SoundThinking Inc (SSTI) 2024 Q4 法說會逐字稿

Good afternoon and welcome to SoundThinking's fourth quarter and full year 2024 earnings conference call.

My name is Diego and I'll be your operator for today's call. Joining us are SoundThinking CEO Ralph Clark and CFO Alan Stewart.

Please note that certain information discussed on the call today will include forward-looking statements for our future events and SoundThinking's business strategy and future financial and operating performance. These forward-looking statements are only predictions 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.

Certain of these risks and assumptions are discussed in SoundPicking SEC filings, including this 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, February 25, 2025, and SoundThinking undertakes no obligation to revise or update any forward-looking statements to reflect events or circumstances after the date of this call.

Finally, I would like to remind everyone that this call will be recorded and made available for replay via a link available in the Investor Relations section of the company's website at ir.soundthinking.com.

With that, I'll now turn the call over to Ralph.

Good afternoon everyone, and thank you for joining us today for SoundThinking's Q4 2024 earnings call. I'll start by providing some high-level commentary on our Q4 and year-end 2024 financial results, along with an update on our key strategic initiatives. Alan will then review our financial results in more detail before we take your questions.

2024 is in the books, and it was a year of measurable strategic financial and operational progress for SoundThinking even as we successfully pushed through some isolated headwinds.

Our queue for revenue decreased by 10% year over year to $23.4 million primarily due to approximately $3.5 million of a delay due to two contracts with New York City Police Department or NYPD that we had been working on to renew prior to contract expiration in Q4 2024.

One of the two contracts was formally signed and registered this February, and the other is currently signed in working its way through New York City's formal registration process, expected to be in the next 30 to 45 days.

This delay is directly related to some of the recent and well documented political distractions and personnel turnover in the city and NYPD command staff.

Despite that, our full-year 2024 revenues still grew by 10% to a record $102 million. We believe this is a reflection of the strong demand for our public safety and security solutions across the SafetySmart platform as law enforcement agencies and security organizations respond to the ever increasing demands to be more responsive and accountable in delivering public safety outcomes to communities they are accountable to serve and protect.

In 2024, ShotSpotter went live in 20 new cities, 5 new universities. We recognized 24 expansions and took 126 miles live. Overall, we booked $75.7 million in that new and renewal subscription-based ACV with 59% of those bookings representing multi-year agreements.

We're very pleased with the ShotSpotter International pipeline growth in 2024 bookings momentum, including new city captures in Niterói, Brazil; Nelson Mandela Bay, South Africa; and an expansion doubling our footprint in Montevideo, Uruguay.

We believe our international sales momentum is a testament to the effectiveness of ShotSpotter in a large and virtually untapped market outside of the US. We expect to see future opportunities in new international cities in the Caribbean and Latin American markets, building on our recent collective successes in the Bahamas, Uruguay, and soon to be Brazil.

We were also very pleased to re-establish our approximately 30 square mile shots fire deployment in Puerto Rico in Q4 of this year. Here too, we believe there may be opportunities to grow the ShotSpotter footprint beyond the current 30 square miles, given the compelling need other communities and cities in Puerto Rico have in responding to and addressing gun violence on the island.

As a reminder, our ShotSpotter service in Chicago operationally concluded in late September with a formal contract termination in November. In a very recent development, Chicago issued a formal RFP for gunshot detection technology to potentially cover the entire city of up to 230 square miles for a five-year term with three one-year extensions.

The bidders conference was held last week in formal bid submissions are due this April. While we're in the process of evaluating a potential response, we would note that the speed and compressed timeline of the Chicago gunshot detection RFP is in fact a testament not only to the compelling need but also the positive impact that gunshot detection has on communities and saving lives.

NYPD is currently our largest ShotSpotter customer and as mentioned earlier, we are thrilled to have successfully executed a three-year contract renewal of approximately $21.9 million securing the ShotSpotter service for NYPD through December of 2027. The renewal extends our long-term partnership and relationship of close to 10 years and is indicative of the value at scale our ShotSpotter services provide.

As we discussed in our 2024 Investor Day, our technological capabilities and proven ability to execute a scale to drive public safety is what differentiates us in the marketplace. Our SafetySmart platform is uniquely and competitively positioned, and we're excited about the platform roadmap and intentional investments we're making in leveraging advanced AIML capabilities in order to optimize our solutions.

In 2024, we launched the next generation of our SafePointe weapons protection system, offering enhanced security solutions for various institutions including hospitals and corporate locations.

The NextGen SafePointe features included advanced 3D camera integration and added SOP 2 and HIPAA compliance, which were critical success factors in securing two recent pilot wins with two separate hospital chains that are both in the Top 10 hospital chains in the United States based on a number of hospitals.

We're hopeful that once we successfully move past the pilot stage, we will be positioned to drive multi-million dollar ACD contract billing with these two chains while leveraging their early adopter status to other hospital chains.

Our leading and comprehensive patrol management tool ResourceRouter is continuing to grow both in impact and sales traction. We believe the product market fit is strong in delivering value and this fact is supported by 100% ASP growth from 2023 to 2024 and approximately $4 million of 2025 pipeline.

The patrol division within a police department typically represents the largest portions of the agency's budget, and ensuring efficient, effective, and equitable public safety outcomes can be a complex challenge.

ResourceRouter is the only control operations tool on the market that provides real-time relevant information that is easily accessible and actionable in the field. Early customer feedback has been very strong on the positive impact that Resource Router has enabled in field patrol operations. We're very excited about pioneering a whole new category in data-driven patrol management that enhances officer and public safety in an objective and transparent fashion.

In 2024, we also announced our strategic partnership with recourse systems for the rollout of our co-branded PlateRanger automatic license plate recognition or ALPR solution, which is fully integrated into our SafetySmart platform.

We believe our PlateRange offering to be highly differentiated with respect to the seamless integration with our SafetySmart offerings along with our collaborative approach to integrate with other non-sound thinking offerings. Well, it's still in the early days with our partnership, we're progressing well and we look forward to discussing more on this as the year progresses.

In terms of market positioning, our strategic initiatives, ongoing price enhancements, and new launches have strengthened our offerings. Our strategic partnerships and product innovations are the driving force behind our operational excellence, which has resulted in another world-class net promoter score of 66%, moving up 200 basis points from last year of 64%. As a reminder, a score of 60% or higher is considered world class in any industry.

It's also notable since 2020 to year to date, the company has added over 85 new shots fired customers, executed 50 plus expansions, and processed over 660 annualized renewals compared to only 15 non-renewals, which is effectively over a 40 to 1 ratio of renewals to non-renewals.

As of year in 2024, we had approximately $50 million of 2025 qualified ACB pipeline across our SafetySmart platform. [Approximately] 62% of that pipeline was non-domestic ShotSpotter pipeline, signaling our successful diversification efforts. We're making intentional investments in our top of funnel demand generation activities to continue to build on that pipeline for 2025 and beyond.

We believe we're well positioned to drive 2025 revenue growth given our entering 2025 with $95.6 million in annual recurring revenue, or ARR, despite the non-renewal of Chicago in November of 2024. As such, we're increasing our full-year revenue guidance to $111 to $113 million representing approximately 10% year-over-year growth.

If we were to include the revenue from Chicago last year to a pro-forma revenue growth from 2024 to 2025, it would have been 19%. We're also increasing our full-year 2025 adjusted EBITDA margin guidance range to 21% to 23%. We're confident in our guidance and believe we're well positioned to drive diversified and profitable growth in 2025 and beyond.

In summary, 2024 was a transformative and productive year for SoundThinking, highlighted by milestone achievements in the showcasing of our collective grit in moving forward in our purpose. While we're not immune to some of the challenges with respect to market conditions, we're very proactive across our strategic and financial growth strategies and are constructive about the opportunities moving forward.

We're pleased with our financial performance, operational excellence, product innovation, and market leadership. We remain committed to advancing public safety through our unrelenting passion on making a positive impact.

I'll now turn the call over to Alan to discuss our financial results for the fourth quarter in full-year 2024, as well as guidance for 2025 in more detail.

Thank you, Ralph, and good afternoon everyone. We're pleased with our fourth quarter and year-end 2024 results. Our strong financial performance reflects the success of our ongoing strategic initiatives, operational efficiency measures, and our commitment to delivering value to our shareholders.

In the fourth quarter, revenues were $23.4 million, representing a 10% decrease over the quarterly record $26 million in the fourth quarter of 2023. As Ralph mentioned, all of our financial results were impacted primarily due to the delayed renewal of two contracts with the New York Police Department, reflecting an approximately $3.5 million delay and reduction of quarterly revenue by the same amount.

One contract has already been awarded for our ShotSpotter renewal, and the second contract is currently signed and working its way through the New York City's formal registration process expected in the next 30 to 45 days.

Bookings of all of our SafetySmart platform solutions, some of which are multi-year contracts are also growing healthily. Gross profit was $11.7 million or 50% of revenue versus $15 million or 58% of revenue for the prior year period. Our adjusted EBITDA was $1.7 million compared to $4.8 million in the fourth quarter of 2023. Adjusted EBITDA decrease was directly related to delayed contracts.

As a reminder, adjusted EBITDA, a non-GAAP financial measure is calculated by taking a GAAP net income or loss and adjusting out interest income, income taxes, depreciation, amortization, and impairment, restructuring costs, and losses including unrelated fixed-asset disposals, stock-based compensation expenses, and acquisition-related expenses, including adjustments to our contingent consideration obligations.

Our operating expenses were $15.5 million or 66% of revenues versus $10.6 million or 41% of revenues in the fourth quarter of 2023 after including the change in fair-value consideration relayed to our acquisitions of $4.8 million in 2023.

Breaking down our expenses, sales and marketing expense in the fourth quarter was $6.5 million or 28% of total revenue, compared to $7.4 million or 28% of total revenue in line with the prior-year period. Our R&D expenses were $3.5 million or 15% of total revenue compared to $3.2 million or 12% of total revenue in a prior-year period. G&A expenses for the quarter were $5.5 million or 24% of total revenue, compared to $4.8 million or 18% of total revenue for the prior-year period.

As a reminder, we expect our G&A expenses to grow less than our revenue on a percentage basis as our company grows. Our G&A net loss was approximately $4.1 million or a loss of $0.32 per basic and diluted shares for the quarter based on $12.6 million basic and diluted weighted average shares outstanding. This compares to a net income of $3.6 million or $0.29 for basic share and $0.28 per diluted share based on $12.7 million basic and $12.9 million diluted weighted average shares outstanding for the prior-year period.

The increased loss was also related to the delay of the approximately $3.5 million in contract renewals as we continue to perform the services at the request of the customers, adding COGS and operating expenses without the associated revenue.

Turning to a full 2024 results. Revenues were a record $102 million representing a 10% increase over the $92.7 million in 2023. The increase in revenues is primarily due to new and expanding customer subscriptions.

Having not had the NYPD contract renewal delays, we expect to have achieved over $105.5 million in revenue matching our original revenue guidance for 2024. Gross profit was $57.9 million or 57% of revenue versus $52.7 million or 57% of revenue for the prior-year period.

Gross profit was also impacted by the contract renewal delays of the approximately $3.5 million in revenue as we continue to provide the services at the request of the customer adding cost of goods sold expense without the associated revenue. Our adjusted EBITDA was $14.4 million in line with the $14.3 million we achieved in 2023. Our operating expenses increased 22% to $65.7 million or 64% of revenues versus $54 million or 58% of revenues in 2023.

We had a continued consideration adjustment of $5.7 million in 2023 and $600,000 in 2024 associated with the forensic logic and SafePointe acquisitions. In addition, 2024 included a full year of operating expense for SafePointe versus only four months of expenses included in 2023.

We also had an increase in other costs in 2024 as we continue to grow our business. Breaking down our expenses, sales and marketing expense in 2024 was $28.1 million or 28% of total revenue compared to $27 million or 29% of total revenue in line with the prior-year period.

Our R&D expenses were $13.9 million or 14% of total revenue compared to $12.1 million or 13% of total revenue in the prior-year period. D&A expense for the year was $23.9 million or 23% of total revenue compared to $20.6 million or 22% of total revenue for the prior-year period.

As a reminder, we expect our G&A expenses to grow less than our revenue on a percentage basis as our company grows. Our GAAP net loss was approximately $9.2 million or loss of $0.72 per basic and diluted share for the year based on $12.7 million basic and diluted weight of average shares outstanding.

This compares to a net loss of $2.7 million or $0.22 for basic and diluted shares based on $12.4 million basic and diluted weight of the average shares outstanding for the prior-year period. The increased loss for the year was also related to the delay of the approximately $3.5 million in revenue as we continued to form the services.

Deferred revenue as of December 31, 2024, was largely in line at $44.2 million compared to $49.5 million at the end of Q3 2024. Revenue retention rate for 2024 achieved 105% compared to 107% in 2023 and our sales and marketing spend per dollar of new annualized contract value was $0.63 compared to $0.52 in 2023.

We ended the year with $13.2 million cash-and-cash equivalents versus $15.3 million at the end of Q3 2024 and much higher than the $5.7 million that we had at the end of 2023. We repurchased 418,940 of our shares at an average price of $14.31 for approximately $6 million throughout 2024. Currently, we have approximately $21 million available on our line of credit as we have approximately $4 million in debt outstanding all on our line of credit.

Now turning to our guidance for the full year of 2025. We are increasing our full-year revenue guidance range to $111 million to $113 million. We're also increasing our full-year 2025 adjusted EBITDA margin guidance range to 21% to 23%.

This updated guidance reflects the strength and momentum we are experiencing our business in spite of the loss of approximately $9.7 million for the loss of the Chicago 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 a call for questions. Operator, will you please open the line for Q&A?

Thank you. And at this time, we'll conduct our question-and-answer session. (Operator Instructions)

Trevor Walsh, Citizens JMP.

Great. Hi, team. Thanks for taking the questions. Ralph, maybe for you it sounded like when you were giving the update around the Chicago new RFP that you were maybe on the fence around, replying or putting in a bid within that. Can you maybe just confirm if I heard that correctly or maybe just explain how you're thinking about that engagement versus maybe prior kind of engagements with the city there?

Sure, yeah, thank you for that question. I think the first thing I would say is that we're extraordinarily encouraged to see Chicago actually issue an RFP for a gunshot detection system, but we are still evaluating our potential response. We haven't made a formal decision yet, but I can assure you that we're extraordinarily confident about the fact that we are the very best gunshot detection solution in the marketplace that has been proven at scale.

And that's where we are with Chicago.

Got it. Okay, thanks for the color. And then, Alan, maybe just a quick one for you. You talked about some of the multi-million dollar opportunities, with hospital chains, related to SafePointe. Is that included in the guidance for $25 or is that still out just given where they're at in the sales cycle?

Yeah, thank you for that. That's a great question. I think it's important to know that in SafePointe right now, each quarter we've gotten a little bit more in the bookings. Q1 was about half a million, Q2 was close to a million, Q3 was a little over a million, and Q4 was over $3 million. Now these bookings are multi-year bookings, so they aren't necessarily all going to be annual revenue, but that's an indicator of sort of what we're talking about. So we are expecting some of those to contribute to the revenue guidance, the increased revenue guidance that we gave for '25.

Okay. Back in the queue.

Bruce Goldfarb, Lake Street Capital.

Congratulations on your results. Thanks for taking my question. Are you anticipating or nervous about any pipeline disruption from in from Federal Government those efforts, any exposure there?

Yeah, so thanks for that question. This is Ralph. I'll start and and Alan jump in as appropriate. I think there are probably three really important demand drivers that it's important to understand, and that is first and foremost, we've seen a really strong overall sentiment with respect to policing and public safety has shifted dramatically to the positive, and that's something we probably couldn't have said maybe a couple of years ago.

Understaffing, the second issue is understaffing continues to be a challenge for agencies. And the third and last point is that we're seeing agencies that are very receptive to leveraging technology as a force multiplier. So that's the backdrop of the demand drivers. I mean, offsetting that, I think to your question or point is that we are watching very carefully.

The issues around budgets and where budgets are being funded from, we do know we can't expect that ARPA funds are beginning to dry up, which means that we have to be extraordinarily creative along with our customers and prospects to go seek funding from other sources, both the private sector, as well as increasingly moving to state level initiatives where we've seen some success at the state level, New Jersey being a great example of that.

I think New York State is another example where they're taking on more responsibilities to work with local agencies to make sure that they have the resources they need in light of the fact that they are understaffed to be able to work with protecting the residents of their community. So it's something we're paying close attention to. It's not so much a dodge impact. It's more around an ARPA impact, I would say, but we've got some creative approaches we think that can help mitigate that issue.

Great, thank you.

(Operator Instructions)

Mike Lattimore, Northland Capital Markets.

Great, yes, thanks very much. Yeah, in terms of your ARR guidance for the year, can you give a rough range of how much of that would, how much of the incremental growth would come from the gunshot detection category?

Yeah, sure, this is Alan. I would say at this point, going from around the 96 to we ultimately think it's going to be around $110 million, which is a significant increase.

We expect that the gunshot detection, if you start including some of the international be somewhere between $8 million and maybe $9.5 million of that is what we would expect. Historically we've had somewhere around there. The rest of it is coming from the other growth and the other products, which is also quite positive to get the delta.

Yeah, right, and then on the SafePointe weapons detection area, you highlighted a couple of nice healthcare wins, is that sort of the number one vertical where you're seeing momentum or there, what would be the top couple here, couple of verticals for weapons detection?

Yeah, thanks for that question. The three verticals that we're focused on are healthcare, gaming centers, because again, both the healthcare and gaming centers have an issue of wanting to do weapons detection, but doing it in a very low frisk, low friction type manner, which is very to our particular solution versus other solutions, and the third vertical are some selected corporate sites where we're already deployed in some very large financial institutions in their lobby if you were to be in New York City and walk through a couple of world-class financial institutions, you could probably recognize our [bollards] out there.

Yeah, okay, thanks very much.

Thank you. If there are no further questions at this time, I'll hand the floor back to Ralph Clark for closing remarks.

Great, thank you to everyone that joined us today and thank you to my SoundThinking colleagues, clients, and partners for all of your support. Innovation and consistent execution against our strategic growth priorities really defined our achievements for 2024, and we believe this gives us very strong momentum heading into 2025.

We have an outstanding company and will continue to be focused on maximizing shareholder value. I want to thank all of you for your insightful questions and for joining us today on this earnings call. We appreciate your continued interest and investment in SoundThinking. We look forward to sharing our progress with you in the coming quarters.

Thank you and have a great day.

Thank you. This concludes today's call. All parties may disconnect. Have a good day.