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spk02: Good afternoon and welcome to SoundThinking's third quarter 2024 conference call. My name is Shomali and I will be your operator for today's call. Joining us are SoundThinking CEO, Ralph Clark and CFO, Alan Stewart. Please note that certain information discussed on the call today will include forward-looking statements for our future events and SoundThinking's business strategy and future financial and operating performance. These forward-looking statements are only predictions and are subject to risk. Uncertainties and assumptions that are difficult to predict and may cause actual results to differ materially from those stated or implied by those statements. Certain of these risks and assumptions are discussed in the SoundThinking SEC filings, including this registration statement on form S1. These forward-looking statements reflect management's beliefs, estimates and predictions as of the date of this live broadcast, November 12th, 2024. And SoundThinking 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
spk05: a
spk02: link available in the Invest Relations section of the company's website at .soundthinking.com. With that, I'll now turn the call over to Ralph.
spk05: Good afternoon, everyone, and thank you for joining us today for SoundThinking's Q3 2024 earnings call. We appreciate you taking the time to join us today as we discuss our third quarter financial results, provide an update on our strategic and operational progress, and share our outlook for the remainder of the year. We're pleased to report a strong third quarter with revenues of $26.3 million, up 10% from the same period last year. For the -to-date period, we reported $78.6 million, representing an increase of 18% from the same period last year. The need for public safety technology solutions continues to be a compelling growth opportunity, and we believe the Safety Smart Platform is uniquely positioned. As the landscape of public safety technology continues to evolve, we're not just keeping pace, but we are leading the charge. Following our recent strategic partnerships with Recore Systems and the rollout of our co-branded PlateRanger ALPR solution, the Safety Smart Platform now offers six data-driven tools that leverage AI and machine learning technologies to enhance law enforcement operations. In addition to PlateRanger, the Safety Smart Platform includes ShotSpotter, which is our proven and market-leading gunshot detection system that improves police response to gunfire incidents and saves lives, Resource Router, our patrol management system that streamlines patrol operations to improve officer productivity and engagement, Case Builder, our case management and investigative collaboration tool to help close cases, Crime Tracer, the largest search engine platform for law enforcement that has over 1 billion criminal justice records to help accelerate investigations, and lastly, SafePoint, which is our discrete AI-based low-friction weapons detection solution. The Safety Smart Platform's unique value proposition lies in its ability to deliver a holistic, unified client experience, offering a comprehensive suite of public safety solutions under one secure and scalable platform. We believe our Safety Smart Platform strategy is gaining traction, empowering our law enforcement partners to deliver measurable, efficient, effective, and equitable public safety outcomes in the communities they serve. Our flagship ShotSpotter offering went live in four new cities in one university, as well as expanded in eight current cities in Q3. We also booked or went live with over 10 new customers for our other Safety Smart Platform solutions. Our ongoing market penetration is a testament to the effectiveness and reliability of our solutions in enhancing public safety. Domestically, we're on track to exceed 100 new ShotSpotter Go Live miles this year, including five new cities and nine expansion projects in our current staff project pipeline expected to go live in Q4 this year. Resource routers also perform above expectations and resonating in the market. We currently have five resource router implementations in the queue for Q4 Go Lives. We're very pleased with the strong demand we see for resource router, which answers the challenges many agencies have around structural staffing shortages. Our strategic partnership with Recore to integrate vehicle license plate recognition solutions into our Safety Smart Platform is also another highlight of the quarter and the year following the launch of Plate Ranger in September, 2024. The Plate Ranger solution targets a $2.5 billion TAM that is growing at 15% CAGR. It was an attractive opportunity, and while it's still in the early days, we're excited by the growing strength of the pipeline build, and we look forward to sharing more updates on operational traction once we are fully underway. Case Builder, our comprehensive case management solution, grew subscription-based revenue approximately ,000% for the third quarter year over year. We began recognizing $1 million of maintenance ARR earlier in the quarter with the delivery of the first major application or use case of PREA, the Prison Rate Elimination Act, to be followed by use of force in trial divisions and then eight other divisions within the DOC. The New York DOC leadership recently testified at a city council hearing on October 31st on the successful PREA bill live and their expectations that its implementation will help improve compliance and operational efficiencies on these types of corrections investigations. As expected, we also went live with Orlew's Parish in September and continue to have a healthy pipeline of new case builder opportunities headed into 2025. Our very successful deployment of Case Builder in one of California Department of Justice divisions is expected to create further opportunities for us within the agency. Crime Tracer investigative search engine was successfully deployed with six new customers adding to the 250 plus customers currently leveraging Crime Tracer. We expect to continue to make significant investments to maintain and improve the performance of our solutions. To that end, during the third quarter, we announced the availability of a major upgrade to our advanced weapons detection system called SafePoint NextGen, which reflects our conviction and commitment to innovation in meeting the increasingly complex security needs of our customers. We're actively migrating our current customer install base to the NextGen platform and securing new customers who had been waiting for NextGen's new features along with SOC 2 and HIPAA compliance. On the operational front, we continue to make significant strides highlighted by the recently announced three-year greenet with the Ministry of Interior of Uruguay to expand ShotSpotters gunshot detection coverage in Montevideo by an additional 12 square kilometers, which represents a doubling of its current footprint in the capital city. We have two major contract renewals in process with NYPD, including ShotSpotter, as well as the maintenance and professional services work performed by our technology division that provides critical ongoing enhancements and support of NYPD's on-premises ERP system. Both contracts have successfully made their way through NYPD's Information Technology Bureau, or ITB, onto New York City's Office of the Management and Budget, OMB. And late last week, we learned that the three-year ShotSpotter renewal has moved on to final approval, and it sits with the New York City Comptroller's Office. Given the criticality of these solutions and the strong support it has from NYPD leadership in the Mayor's Office, we're confident that both contracts will be executed by year end. As a reminder, our ShotSpotter service in Chicago operationally concluded in late September with a formal contract termination that will occur later this month. Comprehensive civic debates between the Mayor and the City Council on extending the service beyond this month are ongoing in entering the city's overall 2025 budget negotiation process. There continues to be strong support from a veto-proof majority coalition of the City Council. Residents were polling data revealed that 70% of all Chicago voters strongly support, or support Chicago's continuing use of ShotSpotter, as well as local press and the business community that have recently organized themselves to raise over $2.5 million to help defray the cost of ShotSpotter. In addition, a very strong positive came in from the recent University of Chicago crime lab study that statistically estimated that Chicago's ShotSpotter deployment saves approximately 85 lives per year. In the meantime, the city has published an RFI due later this month, intending to reimagine community safety by soliciting bids for quote-unquote first responder technology solutions. In part, the RFI details requirements such as the ability to detect, locate, and alert on gunfire within 60 seconds with exact positional data. In addition, the RFI also calls for the alert to include a forensic timestamp recorded snippet of the gunfire incident. Coincidentally, many of these requirements are among the same capabilities that ShotSpotter has operationally demonstrated in Chicago since 2012. In terms of market position, our strategic initiatives and product launches have strengthened our standing. We're leveraging our technological expertise and market insights to navigate the dynamic landscape and seize on new growth opportunities. Our strategic partnerships and product innovations are the driving force behind our operational excellence, which has resulted in another world-class net promoter score of 66%, moving up two percentage points from last year's 64%. As a reminder, a score of 60 or higher is considered world-class in any industry. It is notable since 2020 to -to-date, the company has added over 85 new ShotSpotter customers, executed 50-plus expansions, and processed over 660 annualized renewals compared to only 15 non-renewals, which effectively averages to 139 annualized renewals per year versus three non-renewals per year. As a reminder, Chicago's non-renewal has already been factored into our 2025 budget and 2024 guidance, which we're maintaining at 104 to $106 million in revenue, with 18 to 20% adjusted EBITDA margin. We are confident in our guidance and believe we are well-positioned to drive diversified and profitable growth into 2025 and beyond. In summary, our strategic initiatives, product expansion, and ALPR reseller partnerships have positioned us for continued growth and operational efficiency. We're extremely excited about the opportunities ahead and remain committed to delivering innovative solutions that enhance public safety and community trust. I want to thank you for your time and continued support. I'll now turn the call over to Allen to discuss our financial results for the quarter and guidance for the year. Thank you, Ralph. Good afternoon, everyone. We're pleased with our third quarter results. Our strong financial performance reflects the success of our ongoing strategic initiatives, operational efficiency measures, and our commitment to delivering value to our shareholders. The third quarter revenues were $26.3 million, representing a 10% increase of the $24 million in the third quarter of 2023. Revenues were driven by new customers, expansion of existing customer coverage areas, additional cost selling, including from Newport News, which added our Prime Tracer and Case Builder solutions to complement already implemented Shots Plotter and Resource Router solutions. Bookings of all of our Safety Smart Platform solutions, some of which are multi-year contracts, are also growing healthily. Gross profit for the third quarter of 2024 was $15.2 million, or 58% of revenue, versus $13.8 million, or 57% of revenue for the prior year period. We expect gross margins to be higher in Q4, ending the year near the 60% that we have indicated in previous quarters. Our adjusted EBITDA was up approximately 5% from the third quarter of last year to $4.5 million, up from $4.3 million. Our adjusted EBITDA increase was related to revenue growth in all solutions. As a reminder, adjusted EBITDA, a non-GAAP financial measure, is calculated by taking our GAAP net income or loss and adjusting out interest income, income taxes, depreciation, amortization, and impairment, restructuring costs and losses, including on the related fixed asset disposals, stock-based compensation expenses, and acquisition related expenses, including adjustments to our contingent consideration obligations. Turning to our expenses. Our operating expenses for the third quarter were $16.3 million, or 62% of revenues, versus $15.2 million, or 64% of revenues in the third quarter of 2023. Third quarter 2023 had an approximately $100,000 adjustment for contingent consideration related to our forensic logic acquisition. Breaking down our expenses, sales and marketing expense for the third quarter were $7.2 million, or 27% of total revenue, compared to $6.3 million, or 26% of total revenue for the prior year period. Our R&D expenses for the third quarter were $3.4 million, or 13% of total revenue, compared to $3.2 million, or 13% of total revenue, in line with the prior year period. DNA expenses for the quarter were $5.7 million, or 22% of total revenue, compared to $5.7 million, or 24% of total revenue for the prior year period. In the third quarter of last year, our DNA expenses included an approximately $100,000 reduction related to the change in the fair value of the contingent consideration related to forensic logic or in our expectations. We expect our DNA expenses to grow less than our revenue on a percentage basis as our company grows. Our gap net loss was approximately $1.4 million, or a loss of 11 cents per basic and diluted shares for the quarter based on $12.7 million basic and diluted weighted average shares outstanding. This compares to a net loss of $1.9 million, or a loss of 15 cents per basic and diluted shares based on $12.5 million basic and diluted weighted average shares outstanding respectively for the prior year period. Deferred revenue at the end of the quarter was largely in line at $49.5 million compared to $49.4 million at the end of Q2 of 2024. We ended the quarter with $15.3 million in cash and cash equivalents versus $9.8 million at the end of the second quarter of 2024. The cash bounce is higher than the end of the second quarter even after we repurchased 294,790 of our shares at an average price of $14 for approximately $4 million. Currently, we have approximately $21 million available on our line of credit as we have only approximately $4 million in debt outstanding all on our line of credit. Now turning to guidance. For the full year 2024, we're maintaining our full year revenue guidance range at $104 to $106 million. We are expecting the Q4 revenues will be over $26 million even after including the loss of approximately $1.2 million from the loss of the Chicago contract in Q4, which is expected to end on November 22nd. We are maintaining our full year 2024 adjusted -to-margin guidance at 18 to 20%. For our 2025 guidance, even with the loss of approximately $8.5 million from the loss of the Chicago contract, we're expecting our revenue to increase to a range of $107 to $109 million. We are also expecting our adjusted eviduct increase to a range of 19 to 21%. Overall, we are pleased with the progress we have made on our strategic initiatives and the performance of the business. With that, we're now happy to open the call for questions. Operator, will you please open the call for Q&A?
spk02: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. One moment please while we call for questions. Our first question comes from the line of Richard Vaudry with Ross Capital. Please proceed with your question.
spk03: Thanks. The RFI is fairly specific on the Chicago side. I'm very curious if you've run into an RFI of that specificity, have any other vendors ever seen it? Have you ever shown up able to compete with those characteristics or do you feel fairly unique in that group?
spk05: Yeah, so we've had a chance to dissect the RFI and it does look quite familiar to us. We've seen similar RFIs or RFPs. I think in one particular case, there was an RFP from an agency in New Jersey that we successfully bid on and won twice. So we're pretty encouraged by the list of requirements that were listed in that RFI, but do understand that this is an RFI, not a RFP. So they're basically trying to get input on ideas. And so that's where that whole process is in Chicago.
spk03: And can you drill into sort of the safe point per minute on you've got a major upgrade now out in the market. How is the pipeline looking, are really closed deals, any feedback on the upgrade to think about that one heading out of the year and into 2025?
spk05: Yeah, so the pipeline looks very strong. It continues to grow and build. I think people are really keen on the next gen platform and additional features and capabilities we're providing to contactless weapons detection. So we're pretty excited. And there's a number of deals that we're looking to close in Q4 going into 2025 with the wind at our back with respect to safe points. So we're pretty pleased with that business and how it's developing.
spk03: Nate, sort of building on that, when you think about your 2025 guidance, how much change sort of year to year does that assume for go lives for either short shots about so your legacy offering for gunshot detection and safe point for weapons detection?
spk05: Yeah, so this is Alan and Ralph can either correct. We were still expecting our shot splitter to be around a hundred miles plus, might be higher than that as well once we add in some of the international opportunities that we have. So that's on the shot splitter side, on the safe point side. To be clear, as Ralph mentioned, the pipeline is strong there. And just to give you some stats that I think are really important, we added in terms of bookings, now those some are multi-year, but about a half a million in Q1, north of that in Q2, over a million in Q3, and already over that in Q4. And that's for safe point alone. So when we look at guidance, it's not just shot splitter, which is gonna continue to grow, but the other solutions that we have are adding significant bookings across the board and helping our diversification, help our revenue grow.
spk03: And last for me, on the safe point side, as you see that ramp, what would be any friction to growth for that segment? Are most of the components sort of common off the shelf? Are there custom things that could challenge growth if something larger contracts were to come through sooner or earlier than you expected?
spk05: Yeah, so this is Ralph. We are looking at some potential supply constraints that we think will open up in the beginning of 2025. Part of the next gen safe point solution includes some AI work being done at the edge. There's a aura, there's a box at the edge that's connected to a 3D camera that has some little bit of supply constraint around the Nvidia chipset. So we're currently getting those kind of shipped in a fairly sufficient quantity to support our ramp of next gen go lives for 2024 for the remainder of this year. But as that ramps up, we're gonna have to see that supply significantly increase to kind of meet the projections that we have in mind for safe point. And we think we'll be fine there, but we are looking at it fairly closely. So,
spk02: great, thanks. Thank you. Our next question comes from the line of Eric Martinuzzi with Lake Street. Please proceed with your question.
spk01: Yeah, I just wanted to size up the Chicago impact on 2024. I know you said eight and a half million annualized, but based on the 2024 guide, what is the actual expected revenue contribution in 2024?
spk05: Yeah, so this is Alan. The actual revenue in 2024 is about 9.2 million. So it's definitely less than the 8.5 because we did have some revenue that we recognized before we got the 8.5 million contract in January and February of this year.
spk01: Okay. And one of the things that you talked about last quarter was a sales cycle elongation, just really due to more education and constituent deliberation that was impacting the pipeline conversion specifically on ShotSpotter. Any further color you can give us there? Is that elongation flexed at all, or is it pretty much it was captured in the Q2 comments?
spk05: Yeah, this is Ralph. I think it's stabilized. It's pretty much where it was in Q2. We're looking at kind of 12 to 18 month sales cycles still with respect to ShotSpotter. But offsetting that, which is kind of interesting, we're seeing much more closed sales cycles for SafePoint, kind of given it's a different buying center on the commercial security side versus the kind of public safety public government side. So we're pretty encouraged by the mix of sales cycles we see across the portfolio with things happening a lot quicker, I would say on the SafePoint side, and kind of still these kind of 12 to 18 month sales cycles on things like ShotSpotter. And that would put kind of plate ranger expectation as plate ranger is going to be something kind of in the middle, because it is a defined category that has defined budget dollars associated with it. I think people pretty much understand the ALPR space pretty well.
spk01: Got it, thanks for taking my questions.
spk02: Thank you. And as a reminder, if anyone has any questions, you may press star one on your telephone keypad. Doing so will join you into the queue to ask a question. Our next question comes from the line of Trevor Walsh with CitizensJMP. Please proceed with your question.
spk04: Great, hi team, thanks for taking my questions. Just piggybacking a little bit off the SafePoint and the plate ranger commentary from last couple of questions. Ralph, Andor, Alan, could you just give us a sense of, sort of, I understand the pipeline's strong, but could maybe give us a sense of kind of where the rev-rack, as those deals sort of flow in, kind of what that looks like, just from a timing perspective, if it's kind of takes some time to deploy, if it's similar to kind of what you see, similar to the ShotSpotter type of deals, or I guess how in the context of the 25 guide, you see those revenues kind of flowing in once you actually do win those deals.
spk05: Yeah, so this is, I'll have a start. Go ahead, Ralph. No, no, go ahead.
spk03: Sorry, you go ahead.
spk05: Okay, so the short answer is, normally with like a ShotSpotter, it takes about three to four months after contract is signed till we go live. We're finding a much shorter cycle for that for SafePoint when we get a contract signed, provided the customer's ready to go. We can get things as low as six to seven weeks and go live. So that's actually when we get the bookings, and as I mentioned, we've already gotten over $4 million in bookings in SafePoint this year. Those are going to come in and help achieve the revenue a little faster than what a ShotSpotter would
spk04: be. Great, thanks, that's helpful. And then also around that 2025 preliminary guide, nice kind of above expectation around EBITDA size of the house. Can you just maybe give us a sense from kind of where you're seeing some of that leverage kind of heading into next year as we think about modeling kind of going forward?
spk05: Yeah, sure, this is Alan again. So there's several things that are going on. Number one, as we've said in other quarters, some of the last couple acquisitions we did were still investing, technology acquisitions were still investing, and as the revenue grows with them, the actual profitability grows as well. So we're starting to see that. If you just talk about four of them not even counting Playranger, having almost $7 million in bookings already helps us grow each one of those. And that $7 million is what we've had in 24. We're gonna have additional 25. So that's gonna help. We've also had some reductions in some costs that were appropriate we thought, actually quite small, but that's gonna add a little bit as well. So revenue's gonna grow, costs and actual expenses are gonna go down a little bit in those categories. That's how the adjusted EBITDA is going to improve.
spk04: Great, thanks Alan, I appreciate it. And maybe one last one for me, Ralph, for you. You guys put out a press release last month, maybe a couple of months ago now actually, around a study you did in conjunction with the city of Oakland around just product efficacy. Just wondering is that part of your maybe new or revised PR playbook of just getting ahead of where you see potential more political city type of questioning of the tool or some other purpose of that study being put out there? Just curious kind of what the, I guess the overall strategic kind of rationale was for doing that, thanks.
spk05: Yeah, thank you very much for that question. It's a great question. Yeah, so we're trying to be a lot more intentional around helping our law enforcement agency partners tell their story about the efficacy and value that the acoustic gunshot detection technology delivered by ShotSpotter provides them as a first responder agency getting to the scenes of gun crime. I think fundamentally it's really important that people understand that 80 to 90% of criminal gunfire goes unreported. And if it wasn't for an acoustic gunshot detection technology like ShotSpotter, these incidents would have no response. And so we're enabling a quick fast response that are getting first responders to these scenes. They're finding victims and they're able to get victims to trauma care centers to save their lives. They're recovering evidence. They're seeing improved community engagement because now these communities see police responding very quickly and precisely to these events. And it gets lost in the shuffle sometimes. So what we're trying to do with our agency partners is helping them kind of get in front of those city council meetings by kind of gathering that data and developing the narrative and story around the value and why people should be paying attention to it and it worked very well for us in Oakland. We're really proud of the fact that we got almost unanimous approval from the city council. And Oakland's a fairly progressive city. There's a little bit of noise coming from, I would say large, a small group of activists, small but loud group of activists that we're trying to challenge ShotSpotter. But at the end of the day, when we're able to get those facts out there, the city council we think made the appropriate decision with only one dissenting vote in a place like Oakland. So that's a hopefully a good harbinger of things to come in other places as well, getting that renewal cross the line with that playbook of helping agencies tell their story better.
spk04: Great, thanks both, appreciate the questions. Thank
spk02: you. We have reached the end of the question and answer session. And I'll now turn the call back over to Ralph Clark for closing comments.
spk05: Thank you to everyone who joined us today and thank you to my sound thinking colleagues, clients and partners for their support. In summary, we're pleased with our performance and excited for the opportunities heading into 2025. We have an outstanding company will continue to be focused on maximizing shareholder value. Thank you all for your insightful questions and for joining us today on this earnings call. We appreciate your continued interest and investment in sound thinking. We look forward to sharing our products with you in the coming quarters, thank you.
spk02: And this concludes today's conference and you may disconnect your line at this time. Thank you for your participation.
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