SoundThinking, Inc.

Good afternoon and welcome to SoundThinking's fourth quarter and full year 2025 earnings conference call. My name is Diego 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 risks and uncertainties 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, uncertainties, and assumptions are discussed in Sound Thinking's SEC filings, including its most recent annual report on Form 10-K and other SEC filings. These forward-looking statements reflect management's beliefs, estimates, and predictions as of the date of this live broadcast, March 3rd, 2026, 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. In addition, our comments on the call today contain references to non-GAAP financial measures such as adjusted EBITDA and key business metrics such as annual recurring revenue, Non-GAAP measures should be viewed in addition to and not as an alternative for the company's reported GAAP results. A reconciliation of these non-GAAP measures to their most directly comparable GAAP measures as well as definitions of the key business metrics reference and management's reasons for including the non-GAAP measures and key business metrics reference may be found in the press release. 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. With that, I'll now turn the call over to Ralph.

Thank you, operator. Good afternoon, everyone, and thank you for joining us. I'll begin with high-level commentary on the quarter and the year, along with an update on our near-term outlook and strategic progress. Alan will then walk through the financials in more detail and provide guidance before we open up the line for questions. Let me start with some important context. The overall market for public safety solutions is constructive and growing. I'm incredibly proud of our team for executing through some of the headwinds we encountered in 2025. Despite some of those challenges, we delivered record full-year revenue of $104.1 million, representing a 2% increase over 2024. We accomplished that while maintaining double digit adjusted EBITDA margin profitability, and while importantly making critical growth investments that we believe position us for the future. We went live with ShotSpotter in 10 new cities, two universities, and expanded with 11 current customers in 2025. Additionally, we saw solid acceleration of our SafePoint business with $1.6 million of bookings from 11 customers, which we anticipate taking live in the first half of this year. We're exiting 2025 with ARR of $95.4 million, and we believe we're positioned to grow that ARR base by approximately 15% or $14.6 million net of approximately $3.1 million of ARR attrition in 2026. This puts us on path to enter 2027 with $110 million of ARR. I'll walk you through the expected ARR bill toward the end of my commentary, but we'll highlight now that while corresponding GAAP revenue should ultimately follow that ARR growth, it is expected to lag because a meaningful portion of our ARR bookings are expected in the second half of the year. Let me step back and frame what we're building here at Sound Thinking and why we're so confident in our future within the public safety and security SaaS market. A big part of what we do is deploy connected physical infrastructure, acoustic sensors for gunshot detection through shot spotters, visual sensors for vehicle intelligence through plate ranger, and passive magnetic field sensors for concealed weapons detection through SafePoint. These devices operate in the real world, generating mission-critical data. What differentiates us is the unique data we're able to capture at the physical layer and the AI-based algorithms we apply against that data. Our models detect, validate, and publish actionable signals, gunshots, vehicles of interest, conceal weapons, while filtering out the noise in real time and at scale. While we've been working on innovating and improving our ShotSpotter solution for decades, we've become more intentional recently to apply our prior learnings with new data aggregation and AI tools to our other connected device solutions. Strategically, these solutions become embedded infrastructure for our customers. As we deploy more devices, we aggregate more data, which improves our AI models and increases value over time. Because our alerts are integrated directly into customer workflows, from dispatch to investigation to emerging tools like drones as first responders, our systems become operationally embedded. This creates meaningful switching friction and drives strong retention. The result is a durable recurring revenue base that is both profitable today and we believe will compound over the long-term and create real long-term value. Our 2026 ARR growth is expected to come primarily from four major solutions comprising the Safety Smart platform. First, ShotSpotter, which is our flagship offering and is still the leading acoustic gunshot detection solution in the market. We currently serve over 170 customers comprising over 1,100 square miles and exited 2025 with $67.6 million of ARR. We believe we can add approximately $8.3 million of additional ARR, including the $2.7 million of ARR recapture of the Puerto Rico, plus approximately $5.6 million of ARR from other new domestic and international customers, including expansions. This ARR growth does not include Chicago nor any ARR from our recently launched perimeter-based sniper solution, which is focused on critical infrastructure protection of utility substations and corporate campuses, with the potential to cover U.S. Embassy and forward operating base deployments. We believe these opportunities represent additional upsides. Second, we're very pleased with the market reception of our Crime Tracer Gen 3 solution launched late last year at IACP. Crime Tracer is a highly differentiated data aggregation business representing over 1 billion cross-jurisdictional CJIS records combined with Thomson Reuters Clear. That scale and breadth of data create a powerful foundation for investigative intelligence. With Gen3, we're applying generative AI into that data environment to enable investigators and analysts to find what they're looking for more naturally, surface relevant connections that result in investigative leads faster, and help deliver justice to victims of crime. We're very excited about local law enforcement cross-jurisdictional task force collaborations to address gang violence and organized retail theft rings. Crime Tracer exited 2025 with $8.1 million of ARR. And we estimate that we will add approximately another $3.1 million of ARR, including the $2.5 million of ARR from the execution of Crime Tracer across approximately 18 agencies within a new state, which has been delayed, but which we believe will happen no later than Q3 of this year. Third, our connected vehicle intelligence ALPR solution, Plate Ranger, which is powered by our partnership with ReCore, is gaining solid traction following its launch last year. Given the recent controversy around a certain LPR vendor that has received a lot of well-documented attention, we believe this opens up a significant opportunity for new entrants like ourselves who take security and data governance as first principles versus an afterthought. We're modestly targeting $1.5 million of new ARR from PlateRanger this year. And last but not least, SafePoint. We continue to see strong momentum as we believe the market is recognizing that SafePoint is just not another weapons detection system, but that it is a fundamentally different architecture. Unlike legacy checkpoint-based systems that rely on active screening and create friction, SafePoint operates passively and discreetly in the natural flow of ingress and egress, leveraging advanced sensor fusion and AI to detect concealed weapons without slowing people down. We believe that frictionless experience helps drive higher adoption, stronger customer satisfaction, enhanced visitor dignity, and real operational scalability. We're in the early innings here as leveraging passive sensor weapons detection by harnessing advanced AI capabilities is new and innovative. As we refine deployments and expand our sales capacity, we believe SafePoint is uniquely positioned at the intersection of physical security and AI in what we call physical world AI. We're encouraged by the tight product market that demonstrated with Q4 2025 bookings of approximately $800,000 across six customers that all have the capacity for potential expansion. Our model estimates that SafePoint could contribute another $4 million of ARR in 2026. The balance of our overall ARR increase would come from our other products. An important element in our ability to deliver on our growth strategy is having the right team in place. To that end, we've taken steps to bolster our sales execution capabilities by adding several new leaders with proven experience scaling successful go-to-market functions and driving durable, profitable growth. We've welcomed Kirk Arthur as our new Senior VP of Global Sales. Kirk brings a unique combination of commercial gov tech sales leadership he honed at Microsoft, combined with his executive leadership roles in public safety at the U.S. Secret Service. We're thrilled to have him join our leadership team. It's important to note that we operated at less than our full potential in 2025 without a permanent senior VP of global sales. So Kirk's arrival is a meaningful step forward in strengthening execution, accountability, and pipeline discipline across the organization. In addition, Manuel Nyland has joined us as VP of sales and the sales leader for our SafePoint business. Manny has a long and successful career of bringing new innovative security solutions to market. We now have a fully built out SafePoint sales team in place, which is something we did not have in place a year ago. Lastly, we've added Bruna Bolorino as vice president in Brazil to help expand and accelerate our momentum in that key market. Importantly, Kirk's leadership also frees up Gary Bunyard, who did an outstanding job serving as interim senior VP of sales for Q4 2025. He will now be able to focus on key large strategic opportunities, including pursuing the contract renewal with Puerto Rico, advancing a significant safe point potential opportunity with a global top five healthcare system, and potentially engaging Chicago based on their RFP response. And speaking of Chicago, as we previously shared, the formal evaluation process has been completed, and we believe the recommendation has been transmitted to the appropriate procurement channels. At this stage, the matter sits with the city's administrative process. We remain confident in the strength of our response and the technical, operational, and financial merits of our proposal. Importantly, we believe nothing about the underlying need for acoustic gunshot detection technology has changed given the formal line item budget approval for gunshot detection. We continue to be respectful while the formal RFP is active. And while timing is ultimately outside of our control, we believe the fundamentals of performance outcomes and officer safety speak for themselves. We are in a wait and see posture. On New York, we're pleased to see that the recently released fiscal year 2027 budget framework leaves our current three-year agreement with NYPD fully intact. There were no proposed reductions, no carve-outs, no structural changes to the program. ShotSpotter remains embedded in the city's public safety architecture. And it grows as NYPD integrates ShotSpotter with drones as first responders and crime gun intelligence. This is notable. New York is one of the most scrutinized policing environments in the world, and if there were any operational concerns, budget pressures, or appetite for change, we believe you would see it reflected here first. Instead, what you see is continuity. Our system continues to do what it is designed to do, which is to provide rapid, actionable intelligence to officers in the field. The city's budget signals a steady support from our perspective that there is nothing unusual to interpret here. This is simply the steady execution of a longstanding partnership. Now to guidance. We know from experience that recognized gap revenue timing can fluctuate based on procurement cycles, deployment schedules, the cadence of bookings, and the budget headwinds, which is why we're adjusting our full-year revenue guidance to $109 to $111 million. But to be clear, we believe annual recurring revenue reflects the 2026 inflection point and underlying compounding economic engine of our business. As we move into 2026, there are three items of focus for us. First, anticipated ARR growth. Approximately 15% growth in our net ARR reflects expanding adoption and renewed momentum. Second, introducing customers to more solutions within our platform and focused integration with complementary solutions. Multi-product customers represent a larger opportunity than a single product deployment. We're increasingly leading with workflow outcomes, not point solutions. Third, operating discipline. We're investing where the returns are strongest, particularly in growth areas like SafePoint and operational levers made possible by agentic AI capabilities. As we continue to allocate resources toward our highest return opportunities, we're also focused on ensuring the organization is operating as effectively as possible. In that context, the board and management team are undertaking a review of the business to identify opportunities to drive efficiency across the organization. Our objective is to create shareholder value and ensure the company is well positioned in any market environment. We will provide updates as the review progresses. I'll now hand it over to Alan to talk about the numbers. Alan, over to you.

Thank you, Ralph, and good afternoon, everyone. In spite of the challenges mentioned by Ralph, our 2025 results had many positives. Our financial performance reflects the success of our ongoing strategic initiatives the growth of our largest products and operational efficiency measures, which supports our commitment to deliver value to our shareholders. In the fourth quarter, revenues were $24.8 million, representing a 6% increase over the prior year period. Gross profit was $12.6 million, or 51% of revenue, versus $11.7 million, or 50% of revenue for the prior year period. Our adjusted EBITDA was $1.3 million compared to $1.7 million in the prior year period. Our adjusted EBITDA decrease was directly related to the delayed contracts from an anticipated deployment of Crime Tracer in a new state and our shot spot of renewal in Puerto Rico. 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 or expense income taxes, depreciation, amortization, and impairment, restructuring costs and losses, including related fixed asset disposals, stock-based compensation expenses, and acquisition-related expenses, including adjustments to our continued consideration obligations. Our operating expenses were $15.1 million, or 61% of revenue, versus $15.5 million, or 66% of revenue in the prior year period. Breaking down our expenses, sales and marketing expense in the fourth quarter was $6.5 million or 26% of total revenue compared to $6.5 million or 28% of total revenue in the prior year period. Our R&D expenses were $4 million or 16% of total revenue compared to $3.5 million or 15% of total revenue in the prior year period. G&A expenses for the quarter were $4.5 million or 18% of total revenue compared to $5.5 million or 24% of total revenue for the prior year period. Our GAAP net loss was approximately $2.8 million or a loss of 22 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 $4.1 million or 32 cents per basic and diluted share based on 12.6 million basic and diluted weed avid shares outstanding for the prior year period. Turning to our full year 2025 results, revenues were a record $104.1 million, representing a 2% increase over the $102 million achieved in 2024. It should be noted that 2024 included approximately $9 million of revenue related to Chicago that was not renewed but replaced by growth of other product sales across the company. This Chicago revenue reduction also affected all 2025 profitability measures. Gross profit was $56.6 million or 54% of revenue versus $57.9 million or 57% of revenue for the prior year. Our adjusted EBITDA was $12.6 million compared to the $14.4 million we achieved in the prior year. Operating expenses decreased 1% to $65.4 million or 63% of revenue versus $65.7 million or 64% of revenue in 2024. Breaking down our expenses, sales and marketing expense in 2025 was $26.1 million or 25% of total revenue compared to $28.1 million or 28% of total revenue in the prior year. Our R&D expenses were $15.9 million or 15% of total revenue compared to $13.9 million or 14% of total revenue in the prior year. G&A expenses for the year were $23.2 million or 22% of total revenue compared to $23.9 million or 23% of total revenue for the prior year. As a reminder, we expect our G&A expenses to grow less than our revenue on a percentage basis as our company grows. Our gap net loss was approximately $9.4 million or a loss of 74 cents per basic and dilute shares for the year based on 12.7 million basic and diluted weighted average shares outstanding. This compares to a net loss of $9.2 million or 72 cents per basic and dilute shares based on 12.7 million basic and diluted weighted average shares outstanding for the prior year period. Deferred revenue as of December 31st, 2025 was $43.9 million in line compared to the $43.9 million at the end of third quarter 2025. Revenue retention rate for 2025 achieved 99%, reduced due to the non-renewal of our Chicago shot spotter contract at the end of 2024. Our sales and marketing spend per dollar of new annualized contract value was $0.56 compared to $0.63 in 2024. We ended the year with $15.8 million in cash and cash equivalents versus $11.8 million at the end of the third quarter of 2025. We repurchased 225,334 of our shares at an average price of $13.15 for approximately $3 million throughout 2025. Our current cash balance is greater than $16 million, even after paying our annual company cash bonuses in February. Currently, we have approximately $36 million available on our line of credit, as we have approximately $4 million in debt outstanding all on our line of credit. Now, turning to our guidance for the full year of 2026. We are reducing our full year revenue guidance range from $114 to $116 million, to $109 to $111 million. This decrease is primarily attributable to delays in the two expected bookings and deployments, which the timing of closure is still unknown, so we thought it appropriate to reduce the revenue expansion until they are executed. The first relates to Crime Tracer. We had anticipated execution across approximately 18 agencies within a new state, representing approximately $2.5 million in revenue. While this deployment has been delayed, We remain confident it will proceed in the near future. The second relates to our Shots But Overdue in Puerto Rico. When executed, this contract is expected to add approximately $2.7 million in ARR, but similar to the crime chaser role in the new state, we're not clear on the timing of the contract execution. In total, these two items represent over $5 million in revenue that was originally expected to be recognized in 2025 and throughout 2026. Even if recognition of revenue is delayed, provided these contracts are executed in 2026, they should significantly increase our ARR at the end of the year. It's also important to note that approximately 70% of the revenue related to these two items mentioned above will flow through to adjusted EBITDA. While we believe these are temporary setbacks, we remain optimistic about the long-term value of these potential contracts and our ability to execute well when they get booked. We continue to monitor these developments closely. We are reducing our full year adjusted EBITDA margin guidance range from 18 to 20% to 16 to 18% to take into account the delay of these large contract executions, as well as the investments that we continue to make in our AI modeling and tools that we are incorporating in our products and our internal operational use. As we look to 2026, we remain focused on execution and long-term value creation We are encouraged by our pipeline visibility for the rest of 2026, the strong renewal rate of our customer base, expanding strategic partnerships and integrations, increasing momentum into 2026, and our ability to generate consistent cash flow while investing for future accelerated growth. Overall, we're pleased with the progress we've made on each of our strategic initiatives and operational performance for the business. With that, we're now happy to open the call for questions. Operator, will you please open the line for the Q&A?