SoundThinking Q1 2024 Earnings Call Transcript

Quartr
Provided by Quartr
May 14, 2024

There are 8 speakers on the call.

Operator

Good afternoon, and welcome to Sound Thinking's First Quarter 2024 Conference Call. My name is Joe, 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 will 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-1. These forward looking statements reflect management's beliefs, estimates and predictions as of the date of this live broadcast, May 14, 2024, 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 of the company's website at ir.soundthinking.com. Now, I would like to turn the call over to Sound Thinking's CEO, Ralph Clark. Sir, please go ahead.

Speaker 1

Good afternoon, and thank you for joining our Q1 2024 earnings conference call. Before I review the specifics of this quarter's results, I want to first share with you how very excited we are about the growth prospects for this year and our strong start to 2024. As we highlighted in Sound Thinking's recent investor letter, our growth strategy can be summarized as a land expand, cross sell and retain model. Our land opportunities or new customer acquisitions have greatly expanded beyond our historical acoustic gunshot detection business. We're now going to market with 5 offerings that comprise our Safety Smart platform announced last year.

Speaker 1

As we land new customers on any specific solution on the platform, our goal is to maximize the value those customers experience. We believe this strategy drives retention. And if there's an identified need, it can also potentially lead to appropriate expansions and or cross sell opportunities. We believe we're early in the law enforcement and now commercial security digital transformation market, and that this opportunity remains extremely attractive and significantly under penetrated. We believe our go to market strength as a trusted advisor uniquely positions us to capitalize on this opportunity as we're now able to offer relevant solutions that addresses the pressing needs of this large and growing market.

Speaker 1

Here's what we accomplished in Q1 of this year. Revenues were in line with our expectations of $25,400,000 compared to Q1 2023 revenue of $20,600,000 representing over 23% year over year growth. Adjusted EBITDA was $3,000,000 or 12% of revenues compared to $2,900,000 or 14% of revenues for Q1 2023. Our revenue attainment was primarily the result of our previously booked and deferred revenue, professional services revenue from our Technologic Solutions business, combined with net new business from the platform. Net new business included go live traction with 11 new ShotSpotter customers in the quarter, including one campus security deployment at University of Georgia.

Speaker 1

4 of the new public safety customers were in New Jersey, which is specifically budgeted for acoustic gunshot detection at the state level. We also went live with a strategic deployment in Philadelphia with the Philadelphia Housing Authority. This gives us an important strategic foothold in the city of Philadelphia with the possible future expansion opportunity in a major Tier 1 city. ShotSpotter also saw 2 expansions in Boston and Suffolk County. Resource router went live in 3 new cities in the quarter and we are seeing exceptional pipeline and bookings traction in new customer captures and cross sell opportunities for Resource Router this year.

Speaker 1

In addition, we added 2 new crime traits or data providers, growing our already exceptionally large data footprint. We continue to make progress on our New York City Department of Corrections Case Builder implementation, which has led to several new corrections opportunities, including Orleans Parish, which has been booked and is expected to go live in the next 60 days, along with a case builder deployment within the California Department of Justice. Lastly, we landed 4 new Safepoint customers consisting of a hospital, a gaming venue and 2 schools. Looking forward, we have 16 ShotSpotter go live projects underway, representing 8 new customers and 8 expansions. We believe all these developments further validate the demand that we are seeing in the marketplace and the strong execution on our key growth initiatives.

Speaker 1

On the international side, we were very pleased to report on the rapid adoption of best practices by our Montevideo, Yervoye shop water customer in the 1st 90 days of deployment. The client went live in mid December 2023 with an array totaling 4.6 square miles. In the 1st 90 days of deployment, the agency has begun to effectively leverage ShotSpotter data to allocate policing resources to impacted areas and to support investigations, including the use of ShotSpotter data as evidence in a recent tragic killing of a police officer. In addition, the agency is fully embracing integrating ShotSpotter with other digital tools used in their policing and community engagement efforts. We believe these positive results and the client's willingness to broadly share their successes with other countries will see the potential market opportunity for ShotSpotter in the larger South American market.

Speaker 1

In fact, we're making steady progress to book and go live with another major South American city in early Q3 of this year. Overall, we continue to refine and enhance the SafePoint solution, including a major software upgrade coming this quarter. We are leveraging the existing sound thinking software stack in order to provide a new and more modern user experience. For example, we're making it easier to monitor multiple facilities and entrances and to quickly find historical incidents of interest. Moving to this new code base will make future enhancements faster to deliver as well.

Speaker 1

We also expect to deliver an upgrade later in the year to the object detection classifier by integrating a new camera system and machine learning model using the company's deep experience in artificial intelligence and machine learning, which we believe will enhance SafePoint's detection efficacy. In fact, we've been granted a new fundamental patent on using passive magnetic moment in motion to detect weapons, which allows the systems to be unobtrusive, helping to provide a better experience for visitors and employees, all the while providing an important layer of security protection. Our SafePoint demand generation engine is fully operational with 2 dedicated BDRs who are assigned to drive over 250 discovery calls for the year, of which they have successfully delivered on 65 calls in a compressed Q1 2024. As a reminder, we also have in place 5 seasoned territory sales professionals combined with 2 recently hired and experienced security experts as customer success directors to help guide our go to market discussions as well as onboard new live customers. So far this year, we've secured business from our top 3 verticals, healthcare systems casinos and enterprise corporate accounts, and our momentum in healthcare is particularly impressive with having either secured lanes or being in advanced contract negotiations with multiple healthcare systems.

Speaker 1

We have seen security professionals in the healthcare system vertical that have already deployed competing products turning to Safe Point due to its lower total cost of ownership and discrete footprint. The Safe Point pipeline continues to grow in these key verticals and is currently over $12,000,000 We believe this provides solid coverage to meet the $5,000,000 target for booked ARR forecasted for SafePoint this year. With respect to our full outlook, we are reaffirming our revenue guidance of $104,000,000 to $106,000,000 for 2024, along with our adjusted EBITDA margin guidance of 18% to 20% for the year. Now, Alan, over to you. Thank you, Ralph.

Speaker 1

We're pleased with our performance in the Q1. As Ralph mentioned, this quarter we went live with our ShotSpotter gunshot detection solution in 10 new cities and one university, expanded our ShotSpotter coverage in 2 cities and added 7 new customers with our other software solutions as well as several previously booked customers that have now gone live. Revenue is in line with our expectations and it was attained from deferred revenue previously booked being recognized in the quarter, professional services revenue from our Technology Solutions business and also from new business mentioned above that went live. We had minor attrition of only 6 miles this quarter. Let me provide more details in the quarter and then I will share some thoughts around the balance of the year.

Speaker 1

1st quarter revenues were slightly above expectations at 25,400,000 dollars Revenue is over 23% higher than the Q1 of 2023 as we continue to grow in all aspects of our business. Gross profit for the Q1 of 2024 was $14,900,000 or 59 percent of revenue versus $11,300,000 or 55 percent of revenue for the prior year period. We expect gross margins to continue to improve as the year progresses. Our adjusted EBITDA for the Q1 of 2024 was $3,000,000 up slightly from $2,900,000 in the Q1 of 2023. Our adjusted EBITDA is lower than analyst expectations primarily because of continued higher than expected legal costs, some other one time expenses and also because we conducted our company all hands meeting in the Q1, which added a one time cost of almost $1,000,000 It is important to understand that we do not provide guidance on a quarterly basis for revenue or adjusted EBITDA.

Speaker 1

Adjusted EBITDA, a non GAAP financial measure is calculated by taking our GAAP net loss and adding back interest expense, income taxes, depreciation, amortization and impairment, stock based compensation and acquisition related expenses, including adjustments to our contingent consideration obligation. Turning to our expenses. Our operating expense for the Q1 were $17,500,000 or 69 percent of revenues versus $13,100,000 or 64% of revenues in the Q1 of 2023. Operating expense increases were primarily related to higher headcount and employee related costs, including personal cost increases related to expected SafePoint growth. Breaking down our expenses, sales and marketing expense for the Q1 was $7,100,000 or 28 percent of total revenue versus $5,800,000 also 28 percent of total revenue for the prior year period.

Speaker 1

Our sales and marketing teams continue to build our sales pipelines and expand our marketing efforts. We also continue to focus on maintaining high levels of customer satisfaction, which helps keep our attrition rates low. Our R and D expenses for the Q1 were $3,600,000 or 14% of total revenue compared to $2,700,000 or 13% of total revenue for the prior year period. We continue to invest in increasing the functionality of all of our products. G and A expenses for the quarter were $6,800,000 or 27 percent of total revenue compared to $4,600,000 or 22 percent of total revenue for the prior year period.

Speaker 1

G and A expenses were higher due to legal costs, our headcount increase and other employee related costs such as our all hands meeting mentioned previously. We expect our G and A expenses will fluctuate quarterly throughout the year in absolute dollars as the company growth will require some investment that will be offset by the expected reductions of certain one time expenses incurred during Q1. Our net loss for the Q1 was $2,900,000 or $0.23 per share based on 12,800,000 basic and diluted weighted average shares outstanding. This compares to a net loss of $1,800,000 or $0.15 per share based on 12,300,000 basic and diluted weighted average shares outstanding for the prior year period. Deferred revenue at the end of the quarter was $50,800,000 versus $42,100,000 at the end of the Q4 of 2023.

Speaker 1

We ended the quarter with $8,500,000 in cash cash equivalents versus $5,700,000 at the end of the Q4 of 2023. The increase is primarily related to AR collections, partially offset by the payment of the company annual bonuses in February. We have approximately $7,000,000 of debt outstanding on our $25,000,000 line of credit related to cash used to partially fund the SafePoint acquisition last year. Turning to our full 2024 outlook. We are reaffirming our full year 2024 revenue guidance range of $104,000,000 to $106,000,000 representing over 13% year over year growth at the midpoint compared to 2023.

Speaker 1

We are also reaffirming our expectation for adjusted EBITDA margin to be approximately 18% to 20% of forecasted revenues in 2024. Now back to Ralph for some final thoughts, and then we'll be happy to take your questions. Thanks, Alan. And just to close my prepared remarks, it was exactly 1 year ago when we acknowledged the ultimate sacrifice of Chicago Police Officer, Arianna Preston, who was tragically killed in an attempted carjacking when returning home from work. Sadly, we are here again 1 year later with the killing of another Chicago police officer, Louis Fusca, this past month in another attempted carjacking.

Speaker 1

Our sincere thoughts and prayers go out to his family, loved ones and the Chicago Police Department. We believe these tragic incidents require us to even be more determined to do our part in providing tools and critical expertise to help law enforcement, first responders and the communities they serve to save lives and to drive better public safety outcomes. We're now prepared to take your questions.

Operator

And our first question comes from the line of Richard Baldry with ROTH Capital Partners. Please proceed.

Speaker 2

Thanks. I was wondering if you can go into a little more detail on the Philadelphia win. I noted it was with the housing authority. How will they work between themselves and the local police? Is it something where you have the ability to grow outside of the housing authority relatively easily or do you

Speaker 1

have to build new relationships outside of that

Speaker 2

to grow into other areas of Philadelphia, so we sort of understand what that initial deployment represents?

Speaker 1

Yes, thanks for that question, Rich. This is Ralph. So there is a very strong collaboration between Philadelphia Housing Authority which is the buyer of the ShotSpotter Services for this particular implementation in the broader Philadelphia Police Department. So we're really quite encouraged that they're in fact working very closely together and we very much think that it will open up a potential opportunity for us to expand beyond Philadelphia Housing Authority to broader Philadelphia because it can certainly use a technology like ShotSpotter and other solutions to help them address the crime problem in Philadelphia.

Speaker 2

Thanks. And could you remind us in terms of the $12,000,000 in identified pipeline on SafePoint, The economics run, I think I recall $20,000 a lane, which would imply something like 600. So where was that pipeline when you bought the company so we can sort of gauge how quickly it's expanding?

Speaker 1

Yes, so when we bought the company they had a pipeline and we've gone through the vetting process to have that pipeline match up to our standards. So there were some puts and takes there. And so I think what you see in the current pipeline is some subtractions of the pipeline that we inherited. We kept some, but I think there's been a lot of healthy growth with the BDR investment that we've made and also our 6 excuse me, our 5 quota carrying sales people are also developing their own pipeline. So it's been fairly strong and really quite encouraged and we're seeing that pipeline developed across those 3 key verticals that I spoke about earlier.

Speaker 2

And maybe last for me, following on SafePoint. Any challenges you'll see ahead or areas you might need to smooth out in the supply chain in order to kind of scale up your ability to do those deployments? Are there any custom deliverables you need to make sure you have access to or is it something you feel that the friction to grow should be pretty minimal?

Speaker 1

Pretty minimal. I think we're in pretty good shape from a supply chain point of view. So no constraints.

Speaker 2

Great. Thanks.

Operator

And our next question comes from the line of C. J. Dipellino with Craig Hallum Capital Group. Please proceed.

Speaker 3

Hey, everyone. I'm on for Jeremy Hamblin tonight. Thanks for taking my questions. First, I wanted to touch on the income statement. It looks like you guys made some nice progress with gross margin expansion.

Speaker 3

Is there anything specifically that you could point to that led to the increase year over year and actually sequentially too?

Speaker 1

Yes. So this is Alan. Thanks for the question. Yes, if you think about it, we've got up 23 as a whole had a gross margin above 57%. Q4 was 58%.

Speaker 1

Now we're 58.6 percent. So it continues to improve. As we expect, it's going to continue to go higher and that's for a lot of things. As we continue to grow the revenues, we don't have to increase the cost of goods sold as much across the board for pretty much any of the software solutions that we have. So revenue growth is going to continue to help drive that gross margin a lot higher.

Speaker 1

We do expect to end the year closer to 60%.

Speaker 3

Okay, great. Thank you. And then one more on the income statement. I know you cited G and A being higher due to some it sounded like some one time expenses. Do you mind just trying to quantify how much of the G and A increase, we'll call it $2,200,000 year over year came from the increase in headcount, just so we have sort of a baseline moving forward?

Speaker 1

No, absolutely. Great question. This is Alan again as well. It's almost significantly in 2 major categories. Number 1, last year, we did our all hands meeting in Q2.

Speaker 1

So you would see G and A go higher in Q2 last year. This year, we did it in Q1 and that was almost $1,000,000 The company has grown. We have over 300 people now. So it costs a lot more to do that. That was done in Q1.

Speaker 1

So out of that, dollars 1,000,000 was there. We also had additional legal costs related to some issues that we had with 2 of our employees that did things that were inappropriate. We're continuing to defend ourselves on that. That was about almost $250,000 as well. So just between those 2 alone, which are certainly the all hands is one time and the legal costs, we're hoping those continue to go down.

Speaker 1

That would have been $250,000 The delta is just slightly other higher things related to G and A with the growth of the company.

Speaker 3

Okay, great. That's very helpful. And then one more on the Philadelphia Housing Authority contract, if you don't mind. Is there any details you could share on economics surrounding that deal, maybe the contract length, things of that nature?

Speaker 1

Yes, fairly standard. I mean, that's our standard MSRP pricing. We write annual contracts. So nothing unique there on the Philadelphia Housing Authority transaction.

Operator

And the next question comes from the line of Mike Latimore with Northland Capital. Please proceed.

Speaker 4

Hi, this is Aditya on behalf of Mike Latimore. Could you give some color on the sales cycle for gunshot detection? Is it stabilizing or you give some color on?

Speaker 1

Yes, this is Ralph. Thank you for that question. So the question just to repeat it is what we're seeing in terms of sales cycle for our acoustic gunshot detection solution otherwise known as ShotSpotter. I think there's some interesting puts and takes there. We're certainly seeing a little bit of headwind that's lengthening the sales process in certain situations because of some of the noise coming out of Chicago, to be candid.

Speaker 1

But then also, we're seeing some collapsing sales cycles as we more deeply penetrate Tier 4 and Tier 5. You probably noticed that in this particular quarter, we put up a lot of new customers, kind of 10 ShotSpotter customers and a number of those customers were smaller customers and those sales cycles tend to happen much shorter. You can think about those sales cycles being 9 to 12 months and our other sales cycles being more the traditional 18 months with a little bit of headwind that's been

Speaker 4

added to the larger deals. Got it. And what percentage of your gunshot detection pipeline is international?

Speaker 1

Yes. So this is Alan. I think at this point, it's still relatively small. We have international deployments in the Bahamas and South Africa and also in Uruguay. We are expecting and if you just add all those together, it's pretty much just a couple of $1,000,000 But we are also looking to expand.

Speaker 1

And hopefully, in Q3, we'll have another one in another country that we've talked about in the past. And that should add another probably $500,000 $600,000 per year for this, the first deployment there. And we are still expecting some growth, both in the new one that we're coming into, possibly into South Africa as well, as well as Uruguay.

Operator

And the next question comes from the line of Trevor Walsh with JMP Securities. Please proceed.

Speaker 5

Great. Thanks, gents for taking my questions. Ralph, maybe I'll start with you. You made some comments in your prepared remarks about just best practices. I think it was more in the context of international business.

Speaker 5

But just piggybacking off of that a little bit, if a customer was to kind of want to evaluate the cost benefit analysis specific to ShotSpotter. I know you've talked about in the past of not necessarily wanting to go down the slippery slope of kind of quantifying human life save even though we have good examples of ShotSpotter doing just that. What in terms of best practices are you seeing customers that do want to do that cost benefit analysis? What other metrics might they use to just help illustrate that and kind of justify to city councils, whoever that kind of might be as kind of the spend being saving off some time, whatever it might be. How do you measure that?

Speaker 1

Sure. Yes, thank you very much for that question. So it's a couple of things. I think first, there's the overall awareness of a criminal gunfire that takes place in neighborhoods and we know from years of experience across multiple deployments that 80% to 90% of criminal gunfire goes unreported by the traditional, I would describe broken 911 system, analog manual system. And so having the ability to have real time alerts that are completely vetted, get to a dispatch center and then dispatch out to an officer in less than 60 seconds with a very precise location is a game changer.

Speaker 1

It shows a community that police are prioritizing the response to gunfire. And when police are responding to gunfire, certainly they're getting there, if they're not encountering a perpetrator, perhaps they're aiding a victim, which is where you get to live save. We have lots of evidence that the physical forensic evidence collection process is significantly enhanced and of course that's really critical for downstream investigations, getting those shell casings and running them through the NIBEN system and embracing a kind of very strong robust gun crime intelligence platform where you're investigating shootings that don't necessarily lead to a gunshot wound victim and the like. We're very excited about our data for good initiative where we're repurposing the data, I should say our clients are repurposing the data and sharing it with other outside of law enforcement agency resources that help get critical non enforcement resources to these communities that are suffering through the trauma of gun crime. We're also seeing our customers be able to aggregate the data over time and really being able to better plan their resource deployments based on exactly where gunfire is taking place over specific time windows.

Speaker 1

I think there's an overall theme of encouraging our data or excuse me, our customers to be much more transparent in sharing data in the outcomes that they're getting and it really does get down to getting cops to dots, recovering physical forensic evidence, recovering crime guns, recovering physical forensic evidence in the form of shell casings and I'm very much leaning into the idea of valuing the saving of a life because I mean those lives are critically

Speaker 3

important and have values, they mean something.

Speaker 1

I think the line that and have values, they mean something. I think the line that we don't want to go down as much as taking on the responsibility for overall prevention and reduction of gun violence from a singular point of view because we know that gun violence in total is a very complex issue and it really does take a grouping of kind of technologies and processes all working together with very strong leadership that drives the effect of reductions in gun violence and can't single out a particular technology to be able to do that on its own. So we do resist that non line of sight I guess outcome if you will. But I think there are several line of sight outcomes that our customers can embrace when they do implement best practices and really get cops to every single shooting and try to save lives, recover physical forensic evidence and take gun crimes off the street.

Speaker 5

Great. Thanks for the color. Maybe one more higher level question for you and then I have a couple for Alan. You mentioned the kind of momentum within state of New Jersey and how that's more state level funded. What do you think the appetite is for that type of kind of funding profile to come from state government versus local kind of just more broadly across the U.

Speaker 5

S?

Speaker 1

Yes. So there's a couple of states beyond New Jersey. I won't name them in this conference call, but we're working quite closely with a few states on copying basically what the Governor of New Jersey did in terms of allocating some specific funding for acoustic gunshot detection because is recognized how important this critical technology is in helping police better respond to criminal gunfire. So more to come there, but we're quite encouraged with some of the movement we're seeing in a couple of other states.

Speaker 5

Great. Terrific. Alan, maybe for you. I appreciated the ARR guidance, kind of how you build to your 2024 number. Was there and I know you don't necessarily guide on a quarterly basis to that metric, but was there anything in the quarter from a trending perspective that gave you kind of more or less confidence around that 2024, call it, just $100,000,000 ARR number?

Speaker 1

No, thanks for the question. So no, there's nothing that changed. We are still struggling a bit with Puerto Rico, trying to get that in there or back online, but we already included that. So the ARR growth getting north of 100 already included that we didn't get Puerto Rico at all. So we're still working with that hoping that we can be positive there.

Speaker 1

Nothing else has really changed based on the buildup to get that north of 100. You already heard about the pipeline with Safeway Point. We're excited about that. You talked we heard about the 10 cities going live and the universities, so things are going well there. Everything else, cities are going really well across the other products as well.

Speaker 1

So no major changes there.

Speaker 5

Okay, great. Maybe just one more, just kind of piggybacking on some of the SafePoint questions. Appreciate the comments earlier around just the overall pipeline build. Have you seen, kind of maybe asked in a different way, have you seen a noticeable change in sales cycles particular to SafePoint kind of compare and contrasting from when the company was kind of standalone versus in the short time that it's been kind of part of the Sound Thinking family, if you've seen any kind of accelerations, I guess, there in terms

Speaker 2

of just the overall the deal flow?

Speaker 1

Yes. So I think I would first acknowledge that this is still relatively new for us. But I think one of the approaches that we take is very consultative approach and really making sure that we're thoughtful and intentional around doing diagnostics and discovery calls if you will with our customers and really making sure that we understand what they're trying to accomplish and then making sure that our solution can fit with what they're trying to accomplish. So we take a little bit more of a deliberate approach. We're not trying to be transactional.

Speaker 1

That's never really been a part of the DNA of this company. We like it sticky. And so if we'd like to get in, solve a problem and be able to be with a customer really over decades. And so we're not into the transactional sales. So more to come there.

Speaker 1

We're pretty comfortable with the way we see the pipeline building. This is a huge market opportunity for us. There's certainly a very strong compelling need out there, particularly in the verticals that we're addressing to be able to provide a layer of security but then also have a fairly seamless experience for visitors and employees and the like that you don't want them to have to go through the friction of getting pressed down going through a traditional metal detector. So we're going to be picky and diligent and I think our idea is that when we get a customer, we're going to have a customer for life.

Speaker 5

Great. Thanks both for the questions. Appreciate it.

Speaker 1

Thank you.

Operator

And the next question comes from the line of Yifu Lee with Cantor Fitzgerald. Please proceed.

Speaker 6

Thank you for taking my question. Hello, Ralph and Alan. So first question is really on the go live customer underway for Sound Thinking. And I think Ralph, I think Alan mentioned the 16 of them. Can you guys give us a little more color on this pipeline, whether it be Tier 1, Tier 2, Tier 3 cities?

Speaker 6

And what kind of profile are these?

Speaker 1

So I think we stayed early and this is Rob. I'll try to answer the question as much as I can. So we're trying to give people a flavor for obviously Q1 went very well with the customers that went live. We've got 16 customers, excuse me, 16 projects I would say, in queue for ShotSpotter. And I think 8 of those customers are expansion customers.

Speaker 1

So we know the customers very well. And that's a mix of various types of customers in that expansion side. And then on the new customers, I think it's another mix of customers. Certainly if there were huge kind of Tier 0 or Tier 1 sitting, we would call that out. But I think there's a combination of Tier 2, 3s and 4s in there.

Speaker 1

I think you're going to see us kind of put up more higher customer numbers, customer, new customer acquisitions and there will be smaller customers. But in aggregate, they'll add up to the mile. So we're still holding to our target of 120 miles going live this year for ShotSpotter across the board. I mean, we're on track.

Speaker 6

Okay. Thanks for that, Ralph. And then along the same lines, right, great job on the cross sell for the Case Builder and Prime Chasers on the Virginia win. And I understand you guys done that in New York City as well, as well as looking to California. I was wondering if you could give us more color in terms of like the cross selling opportunities now that you have more experience, right, in this motion.

Speaker 6

How frictionless is the selling experience now that your sales team has a couple of these deals under your belt already?

Speaker 1

Yes. Do you want me to take that, Alan? Yes. I mean, either one. So this is Alan.

Speaker 1

I think the good news is we've been doing cross selling and bundling products now for over a year and it is working. I mean, we've had I think we've got about probably close to 17, almost 20 of our customers that have more than 1 at this point. And a couple of them have 3 of our products and one of them has 4. So the good news is the more that we're doing this, the better our sales team is getting at doing it. So it's working well.

Speaker 1

We're just going to keep doing what we're doing and not change too much of that. We do give a slight discount for when they go from what we bought it to very small though and that hasn't really hurt us at all as you can see in terms of the revenue growth.

Speaker 6

Got it. And then on the Puerto Rico incident, in terms of I understand both of you gents are trying to get this back online. What needs to happen? I understand like in the task you mentioned there wasn't a second like competitor, right? I guess what's the hold up to get this contract back live?

Speaker 1

Yes, 100 percent funding. It's a funding issue.

Speaker 6

Oh, it's a funding issue. Okay. That's nice and easy, Alan. And then last one, Alan, is more of a numbers. It's the long term guidance you gave in terms of 70% gross margin and obviously 40% EBITDA margin.

Speaker 6

What's the time horizon that we should think about this because right now we are about high 50s in terms of the GM gross margin and probably low double digits, right, high single digits in the EBITDA margin, right? How should we think about the time horizon? And that's it for me.

Speaker 4

Thank you for Yes.

Speaker 1

This is Alan. That's a great question. I mean, we've guided for 18% to 20% adjusted EBITDA right now. You could expect and we are going to expect that that's going to go up about 5% a year.

Speaker 6

So maybe

Speaker 1

in the next 3.5, 4 years, I would expect this to be close to that 4%. And at the

Speaker 6

same time So, Alan, 5% per year for the GM expansion, gross margin expansion.

Speaker 1

To be clear, we're not giving you shyness on that right now. We're just trying to give you the long term in terms of where we think we can get back to the short answer is probably about 4 years. We would expect that gross margin to be close to that 70 and the adjusted EBITDA closer to that number.

Speaker 6

Got it. Thanks for that, Alan, and thank you, Ralph. Congrats again on a strong start to 2024.

Speaker 4

Thank you.

Speaker 1

Thank you.

Operator

And our next question comes from the line of Louis de Palma with William Blair. Please proceed.

Speaker 7

Ralph and Alan, good afternoon.

Speaker 1

How are you doing?

Speaker 7

I'm doing well. From a bookings perspective, at the end of 2023, I think you ended with 170 cities under contract and 19 campuses for gunshot detection, did those figures move higher in the Q1 despite the noise from Chicago and the elongated sales cycles?

Speaker 1

This is Alan. Yes, they did move higher. They did not move a lot higher, just to be honest. But that is it is somewhat lumpy. I mean, we have quarters where we have a lot and then we have quarters where we're executing going live in a lot and the bookings maybe just take a little longer, but it went up.

Speaker 7

Great. And you discussed cross selling of Case Builder and CrimeTracer specifically with the Newport News account, which I believe is also a ShotSpotter customer. But how many of your existing ShotSpotter cities use multiple solutions? And is there a lot of opportunities there in the pipeline for that?

Speaker 1

This is Alan. At this point, there's about 20 of them that are using more than 1. And we do expect that there's a pretty strong pipeline. We're seeing for a relatively strong growth in some of the resource router that we have not necessarily seen in the past years, which is excellent, and of course, Case Builder as well. So, we're excited about where things are going.

Speaker 1

So the short answer is we are seeing more opportunity there in the pipeline.

Speaker 7

Great. And for first safe point, how significant are the software enhancements that you are implementing? And does the effectiveness of the solution to continue to improve over time with the machine learning technology in terms of the different types of weapons that people attempt to bring past the scanners and how your technology works with that?

Speaker 1

So we're making a fairly significant investment in the technology platform for Safepoint. We're really encouraged by the fact that we're starting in a really good place. I think that the innovation around using magnetic moment and motion as a passive sensor technology that can be completely unobtrusive is really, really interesting and highly differentiated and our plan is to continue to build on that not only in terms of the core, in terms of improving the overall detection efficacy, but also kind of applications that are built around it. We have a lot of experience in applying that to ShotSpotter. When you think about ShotSpotter detecting and locating gunfire in all the apps that we built around that, that have really moved that solution forward.

Speaker 1

We're going to apply the same playbook to Safeway. And we have a strong collaboration with the various engineering groups kind of working together. We're really excited about the fact that we can leverage the existing software excuse me, the existing sound thinking software stack used for ShotSpotter that can be applied to the application that SafePoint is going to be coming out to market with. So we're in a really good place and we'll continue to invest in this because it's such a significant market opportunity.

Speaker 7

Great. And one final one for me. Do you expect the Chicago noise to die down in that? It seems that Chicago is an anomaly here and that you have 170 cities under contract and there's one very loud one here that seems to be opposed. But do you expect that to die down and for the sales cycles to return to normal this year and in terms of you meeting your guidance in terms of adding another 120 miles of coverage?

Speaker 1

Yes. Well, first thing I'll say is Alan owes me $10 because I made him a bet that we weren't going to get through this call without someone asking about Chicago. But thank you for that question. So let me make it perfectly clear with Chicago. 1st and foremost, our guidance is not dependent our 20.44 guidance is not impacted at all Chicago's actions.

Speaker 1

And in fact, when you talk about the subject of Chicago, what you're really talking about is the Mayor of Chicago, Mayor Brandon Johnson. I think if anyone's kind of following the news there, it's Brandon Johnson kind of versus what his superintendent has been fairly public in supporting ShotSpotter along with the city councilmen or the vast majority of the aldermen of the city of Chicago and we know the residents of Chicago are being quite local along with the local press around the need for this technology. We've been deployed now in Chicago since 2011 And our focus is to continue to build on that great service tradition through the end of the current contract period with 2,000 excuse me, that will take us through November of 2024. With respect to the impact around it, I think there might have been a little bit more noise late last year. As we kind of move into this, we don't see customers really slowing down ultimately from jumping on the platform.

Speaker 1

We have to answer more questions, but I think people are understanding this to be a fairly kind of isolated situation. I mean, to it, we added 10 new customers in Q1 and we're working on 8 new customers for Q2. So the momentum is still there. And 10 is the highest we've ever had in the quarter, Axel. Okay.

Speaker 7

And is RFP activity similar or greater or less than this year versus last year? How would you access just the RFP activity?

Speaker 1

Yes, so RFPs with respect to ShotSpotter, that was your question related to ShotSpotter, RFPs have never really been a significant portion of our business because this is viewed fairly much as a kind of sole source technology. It's a technology solution that we invented and we continue to kind of I guess lead the category if you will. So I don't know RFP stuff is really kind of noise. In RFPs that we have, the few RFPs that we have tended to respond to, I don't think we've ever lost one. No, and they ended up selecting someone.

Speaker 1

Yes, if they selected someone, they selected us. They maybe didn't move forward with RFP. But if they made a decision to execute against RFP, we've been the winner.

Speaker 7

Yes. No, the context of my question is how some emerging competitors in the market, they are bundling gun detection with ALPR cameras. And I was wondering if that has had any impact on the win rate or even like the pipeline expanding in terms of RFP activity?

Speaker 1

No impact on win rate, no impact on pipeline. I mean, there's questions that we have to answer about this, especially in some of the smaller cities, but I think people recognize that you probably don't want to combine your ears with eyes on the same platform, the exact same physical platform, it's pretty challenging. So we're pretty comfortable that we're in a good space from a competitive landscape point of view.

Speaker 7

Great. Thanks, Ralph. And Alan?

Speaker 1

Yes. Thank you.

Operator

Thank you. Ladies and gentlemen, this concludes our question and answer session. If your question was not taken, you may contact Sound Thinking's Investor Relations team by emailing ssti at gateway grp.com. Now, I'd like to turn the call back over to Mr. Clark for his closing remarks.

Speaker 1

Great. Thank you very much, Alan. And I want to thank everyone that took the time to dial in and thank you all very much for your questions and looking forward to a number of follow on calls with you all in the next few hours. Thank you all very much. Be safe.

Operator

This concludes today's conference. You may now disconnect your lines at this time. Thank you for your participation.

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Key Takeaways

  • Sound Thinking delivered Q1 revenue of $25.4 million (up 23% year-over-year) and adjusted EBITDA of $3 million (12% margin), in line with expectations.
  • The company added 11 new ShotSpotter customers (including a university and the Philadelphia Housing Authority), achieved 2 expansions, and has 16 go-live projects underway (8 new customers, 8 expansions).
  • Cross-sell momentum continues across Resource Router, CaseBuilder and SafePoint, with a SafePoint pipeline of $12 million and a target of $5 million ARR for 2024.
  • Internationally, the Montevideo deployment saw rapid adoption of best practices in 90 days, paving the way for another major South American city to go live in early Q3.
  • Sound Thinking reaffirmed its full-year 2024 guidance of $104–106 million in revenue (13% growth) and 18–20% adjusted EBITDA margin, while gross margins are expected to approach 60% by year-end.
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Earnings Conference Call
SoundThinking Q1 2024
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