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.
Overview
We are a leading public safety technology company that combines data-driven solutions and strategic advisory services for law enforcement, security teams 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 the SafetySmart TM platform that includes six data-driven tools consisting of: (i) our flagship product, ShotSpotter ® , our leading outdoor gunshot detection, location and alerting system trusted by 178 cities and 22 universities and corporations as of December 31, 2025; (ii) CrimeTracer TM , an agency-wide crime data and intelligence platform that enables investigators, analysts, patrol officers and command staff to search through more than one billion criminal justice records from across jurisdictions, leverage dashboards and AI-assisted tools to generate tactical leads, and quickly make intelligent connections to solve cases; (iii) CaseBuilder TM , a one-stop investigative case management system for tracking, reporting, and collaborating on cases; (iv) ResourceRouter TM , 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; (v) PlateRanger TM powered by Rekor ® , an ALPR and vehicle identification solution that leverages AI and machine learning to enhance investigative efficiency and provide real-time data sharing for law enforcement and (vi) SafePointe TM , an AI-based weapons detection system designed to provide discreet, high-throughput screening that complements physical security measures without compromising visitor experience. These solutions may operate independently or together as an integrated system that connects detection, data analysis, resource deployment and case management workflows. We also offer other security use-case specific solutions, including ShotSpotter for Campus and ShotSpotter for Corporate, which are typically smaller-scale deployments of ShotSpotter gunshot detection vertically marketed to universities, corporate campuses 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 the first quarter of 2025, we rolled out a perimeter-based sniper gunshot detection solution targeting utility substations, with initial pilots aimed at utility customers, conducted through SoundThinking Labs. SoundThinking Labs supports innovative use cases 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. 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 Campus and ShotSpotter for Corporate are typically sold on a subscription basis, each with a
customized deployment plan. Our ResourceRouter solution, CaseBuilder, PlateRanger 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, 2025, we had ShotSpotter, ShotSpotter for Campus, and ShotSpotter for Corporate coverage areas under contract for over 1,092 square miles, of which over 1,064 square miles had gone live. Coverage areas under contract for ShotSpotter included 178 cities and coverage areas under contract for ShotSpotter for Campus and ShotSpotter for Corporate included 22 campuses/sites across the United States, South Africa, Brazil, Uruguay and the Bahamas, including some of the largest cities in the United States. As of December 31, 2025, we had 291 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.
In July 2024, we announced a strategic partnership to create and launch a new end-to-end vehicle and ALPR public safety solution, “PlateRanger, Powered by Rekor.” This collaboration combines SoundThinking's expertise in acoustic gunshot detection and investigative solutions with Rekor's vehicle ALPR solutions.
Since our founding over 29 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.
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 $104.1 million, $102.0 million and $92.7 million for the years ended December 31, 2025, 2024 and 2023, respectively, representing year-over-year increases of 2% and 10%. For the years ended December 31, 2025, 2024 and 2023, revenues from ShotSpotter represented approximately 64%, 71% and 70% of total revenues, respectively. Our largest customer, the City of New York, accounted for 29% of our total revenues for the year ended December 31, 2025. The City of New York and the City of Chicago each accounted for 23% and 10%, respectively, of our total revenues for the year ended December 31, 2024. 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. Substantially all of our revenues for the years ended December 31, 2025, 2024 and 2023 were derived from customers within the United States (including Puerto Rico and the U.S. Virgin Islands). Our contract with the City of Chicago ended in November 2024.
We had net loss of $9.4 million for the year ended December 31, 2025, net loss of $9.2 million for the year ended December 31, 2024 and net loss of $2.7 million for the year ended December 31, 2023. Our accumulated deficit was $113.7 million and $104.3 million as of December 31, 2025 and 2024, 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 to zero by $3.2 million, based upon adjustments to recorded liabilities as a result of actual revenues.
During the year ended December 31, 2024, the fair value of the contingent consideration that we recorded in connection with our acquisition of SafePointe decreased to zero by $0.6 million. 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. These adjustments were prompted by revised revenue estimates for 2024 and 2025, which were incorporated into our fair value methodology.
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 and expanding into new markets for our other security 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.
We will also focus on expanding our business by introducing new products and services to existing customers, such as ResourceRouter, CrimeTracer and SafePointe, an AI-driven weapon detection system, and acquiring intellectual property assets. For instance, we have an opportunity to grow in the healthcare vertical with California’s AB 2975 mandate, which requires weapons detection systems in all general acute care and psychiatric hospitals in 2027. We believe this legislation has created a substantial addressable market opportunity for us. 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. We will also focus on expanding into new markets in conjunction with new regulations in California requiring weapons detection systems in hospitals and exploring other new markets such as casinos. 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, including our recent hire of a Vice President in Brazil, 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,
Revenue retention rate
Sales and marketing spend per $1.00 of new annualized contract value
Net new "go-live" square miles
Net new "go-live" cities and universities
Annual recurring revenue (in millions)
* 2024 "go-live" square miles is negative due to the fact that contract with City of Chicago was terminated in 2024.
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.
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
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 customer reach.
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 Campus and ShotSpotter for Corporate are typically sold on a subscription basis, each with a customized deployment plan. Our ResourceRouter, CaseBuilder, PlateRanger and CrimeTracer solutions 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 50% of the first year's subscription price when the contract is fully executed and the remaining 50% as described above. For 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.
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 Campus, ShotSpotter for Corporate, CaseBuilder and PlateRanger, our pricing model is on a customized-site basis. For ResourceRouter, CaseBuilder, PlateRanger 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, 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 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 for ShotSpotter 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.
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, CaseBuilder and PlateRanger 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, PlateRanger 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. As mentioned above, we are piloting a perimeter-based sniper gunshot detection solution targeting utility substations, with initial pilots aimed at utility customers.
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.
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.
Results of Operations
The following table sets forth our consolidated statements of operations data for the years ended December 31, 2025 and 2024 (in thousands):
Change
Revenues
Revenues
Revenues
Costs
Cost of revenues
Impairment of property and equipment
Total costs
Gross profit
Operating expenses:
Sales and marketing
Research and development
General and administrative
Change in fair value of contingent consideration
Restructuring expense
Total operating expenses
Operating loss
Other expense, net
Provision for income taxes
Net loss
Revenues
The increase of $2.1 million was primarily attributable to an $9.0 million increase in revenues from new customers and expansions of existing customer coverage areas, $3.7 million increase in revenue from New York City, $3.5 million of catch-up revenue from two three-year contract renewals with the New York City Police Department which were renewed in the first quarter of 2025 and $0.8 million increase from Puerto Rico, offset by a reduction in revenue due to non-renewal of contracts of $14.9 million of which $9.7 million was related to the City of Chicago. ShotSpotter went live in 10 new cities and 2 universities during the year ended December 31, 2025.
Costs
The increase in costs of $3.3 million was primarily due to an increase of $2.2 million in information technology (“IT”) costs and $1.3 million in reimbursable product cost, offset by a reduction of $0.2 million in payroll and compensation related to headcount and other expense.
Gross Profit
Gross profit as a percentage of revenues decreased 2% compared to 2024.
Operating Expenses
Sales and Marketing Expense
Sales and marketing expense decreased by $2.0 million, primarily due to $1.7 million in commission expense related to brokerage services for the contract with the NYPD in 2024 without a corresponding service for the contract with the NYPD in 2025 and a decrease of $0.3 million in other sales and marketing expense.
Research and Development Expense
Research and development expense increased by $1.9 million, primarily due to an increase of $1.0 million in consulting expense associated with SafePointe and a $0.9 million increase in IT expense related to our investments in enhancing our AI capabilities.
General and Administrative Expense
General and administrative expense decreased by $0.7 million, primarily due to a decrease of $1.0 million in IT and facility expenses and a $0.3 million decrease in legal expense, offset by a $0.4 million increase in insurance and license fees and a $0.2 million increase in accounting and consulting fees related to our efforts to comply with the requirement to include an auditor attestation report on the effectiveness of our internal control over financial reporting in our annual report on Form 10-K as a result of our expectation of becoming an accelerated filer in the future.
Change in Fair Value of Contingent Consideration
There was no fair value adjustment for contingent consideration liabilities during 2025 resulting in a decrease of $0.6 million compared to 2024.
Restructuring Expense
Restructuring expense during 2025 amounted to $0.2 million, consisting of cash expenditures for employee separation-related costs and in 2024 the restructuring expense of $0.3 million was related to a workforce reduction.
Other Income (Expense), Net
Other 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, 2024 and 2023
For discussion of our 2024 results and a comparison with 2023 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, 2024 that was filed with the SEC on March 31, 2025 (the “2024 Form 10-K”).
Liquidity and Capital Resources
Sources of Funds
Our operations are financed primarily through net proceeds from debt financing arrangements and cash from operating activities. Our principal source of liquidity is cash and cash equivalents totaling $15.8 million and accounts receivable of $28.6 million as of December 31, 2025. On December 31, 2025, we had $36.0 million available borrowing capacity under our revolving credit facility.
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 our deferred revenue of $40.0 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 revenue 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 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.
Stock Repurchase Program
In November 2022, our board of directors approved a 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.
During the year ended December 31, 2025, we repurchased 225,334 shares of our common stock at an average price of $13.15 per share for approximately $3.0 million, under the 2022 Repurchase Program. The repurchases were made in open market transactions using cash on hand, and all of the shares repurchased were retired. As of December 31, 2025, $10.5 million remains available under the 2022 Repurchase Program.
Credit Facility
We have a revolving credit facility for available borrowings of up to $40.0 million under our Credit Agreement with Columbia Bank (previously known as Umpqua Bank) (the “Credit Agreement”). The credit facility matures on October 15, 2027. The revolving credit facility is for general working capital purposes. On December 31, 2025, we had $4.0 million outstanding on our line of credit, with an available borrowing capacity of $36.0 million. The 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 I, Item 1A, Risk Factors , included in this Annual Report on Form 10-K . We are in compliance with all covenants under the Credit Agreement as of December 31, 2025.
Cash Flows
Comparison of Years Ended December 31, 2025 and 2024
The following table presents a summary of our cash flows for the years ended December 31, 2025 and 2024 (in thousands):
Year Ended December 31,
Net cash provided by (used in):
Operating activities
Investing activities
Financing activities
Net change in cash and cash equivalents
As of December 31, 2025 and 2024, $1.5 million and $0.8 million in cash was held by our consolidated foreign subsidiaries, respectively.
Operating Activities
Our net loss and cash flows provided by operating activities are impacted by more collections and increase in deferred revenue in 2025 and offset by timing of account receivable collection and payments for accruals for increased expenses.
Net cash provided by operating activities decreased by $12.9 million in the year ended December 31, 2025 compared to net cash provided in the same period of 2024, primarily due to a decrease of $8.8 million in account receivable collection from contracts with the New York City Police Department, a decrease of $2.5 million in the change of deferred revenue and $2.6 million in other liabilities.
Investing Activities
Our investing activities consist primarily of business acquisition expenditures, capital expenditures to install our solutions in customer coverage areas, purchases of property and equipment, and investments in intangible assets.
Investing activities used $4.5 million and $6.4 million in the years ended December 31, 2025 and 2024, respectively. This was primarily driven by investments of $4.4 million and $6.3 million in property and equipment installed for our solutions in customer coverage areas in 2025 and 2024, respectively.
Financing Activities
Cash generated by financing activities includes net proceeds from the exercise of stock options and proceeds from the employee stock purchase plan (“ESPP”) purchases, offset by payments for repurchases of our common stock and debt.
Financing activities used $2.4 million in cash during the year ended December 31, 2025. This was primarily due to $3.0 million in payments for repurchases of our common stock, offset by $0.6 million in proceeds from ESPP purchases. Financing activities used $8.2 million in cash during the year ended December 31, 2024, primarily due to $3.0 million in payment on our line of credit and $6.0 million in payments for repurchases of our common stock, offset by $0.7 million in proceeds from ESPP purchases
Comparison of the Years Ended December 31, 2024 and 2023
A discussion of changes in our cash flows from the year ended December 31, 2023 to the year ended December 31, 2024 can be found in Part II, Item 7, “Management's Discussion and Analysis of Financial Conditions and Results of Operations” of the 2024 Form 10-K.
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
For a full description of our revenue policy, refer to Note 2. Summary of Significant Accounting Policies, to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K. We recognize revenue in accordance with ASC 606, Revenue from Contracts with Customers. Subscription revenue is recognized over the term of the subscription as services are provided.
Key judgments include:
Identification of Performance Obligations – Our subscription contracts often include multiple components, such as access to our platform, customer support, and periodic software updates. We assess whether these components are distinct and require separate revenue recognition.
Determination of Standalone Selling Prices (SSP) – When contracts contain multiple performance obligations, we allocate transaction prices based on the relative SSP of each component.
Timing of Revenue Recognition – Subscription fees are generally recognized ratably over the contract term.
Stock-Based Compensation
We measure stock options and other stock-based awards granted to employees, directors and other service providers based on their fair value on the date of grant and recognize compensation expense of those awards over the
requisite service period. We recognize the impact of forfeitures on stock-based compensation expense as forfeitures occur. We apply the straight-line method of expense recognition. We use the Black-Scholes option-pricing model to determine the fair value of stock options and ESPP shares. The Black-Scholes option-pricing model requires the use of highly subjective and complex assumptions to determine the fair value of the awards, including the expected term of the award and the price volatility of the underlying stock. We calculate the fair value of the awards by using the Black-Scholes option-pricing model with the following assumptions:
Expected Volatility - We estimate volatility based on the historical volatility of our stock.
Expected Term - The expected term of the awards represents the period that the stock-based awards are expected to be outstanding. We estimate expected term based on our historical experience with stock option grants.
Risk-Free Interest Rate - We estimate the risk-free interest rate based on the yield on the U.S. Treasury yield curve in effect at the grant date.
Expected Dividend Yield - We have not declared or paid dividends to date and does not anticipate declaring dividends. As such, expected dividend yield is zero.
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 the 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 . We performed our annual test for goodwill as of October 1, 2025 and concluded that no charge was necessary.
Valuation and Impairment of Long-Lived Assets
Our intangible assets with a finite life are primarily composed of developed technology, customer relationships, and tradenames acquired in conjunction with the acquisition. We make significant judgments in relation to the valuation of intangible assets resulting from business combinations and asset acquisitions. Intangible assets are generally amortized on a straight-line basis over their estimated useful lives of 3 to 14 years. We base the useful lives and related amortization expense on the period of time we estimate the assets will generate revenue or otherwise be used. We also periodically review the lives assigned to our intangible assets to ensure that our initial estimates do not exceed any revised estimated periods from which we expect to realize cash flows from the assets. If a change were to occur in any of the above-mentioned factors or estimates, the likelihood of a material change in our reported results would increase.
The assessment of whether an indication of impairment exists is performed at the end of each reporting period and requires the application of judgment, historical experience, and external and internal sources of information. We make estimates in determining the future cash flows and discount rates in the quantitative impairment test to compare the fair value to the carrying value. There was no impairment charge during the year ended December 31, 2025
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.
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, 2025, the outstanding balance of our Credit Agreement was $4.0 million, which bears interest at a variable rate. At December 31, 2025, the rate in effect was approximately 6.2%. Based on the outstanding balance of our Credit Agreement at December 31, 2025, a 100 basis point increase in the interest rate would increase interest expense by $0.04 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 $15.8 million as of December 31, 2025, 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 2025, 2024 or 2023, it would not have resulted in a significant impact to our results of operations for the years ended December 31, 2025, 2024 or 2023. 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.
Item 8. FINANCIAL STATEMEN TS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm [PCAOB ID No. 23 ]
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Comprehensive Loss
Consolidated Statements of Stockholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
To the stockholders and the board of directors of SoundThinking, Inc.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of SoundThinking, Inc. (the “Company”) as of December 31, 2025, and 2024, the related consolidated statements of operations, comprehensive loss, stockholders’ equity, and cash flows, for each of the three years in the period ended December 31, 2025, 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 consolidated financial position of the Company as of December 31, 2025 and 2024, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2025, 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 to 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.
Critical Audit Matters
Critical audit matters are matters arising from the current period audit of the consolidated 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 consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters.
/s/ Baker Tilly US, LLP
Minneapolis, MN
March 30, 2026
We have served as the Company's auditor since 2017.
SoundThinking, Inc.
Consolida ted Balance Sheets
(In thousands, except share and per share data)
December 31,
Assets
Current assets
Cash and cash equivalents
Accounts receivable and contract assets, net
Prepaid expenses and other current assets
Total current assets
Property and equipment, net
Operating lease right-of-use assets
Goodwill
Intangible assets, net
Other assets
Total assets
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable
Accrued expenses and other current liabilities
Line of credit
Deferred revenue, short-term
Total current liabilities
Deferred revenue, long-term
Deferred tax liability
Operating lease liabilities, net of current portion
Total liabilities
Commitments and contingencies (Note 16)
Stockholders' equity
Preferred stock: $ 0.005 par value; 20,000,000 shares authorized; no shares issued and outstanding as of December 31, 2025 and 2024, respectively
Common stock: $ 0.005 par value; 500,000,000 shares authorized;
12,825,960 and 12,634,485 shares issued and outstanding as of December 31, 2025 and 2024, respectively
Additional paid-in capital
Accumulated deficit
Accumulated other comprehensive loss
Total stockholders' equity
Total liabilities and stockholders' equity
See accompanying notes to consolidated financial statements.
SoundThinking, Inc.
Consolidated S tatements of Operations
(In thousands, except share and per share data)
Year Ended December 31,
Revenues
Costs
Cost of revenues
Impairment of property and equipment
Total costs
Gross profit
Operating expenses
Sales and marketing
Research and development
General and administrative
Change in fair value of contingent consideration
Restructuring expense
Total operating expenses
Operating loss
Other income (expense), net
Interest expense, net
Other expense, net
Total other expense, net
Loss before income taxes
Provision for income taxes
Net loss
Net loss per share, basic and diluted
Weighted-average shares used in computing net loss per share, basic and diluted
See accompanying notes to consolidated financial statements.
SoundThinking, Inc.
Consolidated State ments of Comprehensive Loss
(In thousands)
Year Ended December 31,
Net loss
Other comprehensive income (loss):
Change in foreign currency translation adjustment, net of taxes
Comprehensive loss
See accompanying notes to consolidated financial statements.
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
Balance at December 31, 2022
Exercise of stock options
Repurchase of common stock
Issuance of common stock from ESPP purchases
Vesting of restricted stock units
Issuance of common stock for acquisition
Stock-based compensation
Foreign currency translation loss
Net loss
Balance at December 31, 2023
Exercise of stock options
Repurchase of common stock
Issuance of common stock from ESPP purchases
Vesting of restricted stock units
Stock-based compensation
Foreign currency translation loss
Net loss
Balance at December 31, 2024
Exercise of stock options
Repurchase of common stock
Issuance of common stock from ESPP purchases
Vesting of restricted stock units
Stock-based compensation
Foreign currency translation gain
Net loss
Balance at December 31, 2025
See accompanying notes to consolidated financial statements.
SoundThinking, Inc.
Consolidated S tatements of Cash Flows
(In thousands)
Year Ended December 31,
Cash flows from operating activities:
Net loss
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation of property and equipment
Amortization of intangible assets
Impairment of property and equipment
Stock-based compensation
Change in fair value of contingent consideration
Deferred taxes
Loss on disposal of property and equipment
Allowance for credit losses
Changes in operating assets and liabilities:
Accounts receivable and contract assets
Prepaid expenses and other assets
Accounts payable
Accrued expenses and other liabilities
Deferred revenue
Net cash provided by operating activities
Cash flows from investing activities:
Purchase of property and equipment
Investment in intangible and other assets
Business acquisition, net of cash acquired
Net cash used in investing activities
Cash flows from financing activities:
Payment of contingent consideration liability
Proceeds from (Payment on) line of credit
Proceeds from exercise of stock options
Repurchases of common stock
Proceeds from employee stock purchase plan
Net cash provided by (used in) financing activities
Change in cash, cash equivalents
Effect of exchange rate on cash and cash equivalents
Cash, cash equivalents at beginning of year
Cash, cash equivalents at end of year
Supplemental cash flow disclosures:
Cash paid for interest
Right-of-use assets obtained in exchange for lease liabilities
Non-cash investing and financing activities:
Property and equipment purchases included in accounts payable
Estimated fair value of contingent consideration for business combination at closing
Fair value of common stock issued as consideration for acquisitions
See accompanying notes to consolidated financial statements.
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, security teams and civic leadership. As of December 31, 2025, the Company had approximately 319 customers and to date have worked with approximately 2,100 agencies to help 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 six data-driven tools consisting of (i) its flagship product, ShotSpotter ® , the leading outdoor gunshot detection, location and alerting system trusted by 178 cities and 22 universities and corporations as of December 31, 2025, (ii) CrimeTracer TM , an agency-wide crime data and intelligence platform that enables investigators, analysts, patrol officers and command staff to search through more than one billion criminal justice records from across jurisdictions, leverage dashboards and AI-assisted tools to generate tactical leads and quickly make intelligent connections to solve crimes, (iii) CaseBuilder TM , a one-stop investigative management system for tracking, reporting, and collaborating on cases, (iv) ResourceRouter TM that directs the deployment of patrol and community anti-violence resources in an objective way to help maximize the impact of limited resources and community safety, (v) PlateRanger TM powered by Rekor ® , an advanced license plate recognition (“ALPR”) and vehicle identification solution that leverages artificial intelligence (“AI”) and machine learning to investigative and provide real-time data sharing for law enforcement and (vi) SafePointe TM , an AI-based weapons detection system designed to provide discreet, high-throughput screening that complements physical security measures without compromising visitor experience. These solutions may operate independently or together as an integrated platform that connects detection, data analysis, resource deployment and case management workflows. The Company offers its solutions on a software-as-a-service subscription model to its customers.
ShotSpotter for Campus and ShotSpotter for Corporate, are typically smaller-scale deployments of ShotSpotter vertically marketed to universities, corporate campuses, 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. In the first quarter of 2025, the Company rolled out a perimeter-based sniper gunshot detection solution targeting utility substations, with initial pilots aimed at utility customers, conducted through SoundThinking Labs. 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 loss, stockholders’ equity and cash flows for the year
ended December 31, 2025, 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 Campus and ShotSpotter for Corporate, as well as CaseBuilder, CrimeTracer, PlateRanger 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 platform 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.
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. This applies to ShotSpotter, ShotSpotter for Campus, ShotSpotter for Corporate, CaseBuilder, ResourceRouter, PlateRanger and SafePointe. 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 CrimeTracer, the Company generally invoices the first year's subscription price when the contract is fully executed. The Company invoices CrimeTracer 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 Campus, ShotSpotter for Corporate, CaseBuilder and PlateRanger, 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 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 product 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 $ 1.4 million, $ 1.4 million, and $ 1.1 million for the years ended December 31, 2025, 2024 and 2023, 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
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 products 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 products 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,
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, $ 2.1 million and $ 2.0 million for the years ended December 31, 2025, 2024 and 2023 , 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, 2025 and 2024 , the Company’s cash and cash equivalents consisted of cash deposited in financial institutions.
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 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. The Company had an allowance for credit losses of $ 0.9 million and $ 0.3 million at December 31, 2025 and 2024 , respectively.
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, 2025, the Company had approximately $ 14.2 million, $ 0.1 million, $ 4,000 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, 2025, the City of New York accounted for 33 % of the Company’s total accounts receivable. At December 31, 2024 , the City of New York accounted for 19 % of the Company’s total accounts receivable.
Concentration of Revenues — For the year ended December 31, 2025 , the City of New York accounted for 29 % of the Company’s revenues. For the year ended December 31, 2024, the City of New York and the City of Chicago accounted for 23 % and 10 %, respectively, of the Company’s revenues. For the year ended December 31, 2023 , the City of New York and the City of Chicago accounted for 25 % and 9 %, 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, 2025 and concluded that
no goodwill impairment charge was necessary. Since inception through December 31, 2025 , 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, 8 to 11 years for software technology, 9 years for tradename, and 7 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 . The Company incurred $ 155,000 in 2023. 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
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 Repurchases
The Company has a stock repurchase program that is executed through purchases made from time to time, including in the open market. The Company retires repurchased shares of common stock, reducing common stock with any excess of cost over par value recorded to accumulated deficit. Issued and outstanding shares of common stock are reduced by the number of shares repurchased. No treasury stock is recognized in the consolidated financial statements. Any excise tax incurred on share repurchases is recognized as part of the cost basis of the shares acquired.
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. 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
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 2029 . 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. The Company measures 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 operating lease liabilities, net of current portion 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 on a straight-line basis over the lease term. The Company has elected the practical expedient to group lease and non-lease components for all leases.
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 Loss per Share
Basic net loss per share is calculated by dividing net loss by the weighted-average number of common shares outstanding during the period. Diluted net loss per share is computed by dividing net loss by the weighted-average number of common shares and common stock equivalents outstanding during the period. Common stock equivalents
are only included when their effect is dilutive. Common stock equivalents include unvested restricted stock units and outstanding stock options.
Recent Accounting Pronouncements Adopted
Improvements to Income Tax Disclosures
In December 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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 taxes paid. The new guidance is effective for fiscal years beginning after December 15, 2024. The Company adopted ASU 2023-09 for the annual period beginning January 1, 2025 on a prospective basis. The adoption of ASU 2023-09 did not have a material impact on the Company’s consolidated financial statements and related disclosures.
Recent Accounting Pronouncements Not Yet Effective
Expense Disaggregation Disclosures
In November 2024, the FASB issued ASU 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40), which requires disclosure of specific information about costs and expenses within relevant expense captions on the face of the income statement, qualitative descriptions for expense captions not specifically disaggregated quantitatively, and the total amount and definition of selling expenses for interim and annual reporting periods. This standard is effective for the Company’s annual reporting period beginning January 1, 2027 and interim reporting periods beginning January 1, 2028 and should be applied on a retrospective or prospective basis, with early adoption permitted. The Company is currently assessing the impact of adopting this standard on our consolidated financial statements.
Measurement of Credit Losses for Accounts Receivable and Contract Assets
In July 2025, the FASB issued ASU 2025-05, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivable and Contract Assets, which introduces a practical expedient for all entities, related to applying Subtopic 326-20 to current accounts receivable and current contract assets arising from transactions accounted for under Topic 606. In developing reasonable and supportable forecasts as part of estimating expected credit losses, all entities may elect a practical expedient that assumes that current conditions as of the balance sheet date do not change for the remaining life of the asset. This standard is effective for the Company’s annual reporting periods beginning after December 15, 2025, and interim reporting periods within those annual reporting periods. The Company is currently assessing the impact of adopting this standard on our consolidated financial statements.
Targeted Improvements to the Accounting for Internal-Use Software
In September 2025, the FASB issued ASU 2025-06, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Software, which removes all references to prescriptive and sequential software development stages. An entity is required to start capitalizing software costs when both of the following occur: (1) management has authorized and committed to funding the software project and (2) it is probable that the project will be completed and the software will be used to perform the function intended. This standard is effective for the Company’s annual reporting periods beginning after December 15, 2027, and interim reporting periods within those annual reporting periods. Early adoption is permitted as of the beginning of an annual reporting period. The Company is currently assessing the impact of adopting this standard on its consolidated financial statements.
Note 3. Revenue Related Disclosures
The changes in deferred revenue were as follows (in thousands):
Year Ended December 31,
Beginning balance
New billings
Revenue recognized during the year from beginning balance
Revenue recognized during the year from new billings
Ending balance
The following table presents remaining performance obligations for contractually committed revenues as of December 31, 2025 (in thousands):
Thereafter
Total
The timing of revenue recognition included in the table above includes estimates of go-live dates for contracts not yet live. Contractually committed revenue includes deferred revenue as of December 31, 2025 and amounts under contract that will be invoiced after December 31, 2025.
During the year ended December 31, 2025, the Company recognized revenues of $ 100.6 million from customers in the United States and $ 3.5 million from customers in South Africa , the Bahamas, Uruguay and Brazil. During the year ended December 31, 2024 , the Company recognized revenues of $ 99.3 million from customers in the Unit ed States and $ 2.7 million from customers in South Africa and the Bahamas and Uruguay . 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 and the Bahamas.
During the year ended December 31, 2025, the Company recognized revenues of $ 103.1 million from monthly subscription, maintenance, and support services, and $ 1.0 million from professional software development services. During the year ended December 31, 2024 , the Company recognized revenues of $ 99.1 million from monthly subscription, maintenance, and support services and $ 2.9 million from professional software development services. 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, 2025 , the Company recognized $ 4.3 million of catch-up revenue comprising of $ 3.5 million of catch-up revenue from two three-year contract renewals with the New York City Police Department which were renewed in the first quarter of 2025 and $ 0.8 million of catch-up revenue from various other customers.
Note 4. 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.
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, the fair value of the contingent consideration was decreased to zero b y $ 3.2 million, 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, 2024 and 2023, the fair value of the contingent consideration was decreased by $ 0.6 million and $ 2.4 million, respectively, based upon revised estimated 2024 and 2025 revenue targets. There was no outstanding balance related to the contingent consideration as of December 31, 2025 and 2024.
There were no transfers into or out of Level III during the year ended December 31, 2025 and 2024.
The Company had $ 12.0 million and $ 10.0 million in a money market fund as of December 31, 2025 and December 31, 2024, respectively. The fair value measurement was classified as Level I within the fair value hierarchy as prescribed by Accounting Standards Codification 820-10-35-37 (“ASC 820, Fair Value Measuremen t”).
The Company records its financial assets and liabilities at fair value. The carrying amounts of certain of the Company’s financial instruments, including cash, trade and other receivables, net, and accounts payable, approximate their fair value due to their short maturities.
Note 5. Goodwill and Intangible Assets
There was no activity related to goodwill for the years ended December 31, 2025 and 2024 . The Company has no t recorded any goodwill impairment charges through December 31, 2025.
Intangible assets as of December 31, 2025 and 2024 are as follows (in thousands):
December 31, 2025
Weighted-Average Amortization Period (in years)
Gross
Accumulated Amortization
Net
Customer relationships
Acquired software technology
Patents and intellectual property
Tradename
Total intangible assets, net
December 31, 2024
Gross
Accumulated Amortization
Net
Customer relationships
Acquired software technology
Patents
Tradename
Total intangible assets, net
Intangible assets amortization expense was $ 3.9 million for each of the years ended December 31, 2025, 2024 and 2023.
The following table presents future intangible asset amortization as of December 31, 2025 (in thousands):
Thereafter
Total
Note 6. Details of Certain Consolidated Balance Sheet Accounts
Prepaid expenses and other current assets (in thousands):
December 31,
December 31,
Deferred commissions
Prepaid software and licenses
Prepaid insurance
Short-term deposits
Other prepaid expenses
Other
Accounts receivable and contract assets, net (in thousands):
December 31,
December 31,
Accounts receivable
Contract assets
Allowance for credit losses
Other assets (in thousands):
December 31,
December 31,
Deferred commissions
Escrow claim
Other
Property and equipment, net (in thousands):
December 31,
December 31,
Deployed equipment
Construction in progress
Computer equipment
Software
Furniture and fixtures
Leasehold improvements
Vehicles
Accumulated depreciation and amortization
Depreciation expense during the years ended December 31, 2025, 2024 and 2023 was $ 6.0 million, $ 6.2 million, and $ 6.7 million, respectively.
Accrued expenses and other current liabilities (in thousands):
December 31,
December 31,
Personnel-related accruals
Operating lease liabilities
Professional fees
Sales/use tax payable
Other
Note 7. Financing Arrangements
The Company has a Credit Agreement with Columbia Bank (previously known as Umpqua Bank), as amended (the “Credit Agreement”), with a revolving credit commitment of $ 40.0 million and a letter of credit sub-facility of $ 7.5 million that matures on October 15, 2027 .
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, 2025 .
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, 2025 and December 31, 2024 was approximately $ 36.0 million and $ 21.0 million, respectively. As of December 31, 2025 and 2024 , there was $ 4.0 million outstanding on the Company's line of credit, which the Company borrowed in August 2023 to partially fund the acquisition of SafePointe. The interest expense recorded for the year ended December 31, 2025 was $ 0.3 million, based on a weighted-average interest rate of 6.24 %.
Note 8. Related Party Transactions
During each of the years ended December 31, 2025, 2024 and 2023, the Company recogniz ed $ 0.1 mil lion in revenues 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.
Note 9. Income Taxes
The domestic and foreign components of net loss before income tax were as follows (in thousands):
Year Ended December 31,
Domestic
Foreign
Net loss before income tax
The provision (benefit) for income tax consists of the following (in thousands):
Year Ended December 31,
Current:
Federal
State
Foreign
Total
Deferred:
Federal
State
Foreign
Total
Total provision for income tax
A reconciliation of income taxes at the statutory federal income tax rate to income tax expense included in the accompanying consolidated statements of operations after the adoption of ASU 2023-09 is as follows (in thousands):
December 31, 2025
Income tax at statutory rate
State and Local Income Tax (1)
Foreign Tax Effects
Effect of Cross-Border Tax Laws
Foreign-derived intangible income
Tax Credits
Research and development tax credit
Change in Valuation Allowance
Nontaxable and Nondeductible Items
Stock-based compensation
Section 162(m) disallowed compensation
Others
Other Adjustments
Effective Tax Rate
(1) The states and local jurisdictions that contribute to the majority (greater than 50%) of the tax effect in this category include California, Florida, Illinois, Indiana, New York state and city, and Texas.
A reconciliation of income taxes at the statutory federal income tax rate to income tax expense included in the accompanying consolidated statements of operations for years prior to the adoption of ASU 2023-09 is as follows (in thousands):
December 31,
Income tax (benefit) at statutory rate
Change in valuation allowance
Indefinite-lived asset (goodwill)
State tax
Change in deferred
Stock-based compensation
Research and development credits
Foreign rate differential
Other
Total
Temporary differences that gave rise to significant portions of the Company’s deferred tax assets and liabilities as of December 31, 2025 and 2024 were as follows (in thousands):
Year Ended December 31,
Deferred tax assets:
Net operating losses
Stock-based compensation
Section 174 capitalized expenditures
Research and development credits
Accruals and reserves
Deferred revenue and contract costs
Fixed assets and intangibles
Other
Gross deferred tax assets
Valuation allowance
Net deferred tax assets
Deferred tax liabilities:
Fixed assets and intangibles
Goodwill
Total deferred tax liabilities, net
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 $ 30.0 million and $ 28.4 million was required as of December 31, 2025 and 2024, respectively.
The valuation allowance changed by $ 1.6 million during the year ended December 31, 2025. which includes an increase to certain changes in temporary differences that give rise to deferred tax liabilities related to indefinite-lived intangible assets.
At December 31, 2025 and 2024 , the Company had available net operating loss carryforwards of approximately $ 57.3 million and $ 48.6 million, respectively, for federal income tax purposes, of which $ 43.7 million were generated before 2018 and will begin to expire in 2031 . The remaining net operating losses of $ 13.6 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, 2025 and 2024 , the net operating losses for state purposes are $ 45.7 million and $ 40.8 million, respectively, and will begin to expire in 2026 if not utilized.
As of December 31, 2025 , the Company had available for carryover, research and experimental credits of approximately $ 3.2 million for federal income tax purposes and $ 2.1 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.
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, 2023
Increases for current year tax positions
Increases for prior year tax positions
Balance as of December 31, 2024
Increases for current year tax positions
Increases for prior year tax positions
Balance as of December 31, 2025
Of the total unrecognized tax benefits at December 31, 2025, 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, 2025 and 2024.
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 2011 through 2025 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.
The amounts of cash income taxes paid by the Company were as follows (in thousands):
Year Ended December 31,
Federal
State and local
Foreign
South Africa
All other foreign
Income taxes, net of amounts refunded
Note 10. Restructuring
In the second quarter of 2024, the Company restructured its workforce and eliminated 3 % of its total headcount to more effectively allocate its resources and to reduce operational costs. Additionally, the Company terminated a building lease early for a location that was no longer in use.
Restructuring expense related to the workforce reduction during the year ended December 31, 2024 amounted to $ 0.3 million, consisting of cash expenditures for severance and other employee separation-related costs . Restructuring expenses related to the lease termination were $ 0.1 million, comprising of early termination fees and monthly rent . Restructuring expense during the year ended December 31, 2025 amounted to $ 0.2 million, consisting of cash expenditures for employee separation-related costs . These restructuring expenses were recorded in operating expense, net, in the consolidated statement of operations.
As of December 31, 2025 and 2024 , the Company had no restructuring liabilities.
Note 11. 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, 2025 and 2024 , there were 12,825,960 and 12,634,485 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, 2025, shares of common stock reserved for future issuance were as follows:
Options outstanding
Shares available for future grant
Unvested restricted stock units
Estimated number of shares issuable under 2017 ESPP
Total
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, 2025 and 2024 , 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, 2025 , the Company repurchased 225,334 shares of its common stock at an average price of $ 13.15 per share for a total of $ 3.0 million under its stock repurchase program. During the year ended December 31, 2024 , the Company repurchased 418,940 shares of its common stock at an average price of $ 14.31 per share for $ 6.0 million. During the year ended December 31, 2023, the Company repurchased 228,782 shares of its
common stock for an average price of $ 24.41 per share for $ 5.6 million. The repurchases were made in open market transactions using cash on hand, and all of the shares repurchased were retired.
Note 12. Net Loss per Share
The following table summarizes the computation of basic and diluted net loss per share (in thousands, except share and per share data):
Year Ended December 31,
Numerator:
Net loss
Denominator:
Weighted-average shares outstanding, basic and diluted
Net loss per share, basic and diluted
The following potentially dilutive shares outstanding at the end of the periods presented were excluded in the calculation of diluted net loss per share as the effect would have been anti-dilutive:
Year Ended December 31,
Options to purchase common stock
Unvested restricted stock units
Estimated number of shares issuable under 2017 ESPP
Total
Note 13. 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, 2024
Increase in accordance with the evergreen provision
Awards issued
Awards canceled
Stock repurchases
Shares available for grant at December 31, 2025
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.
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, 2025, 2024 and 2023 are set forth below:
Year Ended December 31,
Fair value of common stock
Expected term (in years)
Risk-free interest rate
Expected volatility
Expected dividend yield
A summary of stock option activities during December 31, 2025, 2024 and 2023 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, 2022
Granted
Exercised
Canceled
Outstanding at December 31, 2023
Granted
Exercised
Canceled
Outstanding at December 31, 2024
Granted
Exercised
Canceled
Outstanding at December 31, 2025
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 and recognized net incremental compensation expense of less than $ 0.1 million during the year ended December 31, 2023. There were no modifications for the years ended December 31, 2024 or 2025.
Additional information for stock options at December 31, 2025 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, 2025
Exercisable at December 31, 2025
At December 31, 2025, total unrecognized stock-based compensation cost related to unvested stock options was $ 4.1 million , which will be recognized ratably over a weighted-average period of 1.9 years.
No income tax benefits from stock-based compensation arrangements have been recognized in the consolidated statements of operations.
Restricted Stock Units with Service Conditions
The Company grants RSUs under the 2017 Plan to executive management, its non-employee directors and other 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 summary of RSU activities during December 31, 2025, 2024 and 2023 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, 2022
Granted
Vested
Forfeited
Unvested RSUs at December 31, 2023
Granted
Vested
Forfeited
Unvested RSUs at December 31, 2024
Granted
Vested
Forfeited
Unvested RSUs at December 31, 2025
At December 31, 2025, total unrecognized stock-based compensation cost related to RSUs was $ 7.8 million, which will be recognized ratably over a weighted-average period of 1.7 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. 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. There were no modifications for the years ended December 31, 2025 and 2024.
Restricted Stock Units with Performance Conditions
The Company has granted performance-based restricted stock units (“PSUs”) under the 2017 Plan to certain employees of the Company that represent shares potentially issuable in the future. PSUs generally vest in one installment on the certification date following the satisfaction of obtaining revenue, Adjusted EBITDA or other performance criteria. Compensation expense related to PSUs is determined based on the fair value of the underlying common stock at the grant date and the most probable level of achievement of the performance conditions.
A summary of PSU activities during December 31, 2025, 2024 and 2023 is as follows:
Number
of PSUs
Weighted
Average
Grant Date Fair Value per PSU
Aggregate Fair Value of PSUs Vested (in thousands)
Unvested PSUs at December 31, 2022
Granted
Unvested PSUs at December 31, 2023
Granted
Forfeited
Unvested PSUs at December 31, 2024
Granted
Vested
Forfeited
Unvested PSUs at December 31, 2025
There was no compensation expense related to PSUs for the year ended December 31, 2025, as the achievement of the performance conditions related to the PSUs was not deemed probable. Compensation expense related to these awards was approximately $ 1.3 million and $ 0.1 million for the years ended December 31, 2024 and 2023, respectively.
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 lesser number of shares as determined by the board of directors.
The following table summarizes the activity of shares available under the 2017 ESPP:
Shares available for grant at December 31, 2024
Increase in accordance with the evergreen provision
Issued during the year
Shares available for grant at December 31, 2025
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,
Cost of revenues
Sales and marketing
Research and development
General and administrative
Total
Stock-based compensation expense is recognized over the award’s expected vesting schedule. Forfeitures are recognized as and when they occur.
Note 14. 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 matches 50 % of the first 2 % of an employee's salary contributed to the plan. During the years ended December 31, 2025, 2024 and 2023, the Company recorded $ 0.5 million, $ 0.5 million and $ 0.4 million, respectively, of matching contribution expense. These matching contributions are subject to additional vesting criteria.
Note 15. 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. 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 June 2025, the Company executed an amendment to expand the rentable square feet.
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. 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 October 2025, the Company extended the lease end date to November 2028 according to the terms and conditions of the original lease.
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 expired in June 2025 and February 2026 , respectively. The Walnut Creek office lease was early terminated in April 2024. Neither lease had significant rent escalation holidays, concessions, leasehold improvement incentives, or other build-out clauses. Each lease contained an option to extend the term for an additional period of five years subject to certain terms and conditions. In measuring the lease liability upon acquisition, the Company used a discount rate of 3.25 % for the Tucson office which reflects the Company’s incremental borrowing rate for a similar asset and similar term as of the date of acquisition.
In January 2024, the Company executed a new lease in Iselin, New Jersey which commenced in April 2024 and expires in March 2029 . The lease has no significant rent escalation holidays, concessions, leasehold improvement incentives or other build-out clauses. The lease contains an option to extend the term for an additional period of three years subject to certain terms and conditions. In measuring the lease liability upon commencement, the Company used a discount rate of 7.33 % for the Iselin, New Jersey office which reflects the Company’s incremental borrowing rate for a similar asset and similar term as of the date of commencement.
In May 2025, the Company executed a new lease in Orlando, Florida which commenced in August 2025 and expires in September 2028 . The lease has no significant rent escalation holidays, concessions, leasehold improvement incentives or other build-out clauses. In measuring the lease liability upon commencement, the Company used a discount rate of 6.29 % for the Orlando, Florida office which reflects the Company’s incremental borrowing rate for a similar asset and similar term as of the date of commencement.
In June 2025, the Company executed a new lease in Mt. Dora, Florida which commenced in July 2025 and expires in June 2028 . The lease has no significant rent escalation holidays, concessions, leasehold improvement incentives or other build-out clauses. The lease contains an option to extend the term for an additional period of one year subject to certain terms and conditions. In measuring the lease liability upon commencement, the Company used a discount rate of 6.29 % for the Mt. Dora, Florida office which reflects the Company’s incremental borrowing rate for a similar asset and similar term as of the date of commencement.
In October 2025, the Company executed a new lease in Mt. Dora, Florida which commenced in November 2025 and expires in October 2028 . The lease has no significant rent escalation holidays, concessions, leasehold improvement incentives or other build-out clauses. In measuring the lease liability upon commencement, the Company used a discount rate of 6.17 % for the Mt. Dora, Florida storage facility which reflects the Company’s incremental borrowing rate for a similar asset and similar term as of the date of commencement.
The operating lease cost recognized for the years ended December 31, 2025, 2024 and 2023 , was $ 1.1 mi llion, $ 1.1 million and $ 1.0 million, respectively.
The Company’s operating leases had weighted average remaining lease terms as of December 31, 2025 of 2.36 years and weighted average discount rate of 5.4 %. The Company’s operating leases had weighted average remaining lease terms as of December 31, 2024 of 2.74 years and weighted average discount rate of 4.5 %.
Supplemental information related to the operating leases are as follows (in thousands):
December 31,
Assets
Operating lease right-of-use assets
Liabilities
Lease liabilities (short-term) (presented within Accrued expenses and other current liabilities )
Lease liabilities (long-term)
Total operating lease liabilities
Year Ended December 31,
Cash paid for amounts included in the measurement of lease liabilities
(presented within Operating cash flows)
Maturities of the lease liabilities at December 31, 2025 are as follows (in thousands):
Total lease payments, undiscounted
Less: imputed interest
Total
Note 16. Commitments and Contingencies
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 17. Segment Reporting
The Company operates as a single operating and reportable segment, which reflects how the Company's chief operating decision maker (“CODM”) reviews financial information and allocates resources. The Company's CODM is the Chief Executive Officer . The Company manages its operations on a consolidated basis for purposes of evaluating financial performance and allocating resources. Accordingly, the Company has determined that it operates in one operating segment and one reportable segment. The CODM evaluates performance based on consolidated net income and reviews consolidated financial information when making decisions regarding resource allocation. The CODM does not evaluate assets and does not review segment expenses beyond those presented in the consolidated statement
of operations. Because the Company operates in a single reportable segment, the segment results are consistent with the consolidated financial statement .
Note 18. Subsequent Events
Management evaluated subsequent events through March 30, 2026, which was the date the financial statements were available to be issued, and determined that there are no subsequent events to be reported.
Subsequent to December 31, 2025, the Company implemented a reduction in force affecting approximately 15 employees. The impacted employees were notified in March 2026, and the Company expects to incur approximately $ 0.5 million in restructuring costs, primarily consisting of severance and related benefits, which will be recognized in the first quarter of 2026.
