SoundThinking, Inc.

Good afternoon, and welcome to SoundThinking's first quarter 2026 earnings conference call. My name is Latonya, 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 and future financial and operating performance. These forward-looking statements are only predictions, 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 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 today's live broadcast, May 14th, 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 companies' 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 referenced and management reasons for including the non-GAAP measures and key business metrics referenced by 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 the link in the investor relations section of the company's website at IRDoubtSoundThinking.com. With that, I will now turn the call over to Ralph. Please proceed.

Good afternoon, and thank you for joining Sound Thinking's Q1 2026 earnings call. I'll start by providing some high-level commentary on our financial results, share updates on our strategic investments and growth initiatives, and frame how we're thinking about the year. Alan will then walk through the financials in greater detail, after which we'll be happy to take your questions. Let me start with the headline numbers. Q1 revenue was $24.2 million, essentially in line with consensus. Q1 adjusted EBITDA was approximately negative $100,000. We are reaffirming our full-year guidance of $109 to $111 million in revenue, representing approximately 6% year-over-year growth at the midpoint, and an adjusted EBITDA margin guidance of 16% to 18%, and an exiting ARR of $110 million, representing 15% growth in 2026. Let me give you some high-level commentary on the structural shape of our year, because once it becomes clear, the map becomes fairly straightforward. Q1 is, by design and by calendar, our most cost-heavy quarter and our lightest revenue quarter. Annual costs concentrate in Q1, such as audit fees, proxy and shareholder meeting costs, year-end legal and tax work. These items are largely absorbed in Q1 every year and do not repeat in subsequent quarters. At the same time, our revenue is back in loaded as deployments, renewals, and expansions build throughout the year. Our business has substantial operating leverage as quarterly revenue scales above our cost run rate. Once we're past our cost base in any given quarter, We expect incremental revenue contributes disproportionately to adjusted EBITDA. Q1 sits below that point and Q2 through Q4 are above it. Combined with approximately $4 million of annual savings expected from the workforce optimization we executed effective April 1st, we believe we have clear line of sight to our full year adjusted EBITDA guidance. Alan will walk through the detailed bridge in his section. Let me share some updates on our strategic execution, which gives us confidence in the second half ramp and what reflects the deeper transformation underway in our business as we continue to evolve into a broader public safety technology company. In Q1, we took ShotSpotter mileage live across seven customer accounts, added 50 plate ranger cameras on our LPR platform, and went live with 85 lanes of SafePoint. Customer health and retention remain a real strength of our business, and the trust we've built over time continues to be reflected in our net promoter score in the world-class category and our renewal performance, which is currently ahead of plan. I want to highlight one renewal in particular, Cleveland. Over the last several months, there was significant public commentary in the trade press, in local city deliberations, and even some investor conversations, suggesting that we were at risk of losing Cleveland to a newer entrant in our category. The narrative was that the contract was slated to be a competitive loss. I'm pleased to share that the Cleveland renewal is in process and that Mayor Bibb and the city's public safety leadership have publicly touted the technology and specifically credited ShotSpotter's contribution in Cleveland's 80% homicide solve rate. I want to be direct about what Cleveland represents because it speaks to a broader competitive dynamic that I know is on investors' minds. Anyone can promise gunshot detection in a pitch deck. The category has been around long enough that the marketing materials have started to converge. Same buzzwords, same accuracy claims, same talking points. But running an acclusive detection system that actually works across 1,000-plus square miles of dense, noisy urban environments with sub-meter precision in conditions ranging from fireworks to construction noise to weather with audio data that withstands real-world scrutiny, that's an entirely different proposition from describing it on a slide. And that is where the moat is. Twenty-five years of ground truth physical data, accuracy performance that has been independently validated at 97% in 2024 against a 90% contractual standard, and deployment tested integration depth that newer entrants are now only learning they need. When agencies move from the marketing to the operational reality, what they tend to find is that there's only really just us. Cleveland is a clear data point on that. Performance decides these deals, not narrative and not pitch decks. With respect to deep operational integration, our efforts complementing drone as first responders is another area where we're seeing meaningful traction and it's a natural fit with ShotSpotter. We now have 16 cities live with ShotSpotter to drone integrations across Skydio and Brink. The cadence has accelerated. Las Vegas, Pittsburgh, Suffolk County, Monmouth County, West Palm Beach, Fresno, Tampa, and Virginia Beach all came online within the last two months. In Albuquerque, a ShotSpotter trigger drone arrived on scene and observed a subject actively firing a weapon. relaying that to responding officers in real time. In a separate incident, the drone located a gunshot wound victim. That's the kind of operational outcome our customers are realizing today. The strategic point is that these aren't simple shot spotter to drone alert handoffs. They're integrations into the operational fabric of how an agency responds. Physical AI at work in the real world. That's what creates durable value for our customers, and that's what makes the Safety Smart platform increasingly difficult to replace. Last week, we launched Safety Smart Field Agent, an AI-powered user experience within our Safety Smart platform. It is now in beta with more than a dozen ShotSpotter agencies. Broader availability is targeted for later this summer. With Safety Smart Field Agent, a police chief, an investigator, a crime analyst, or even a city council member can ask questions in plain English and get back what they need, an insight, a chart, a map, or a briefing-ready summary. How much gunfire has occurred near our public schools this year? What are the emerging hotspots? Create a command staff briefing for this month's trends. Until now, getting these types of answers required an analyst, a query language, and a dashboard. Field Agents puts that capability directly in the hands of any authorized user with a question. And let me say why this is a meaningful step forward for us. Field Agent works across all safety smart data sources. Gunfire data from ShotSpotter, crime data from Resource Router, license plate reads from Plate Ranger through one unified experience. That's something we believe only we can deliver because only we have this breadth of public safety data running on a single platform. It's our integrated safety smart platform showing up in a real day-to-day customer experience. And it's a tangible expression of the physical AI mode thesis that sound thinking exemplifies. AI value is only as good as the data foundation underneath it. And ours is genuinely broad, genuinely unique. represented by 25 years of ground truth acoustic detection data across 1,000 plus square miles of deployment that we believe no competitor can replicate. Safety Smart Field Agent is our second AI-driven user experience following Crime Tracer Gen 3, which we launched last fall, and the next step in a broader rollout of AI capabilities across the Safety Smart platform. We also continue to make innovation progress on our Sound Thinking Labs initiatives, including our sniper threat detection solution targeted at critical infrastructure. We have demonstrated early technical success in the perimeter protection use case that is relevant to the substation utility market. We look forward to sharing more as we gain commercial traction. Internationally, we continue to see growing interest in acoustic gunshot detection as global markets mature in their approach to public safety infrastructure. Our deployments in Montevideo, Uruguay, and Niteroi, Brazil have served as compelling proof points for broader Latin American expansion. We're building pipeline in these and additional markets in the region driven by our recently hired in-country sales executive, Bruna Bolorino. We view international as a multi-year expansion runway for the core platform, and we're investing deliberately to capture it. Our SafePoint pipeline and go-live momentum through Q1 has been particularly encouraging. Monthly recurring revenue more than doubled from January to March of this year as Moffitt, Morgan State, and other key go-lives came online, and we're entering Q2 at a meaningful higher run rate. In addition, earlier this week, we executed a three-year, $3.2 million booking representing over $1 million of ARR from a top five major hospital chain for all of their hospitals in just one of the states and where they have operations. In addition, we anticipate closing a 15-lane, three-year, $1 million plus booking for 300K plus of ARR with a clinic in the northeast. These two transactions are important validation points of our healthcare security focus and a meaningful proof point for the SafePoint addressable market in the hospital vertical. The healthcare opportunity is substantial. As we discussed on prior calls, California's AB 2975 will require weapons detection capabilities across more than 400 hospitals by March, 2027. And that's just one mandate in one state. The broader healthcare market is moving in the same direction as systems prioritize patient and staff safety. Across the portfolio, what we're seeing is consistent. Customers are choosing platforms over point solutions. Our safety smart platform, ShotSpotter, Plate Ranger, Crime Tracer, Resource Router, Case Builder, and SafePoint, now all augmented by FieldAgent in our deep DFR integrations, give agencies an integrated approach to public safety that we believe no point solution competitor can match. The trust that drives our world-class customer retention is what allows us to keep deepening that platform and the data foundation we've built over 25 years. And that's what makes our AI investments compound rather than commoditize. Before Alan walks through the financials, I want to add some strategic context on how we think about our capital allocation strategy. At a high level, you would see that SoundThinking today is two very distinct businesses at very different stages of development in our broader transformation into a vertical physical AI company. Our core public safety platform, ShotSpotter, Crime Tracer, Plate Ranger, Resource Router, and Case Builder is a modestly growing, but profitable business generating strong adjusted EBITDA and free cash flow beyond what we're showing today on a consolidated basis. SafePoint, on the other hand, is an early stage but rapidly growing business in which we are deliberately investing in today in order to capture what we believe is a category-defining opportunity in physical AI security. The blended adjusted EBITDA profile you see at the consolidated level reflects that deliberate capital allocation choice. Allen will provide additional color on the magnitudes and the path and timeline for the safe point breakeven. So stepping back, revenue track to consensus, Q1 adjusted EBITDA reflects the structural shape of our year, our customer momentum across retention, safe point acceleration, and our investments in innovation like our safety smart field agent, and growing DFR integration reinforces our conviction. The underlying strength of our business remains intact in the differentiated platform we've built grounded in trust, performance, and 25 years of physical AI data we believe positions us well for the rest of 2026 and beyond. I'll now turn the call over to Alan to discuss our financial results for the first quarter and our outlook for the full year, 2026, in greater detail. Then we'll be happy to take your questions. Okay, Alan, over to you. Thank you, Ralph. Good afternoon, everyone. Revenues in the first quarter were $24.2 million compared to $28.3 million in the first quarter of 2025. As a reminder, first quarter of 2025 included approximately $1.5 million of revenue related to our Puerto Rico shot spotter contract, but it has not yet been renewed, as well as the non-recurring impact of approximately $3.5 million in prior year catch-up revenues related to the two three-year renewals of our large contracts with NYPD. Gross profit was $11.3 million, or 47% of revenue, compared to $16.6 million, or 59% of revenue, in the prior year period. The decrease in gross margin reflects the continued cost related to servicing existing and new customers without the benefit of the catch-up revenue recognized in the prior year quarter. Our adjusted EBITDA was approximately negative $100,000 compared to a positive $4.5 million in the first quarter of 2025. It's important to highlight that our first quarter adjusted EBITDA was impacted by costs associated with ongoing product development, most notably in SavePoint, which is currently generating over $8 million of annualized losses as we invest ahead of expected revenue. Absent these investments, adjusted EBITDA would have increased year over year in the first quarter, underscoring the continued improvement in our core business. We are deliberately making these investments based on what we're seeing in customer demand, pipeline growth, contract size, and long-term margin opportunity and we expect this pressure to moderate as these programs mature and begin contributing more meaningfully to profitability. In fact, given the large safe point pipeline and expected growth, we expect that product group to achieve profitability at the end of 2027 or early in 2028. As a reminder, adjusted EBITDA, a non-GAAP financial measure, is calculated by taking our gap net income or loss and adjusting out interest income, 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 contingent consideration obligations. Our operating expenses were $18.1 million compared to $17.8 million in the first quarter of 2025. Operating expenses remained relatively consistent year over year, reflecting higher employee-related compensation costs and restructuring charges partially offset by reduced sales and marketing spend. Breaking down our expenses, sales and marketing expense in the first quarter was $6.5 million, or approximately 27%, of total revenue compared to $7.3 million or 26% of total revenue in the prior year period. Our R&D expenses were $4.4 million or approximately 18% of total revenue compared to $4.1 million or 14% of total revenue in the prior year period, reflecting continued investment in product innovation, AI-driven capabilities, and platform enhancements. G&A expenses for the quarter were $6.7 million or approximately 28% of total revenue compared to $6.5 million or 23% of total revenue in the prior year period. We expect our G&A expenses to grow more slowly than revenue over time as we scale the business. Our gap net loss was approximately $7 million or 54 cents per basic and diluted share for the quarter. based on 12.9 million basic and diluted weighted average shares outstanding. This compares to gap net loss of $1.5 million, or 12 cents per basic and diluted share, based on 12.6 million basic and diluted weighted average shares outstanding in the prior year period. The increased loss was driven primarily by the absence of prior year catch-up revenue, restructuring-related charges, and continued investment in our platforms. Deferred revenue as of March 31, 2026 was $40.4 million, compared to $43.9 million at December 31, 2025, reflecting normal contract receivable variability and revenue recognition during the quarter. We ended the quarter with $14.2 million in cash and cash equivalents, compared to $15.8 million at the end of 2025. 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 guidance for the full year 2026. We are reiterating our full year revenue guidance range of $109 million to $111 million, which represents approximately 5% to 7% year-over-year growth. We're also reiterating our full year 2026 adjusted EBITDA margin guidance range, of 16% to 18%. We expect to achieve this adjusted EBITDA range through three primary things. First, Q1 has historically our most expensive OpEx quarter of the year, so we expect our quarterly OpEx costs to go down. In addition, our recent cost reductions should add an additional $2.5 million for the remainder of the year. And lastly, we believe that over 90% of new revenue growth beyond our Q1 revenue run rate will flow directly towards adjusted EBITDA. Our guidance reflects the structural shape of the year that Ralph discussed earlier. As a reminder, revenue and profitability are back-end loaded as deployments, renewals, and expansions build throughout the year. Our outlook reflects the investments we are making in save points. AI-driven capabilities, platform innovation, as well as the benefit of approximately $4 million in annualized cost savings from our workforce and business optimization actions that became effective at the start of the second quarter. As we move through the balance of 2026, we expect improved revenue scale and operating leverage to drive a materially stronger profitability profile in the second half of the year. We are confident in our ability to execute against our full-year framework and remain focused on disciplined cost management while continuing to invest in long-term growth opportunities. Overall, we're pleased with the progress we've 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?

Thank you. We will now conduct 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 lines 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 keys. Once again, that's star one to ask a question at this time. One moment while we vote for the first question. The first question comes from Richard Baldry with Roth Capital. Please proceed.