NASDAQ:SSTI SoundThinking Q1 2025 Earnings Report $14.46 -0.29 (-1.97%) Closing price 05/23/2025 04:00 PM EasternExtended Trading$14.48 +0.02 (+0.14%) As of 05/23/2025 06:49 PM Eastern Extended trading is trading that happens on electronic markets outside of regular trading hours. This is a fair market value extended hours price provided by Polygon.io. Learn more. ProfileEarnings HistoryForecast SoundThinking EPS ResultsActual EPS-$0.12Consensus EPS -$0.06Beat/MissMissed by -$0.06One Year Ago EPSN/ASoundThinking Revenue ResultsActual Revenue$28.35 millionExpected Revenue$26.91 millionBeat/MissBeat by +$1.44 millionYoY Revenue GrowthN/ASoundThinking Announcement DetailsQuarterQ1 2025Date5/13/2025TimeAfter Market ClosesConference Call DateTuesday, May 13, 2025Conference Call Time4:30PM ETUpcoming EarningsSoundThinking's Q2 2025 earnings is scheduled for Tuesday, August 5, 2025, with a conference call scheduled at 4:30 PM ET. Check back for transcripts, audio, and key financial metrics as they become available.Conference Call ResourcesConference Call AudioConference Call TranscriptPress Release (8-K)Quarterly Report (10-Q)Earnings HistoryCompany ProfilePowered by SoundThinking Q1 2025 Earnings Call TranscriptProvided by QuartrMay 13, 2025 ShareLink copied to clipboard.There are 8 speakers on the call. Operator00:00:00Good afternoon, and welcome to Sound Thinking's First Quarter twenty twenty five Earnings Conference Call. My name is Kevin, and I'll 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 for our 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 actual results to differ materially from those stated or implied by those statements. Operator00:00:42Certain 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, 05/13/2025, 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'd like to remind everyone that this call will be recorded and made available for replay via a link available in the Investor Relations section of the company's website at ir.soundthinking.com. With that, I'll turn the call over to Ralph. Ralph, please go ahead. Speaker 100:01:28Good afternoon, and thank you for joining Sound Thinking's Q1 twenty twenty five earnings call. I'll start by providing some high level commentary on our financial results, progress we're making on our key strategic initiatives and then share some thoughts on the headwinds and tailwinds we're seeing in the public safety and security marketplace. I'm pleased to report that we're off to a strong start in 2025, delivering disciplined growth and expanding our platform and data aggregation capabilities to help position SoundThinking as a clear leader in the public safety technology space. Our work matters and we believe it's resonating in market. I'm proud of the momentum we've built and even more excited about what's ahead. Speaker 100:02:16In the first quarter, we delivered 12% revenue growth year over year of $28,300,000 driven by solid new sales and renewal activity. As a reminder, there was approximately $3,500,000 of catch up revenue in the quarter based on the renewal of two delayed contracts with New York City Police Department, including ShotSpotter and Technologic, which totaled $64,000,000 over a three year term. Our adjusted EBITDA grew 50% year over year to $4,500,000 highlighting our operational leverage and profitable growth strategy. ShotSpotter remains a core part of our Safety Smart portfolio and is trusted by public safety agencies across the country. In Q1, that trust was reaffirmed with NYPD's decision to extend their ShotSpotter contract for an additional three years. Speaker 100:03:11We believe that this renewal with one of our largest and longest standing customers, twelve years and counting, speaks volumes about the sustained value and operational reliability of our gunshot detection platform in America's largest city. We also went live with four new cities plus one expansion in the quarter. Our international ShotSpotter pipeline is robust and growing. We're very pleased to see a soon to be live ShotSpotter deployment in Niteroi, Brazil, marking our return to this strategically important market. We will now have two strong and important reference customers in both Spanish speaking and Portuguese speaking Latin America. Speaker 100:03:54We expect to see accelerated traction with ShotSpotter internationally in the second half of this year and early twenty twenty six based on these touchstones. Let me also take a moment to address the recent five year Chicago gunshot detection RFP, which we bid on in April. We believe our submission represents a comprehensive and compelling proposal that reflects our deep experience, proven performance and long standing partnership with the city, which spanned well over a decade. We fully respect the integrity and objectivity of the procurement process, but quietly feel confident in the strength of our offering and the differentiated value that we will bring back to the city of Chicago. And while we await the outcome of the formal bid adjudication process, I must also emphasize that our current outlook does not include any contribution from Chicago. Speaker 100:04:49Any potential reengagement with Chicago would represent pure upside. Our Crime Tracer solution is evolving into one of the most powerful AI enhanced law enforcement tools in the country. We warehouse over 1,000,000,000 CJIS compliant documents for more than 1,000 law enforcement agencies and federate to billions more through index, NavyLinks and Thomson Reuters Clear, giving investigators access to an expansive depth of structured and unstructured data. But what we believe makes Crime Tracer truly unique is how we can apply generative AI and soon to be large language models and agents to make that data just not searchable, but contextually insightful. This quarter, we deployed new features that allow investigators to ask natural language queries like show me persons of interest who match known patterns in recent thefts involving white bands in three counties and receive actual insights that would take hours, if not days to surface manually. Speaker 100:05:53The combination of search, summarization and synthesis is transforming what's possible for digital casework in crime linking. Furthermore, we also made progress integrating Crime Tracer's large data footprint with PlateRanger's ALPR data to unlock powerful response and investigative use cases for our customers. We believe that this integration provides a force multiplier for real time and retrospective investigations, allowing investigators to seamlessly move back and forth from narrative based incident search to connected license plate recognition. We believe this ability will enable agencies to help solve cases faster with fewer resources. The early feedback has been extremely positive and has proven to be a powerful differentiator in driving Plate Ranger traction. Speaker 100:06:44More importantly, we view this as foundational to move into building a truly multimodal investigative intelligence platform that combines people, places, vehicles and incidents in a single pane of glass. We continue to scale Resource Router, our proactive patrol planning tool with strong adoption and demonstrable results. Resource Router is currently deployed in over 20 agencies, more than double its installed base less than eighteen months ago. Agencies are using it to allocate limited officer resources to areas with the highest probability of criminal activity, and we're seeing real world impact in both community engagement and crime suppression. As public safety agencies face mounting pressure to do more with less, Resource Router seems to be an essential capability, not just a nice to have. Speaker 100:07:39Now let me turn to one of our most exciting growth areas, Safepoint. Following the passage of California Assembly Bill 2,975, hospitals are now required to deploy weapon protection systems at all public entrances by 2027. This is a seismic shift in health care securities policy and plays directly to Safepoint's strength. Our system uses passive low frequency magnetic field detection, not invasive scanners or disruptive walkthrough gates or intimidating checkpoints. That means hospitals can maintain patient dignity, visitor experience and operational throughput, all while meeting the new legal compliance standard for safety. Speaker 100:08:23We've already engaged with multiple large health care systems in California, and we see similar legislation advancing in Maryland, New Jersey and beyond. With over 400 hospitals impacted in California alone, each with multiple entrances, the now mandated and addressable opportunity is significant. We believe SafePoint can become a category defining solution in this space, not only for hospitals, but for any environment where high flow, high stakes security is required. As we move further into 2025, we remain bullish and focus on executing to our growth strategy and strategic road map. And while there have been very positive tailwinds to our business, driving strong demand for our capabilities, we remain acutely vigilant around lingering headwinds, especially those related to municipal funding and budgets. Speaker 100:09:16We are taking appropriate risk mitigation efforts, including doubling down on our customer success and engagement efforts, adding a grant writing resource and modeling higher levels of attrition than what we have historically experienced to account for that volatility. To that end, we continue to believe that we are well positioned to drive both revenue and ARR growth for 2025. We are reaffirming our full year revenue guidance range of 111,000,000 to 113,000,000 while slightly reducing our adjusted EBITDA guidance range to 20% to 22% to account for the modest impact of the current tariff regime, along with investments we're making in AI modeling and tools in AWS that are being incorporated in our products as well as for our internal operational use. I will now turn the call over to Alan to discuss our financial results for the first quarter twenty twenty five as well as guidance for the full year 2025 in detail, and then we will be happy to take your questions. Speaker 200:10:21Thank you, Ralph, and good afternoon, everyone. As Ralph mentioned, we are pleased with our first quarter twenty twenty five results. Our strong financial performance reflects success of our ongoing strategic initiatives, operational efficiency measures and our commitment to delivering value to our shareholders. Revenues were $28,300,000 representing a 12% increase over the $25,400,000 in the first quarter of twenty twenty four. As Ralph mentioned, our 2024 year end financial results were impacted primarily due to the delayed renewal of two contracts with New York City Police Department. Speaker 200:11:02Both of the NYPD contracts were signed in the first quarter with approximately $3,500,000 of the catch up revenue from the contracts. We're also pleased to report that both of those contracts were three year renewals, representing over $64,000,000 in contract awards. The bookings of all of our Safety Smart platform solutions, some of which are multi year contracts are also growing healthily. Gross profit was $16,600,000 or 59% of revenue compared to $14,900,000 or 59% of revenue for the prior year period. Our adjusted EBITDA was $4,500,000 compared to $3,000,000 in the first quarter of twenty twenty four. Speaker 200:11:50Our adjusted EBITDA increase was related to the delayed contracts. 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, restructuring costs and losses, including those related to fixed asset disposals, stock based compensation expenses and acquisition related expenses, including adjustments to our contingent consideration obligations. Our adjusted EBITDA was a bit lower than consensus estimates as we held our company all hands meeting, which costs over $700,000 in the first quarter. This one time event happens only once a year, generally in the first quarter. Our legal and accounting expenses are also historically higher in the first quarter as we complete our annual financial audit and our preparation for and filing of our 10 ks. Speaker 200:12:51And as Ralph mentioned, we are investing more in our AI capabilities as well. Our operating expenses were $17,800,000 or 63 percent of revenues compared to $17,500,000 or 69% of revenues in the first quarter of twenty twenty four. Breaking down our expenses, sales and marketing expense in the first quarter was $7,300,000 or 26% of total revenue compared to $7,100,000 or 28% of total revenue, in line with the prior year period. Our R and D expenses were $4,100,000 or 14% of total revenue compared to $3,600,000 or 14% of total revenue in the prior year period. G and A expenses for the quarter were $6,500,000 or 23% of total revenue compared to $6,800,000 or 27% of total revenue for the prior year period. Speaker 200:13:51As a reminder, we expect our G and A expenses to grow less than our revenue on a percentage basis as our company grows. It's important to recognize that the percentage of revenue of each of our OpEx categories is at or below the level of the first quarter of last year. Our GAAP net loss was approximately $1,500,000 or a loss of $0.12 per basic and diluted share for the quarter based on 12,600,000.0 basic and diluted weighted average shares outstanding. This compares to a net loss of $2,900,000 or zero two three dollars per basic and diluted share based on 12,800,000.0 basic and diluted weighted average shares outstanding for the prior year period. Deferred revenue as of 03/31/2025 was largely in line at $45,400,000 compared to $44,200,000 at the end of fourth quarter twenty twenty four. Speaker 200:14:52We ended the first quarter with $11,700,000 in cash and cash equivalents compared to $13,200,000 at the end of fourth quarter twenty twenty four and much higher than the $5,700,000 that we had at the end of twenty twenty three. We repurchased 33,493 of our shares at an average price of $15.04 for approximately $504,000 in the first quarter of twenty twenty five. Currently, we have approximately $21,000,000 available on our line of credit as we have approximately $4,000,000 in debt outstanding all of on our line of credit. Now turning to our guidance for the full year of 2025. We are reaffirming our full year revenue guidance range of 111,000,000 to $113,000,000 We are reducing our full year 2025 adjusted EBITDA margin guidance range to 20% to 22% related to potential costs associated with tariff changes and the investments that we are making in AI modeling and tools that we are incorporating in our products and internal operational use. Speaker 200:16:04We are reaffirming our expectation for our annual recurring revenue, or ARR, to increase from $95,600,000 at the beginning of twenty twenty five to approximately $110,000,000 at the beginning of twenty twenty six. As a reminder, this guidance is in spite of the loss of approximately $9,700,000 from the loss of the Chicago ShotSpotter contract in 2024. Overall, we are pleased with the progress we have made on each of our strategic initiatives and operational performance of the business. With that, we're now happy to open the call for questions. Operator, will you please open the line for Q and A? Operator00:16:46Certainly. We'll now be conducting a question and answer session. Our first question today is coming from Richard Baldry from ROTH Capital Partners. Your line is now live. Speaker 300:17:14Thanks. Now that you've got a broader suite of tools, can you talk about how you manage sort of the pipeline there to make sure you're not overweighting or underweighting resources in each of those areas? Speaker 100:17:28Yes. Thanks for that question, Rich. This is Ralph. So each product solution has its own pipeline metrics that we're tracking. And I would say that the pipeline is fairly solid across the platform and particularly strong in a couple of segments, including Resource Router and Crime Tracer. Speaker 100:17:48We're targeting kind of 3x to 4x coverage based on the annual contract value quotas that we've issued out to the sales team. Speaker 300:17:59And then maybe looking at SafePoint specifically, I think you've revamped that product in the past year. So is there any early feedback on that? Maybe any like customer cases, maybe without naming names, maybe verticals you sold into at that? Speaker 100:18:18Yes. So thanks for that question. Again, this is Ralph. So as you know, we're focused on the healthcare vertical, casino vertical and then high end commercial properties. And we've seen really success across the board, particularly in the healthcare vertical, where I think our discrete architecture is critically important to a healthcare concern. Speaker 100:18:38I think we talked about on our last call that we have a couple of proof of concept deployments going in on one of the top five, top 10 health care chains here in The U. S. One of those has actually kicked off and it's going pretty well. We're hoping to light up the second one here in Q2. So more to come on SafePoint in the healthcare vertical. Speaker 300:19:03Great. Thanks. Operator00:19:07Thank you. Next question today is coming from Mike Latimore from Northland Capital. Your line is now live. Speaker 400:19:15Hi. This is Aditya on behalf of Mike Latimore. Could you give some color on if do you expect meaningful bookings to come from Plate Ranger this year? Speaker 100:19:28Do you want to take that, Alan? Speaker 200:19:30Yes, sure. So this is Alan. We are still working on the actual bookings. We have a significant amount of pipeline in there. But so I would say it is still going to be somewhere in the $1,000,000 plus range in terms of actual bookings. Speaker 200:19:49And we're expecting slightly little less than that in revenue this year, but significant increase in revenue into next year. We are seeing a lot of interest there, and we are running a couple different kinds of marketing aspects to get more customers into the actual contracts. Speaker 400:20:09Got it. And do you see additional expansion in Puerto Rico this year? Speaker 100:20:16Yes. This is Ralph. Speaker 200:20:19ahead, Ralph. Speaker 100:20:20No, go ahead. Sorry. Speaker 200:20:21No, I was saying that Puerto Rico, as we mentioned before, the contract we have right now ends at the June. We are in ongoing discussions with them to not only extend that contract, but to make that into a multiyear extension renewal. We are also in discussion with them, won't give you too much more details on that, but with some potential expansions beyond the 30 miles that we have there. So things are going positive there. But as we all know, just takes some time, especially dealing with Puerto Rico. Speaker 400:20:57Got it. Thank you. Operator00:21:00Thank you. Our next question is coming from Trevor Walsh from Citizens. Your line is now live. Speaker 500:21:11Thanks. Hey, and Ralph. Thanks for taking the questions. Maybe rotating back to the SafePoint piece. Great to hear the legislative sort of win, I guess, in California. Speaker 600:21:23Can you Speaker 500:21:24maybe Ralph just give us a sense of based on kind of where you see the sales cycle around SafePoint kind of executing now currently and then based on that 2027 requirement when you think deals kind of really start to materialize around that? I would imagine maybe more into 2026 just based on the timing. But how like I guess, far in advance do customers need to start kind of prepping for that new requirement? Speaker 100:21:50Yes. Thanks, Trevor, for that question. This is Ralph. So I think you're absolutely right. With respect to the AB 2,975, that's really much more of a 2026 opportunity for us. Speaker 100:22:03But make no mistake about it, we're making really, really good traction in other places in the country with SafePoint, not only in hospital vertical not only in the hospital vertical, but also in the gaming casino vertical as well. So what we're our game plan there is to have a fairly comprehensive campaign in California to really position ourselves within that market. Because now, as we've often said in previous calls, our greatest competition with respect to SafePoint is do nothing. And now this particular unfunded mandate coming from the State of California is taking away that competitive energy or that competitive thread there would do nothing because now at least 400 hospitals have to do something along the weapons detection space. And we think because of the uniqueness of our offering with respect to the passive sensors is discrete deployment and not having a checkpoint that we're well positioned to get our fair share of that particular market. Speaker 100:23:06But we're going to have to invest some time and energy, certainly working with CalOSHA and the various participants that were kind of behind getting this bill passed in the first place along with hospital chains in California. So we're pretty excited about it, as you might imagine. Speaker 500:23:23Awesome. Great. And Alan, maybe my follow-up for you, if I can. I recall from last quarter when we were discussing the New York kind of pushing of the deals, I guess, into this quarter that there was going to be some at least benefits of the deal sliding around the margins because of kind of the costs being already outlaid and then the revenues hitting kind of later. But it didn't seem like that necessarily materialized by at least just kind of looking at kind of where gross margins lined up in the quarter. Speaker 500:23:52So just wondering if what maybe it was other things that you had called out in the quarter around some of the other costs and annual meeting, etcetera, that maybe kind of wash that out a little bit. But just curious kind of what how that materialized in the numbers? Speaker 200:24:08Yes. This is Alan. Thanks for that question, and it's a valid question, too. I think what we are seeing already, at least in Q1, we hit the adjusted EBITDA of the $4,500,000 but we had about $1,000,000 in additional expenses. Our all hands meeting was north of $700,000 We also did have some increase as we do the AI algorithms and the modeling. Speaker 200:24:33That increased our actual bandwidth usage of like AWS and Azure. That was probably a couple of hundred thousand dollars as well. So when you start adding the $1,000,000 in terms of expenses, had those not occurred, then the adjusted EBITDA would have been significantly higher. Specifically related to the New York City contracts, a lot of that did flow to the bottom line as you would expect. There was still some things that we had to cost a little bit related to some actual commissions that were owed to the prior company was doing some of that as well as a little bit of cost of goods sold cost related to that. Speaker 500:25:14Got it. Okay. Super helpful. I'll get back in the queue. Operator00:25:19Thank you. Next question is coming from Eric Martinuzzi from Lake Street. Your line is now live. Speaker 600:25:25Curious to know about the revenue progression, given the outsized kind of the $3,500,000 lumpiness that occurred in Q1. How should we be thinking about the progression to Q2? I know at least what I've got for consensus is 27.8%, which would be a step up from the 28.3% minus 3.5%. Just wanted to make sure you're comfortable with that step up. Speaker 200:25:52Yes. So this is Alan. It's a great question. And having that 3.5% out would have put us back down to around 24.8%. So north of 27% is a little bit too high in terms of what we need in order to hit our revenue guidance for the year. Speaker 200:26:10I would we don't give quarterly revenue guidance, but for the annual, it will be more likely to see a reduction into Q2, Q2 going up to Q3 and Q3 going up more significantly into Q4, as all the stuff that we're investing in right now, especially the SafePoint, starts recognizing a lot more of the revenue. Speaker 600:26:32Got you. And then on the margin guide, the 100 bps, did you maybe I missed it, but did you clarify what the gross margin implied in? Is are we still kind of a 59% -ish for gross margin and the impact is in the operating expenses? Speaker 200:26:52Yes, it's another great question. We're still expecting our gross margin stay around there for the year. As we continue to invest, we are seeing some of those costs. When you talk about the change in the adjusted EBITDA percentage, it's only a little over $1,000,000 but you've got some of that's going to go through cost of goods sold such as things like the increase in sensors that we deploy for the ShotSpotter that might be somewhere around 2 and $50,000 maybe $300,000 between new sensors and replacement sensors. So that's going to affect that a little bit. Speaker 200:27:28And then the rest of the stuff that we're doing in terms of the AI algorithms and investing there for all the appropriate things especially for SafePoint into the algorithms and modeling. So that's going to be from the bandwidth costs, AWS, Azure as well as personnel. You can add that another probably 700,000 plus throughout the year, not obviously quarter by quarter, but that's something that is going to keep the cost of goods sold a little lower. But I think it's still important to understand that overall our operating expense is growing and will continue to grow less than the revenue even with those additional costs. So it's something that we are managing and you can even see that from Q1 last year, our total OpEx was 17,500,000.0 This year was down to 17,200,000.0 even though revenue went up. Speaker 600:28:27Got it. Thanks for taking my questions. Operator00:28:32Thank you. Next question is coming from Jeremy Hamblin from Craig Hallum. Your line is now live. Speaker 700:28:38Thanks for taking the questions. And I wanted to come back to AB 2975 SafePoint and just understand in terms of the total number of facilities within the state of California that you believe to be required under this new law to put in place detection that's kind of part one. And then part two is, I think you mentioned Maryland, New Jersey, Virginia's other states looking at similar type of legislation. If you add those states in, then what's kind of the total number of addressable facilities that we're talking about? Speaker 100:29:20Yes. Thanks, Jeremy. This is Ralph. With respect to the state of California, we're estimating this is directionally true, I'd say. We're estimating that there's about 400 hospitals and estimating that each of those hospitals, kind of given the fact that there's maybe one to three buildings kind of per hospital location would have on average something on the order of kind of 10 egress points that they'd have to protect. Speaker 100:29:48There is a carve out certainly for a number of hospitals that are in rural settings or more kind of clinics that don't have to comply with this particular legislation. But we think that there's probably about 400 hospitals in California that would have to comply, and we're estimating about 10 lanes per. So about a 4,000 lane opportunity in California. Quite honestly, we're not looking well, we're not really looking beyond California with respect to this type of legislation. We just want to make note that kind of given the workplace violent issues that exist preeminently in hospital settings that it wouldn't be a surprise if there are some other states that are kind of in their early discussions of doing something similar to California might flip over and have similar legislation. Speaker 100:30:40We know in the state of Illinois, for example, although it doesn't apply to hospitals, there's a similar regime with respect to requiring weapons detections for casinos in the state of Illinois. So this is something that's going to be, I think, part and parcel for this particular market around how certain entities need to become compliant and they can't afford to do nothing. So it's a bit of a kind of unfunded mandate that we're going to be tracking on, of course. Speaker 700:31:15And then as a follow-up, how does the annualized cost of the SafePoint per entryway compare versus kind of traditional solutions, whether that's Garrett or Cheya kind of traditional metal detector weapons detection or an evolved system that's a bit more AI tools involved. Can you give us a sense in terms of bidding on these opportunities where you fall Speaker 100:31:48on the Thanks for that follow on question. So I can tell you what our pricing model is and business model. We're charging about $20,000 per year per lane. And that's kind of similar in many ways to ShotSpotter when you think about our cost to deploy and how we recapture that cost investment is very similar to ShotSpotter. Speaker 100:32:10We're breaking even on a lane inside of twelve months. And then kind of the ongoing annual subscription fee to the extent that people would renew would be super high margin for us. Interestingly enough, we're finding in dealing with commercial opportunities that a number of these customers are signing up for multiyear deals, two years, three years, etcetera. From a total cost comparison, and this is pretty early and directionally, I would say that we offer a fairly compelling solution kind of given the unique nature of what we do and not having to have people walk through a checkpoint. Total cost of ownership, we think, is extremely attractive for our solution versus other solutions that require much more manually intensive resources there at the checkpoints. Speaker 100:33:00We don't require that. We've learned a lot from our experience in ShotSpotter in terms of just not providing the base capability of detecting weapons, but also the reporting and analytics that go along with that. So we have a kind of an Insight solution. Well, it's not kind of like Insight. It is Insight that you'd be familiar with ShotSpotter. Speaker 100:33:20We've reimagined that to the SafePoint solution now where agencies can excuse me, corporate entities can basically check their ingress flow, the number of detections per passes, the number of times they can apply ground truth where they've actually pulled someone over and found a weapon, etcetera. This is an incredibly powerful reporting tool that goes beyond just the weapons detection piece that we think is, again, is going to be very attractive to folks in California, OSHA that are really about protecting these facilities and having robust data to ensure that they're appropriately reducing risk of potential workplace violence in hospitals. Speaker 700:34:06Great color. I wanted to also just ask a little bit more about the international opportunities that you mentioned, right? So deploying in Brazil here in Q2. And then as you think about some of the other opportunities, I know you've probably looked at some expansion in South Africa. You've noted previously some other Latin American countries that you might be looking at as well as The Caribbean. Speaker 700:34:36And just to get a sense for timing, I know typically the international bidding is a little bit longer sales cycle. So wanted to get a sense for how we should be thinking about that. Speaker 100:34:49Yes. So you're absolutely correct. The international sales cycles tend to even be longer than the long sales cycles domestically, but they're super impactful. Just to remind you and others that, our pricing leverage there is we typically charge 3x to what we charge domestically. So when the deals happen, they happen in fairly big ways. Speaker 100:35:10Hey, look, we're really excited about Latin America, in particular, kind of going back to Brazil. We were in Brazil in a couple of cities back when I joined the company in 2010 on our legacy business model. So to be able to return to Brazil is really exciting because of all the Latin American countries that have issues with gun violence, I would say Brazil is most similar to The U. S. Than almost any other country in Latin America or frankly even South Africa. Speaker 100:35:39In terms of the intensity and scale of the problem, Brazil is a very big country. There's a lot of cities there that have a lot of square miles of coverage need there. So to actually get our first mover in Nidoroy, Brazil, which is importantly that is Portuguese speaking, is going to be important for us to hopefully reopen that market opportunity up. So and we're already in discussions without saying too much more. We're already in discussions with a couple of other cities in Brazil kind of doing a quick follow hopefully to Niteroi. Speaker 100:36:15We saw the quick expansion that happened in Montevideo, Uruguay. We're excited about that, of course. And they represent a very compelling first mover, early adopter customer in Spanish speaking Latin America. We've had a number of municipalities from other neighboring Latin America Spanish speaking Latin American countries South American countries, excuse me, that have visited Montevideo, and they've actually gone out to various Latin America security conferences talking about their success. I do also want to point out that it's just not ShotSpotter, but we're really excited about a couple of pretty interesting opportunities with Resource Router in both an existing Latin American country where that's already a ShotSpotter customer and then one non ShotSpotter customer that's pretty substantial and then also true with PlateRanger as well. Speaker 100:37:14And if you follow our press at anything or follow the press in South Africa, you'll see that there is a real, real need for an expanded footprint in and around Cape Town that we're hopefully going to get the Western Province to support. So we've got a lot of interesting activities going on. Timing wise, I think the best way to think about this is late, late twenty twenty five, early '20 '20 '6 for some of those cards to flip over. Did that answer your question? Speaker 700:37:49Yes. Very helpful. Last one for me is back to the operating expenses for a second. So you saw an uptick in R and D costs, both on a run rate from last year, but also from the end of twenty twenty four. Was that where you're reflecting some of the AI tool investments? Speaker 700:38:09Is that falling into that bucket? Or is there any other color you might be able to share on whether or not that kind of $4,000,000 run rate in R and D is kind of where we should be thinking? Speaker 200:38:22Yes, great question. This is Alan. It was primarily related to two things. One would be some of is primarily for the personnel that are helping us with the AI algorithms. We're doing a lot of modeling right now related to SafePoint primarily. Speaker 200:38:40Most of the cost is related to that. So that's basically where it is. Also some of the like the AWS and some of the other bandwidth type costs ends up in the R and D bucket itself. That's primarily where it is. I do think you're going to see the four a little more than 4,000,000 maybe 4,100,000.0 go down a little bit as we stabilize those, but it's not going to go down significantly throughout the rest of the year. Speaker 200:39:06But those definitely still grow less than the revenue. Speaker 700:39:11Thanks for taking all my questions and good luck. Operator00:39:17Thank you. We've reached the end of our question and answer session. I'd like to turn the floor back over to Ralph for any further or closing comments. Speaker 100:39:24Great. Yes, thank you very much, and thank you all for joining us again today. As you've heard, we're executing well across the board. We're expanding our platform, deepening customer relationships and pursuing new opportunities in AI driven public safety. We certainly appreciate your continued support and look forward to keeping you updated on our progress. Speaker 100:39:44Thanks again for joining the call. Operator00:39:47Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.Read morePowered by Key Takeaways In Q1 SoundThinking delivered 12% revenue growth to $28.3 million and expanded adjusted EBITDA by 50% to $4.5 million, while reaffirming full-year revenue guidance of $111 million–$113 million and ARR target of $110 million. ShotSpotter was renewed by the NYPD for three more years, SoundThinking went live in four new U.S. cities, is re-entering the Niterói, Brazil market, and views the Chicago gunshot detection RFP as upside if awarded. CrimeTracer now leverages generative AI and natural language queries across over one billion CJIS-compliant documents and integrates PlateRanger ALPR data to create a multimodal investigative intelligence platform. ResourceRouter deployments have more than doubled to 20+ agencies in 18 months, enabling proactive patrol planning that enhances crime suppression and community engagement amid budget constraints. California’s AB 2975 creates a mandate for hospitals to install weapon detection by 2027, representing an estimated 4,000-lane opportunity for SafePoint’s passive magnetic sensor solution that preserves patient dignity and throughput. AI Generated. May Contain Errors.Conference Call Audio Live Call not available Earnings Conference CallSoundThinking Q1 202500:00 / 00:00Speed:1x1.25x1.5x2x Earnings DocumentsPress Release(8-K)Quarterly report(10-Q) SoundThinking Earnings HeadlinesSoundThinking at Ladenburg Thalmann Innovation EXPO25: Strategic Growth InsightsMay 23 at 12:17 AM | investing.comRoth Capital Increases Earnings Estimates for SoundThinkingMay 18, 2025 | americanbankingnews.com$19 for a FULL YEAR of stock picks?!Invest in Musk's AI Play With Just $100 You don't need deep pockets to ride the next wave of AI wealth. Discover how a $100 investment could give you exposure to Musk's private AI project — via one overlooked stock.May 24, 2025 | Behind the Markets (Ad)SoundThinking Q3 EPS Estimate Lowered by Northland CapmkMay 17, 2025 | americanbankingnews.comSoundThinking (NASDAQ:SSTI) Price Target Raised to $20.00May 17, 2025 | americanbankingnews.comSoundThinking's (SSTI) "Buy" Rating Reiterated at Roth MkmMay 17, 2025 | americanbankingnews.comSee More SoundThinking Headlines Get Earnings Announcements in your inboxWant to stay updated on the latest earnings announcements and upcoming reports for companies like SoundThinking? Sign up for Earnings360's daily newsletter to receive timely earnings updates on SoundThinking and other key companies, straight to your email. Email Address About SoundThinkingSoundThinking (NASDAQ:SSTI), a public safety technology company that provides transformative solutions and strategic advisory services for law enforcement and civic leadership. Its SafetySmart Platform, an integrated suite of data-driven tools that enable law enforcement and community violence prevention and health organizations to be efficient in public safety outcomes. It offers ShotSpotter, an acoustic gunshot detection system; CrimeTracer, a law enforcement search engine; CaseBuilder, an investigation management system; and ResourceRouter, a software that directs patrol and community anti-violence resources to help maximize their impact. The company sells its solutions through its direct sales teams. The company was formerly known as ShotSpotter, Inc. and changed its name to SoundThinking, Inc. in April 2023. 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There are 8 speakers on the call. Operator00:00:00Good afternoon, and welcome to Sound Thinking's First Quarter twenty twenty five Earnings Conference Call. My name is Kevin, and I'll 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 for our 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 actual results to differ materially from those stated or implied by those statements. Operator00:00:42Certain 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, 05/13/2025, 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'd like to remind everyone that this call will be recorded and made available for replay via a link available in the Investor Relations section of the company's website at ir.soundthinking.com. With that, I'll turn the call over to Ralph. Ralph, please go ahead. Speaker 100:01:28Good afternoon, and thank you for joining Sound Thinking's Q1 twenty twenty five earnings call. I'll start by providing some high level commentary on our financial results, progress we're making on our key strategic initiatives and then share some thoughts on the headwinds and tailwinds we're seeing in the public safety and security marketplace. I'm pleased to report that we're off to a strong start in 2025, delivering disciplined growth and expanding our platform and data aggregation capabilities to help position SoundThinking as a clear leader in the public safety technology space. Our work matters and we believe it's resonating in market. I'm proud of the momentum we've built and even more excited about what's ahead. Speaker 100:02:16In the first quarter, we delivered 12% revenue growth year over year of $28,300,000 driven by solid new sales and renewal activity. As a reminder, there was approximately $3,500,000 of catch up revenue in the quarter based on the renewal of two delayed contracts with New York City Police Department, including ShotSpotter and Technologic, which totaled $64,000,000 over a three year term. Our adjusted EBITDA grew 50% year over year to $4,500,000 highlighting our operational leverage and profitable growth strategy. ShotSpotter remains a core part of our Safety Smart portfolio and is trusted by public safety agencies across the country. In Q1, that trust was reaffirmed with NYPD's decision to extend their ShotSpotter contract for an additional three years. Speaker 100:03:11We believe that this renewal with one of our largest and longest standing customers, twelve years and counting, speaks volumes about the sustained value and operational reliability of our gunshot detection platform in America's largest city. We also went live with four new cities plus one expansion in the quarter. Our international ShotSpotter pipeline is robust and growing. We're very pleased to see a soon to be live ShotSpotter deployment in Niteroi, Brazil, marking our return to this strategically important market. We will now have two strong and important reference customers in both Spanish speaking and Portuguese speaking Latin America. Speaker 100:03:54We expect to see accelerated traction with ShotSpotter internationally in the second half of this year and early twenty twenty six based on these touchstones. Let me also take a moment to address the recent five year Chicago gunshot detection RFP, which we bid on in April. We believe our submission represents a comprehensive and compelling proposal that reflects our deep experience, proven performance and long standing partnership with the city, which spanned well over a decade. We fully respect the integrity and objectivity of the procurement process, but quietly feel confident in the strength of our offering and the differentiated value that we will bring back to the city of Chicago. And while we await the outcome of the formal bid adjudication process, I must also emphasize that our current outlook does not include any contribution from Chicago. Speaker 100:04:49Any potential reengagement with Chicago would represent pure upside. Our Crime Tracer solution is evolving into one of the most powerful AI enhanced law enforcement tools in the country. We warehouse over 1,000,000,000 CJIS compliant documents for more than 1,000 law enforcement agencies and federate to billions more through index, NavyLinks and Thomson Reuters Clear, giving investigators access to an expansive depth of structured and unstructured data. But what we believe makes Crime Tracer truly unique is how we can apply generative AI and soon to be large language models and agents to make that data just not searchable, but contextually insightful. This quarter, we deployed new features that allow investigators to ask natural language queries like show me persons of interest who match known patterns in recent thefts involving white bands in three counties and receive actual insights that would take hours, if not days to surface manually. Speaker 100:05:53The combination of search, summarization and synthesis is transforming what's possible for digital casework in crime linking. Furthermore, we also made progress integrating Crime Tracer's large data footprint with PlateRanger's ALPR data to unlock powerful response and investigative use cases for our customers. We believe that this integration provides a force multiplier for real time and retrospective investigations, allowing investigators to seamlessly move back and forth from narrative based incident search to connected license plate recognition. We believe this ability will enable agencies to help solve cases faster with fewer resources. The early feedback has been extremely positive and has proven to be a powerful differentiator in driving Plate Ranger traction. Speaker 100:06:44More importantly, we view this as foundational to move into building a truly multimodal investigative intelligence platform that combines people, places, vehicles and incidents in a single pane of glass. We continue to scale Resource Router, our proactive patrol planning tool with strong adoption and demonstrable results. Resource Router is currently deployed in over 20 agencies, more than double its installed base less than eighteen months ago. Agencies are using it to allocate limited officer resources to areas with the highest probability of criminal activity, and we're seeing real world impact in both community engagement and crime suppression. As public safety agencies face mounting pressure to do more with less, Resource Router seems to be an essential capability, not just a nice to have. Speaker 100:07:39Now let me turn to one of our most exciting growth areas, Safepoint. Following the passage of California Assembly Bill 2,975, hospitals are now required to deploy weapon protection systems at all public entrances by 2027. This is a seismic shift in health care securities policy and plays directly to Safepoint's strength. Our system uses passive low frequency magnetic field detection, not invasive scanners or disruptive walkthrough gates or intimidating checkpoints. That means hospitals can maintain patient dignity, visitor experience and operational throughput, all while meeting the new legal compliance standard for safety. Speaker 100:08:23We've already engaged with multiple large health care systems in California, and we see similar legislation advancing in Maryland, New Jersey and beyond. With over 400 hospitals impacted in California alone, each with multiple entrances, the now mandated and addressable opportunity is significant. We believe SafePoint can become a category defining solution in this space, not only for hospitals, but for any environment where high flow, high stakes security is required. As we move further into 2025, we remain bullish and focus on executing to our growth strategy and strategic road map. And while there have been very positive tailwinds to our business, driving strong demand for our capabilities, we remain acutely vigilant around lingering headwinds, especially those related to municipal funding and budgets. Speaker 100:09:16We are taking appropriate risk mitigation efforts, including doubling down on our customer success and engagement efforts, adding a grant writing resource and modeling higher levels of attrition than what we have historically experienced to account for that volatility. To that end, we continue to believe that we are well positioned to drive both revenue and ARR growth for 2025. We are reaffirming our full year revenue guidance range of 111,000,000 to 113,000,000 while slightly reducing our adjusted EBITDA guidance range to 20% to 22% to account for the modest impact of the current tariff regime, along with investments we're making in AI modeling and tools in AWS that are being incorporated in our products as well as for our internal operational use. I will now turn the call over to Alan to discuss our financial results for the first quarter twenty twenty five as well as guidance for the full year 2025 in detail, and then we will be happy to take your questions. Speaker 200:10:21Thank you, Ralph, and good afternoon, everyone. As Ralph mentioned, we are pleased with our first quarter twenty twenty five results. Our strong financial performance reflects success of our ongoing strategic initiatives, operational efficiency measures and our commitment to delivering value to our shareholders. Revenues were $28,300,000 representing a 12% increase over the $25,400,000 in the first quarter of twenty twenty four. As Ralph mentioned, our 2024 year end financial results were impacted primarily due to the delayed renewal of two contracts with New York City Police Department. Speaker 200:11:02Both of the NYPD contracts were signed in the first quarter with approximately $3,500,000 of the catch up revenue from the contracts. We're also pleased to report that both of those contracts were three year renewals, representing over $64,000,000 in contract awards. The bookings of all of our Safety Smart platform solutions, some of which are multi year contracts are also growing healthily. Gross profit was $16,600,000 or 59% of revenue compared to $14,900,000 or 59% of revenue for the prior year period. Our adjusted EBITDA was $4,500,000 compared to $3,000,000 in the first quarter of twenty twenty four. Speaker 200:11:50Our adjusted EBITDA increase was related to the delayed contracts. 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, restructuring costs and losses, including those related to fixed asset disposals, stock based compensation expenses and acquisition related expenses, including adjustments to our contingent consideration obligations. Our adjusted EBITDA was a bit lower than consensus estimates as we held our company all hands meeting, which costs over $700,000 in the first quarter. This one time event happens only once a year, generally in the first quarter. Our legal and accounting expenses are also historically higher in the first quarter as we complete our annual financial audit and our preparation for and filing of our 10 ks. Speaker 200:12:51And as Ralph mentioned, we are investing more in our AI capabilities as well. Our operating expenses were $17,800,000 or 63 percent of revenues compared to $17,500,000 or 69% of revenues in the first quarter of twenty twenty four. Breaking down our expenses, sales and marketing expense in the first quarter was $7,300,000 or 26% of total revenue compared to $7,100,000 or 28% of total revenue, in line with the prior year period. Our R and D expenses were $4,100,000 or 14% of total revenue compared to $3,600,000 or 14% of total revenue in the prior year period. G and A expenses for the quarter were $6,500,000 or 23% of total revenue compared to $6,800,000 or 27% of total revenue for the prior year period. Speaker 200:13:51As a reminder, we expect our G and A expenses to grow less than our revenue on a percentage basis as our company grows. It's important to recognize that the percentage of revenue of each of our OpEx categories is at or below the level of the first quarter of last year. Our GAAP net loss was approximately $1,500,000 or a loss of $0.12 per basic and diluted share for the quarter based on 12,600,000.0 basic and diluted weighted average shares outstanding. This compares to a net loss of $2,900,000 or zero two three dollars per basic and diluted share based on 12,800,000.0 basic and diluted weighted average shares outstanding for the prior year period. Deferred revenue as of 03/31/2025 was largely in line at $45,400,000 compared to $44,200,000 at the end of fourth quarter twenty twenty four. Speaker 200:14:52We ended the first quarter with $11,700,000 in cash and cash equivalents compared to $13,200,000 at the end of fourth quarter twenty twenty four and much higher than the $5,700,000 that we had at the end of twenty twenty three. We repurchased 33,493 of our shares at an average price of $15.04 for approximately $504,000 in the first quarter of twenty twenty five. Currently, we have approximately $21,000,000 available on our line of credit as we have approximately $4,000,000 in debt outstanding all of on our line of credit. Now turning to our guidance for the full year of 2025. We are reaffirming our full year revenue guidance range of 111,000,000 to $113,000,000 We are reducing our full year 2025 adjusted EBITDA margin guidance range to 20% to 22% related to potential costs associated with tariff changes and the investments that we are making in AI modeling and tools that we are incorporating in our products and internal operational use. Speaker 200:16:04We are reaffirming our expectation for our annual recurring revenue, or ARR, to increase from $95,600,000 at the beginning of twenty twenty five to approximately $110,000,000 at the beginning of twenty twenty six. As a reminder, this guidance is in spite of the loss of approximately $9,700,000 from the loss of the Chicago ShotSpotter contract in 2024. Overall, we are pleased with the progress we have made on each of our strategic initiatives and operational performance of the business. With that, we're now happy to open the call for questions. Operator, will you please open the line for Q and A? Operator00:16:46Certainly. We'll now be conducting a question and answer session. Our first question today is coming from Richard Baldry from ROTH Capital Partners. Your line is now live. Speaker 300:17:14Thanks. Now that you've got a broader suite of tools, can you talk about how you manage sort of the pipeline there to make sure you're not overweighting or underweighting resources in each of those areas? Speaker 100:17:28Yes. Thanks for that question, Rich. This is Ralph. So each product solution has its own pipeline metrics that we're tracking. And I would say that the pipeline is fairly solid across the platform and particularly strong in a couple of segments, including Resource Router and Crime Tracer. Speaker 100:17:48We're targeting kind of 3x to 4x coverage based on the annual contract value quotas that we've issued out to the sales team. Speaker 300:17:59And then maybe looking at SafePoint specifically, I think you've revamped that product in the past year. So is there any early feedback on that? Maybe any like customer cases, maybe without naming names, maybe verticals you sold into at that? Speaker 100:18:18Yes. So thanks for that question. Again, this is Ralph. So as you know, we're focused on the healthcare vertical, casino vertical and then high end commercial properties. And we've seen really success across the board, particularly in the healthcare vertical, where I think our discrete architecture is critically important to a healthcare concern. Speaker 100:18:38I think we talked about on our last call that we have a couple of proof of concept deployments going in on one of the top five, top 10 health care chains here in The U. S. One of those has actually kicked off and it's going pretty well. We're hoping to light up the second one here in Q2. So more to come on SafePoint in the healthcare vertical. Speaker 300:19:03Great. Thanks. Operator00:19:07Thank you. Next question today is coming from Mike Latimore from Northland Capital. Your line is now live. Speaker 400:19:15Hi. This is Aditya on behalf of Mike Latimore. Could you give some color on if do you expect meaningful bookings to come from Plate Ranger this year? Speaker 100:19:28Do you want to take that, Alan? Speaker 200:19:30Yes, sure. So this is Alan. We are still working on the actual bookings. We have a significant amount of pipeline in there. But so I would say it is still going to be somewhere in the $1,000,000 plus range in terms of actual bookings. Speaker 200:19:49And we're expecting slightly little less than that in revenue this year, but significant increase in revenue into next year. We are seeing a lot of interest there, and we are running a couple different kinds of marketing aspects to get more customers into the actual contracts. Speaker 400:20:09Got it. And do you see additional expansion in Puerto Rico this year? Speaker 100:20:16Yes. This is Ralph. Speaker 200:20:19ahead, Ralph. Speaker 100:20:20No, go ahead. Sorry. Speaker 200:20:21No, I was saying that Puerto Rico, as we mentioned before, the contract we have right now ends at the June. We are in ongoing discussions with them to not only extend that contract, but to make that into a multiyear extension renewal. We are also in discussion with them, won't give you too much more details on that, but with some potential expansions beyond the 30 miles that we have there. So things are going positive there. But as we all know, just takes some time, especially dealing with Puerto Rico. Speaker 400:20:57Got it. Thank you. Operator00:21:00Thank you. Our next question is coming from Trevor Walsh from Citizens. Your line is now live. Speaker 500:21:11Thanks. Hey, and Ralph. Thanks for taking the questions. Maybe rotating back to the SafePoint piece. Great to hear the legislative sort of win, I guess, in California. Speaker 600:21:23Can you Speaker 500:21:24maybe Ralph just give us a sense of based on kind of where you see the sales cycle around SafePoint kind of executing now currently and then based on that 2027 requirement when you think deals kind of really start to materialize around that? I would imagine maybe more into 2026 just based on the timing. But how like I guess, far in advance do customers need to start kind of prepping for that new requirement? Speaker 100:21:50Yes. Thanks, Trevor, for that question. This is Ralph. So I think you're absolutely right. With respect to the AB 2,975, that's really much more of a 2026 opportunity for us. Speaker 100:22:03But make no mistake about it, we're making really, really good traction in other places in the country with SafePoint, not only in hospital vertical not only in the hospital vertical, but also in the gaming casino vertical as well. So what we're our game plan there is to have a fairly comprehensive campaign in California to really position ourselves within that market. Because now, as we've often said in previous calls, our greatest competition with respect to SafePoint is do nothing. And now this particular unfunded mandate coming from the State of California is taking away that competitive energy or that competitive thread there would do nothing because now at least 400 hospitals have to do something along the weapons detection space. And we think because of the uniqueness of our offering with respect to the passive sensors is discrete deployment and not having a checkpoint that we're well positioned to get our fair share of that particular market. Speaker 100:23:06But we're going to have to invest some time and energy, certainly working with CalOSHA and the various participants that were kind of behind getting this bill passed in the first place along with hospital chains in California. So we're pretty excited about it, as you might imagine. Speaker 500:23:23Awesome. Great. And Alan, maybe my follow-up for you, if I can. I recall from last quarter when we were discussing the New York kind of pushing of the deals, I guess, into this quarter that there was going to be some at least benefits of the deal sliding around the margins because of kind of the costs being already outlaid and then the revenues hitting kind of later. But it didn't seem like that necessarily materialized by at least just kind of looking at kind of where gross margins lined up in the quarter. Speaker 500:23:52So just wondering if what maybe it was other things that you had called out in the quarter around some of the other costs and annual meeting, etcetera, that maybe kind of wash that out a little bit. But just curious kind of what how that materialized in the numbers? Speaker 200:24:08Yes. This is Alan. Thanks for that question, and it's a valid question, too. I think what we are seeing already, at least in Q1, we hit the adjusted EBITDA of the $4,500,000 but we had about $1,000,000 in additional expenses. Our all hands meeting was north of $700,000 We also did have some increase as we do the AI algorithms and the modeling. Speaker 200:24:33That increased our actual bandwidth usage of like AWS and Azure. That was probably a couple of hundred thousand dollars as well. So when you start adding the $1,000,000 in terms of expenses, had those not occurred, then the adjusted EBITDA would have been significantly higher. Specifically related to the New York City contracts, a lot of that did flow to the bottom line as you would expect. There was still some things that we had to cost a little bit related to some actual commissions that were owed to the prior company was doing some of that as well as a little bit of cost of goods sold cost related to that. Speaker 500:25:14Got it. Okay. Super helpful. I'll get back in the queue. Operator00:25:19Thank you. Next question is coming from Eric Martinuzzi from Lake Street. Your line is now live. Speaker 600:25:25Curious to know about the revenue progression, given the outsized kind of the $3,500,000 lumpiness that occurred in Q1. How should we be thinking about the progression to Q2? I know at least what I've got for consensus is 27.8%, which would be a step up from the 28.3% minus 3.5%. Just wanted to make sure you're comfortable with that step up. Speaker 200:25:52Yes. So this is Alan. It's a great question. And having that 3.5% out would have put us back down to around 24.8%. So north of 27% is a little bit too high in terms of what we need in order to hit our revenue guidance for the year. Speaker 200:26:10I would we don't give quarterly revenue guidance, but for the annual, it will be more likely to see a reduction into Q2, Q2 going up to Q3 and Q3 going up more significantly into Q4, as all the stuff that we're investing in right now, especially the SafePoint, starts recognizing a lot more of the revenue. Speaker 600:26:32Got you. And then on the margin guide, the 100 bps, did you maybe I missed it, but did you clarify what the gross margin implied in? Is are we still kind of a 59% -ish for gross margin and the impact is in the operating expenses? Speaker 200:26:52Yes, it's another great question. We're still expecting our gross margin stay around there for the year. As we continue to invest, we are seeing some of those costs. When you talk about the change in the adjusted EBITDA percentage, it's only a little over $1,000,000 but you've got some of that's going to go through cost of goods sold such as things like the increase in sensors that we deploy for the ShotSpotter that might be somewhere around 2 and $50,000 maybe $300,000 between new sensors and replacement sensors. So that's going to affect that a little bit. Speaker 200:27:28And then the rest of the stuff that we're doing in terms of the AI algorithms and investing there for all the appropriate things especially for SafePoint into the algorithms and modeling. So that's going to be from the bandwidth costs, AWS, Azure as well as personnel. You can add that another probably 700,000 plus throughout the year, not obviously quarter by quarter, but that's something that is going to keep the cost of goods sold a little lower. But I think it's still important to understand that overall our operating expense is growing and will continue to grow less than the revenue even with those additional costs. So it's something that we are managing and you can even see that from Q1 last year, our total OpEx was 17,500,000.0 This year was down to 17,200,000.0 even though revenue went up. Speaker 600:28:27Got it. Thanks for taking my questions. Operator00:28:32Thank you. Next question is coming from Jeremy Hamblin from Craig Hallum. Your line is now live. Speaker 700:28:38Thanks for taking the questions. And I wanted to come back to AB 2975 SafePoint and just understand in terms of the total number of facilities within the state of California that you believe to be required under this new law to put in place detection that's kind of part one. And then part two is, I think you mentioned Maryland, New Jersey, Virginia's other states looking at similar type of legislation. If you add those states in, then what's kind of the total number of addressable facilities that we're talking about? Speaker 100:29:20Yes. Thanks, Jeremy. This is Ralph. With respect to the state of California, we're estimating this is directionally true, I'd say. We're estimating that there's about 400 hospitals and estimating that each of those hospitals, kind of given the fact that there's maybe one to three buildings kind of per hospital location would have on average something on the order of kind of 10 egress points that they'd have to protect. Speaker 100:29:48There is a carve out certainly for a number of hospitals that are in rural settings or more kind of clinics that don't have to comply with this particular legislation. But we think that there's probably about 400 hospitals in California that would have to comply, and we're estimating about 10 lanes per. So about a 4,000 lane opportunity in California. Quite honestly, we're not looking well, we're not really looking beyond California with respect to this type of legislation. We just want to make note that kind of given the workplace violent issues that exist preeminently in hospital settings that it wouldn't be a surprise if there are some other states that are kind of in their early discussions of doing something similar to California might flip over and have similar legislation. Speaker 100:30:40We know in the state of Illinois, for example, although it doesn't apply to hospitals, there's a similar regime with respect to requiring weapons detections for casinos in the state of Illinois. So this is something that's going to be, I think, part and parcel for this particular market around how certain entities need to become compliant and they can't afford to do nothing. So it's a bit of a kind of unfunded mandate that we're going to be tracking on, of course. Speaker 700:31:15And then as a follow-up, how does the annualized cost of the SafePoint per entryway compare versus kind of traditional solutions, whether that's Garrett or Cheya kind of traditional metal detector weapons detection or an evolved system that's a bit more AI tools involved. Can you give us a sense in terms of bidding on these opportunities where you fall Speaker 100:31:48on the Thanks for that follow on question. So I can tell you what our pricing model is and business model. We're charging about $20,000 per year per lane. And that's kind of similar in many ways to ShotSpotter when you think about our cost to deploy and how we recapture that cost investment is very similar to ShotSpotter. Speaker 100:32:10We're breaking even on a lane inside of twelve months. And then kind of the ongoing annual subscription fee to the extent that people would renew would be super high margin for us. Interestingly enough, we're finding in dealing with commercial opportunities that a number of these customers are signing up for multiyear deals, two years, three years, etcetera. From a total cost comparison, and this is pretty early and directionally, I would say that we offer a fairly compelling solution kind of given the unique nature of what we do and not having to have people walk through a checkpoint. Total cost of ownership, we think, is extremely attractive for our solution versus other solutions that require much more manually intensive resources there at the checkpoints. Speaker 100:33:00We don't require that. We've learned a lot from our experience in ShotSpotter in terms of just not providing the base capability of detecting weapons, but also the reporting and analytics that go along with that. So we have a kind of an Insight solution. Well, it's not kind of like Insight. It is Insight that you'd be familiar with ShotSpotter. Speaker 100:33:20We've reimagined that to the SafePoint solution now where agencies can excuse me, corporate entities can basically check their ingress flow, the number of detections per passes, the number of times they can apply ground truth where they've actually pulled someone over and found a weapon, etcetera. This is an incredibly powerful reporting tool that goes beyond just the weapons detection piece that we think is, again, is going to be very attractive to folks in California, OSHA that are really about protecting these facilities and having robust data to ensure that they're appropriately reducing risk of potential workplace violence in hospitals. Speaker 700:34:06Great color. I wanted to also just ask a little bit more about the international opportunities that you mentioned, right? So deploying in Brazil here in Q2. And then as you think about some of the other opportunities, I know you've probably looked at some expansion in South Africa. You've noted previously some other Latin American countries that you might be looking at as well as The Caribbean. Speaker 700:34:36And just to get a sense for timing, I know typically the international bidding is a little bit longer sales cycle. So wanted to get a sense for how we should be thinking about that. Speaker 100:34:49Yes. So you're absolutely correct. The international sales cycles tend to even be longer than the long sales cycles domestically, but they're super impactful. Just to remind you and others that, our pricing leverage there is we typically charge 3x to what we charge domestically. So when the deals happen, they happen in fairly big ways. Speaker 100:35:10Hey, look, we're really excited about Latin America, in particular, kind of going back to Brazil. We were in Brazil in a couple of cities back when I joined the company in 2010 on our legacy business model. So to be able to return to Brazil is really exciting because of all the Latin American countries that have issues with gun violence, I would say Brazil is most similar to The U. S. Than almost any other country in Latin America or frankly even South Africa. Speaker 100:35:39In terms of the intensity and scale of the problem, Brazil is a very big country. There's a lot of cities there that have a lot of square miles of coverage need there. So to actually get our first mover in Nidoroy, Brazil, which is importantly that is Portuguese speaking, is going to be important for us to hopefully reopen that market opportunity up. So and we're already in discussions without saying too much more. We're already in discussions with a couple of other cities in Brazil kind of doing a quick follow hopefully to Niteroi. Speaker 100:36:15We saw the quick expansion that happened in Montevideo, Uruguay. We're excited about that, of course. And they represent a very compelling first mover, early adopter customer in Spanish speaking Latin America. We've had a number of municipalities from other neighboring Latin America Spanish speaking Latin American countries South American countries, excuse me, that have visited Montevideo, and they've actually gone out to various Latin America security conferences talking about their success. I do also want to point out that it's just not ShotSpotter, but we're really excited about a couple of pretty interesting opportunities with Resource Router in both an existing Latin American country where that's already a ShotSpotter customer and then one non ShotSpotter customer that's pretty substantial and then also true with PlateRanger as well. Speaker 100:37:14And if you follow our press at anything or follow the press in South Africa, you'll see that there is a real, real need for an expanded footprint in and around Cape Town that we're hopefully going to get the Western Province to support. So we've got a lot of interesting activities going on. Timing wise, I think the best way to think about this is late, late twenty twenty five, early '20 '20 '6 for some of those cards to flip over. Did that answer your question? Speaker 700:37:49Yes. Very helpful. Last one for me is back to the operating expenses for a second. So you saw an uptick in R and D costs, both on a run rate from last year, but also from the end of twenty twenty four. Was that where you're reflecting some of the AI tool investments? Speaker 700:38:09Is that falling into that bucket? Or is there any other color you might be able to share on whether or not that kind of $4,000,000 run rate in R and D is kind of where we should be thinking? Speaker 200:38:22Yes, great question. This is Alan. It was primarily related to two things. One would be some of is primarily for the personnel that are helping us with the AI algorithms. We're doing a lot of modeling right now related to SafePoint primarily. Speaker 200:38:40Most of the cost is related to that. So that's basically where it is. Also some of the like the AWS and some of the other bandwidth type costs ends up in the R and D bucket itself. That's primarily where it is. I do think you're going to see the four a little more than 4,000,000 maybe 4,100,000.0 go down a little bit as we stabilize those, but it's not going to go down significantly throughout the rest of the year. Speaker 200:39:06But those definitely still grow less than the revenue. Speaker 700:39:11Thanks for taking all my questions and good luck. Operator00:39:17Thank you. We've reached the end of our question and answer session. I'd like to turn the floor back over to Ralph for any further or closing comments. Speaker 100:39:24Great. Yes, thank you very much, and thank you all for joining us again today. As you've heard, we're executing well across the board. We're expanding our platform, deepening customer relationships and pursuing new opportunities in AI driven public safety. We certainly appreciate your continued support and look forward to keeping you updated on our progress. Speaker 100:39:44Thanks again for joining the call. Operator00:39:47Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.Read morePowered by