstanding at December 31, 2020 813,242 $ 24.58 Granted 111,489 $ 39.00 $ 23.32 Exercised ( 97,702 ) $ 9.20 $ 3,064 Canceled ( 43,101 ) $ 35.84 Outstanding at December 31, 2021 783,928 $ 28.00 Granted 557,218 $ 27.40 $ 16.30 Exercised ( 41,819 ) $ 12.88 $ 778 Canceled ( 43,271 ) $ 28.85 Outstanding at December 31, 2022 1,256,056 $ 28.20 Granted 724,841 $ 25.05 $ 15.18 Exercised ( 19,021 ) $ 7.95 $ 424 Canceled ( 172,445 ) $ 31.36 Outstanding at December 31, 2023 1,789,431 $ 26.83 During the year ended December 31, 2023, the Company modified options to accelerate vesting for two individuals in respect of an aggregate of 6,734 options. The Company accounted for these as modifications of those awards and recognized net incremental compensation expense of approximately $ 52,000 during the year ended December 31, 2023. Additional information for stock options at December 31, 2023 were as follows: Number of Options Weighted Average Exercise Price Aggregate Intrinsic Value (in thousands) Weighted Average Remaining Contractual term (in years) Outstanding at December 31, 2023 1,789,431 $ 26.83 $ 4,867 7.70 Exercisable at December 31, 2023 842,475 28.20 $ 2,632 6.21 At December 31, 2023, total unrecognized stock-based compensation cost related to unvested stock options was $ 13.9 million, which will be recognized ratably over a weighted-average period of 2.9 years. 108 No income tax benefits from stock-based compensation arrangements have been recognized in the consolidated statements of operations. Restricted Stock Units The Company grants RSUs under the 2017 Plan to executive management and its non-employee directors. RSUs granted to executive management generally vest over four years , while RSUs granted to non-employee directors generally vest annually. A new non-employee director will receive an initial grant upon joining the board of directors and all non-employee directors receive new annual grants at each annual meeting of stockholders. Compensation expense for RSUs is based upon the estimated fair value of the awards on the date of grant. A s ummary of RSU activities during 2023, 2022 and 2021 is as follows: Number of RSUs Weighted Average Grant Date Fair Value per RSU Aggregate Fair Value of RSUs Vested (in thousands) Unvested RSUs at December 31, 2020 141,508 $ 29.67 Granted 84,035 $ 37.86 Vested ( 80,972 ) $ 29.22 $ 3,078 Forfeited ( 15,761 ) $ 31.38 Unvested RSUs at December 31, 2021 128,810 $ 35.09 Granted 205,807 $ 26.90 Vested ( 107,971 ) $ 31.88 $ 3,129 Forfeited ( 2,825 ) $ 26.50 Unvested RSUs at December 31, 2022 223,821 $ 29.21 Granted 257,447 $ 27.79 Vested ( 135,235 ) $ 29.63 $ 3,446 Forfeited ( 47,672 ) $ 31.08 Unvested RSUs at December 31, 2023 298,361 $ 27.58 At December 31, 2023, total unrecognized stock-based compensation cost related to RSUs was $ 7.5 million, which will be recognized ratably over a weighted-average period of 2.5 years. During the year ended December 31 2023, the Company modified RSUs to accelerate vesting for one individual in respect of 2,256 RSUs. The Company accounted for this as a modification of this award and recognized net incremental compensation expense of approximately $ 28,000 during the year ended December 31, 2023. During the year ended December 31, 2022, the Company modified RSUs to accelerate vesting for two individuals in respect of 5,849 RSUs and cancelled the award of another individual in respect of 1,887 RSUs. The Company accounted for these as modifications of those awards and recognized net incremental compensation expense of $ 0.01 million during the year ended December 31, 2022. The incremental compensation cost is measured as the excess of the fair value of the modified award over the fair value of the original award immediately before its terms were modified and recognized as compensation expense on the date of modification for vested awards. Performance-based restricted stock units During the year ended December 31, 2023, the Company granted certain executive management RSU awards, subject to certain performance-based vesting conditions ("PRSUs"). The PRSUs totaled 23,569 shares, at a grant date fair value of $ 20.12 per share, the closing stock price on the grant date, and will vest on February 15, 2025, based on 2023 performance targets achieved, subject to the officer's continuous service as an officer of the Company through such date. Compensation expense related to the PRSUs is estimated each period based on the fair value of the target stock unit at the grant date and the most probable level of achievement of the performance conditions. Compensation expense related to these awards was approximately $ 0.1 million for the year ended December 31, 2023. 109 2017 Employee Stock Purchase Plan In May 2017, the Board and the Company’s stockholders adopted the 2017 Employee Stock Purchase Plan (“2017 ESPP”). The 2017 ESPP permits the maximum discounted purchase price permitted under U.S. tax rules, including a “lookback”, which allows eligible employees to purchase shares of the Company’s common stock at a 15 % discount to the lesser of the fair market value of common stock at the beginning and end of the offering period. ESPP offering periods generally run for six months each. An employee’s purchase rights terminate immediately upon termination of employment or other withdrawal from the 2017 ESPP. No participant will have the right to purchase shares of common stock in an amount that has a fair market value of more than $ 25,000 determined as of the first day of the applicable purchase period, for each calendar year. The 2017 ESPP contains a provision which provides for an automatic annual share increase on January 1 of each year, in an amount equal to the lesser of (1) 2 % of the total number of shares of common stock outstanding on December 31 st of the preceding calendar year, (2) 150,000 shares or (3) such number of shares as determined by the board of directors. The Company's board of directors authorized the automatic increase to the 2017 ESPP plan for the year ended December 31, 2023. The following table summarizes the activity of shares available under the 2017 ESPP: Shares available for grant at December 31, 2022 516,167 Increase in accordance with the evergreen provision 150,000 Issued during the year ( 37,824 ) Shares available for grant at December 31, 2023 628,343 Stock-Based Compensation Expense Total stock-based compensation expense for all award types is recorded in the consolidated statements of operations and was allocated as follows (in thousands): Year Ended December 31, 2023 2022 2021 Cost of revenues $ 1,871 $ 1,992 $ 1,567 Sales and marketing 1,983 1,754 1,612 Research and development 1,307 1,082 734 General and administrative 4,820 3,454 1,959 Total $ 9,982 $ 8,282 $ 5,872 Stock-based compensation expense is recognized over the award’s expected vesting schedule. Forfeitures are recognized as and when they occur. Note 15. Benefit Plan The Company sponsors a 401(k) plan to provide defined contribution retirement benefits for all eligible employees. Participants may contribute a portion of their compensation to the plan, subject to the limitations under the Internal Revenue Code. The Company is allowed to make 401(k) matching contributions as defined in the plan and as approved by the board of directors. The Company matched 50 % of employee contributions made during 2022 up to a maximum of 2 % of compensation; the match will be deposited to the employees' 401(k) accounts in 2023. During the years ended December 31, 2023, 2022, and 2021, the Company recorded $ 0.4 million, $ 0.3 million, and $ 0.3 million, respectively, of matching contribution expense. These matching contributions are subject to additional vesting criteria. 110 Note 16. Leases The Company leases its principal executive offices in Fremont, California, under a non-cancelable operating lease which expires in February 2027 . This lease does not have significant rent escalation holidays, concessions, leasehold improvement incentives, contingent rent provisions or other build-out clauses. The lease contains an option to extend the term for an additional period of up to five years subject to certain terms and conditions. The Company elected the practical expedient to group lease and non-lease components for all leases. Upon lease commencement on October 1, 2021 , the Company recognized an operating lease right-of-use asset of $ 2.0 million and a corresponding lease liability of $ 2.0 million, using a discount rate of 3.00 %, which reflects the Company’s incremental borrowing rate for a similar asset and similar term as of the date of commencement. In April 2020, the Company executed a lease agreement for office space in Washington, DC, under a non-cancelable operating lease that expires in November 2025 . This lease does not have significant rent escalation holidays, concessions, leasehold improvement incentives, or other build-out clauses. Further, the lease does not contain contingent rent provisions. The lease contains an option to extend the term for an additional five years subject to certain terms and conditions. The Company has elected the practical expedient to group lease and non-lease components for all leases. Upon lease commencement on May 1, 2020, the Company recognized an operating lease right-of-use asset of $ 0.5 million and a corresponding lease liability of $ 0.5 million, using a discount rate of 3.85 %, which reflects the Company’s incremental borrowing rate for a similar asset and similar term as of the date of commencement. In January 2022, as part of the Forensic Logic acquisition, the Company acquired the non-cancelable operating leases of Forensic Logic 's offices in Walnut Creek, California and Tucson, Arizona, which expire in June 2025 and February 2026 , respectively. Neither lease has significant rent escalation holidays, concessions, leasehold improvement incentives, or other build-out clauses. Each lease contains an option to extend the term for an additional period of five years subject to certain terms and conditions. The Company has elected the practical expedient to group lease and non-lease components for all leases. In measuring the lease liability upon acquisition, the Company used a discount rate of 3.25 % which reflects the Company’s incremental borrowing rate for a similar asset and similar term as of the date of acquisition. The operating lease cost recognized for the years ended December 31, 2023, 2022 and 2021 , was $ 1.0 mi llion, $ 1.0 million and $ 0.6 million, respectively. Supplemental information related to the operating leases as follows (in thousands): ​ December 31, 2023 2022 Assets Operating lease right-of-use assets $ 2,315 $ 3,240 Liabilities Lease liabilities (short-term) (presented within Accrued expenses and other current liabilities ) $ 964 $ 868 Lease liabilities (long-term) (presented within Other liabilities) 1,542 2,554 Total operating lease liabilities $ 2,506 $ 3,422 Year Ended December 31, 2023 2022 Cash paid for amounts included in the measurement of lease liabilities (presented within Operating cash flows) $ 1,006 $ 941 111 Maturities of the lease liabilities at December 31, 2023 are as follows (in thousands): 2024 $ 1,078 2025 946 2026 506 2027 72 2028 — Total lease payments, undiscounted 2,602 Less: imputed interest ( 96 ) Total $ 2,506 Note 17. 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 defendants. 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 SoundThinking 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 are disputing them vigorously. 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 its 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. Note 18. Subsequent Events Management evaluated subsequent events through April 1, 2024, which was the date the financial statements were available to be issued, and determined that there are no subsequent events to be reported. 112 Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNT ANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. Item 9A. CONTROL S AND PROCEDURES Evaluation of Disclosure Controls and Procedures Our management has evaluated, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures (as defined in Rules 13-a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that as of December 31, 2023, our disclosure controls and procedures were effective to provide reasonable assurance that the information we are required to file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure. Changes in Internal Control over Financial Reporting In January 2022, we completed the acquisition of Forensic Logic and in August 2023, we completed the acquisition of SafePointe. We continue to integrate internal controls at Forensic Logic and SafePointe into our control structure. With the exception of these changes, there were no changes in our internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f)) during the quarter ended December 31, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Inherent Limitations on Effectiveness of Controls Our management, including our principal executive officer and principal financial officer, does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. Management’s Report on Internal Control over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule 13a-15(f) and Rule 15d-15(f) of the Exchange Act. Internal control over financial reporting consists of policies and procedures that: (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (2) are designed and operated to provide reasonable assurance regarding the reliability of our financial reporting and our process for the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements. Our management evaluated the effectiveness of our internal control over financial reporting using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control - Integrated Framework (2013). Based on the results of our evaluation, our management has concluded that our internal control over financial reporting was effective as of December 31, 2023. Item 9B. OTHER INFORMATION None. Item 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS Not applicable. 113 PART III. We will file a definitive Proxy Statement for our Annual Meeting (our “Proxy Statement”) with the SEC, pursuant to Regulation 14A, not later than 120 days after the end of our fiscal year. Accordingly, certain information required by Part III has been omitted under General Instruction G(3) to Form 10-K. Only those sections of the Proxy Statement that specifically address the items set forth herein are incorporated by reference. Item 10. DIRECTORS, EXECUTIVE OFF ICERS AND CORPORATE GOVERNANCE The information required by this Item 10 is incorporated herein by reference to the sections of our Proxy Statement. We have adopted a code of business conduct and ethics that applies to our directors, officers and employees. This code of ethics is published on our website at www.soundthinking.com. If we ever were to amend or waive any provision of our code of ethics that applies to the Company’s principal executive officer, principal financial officer, principal accounting officer or any person performing similar functions, we intend to satisfy our disclosure obligations, if any, with respect to any such waiver or amendment by posting such information on our website set forth above rather than by filing a Current Report on Form 8-K. Item 11. EXECUTI VE COMPENSATION The information required by this Item 11 is incorporated herein by reference to the sections of our Proxy Statement. Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWN ERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS The information required by this Item 12 is incorporated herein by reference to the sections of our Proxy Statement. Item 13. CERTAIN RELATIONSHIPS AND RELATE D TRANSACTIONS, AND DIRECTOR INDEPENDENCE The information required by this Item 13 is incorporated herein by reference to the sections of our Proxy Statement. Item 14. PRINCIPAL ACCOU NTANT FEES AND SERVICES The information required by this Item 14 is incorporated herein by reference to the section of our Proxy Statement. 114 PART IV. Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a)(1) Consolidated Financial Statements We have filed the consolidated financial statements listed in the Index to Consolidated Financial Statements, Schedules, and Exhibits included in Part II, Item 8, “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K. (a)(2) Financial Statements Schedules All financial statements schedules have been omitted because they are not applicable, not material, or the required information is shown in the Index to Consolidated Financial Statements included in Part II, Item 8, “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K. (a)(3) Exhibits See the Exhibit Index below in this Annual Report on Form 10-K. The exhibits listed in the Exhibit Index below are filed or incorporated by reference as part of this Annual Report on Form 10-K. Item 16. FORM 10-K SUMMARY None. 115 Exhibi t Index Exhibit Exhibit Incorporated by Reference Filed Number Description Form File No. Exhibit Filing Date Herewith 3.1 Amended Restated Certificate of Incorporation 8-K 001-38107 3.1 April 11, 2023 3.2 Certificate of Change of Registered Agent 10-Q 001-38107 3.2 August 10, 2023 3.3 Amended and Restated Bylaws 8-K 001-38107 3.1 November 9, 2023 4.1 Form of Common Stock Certificate S-1/A 333-217603 4.1 May 19, 2017 4.2 Investors' Rights Agreement, by and among ShotSpotter, Inc. and the investors listed on Exhibit A thereto, dated July 12, 2012 S-1 333-217603 4.2 May 2, 2017 4.3 Description of Capital Stock 10-K 001-38107 4.5 March 13, 2020 10.1(#) ShotSpotter, Inc. Amended and Restated 2005 Stock Plan S-1 333-217603 10.1 May 2, 2017 10.2(#) Forms of Option Agreement and Option Grant Notice under the Amended and Restated 2005 Stock Plan S-1 333-217603 10.2 May 2, 2017 10.3(#) SoundThinking, Inc. 2017 Equity Incentive Plan X 10.4(#) Forms of Option Agreement and Option Grant Notice under the 2017 Equity Incentive Plan X 10.5(#) Form of Restricted Stock Unit Grant Notice and Restricted Stock Unit Restricted Terms and Conditions under the 2017 Equity Incentive Plan 10-Q 001-38107 10.1 November 14, 2023 10.6(#) Form of Performance- and Service-Based RSU Grant Notice and Terms and Conditions 10-Q 001-38107 10.2 November 14, 2023 10.7(#) SoundThinking, Inc. 2017 Employee Stock Purchase Plan X 10.8(#) Form of Restricted Stock Unit Grant Notice for Directors 10-Q 001-38107 10.6 August 14, 2017 10.9(#) Form of Indemnification Agreement by and between ShotSpotter, Inc. and each director and executive officer S-1 333-217603 10.7 May 2, 2017 10.10(#) Offer Letter between ShotSpotter, Inc. and Ralph A. Clark, dated March 13, 2017 S-1 333-217603 10.8 May 2, 2017 10.12(#) Offer Letter between ShotSpotter, Inc. and Alan R. Stewart, dated March 13, 2017 S-1 333-217603 10.9 May 2, 2017 10.13(#) Offer Letter between ShotSpotter, Inc. and Nasim Golzadeh, dated February 20, 2019 10-K 001-38107 10.16 March 4, 2019 116 10.14 Offer Letter between SoundThinking, Inc. and Erin Edwards dated September 21, 2023 X 10.15 Lease Agreement between Washington Township Health Care District and ShotSpotter, Inc., dated August 16, 2021 10-Q 001-38107 10.1 November 15, 2021 10.16 Credit Agreement between Umpqua Bank and ShotSpotter, Inc., dated September 27, 2018 10-Q 001-38107 10.1 November 14, 2018 10.17 First Amendment to Credit Agreement between Umpqua Bank and ShotSpotter, Inc., dated May 21, 2019 8-K 001-38107 10.1 May 24, 2019 10.18 Second Amendment to Credit Agreement between Umpqua Bank and ShotSpotter, Inc., dated August 14, 2020 8-K 001-38107 10.1 August 19, 2020 10.19 Third Amendment to Credit Agreement between Umpqua Bank and ShotSpotter Inc. dated May 19, 2022. 10-Q 001-38107 10.1 November 9, 2022 10.20 Fourth Amendment to Credit Agreement between Umpqua Bank and ShotSpotter, Inc. dated September 26, 2022. 10-Q 001-38107 10.2 November 9, 2022 10.21 Fifth Amendment to Credit Agreement between Umpqua Bank and ShotSpotter, Inc. dated November 23, 2022. 8-K 001-38107 10.1 November 23, 2022 10.22 Sixth Amendment to Credit Agreement between Umpqua Bank and SoundThinking, Inc. dated February 12, 2024 8-K 001-38107 10.1 February 12, 2024 10.23 Amended and Restated Nonemployee Director Compensation Policy, dated February 14, 2023 10-K 001-38107 10.20 March 14, 2023 21.1 List of Subsidiaries X 23.1 Consent of Baker Tilly US, LLP, Independent Registered Public Accounting Firm for SoundThinking, Inc. X 31.1 Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. X 31.2 Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. X 32.1* Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. X 117 32.2* Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. X 97.1 SoundThinking, Inc, Incentive Compensation Recoupment Policy X 101.INS Inline XBRL Instance Document X 101.SCH Inline XBRL Taxonomy Extension Schema With Embedded Linkbases Document X 104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) X # Indicates management contract or compensatory plan. * Furnished herewith and not deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act (whether made before or after the date of the Form 10-K), irrespective of any general incorporation language contained in such filing. 118 SIGNAT URES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereto duly authorized. SOUNDTHINKING, INC. Date: April 1 , 2024 By: /s/ Ralph A. Clark Ralph A. Clark President and Chief Executive Officer Date: April 1 , 2024 By: /s/ Alan R. Stewart Alan R. Stewart Chief Financial Officer KNOW ALL PERSONS BY THESE PRESENTS , that each person whose signature appears below constitutes and appoints Ralph A. Clark and Alan R. Stewart, jointly and severally, his or her attorneys-in-fact, each with the power of substitution, for him or her in any and all capacities, to sign any amendments to this report, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Title Date /s/ Ralph A. Clark President, Chief Executive Officer, and a Director (Principal Executive Officer) April 1, 2024 Ralph A. Clark /s/ Alan R. Stewart Chief Financial Officer (Principal Financial and Accounting Officer) April 1, 2024 Alan R. Stewart /s/ Pascal Levensohn Director April 1, 2024 Pascal Levensohn /s/ Ruby Sharma Director April 1, 2024 Ruby Sharma /s/ Marc H. Morial Director April 1, 2024 Marc H. Morial /s/ William J. Bratton Director April 1, 2024 William J. Bratton /s/ Deborah Grant Director April 1, 2024 Deborah Grant /s/ Roberta S. Jacobson Director April 1, 2024 Roberta S. Jacobson 119