SoundThinking, Inc.

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.

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.

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.