SoundThinking Q2 2024 Earnings Call Transcript

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Provided by Quartr
August 6, 2024

There are 8 speakers on the call.

Operator

afternoon, and welcome to Sound Thinking's 2nd Quarter 2024 Conference Call. My name is Shamali, 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 SoundPeakings' 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, August 6, 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 you via a link available in the Investor Relations section of the company's website at ir. Soundthinking.com. Now, I like to turn the call over to Sound Thinking's CEO, Ralph Clark.

Operator

Sir, please proceed.

Speaker 1

Good afternoon, and thank you for joining our Q2 2024 earnings call. I'm pleased to report another strong quarter marked by several positive operational and financial achievements. Before I turn the call over to Alan for a detailed financial review, I'll provide my thoughts on our operating performance and offer additional context on the key market drivers that underpin our optimistic outlook for the growth opportunity ahead. The need for public safety solutions has never been more critical, especially within the increasingly challenged law enforcement ecosystem. Public safety officials are expected to address high crime levels with diminishing personnel resources, creating a structural public safety gap that only technology can fill.

Speaker 1

We believe Sound Thinking is uniquely positioned to bridge that gap with our integrated Safety Smart platform. We are a trusted partner to law enforcement agencies of all sizes, both domestically and internationally, as they embark on digital transformation strategies rooted in data driven policing. We think public sentiment has significantly shifted from the de policing movement to the investing in policing movement and holding policing accountable to protect and serve efficiently, effectively and equitably. In fact, in a Gallup poll conducted just this year, Americans' confidence in police increased 8 percentage points over the past year to 51%, the largest year over year change in public perceptions of the 17 major U. S.

Speaker 1

Institutions measured by Gallup's annual update. What was very telling was a confidence increase among the persons of color subgroup whose confidence grew even faster, increasing 1300 basis points from 2023 to 2024. This is a particularly significant counterbalance to the headline noise generated by some selected media outlets, but is entirely consistent with what we're seeing on the ground in the markets we serve. We believe this demonstrates strong support for constitutional policing amongst residents in the most vulnerable communities that our agency partners are serving every single day. Within this positive opportunity set with strong macro tailwinds, we've been able to successfully execute another strong quarter performance that was overall in line with our expectations.

Speaker 1

In our core acoustic gunshot detection business, ShotSpotter was taken live in 3 new cities and expanded in 4 cities. Additionally, ShotSpotter was deployed outside of our traditional local law enforcement buying center with 2 new commercial customers and 1 university as a part of their security framework. The international ShotSpotter business is also quite promising with a soon to be awarded expansion in Uruguay and a re win in Nelson Mandela Bay in South Africa. We still believe we can book and go live with ShotSpotter in Brazil later this year and are very encouraged with the recent elections and formation of the National Unity Government in South Africa. We believe this represents a significant path forward for opportunities beyond the current DA led municipalities by directly engaging South African Police or SAPs at the national level.

Speaker 1

Domestically, we're on track to exceed 100 new ShotSpotter go live miles this year with an outside shot of getting to the previously forecasted 120 miles. We continue to outperform on the retention front and believe we will see potential upside to our overall revenue forecast with better than forecasted retention rates for the full year, further contradicting the rhetoric being platformed by a few news outlets. Resource router, our AI based patrol management solution is also performing above expectations and gaining market acceptance for its capabilities that enhance community safety while protecting residents from over policing. We currently have over 7 Resource Router implementations in the queue for Q3 go lives. We're also thrilled that Resource Router is making important inroads into community based violence interruption organizations.

Speaker 1

These organizations such as the Ooma Futures International in Miami Dade, Florida are adopting our community facing version of resource router as a part of their violence interruption efforts such as the walking one stop. UFI President, Mr. Wayne Rollins has been a vocal advocate and innovative user of ResourceRouter to more proactively focus their limited resources using a proven data driven approach. Mr. Rollins has been spreading the word both nationally and internationally that community violence intervention work cannot simply be done to the highest caliber without applying innovative technology as a force multiplier.

Speaker 1

Case Builder subscription based revenue grew approximately 700% for the Q2 year over year with the kickoff of the New York City Department of Corrections project, which is ahead of schedule. We will be recognizing another $1,000,000 of maintenance ARR in early Q3 with the delivery of the 1st major application or use case of PREA, the Prison Rate Elimination Act to be followed by 9 other divisions within the DOC. Some of the overarching goals of this significant initiative include improving efficiency and compliance in the case management process at DOC and increasing transparency and accountability by implementing a modern application that replaces disparate case management systems and manual paper based documentation currently in use across DOC's organizational divisions. Case Builder was also successfully deployed at the California Department of Justice in Q2 for investigations and insurance fraud and has the potential to grow users by expanding to other divisions within CalDOJ and utilizing Case Builder for new use cases. Finally, we expect to go live with Orleans Parish in September and have a healthy pipeline of new Case Builder opportunities for the remainder of 2024 and early 2025.

Speaker 1

Although the SafePoint top of funnel pipeline remains strong and continues to grow, we're experiencing slower than expected sales, primarily being delayed as prospects wait for key new functionality that will be a part of a major September release. This major release includes a new 3 d camera integration, enhanced machine learning object classification, a major upgrade to the user interface along with SOC 2 and HIPAA compliance, which are table stakes for larger hospital chain prospects. We believe these enhancements will significantly improve the overall customer experience and reduce customers' operational costs. It will also enable efficiencies in our processes within the Alert Review Center or ARC, which is the Safepoint equivalent of the ShotSpotter Incident Review Center or IRC. Unfortunately, unlocking much of the feature set was dependent upon a specific 3 d camera whose availability, qualification and integration experienced a 4 plus month delay.

Speaker 1

During this period, we have taken the opportunity to retool our SafePoint sales leadership and further integrate SafePoint supply chain and customer success and support in the sound thinking operations, while we continue to build the SafePoint sales pipeline. So I want to take a brief moment to share with you how thinking has been leveraging artificial intelligence and machine learning to drive innovation and enhance our services. For over a decade, our machine learning algorithms have been at the core of our ShotSpotter incident filtering process for acoustic gunshot detection technology. By regularly training our models with our diverse and extensive data sets, we're improving the filtering capability of our gunshot detection system, which importantly allows us to significantly scale our customer and coverage area footprint, while our customer and coverage area footprint, while effectively managing the cost of our incident review center. In addition, artificial intelligence and machine learning are core to our resource router solution, which is used to analyze patterns and trends in crime providing valuable insights, data driven patrol strategies and community safety initiatives.

Speaker 1

Lastly, recent developments in cloud based AI tools make it possible for our SafePoint team to train neural networks using large labeled data sets with detailed features from our SafePoint sensors capturing the magnetic moment and the 3 d camera tracking speed, direction and skeletal model in order to use these features in real time to classify weapons, pinpoint the individual carrying the weapon along with the weapon location. What is very exciting and we know this from our over decade plus of work on from ShotSpotter is that the SafePoint system has the potential to continue to improve by incorporating new data and refining its models. We believe we're in the early second inning of what's possible with artificial intelligence and machine learning and harnessing it for the benefit of our customers and investors. We recently announced We recently announced a strategic partnership with Recore, a leader in Roadway Intelligence Technology and Vehicle Recognition Solutions. This collaboration brings together 2 industry leaders combining Sound Thinking's expertise in acoustic gunshot detection and investigative solutions with Recor's best in class vehicle and LPR solutions.

Speaker 1

Our new product, Plate Ranger, is now available for demonstration and quotation and is expected to be part of the Safety Smart platform starting in September 2024 marking our expansion into the growing LPR market. This market is estimated to be $3,200,000,000 globally according to Emergent Research. We are highly encouraged with the initial response to our launch announcement and have already booked several discovery calls with accounts that literally stretch across the United States. Our ShotSpotter service in Chicago ends in late September with a formal contract termination in late November. And while there's still a significant civic debate between the Mayor and the City Council on extending the service beyond November 2024, we continue to focus on providing what we believe to be and data suggests is a life saving solution as we've done for the past 10 plus years.

Speaker 1

Chicago's non renewal in Q4 2024 is already factored into our 2024 guidance, which is being maintained at $104,000,000 to $106,000,000 in revenue with 18% to 20% adjusted EBITDA margin. We are confident that we can achieve our 2024 guidance and believe we are well positioned to drive profitable growth in 2025 and beyond. Thank you for your attention. I'll now turn the call over to Alan for a detailed look at our financial performance.

Speaker 2

Thank you, Ralph. We're very pleased with our performance in the Q2. As Ralph mentioned, our Safety Smart platform product strategy appears to be working well as we're seeing strong demand for our public safety solutions across the platform. Let me provide more details in the quarter and then I will share some thoughts around the balance of the year. 2nd quarter revenues were a record $27,000,000 and included the revenue associated with our Case Builder Department of Corrections contract.

Speaker 2

The $27,000,000 is a 22% increase over the $22,100,000 in the Q2 of 2023. Revenue increased as sales of all of our Safety Smart platform solutions are growing. Our diversification of revenues is also working. For example, our domestic ShotSpotter revenue was only 66% of revenue this quarter versus 70% in Q2 of 2023. Gross profit for the Q2 of 2024 was $16,100,000 or 60% of revenue versus $12,700,000 or 57 percent of revenue for the prior year period.

Speaker 2

We expect gross margins to be similar to Q2 for the remainder of the year, ending the year atornearthe60% that we have indicated last quarter. Our adjusted EBITDA was up over 110% from the Q2 of last year to $5,100,000 up from $2,400,000 This is also significantly higher than the $3,000,000 in the Q1 of this year. Our adjusted EBITDA increase was related to revenue growth in of all of our solutions as well as some expense reductions in various categories. 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 and amortization and impairment, stock based compensation expenses, restructuring expenses and acquisition related expenses, including adjustments to our contingent consideration obligations. Turning to our expenses.

Speaker 2

Our operating expenses for the Q2 were $16,100,000 or 60 percent of revenues versus $15,000,000 or 68 percent of revenues in the Q2 of 2023. Breaking down expenses, sales and marketing expense for the Q2 was $7,300,000 or 27 percent of total revenue, down from $7,400,000 or 34 percent of total revenue for the prior year period. Our R and D expenses for the Q2 were $3,500,000 or 13% of total revenue compared to $3,100,000 or 14 percent of total revenue for the prior year period. G and A expenses for the quarter were $5,900,000 or 22 percent of total revenue, up from $5,500,000 or 25 percent of total revenue for the prior year period. Offsetting our G and A expenses included approximately $600,000 reduction in Q2 of this year related to the change in the fair value of the contingent consideration related to SafePoint earn out expectations.

Speaker 2

In Q2 of last year, our G and A expenses were offset by approximately $1,000,000 reduction related to the change in fair value of the contingent consideration related to the forensic logic earn out expectations. We do expect our G and A expenses will continue to increase a bit in absolute dollars as our company grows. Lastly, we had approximately $350,000 in costs related to restructuring efforts that took place that reduced some personnel and office lease costs. A portion of the restructuring expenses were related to severance paid to terminated employees that represented less than 5% of workforce that we expect should save approximately $2,000,000 annually. These costs were added back to the overall adjusted EBITDA amount for the quarter.

Speaker 2

Our GAAP net loss was approximately $800,000 or $0.06 per basic and diluted share for the quarter based on 12,800,000 basic and diluted weighted average shares outstanding. This compares to a net loss of $2,700,000 or a loss of $0.22 per basic and diluted share based on $12,200,000 basic and diluted weighted average shares outstanding for the prior year period. Our adjusted net loss for the 2nd quarter was a loss of $955,000 or a loss of $0.07 per share based on 12,800,000 basic and diluted weighted amortization outstanding. This compares to a loss of $3,500,000 or a loss of $0.28 per share based on 12,200,000 basic and diluted weighted average shares outstanding for the prior year period. Adjusted net loss, a non GAAP financial measure is calculated by taking our GAAP net income or loss and adding back acquisition related expenses, including adjustments to our contingent consideration obligation and restructuring expenses.

Speaker 2

Deferred revenue at the end of the quarter decreased to $49,400,000 from $50,800,000 at the end of the Q1 of 2024. This decrease was primarily related to the timing of renewals. We ended the quarter with $9,800,000 in cash and cash equivalents versus $8,500,000 at the end of the Q1 of 2024. The cash balance is higher than the end of the Q1 even after we repurchased 134,150 of our shares at an average price of $14.86 for approximately $2,000,000 In fact, after the quarter closed, we repaid $3,000,000 of our line of credit and our current cash balance is still approximately $12,000,000 Currently after our recent repayment, we have only approximately $4,000,000 in short and long term debt outstanding and have approximately $21,000,000 still available on our line of credit. Turning to our full year 2024 outlook.

Speaker 2

We're maintaining our full year revenue guidance range at $104,000,000 to $106,000,000 which means that the second half revenues are expected to be between $51,500,000 $53,500,000 We are expecting that Q3 revenues will be sequentially down from Q2 related to an acceleration of professional services in Q2 from Q3 related to our case builder and NYPD technologic projects. We then expect Q4 revenue to be sequentially higher from Q3, including loss of $1,200,000 from Chicago in Q4, which currently is expected to end on November 22 assuming no contract renewal. We are maintaining our adjusted EBITDA margin guidance at 18% to 20%. Now back to Ralph for some final thoughts and then we'll be happy to take your questions.

Speaker 1

Thanks, Alan. I would be remiss if I did not give a shout out to my colleagues for our 6 Great Places to Work designation. I'm incredibly grateful to everyone in the company that is doing work that matters in making a difference across the globe. We're now happy to take your questions.

Operator

Thank you. At this time, we will be conducting a question and answer session. And our first question comes from the line of Richard Baldry with ROTH Capital Partners. Please proceed with your question.

Speaker 3

Thanks. When you look at the range of go lives between the 100 to 120 for the year possibly, what really makes up the difference there? Is it the pace of deployments on deals that are already won? Or is it dependent on some early wins in the second half sort of turning live before the end of the year?

Speaker 1

Yes. Thanks for that question. Rich, this is Ralph. I think it's more the latter than the former. We have some really interesting deals in the pipeline.

Speaker 1

So it's just a question of how quickly we can convert the pipeline to a book deal and then give ourselves time to be able to get permissions and deploy sensors and effectively turn on a service, recognizing that December is a pretty tough month to take customer lives to take customers live during the winter months and kind of during the holiday period. So that's what we're running up against.

Speaker 3

Okay. Then if we look specifically at the Q4, you're facing factoring in a drag of, I think, about $2,000,000 from Chicago, but you'd still be up sequentially. So if you netted that out, there's something like a $3,000,000 sequential organic implied. We've never really seen that in the past. That would be a pretty breakout incremental growth in a 90 day period for you.

Speaker 3

Could you kind of go through the components of that so we can understand how that's happening? And then whether there's some one time things in there or just feel like your capacity to grow is stepping up given the myriad of products you're now offering?

Speaker 2

Sure. This is Alan. I'll go ahead and answer that and Ralph Matt are correct as well. I think the big thing is we've said Q3 might be just a little lower than Q2 because of the acceleration that we had. The pull forward of some of the professional services from Q3 into Q2.

Speaker 2

But still Q3 is going to be significant. So I don't think we're really going to need to get a $3,000,000 growth from Q3 to Q4 to hit our guidance. But what we are going to get is related to miles that are going live as well as some additional things. We did Ralph mentioned in his script as well, we did get another $1,000,000 raised to the Department of Corrections subscription. So that's also going live, as well as all the miles that are going live between now and then.

Speaker 2

And as also Ralph mentioned, across the board, every one of our solutions is improving. So that's really why we still feel comfortable about the guidance and believe the Q4 will be significant.

Speaker 3

And last for me on the Safety point side, you talked about a major upgrade getting ready for September and the availability of the cameras being issued. Are those now flowing into inventory and you're pretty much ready, it's just the software sort of go live date ahead of you? Or is there some concern still about getting those available for the September, kind of call it launch of the newer upgraded service? Thanks.

Speaker 1

Yes. So this is Ralph again, Rich. I'll try to answer that question. I wouldn't say it's a concern. I think we have we've kind of exited the camera identification and qualification and some of the integration work.

Speaker 1

I think we're on track with the HIPAA and SOC 2 compliance. Our expectation is that we'll be deploying a couple of those 3 d cameras in some customer environments this month prior to the September launch date. So we're feeling pretty confident in that September launch date and think that is going to really be a super impactful delivery of new capability to the marketplace.

Speaker 2

This is Alan. One thing I would add to Ralph, his comments and totally agree with everything he said. We're still going live with some lanes even now while we're waiting for this. The other thing is the pipeline for the SafePoint continues to grow. You may recall that after Q1 we said it was about $12,000,000 That pipeline is now north of $15,000,000 So we're still getting a lot of interest.

Speaker 2

It's our own things that we're slowing things down a little bit to make sure we can add the new technology.

Speaker 3

Great. Thanks and congrats on the step up to profitability. Thanks.

Operator

Thank you. Our next question comes from the line of Mike Latimore with Northland Capital Markets. Please proceed with your question.

Speaker 4

Hey, guys. This is actually Alex Latimore on for Mike Latimore. First of all, congratulations on the great quarter. Looks awesome here. I just got two questions for you.

Speaker 4

The first one being, what percent of new miles going forward do you expect to come from expansions?

Speaker 1

Yes. So this is Alan?

Speaker 2

Yes, sure. So every year what we normally see is new customers and expansions and it shifts between about 40% to 60% back to 60% to 40%. So it's no different this year. We're probably going to see around half of them will be expansions and the other half will be new customers, Pretty typical for us.

Speaker 4

Okay, awesome. And then what percent of bookings in the quarter and also down in the pipeline are with Tier 4 to 5 cities?

Speaker 2

Yes. So this is Alan again. We are seeing a significant increase in the interest in Tier 4 and Tier 5, which is fantastic because that really does expand the TAM for us. I would say that there's probably about 60% to 70% of some of the miles that are going live that are related to Tier 4, Tier 5. That may go down a little bit because we know some expansions from some larger cities that are going to happen in the second half of the year.

Speaker 2

But it's still growing quite nicely and we expect that to continue.

Operator

Our next question comes from the line of Max Michalis with Lake Street Capital Markets. Please proceed with your question.

Speaker 5

Hey, guys. Thanks for taking my questions. Just 2 for me. If we look at the city expansion in the quarter of 3, I mean, how does that line up with internal actually.

Speaker 1

I think overall actually. I think overall performance across the entire Safety Smart platform has been pretty consistent with what we expected going into the quarter, notwithstanding the kind of $500,000 plus pull forward on the professional services side with our project at DOC, which is running way ahead of schedule. Really the team is doing an outstanding job in supporting that particular customer. So pretty much on par with what we expected.

Speaker 5

All right. And then last one for me. This partnership with Recourse seems pretty interesting. I know it's still early innings here, but have you guys given like a size of the revenue opportunity here maybe on an annual basis with this partnership?

Speaker 6

Yes. So this is Rob. I'll take

Speaker 1

a stab at answering the question and Alan jump in and correct and add on as appropriate. I would say my answer to that is we're incredibly excited about the market opportunity. The TAM is very large. We obviously spend a lot of time with law agencies around acoustic gunshot detection and have always seek to kind of integrate acoustic gunshot detection with other technologies, including LPR. So for us to be able to do that effectively natively through this ReCore partnership is really, really quite exciting.

Speaker 1

I don't think I have to educate you all out there about the tremendous success that some LPR companies have had around kind of changing the model to a managed services recurring revenue model, which we've always been about as ShotSpotter, at least with our core ShotSpotter solution. So the ability for us to kind of bring this solution on a managed services basis, very cost effectively, nicely integrated with not only acoustic gunshot detection, but also some of our investigative solutions we think is going to create a compelling value proposition for customers out there. And we're thrilled with the inbound activity that we're seeing along those lines, both domestically. And I'll say I was on the phone this morning with our partner in South Africa that's really excited about what we're doing, which is a bit of an unanticipated surprise. I don't think we're thinking about rolling out to South Africa that quickly, but it was interesting enough for him to call me at 3:30 this morning for us to chat about it.

Speaker 1

So we're incredibly excited about it and hopefully we'll be sharing some good news to come on that basis very soon.

Speaker 2

Yes. This is Alan. Just to answer the last part of the question, I agree with everything Ralph said is, we don't know exactly yet in terms of how much revenue. We know that there's a lot of interest. We know the market is quite large and we're hoping that that's going to be at least pretty exciting amount of revenue for the next couple of years.

Operator

Our next question comes from the line of Louie DiPalma with William Blair. Please proceed with your question.

Speaker 7

Ralph and Alan, good afternoon.

Speaker 1

Afternoon. Good afternoon.

Speaker 7

You highlighted how ShotSpotter went live in 3 new cities and I think there was 7 expansions that were referenced and you referenced the plan to add 100 miles this year. Given that traction cycles generally improved from earlier in the year? I know on the last earnings call you commented that sales cycles were extended because of some of the noise and the different media articles. But has there been an improvement? And do you expect this recent momentum to carry over into 2025?

Speaker 1

Yes. So this is Ralph. So I would say our win rate is as expected. I mean this is a marketplace that we essentially created and effectively kind of own and lead, if you will. So we're not losing to anybody.

Speaker 1

So that's still very encouraging. Deal cycle times are, I would say, elongating. We certainly have to spend more time with both existing customers that are looking at expansions plus new customers really helping them better articulate the value of this technology and how it's used as a part of their kind of critical response and investigative capability with respect to gun crime. I continue to believe that we should expect that to continue, which is frankly one of the reasons we've taken our kind of expected mileage down from 120 square miles, which we had talked about earlier this year to be north of 100 because we are seeing some stretching out of the sales cycle. But we're still winning and not losing.

Speaker 1

So that's incredibly encouraging.

Speaker 7

Great. And as it relates to the Recor Plate Ranger partnership, you provided more color in your answer to the previous question. But how does your how is your solution going to stack up versus some of the existing solutions on the market? Is your solution going to be priced comparatively to some of the others? And are there any other differentiators that you're going to provide?

Speaker 1

So this is Ralph again. I'll take a crack at answering that. I would say kind of feature function wise, we expect to be best of breed just because we have additional assets we can bring, unique assets that we can bring to solving gun related crime to the extent that it involves an automobile or license plate that we're tracking. So that's going to be incredibly unique and highly differentiated. And then when you combine that with our investigative solutions, both crime tracer as well as case builder, that's also very compelling.

Speaker 1

So once you get a hit, how you're kind of correlating that specific data with other pieces of data to then open up a case or investigate a particular situation is going to be kind of information at your fingertips almost, right? So you don't have to go and do separate systems and log on different systems. We're going to offer a much more kind of seamless experience in that regard. I would say with respect to the pricing, we're going to price this on a very competitive basis. We're not going to price it at a premium nor do we feel like we have to price it at a significant discount.

Speaker 1

I think we're going to be competitive. And I think the other unique thing that we're bringing to the table here is the way we go about coaching customers up on customer success, how they develop kind of policies and practices to get the full utilization of the technology. We have a lot of experience along that along those lines and we have a lot of resources along those lines too. And I think that's going to be incredibly differentiated as well. So that's one of the reasons we're pretty excited about

Speaker 7

this. Great. And the last one, what are the new features with the 3 d cameras that are expected to be released in the Q3 for your SafePoint solution? And how are they an upgrade versus the existing cameras that are used?

Speaker 1

So I'm going to describe it and I'll probably quickly get out of my element here and because we have a lot of PhDs and scientists in this regards. But I think the way to think about it is the 3 d camera is going to give us a much higher resolution view of both kind of speed and direction of the object moving through the magnetic field. We're going to actually be able to take snapshots of kind of skeletal movement. And so one of the unique features we're bringing to the table is the location of the gun that the magnetic moment finds. And so being able to kind of parse out individuals moving through the magnetic fields person by person or I would say not person because we don't know the specific identity of the person, but I'll say kind of skeleton by skeleton, the speed at what they're moving, the direction of what they're moving, their height, their gait, all that stuff being combined with this other very interesting feature rich data that we are capturing and kind of running through these models is going to give us some very unique capabilities.

Speaker 1

And again, just to remind folks that our weapons detection technology is completely covert. So it's not like you're going through a metal detector. So to the friction point of having people stop through and even go through a fancy EVOLVE system, which is a very fancy one, but it's a metal detector. Slows down the traffic. With us, you're not even knowing that you're passing the metal detector because it's completely innocuous to the traffic.

Speaker 1

So that's pretty interesting and cool we think and it's going to be very differentiated and super important to specific verticals like hospitals and gaming enterprises that don't want people to walk through metal detectors even really fancy ones.

Speaker 7

Excellent. So thanks for helping Allen.

Operator

Thank you. Thank you. Thank you. Our next question comes from the line of C. J.

Operator

DiPolino with Craig Hallum Capital Group. Please proceed with your question.

Speaker 6

Hey, guys. C. J. Dipolino on for Jeremy Hamblin this afternoon. Just had two questions.

Speaker 6

I'm going to break the first one into 2 different parts. So congrats on seeing some good gross margin expansion. Wanted to see if there's anything that you'd really call out that led to that expansion? And then second part of the question is, I know you mentioned there's going to be kind of a sequential dip in Q3 for revenues and then a rebound in Q4. Are you expecting gross margins to kind of track in line with sales or would you more likely see continued gross margin expansion?

Speaker 2

Yes, this is Alan. Great question. Appreciate that. I think the most important thing to see is like Q2 last year, our gross margins were about a little over 57% and now around 60%. Some of that is of course related to some of that professional services being pulled into Q2 from Q3, but not that significant.

Speaker 2

So it's not going to change a lot. You may see gross margin go down just slightly in Q3, but then back up again Q4 and we still think we're going to hit the 60% or 60% plus for the entire year.

Speaker 6

Okay, awesome. That's great to hear. And then second and last question before I hop back into the queue. I know you've talked about a New York City contract that you guys are currently working on. Is there anything you can share in terms of timeline for when you expect that to be finished?

Speaker 6

I guess the second part of that question is, are you still expecting somewhere around 90 miles of coverage for that contract?

Speaker 1

Yes. So this is Ralph. I would say that, first of all, ShotSpotter is a critical tool in the NYPD toolbox to better respond to and investigate gun crimes. And we've already put forward a renewal proposal to NYPD. They've been a customer for a very long time.

Speaker 1

Continue the service as currently configured over 90 square miles at roughly the same price maybe with a slight cola bump on the upside. But we expect that deal to be fully transacted before the term ends later in Q4.

Speaker 6

Okay, awesome. That's very helpful. Thank you, guys, and good luck with the rest of the year.

Speaker 1

Thank you very much.

Operator

Thank you. 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 sstigateway grp.com. I'd now like to turn the call back over to Mr. Clark for his closing remarks.

Speaker 1

Great. Just want to thank everyone for dialing in. We know it's a really busy day across both the financial world as well as the political world. So we'll let everybody get back to it and looking forward to our 1 on 1 calls in just a bit. Thanks everyone and have a nice evening.

Speaker 1

Bye bye.

Operator

Thank you for joining us today for today's call. You may now disconnect.

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Key Takeaways

  • Sound Thinking delivered Q2 revenue of $27 million (up 22% YoY), with a 60% gross profit margin and a 110% increase in adjusted EBITDA to $5.1 million, and maintained full-year guidance of $104–106 million in revenue and an 18–20% adjusted EBITDA margin.
  • The core ShotSpotter business added live service in three new cities and expanded in four others, is on track for over 100 new live miles this year, and is pursuing international expansions in Uruguay, Nelson Mandela Bay and a potential Brazil deployment.
  • Adoption of the AI-based Resource Router outpaced expectations with more than seven go-lives queued and growing traction among community violence intervention groups like Umoja Futures International.
  • Case Builder subscription revenue surged approximately 700% year-over-year on the ramp of the New York City Department of Corrections project, adding $1 million of ARR in early Q3 and securing deployments at CalDOJ and Orleans Parish.
  • The upcoming September release of SafePoint will introduce 3D camera integration, enhanced machine-learning classification, UI improvements and SOC 2/HIPAA compliance, and a strategic partnership with Recor will bring the Plate Ranger license-plate-recognition solution to the Safety Smart platform.
AI Generated. May Contain Errors.
Earnings Conference Call
SoundThinking Q2 2024
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