Q4 2020 Shotspotter Inc Earnings Call
[music].
Good afternoon, and welcome to Shotspotter as the fourth quarter and full year 'twenty 'twenty earnings Conference call. My name is Saatchi and I will be your operator for today's call joining.
Joining us are Shotspotter, CEO, Ralph Clark and CFO Alan Stewart.
Please note that certain information discussed on the call. Today will include forward looking statements about future events and Shotspotter, its business strategy and future financial and operating performance.
Forward looking statements are only predictions and are subject to risks uncertainties and assumptions that are difficult to predict and may cause the actual results to differ materially from those stated or implied by those statements.
Certain of these risks and assumptions are discussed in Shotspotter is S E 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 February 27, 2021, and Shotspotter 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 Dot Shotspotter Dot com.
Now I would like to turn the call over to Shotspotter CEO Ralph Clark Sir you May proceed.
Thank you for joining us this afternoon I hope everyone on the call is doing well I'm thrilled to have Alan back in the channel as my partner and our Chief Financial Officer I want to personally thank Mary for her careful stewardship during Allen's absence.
As usual I'll do a brief review of Q4 results and discuss our agile response to what has been an eventful year.
We will then share our outlook and focus initiatives for 2021 and beyond before taking your questions.
2020 proved to be a challenging year for everyone.
And our company and law enforcement agency stakeholder ecosystem was no exception.
Extremely proud of how our company has been able to adapt and respond to those challenges throughout the year.
We finished 2020 on a positive note putting us on a solid start to our fast growth path for this year and beyond.
We reported Q4, 'twenty revenue of $12 $6 million, including some modest contribution from a partial quarter of lease revenue.
This represented 16% year over year growth from the $10 $9 million of revenue we reported last year.
During the quarter, we went live with Shotspotter response, our acoustic gunshot detection service, formerly branded as flex in five new cities, including marquee cities, such as Cleveland and Fort Lauderdale, which represents our sixth in 14 cities deployed in Ohio, and Florida, respectively.
In addition, we expanded our footprint in a few cities, including New York City, St. Louis and Bakersfield, California.
Entering 2021 with $46 $3 million in annual recurring revenue in our core Shotspotter business and are well positioned with a robust number of respond projects in our pipeline scheduled to go live in the first half of 2021.
We believe sets us up for strong growth in the second half of this year into 2022 next year.
Among those projects or additional expansions in New York City, and Columbus, Ohio, along with New city captures such as Mansfield, Ohio, which will be our seventh city in Ohio net.
Tennessee, Detroit in Harris County, Texas.
We're very excited by our early foothold in Texas, where we're able to go live on a pilot project in Houston in December of 2020.
Houston is already producing promising results with respond, which we expect to formally document and an independent academic study supported by Chief Art got to Vito in Houston PD.
In addition to the planned study in Houston, We are also supporting a separate academic research initiative that will study the efficacy of Shotspotter respond in a random sampling of agencies.
Our goal is to build on our body of independent research that speaks to the impact of gunshot detection on positive public safety outcomes. We believe this can help accelerate our approach to the tipping point, where gunshot detection is accepted as standard of care solution.
We've seen what we believe is the tipping point play out recently in Ohio, where we have captured 70 cities for them in the past 24 months.
Coosa gunshot detection as a standard of care narrative has reached the state capital, where governor Mike Dewine had specifically called for acoustic gunshot detection as a part of it is public safety budgets.
Our accelerated traction on Ohio started from the spark of one net promoter customer who demonstrated the value of acoustic gunshot detection and delivering measurable positive public safety outcomes. This validates our focus on our immersive and innovative customer success and on boarding process and are leveraging the power of net promoter.
The return on investment we've realized in our customer success in Onboarding initiatives is reflected with a world class NPS score of 70 in 2020.
This achievement builds upon the success, we had the year prior and our continued focus on improving process and the customer experience and journey.
Implementing measuring and sharing of institutional best practices is a game changer and speaks to the unique value our services provide.
Our strong customer loyalty was further borne out in our ability to manage our GAAP revenue traction to less than $500000 in 2020, despite the pandemic municipal budget pressures and recent calls with deep on the police.
We hear from our customers that our services indispensable and mission critical.
Strong word of mouth and positive referrals drive our customer creation cost at <unk> 51 per dollar of revenue.
This puts us in the industry, leading position relative to other SaaS companies that have to spend well over $1 $4 worth of revenue.
On a macro basis the increased violent crime has been broadly reported by the press and very well documented by public safety associations, such as per the police Executive Research Foundation and ICP.
Given our unique vantage point of engaging with over 110 cities with over 750 miles of coverage, we're able to alert on 234000 gunshot activations in 2020 and have measured the material increase of gun violence from 2019.
This uptick in violent crime is not unique to large urban cities, but its also experience and medium and small cities. We believe this broad experience has been a material contributor to our recent success in penetrating the large and untapped tier four and tier five market vertical.
In the past year, we've added six cities in this segment, which was consistent with our expectations prior to the pandemic in late 2019, when we launched a focused sales and marketing program to develop this segment.
Smaller agency adoption is demonstrating the compelling need and viability of our gunshot detection services in this large and significantly underpenetrated market we have.
A number of additional tier four and tier five pending projects and a large and growing sales pipeline.
Our goal is to make every single deploy department and net promoter and a proof point and applying precision policing technologies, even at smaller less well resource agencies.
A great example of our work in this segment is our partnership with the city of Kankakee, Illinois, which has a population of 26000.
Kankakee PD reported a 50% reduction in the response time to Shotspotter alerts, enabling increased evidence recovery and witness interviews.
In January Kankakee, PD Meda risks are identified suspects in four out of the six shotspotter alerts they responded to.
In one specific case the police credited the precise real time Shotspotter alert combined with the quick action of the responding officer in saving the lives of a gunshot victim.
These powerful results speak for themselves and are generating interest from similarly, situated agencies, considering adding gunshot detection to their crime fighting toolkit.
While we've been able to successfully overcome the headwinds on the COVID-19 domestically.
Our international deal progression has been a bit more challenging.
Unfortunately, the top three focus areas for us outside of the United States, South Africa, Brazil, and Mexico have been above the most severely ravaged by the COVID-19 pandemic we've.
We've seen material public safety budget cuts reallocation of federal resources, and political mind share pivot to the response to the spread and mutation of the virus.
We continue to be present in those markets in order to maintain our key relationships and protect the pop line that we built with the expectation that converting that pipeline into bookings is more likely to happen over the medium term versus the short term.
I am pleased to report that we've made good progress on integrating leads into Shotspotter.
We see an attractive growth opportunity in offering a cloud based investigative case management solution ever.
Every law enforcement agency has the duty and mandate to document and investigate alleged crimes in order to hold perpetrators accountable and provide resolution for victims.
Unfortunately, the options can do this in a digitized and automated way are generally lacking.
We believe leads had developed the most complete.
Investigative case management solution that has been proven to be effective with one of the leading law enforcement agencies in the country.
We're working on some refinements on integrations to make it an attractive option to small medium as well as large agencies before launching it in early Q3.
We're already generating $6 $7 million of annual recurring revenue from the licensing and support contracts from the legacy deployment of the lead investigator case management solution.
Any commercial sales that will be launched and branded as shotspotter investigate will be incremental.
Shotspotter investigate and combination with Shotspotter respond and Shotspotter connect unlocks a compelling new value proposition with which we can target an entirely new set of law enforcement agencies. We now have a complete precision policing platform that provides more efficient and effective ways to respond to investigate and prevent.
Crime beyond gunshot detection.
We believe this integrated data driven platform can make an outsized impact on the way policing gets done without over policing and underserved communities, thereby building community trusts and legitimacy, which is the real MVP and delivering sustainable public safety outcomes.
We're maintaining and reaffirming our previous revenue guidance of $58 million to $60 million. This year for the combined Shotspotter leads business.
If we're able to manage attrition loss lower than our current estimate of 3% to 4% <unk>, we get on earlier recovery on the international front. We believe we can come in on the high side of our guidance.
At the midpoint of our current 2021 guidance, our revenue growth would be 29% year over year from 2020.
Okay, I was ready to go a little bit deeper into our results I'll look forward to taking your questions. When he is done Alan over to you.
Thank you Ralph and good afternoon, everyone as Ralph mentioned, we went live on five new cities during the quarter and expanded coverage on several existing customers.
For the fiscal year 2020, we went live on 13 gross and 10 net new cities, which culminated in 62 gross and 49 net new miles live for the year.
It's also ended the year with 779 miles live with approximately 813 miles under contract.
As we expand our product portfolio to provide a broader suite of precision policing solutions, we intend to report on new respond miles deployed at the end of each year rather than each quarter. We will continue to highlight the new cities added each quarter.
Our revenue retention rate per the year, we're still excellent at 107% compared to 111% for 2019.
Our current customers and potential new ones continue to have budget challenges in spite of that our attrition for 2020 was quite low and represented just over 1% of revenues, which is significantly lower than we expected at the beginning of 2020 and indicative of the value of our solutions.
We're still cautious regarding 2021, though and are estimating per attrition of up to approximately 3% to 4%.
Let me provide more details on the quarter on the full year.
Fourth quarter revenues were $12 6 million, a 16% increase over the $10 $9 million in the fourth quarter of 2019.
Revenue increased as our deployed miles are up year over year and we also recorded our first revenues from our <unk> acquisition, although contributed for less than half the quarter.
For the full year revenue was $45 $7 million.
Up over 12% from $48 million in 2019.
Gross profit for the fourth quarter of 2020 was $7 5 million or 59% of revenue.
Versus $6 8 million or 62% of revenue per the prior year period.
As expected gross margin continues to be impacted as we work through our backlog of maintenance work.
These efforts require using resources that are bit more expenses as a result of the COVID-19 restrictions.
We believe these costs are now almost complete and expect gross margins to return to more normalized level in the latter part of 2021.
For the full year 2020, our gross profit also increased versus 2019.
It was $27 million or 59% of revenues up 11% compared to $24 3 million or 60% of revenues in 2019.
Adjusted EBITDA for the fourth quarter, which we calculate by taking our GAAP net income and adding back interest taxes depreciation amortization stock based compensation and acquisition related expenses was $3 1 million.
Per to $3 $2 million in the fourth quarter of 2019.
For the full year of 2020, adjusted EBITDA increased to $11 9 million up 28% from $9 $4 million in 2019.
Both fourth quarter of 2020 on the entire year of 2020 adjusted EBITDA numbers include an add back of approximately $630000 per cost related to our <unk> acquisition.
Now turning to expenses, our operating expenses for the fourth quarter were $7 7 million or 61% of revenue.
Versus $5 6 million or 51% of revenue in the fourth quarter of 2019.
For the full year operating expenses were $25 $7 million.
56% of total revenue.
Compared to $22 7 million or.
456% of total revenue in 2019.
Operating expense increases were primarily related to higher employee related costs as well as increased costs related to the Windsor acquisition.
Taking down our expenses.
Sales and marketing expenses for the fourth quarter were $3 1 million or 24% of total revenue.
Versus $2 5 million or.
We're 23% of total revenue for the prior year period.
Our sales and marketing teams continue to build our sales pipelines and are also expanding our marketing efforts continued emphasis on retention and renewals directly contributed to our low attrition for the year. So we're pleased with the results of our investment in this area.
As Ralph mentioned, our sales and marketing spend per dollar of new annualized contract revenue line.
Low at only 51 per dollar.
R&D expenses for the fourth quarter were $1 5 million or 12% of total revenue compared to $1 3 million or 12% of total revenue for the prior year period.
We continue to invest in increasing the functionality of our products, we've been able to maintain expense control well.
G&A expenses for the quarter were $3 $1 million or 25 per cent of total revenue compared to $1 7 million.
Our 16% of total revenue from the prior year period.
The increase in G&A expenses were primarily related to our lead acquisition.
And an increase in personnel cost.
Our GAAP net loss for the fourth quarter was $220000 or a loss of <unk> <unk> per share based.
Based on 11 5 million basic and diluted shares outstanding.
Fiscal year 2020, our GAAP net income was $1 $2 million.
<unk> 11 per share based on 11 4 million basic shares outstanding and <unk> <unk> per share based on 11 7 million diluted weighted average shares outstanding.
Our adjusted net income, which excludes acquisition costs related to leads acquisition was a positive $418000 for the fourth quarter.
<unk> per share on both a basic share and diluted share count basis per.
For the full year, our adjusted net income was $1 9 million.
On <unk> 16 per share on both a basic and a diluted share count basis.
In Q4, we ended the quarter was 779 miles live with approximately 813 miles under contract.
Deferred revenue at the end of the quarter was $24 $6 million.
<unk> $28 6 million at the end of the third quarter of 2020.
We ended the quarter with $16 million in cash and cash equivalents versus $28 7 million at the end of Q3.
While we paid $15 million from cash for the <unk> acquisition in November we did not repurchase any shares during the quarter.
We have no short or long term debt outstanding.
As we discussed last quarter in August 2020, we did increase our available line of credit to $20 million to improve financial flexibility.
Turning to our full year 2021 outlook, there's no change to the $58 million to $60 million that we discussed last quarter.
We continue to expect leads will contribute approximately $10 million in revenue.
Also expect that we will remain profitable during 2021.
Now back to Rob for some final thoughts and then we'll be happy to take your questions.
Thanks, Alan and welcome back I'm more excited today than I've ever been about the prospects for our company. Our domestic pipeline remains strong and we're hopeful that South Africa, and Latin America will be able to pull through the pandemic and will be able to soon reengage on critical public safety initiatives.
We're excited about the Tam extension and traction we're seeing with Shotspotter connect and are confident about our ability to expand our product portfolio with the launch of Shotspotter investigate later this year.
We're mostly grateful however to play an important role in how policing is being re imagine and its adoption of precision policing strategies, our expanded solution suite fits perfectly into 20, <unk> century policing principles, where data is transformed into actionable real time intelligence that can help prevent reduce and resolve crime.
With surgical precision.
Our goal remains the same and that is to continue our journey to be a trusted platform solutions provider to public safety agencies around the globe, helping them better serve and protect communities and yes, we want to continue to do great work that matters.
We're now happy to take your questions.
We will now begin the question and answer session.
And the question queue. You May Press Star then one on your telephone keypad Youll share return acknowledging your request if youre using a speakerphone. Please pick up your handset before pressing any keys to withdraw your question. Please press Star then two.
Yes.
First question is from Joseph Osha from JMP Securities. Please go ahead.
Hello, This is actually Hilary on for Joe and welcome back Alan its great to hear your voice on the call.
Thank you.
At some point, we're going to start talking about coming back to being in person on schools and work campuses.
Just wondering if you'd give us a date.
Say it on if you're having any conversations there and if we might see deployments at some point later this year on cash.
Sure.
Sure. This is Rob so yes, we have a fairly active engagement on the security part of our business debt is not only talking to college campus opportunities, but also speaking to kind of corporate campus opportunities as well, particularly.
Fully around you can think of fixed big box retailers that have locations that are in I would say neighborhoods or communities that are in transitioning and have issues with non ongoing persistent gone balance, but more intermediate gun violence that they have to be concerned about so we're hopeful that we're going to see some traction.
On the security on the security from.
Okay, Great and then just kind of higher level I know you've kind of adjusted the Swedes acquisition getting a couple of other initiatives up and running I'm just kind of on you look at the portfolio of potential skill set.
That you might look to address.
Any thoughts on what potential M&A opportunity that might be interesting to you on that.
Alright, thank you.
Yeah.
Sure. This is Alan I would say, having just acquired leads we're very excited about what they're doing and what they bring to us in terms of adding our product portfolio, especially on the case management. It helps in numerous areas. It helps us in terms of looking at different.
Potential customers it helps us from expanding the Tam.
So I would say at this point, we're not necessarily looking for adding any other companies right now from an M&A perspective until we're we're finally working well with what we've done with blades.
Thank you.
The next question is from Richard Baldry from Roth Capital. Please go ahead.
Thanks.
I guess you'd call your backlog the difference between contracted and deployed 34 mile Delta that's about half of what you deployed for all of 2020, so im sort of curious.
What gates that deployment you know.
Or are there factors at the city level, our COVID-19 restrictions that will measure how fast that comes out or is that just a matter of you getting to it. So it could start the year on on a faster pace than maybe we would otherwise expect.
Yes, so our expert on that.
Go ahead, Rob go ahead, Alan No go.
Go ahead.
No I was going to say during our last quarter, we talked about there being <unk>.
<unk> 50 miles going live in the next period of time.
We're probably halfway there in Q4, we would expect.
Some of that in terms of the stuff that's under contract right now will happen in Q1, but I think it's definitely true to say rich like you said in terms of versus 2020, we feel better about where we are and where we're positioned from a pipeline and go live miles in 2021.
And then we thought at the beginning of 2020.
And when you talk about churn was obviously very low this year, but could be back up to something like three or 4% next year is that is that something that you see and you have awareness of spot inside of the renewals that are unlikely or is that just generic.
Caution entering any year with uncertainties.
So this is Ralph I think it's much more of the latter we're just trying to be cautious.
COVID-19 was not a nine month or 12 month event, we're viewing it much more as a kind of 18 to 24 month event and I think it's probably.
To use on maybe poor analogy, we're really in the fifth inning on this thing so as good as we did in 2020 with respect to attrition management. We don't think debt were necessarily out of the woods yet. So that's why we thought it to be appropriate to estimate kind of a 3% to 4% attrition number hopefully with the idea that we can do.
Do much better than that.
It's encouraging I think we'd like I said, we did a great job last year and I'm, hoping we'll be able to do a really good job.
This year as well, but I think we do understand that it's still a very much a challenged environment from a municipal budget point of view.
Thanks, and lastly, when we look into your Opex, how much of that.
Flex leads now and maybe as a new sort of baseline to look at going forward or is there any fourth quarter, one time things that we should back out.
Maybe related to year end bonuses et cetera, sort of getting a baseline for spending starting 2021.
Yes. So this is Alan Great question, we do have some revenue in Q4, but is less than half the quarter from leads we also have that went along with the revenue some expenses that.
That would be included as well you can also expect that we're going to have some.
Amortization costs related to the actual transaction itself from that we'll be adding.
Throughout 2021, so I would say if you think about in terms of where our ex.
<unk> line items are going to be we'll probably have a little a little more percentage spent in sales and marketing.
R&D will be very similar on G&A will be similar to what it's been in the past and probably even lower than Q4, because Q4 had all of the M&A expenses associated with it.
Thanks, and congrats on a good quarter.
Speaking.
As a reminder, it is star one to ask a question.
The next question is from Ryan Kimbrel from Craig Hallum. Please go ahead.
Hey, guys Ryan on for Jeremy Hamblin here today, congrats on the nice quarter.
So you guys have highlighted and made a lot of smaller deals over the past few months.
Does this mark sort of a broader change in strategy in terms of flooding some smaller cities trial.
Product on on trial basis, or how is your overall viewpoint on that changed in the last three or so quarters.
So this is Ralph I think we've been pretty intentional around developing a sales and marketing targeted sales and marketing program going after the kind of tier four tier five market vertical for us and were finding that were.
Really.
Demonstrating some success in that market, they're smaller deals to be sure. So it's really hitting more kind of singles and doubles versus maybe triples, and home runs, but we like it a lot because it appears at least our early experience since that the sales cycles don't feel as long and complicated that's what you Mike line and a larger city environment.
And again, we're seeing from our work.
Work across a number of cities and agencies that there really is something interesting going on with respect to the uptick in violent crime and violent crime again, I'll just double down on the comments I made.
During.
Our review is that it is not limited to large urban cities those get reported a lot, but I mean, we're seeing some very.
Strong uptick and gun violence, and smaller cities that are having kind of this 123 square mile challenges within their cities that we think we speak to pretty effectively so I think it's.
Probably be more of that going forward, we're investing in it we're getting some momentum going on there and as we bring on tier four and tier five cities and we can bring that agency to become a net promoter. They then help help us sell that next agency over because now the art of the possible becomes a lot clearer when.
Cities like Kankakee as an example are just showing success other smaller cities can say hey, you know what that that might work for me too. So we're pretty excited about it.
Great and then can you as it pertains to leads can you give us an indication of what the cadence on that $10 million contribution will look like next year and is it still too early to sort of dig into the overall just on a high level I believe margin profile and all that sort of compares to the shotspotter business.
Sure. This is Alan and I would say, we talked about $10 million in leads right now.
It's really a couple of buckets there there's about as you heard from around $6 $7 million in annual recurring revenue the balance would be somewhere in the professional services. So if for example, if you look in 2020, they had some professional services, which were a little higher than that.
We're able to get in 2019 and performance 2020, so for US when you look at that $10 million, we're trying to be reasonable in terms of where we think the professional services will be.
Theres always a possibility it might be a little higher.
Hopefully we don't have we don't expect it would be lower than that but that's how we get to the $10 million for our current guidance.
Great. Thanks.