SoundThinking, Inc.

And welcome to Sound Thinking's first quarter 2024 conference call. My name is Joe, and I will be your operator for today's call. Joining us are Sound Thinking's 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 Sound Thinking'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 Sound Thinking's SEC filings, including 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 14, 2024, and Sound Thinking 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 everyone that this call will be recorded and made available for replay via a link available in the investor relations section of the company's website at ir.soundthinking.com. Now, I would like to turn the call over to SoundThinking CEO, Ralph Clark. Sir, please go ahead.

Good afternoon, and thank you for joining our Q1 2024 earnings conference call. Before I review the specifics of this quarter's results, I want to first share with you how very excited we are about the growth prospects for this year and our strong start to 2024. As we highlighted in SoundThinking's recent investor letter, our growth strategy can be summarized as a land, expand, cross-sell, and retain model. Our land opportunities or new customer acquisitions have greatly expanded beyond our historical acoustic gunshot detection business. We're now going to market with five offerings that comprise our Safety Smart platform announced last year. As we land new customers on any specific solution on the platform, our goal is to maximize the value those customers experience. We believe this strategy drives retention. And if there's an identified need, it can also potentially lead to appropriate expansions and or cross-sell opportunities. We believe we're early in the law enforcement and now commercial security digital transformation market, and that this opportunity remains extremely attractive and significantly under penetrated. We believe our go-to-market strength as a trusted advisor uniquely positions us to capitalize on this opportunity as we're now able to offer relevant solutions that addresses the pressing needs of this large and growing market. Here's what we accomplished in Q1 of this year. Revenues were in line with our expectations of $25.4 million compared to Q1 2023 revenue of $20.6 million, representing over 23% year-over-year growth. Adjusted EBITDA was $3 million, or 12% of revenues, compared to $2.9 million, or 14% of revenues, for Q1 2023. Our revenue attainment was primarily the result of our previously booked and deferred revenue, professional services revenue from our technologic solutions business, combined with net new business from the platform. Net new business included go-live traction with 11 new ShotSpotter customers in the quarter, including one campus security deployment at University of Georgia. Four of the new public safety customers were in New Jersey, which is specifically budgeted for acoustic gunshot detection at the state level. We also went live with a strategic deployment in Philadelphia with the Philadelphia Housing Authority. This gives us an important strategic foothold in the city of Philadelphia with the possible future expansion opportunity in a major Tier 1 city. ShotSpotter also saw two expansions in Boston and Suffolk Counties. Resource Router went live in three new cities in the quarter, and we're seeing exceptional pipeline and bookings traction in new customer captures and cross-sell opportunities for Resource Router this year. In addition, we added two new crime tracer data providers, growing our already exceptionally large data footprint. We continue to make progress on our New York City Department of Corrections case builder implementation, which has led to several new corrections opportunities, including Orleans Parish, which has been booked and is expected to go live in the next 60 days, along with a case builder deployment within the California Department of Justice. Lastly, we landed four new SafePoint customers consisting of a hospital, a gaming venue, and two schools. Looking forward, we have 16 ShotSpotter Go Live projects underway, representing eight new customers and eight expansions. We believe all these developments further validate the demand that we are seeing in the marketplace in the strong execution on our key growth initiatives. On the international side, we were very pleased to report on the rapid adoption of best practices by our Montevideo Uruguay shot water customer in the first 90 days of deployment. The client went live in mid-December 2023 with an array totaling 4.6 square miles. In the first 90 days of deployment, the agency has begun to effectively leverage ShotSpotter data to allocate policing resources to impacted areas and to support investigations, including the use of ShotSpotter data as evidence in a recent tragic killing of a police officer. In addition, the agency is fully embracing integrating ShotSpotter with other digital tools used in their policing and community engagement efforts. We believe these positive results in the client's willingness to broadly share their successes with other countries will seed the potential market opportunity for ShotSpotter in the larger South American market. In fact, we're making steady progress to book and go live with another major South American city in early Q3 of this year. Overall, we continue to refine and enhance the SafePoint solution, including a major software upgrade coming this quarter. We are leveraging the existing sound thinking software stack in order to provide a new and more modern user experience. For example, we're making it easier to monitor multiple facilities and entrances and to quickly find historical incidents of interest. Moving to this new code base will make future enhancements faster to deliver as well. We also expect to deliver an upgrade later in the year to the object detection classifier by integrating a new camera system and machine learning model using the company's deep experience in artificial intelligence and machine learning, which we believe will enhance SafePoint's detection efficacy. In fact, we've been granted a new fundamental patent on using passive magnetic moment in motion to detect weapons, which allows the systems to be unobtrusive helping to provide a better experience for visitors and employees, all the while providing an important layer of security protection. Our SafePoint demand generation engine is fully operational with two dedicated BDRs who are assigned to drive over 250 discovery calls for the year, of which they have successfully delivered on 65 calls in a compressed Q1 2024. As a reminder, We also have in place five seasoned territory sales professionals combined with two recently hired and experienced security experts as customer success directors to help guide our go-to-market discussions as well as onboard new live customers. So far this year, we've secured business from our top three verticals, healthcare systems, casinos, and enterprise corporate accounts. And our momentum in healthcare is particularly impressive with having either secured lanes or being in advanced contract negotiations with multiple healthcare systems. We've seen security professionals in the healthcare system vertical that have already deployed competing products turning to SafePoint due to its lower total cost of ownership and discrete footprint. The SafePoint pipeline continues to grow in these key verticals and is currently over $12 million. We believe this provides solid coverage to meet the $5 million target for book ARR forecasted for SafePoint this year. With respect to our full year outlook, we are reaffirming our revenue guidance of 104 to $106 million for 2024, along with our adjusted EBITDA margin guidance of 18 to 20% for the year. Now, Alan, over to you. Thank you, Ralph. We're pleased with our performance in the first quarter. As Ralph mentioned, this quarter we went live with our ShotSpotter gunshot detection solution in 10 new cities and one university, expanded our ShotSpotter coverage in two cities, and added seven new customers with our other software solutions, as well as several previously booked customers that have now gone live. Revenue is in line with our expectations and was attained from deferred revenue previously booked being recognized in the quarter, professional services revenue from our Technologic Solutions business, and also from new business mentioned above that went live. We had minor attrition of only six miles this quarter. Let me provide more details on the quarter, and then I will share some thoughts around the balance of the year. First quarter revenues were slightly above expectations at 25.4 million. Revenue is over 23% higher than first quarter of 2023, as we continue to grow in all aspects of our business. Gross profit for the first quarter of 2024 was 14.9 million or 59% of revenue versus 11.3 million or 55% of revenue for the prior year period. We expect gross margins to continue to improve as the year progresses. Our adjusted EBITDA for the first quarter of 2024 was $3 million up slightly from $2.9 million in the first quarter of 2023. Our adjusted EBITDA is lower than analysts' expectations primarily because of continued higher than expected legal costs, some other one-time expenses, and also because we conducted our company all-hands meeting in the first quarter, which added a one-time cost of almost $1 million. It is important to understand that we do not provide guidance on a quarterly basis for revenue or adjusted EBITDA. Adjusted EBITDA, a non-GAAP financial measure, is calculated by taking our GAAP net loss and adding back interest expense, income taxes, depreciation, amortization, and impairment, stock-based compensation, and acquisition-related expenses, including adjustments to our contingent consideration obligation. Turning to our expenses, our operating expenses for the first quarter were $17.5 million, or 69% of revenues versus $13.1 million or 64% of revenues in the first quarter of 2023. Operating expense increases were primarily related to higher headcount and employee related costs, including personal cost increases related to expected save point growth. Breaking down our expenses, sales and marketing expense for the first quarter was $7.1 million or 28% of total revenue versus $5.8 million, also 28% 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 also continue to focus on maintaining high levels of customer satisfaction, which helps keep our attrition rates low. Our R&D expenses for the first quarter were $3.6 million or 14% of total revenue, compared to $2.7 million or 13% of total revenue for the prior year period. We continue to invest in increasing the functionality of all of our products. DNA expenses for the quarter were $6.8 million or 27% of total revenue compared to $4.6 million or 22% of total revenue for the prior year period. DNA expenses were higher due to legal costs, our headcount increased, and other employee-related costs such as our all-hands meeting mentioned previously. We expect our G&A expenses will fluctuate quarterly throughout the year in absolute dollars as the company growth will require some investment that will be offset by the expected reductions of certain one-time expenses incurred during Q1. Our net loss for the first quarter was $2.9 million, or 23 cents per share, based on 12.8 million basic and diluted weighted average shares outstanding. This compares to net loss of $1.8 million or 15 cents per share based on 12.3 million basic and diluted weighted average shares outstanding for the prior year period. Deferred revenue at the end of the quarter was $50.8 million versus $42.1 million at the end of the fourth quarter of 2023. We ended the quarter with $8.5 million in cash and cash equivalents versus $5.7 million at the end of the fourth quarter of 2023. The increase is primarily related to AR collections, partially offset by the payment of the company annual bonuses in February. We have approximately $7 million of debt outstanding on our $25 million line of credits, related to cash used to partially fund the SafePoint acquisition last year. Turning to our full 2024 outlook, we are reaffirming our full-year 2024 revenue guidance range of $104 million to $106 million, representing over 13% year-over-year growth at the midpoint compared to 2023. We are also reaffirming our expectation for adjusted EBITDA margin to the approximately 18% to 20% of forecasted revenues in 2024. Now back to Ralph for some final thoughts, and then we'll be happy to take your questions. Thanks, Alan. And just to close my prepared remarks, it was exactly one year ago when we acknowledged the ultimate sacrifice of Chicago police officer Ariana Preston, who was tragically killed in an attempted carjacking when returning home from work. Sadly, we are here again, one year later, with the killing of another Chicago police officer, Louis Huesca, this past month in another attempted carjacking. Our sincere thoughts and prayers go out to his family, loved ones, and the Chicago Police Department. We believe these tragic incidents require us to even be more determined to do our part in providing tools and critical expertise to help law enforcement, first responders, and the communities they serve to save lives and to drive better public safety outcomes. We're now prepared to take your questions.

Ladies and gentlemen, if you would like to ask a question, please press star 1 on your telephone keypad and a confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the start keys. And our first question comes from the line of Richard Baldry with Roth Capital Partners. Please proceed.