SoundThinking Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
November 7, 2023

There are 6 speakers on the call.

Operator

Good afternoon, and welcome to Sound Thinking's Third Quarter 2023 Conference Call. My name is Ariel, 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 We'll 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.

Operator

Certain of these risks and assumptions are discussed in Sound Thinking's SEC filings, including its registration statement on Form S-one. These forward looking statements reflect management's beliefs, estimates and predictions As of the date of this live broadcast, November 7, 2023, 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 at the company's website at ir.soundthinking.com. Now, I would like to turn the conference call over to Sound Thinking's CEO, Ralph Clark. Sir, please proceed.

Speaker 1

Good afternoon and thank you for joining our Q3 2023 conference call. After Alan and I share our update, we'll be happy to take your questions. I'm extremely proud of our ongoing efforts to build a powerful and growing business franchise. Our collective work is Helping to save lives and make communities safer. And with respect to doing work that matters and expressing your values, it doesn't get any better than that.

Speaker 1

The solutions on our Safety Smart platform are seeing increased adoption across the board as agencies are dealing with increased demands for service And tackling a measurable uptick in crime, all the while facing diminished headcount resources. And with the recent Acquisition of SafePoint and their AI enabled weapons detection capability, we are now addressing a larger TAM opportunity That we were previously targeting. What is exciting about this new accelerated growth phase of our company are new and large Adjacent Buying Centers outside of traditional local law enforcement that can now harness the power of technology in enhancing public safety initiatives. We hope investors, prospects and partners will be paying close attention to our progress. Turning to our Q3 2023 financial performance, we achieved record revenues of $24,000,000 Compared to Q3 2022 revenue of $18,800,000 representing 28% year over year growth.

Speaker 1

Adjusted EBITDA was $4,300,000 or 18 percent of revenues compared to 3 point percent of revenues for Q3 2022. Adjusted EBITDA grew approximately 40% year over year And approximately 79% sequentially from last quarter Q2 2023. We also had another phenomenal quarter of ShotSpotter go live activity with 7 new city captures, 2 city And 1 university expansion this quarter. That puts us at 20 new city logo deployments year to date. The new city logo deployments for this quarter include Chelsea, Massachusetts Fayetteville, North Carolina Baltimore County, Maryland Suffolk County, New York Ferguson, Missouri and Montgomery County and Darby, Pennsylvania.

Speaker 1

We're on pace to surpass 140 go live miles this year, representing over $9,000,000 in net new ShotSpotter ARR In 2023, we plan to finish out the year by targeting the remaining 17 square mile build out of Suffolk County And we expect to go live with at least 3 new city agency deals that were booked in Q3, including Escambia, Florida Chester, Pennsylvania as well as the strategically important Tier 1 city of Philadelphia, which comes to us through the Philadelphia Housing Authority acquisition. Overall revenue retention remains strong with only $41,000 of GAAP attrition from the non renewal of a secure campus deployment at UC Irvine. The funding environment remains strong, including federal and local budget dollars that are being allocated to public safety. We're particularly excited about the new state funding initiatives in New Jersey and New York that are allocating dollars to acoustic gunshot detection. We believe that the New Jersey opportunity alone could unlock as many as 20 square miles of acoustic gunshot detection In the first half of twenty twenty four through new city deployment and current contracted city expansions.

Speaker 1

We continue to be positive about the role our technology plays in helping Chicago PD improve response times and save lives in underreported community gunfire. The For the City of Chicago and our partnership, Superintendent Snelling has a strong track record in advocating for defending and leveraging technology As a force multiplier in helping Chicago PD meet its sworn obligation to serve and protect as well as improve community trust and engagement. We also note Mayor Johnson's recently presented 2024 budget did not include any defunding of the police As some activists within Chicago had been calling for. In fact, the police budget was increased 2.9% To approximately $2,000,000,000 which importantly also included funding for the continued use of acoustic gunshot detection technology. We remain vigilant and hope to continue our successful Chicago partnership beyond our current contracted Term through February 2024.

Speaker 1

I would point out that our Chicago partnership has thrived under 3 different mayoral administrations And over 6 superintendents over an 8 year period. Moving on to international, we are thrilled about our Q3 booking in Uruguay With the city of Montevideo. This will be our first deployment in Spanish speaking South America and we believe there are significant expansion opportunities within other in Uruguay once we demonstrate success in Montevideo. There has also been renewed interest in our solutions from several municipalities across Brazil, We recently arranged for a Brazilian delegation to visit Cape Town, South Africa. We were encouraged with the strong Shot Endorsement received from Cape Town Mayoral Committee Member, J.

Speaker 1

P. Smith and South African Police Leadership On how acoustic gunshot detection has been a game changer in addressing gangs and gun violence. We believe we are taking important and positive steps forward on re securing a footprint in Brazil early next year. We've also made net forward progress on our Puerto Rico Public Housing Authority partnership. We were selected for a new contract under their RFP, but unfortunately, HUD, who is the appropriator, determined our award constituted a sole source transaction, given we were the only bidder.

Speaker 1

A sole source transaction given we were the only bidder and therefore not technically fundable under this specific appropriation vehicle. In the meantime, we've entered into a new interim agreement with a price increase of over 20%, while they determine next steps of either leveraging another municipality's RFP, reissuing a new RFP or pursuing a sole source justification with HUD. We are further encouraged by the noticeable shift in the national debate between policing a crime and disorder versus defunding the police. Several mayors in the cities they lead are publicly pivoting in prioritizing public safety as they respond to communities vocalized concerns. In Oakland, the local chapter of the NAACP called on city leaders to declare a state of emergency due to rising crime.

Speaker 1

Recently, the Seattle Times editorial board explicitly called for the support of Mayor Bruce Harreld's $1,800,000 anti crime proposal That principally included a gunshot detection system. We believe that is in this backdrop that ShotSpotter momentum is building. Since I last reported in our earnings call, we continue to invest in widening our competitive moat and setting us apart with key new capabilities That support increased law enforcement transparency and effectiveness. We plan to roll out an MSRP increase of 7% going forward From $70,000 per square mile to $75,000 per square mile starting in 2024 for cities greater than Tier 4 or Tier 5. It's been over 3 years since our last price increase and given the improved capabilities we have made available, we felt a modest Price increase was not only reasonable, but timely.

Speaker 1

The pipeline and deal execution for our other solutions on the Safety Smart platform also continues to grow. We closed a $900,000 deal combining CrimeTracer and Case Builder to a large state Department of Justice charged with investigating insurance fraud. We also executed a deal with Chicago PD to pilot crimetracer 6 months with the expectation it will convert into a mid to high 6 figure deal transaction in the latter half of twenty twenty four. We're also pleased to announce the recent contract execution and formal project kickoff this month of a major Case Builder deployment within New York City Department of Corrections. SHI, our prime contractor has received purchase orders From the NYC DOC totaling $13,500,000 for Sound Thinking Professional Services and an annual subscription service to Case Builder.

Speaker 1

Once all POs are processed by the City of New York and SHI, this project will represent a $18,000,000 contract for sound thinking. We're very excited about partnering with New York City Department of Corrections in their digital transformation efforts and becoming the standard for investigative solutions for The correction sub vertical. We consider our internal affairs and use of force investigative modules a must have for corrections in investigations that include not only detainees, but also corrections officers as subjects. We've been very intentional in the integration of SafePoint into Sound thinking in the Safety Smart platform. Our near term focus is to add capacity to pipeline growth and go to market sales motion for this compelling solution.

Speaker 1

Our strategy includes adding 2 new BDRs and 4 outside sales director hires. The combined 2024 quota This team is targeted to be $15,000,000 in ARR bookings representing approximately 200 lanes sold per outside sales director. We're very pleased to see a notable post acquisition 19 lane win for SafePoint at a major healthcare facility. I'll conclude by formally announcing and welcoming several new senior executive additions to the leadership team, starting with Aaron Edwards, Who will be joining us as our new Senior Vice President of Solutions Sales and who is most recently a Sales Executive with Everbridge. Aaron will be fully taking the reins over from Gary Boneyard on January 1, 2024.

Speaker 1

Gary will be taking on a to be determined part time role to continue to make a positive contribution to Sound Thinking. We previously announced the additions of Greg Makish, Larry Jackson, Anne Mueller and Mark Page to the management team. And we're also fortunate to be able to add Greg Holyfield, the former CEO and Founder SafePoint to the team. I'm personally thrilled with these new additions and believe we now have everything necessary to drive long term profitable growth And positively impact the public safety solutions ecosystem. And with that, let me turn the call over to Alan.

Speaker 1

Thank you, Ralph. We're very pleased with our performance in the Q3. As Ralph mentioned, this quarter With our SunTrust Putter solution, we went live in 7 new cities, expanded in 2 current cities and 1 university. We're continuing to see an increase in the interest of our solutions across our Safety Smart platform. At this point, we expect to add over 140 new miles of ShotSpotter coverage this year, approximately 40% higher than 2022.

Speaker 1

Attrition in the Q3 was extremely small at only approximately $41,000 in GAAP revenue. Our bundled product strategy appears to be working well as we are starting to see an increase from customers who would like to contract With multiple products from our Safety Smart platform. We're also pleased to add SafePoint to our company and their products to our Safety Smart platform. Integration is going well and we expect to see sales and related revenue Continue to add to our growth as we head into 2024. Let me provide more details on the quarter and then I will share some thoughts Around the balance of the year.

Speaker 1

3rd quarter revenues were ahead of expectations at $24,000,000 a 28% increase Over the $18,800,000 in the Q3 of 2022. Revenue increased as our deployed miles are up significantly year over year And we had a small contribution from our 8 Point acquisition. Gross profit for the Q3 of 2023 Was $13,800,000 or 57 percent of revenue versus $10,300,000 or 55 percent of revenue for the prior year period. We expect gross margins to continue to improve in the Q4 of the year. Our adjusted EBITDA increased approximately 40% to $4,300,000 this year From $3,100,000 last year for the Q3.

Speaker 1

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 stock based compensation expenses and acquisition related expenses, including adjustments to our contingent Consideration obligation. Turning to our expenses. Our operating expenses for the Q3 were $15,200,000 64 percent of revenues versus $6,200,000 or 33 percent of revenues in the Q3 of 2022. Recall that the Q3 of 2022 operating expenses were reduced by $5,400,000 related to contingent consideration reduction Related to the forensic logic acquisition. Operating expenses included higher costs primarily due to personnel expansion and higher Breaking down our expenses, sales and marketing expense for the Q3 was $6,300,000 Or 26 percent of total revenue versus $5,400,000 or 29 percent of total revenue for the prior year period.

Speaker 1

The increase in cost was related to personnel costs as a result of increased headcount and increased revenue. Our R and D expenses for the Q3 were $3,200,000 or 13% of total revenue Compared to $2,400,000 or 13 percent of total revenue for the prior year period, we continue to invest increasing the functionality of all of our products. G and A expense for the quarter were $5,700,000 or 24% of total revenue compared to $3,900,000 We're 21% of total revenue for the prior year period. The increase in G and A expenses were primarily related to approximately $500,000 Increased legal costs, increased personnel related costs and approximately $700,000 in business acquisition costs. We expect our G and A expenses will be reduced in Q4 versus Q3 in both absolute dollars and as a percentage of revenues Related to certain expense savings initiatives that we have taken.

Speaker 1

Our GAAP net loss was $1,900,000 or $0.15 per basic and diluted share for the quarter based on 12,500,000 basic and diluted Weighted average shares outstanding. This compares to net income of $4,000,000 or an income of $0.33 per basic and diluted share For the Q3 based on $12,200,000 to $12,400,000 basic and diluted weighted average shares outstanding respectively for the prior year period. Our adjusted net income loss for the 3rd quarter was a loss of $1,100,000 or a loss of $0.09 per share Based on $12,500,000 basic and diluted weighted average shares outstanding, this compares to a loss of $1,400,000 or a loss $0.11 per share based on 12,200,000 basic and diluted weighted average shares outstanding for the prior year period. Adjusted net income, a non GAAP financial measure is calculated by taking our GAAP net income and adding back Acquisition related expenses, including adjustments to our continued consideration obligation. Deferred revenue at the end of the quarter decreased to $38,300,000 from $43,700,000 at the end of Q4 2022 and The decrease is primarily related to the timing of renewals.

Speaker 1

We ended the quarter with $5,800,000 in cash and cash equivalents versus $10,500,000 at the end of Q4 2022. The decrease was primarily related to almost $25,000,000 In accounts receivable that we had at the end of the 3rd quarter, some of which has already been collected. Our current cash balance is approximately $7,000,000 During the Q3, we also repurchased approximately 93,000 of our shares At an average price of $20.88 for approximately $1,900,000 We have Approximately $18,000,000 available on our line of credit if ever needed. We used $7,000,000 of our line of credit during the quarter We provide a portion of the cash used to purchase SafePoint in August. Turning to our full year 2023 outlook.

Speaker 1

We are maintaining our full year revenue guidance range at $92,000,000 to $94,000,000 and our adjusted EBITDA margin guidance at 16% to 18%. We are expecting our annual recurring revenue or ARR at twelvethirty onetwenty 3 You have increased over 17% to approximately $93,500,000 up from $79,700,000 On December 31, 2022, we intend to provide revenue and adjusted EBITDA guidance for 2024 Once Chicago formally approves Mayor Brandon Johnson's proposed budget, which is expected to be approved in the next 2 weeks. Now back to Ralph for some final thoughts and then we'll be happy to take your questions. Thanks, Alan. I want to take this Judy, to give a shout out to the entire company on achieving a NPS score of 64, representing an 8 point increase from last year's world class score of This is phenomenal.

Speaker 1

We're stoked that we also saw increase in the agency participation rate, which shows a significant amount of customer engagement. The insight and feedback beyond the specific score is what's most important. In addition to getting constructive feedback on how to make our services even better, We also learned that 42% of the respondents indicated an interest in learning more about our new platform strategy and expanded solution set. This represents a measurable upsellcross sell opportunity within our current installed base. Again, our NPS process And Ultimate Score is very much a cross team collaboration and is core to our company DNA.

Speaker 1

I'm extremely proud of our Collective effort in servicing our clients as trusted advisors and seeing the proof point that our strategy is making a difference. We're now happy to take your questions.

Operator

Thank you. We will now begin the question and answer session. We will pause for a moment as callers join the queue. Our first question comes from Richard Baldry of ROTH MKM. Please go ahead.

Speaker 2

Thanks. Maybe given that's where I live, can we start with Sytol and Laudalta? I'm sort of curious, Remind us where the entry point was? Can you maybe talk about sort of the opportunity there? Obviously, it's a pretty big city.

Speaker 2

I'm sort of curious how what your Thoughts are on building that from its foundation.

Speaker 1

Great. Rich, can you hear me? This is Ralph. Yes. Yes.

Speaker 1

Hello. So maybe I'll start and Alan, you can jump in as necessary to correct or add. So we're really excited about getting a footprint reestablished in Philadelphia. I think as you mentioned, the entry point is through the Philadelphia Housing Authority, We're expecting a significant amount of collaboration and cooperation with the general Philadelphia Police Department. And of course, being a Tier 1 city with the amount of challenges they have around violent crime, we think it represents a fairly significant opportunity as a Tier 1 city to be able to deploy a significant number of miles once we approve success with our first entry point there, reentry point in Philadelphia.

Speaker 2

And then switching to SafePoint, can you go over sort of the new team build out, the Quota, I think it was something like 200 lanes or something. How does that compare historically to what they've typically done annually or Life to date and what kind of economics does that represent on a revenue basis on either per lane or Any metric that can kind of help us with that? Thanks.

Speaker 1

Well, maybe Alan, I'll start And you can jump in. And so I think SafePoint is a greenfield opportunity for us. And so it's not really quite relevant to compare what Safe Wink was doing as probably under resourced company focused on this very large TAM opportunity. We're looking at this as an opportunity to leverage Although it has performed very well as an independent company, we're expecting to take it to the next level. Alan, I'll let you address the unit economics.

Speaker 1

Yes, sure. So this is Alan. It's interesting about Each lane is about $20,000 in terms of annual revenue. That can be a little higher or a little lower, but If you think about it, so 200 of those puts about $4,000,000 roughly in potential Revenue ultimately. So having 4 different salespeople related, each with a target of 200 With the potential revenue ultimately if we would hit all those north of $15,000,000 So It's going to take some time to do that, but we're already working hard to get closer to those types of numbers.

Speaker 2

So could you talk about sort of the go to market motion there because it is different than your government centric in the past. How do you feel about your ability to beat the bushes and find those opportunities? Is it digital marketing that's leading the way there? Is it Reference ability of some early wins, how do you build that pipeline? And what's the profile for who you bring in to do the sales in that?

Speaker 1

Yes. So this is Ralph. Maybe I'll start. So I think it's all of the above. I mean, so we're building a pipe digitally.

Speaker 1

Of course, we inherited a pipeline when we acquired SafePoint along with some key deployments that represent fairly nice Referenceable accounts, if you will. We're going to be targeting our focus on a couple of industry Verticals, excuse me, I'll just mention a few. We think the healthcare vertical is really quite interesting and we've had a lot of success there. We think higher ed is another interesting vertical and we also like the, I would say, the gaming vertical as well. And what's interesting about these verticals is they have a compelling need to do weapons detection, but they want to do it more covertly as overtly.

Speaker 1

That's really the signature differentiation of the SafePoint solution is to have these kind of very coke work sensors that you don't recognize. You're actually walking through a very AI based metal detection capability. With respect to the adjacency in terms of the go to market motion on this in the buying center, What we found really interesting as we were doing our due diligence in acquiring the company and we're kind of talking to some of the existing customers as well as potential customers There's a number of these folks actually come from law enforcement. And so we're talking to people that were definitely aware Sound Thinking and our prior incarnation of ShotSpotter, these are folks that maybe had spent 20, 30 years And a local law enforcement agency and then decide to retire. And what do they retire to?

Speaker 1

They retire to their second job, which is the Senior VP of Security For XYZ Hospital Chain or ABC Gaming Corporation. So we're selling into many ways An adjacent buying center where we can leverage our brand and reputation and even in those situations where the customer doesn't directly come from law enforcement, They're socializing with local law enforcement because it's really all about public safety and kind of private sector Environment. So we're pretty comfortable that we know how to go get at it, how to go get at that. And we're excited we're going to be excited to kind of share with you our progress And this greenfield opportunity.

Speaker 2

Last for me, and I'll turn it over. If you think about those Deployments, what gates the speed at which after sort of contract signed to get one up in the traditional gunshot detection side, The field sensors sometimes in places that are not owned by people that are easy to deal with, Presumably, this would be easier because the end client is the one who's giving you the location things to line up. And then the other would be Yes. Are there major enterprise opportunities that like you mentioned chains of things like Supermarkets, it could be hundreds of lanes in a single win. Or do you think you have to start with sort of smaller midsized deployments to sort of prove your reference

Speaker 1

Yes. So this is Alan. I will ask Al can add in. Yes, I think at this point, in terms of a contract, when a contract gets awarded, It's definitely faster in terms of once that's awarded to the deployment. You can think along the lines of maybe 2 months, A little more than that potentially or even faster than in some circumstances.

Speaker 1

So significantly faster than what we do With the ShotSpotter, because the customers are already giving us permission, right, to hang

Operator

Our next question comes from Mike Latimore of Northland Capital Markets. Please go ahead.

Speaker 3

Great. Thanks very much. Yes, and congrats on the Corrections deal here. I guess, can you just, discuss when you might start seeing revenue on that? And then of the I guess those $18,000,000 is that going to be recognized ratably over the Period of the contract or might you get more upfront with professional services or something like that?

Speaker 1

This is Ralph. So I think our expectation is this is a 6 year contract. We would expect to see a little bit more upfront as a Good portion of the $18,000,000 of ultimate contract value, I think about $6,000,000 or so is professional services. In terms of revenue recognition, I think our expectation is we'll see just a little bit This year and then we'll see it more kind of fulsome, I would say, in 2024 and beyond. I mean, it's really interesting for us because this is a contract we had hoped To get started on earlier in the year and be able to recognize a lot more revenue than ultimately we are going to be able to recognize Just kind of given the fact that we're just now getting to contract and starting the work, but we're extremely excited about what this means for So establishing a critical foothold in the sub corrections market because we think we bring some very unique capability To that in terms of investigator capability.

Speaker 3

Yes, great. And then In terms of the September quarter, can you just discuss how bookings were in the quarter both kind of new and upsell?

Speaker 1

Alan, do you want to take that? Bookies for Safeway or bookies for across the world? For Q3, For Q3.

Speaker 3

This is for Q3, yes. Just, Kerry, did it grow sequentially year over year? Just any color on booking?

Speaker 1

Yes. Well, I think the nice thing is our pipeline is still incredibly strong Across all of our products, right? So we continue to see bookings go relatively well in most of our solutions. There's still some that we're working and are starting to ramp up a little bit and things we've had a little bit of slowness in the past Like resource router, although that's actually ramping up now. And as Ralph mentioned earlier, We see things like New Jersey that are adding new kinds of possibilities for funding for the ShotSpotter solutions.

Speaker 1

And then you get like Philadelphia, the Housing Authority. There's a lot of things like that in terms of actual bookings that Going incredibly well. So I would say it's significant. It's certainly similar to what we've seen in the past In past several quarters, it's going to keep things going relatively positively.

Speaker 3

Great. And just last one on SafePoint. Clearly increasing the sales and marketing emphasis there. How about just On the technology side of things, do you feel like you're going to increase R and D for them or do you feel like it's pretty good well positioned right now?

Speaker 1

Yes, this is Alan as well. I'll go ahead and start and then Ralph can add. So We're definitely adding capability in R and D. They have a great R and D team already, had several things that they were planning over the next year. We're helping them accelerate that as well as looking at other things that we can do to improve the technology across the board.

Speaker 1

So, not only are we adding capabilities in marketing and sales, we're also adding capability in deployment and R and D To keep things moving quite quickly and improve to the extent we can any of the technology as well. And I did want to say one more thing You know that, Rich from Ross did ask about in terms of enterprise targets and large hospital groups and things like that. The short answer is, we are looking at those kind of things. There are more than just small customers who are going to ask For 5 or 10 lanes, there are significantly larger opportunities as well. Just wanted to make sure that we did cover that too.

Speaker 3

Okay. Thanks.

Operator

Our next question comes from Yifu Lee of Cantor Fitzgerald. Please go ahead.

Speaker 4

Congrats Ralph and Alan on the Sean, ready execution. Maybe start with the expansion of the leadership team. I know you brought on a lot of talents, HubSpot Deep Bench, Greg, Larry, you mentioned Ann, Mark And Daryl, today, right, I was wondering on the bundled product strategy going forward, right? How would you think This new management team will help with this new strategy, assuming you led with ShotSpotter first and then you upsell to other products. Maybe you could comment on that?

Speaker 1

Yes. So this is Ralph. So as you've noted, we've added a lot of firepower to the And kind of principally one of the things that we did to your specific question around product management is we basically split up the marketing function which had been done by 1 individual And now we kind of split marketing up into kind of our outbound, kind of brand marketing pipeline development marketing organization led by Greg Nakash Along with a new separate marketing function led by Sam Klepper That's focused exclusively on product management. And when I say product management, I mean product management not only in terms of the individual solution set, But also our Safety Smart platform and how we're working to kind of integrate our solutions to have a much more Integrated capability, not only in terms of look and feel, but also in terms of functionality. Another part of Sam's responsibility is also going to be kind of Scouring the marketplace to see other capabilities that we can bring to market because we are making a fairly significant investment as a company And being a platform company, so although historically we've been known as ShotSpotter and a part of our rationale behind Changing the name to Sound Thinking was really the kind of signal that we're much more than acoustic gunshot detection, although we appreciate that capability, it's kind of gave us our start, if you will.

Speaker 1

But we have an opportunity to provide technology to help public safety initiatives across the board become more efficient, effective and equitable by Offering other solutions and capabilities. So we're really excited about that expansion and we think it's going to be one of the things that helps us Continue to drive profitable growth over the medium to long term.

Speaker 4

Thanks for the color on that. And if I may follow-up on the Chicago and Puerto Rico contract renewal, it sounds like Puerto Rico, you're handling it very well. You got a 20% upside, right? I was wondering if you go double click on the Chicago side, you mentioned that in a couple of weeks you'll know the outcome, but it sounds Very positive, the new superintendent, Melon, that like budgets are decreasing at least, right? I just want to see like ring fenced this exposure.

Speaker 4

Is it about $7,000,000 Allen on the AR exposure in Chicago And about $2,000,000 in Puerto Rico. And it sounds like you guys are positive on the renewal in Chicago.

Speaker 1

Yes. So I'll start with you actually, Aurora. Chicago is actually north of $8,000,000 So that yes, that would be positive as well. And Puerto Rico is actually a little bit north of $2,000,000 So Especially if we're able to continue the significant increase that Ralph mentioned, which is over 20% higher than The last contract that we had with them.

Speaker 4

Okay.

Speaker 1

Yes. And I would just add in terms of Chicago, I mean, We've put a lot of work in Chicago in terms of continue to build upon a positive relationship frankly that we've had for over 8 years. We were delighted to see the announcement and selection of Superintendent Stelling to become the new leader He kind of grew up in Chicago PD. He's been a very strong vocal defender of technology at large and specifically acoustic gunshot detection. And so that's really, really quite encouraging.

Speaker 1

And then the next thing that was quite encouraging is that despite calls for selected Folks are activists within Chicago around defund the police or reduce the budget that the new mayor has made the right decision, we believe, to increase The law enforcement budget, close to 3% to almost $2,000,000,000 and there is a specific line item in that budget Calling for acoustic gunshot detection. So we're not there yet. One of the reasons we're holding off on our guidance is A proposed budget is not a final adopted budget. And so we're going to wait and see what actually gets Hopefully, ultimately signed off on and finalized at the final budget and we'll be feeling a lot better about Thanks. And we'll still have some gates to go through because then you have to kind of take those budget dollars and get them to a realized contract, Which will have until mid February to date, which is when our current contract with Chicago ends.

Speaker 4

Thanks for that, Rob. And one last question for Alan. Is the MSRP price increase was about 7% you mentioned for 2024? I think you mentioned is it like Tier 4 and Tier 3 cities. I was wondering if you could help us rank fast on the exposure on that.

Speaker 4

It's more of a modeling For us, we just want to see the upside of the price increase and that's it for us. Thanks so much, Alan and Ralph.

Speaker 1

Sure. Yes, this is Alan. So it's a great question. I mean we haven't increased our actual prices For about 3 years, that was when we went from $65,000 to $70,000 a mile. So going from $70,000 to Around 75 is appropriate for us to do right now.

Speaker 1

As Ralph mentioned, that was for Tier The larger cities, the ones that we would call Tier 1, 2 and 3, we do believe that it's still important for us to keep the Tier 4 and Tier 5, Which are very small cities normally only doing 1 to 2 miles, at a price where they currently are. So I think overall, we continue to have price increases several $100,000 a year because those that are Even paying less than the MSRP right now get a 3% to 5% increase in those cases per year to get to the MSRP. Now those that are even at the MSRP will be getting a little price increases. So it's all good in terms of Actually helping us grow the revenue and all that flows down to the bottom line as well.

Speaker 4

Thank you.

Operator

Our next question comes from Kieran Kitekhet of William Blair. Please go ahead.

Speaker 5

Hi. Thanks for taking my questions. First, can you add any color on the demand you're seeing for bundled sales and demand for larger state level deals?

Speaker 1

Do you want to take that, Alan? Sure. So I think the one thing that we know for now is that in terms of bundled sales that we have originally just going With ShotSpotter, the only product, we started doing bundling just this year really. We're already seeing some increase In terms of the customers that are interested, not just 1, our sales team, their commission schedules are set up To do additional things related to bundling, so it's positive for them, positive for the customers. We're seeing some customers that are Not only asking for 1 or even 2, some of them are asking for 3 of our products.

Speaker 1

So that's something that we have focused on. And in fact, even with SafePoint, although it's generally a different TAM and additional things that Ralph mentioned in terms of commercial type customers, A lot of the ones that we have right now, police agencies, municipalities, have relationships or have needs That made safe point as well. So we do expect that bundling is going to be very positive for us and extending us Certainly throughout 2024 into the future.

Speaker 5

Thanks. And then one more for me. Did you see any Further elongation of sales cycles in the quarter and any additional information you can share on funding and budgets you're seeing from customers?

Speaker 1

Yes. So this is Ralph. I mean, so we're continuing to see a nice cadence of deal kind of pull through. It feels like the environment is very constructive. I mean, we have a bit of a positive trifecta, if you will.

Speaker 1

The funding environment is very strong. Unfortunately, there's a real measurable uptick around crime, violent crime in particular that is now Becoming increasingly vocalized, I would say, by residents in the community. And at least With respect to ShotSpotter specifically, I'll speak to that because I imagine that's really the line of questioning that you have. We continue to really dominate So we don't deal with a lot of kind of competitive friction in our marketplace when someone decides that they want to do A kind of large scale acoustic gunshot detection for a police department or city, we're kind of the only game in In many respects, I mean, we saw that with respect to the RFP we responded to in Puerto Rico. We're showing up as the only bidder.

Speaker 1

And in Certain situations where it isn't sole source and there's an RFP, if there's another bidder, we're typically winning those. So we're pretty encouraged By the sales cycles and the increased, I would say, pipeline of deployment. I'll just quickly add to that. We should not underestimate the power of NPS in the way as a company we lean in on Net Promoter Because in fact, a lot of our sales motion is generated from the strong reference ability that we have in the marketplace, where effectively Our customers are selling new customers because they're saying, look, we've had a positive experience with this technology and the company providing this technology, You should try it too. So in many ways, it almost feels like we're kind of at the tipping point where this has become a standard of care.

Speaker 1

I think it's well understood and acknowledged that if you don't have a piece of gunshot detection, you're basically deaf to a significant amount of Criminal gunfire that, it's just irresponsible to be that way. So we're pretty excited about where we are.

Speaker 5

Great. Thanks for taking my questions.

Operator

At this time, this concludes our question and answer session. If your question was not taken, you may contact Sound Thinking's Investor Relations team by emailing sstigatewaygrp. Tideway grp.com. I would now like to turn the call back over to Mr. Clark for his closing remarks.

Speaker 1

Great. Thank you very much for that and thank you all for joining the call. Alan and I are looking forward to engaging with many of you over the next Thank you very much and have a great day.

Operator

This concludes today's conference call. You may disconnect your lines.

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Key Takeaways

  • Record Q3 revenue of $24M marked a 28% year-over-year increase, with adjusted EBITDA of $4.3M (18% margin) up ~40% YoY and 79% sequentially.
  • SafePoint acquisition adds AI-powered weapons detection, expands the addressable market beyond law enforcement, and supports a 2024 sales team build-out targeting $15M ARR in new lanes.
  • Bundled Safety Smart platform traction evidenced by a $900K CrimeTracer/CaseBuilder win with a state DOJ, a Chicago PD CrimeTracer pilot, and an $18M CaseBuilder contract with NYC Department of Corrections.
  • International expansion commenced in Montevideo, Uruguay, with further opportunities in Brazil and a revised interim deal in Puerto Rico amid HUD funding constraints.
  • Favorable funding environment driven by new state grants in New Jersey and New York could unlock up to 20 square miles of ShotSpotter coverage in H1 2024, complemented by a 7% price increase on core services.
AI Generated. May Contain Errors.
Earnings Conference Call
SoundThinking Q3 2023
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