Q4 2019 Earnings Call
Good afternoon, a welcome to Shotspotter fourth quarter, a full year 2019 earnings conference call. My name is done and I will be your operator for today's call.
Joining us or Shotspotter CEO, Rob Clark, our CFO Allen Stewart.
Please note that certain information discussed on the call. Today will include forward looking statements about future events and transponders business strategy and future financial and operating performance. These forward looking statements are only predictions and are subject to risks and uncertainties and assumptions that are difficult to predict that may cause actual results to differ materially from those stated.
Our implied by the statements.
Certain of these risks and assumptions are discussed in Shotspotter SEC filings.
Putting its regulation is registration statement on form S. One.
These forward looking statements reflect management's beliefs estimates and prediction as of the date of this live broadcast February 18, 2020, I Trust Potter undertakes no obligation to revise or update any forward looking statements to reflect the events or circumstances. After that date up this call.
Finally, I would like to remind everyone that this call will be recorded a mid available for replay via link available and the Investor Relations section of the company's website at <unk> Dot Shotspotter Dotcom, no I would like to turn the call over to Shotspotter CEO Mr. Ralph Clark. Thank you Sir you May proceed.
Thank you for joining us this afternoon, Alan I will do a review of Q4 results in recap the highlights for 2019.
We will also sure outlook for the year had can then take your questions.
Before I form would begin I want to personally think the shotspotter team for the grit and resilience they show and pushing through the tape in 2019 with a solid Q4 performance that puts us in a strong position to increase our growth in 2020 and beyond.
Im gratified by this performance, but not surprise I think many of you know that shotspotter is more than just the business for everyone here at the company.
It is also are deeply health sense of purpose to reduce gun violence improve public safety and help rebuild trust between communities and police that inspires the work that we do.
We've always understood that creating and leaving a whole new market category would present challenges.
In 2019, we successfully worked through those challenges and we believe positioned the company for even stronger growth in revenues adjusted EBITDA and net income in the coming here.
Specifically in Q4, we went live on 34 net new miles, which included the expansion of Las Vegas, plus three new cities in Puerto Rico, as well as Dayton, Ohio, all with a zero attrition for the quarter.
Reported revenues came to 10.9 million another record for us and we delivered 11 cents per diluted share.
Compared to 9.7 million in revenue and three cents per diluted share a year ago.
Las Vegas became our third largest customer deployment with 24 total miles just behind Chicago, and New York City.
We're very pleased had been able to leverage existing in place permissions combined with some early prep work in order to go live in Q4 with 16 of the 21 miles in Puerto Rico ahead of schedule.
Dayton is now our fifth customer in Ohio. This is a perfect example, the viral nature of our solution when customer adoption tips and geographic clusters as police chiefs share success stories from their shotspotter deployment with their peers in nearby jurisdictions.
For the full year 2019, we reported 40.8 million in revenue and net income of 1.8 million or 15 cents per diluted share we published more than 140000 gunshot alerts and finished the year with approximately $43 million an annual recurring revenue.
Our international pipeline remains strong with opportunities distributed between South Africa, the Caribbean and Greater Latin America, we expect international to contribute approximately 4% to 6% of our 2020 revenues.
In addition to our core flex solution Shotspotter missions, our precision policing platform is playing a critical role in our diversified growth strategy.
Emissions represents an ideal way for us to deepen relationships with our public safety customers. The more intelligence. We can provide the law enforcement agencies to help them execute precision policing the more valuable we are to them as a strategic park.
In 2019, we booked five missions contracts and expect to be fully deployed on those opportunities in the next 90 days.
Beyond our unique technology, an extraordinarily strong market position. We also continued to take active steps last year to position the company for sustainable profitable growth.
We have scaled our direct go to market capacity by adding two new BP positions in our sales organization.
Our new product sales VP owns product sales responsibilities and has three dedicated sales executives representing flats missions insecurity.
Our territory sales VP owns the sales exactly at the account level and we'll be launching a new initiative to focus on tier four cities in jurisdictions.
Our chair for sales initiative will be staffed by two inside sales reps combined with marketing programs to feed them tier four leads helping us penetrate this largely untapped market.
These headcount adds give our executive team more bandwidth for long term strategic planning and key executive account relationship building.
Customer success and positive client outcomes continue to be important strategy for our long term profitable growth.
Customer success drives efficient viral customer acquisition, which is demonstrated by our impressive sales and marketing spend up 43 cents per dollar of new annualized contract revenue.
It is also critical in minimizing attrition and maximizing upsell and expansion opportunities.
We were successful in this regard as well by achieving a revenue retention rate of 111% in 2019.
We know that client outcomes or just more than the result of our specialized solution working as prescribed.
It is also our consultative engagement that assist law enforcement executives in the custom development and application of Gunbattles reduction strategies and agency train and execution that drives measurable positive results.
Im happy to report that the company's net promoter score increased to 53 in 2019.
We believe we can take that to the next level with the recent higher of a VP of customer success that reports directly to me and is engaged with the entire senior leadership team on enhancing the customer journey.
Our customers continue to talk about the positive results, you're seeing with our solution I would like to share just two of the many examples of positive outcomes, making a difference within our customer base.
And just the last year Greenville, North Carolina, Chief of police Marc Hoffman reported that is city has seen a 33% reduction in gunshot injuries. Since shotspotter flat was installed in February of 2019.
The chief of surgery at the regional trauma center, even tweeted that deploying shotspotter has been and I quote an incredible injury prevention success story in this national epidemic of gunshot death in quote.
And in Toledo, Ohio Police Chief George Crawl says it Shotspotter flexes quote a game changer that has turned into one of the most important cogs in our wheel of addressing gun bounds and quote and just the first six months of going live in Toledo.
The system has led to 50 arrest and 36 firearm recoveries.
These outcomes illustrate not only the value of shots buyers technical proficiency, but also what is possible when our technology meat intentional ongoing best practices.
Two last points before I turn it over to Alan.
We will be opening a shotspotter office in Washington, DC. Later this year. This office will not only bring us closer to national law enforcement opinion leaders and decision makers. It will also give us a way to tangibly demonstrate our technology to potential clients in Influencers because this new office will house a satellite incident review center.
In addition to providing some amount of backup resiliency to our headquarters base incident Review Center. This office will also include a portion of our forensic services and product marketing teams.
We're very excited as our Washington, DC presence will also enhance our nascent federal government relations efforts case in point, we've been advocating for the creation and adoption of a house authorization Bill HR 53, 85 that in short would direct the attorney general to car about 10.
As per year for fiscal years 2020 through 2023 for a gun fire detection technology Grant program.
This is one of the few bills related to Gunbattles prevention that has bipartisan support in Congress with the co sponsorship of Representatives, Robyn Kelly and Jim Sensenbrenner.
Lastly, after carefully assessing the dynamics in history of gun bounce in Houston America's fourth largest city, we're convinced that our system can positively leveraged police efforts there in addressing gun crime and serve as a regional catalyst to help more quickly penetrate the large Texas market.
Houston PD is led by cheap art Esa veto, who also have to be the president of the major cities Chiefs Association.
Given the very unique circumstances. This situation provides us we have agreed to offer five square miles shotspotter to Houston on a trial basis.
This is based on the condition that cheap espirito Direxxis department to fully embrace our proven best practices cheap at the Vito has further agreed that the department is happy with the results of the deployment they will transition to a paid subscription after the trial program and potentially expand the system over time.
Although we do not anticipate this will produce any revenues for 2020, we firmly believe that we will again prove the value of our system and one of America's most challenging cities just as we've done in Chicago, Oakland, New York City, and elsewhere and that we can gain a strong advocate and cheap acevedo.
Texas is a market that has traditionally conservative and naturally skeptical modern policing technologies can be slow to gain acceptance there.
We believe we can overcome that skepticism with our actionable high value gunfire detection intelligence and we believe the very small financial risk of this creative experiment is minimal compared to the potential market penetration in Texas, along with other members cities that are part of major City Chiefs Association.
So that'll do it for me I look forward to take your questions. After Allen reviews, our financial results over to you Alan.
Thank you Ralph and good afternoon, everyone.
We ended 2019 on a solid note our progress in many areas contributed to our performance, including completing the Las Vegas expansion finalizing our contracts in Puerto Rico and the initial deployment in three cities on the island.
As well as the addition of our fifth city in Ohio, which is a great example of the tracks we are seeing in certain markets.
We went live on 34 net new miles in the quarter, adding a total of 98 gross and 82 net new miles for the year.
Even with continued investment to expand our leadership position, we're profitable for both the fourth quarter and the full year, while adjusted EBITDA increased significantly, especially for the full year.
The leverage in our business model was a highlight for the year and it will continue to drive profitability in 2020.
Revenue retention for the year was 111% compared to 139% for 2018 note. The 2018 rate included the large Chicago expansion.
Our revenue retention rate is now more inline with our current and future expectations.
Let's look at the details of the quarter end the year revenues for the fourth quarter were $10.9 million, an increase of 12% over the fourth quarter of 2018.
Our solid conclusion to the year helped drive to record topline for the full year of $40.8 million, a 17% increase over 2018.
Reflecting growth in the number of miles covered through the expanded deployments for current customers as well as the addition of new customers.
Note that we ended the year with an annual recurring revenue of approximately $43 million.
Accomplish this goal by rapid deployment of the first 16 of the miles under contract with Puerto Rico, which offset the air are associated with Cape town as we continue to wait for the formal renewal of that deployment.
Gross profit for the fourth quarter increased 21% to $6.8 million or 62% of total revenue.
Versus 5.6 million or 58% of total revenue in the fourth quarter 2018.
We saw even greater expansion in the gross profit for the full year.
For 2019, gross profit increased 27% to $24.3 million or 60% of revenue.
Compared to $19.2 million or 55% of revenue in 2018.
In accordance with evolving accounting best practices regarding the accounting treatment of customer success costs. Starting in 2020, we will be allocating the majority of our customer success cost the cost of goods sold.
This will result in lower operating costs and sales and marketing, but will also increase our cost of goods sold reducing our overall gross margin by approximately 2% on an annual basis.
The net effect of shifting these cost to cost of goods sold from sales and marketing will result in no change to overall operating income.
Adjusted EBITDA for the fourth quarter, which is calculated by taking our GAAP net income and adding back interest taxes depreciation amortization stock based compensation.
Was $3.2 million up 50% from $2.1 million in the fourth quarter 2018.
For the full year 2019, adjusted EBITDA was $9.4 million up a dramatic 162% from $3.6 million in 2018.
Now turning to our expenses, our operating expenses for the fourth quarter were $5.6 million or 51% of revenue versus $5.1 million or 53% in that fourth quarter of 2018.
For the full year operating expenses were $22.7 million or 56% of total revenue.
Compared to $21.8 million or 63% of total revenue in 2018.
Of note our cost of goods sold and operating expenses were positively affected in the fourth quarter end the year as a whole because our company bonuses were ultimately over accrued relative the final revenue growth that we achieved.
Partial reversal this accrual in the fourth quarter reduced compensation expenses in both cost of goods sold and operating expenses.
Our sales and marketing spend per dollar of annualized contract revenue was approximately 43 cents per dollar in 2019 versus 30 cents per dollar 2018.
We continue to make strategic investments to increase our customer success efforts and expand our sales and marketing programs among other outlays.
In addition, even at this higher level, we believe our spend per dollar is significantly lower than most SaaS companies as we continue to enjoy the benefits of targeting one specific vertical with middle viable competition.
Now breaking down our expenses sales and marketing expenses for the fourth quarter were $2.5 million or 23% of total revenue.
Versus $2.2 million or 22% of total revenue for the prior year period.
This increase reflects the cost of some of the programs such as expanding our sales and marketing programs that I just discussed.
Our R&D expenses for the fourth quarter were $1.3 million or 12% of total revenue compared to $1.3 million or 13% of total revenue for the prior year period.
We continue to invest in the functionality of our missions platform, improving our software algorithms are customer applications and expanding our analytics capabilities.
DNA expenses for the quarter were $1.7 million or 16% of total revenue compared to $1.7 million or 70% of total revenue for the prior year period.
Our GAAP net income for the fourth quarter was $1.3 million or 12 cents per share based on 11.4 million basic.
And 11 cents per share based on 11.8 million diluted weighted average shares outstanding.
This compares to a GAAP net income of $302000 worth three cents per share based on 10.8 million basic and 10.7 million diluted weighted average shares outstanding for the prior period.
As I noted above we're very pleased to achieve profitability for the full year.
For the full year, our GAAP net income.
Was $1.8 million or 16 cents per share based on 11.3 million basic.
And 15 cents per share based on 11.8 million diluted weighted average shares outstanding.
Versus a loss of 2.7 million or 26 cents per share based on 10.6 million basic and diluted weighted average shares outstanding in 2018.
We added 34 net new go live miles in the fourth quarter up from 24 added in the same period, a year ago with no attrition.
For the full year, we added 98 gross and 82 net new miles for a total of 730 miles live at the end of year.
In Q4, we went live in four new cities and as of year end Shotspotter was deployed in 102 cities.
At the end of December we had approximately 760 miles under contract.
Deferred revenue at the end of year was $27 million versus 21.3 million at the end of third quarter.
During 2019, we repurchased 257824 shares of our stock.
Deploying approximately $6.7 million in cash.
After this use of cash we ended the quarter with $24.6 million in cash and short term investments.
Down slightly from the $26.1 million at the end of Q3.
As a reminder, we have no short or long term debt.
A few other items before I turn the call back to route and we take your questions.
The price increases we have discussed went into effect on January onest, increasing our base rate from $65000 to $70000 per mile for domestic customers.
Note that we don't expect any revenue impact until later in the year as most deployments over the next couple of quarters would have been sold last year at the lower rate, but we do expect to chase to contribute several hundred thousand dollars and contributed to increased profitability for the full year.
Also I did want to follow up in the comment I made last quarter about the potential cost impact of replacing our threeg sensors over the next few years.
We've now learned that the Threeg networks will not be turned off into early 2022. So we don't currently expect to incur any material costs related to threeg sensor upgrades in 2020, unless we note material degradation are deployed networks.
Now turning to our guidance, we're expecting 2020 revenues of $48 million to $50 million as we have discussed we still expect this to include a contribution from new international markets. This year.
We expect revenue to largely follow our normal cadence Q1 flat with Q4, an increase from Q1 to Q2.
Flat again to Q3 and an uptick in Q4.
While we continue to invest in our growth and to expand our leadership position, we expect to maintain profitability as we benefit from the leverage in the business and see further improvement to adjusted EBITDA.
We plan to continue our investments in 2022 further our leadership and penetration of this growing market, we're continuing to invest to expand our customer success and sales and marketing efforts.
To support our efforts to grow internationally and to accelerate our R&D programs. Among other initiatives as a result operating expenses will continue to increase on a dollar basis across all categories now back over to you Ralph.
Thank you very much Alan we believe the momentum were seeing in our business not only instills customer confidence, but inspires our confidence as well we're extremely positive about the path and were on and feel great about the difference were making along the way.
We want to thank all of you for your feedback in health and now we're ready to take your questions.
At this time, we will be conducting a question answer session. If you would like to ask a question. Please press star one on your telephone keypad a confirmation. So indicate your line is in the question Q you May Prestart too if you would like to remove your question from the Q for participants using speaker equipment and may be necessary to pick up your headset before pressing the star keys.
Our first question comes on line of MFL with William Blair. Please proceed with your question.
Hey, guys. Thanks for taking my questions and nice quarter.
First started on the Latin America opportunity and just wondering if you've received any feedback on some of those initial proposal that you put out and I think the four countries that you were targeting.
Great. Thank you very much for that question, Matt we've not heard anything definitive back in the way that we're prepared to share today, but we feel very constructive about the pipeline that we're building not only in Latin America, but also in the Caribbean in South Africa, as well and I think as we stated on our prepared remarks, we're looking for Internet.
National contribute somewhere between three and 5% of revenues.
Four to six I'm, sorry, 4% to 6% of our revenues for 2020.
Got it in our some of those Caribbean opportunities newer that proposal that you've put out there.
Yes, Thats correct.
Okay.
And then the Houston.
Trial is pretty interesting maybe can you just give us some insight into if everything goes well and they're satisfied with the solution and want to move over to a paid customer what does that process look like in terms of budget and I guess, how difficult is it for them then tend to get that approved.
With with whoever allocates the budget or is that something thats already sort of pre negotiated but this trial and then as you had discussions with other large cities.
How has this sort of trial basis bin bin pitched and is it something that that's also of interest to other large tier one potential customers that are out there.
Yes, great question, So I think with respect to Houston, that's a very very unique situation given its size comments the fourth largest city here in the you asked it has a very large up police department with a very large gun bounced problem that is spread across a very large city that also happens to be in a state that we believe.
As a lot of opportunity for us.
That combined with art, Esa Vito being a very unique cheap that he is he's a very well renowned and respected chief of police inside of law enforcement.
Certainly being the President major city Chiefs. Some speaks a lot to his credibility. So we felt all those things kind of came together in a way that.
Gave us an opportunity to really be creative and tried to move something forward in Houston and not have to wait and for us that involved. This trial concept that we're prepared to March forward with chief Acevedo in Houston on.
Under the proviso that he is going to direct is officers to apply our proven best practices, because we know typically when those best practices are applied.
Good results happen and his statement to US is a good results happened in we're satisfied with this deployment.
Im happy to move forward on being a paid subscriber to the system and even potentially look at expanding we've tried to be very clear to folks. So they don't bake that into any kind of revenue guidance that we will have zero revenue impact for us in 2020, even if we're successful I would look at this much more as a kind of.
2021 opportunity if we're successful to have some revenue contribution there, but it's not going to have any impact to our revenue for 2020, but it is a very important signal, we think to the marketplace specifically in taxes and also specifically to art. So vetoes peers that are chiefs of police.
Other major cities, where we havent been deployed to have his support and really building him into a net promoter, which we plan on doing and I think we're going to be successful doing that.
Got it okay ill pass it on guys, but thanks for taking my questions and nice job in the strong finish of the year.
Thank you.
Our next question comes on line of Richard Baldry with Roth Capital. Please proceed with your question.
Thanks, It sounds like you have a few missions deployments to go live Tim can you talk through the revenue recognition.
Hi, not how that is it more upfront is it more recurring.
When does that time versus the actual deployments versus wins or contract signings.
Sure I know the revenue recognition, we very very similar to what we haven't slacks, there might be a a small upfront or deployment charge, but then the subscription fee will be recognized ratably over the year for the period very similar to our flex deployments.
Okay, then yeah aside from Houston.
For any more updates on for a tier one city discussion is your thoughts for no possibility to add any of those.
2020, twond or beyond.
Hi, guys, we haven't really stipulated any other specifics on other tier one cities. We continue to have discussions with the ones that we've talked about in past earnings calls.
We do believe that this Houston.
Deployment might.
Spark some additional discussions as well, but we continue to work on the other tier ones.
With.
Some costs I guess I assume that by yourselves, while the Houston goes up does that way, even moderately or slightly on the gross margin side or is that somehow capitalized until determined whether thats a successful initiative or not.
No it will be held on the balance sheet is basically costs in progress.
That point, so it won't translate to the income statement until it ultimately goes live.
That is revenue produced.
Thanks, and last on be any updates on developments with partners high there and Smart Street light Smart Street signals.
That you've won a while ago for these smart cities initiatives anything you think more traction or trending better heading into 2020 or beyond thanks.
Yes, so really nothing new to report there.
Okay. Thanks.
Our next question comes a lot of Jeremy Hamblin with Craig Hallum. Please proceed with your question.
Thanks, and I'll add my congratulations on the strong finish.
I want to come back commissions for a second.
You you came up with a creative opportunities to expand.
The network for missions and through an offer of a free flex mile in terms of.
The learnings that you've had.
With that.
I would say marketing tactic.
What have you learned how have cities responded to that.
And how do you expect that to drive your business not just in 2020 for mission, but.
Beyond that in 2021 is that something that you see.
As accelerating that particular.
Offering.
Yes. Thanks for that question. This is Ralph so I'll take a stab at answer you at least part of it and Alan jump in as appropriate unnecessary on so I think our missions.
Marketing program is really Great example of our ability to be very creative and adapted very quickly to market considerations. We had some amount of interest emissions, but to really kind of push people across the line we felt it would be.
Appropriate and useful to offer effectively up a free mile as a part of that for for a for a year and I think at the end of the day, what we will get his mission customers pain mission customers because they are paying permissions currently and then a year from now that mile that we've deployed.
Hi, I'm predicting at high percentage of those will continue on as paying customers for that extra mile. So effectively what we've done this kind of front loaded a little bit of expense for deploying a free mile for an existing customer.
As a way of signaling the strength of the partnership and our goal really is with these first five to so customers is really get useful information about how missions is making a difference to their precision leasing efforts and then use them as reference selling.
Objects really to kind of go get that next five to 10 to 15 customers within our within our customer base. So it's a way for us the kind of accelerated or kind of juice. The market adoption. So we can really quickly learn.
Not only again about how they use how they're using missions, but frankly, we're going to get some very valuable feedback on enhancements, we can make to missions to make it even more valuable to those existing customers and then prospective new customers as well. So I think it's a really positive thing we're pretty excited about here within the company.
Right.
And then at the end of last year, you had some really remarkable success stories, you mentioned some of them.
On the prepared remarks, but certainly great PR.
Out of your largest customers in Chicago and New York.
With very public statements about.
The reduction in gun violence and homicide rate.
And really kind of a stark contrast to let's say other large cities like Philadelphia that have seen five six straight years of increased violence using a competing system has that helped.
In terms of inbound inquiries are you seeing an acceleration when you get such good PR like that.
Here are kind of early in 2020.
Well I think this is Ralph again, I think customer success and positive customer outcomes are very critical to our ability to acquire customers on the efficient basis in which we do I mean, our with our sales team has fantastic. We've got some really great strong sales executives within the company, but I don't think we can discount the.
The impact that a net promoting cheap has with respect to selling to his or her peers. How shotspotter has made a difference in those efforts and you actually see that I think again in my prepared remarks around this kind of concept of re regional tipping point when you get some successes like out of a Cincinnati how that can breed too.
Other cities within the Ohio region, and we talked about Ohio, but the same thing to be said four inland, California. The same thing can be said for a south Florida is well certainly new England as well and so I think customer success in positive outcomes and people standing up insane how.
Thus far has made a difference in their violent crime reduction efforts is very critical to what we do and that's why we continue to invest in our customer success organization and we often kind of get into a discussion with folks about why don't you hire more salespeople and we feel like we have the right number of salespeople to go after the market opportunity, but we will continue to invest in grow.
And enhance our customer success organization because those that organization is primarily responsible for helping create those net promoter customers that are also part of our virtual sales team.
Great. Thanks, and then just wanted to wrap up with a.
A couple of clarifying questions on the margin commentary the first is just.
Threeg impact.
In terms of thinking about 2021, Alan could you give us some clarification on on what you think the comprehensive impact of that might be on gross margins for 2021 and.
And then secondly, just.
Clarifying for 2020 and.
The adjustments, including the accrual over accrual you mentioned for compensation.
I'm, having a positive impact on Q4, and then kind of this.
Allocation in terms of accounting procedural between.
Cost of goods sold and sales and marketing just any clarification on where you think we might need to be here in 2020.
Sure so yes.
Good.
I'll go ahead and start with the the three G. So we continue to swap out sensors that are three g. with new sensors as just part of our normal maintenance cycle. We still do expect at some point most likely in 2021 and 2022 to have to still swap out the remaining ones.
The cost will be somewhere between four and $6 million, but there will also most likely just be starting over the depreciation cyclo of those sensors as they.
As they get replaced so it's it's most likely not going to be an all in one time expense in most cases it'll be sensors that have already been fully depreciated starting your depreciation over again.
In terms of the margins I did mention that were shifting some of the customer success costs now that we have a formal VP in charge of that organization.
Some of those costs are going to be shifted up into cost of goods sold.
And that will tend to increase the cost of goods sold and reduce the gross margins by approximately 2% or 200 basis points, then you'll see a likewise reduction in the sales and marketing expense such as the bottom line terms of operating income there will be no no change there.
And then lastly, I would say when we did the a adjustment to Q4, we had estimate change on the company bonuses that were based on our original performance metrics. So that did positively impact Q4, and also the year as a whole.
We will begin 2020 accruing at the the higher rate again.
To be tied to the performance metrics that are set out for 2020.
The company bonuses, what was what was the total impact in Q4.
There is about 400000 dollar reduction in expense.
Great. Thanks, so much for taking the questions guys. Good luck.
Thank you.
Our next question comes the line of Chris Van Horn with FBR. Please proceed with your question.
Good afternoon, Thanks for taking my call.
Absolutely.
I wanted to know.
With the Dayton, Ohio win.
Congratulations there and I imagine it was a competitive bid anything to highlight in terms of your competitive advantage in that process.
Yes. This is routson I'm not quite sure how to answer that question other than to say that we feel really good about our competitive position I mean, we continue to create promoters like Dayton, Ohio Greenville.
North Carolina, Columbia, South Carolina et cetera, and.
We're continuing to make enhancements in our technology to make it cheaper better faster for us and we've yet to see any successful deployment of anyone claiming to do gunshot detection. We're obviously very curious about the canton, Ohio situation, we don't know or haven't seen at least public.
So that they have successfully deployed there yet although I guess they booked at sometime in November of last year. There about some so we're still waiting to see that but we we think we're in a very very strong competitive position and.
The market is one that we feel that we've created in pretty much zone for right now and so we're continuing to kind of focus on kind of bringing new customers into the fold and making sure that once they come on the platform, they're going to get value out of the service.
Okay, great. Thanks, Thanks for that color and then you know we've heard of of.
Some of the.
The prosecuting offices or the deejays starting to influence some of the buying decision around Shotspotter. I was curious is that a trend that you're continuing to see or is it a little bit more one off and any trend or or commentary there.
Yes. So this is Ralph I mean, this is very much a complex sell where a lot of folks can potentially way and to make a shotspotter decision a positive decision including da.
We have a great track record in working with not only local prosecutors, but federal prosecutors as well they understand the value that our precision alerts can provide in their prosecutorial efforts and they can be very big influencers, because oftentimes politically there very well connected sometimes they actually bring budget.
To the opportunity as well, which can be very helpful. But we don't want to leave out the growing influence we see from executives at local trauma care centers that are also beginning to see the benefit or feel the benefit of a shots far deployment in wanting to get involved in helping a city in agency.
Fund and deploy Shotspotter. So there's a lot of people in the mix and that's what makes our sales organization. We think just a premier sales organization because they know how to coordinate all those interested parties in a way to kind of get people to yes, and although it can frustratingly take a long time, we've always talked about long so.
Sales cycles in our business, that's just the nature of it because they have to really kind of coordinate all those players in the mix in kind of get them all shaking their head that this is something they want to do and I are again, our sales organization is really skilled at being able to do that.
Okay got it and then last for me it looks like Capex was down.
Year over year anything driving that and is there a level, we can think about for 2020.
Yeah. This is Alan so.
I would say if you look at 2020 is probably going to be similar to 2019.
And the reason for the reduction in 2019 versus 18 was at the beginning of 18, we had a large amount of capex going to do the Chicago deployment and it was frankly, just a lot more expensive to deploy so that that was what drove the capex to be so high in 2018.
Okay. Thanks for the time and congrats on the quarter.
Thank you thanks.
Our next question comes the line of Joseph Osha with JMP Securities. Please proceed with your question.
Hello, gentlemen.
Joe Joe.
So I hope a year from now we're hearing that you under accrued for bonuses.
Yeah.
Oh, Okay. A couple of questions for your first if the Majdic one it's interesting hearing about a good the ramp of missions and I'm wondering as you look at the other.
Skill sets that are adjacent to to what Shotspotter does now are there any obviously nothing near term are there any other or skill sets that you think might be additive to what you're able to do right now.
HM.
So this is Alan I would say that you know.
We we feel pretty good about the skill sets we have right now in terms of what theyre doing to make our flex solutions better and that's a lot of things going on behind the scenes in terms of.
Absent the customers use internal tools that we use so our team does a lot of that behind the scenes in terms of what we're doing emissions.
I would say that our early adopter program is been incredibly important for us in finding out as Ralph mentioned, what the customers want and some of those things by themselves are somewhat unique in a bit challenging from a technical side, but also will add a lot of high value. So I would say that team that we have is going to continue to do.
With that and there might be some outgrowth of that into peripheral project products or things that just allow us to do more with what we already have I don't know Ralph other I guess that maybe that was an overly M.B.M.B.A.H. way of asking whether you see any other plans for diversifying what math.
Question that way.
Yes, yes. This is Ralph I mean, so not in that we'd be prepared to talk about on this phone call I would say I mean, when you look at our kind of core business flats were.
Underpenetrated in a market, we basically on a 100% right. We're just north of 100 cities.
And we talk Aspirationally in terms of domestic Tam of 1400 cities. So for us really done on flex, which is our kind of core solution, which is driving most of the revenues is kind of wash rinse repeat I mean that we just got to keep hammering away at that and it's really all about getting new customers on the platform, making sure they're onboarded.
Currently there are driving good value added they become net promoters and then help us sell that next contingent layer of agencies.
We've done some things that you haven't asked the question about the tier four program, but I think you're seen us again get very creative about how to kind of slice and dice the market and get that other underpenetrated markets within that kind of 1400, maybe 1400 plus cities that were doing but that's basically using the same technology platform.
And I.
I think missions is slightly different I think as Alan alluded to I think there we're gonna have to really probably exercise our product management skills.
Because as you know with flex is really about putting a dot on a map and we kind of had been at that 20 years ago and yes. There is things we've done to approve improve it over the years, but fundamentally the same thing it's always been which is when someone fires again put a dot on a map in a highly reliable precise way within 30 to 45 seconds of that trigger beanpole not much new stuff to put a.
Around that I think the mission solution is something that's a little bit.
Has a broader aperture I would say, there's a lot of different things a lot of different directions that we could go into so I think we're going have to be very disciplined and focused around prioritizing all the great input that we're going to get from our first five set of customers in our next set of five to 10 customers. We're getting in prioritize things that can have big.
Impact broadly, but hopefully doesn't cost a lot of money to implement.
We think we're pretty well resource on the engineering side to be able to do some amount of kind of version enhancement to missions over the next several quarters and I think we're pretty happy with where where we are now in don't really have to look outside of kind of shotspotter flex missions and security, which we basically added up.
Brand, new head count reporting into our VP of product sales to just go focus on the security solution again, taking the same technology, but applying it in a slightly different use case around campus security or corporate security in the like.
Okay. Thank you.
Up or more granular one so you had previously shared.
Sort of thoughts about a rough annual cadence that you might be able to sustain would wouldn't care or put another another marker out there for the next couple of years.
In terms of miles and miles added.
Well I think we're still looking at getting to that the 100 million dollar revenue Mark in the next let's call. It mid term, which we've always referred to as.
Four ish years.
And that would imply out a CAGR growth rate somewhere around 20%. So I think.
We feel pretty comfortable with that we also feel comfortable that as we continue to grow and leveraged expenses that we put on the EBITDA and adjusted EBITDA will continue to increase.
We have said that it at that 100 million dollar Mark we expect our our EBITDA margins to be approximately 40% I think we still feel comfortable with that so we're heading into right direction Hope I hope you can see that through the financial results that we've had.
We just reported in terms of where our adjusted EBITDA is and the significant increase over even last year.
As well as expense control that that we've been able to use their dissimilar disciplined approach now we are going to continue to add expenses appropriately internationally customer success sales marketing and the other opex categories as well. So you are going to see more dollars being spent there but that doesn't change our.
We.
Our basically expectations, where we're going to be at the $100 million range.
Okay and did I hear you say Allen at 1.7 hundred 60 miles under contract so that that would imply that you're coming into the year here with a 30 miles contracted but not you've deployed.
That's correct now I always say approximately because we don't say exactly but yes, you're correct Alright, and then last question is it fair to assume following up on one of.
Earlier questions on Capex that we're kinda Yo between 45 and $50000 a square mile for new deployments that store are reasonable number do you.
So we we've never said exactly how much it costs us to deploy but you're certainly in the ballpark.
Okay. Thank you so much guys.
Our next question comes the line of Willpower with Baird. Please proceed with your question.
Hey, guys. This is Charlie telecom for will.
I was hoping you could talk a little bit more about the international expectations in 2020 that 4% to 6% of revenue.
Which customers are you far this along with right now.
And what would have to happen for you to end up at the high end or the low end of that 4% to 6%.
Yes. So this is Ralph I think there is really strong demand across all the three major geographies that we spoke about South Africa, Greater Latin America in the Caribbean I would say one interesting admit slight advantage, maybe that the Caribbean and South Africa has some very kind of recent customer experience.
Is there in South Africa with Cape Town of course, and then with the Caribbean with with the Bahamas. So that's that's kind of interesting in terms of how that can may be lead to.
Okay.
Other folks within those geographies kind of tipping over on on the platform, but I've been really quite impressed with the level of discussions we've had in Latin America and again, just remind folks other countries that we're focused on because we had to focus on a specific number of countries. There is for that.
We're really looking at and that Mexico, Brazil, Colombia, and Panama and all very interesting.
And valuable in their home right.
And so we expect that between those three big geographies Latin America, the Caribbean and South.
South Africa that we will be getting to that 4% to 6% range.
To get to the midpoint of our guidance now what can happen to make that number be closer to 6% versus 4%. It really gets down to timing its size in timing right and timing really does matter.
And so.
Getting a call it on a our our basis being able to go live on say, a 10 million dollar a our our deal in July one has to have the opportunity to produce $500000 of GAAP revenue if that for some reason slides too.
September October one that $500000 becomes $250000, but it's still a million dollars are our deal and very strategically important. So I think the way I would ask people to help us think about Bert we would encourage you to think about our international opportunity is it's not a quest.
One of yes. It's a question of went very similar what we were trying to communicate last year around our opportunity in Puerto Rico I mean, we're very confident that we were ultimately going to.
Get Puerto Rico back on the platform again again, it took longer than we thought we knew it was going to happen but.
And it wasn't a question if again it was a question of a question of when I think thats the same for for international.
Great now that makes sense.
Then also could you talk little bit about the early reception to the increase in prices that you rolled up at the being in the year.
And our you conservatively forecasting any increase in attrition related to those price increases or have you gotten any sort of pushed back so far I know, it's early but any early read on reception from customers on that.
Yes. So this is Alan I think in general most of our customers expect some type of increase for most of their vendors around this range. So although we've gotten some comments I don't think we've gotten any pushback that we fill.
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Overly concerned about and certainly not that would cause us to increase the amount of attrition that we expect for the year, which is generally somewhere between two and 3% so.
So far fairly smooth sailing there.
Okay, Great and just one quick housekeeping questions did you guys say, how many security customers you had in the quarter.
We did not we didnt, we did not add another new any new security customers yeah.
Okay, Great alright, thanks, guys.
Thank you.
Once again, if you would like to ask a question. Please press star one on until the phone keypad. Once again, if you will notice question. Please press star one on your telephone keypad. Our next question comes on line of Jeff Kessler with Imperial Capital. Please proceed with your question. Thank you.
Hi, how are you doing guys.
Well thank you.
One of the questions I wanted to ask with some of what about the cadence of the cadence of revenue and timing.
Because clearly there was.
But.
But you had to go through with Puerto Rico and.
And with that say no.
No large cities coming on.
Left.
Lift impression that will have a sudden your business slowing.
Can you talk a little bit about.
Where are you think the.
I'm not going as you say the backlog, but the level, but the pipeline looks like now.
Relative to where it looks.
Perhaps a year ago, when you had a lot of business to do but it wasn't as big as the business that you have already installed.
Because it sounded like over the course of the the over the course of the late fall into <unk>.
Into December.
Became you sounded a lot more optimistic about the pipeline and I'm wondering if that that optimism has has increased significantly since.
Since the middle of the year up until now.
Yes. So this is rob ill, maybe start with a way to think about that is kind of think about how we entered the year with respect to our book of business related to annual recurring revenue. So we're starting we're starting the year with approximately $43 million of annual recurring revenue to the extent they were able.
So kind of hold onto that in terms of getting very high renewal rate you'd expect that we would need to add another $6 million are so.
GAAP revenue over the course of the year to get to the 49.
And I think early in our.
Our analyst day presentation, we kind of thought broadly are presented broadly a pathway to get to that kind of 6 million plus actually it was like 7 million because I think we've put a million we seem like a million dollars of attrition.
There.
Alright, great.
Also can you talk a little bit about improvements in in your sensors in terms of.
In terms of size being able to and placement and.
What happens.
Is that is that going to be is is that going to be part while it's not directly related to is that can be part of the threeg threeg upgrade a slightly smaller design things like that.
And now so this is Alan we don't anticipate large changes in the form factor of the essentially themselves.
That said, we do continue to make in incremental modifications to things like address.
When noise and things like that as we continue to do more deployments and learn about those but the actual shift from threeg to Fourg LTE is not going to involve a large form factor change okay.
Last question when in looking at your Latin American opportunity.
What.
And that include and that includes getting back getting back into Puerto Rico as well.
What types of what types of cities are you looking at in addition to the largest you would use of the capital city of those countries is there a is there a second a second tier of cities that goes along with the marketing that you're going to be doing there.
So this is Rob I would just point out that we consider Puerto Rico by the way to be a domestic customer not to international customer just.
So we're all the same page there.
With respect to the cities within those geographies. There is really a mix of I would say smaller cities medium sized cities in some very large cities that you might be familiar with would probably the vast majority of the demand. If I just kind of go through my head I would say they are probably more medium to small size cities actually across.
Those three geographies that we spoke about.
Right and the last question I guess is regarding Brazil.
Right.
Unfortunately for better for worst Brazil has become.
It has become notorious in the last the last two or three years.
Is there a specific.
Specific type of of marketing program that you have for those countries, where we're violence has really.
As really just overwhelmed the law enforcement.
Capability.
Let me know, it's basically you know on the ground belly to belly selling.
With all of the cohorts within.
Those specific regions that have interest in addressing gun gone crime and getting them kind of familiar with Shotspotter as you might imagine we're not necessarily a household name down there and so our focus really is not only in Brazil, but frankly, Mexico and.
Panama, and Colombia is to kind of get one or two kind of reference sites that they're they're up and successfully deployed that we can kind of point too as a reference customers and then kind of build off of that.
We don't feel like we have to kind of boil the ocean on our first foray into Brazil. As an example, just getting one or even two cities in Brazil will be a fantastic start.
To our efforts there in that in that country, which is very large by the way and has a very large gun violence problem.
Okay great.
Thank you very much in great quarter.
Thanks, Jeff.
Our final question comes on line of Toddler Wood with Northland Securities. Please proceed with your question.
Hey, guys all added Mike congratulations on a quarter enough foothold in Texas.
Going back to the international opportunity up one.
We start seeing cities actually get signed how long should we expect between deal signings and go lives. Since you haven't done as many deployments internationally should we expect it to be longer than domestically or pretty much the same. Thanks.
Yeah, that's hard to know I think it really depends on the specific geo that we're talking about I think I have a sense that things will probably move a lot faster in South Africa, just because we have some experience there and possibly move faster in the Caribbean, because we have some experience and kind of dealing with fee.
With the infrastructure and players down in that region, but for planning purposes, I mean, I wouldn't assume any thing less than four months, Craig, Yes, and I would say brought probably be wanted to be conservative may be at six months or so in those other geos, but I think things can happen faster in the Caribbean in South Africa.
Yes.
Hi, Thanks, that's helpful. And then one more going back to the security side of the business sounds like you've got some new kind of leadership there could go talk to us about how you're thinking about that strategically going into 2020 is the focus still mostly on campuses or yeah and any changes on that.
Out of the business, we should expect thank you, yes, I think this is Ralph again. So this kind of maybe two major focus areas for us it's kind of campus security has kind of represented by higher Ed College campuses in the like and also.
We think there's an opportunity in corporate securities, while corporate campuses as well.
We do have our freeway project and I think many of you are familiar with.
We've actually detect believe it or not sadly have actually some detected some gunfire along the highway corridor that we're protecting that's another very interesting area for us to kind of reference sell off of kind of infrastructure critical infrastructure protection I.E. being being freeways that have intermittent interim Ben.
Issues with gun bound so I would say that would probably be a potential third leg of the still plenty plenty of stuff for us to do though in that market.
All right, that's all plus day.
At this time. This concludes our question and answer session. If your question was not taken you may contact Shotspotter Investor relations team by Emailing.
Hi, I can't wait IR dotcom.
I'd now like turn the call back over to Mr. Clark for his closing remarks.
Great. Thank you very much again, we really appreciate folks.
Partnering with us on our journey this isn't a sprint for us at all but it really is a journey and we're in it for the long term to make the impact globally. So thank you very much for your support and with that I think we can in the end the call. Thanks again have anything now I just want to say thanks as well.
Thanks for joining us for todays teleconference. You may now disconnect. Your lines at this time and have a wonderful day.
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