This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk06: Good afternoon and welcome to ShotSpotter's first quarter 2022 earnings conference call. My name is Tom and I will be your operator for today's call. Joining us are ShotSpotter CEO Ralph Clark and CFO Alan Stewart. Please note that certain information discussed on the call today will include forward-looking statements about future events and ShotSpotter's business strategy and future financial and operating performance. These forward-looking statements are only predictions and are subject to risks, uncertainties, and assumptions that are difficult to predict and may cause the actual results to differ materially from those stated or implied by those statements. Certain of these risks and assumptions are discussed in ShotSpotter's SEC filings included in its registration statement on Form S-1. These forward-looking statements reflect management's beliefs, estimates, and predictions as of the date of this live broadcast, May 10, 2022. and ShotSpotter undertakes no obligation to revise or update any forward-looking statements to reflect events or circumstances after the date of this call. Finally, I would like to remind everybody that this call is being recorded and will be made available for playback via replay, a link available on the investor relations section of the company's website at ir.shotspotter.com. And now, I would like to turn the conference over to ShotSpotter CEO, Ralph Clark. Sir, please proceed.
spk04: Good afternoon, and thanks for joining us today. I hope everyone out there is doing well. As usual, I'll start with a quick overview of the quarter and our operational outlook before Alan details the quarterly results. We'll then take your questions. After a strong 2021, we've continued to build on our growing success with a fast and positive start to 2022. We reported record revenues of $21.2 million, up 41% from Q1 of 2021, and had a quarterly adjusted EBITDA of $4.5 million, up 35% year over year. Our adjusted EBITDA profitability once again demonstrates the unique operating leverage of our business model, even at the sub $100 million revenue run rate. We are pleased to go live in four new cities with ShotSpot or Respond, including Houston, Macon-Bibb County, Pasadena, and Virginia Beach. We also expanded respond coverage in Albuquerque, Syracuse, and Louisville, and went live with two new security customers, including a commercial manufacturing campus. We enter Q2 with a solid number of new city and expansion projects in the respond shot spotter deployment pipeline that we expect to go live in Q2 and Q3, and are now targeting going live with at least 120 miles of domestic respond in 2022. This will represent a 20% increase of go-live miles from 2021 and 144% increase of the miles that went live in 2020. We're seeing a strong and growing demand for our acoustic gunshot detection solution as agencies of all sizes across the country grapple with the measurable uptick in gun violence in their respective cities. ACUSA gunshot detection is a mission critical technology that addresses the significant 80% plus underreporting and lack of law enforcement response to criminal gunfire. Our unique patented and proven gunshot detection solution bridges that public safety gap by precisely locating and alerting police of criminal gunfire in real time. It enables law enforcement to reduce response times increase evidence collection, accelerate investigations, and ultimately improve community engagement. We're seeing a growing contingent of successful law enforcement executives and their elected officials coming to view our solution as a critical component of any strategic gun violence prevention strategy. In addition to the strong go live results of our core product, ShotSpot or Respond, We're also pleased to have gone live with our largest deployment to date of our patrol management solution, ShotSpotter Connect in Miami-Dade County. When completely deployed, Connect will drive directed patrol operations for almost 3,000 patrol officers at Miami-Dade. We currently have over 1,300 patrol officers across 10 plus other deployments that are actively using directive patrols in their respective agencies to more efficiently and effectively prevent crime without over-policing or over-relying on enforcement interventions. We're proud to acknowledge that over 100 patrol officers have been admitted to the ShotSpotter 100 Connect Club by conducting, on average, over 100 directive patrols per month using Connect as of this year. This is a positive indicator of the strong customer adoption and usage of Connect which is producing positive results for our customers. We also recently announced insight version two, which is an analytical and reporting tool integrated with both respond and connect, which we believe further advances the product market set of connect and will drive additional opportunities for this year. I'm personally thrilled to have expanded our precision policing platform initiative with the acquisition of forensic logic in early Q1 of this year. ForensicLogic provides the leading law enforcement data sharing and crime analytics network that is used daily by tens of thousands of authorized law enforcement users as they initiate investigations and drive case momentum on a local as well as cross-jurisdictional basis. ForensicLogic is one of the largest aggregators of indexed and searchable CJIS data with a robust national footprint, creating even more utility for current as well as prospective users. We're very pleased to see the steady increased user engagement of the ForensicLogic CopLink X solution following our acquisition. The increased adoption is being fueled by broader usage by larger customers and the continued transition from legacy on-prem CopLink products to the modern cloud-based CopLink X. We're already seeing strong product and go-to-market synergies, primarily between ForensicLogic CopLink X and ShotSpot Investigate, our investigative case management solution. We've recently engaged in three cross-selling and upselling campaigns to each respective user installed base, as well as to completely new prospect list of investigators. We believe the campaign results, while early, have been positive and are allowing us to grow the pipeline for both CopLink X and Investigate. The funding environment is stronger than ever, as local, state, and federal agencies focus their direction and prioritize their budgets to help local law enforcement turn the tide on violent crime. I'm happy to report that the recently reintroduced earmark process, which included earmarks directly focused on funding acoustic gunshot detection, was successfully passed in the appropriations bill signed into law March 15, 2022. A few notable earmark requests for gunshot detection that were approved in the bill included ones for Manchester, New Hampshire, Wilkes-Barre, Pennsylvania, Mansfield, Ohio, and for Opelika and Deerfield Beach, Florida. We believe this is just the beginning. Late last week, a formal letter was sent by several House members to the chairman and ranking member of the Subcommittee of Commerce, Justice, and Science Appropriation, or CJIS for short, advocating the increase for funding for burn JAG and COPS. Burn JAG and COPS technology grants are used by local law enforcement agencies to fund several initiatives, including improved tools and technologies like ShotSpotter in crime intervention and prevention strategies. We're maintaining our previous full year 2022 revenue guidance of 81 to $83 million, representing 41% revenue growth from 2021 to 2022 while increasing our adjusted EBITDA margin expectation from 15 to 20% to 19 to 21%. This guidance assumes no significant large state-level COPLINK X deals are executed and taken live, which could present some potential upside to our guidance. Let me now turn it over to Alan, who will share some more detail on our financial results for the quarter. And I look forward to taking your questions once he's finished. Over to you, Alan.
spk03: Thank you, Ralph. We're very pleased with our performance in the first quarter. As Ralph mentioned, this quarter we went live in four new respond cities, expanded in three cities, added two new security customers, and started a respond pilot in Atlanta. Our only attrition was a quarter-mile loss with an old customer. Financially, we achieved record revenue, record gross profit, and record adjusted EBITDA. Let me provide more details in the quarter, and then I will share some thoughts around the balance of the year. First quarter revenues were ahead of expectations at $21.2 million, an impressive 41% increase over the $15 million in the first quarter of 2021. Revenue increased as our deployed miles are up year over year. We also recorded our first full quarter of revenue from forensic logic acquisitions and revenue related to contract delay from leads that we mentioned in our last earnings release. Gross profit for the first quarter of 2022 was $12.7 million or 60% of revenue versus $8.7 million or 58% of revenue for the prior year period. Gross margin may continue to be minorly impacted as we continue to replace 3G sensors through the end of the year. We also saw impressive growth in adjusted EBITDA for the first quarter, which was $4.5 million, a 35% increase from the $3.3 million in the first quarter of 2021. As a reminder, adjusted EBITDA, a non-GAAP financial measure, is calculated by taking our GAAP net income and adding back interest income, income taxes, depreciation, amortization, stock-based compensation expenses, and acquisition-related expenses. Turning to our expenses, our operating expenses for the second quarter were $12.2 million or 58% of revenues versus $8.5 million or 57% of revenues in the first quarter of 2021. Operating expense increases were primarily related to higher legal and employee-related costs as well as incremental costs related to our forensic logic acquisitions. Breaking down our expenses, sales and marketing expense for the first quarter was $5.2 million or 24% of total revenue versus $3.9 million or 26% of total revenue for the prior year period. Our sales and marketing teams continue to build our sales pipelines and expand our marketing efforts. We continue to focus on maintaining high levels of customer satisfaction which helps keep our attrition rates low. We also added sales capacity for our Investigate product to position this segment for growth this year and into 2023. Our R&D expenses for this first quarter were $2.7 million, or 13% of total revenue, compared to $1.7 million, or 11% of total revenue for the prior year period. we continue to invest in increasing the functionality of all of our products. G&A expenses for the quarter were $4.3 million, or 20% of total revenue, compared to $2.9 million, or 19% of total revenue for the prior year period. The increase in G&A expenses was primarily related to an increase in legal costs. While our G&A expenses will continue to increase, in absolute dollars as our company grows, for the year we expect it would decrease as a percentage of revenues from what we experienced in the first quarter. Our adjusted net income for the first quarter was $488,000 or 4 cents per share based on 12.2 million basic and 12.3 million diluted weighted average shares outstanding. This compares to $244,000 or two cents per share based on 11.6 million basic and 11.9 million diluted weighted average shares outstanding for the prior year period. Adjusted net income, a non-GAAP financial measure is calculated by taking our GAAP net income and adding back acquisition related expenses. When accounting for acquisition related expenses, our GAAP net income was $387,000 or $0.03 per share, basic and diluted, for the quarter. Deferred revenue at the end of the quarter increased to $35.5 million from $26.7 million at the end of fourth quarter 2021, and the increase was primarily related to our growth in revenues and the addition of forensic logic deferred revenue. We ended the quarter with $8.9 million in cash and cash equivalents versus $16 million at the end of fourth quarter 2021. The decrease is primarily related to $5 million in cash used to acquire Forensic Logic and payment of 2021 company bonuses during the quarter. During the first quarter, we also repurchased 57,623 of our shares at an average price of $28.34 for approximately $1.6 million. We have no short or long-term debt outstanding, and as previously discussed, we possess a $20 million line of credit to improve financial flexibility. Turning to our full 2022 outlook, we are maintaining our full-year revenue guidance at $81 to $83 million, and we are increasing our expected adjusted EBITDA margin from 15 to 20%, to 19 to 21% of revenues. Now back to Ralph for some final thoughts, and then we'll be happy to take your questions.
spk04: Thank you, Alan. We're feeling confident about our long-term prospects as a precision policing platform provider. The law enforcement profession is at a critical juncture. Increasing demands for public safety without brute force policing while being manpower resource challenged is driving the demand for precision policing solutions. We believe our growth opportunity is structural. Our solutions are both sticky and viral as proven by our high retention rates and by our extremely low, less than 50 cent sales and marketing spend per dollar of new annualized contract revenue. When you put those factors together, we believe you get a compelling business franchise opportunity that has the additional benefit of engaging and making a difference while doing work that matters.
spk00: We're now happy to take your questions.
spk06: We will now begin the question and answer session. To ask a question, press star, then one on your touch tone phone. If you're using a speaker phone, please pick up your handset before pressing any keys. To withdraw yourself from the question queue, please press star, then two. We will pause momentarily to assemble our roster. And our first question comes from Brian Rutenberg with Imperial Capital. Please go ahead.
spk00: Yes, thank you very much. Congratulations on the quarter and the guy. You broke up a little bit there. We can't hear the question. We can't hear the question.
spk06: Sorry about that, Brian. Your line is now unmuted again.
spk02: Okay, can you hear me now?
spk00: Yes.
spk02: Yep. Okay, great. So a couple quick questions. In terms of guidance, you took the miles up from 100 to 120 but didn't change the revenue.
spk00: Is that correct? Yeah, this is Alan.
spk03: So that's correct. In terms of the revenue guidance right now, we feel really good about the miles going live. And as we have mentioned in the past, the revenue is somewhat obviously tied to when the miles actually go live. So you can expect that some of those miles are going to go live into Q3 and Q4, which will lower some of the revenue increase, but significantly help us as we look at the ARR going into 2023. Okay.
spk02: So that leads me to the next question on 2023. It looks like you have a lot of momentum going into 2023. Because it's going to be back-end weighted. You should see a lot of, it appears because of this, you should see a lot of growth in 2023 versus 2022. Is that correct?
spk04: Yeah, that's correct. Although we're not formally giving guidance for 2023. I think we're trying to set the pieces in place to have a terrific 2023 off of a pretty strong 2022. Great.
spk02: And then in terms of expenses, what you had in terms of sales and marketing, G&A, in the first quarter, we should expect that level or somewhere around that level kind of going forward on a quarterly basis, or was there anything one time in nature that was in first quarter?
spk03: Yeah, this is Alan. You should look at those as general in terms of percentages. So, for example, in Q1, our sales and marketing was about 24%. Q4 was 26%. So somewhere around there is about where sales and marketing would be. R&D has stayed pretty similar, the same, about 13%. G&A does have some additional costs related to that tied to legal that we are hoping will go down so the actual G&A percentage should stay at 20% or less. Okay.
spk02: Did you break out legal in the quarter?
spk03: We did not break it out, but we can tell you that it was about a million dollars in terms of legal expenses for the quarter, which is the highest we've had in the past.
spk02: Okay. And then final question on pipeline. Can you give us some kind of reference data point? It sounds like your pipeline is stronger than it's ever been with what's happening here. Can you give us some kind of reference how much you're up year over year or quarter to quarter or something as a data point?
spk04: Yeah, so maybe I'll jump in, Alan, and then feel free to correct me or add on as appropriate. I think the one thing I would describe the pipeline as is being a lot more diverse than it's been. So it's certainly bigger and more robust, but it's also more diverse. We're less dependent, I would say, on domestic go-live miles, although that's appearing to look very strong for us. In 2022, we're going to expect to see more contribution of revenue coming from opportunities outside of domestic ShotSpot or Respond. So think Connect, think Investigate, think HopLink, think about our work with Leeds, and also think about international. We expect all those to be contributing to our revenues later this year and certainly going into 2023. Great.
spk00: Thank you. The next question comes from Richard Baldry with Roth Capital.
spk06: Please go ahead.
spk05: Thanks. When we look at the OPEC side and the COG side in the quarter, it steps up pretty strongly sequentially, but there was an acquisition in there. I'm sort of curious if you can break into that and attribute portion to the acquisition so we can kind of see what you've spent to drive growth sort of organically as opposed to adding on from the M&A side.
spk03: Yeah, this is Alan. And go ahead, Ralph, you can correct as well. From the actual acquisition, the OpEx is around $1.5 million. So that is a bit of a significant amount of the 12.2 for the quarter. So as we just compare things, if you look at where we ended Q4 at around 10.6 and you take up 1.5, it really hasn't been a significant increase in OpEx. It is something that we are working on to make sure that we're spending appropriately and spending in the right areas.
spk01: Okay.
spk05: If you go back, say, only two years, your sales and marketing quarterly is about doubled now. You talk about how productive you feel that is, sort of what stage of maturity, the additions you've been able to make, sort of building pipelines there. getting to know the products. You've also expanded the products, how much people are able to cross-sell or when you think that that will really sort of gain its material traction. Thanks.
spk00: Yeah, I would say the revenue... Yeah, go ahead. Go ahead, Alan.
spk04: Sorry.
spk03: Yeah, I guess I would say the first thing is that the actual percentage of sales and marketing in the last five quarters has stayed pretty close to 25%. So We are spending a lot more in terms of actual dollars, but as the revenue increases, that's because we have more products. Our sales and our marketing team has basically doubled over the last couple of years. So keeping it around the 24%, 25% is our goal, but that's because we've already added a lot of capabilities there. Other thoughts there, Ralph?
spk04: Yeah, I think that's right. I think I would expect it to normalize off a little bit. I don't think it stays at 25%. I think as revenue grows, the rate of growth of expenses grows more slowly. So there's definitely nominal growth, but I would expect it to grow at a slower rate than top line revenue because I think we're at a fairly normalized place right now with the headcount that we've added both in marketing as well as sales. to basically drive a much more robust solution set. I think if you go back three or four years, Rich, when you got to know us, we're basically acoustic gunshot detection domestically. Now we're much more global. We're including things like patrol management. We're including things like investigate. We have this incredible leads opportunity that we've done really an amazing job with in terms of growing its top line. We've recently added, of course, Forensic Logic and the data services business, which has a lot of potential, much broader TAM that we're adding to our existing TAM. So, of course, going along with that, it's going to require people to go out and sell those solutions. So we think we're in a pretty good place and we've done the right thing in terms of how we've invested in our go-to-market resources.
spk05: Last for me, B, if we look at the funding backdrop seems to be pretty good. Could you maybe talk about how many of the solutions fit into different buckets, whether that's infrastructure or earmarks, and whether you started to see prospects come into your pipeline that you might not otherwise see without those types of spending buckets being available? Thanks.
spk04: Yeah, so I think probably, and Alan, jump in here as appropriate, but I think the best way to think about this is to think about our precision policing suite. So we start with acoustic gunshot detection. It produces some really interesting data. That data is also being used by our patrol management solution when you add on the Forensic logic piece, that is nothing but data and really excited about that opportunity because, of course, you know, certainly precision policing requires data and forensic logic has an amazing footprint and is quite synergistic with our ambitions of being a precision policing platform company. And then the investigate product is also very data oriented. And I think when you put all those things together, it's really around kind of how we think about, you know, automating and digitizing the front office, if you will, of a police department. I think police departments have made a lot of investments in the backend infrastructure. You think about CAD and RMS, those are very well-defined product, product spaces and places, I would say. Whereas this kind of front office application area of how we're, directing patrol, how we're helping detectives initiate and solve cases and the like, and how we're getting officers to incidents of criminal gunfire, those are all very front office oriented. And there hasn't been a big investment there. And we see a huge greenfield opportunity for us to be a significant player in the kind of front office digitization process of policing or precision policing, if you will.
spk00: All right, thanks. The next question comes from Matt Fah with William Blair.
spk06: Please go ahead.
spk05: Hey, guys. Nice results, and thanks for taking my questions. I wanted to first ask on, I think you said that there was a pilot launched in Atlanta in the quarter. Maybe just sort of expand on that. And I believe you got Houston through a pilot as well. Is that sort of a new strategy that you're starting to pursue with some of these Tier 1 cities?
spk04: I'd say on a very selected, on a very selected basis. Yeah. So there's certainly the Houston pilot that's been very successful. They ended up converting that to be a paid customer and then doubling the expansion in Houston. And then Atlanta, we have great hopes for Atlanta. We're still in the very early stages of our pilot in Atlanta. So I don't have anything to report on that, but we're hopeful that that's going to go a similar path as what we experienced in Houston.
spk05: Got it. And then, Ralph, I think you mentioned in your remarks something about the CopLink X potential statewide contracts not included in the guidance. Maybe if you could just sort of expand on what those contracts would look like and are there some of those in the pipeline currently?
spk04: Yeah, so one of the interesting things about CopLink is they sell to both our traditional local law enforcement buying center, which is kind of local police departments, But they've also been quite successful in selling these index and aggregated data plays at the state level into other law enforcement agencies that sit outside of a traditional local law enforcement police department type of thing. I think point one, I would say, Tennessee is a pretty interesting case study where they've been able to sell the CopLink solution statewide. in the state of Tennessee. That's a seven-figure deal to give you a sense of the scalability of these things. There are some other states that we're pursuing jointly outside of Tennessee that we're pretty excited about, although from a timing point of view, it's not exactly clear when those can happen. So that's why we're being a little bit cautious about not getting over our ski tips and including those in our guidance, but definitely in our pipeline and could contribute quite significantly to our 2023 results.
spk05: Gotcha. Last question for me, just in terms of the non-respond potential contracts in the pipeline. Are those primarily cross-sells to your existing customer base, or are you seeing the ability to perhaps target some non-respond customers with those products as well? And I guess the states would kind of fit into that category that we just discussed.
spk04: Yeah, I'd say it's a mix of the two, both. I mean, cross-selling to our existing install base and then also leveraging the set of relationships that CopLink has outside of our traditional ShotSpot or Respond install base. That's pretty interesting. But there's a lot of cross-sell, up-sell opportunities for us.
spk00: Okay. Great. Thanks, guys. Appreciate it. Thank you.
spk06: As a reminder, if you'd like to join the question queue, press star, then 1. The next question comes from Will Power with Baird. Please go ahead.
spk01: Hey, guys. This is Charlie Ehrlich on for Will. Thanks for taking the question. Ralph, I think you mentioned a couple of cities, the new response cities and the expansion in three cities. Would you mind just repeating which cities are the four new ones and which cities did you expand with in the quarter?
spk04: Sure. To repeat that, so the four new cities that we went live with domestically with ShotSpot or Respond in Q1 was Houston because that's when they became a paid customer effectively, 1.1. of this year, Macon Bibb County, Pasadena, and then Virginia Beach. And then we had expansions in Albuquerque, Syracuse, and Louisville, along with two new security customers. And one of those security customers was a really interesting commercial manufacturing campus. So a little bit outside of the traditional higher ed campus we typically have installed in with our security deployments.
spk01: Great, thanks. And then, is there any way you could help us break out the revenue from respond in the quarter, connect, investigate forensics, just to get a little bit of a better picture of how much contribution each of those pieces had?
spk03: Yeah, this is Alan. I would say the majority is still related to respond. However, when we count some of the catch-up that we had related to the lead section, You know, that ends up being, you know, about 20%, 25% of the revenue. We also had our first quarter of forensic logic, and the forensic logic was around $1.5 million as well.
spk01: Okay. That's very helpful. Thanks. And then, Alan, I just wanted to talk about the increase from 100 miles to 120 miles expected in 22. Where did that increase come from in terms of, you know, Is the Delta the domestic respond business, Tier 1s, Tier 3s, international, any more color on that Delta?
spk03: Yeah, this is Alan. I'll start with this, and Ralph, go ahead and add as well. I think the biggest thing that we're seeing is there are some new opportunities that we know are in development right now that are helping us go from that 101 that we had last year to the 120. So those are... Those are expected to be under contract in the next several months. When they actually go live is where the revenue will actually be dependent on that. But we are also seeing some Tier 4, Tier 5 smaller cities, and sometimes those even come a little faster. That's generally like one to two miles, and we're seeing more of those as well. So it's a mix, actually. Okay.
spk04: And I'll just add, those are all domestic too, by the way. So that doesn't include international. That's a separate line item from our point of view. Correct. So the 120 is just for domestic miles.
spk01: Gotcha. That's helpful. And lastly for me, on the international point, you know, any updated thoughts between, you know, now and three months ago? Any increased confidence that, you know, you might get more miles than you previously thought you might? Or just any updated thoughts on international for 2022?
spk04: So this is Ralph and Alan jump in here, but I think we're feeling really good about international. I think we talked earlier about us responding to a Cape Town issue tender. And although we haven't been officially awarded the tender, we have been in fairly constant, I would say, communications with the supply chain in Cape Town discussing, you know, contractual coverage areas, pricing and the like. So we're feeling really good about that. And I think there's also opportunities beyond Cape Town, although they'll probably be in the second half of the year outside of the U.S. and outside of South Africa, Central America, Caribbean, and Latin America or South America. We think there's another opportunity in there for us in addition to the Cape Town opportunity.
spk00: Awesome. Thanks very much. Mm-hmm.
spk06: At this time, this concludes our question and answer session. If your question was not taken, you may contact ShotSpotter's investor relations team by emailing ssti at gatewayir.com. I'll turn the call back over to Mr. Clark for any closing comments.
spk04: Thank you so much, and thanks, everyone, for joining the call today. Al and I are both looking forward to seeing many of you in person, hopefully, over the next several months. Okay?
spk00: Take care. Cheers. Bye-bye.
spk06: thank you for joining us on today's call you may now disconnect
Disclaimer