SOUNDTHINKING, INC. (SSTI) stock intrinsic value fair value estimate & owner earnings analysis

SoundThinking (formerly ShotSpotter) sells public-safety software and sensor services, mostly to city police departments, on multi-year subscriptions. Its flagship ShotSpotter acoustic gunshot detection system was in 178 cities and 22 universities and corporations at the end of 2025 and made up 64% of revenue. The rest comes from CrimeTracer (an investigative data search platform, relaunched as CrimeTracer Gen3 in late 2025), CaseBuilder, ResourceRouter, PlateRanger and SafePointe, an AI weapons-detection product sold to schools, hospitals and businesses. Revenue grew every year from $15.5 million in 2016 to $104.1 million in 2025. Its biggest customer is New York City, which provided 29% of 2025 revenue. How we measure earnings. We count the cash the business produces for its owners: operating cash flow, with working-capital timing swings taken out, minus stock-based compensation and minus the capital spending needed to keep existing coverage running. Amortization of acquired intangibles (about $3.9 million a year from the Forensic Logic, Leeds and SafePointe acquisitions) and gains from writing down earn-out liabilities are non-cash and do not reduce this figure. Stock compensation does, because it is a real cost to shareholders paid in new shares. It has run between $10 million and $12 million a year since 2023, about 11% of revenue. This is the key judgement in the analysis. Before stock compensation the business generates roughly $8 to $9 million a year of cash after capital spending. After it, owner earnings have been negative every year from 2021 through 2025: about -$0.20, -$0.04, -$0.06, -$0.30 and -$0.21 per share. The only positive years were 2019 and 2020, before the acquisitions that make up today's business. We use the 2021-2025 median of about -$0.20 per share (roughly -$2.7 million a year) as the starting level. What has changed recently. The first half of 2026 was clearly worse than that level. Revenue fell to $48.1 million from $54.2 million. Part of that is a one-off: the first half of 2025 included $3.5 million of catch-up revenue from two three-year New York Police Department renewals signed in early 2025. The rest came from non-renewals and delayed renewals. Gross margin fell to about 47% from about 56%, the net loss was $11.8 million, operating cash flow was -$7.3 million, and cash dropped to $6.4 million. Two consecutive quarters show the same weakness. The company cut staff in the second quarter of 2026 (a restructuring charge appears in its quarterly filing) and now expects 2026 revenue of $99-100 million. That is below 2025, and down from $109-111 million guided earlier in the year. Stock compensation fell to $4.9 million in the first half from $7.2 million a year earlier. In 2025, owner earnings improved about 29% (from -$3.8 million to -$2.7 million). Our base case does not carry that improvement forward, because the 2026 results so far point the other way. Base case (about -$1.97 per share). Revenue stays near $100 million. That is consistent with committed contract backlog of $100.5 million at the end of 2025 and the pattern of 2021-2025, when new cities (10 went live in 2025) roughly offset lost ones (Chicago, $9.7 million, ended in November 2024). New York renews again. The staff cuts and lower stock compensation roughly offset the lower gross margin, so owner earnings come in around -$5 million a year for two years and then settle back to the historical -$0.23 per share. We found no evidence that would turn owner earnings positive, so none is assumed. We also assume the losses stop after year ten rather than running forever, which is the more forgiving choice. On this path the business consumes value for its owners rather than creating it. Bear case (about -$4.27 per share). New York City does not renew when its current three-year contracts run out around 2027-2028. Committed revenue beyond 2027 was only $10.1 million at the end of 2025, and Chicago's exit in 2024 shows a large city can leave after political pressure. A June 2024 New York City Comptroller report criticized the system's accuracy. Losing roughly $30 million of high-margin revenue would push owner earnings to about -$0.80 per share a year for four years before cuts bring it to about -$0.40. With $6.4 million of cash and a $40 million credit line maturing in October 2027 ($4 million drawn), those losses would have to be funded with debt or new shares. In this case the company would owe and consume more than the business is worth, by roughly $55 million. Bull case (about $4.98 per share). The company's own levers work. The workforce reduction delivers its full savings, gross margin returns to the 2023-2025 level of about 56%, stock compensation settles near $8 million, New York renews, and new-city wins keep revenue growing about 3% a year. Owner earnings reach about +$0.30 per share by year three and grow from there. After year ten the installed subscription base, which has renewed and grown for two decades, keeps producing that level. What the shares appear to be worth. On current evidence the median outcome is negative. Stock compensation uses up all the cash the operations produce, and 2026 is moving in the wrong direction. A low price alone does not make these shares sound value. The margin-of-safety price applies only once the business shows it can produce positive owner earnings after stock compensation for a full year and New York has renewed. At that point something close to the bull case becomes the median. Given the dependence on a few city budgets and politics, the margin of safety must be wide, and the margin-of-safety price is about $2.00 per share. This analysis would be wrong mainly if the staff cuts and lower stock compensation lift pre-stock-compensation cash earnings well above the historical $8-9 million level. The coming quarters' filings will show whether that is happening.