SoundThinking, Inc.

Good afternoon and welcome to SoundThinking's first quarter 2025 earnings conference call. My name is Kevin and I'll 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 in future financial and operating performance. These forward-looking statements are only predictions that are subject to risks, 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 SoundThinking'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 13, 2025, 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'd 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. With that, I'll turn the call over to Ralph.

Ralph, please go ahead. Good afternoon, and thank you for joining SoundThinking's Q1 2025 earnings call. I'll start by providing some high-level commentary on our financial results, progress we're making on our key strategic initiatives, and then share some thoughts on the headwinds and tailwinds we're seeing in the public safety and security marketplace. I'm pleased to report that we're off to a strong start in 2025, delivering disciplined growth and expanding our platform and data aggregation capabilities to help position SoundThinking as a clear leader in the public safety technology space. Our work matters and we believe it's resonating in the market. I'm proud of the momentum we've built and even more excited about what's ahead. In the first quarter, we delivered 12% revenue growth year over year of $28.3 million driven by solid new sales and renewal activity. As a reminder, there was approximately $3.5 million of catch-up revenue in the quarter based on the renewal of two delayed contracts with New York City Police Department, including ShotSpotter and Technologic, which totaled $64 million over a three-year term. Our adjusted EBITDA grew 50% year-over-year to $4.5 million highlighting our operational leverage and profitable growth strategy. ShotSpotter remains a core part of our Safety Smart portfolio and is trusted by public safety agencies across the country. In Q1, that trust was reaffirmed with NYPD's decision to extend their ShotSpotter contract for an additional three years. We believe that this renewal, with one of our largest and longest standing customers, 12 years and counting, speaks volumes about the sustained value and operational reliability of our gunshot detection platform in America's largest city. We also went live with four new cities plus one expansion in the quarter. Our international ShotSpotter pipeline is robust and growing. We're very pleased to see a soon-to-be live ShotSpotter deployment in Niteroi, Brazil, marking our return to this strategically important market. We will now have two strong and important reference customers in both Spanish-speaking and Portuguese-speaking Latin America. We expect to see accelerated traction with ShotSpotter internationally in the second half of this year and early 2026 based on these touchstones. Let me also take a moment to address the recent five-year Chicago gunshot detection RFP, which we bid on in April. We believe our submission represents a comprehensive and compelling proposal that reflects our deep experience proven performance and longstanding partnership with the city, which spanned well over a decade. We fully respect the integrity and objectivity of the procurement process, but quietly feel confident in the strength of our offering and the differentiated value that we will bring back to the city of Chicago. And while we await the outcome of the formal bid adjudication process, I must also emphasize that our current outlook does not include any contribution from Chicago. Any potential re-engagement with Chicago would represent pure upside. Our Crime Tracers solution is evolving into one of the most powerful AI-enhanced law enforcement tools in the country. We warehouse over one billion CJIS-compliant documents from more than 1,000 law enforcement agencies and federate to billions more through index, Navy Links, and Thomson Reuters Clear, giving investigators access to an expansive depth of structured and unstructured data. But what we believe makes Crime Tracer truly unique is how we can apply generative AI and soon to be large language models and agents to make that data just not searchable, but contextually insightful. This quarter, we deployed new features that allow investigators to ask natural language queries like, show me persons of interest who match known patterns in recent thefts involving white vans in three counties, and receive actual insights that would take hours, if not days, to surface manually. The combination of search, summarization, and synthesis is transforming what's possible for digital casework and crime linking. Furthermore, we also made progress integrating Crime Tracer's large data footprint with Plate Ranger's ALPR data to unlock powerful response and investigative use cases for our customers. We believe that this integration provides a force multiplier for real-time and retrospective investigations, allowing investigators to seamlessly move back and forth from narrative-based incident search to connected license plate recognitions. We believe this ability will enable agencies to help solve cases faster with fewer resources. The early feedback has been extremely positive and has proven to be a powerful differentiator in driving plate ranger traction. More importantly, we view this as foundational to move into building a truly multimodal investigative intelligence platform that combines people, places, vehicles, and incidents in a single pane of glass. We continue to scale Resource Router, our proactive patrol planning tool, with strong adoption and demonstrable results. Resource Router is currently deployed in over 20 agencies, more than double its install base less than 18 months ago. Agencies are using it to allocate limited officer resources to areas with the highest probability of criminal activity, and we're seeing real-world impact in both community engagement and crime suppression. As public safety agencies face mounting pressure to do more with less, resource router seems to be an essential capability, not just a nice to have. Now let me turn to one of our most exciting growth areas, SafePoint. Following the passage of California Assembly Bill 2975, hospitals are now required to deploy weapons protection systems at all public entrances by 2027. This is a seismic shift in healthcare securities policy and plays directly to SafePoint's strength. Our system uses passive low-frequency magnetic field detection, not invasive scanners or disruptive walk-through gates or intimidating checkpoints. That means hospitals can maintain patient dignity, visitor experience, and operational throughput, all while meeting the new legal compliance standard for safety. We've already engaged with multiple large healthcare systems in California, and we see similar legislation advancing in Maryland, New Jersey, and beyond. With over 400 hospitals impacted in California alone, each with multiple entrances, the now mandated and addressable opportunity is significant. We believe SafePoint can become a category-defining solution in this space, not only for hospitals, but for any environment where high-flow, high-stake security is required. As we move further into 2025, we remain bullish and focus on executing to our growth strategy and strategic roadmap. And while there have been very positive tailwinds to our business, driving strong demand for our capabilities, we remain acutely vigilant around lingering headwinds, especially those related to municipal funding and budgets. We're taking appropriate risk mitigation efforts, including doubling down on our customer success and engagement efforts, adding a grant writing resource, and modeling higher levels of attrition than what we have historically experienced to account for that volatility. To that end, we continue to believe that we are well-positioned to drive both revenue and ARR growth for 2025. We are reaffirming our full-year revenue guidance range of $111 to $113 million, while slightly reducing our adjusted EBITDA guidance range to 20 to 22 percent to account for the modest impact of the current tariff regime, along with investments we're making in AI modeling and tools in AWS that are being incorporated in our products, as well as for our internal operational use. I will now turn the call over to Alan to discuss our financial results for the first quarter of 2025, as well as guidance for the full year 2025 in detail, and then we will be happy to take your questions.

Thank you, Ralph, and good afternoon, everyone. As Ralph mentioned, we are pleased with our first quarter 2025 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. Revenues were $28.3 million, representing a 12% increase over the $25.4 million in the first quarter of 2024. As Ralph mentioned, our 2024 year-end financial results were impacted primarily due to the delayed renewal of two contracts with New York City Police Department. Both of the NYPD contracts were signed in the first quarter with approximately $3.5 million of the catch-up revenue from the contracts. We're also pleased to report that both of those contracts were three-year renewals representing over $64 million in contract awards. The bookings of all of our safety smart platform solutions, some of which are multi-year contracts are also growing healthily. Gross profit was $16.6 million or 59% of revenue compared to $14.9 million or 59% of revenue for the prior year period. Our adjusted EBITDA was $4.5 million compared to $3 million in the first quarter of 2024. our adjusted EBITDA increase was related to the delayed contracts. 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 those related to fixed asset disposals, stock-based compensation expenses, and acquisition-related expenses, including adjustments to our contingent consideration obligations. Our adjusted EBITDA was a bit lower than consensus estimates as we held our company all-hands meeting, which cost over $700,000 in the first quarter. This one-time event happens only once a year, generally in the first quarter. Our legal and accounting expenses are also historically higher in the first quarter as we complete our annual financial audit and our preparation for and filing of our 10K. And as Ralph mentioned, we are investing more in our AI capabilities as well. Our operating expenses were $17.8 million or 63% of revenues compared to $17.5 million or 69% of revenues in the first quarter of 2024. Breaking down our expenses, sales and marketing expense in the first quarter was $7.3 million or 26% of total revenue, compared to $7.1 million, or 28% of total revenue, in line with the prior year period. Our R&D expenses were $4.1 million, or 14% of total revenue, compared to $3.6 million, or 14% of total revenue in the prior year period. DNA expenses of the quarter were $6.5 million, or 23% of total revenue, compared to $6.8 million, or 27% of total revenue, for the prior year period. As a reminder, we expect our G&N expenses to grow less than our revenue on a percentage basis as our company grows. It's important to recognize that the percentage of revenue of each of our OpEx categories is at or below the level of the first quarter of last year. Our gap net loss was approximately $1.5 million, or a loss of cents per basic and diluted share for the quarter, based on 12.6 million basic and diluted weighted average shares outstanding. This compares to a net loss of $2.9 million, or 23 cents per basic and diluted share, based on 12.8 million basic and diluted weighted average shares outstanding for the prior year period. Deferred revenue as of March 31st, 2025 was largely in line at $45.4 million compared to $44.2 million at the end of fourth quarter 2024. We ended the first quarter with $11.7 million in cash and cash equivalents compared to $13.2 million at the end of fourth quarter 2024 and much higher than the $5.7 million that we had at the end of 2023. We repurchased 33,493 of our shares at an average price of $15.04 for approximately $504,000 in the first quarter of 2025. Currently, we have approximately $21 million available on our line of credit, as we have approximately $4 million in debt outstanding all along our line of credit. Now turning to our guidance for the full year of 2025. We are reaffirming our full-year revenue guidance range of $111 to $113 million. We are reducing our full-year 2025 adjusted EBITDA margin guidance range to 20% to 22% related to potential costs associated with tariff changes and the investments that we are making in AI modeling and tools that we are incorporating in our products and internal operational use. We are reaffirming our expectation for our annual recurring revenue, or ARR, to increase from $95.6 million at the beginning of 2025 to approximately $110 million at the beginning of 2026. As a reminder, this guidance is in spite of the loss of approximately $9.7 million from the loss of the Chicago shot spotter contract in 2024. Overall, we are pleased with the progress we have made on each of our strategic initiatives and operational performance of the business. With that, we're now happy to open the call for questions. Operator, will you please open the line for Q&A?