Q3 2021 Shotspotter Inc Earnings Call
Good afternoon, and welcome to Shotspotter as third quarter 2021 earnings conference call. My name is Saatchi and I will be your operator for today's call 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.
These forward looking statements are only predictions and are subject to risks uncertainties and assumptions that are difficult to predict and may cause the actual results to differ materially from those stated or implied by those statements.
These risks and assumptions are discussed and Shotspotter 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 November nine 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 dotcom.
Now I would like to turn the call over to Shotspotter CEO Ralph Clark.
Good afternoon, and thank you for joining us today I hope everyone out there is doing well as usual I'll start with a quick overview of the quarter and our operational outlook before Alan details. The quarterly results. We will then take your questions.
We reported revenues in line with our expectations of $14 5 million up 28% from $11 4 million in Q3 of 2020.
Quarterly adjusted EBITDA was $2 2 million compared to $3 3 million last year.
The adjusted EBITDA decrease was largely due to continued strategic communications and legal spend associated with defending the company our customers and our stakeholders from the weaponized false claims are various media outlets and our $300 million defamation suit against Vice media.
Overall saltwater respond had a very strong go live mile cadence. This quarter, we secured three new customers Winston Salem, Virginia Beach in Miramar, Florida, and went live with seven expansions of existing customers, including Puerto Rico, and Albuquerque, which became our third and eighth largest clients by mileage at 30%.
14 miles respectively.
Based on our progress to date, we believe we have clear line of sight to an estimated 105 go live miles this year, which will be 15 miles or 17% more than the 90, we had forecasted earlier this year and an overall, 100% increase of a 49 miles we went live with in 2020.
There are growing number of respond projects that currently totaled over 50 miles that are staffed or in the process of being deployed over the next four months.
These include a new agency capture of an initial seven miles and making bid county, Georgia, along with expansions for existing customers, such as Louisville and Presto.
This mileage add momentum represents a significant reacceleration of miles being added to the platform and sets. The stage for continued strong growth in revenue in 2022.
I'm also pleased to report that we experienced another quarter of zero response customer or mileage attrition net.
Net of price increases and discounts, we estimate that the corresponding connect business will show less than 1% GAAP revenue attrition in 2021.
It is significantly lower than our original estimate of 3% to 4% for the year and represents a best in class gross attrition metrics.
Almost 30% of our 67 renewal transactions and an incredible 65% of our new respond violets transactions year to date have been executed on a multiyear basis and.
And we continue to drive a world class net promoter process since four which came in at 58% this year.
We believe these accomplishments, particularly in an environment of false allegations and some press about the quality and value of our service are a testament to the importance and stickiness of our services and law enforcements dependent and commitment to them.
Our unique success in this area effectively expands our recurring revenue Tam opportunity due to the longer customer lifetime value and duration typically not seen in other comparable SaaS business models.
Broader public sentiment beyond our law enforcement buying center on the urgent need to address gun violence has been equally if not more encouraging.
And April Pew Research survey of 5000 adults revealed around half of Americans view gun violence is a very big problem in the country with another 24%, saying it is moderately a big problem.
A more specific pulling survey of over 2000 individuals conducted by morning consult showed that three and five adult support the use of gunshot detection.
This poor response interestingly cuts across party affiliation and based on last weeks voting results. It is very clear that the broad body politic does not support the deep on the police movement.
The violent crime conversation has also captured the attention of policymakers and appropriators and federal government as well.
Recently, former Chief of police now United States represented about Dimmings introduced the violent incident clearance and technological investigative methods act of 2021 or victim App, which calls for the department of Justice to establish a specific grant program of $100 million per year to help law enforcement agency.
<unk> improved their clearance rates for homicides and nonfatal shootings.
And providing background for this initiative representative dimming and her co sponsors called out the 29, 4% increase in murders in the United States from 2019 to 2020, which sadly represents the largest one year increase ever recorded since the FBI has been collecting data going back to 1960.
Tragically the disproportionate number of those harmonize at least 46% comprised black systems, who only represents 13, 4% of the U S population and while homicides have increased clearance rates have fallen precipitously from 57, 6% to 47, 3% according to the legislators.
Postal.
This is exactly the problem that our precision policing platform is meant to address.
Smarter patrolling strategies that could prevent crime without over policing. So real time gunfire alerts that enable a fast and precise first responder dispatch, which leads to saving lives and disrupting serial shooters and now an enterprise investigative case management solution, specifically focused on improving case closure rates are.
Our solutions are what the law enforcement buying center responding to these challenges are demanding.
It is also what local budgets and federal Appropriators are funding in order to help address the increased demand is being made on local law enforcement.
Since the very recent reintroduction of earmarks in the legislative appropriations process, we have been successful in helping our local law enforcement agency customers in advocating for a total of eight earmarks read from the Senate and five earmarked from the house and their respective Cdos appropriations Bill for fiscal 2022.
These federal funding resources when approved will help provide strong tailwind to our business and future growth prospects.
On the international side of our business, we're still facing some timing challenge outside of our strong domestic business. We do not expect the national respond revenue to add to 2021 revenue at several countries continue to struggle with their response to the pandemic.
Earlier this year. However, we submitted a proposal for a formally issued Cape town, South Africa tender only to recently learned that Cape town has withdrawn the tender based on a procurement process technicality, but they plan to reissue and the first part of 2022.
Our leads colleagues continue to focus on NYPD legacy crime center maintenance and support along with professional services and separately, our commercial market lots of Shotspotter investigate.
Our maintenance and support responsibilities that NYPD have expanded over the years and last month, we submitted a contract extension, which would increase the annual recurring revenue associated with the maintenance and support by over 40% to just under $10 million per year.
In addition leads was successful in securing six new professional services work orders totaling over $6 million that will be completed over the next six to nine months.
We're extremely proud that leads and Shotspotter continues to be a critical partner to NYPD and their digital enterprise resource journey.
And we continue to be extremely excited about the product development progress and revenue pipeline build of Shotspotter investigate.
We believe that Shotspotter investigate is a robust functional case management system that hits, the mark of a wide swap of local agency requirements and can scale to address very complex case management requirements for state and federal agencies as well.
We are maintaining our full year 2021 revenue guidance of 60 to 61 million, which represents 32% revenue growth from 2020 to 2021 at the midpoint.
And given our solid year to date <unk> Bill from respond go live miles and little to no attrition combined with an expected strong Q4 finished and quick 2020 to start with.
We're establishing revenue guidance of $71 million to $73 million for 2022.
This represents 19% year over year growth at the midpoint from 2021 and 2022.
We're making the appropriate investments to drive to and possibly exceed that target and are excited about the number of opportunities we have to grow our business and have impact on making communities safer.
Now Alan over to you.
Thank you Ralph as Ralph mentioned with respond we went live in three new cities and also booked two new campus customers this quarter, but once again seeing no city attrition.
He also went live with seven city expansions.
And achieve strong revenue growth of 28% compared to the third quarter of 2020.
With our continued success in retaining customers through Q3 of this year, we expect that our 2020 when revenue attrition will be less than 1% similar to last year's excellent results.
Let me provide more details of the quarter and then I will share some thoughts around the balance of the year.
Third quarter revenues came in at $14 5 million at 28% increase over the $11 4 million in the third quarter of 2020.
Revenue increased as our deployed miles increased year over year, along with revenue contributions from our <unk> acquisition.
Professional services revenue per lead was sequentially down versus the last two quarters, which is lumpy in nature in a quarter to quarter basis.
We expect the professional services revenue to increase in the fourth quarter.
Gross profit for the third quarter of 2021 was $8 million or 55% of revenue.
Versus $6 4 million or 57% of revenue for the prior year period.
Gross margin was a bit lower as a result of lower gross margins on the professional services provided by our leads team.
We expect this to improve in Q4.
Adjusted EBITDA for the third quarter was $2 2 million a decrease from the $3 3 million in the third quarter 2020.
As a reminder, adjusted EBITDA is calculated by taking our GAAP net income or loss and adding back interest taxes, depreciation amortization and stock based compensation.
As Ralph mentioned, the reason for our lower adjusted EBITDA and our net loss for the quarter is primarily related to the increase in legal and strategic communications costs related to our lawsuit against Vice media.
And also addressing negative publicity generated by certain entities.
Organizationally as opposing the efficacy of our solutions.
Now turning to our expenses.
Our operating expenses for the third quarter were $8 9 million or 61% of revenue versus $5 8 million or 51% of revenue in the third quarter of 2020.
As expected in addition to the operating expense increases related to legal and strategic communications. We also had costs associated with personal expansions and cost related to leads which were not included in the third quarter of 2020.
Breaking down our expenses sales and marketing expense for the third quarter was $4 million or.
We're 28% of total revenue.
$2 $4 million or 21% of total revenue for the prior year period.
Our sales and marketing teams continue to build our sales pipeline and expand our marketing efforts.
We continue to focus on maintaining high levels of customer satisfaction, which helps keep our attrition rates low.
Our R&D expenses for the third quarter of $1 7 million or 12% of total revenue compared to $1 4 million or 12% of total revenue for the prior year period.
Continue to invest in increasing the functionality of all of our products.
G&A expenses for the quarter were $3 2 million or.
Or 22% of total revenue compared to $2 million or 18% of total revenue for the prior year period.
The increase in G&A expenses in absolute dollars were primarily related to the increased legal and strategic communications expenses mentioned above.
Our net loss for the third quarter was $949000 or loss of eight cents per share an $11 7 million weighted average shares outstanding on both a basic and diluted basis.
This compares to an adjusted net income of $566000 or <unk> <unk> per share based on 11 4 million basic weighted average shares outstanding and <unk> <unk> per share based on 11 7 million diluted weighted average shares outstanding for the prior year period.
Deferred revenue at September 30 was $21 8 million, which was up from $19 8 million at the end of Q2.
We ended Q3 with the $13 $1 million in cash and cash equivalents versus $15 $6 million at the end of second quarter.
During the third quarter, we also repurchased approximately 26400 shares for approximately $900000.
We have no short or long term debt outstanding and as mentioned in previous calls we have a $20 million line of credit available to improve our financial flexibility.
Our revenue guidance for 2021 remains at 60% to $61 million.
Please note that the midpoint of this guidance reflects 32% year over year growth with the increased costs related to strategic communications and our ongoing lawsuit against Vice media, we now expect a small loss for the year.
Our revenue guidance for 2022 $71 million to $73 million.
Based on current information, we expect that our annual recurring revenue starting January one 2022 increased to $64 million up significantly from the $53 1 million that we started this year with if you include the recurring revenue per lease.
In addition to the $64 million and we also have over $5 million of professional services revenue for 2022 already under contract.
Similarly, any attrition contract modifications, where delays may reduce those amounts now back to Ralph for some final thoughts and then we'll be happy to take your questions.
Thanks, Alan we're always very grateful for the strong support we received from our many stakeholders, especially our work colleagues, who continue to passionately lean in everyday and servicing law enforcement and their efforts to serve and protect our most vulnerable communities.
We will now 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, you will hear a tone acknowledging your request.
Using a speakerphone please pick up your handset before pressing any keys to withdraw your question. Please press Star then two.
We will pause for a moment as callers join the queue.
The first question is from Matt Pfau from William Blair. Please go ahead.
Hey, guys. Thanks for taking my questions I wanted to start off with the 2022 guidance and maybe you can just give us a little bit more detail on what's factored into that.
How many miles that youre expecting or sort of already in the books and then when you look at some of your other solutions like investigate.
Are you expecting a material contribution from that thanks.
Sure. This is Alan I'll go ahead and start and Ralph go ahead and add.
Or correct as needed so.
In terms of the guidance, we're saying $71 million to $73 million, we all.
Also said that we are starting the year with $64 million.
And $5 million and professional services. So basically we already start the year with $69 million that we already under contract.
Or expected so there theres nothing that is tied into that 69 that even deals with the ex expansions and the go live miles for next year. So we do expect to have a similar year next year with drill out miles depending on when those actually go live that will add.
Actual GAAP revenue to be 69% that was referring to.
Great.
Helpful and then the other.
The thing I wanted to ask about was in terms of the customer response or.
Response from prospects in respect to the lawsuit that you filed against Vice media what.
What has the feedback been there has it maybe helped alleviate concerns that may have been holding back prospective customers. Thanks.
Sure. So this is Ralph I think it's fair to say with our existing installed base or customer relationships. We've gotten very very positive feedback because our holding vice media to account is just not only on behalf of the company and our employees and the like but also our many stakeholders and partners in our customer.
Universe I think it's also fair to say that although we've had a great year this year with kind of bringing on new cities and agencies on the platform the <unk>.
<unk> of these false claims from Bice has created some headwind for us and so that's why we're just being very.
Thoughtful about how we think about guidance going forward again, its very very positive. We start the year 2022 was $69 million of very very visible revenue, but certainly.
Vice media <unk>.
<unk>.
<unk> kind of created some headwinds for us since may deals.
Take longer we have to spend more money to drive revenue and it certainly added some risk.
Great.
Thanks for taking my questions guys I appreciate it.
Thank you.
The next question is from Brian <unk> from Imperial capital. Please go ahead.
Yes, thank you very much.
First of all on legal expense in the quarter.
How much.
It was in that how much legal was in there and how much was it strategic marketing do you have any kind of breakout on that.
Yes. So this is Alan basically.
We had overall for the quarter legal and strategic marketing communications cost a little over $800000. However that would typically being closer to maybe a quarter million dollars youre up to 300000, and so the increase was about $5 million going towards.
What we're talking about.
Okay, and then going forward into the fourth quarter Youre, saying gross margins are going to increase and that will legal expense go.
Go down in the fourth quarter or should it stay where it is.
So again I think at this point, we still expect to be spending appropriately.
Legal expenses, so it would be similar to expect it to be close to what we spent in Q3.
Gross margin, we expect to be significantly higher than the percentage basis.
Dollar basis as well.
Because some of the professional services that basically we were down in Q3, we will start to increase in Q4, and then continue to increase in Q1 that helps significantly in both the growth gross margin and net income and adjusted EBITDA as well.
Okay, and then in terms of the guidance just going back to that first question the 71% to 73 given that you have.
69, it appears and hand seems extremely conservative are you just being extremely conservative or you think that there is just such a long lead time with new projects.
That that's a realistic.
Projections.
Yes, hi.
I think I think.
No go ahead I'm sorry.
Yes, I think I think we're trying to be very reasonable and thoughtful here I think it's a great benefit to the company to start with visibility was $69 million I think getting to 72 would require us obviously to continue making progress ongoing live with additional miles, we're certainly expecting contributions from.
Connect and investigate in 2022, and I think international is still a bit of a wide wildcard I think that could be potentially very impactful I think in my comments I made the statement that we're making the appropriate investments to make sure that we.
Hit our guidance and possibly even exceed it. So there definitely is some upside potential in that in that number.
Great Ralph did you want to add anything to that before I ask one more question.
Oh that was Ralph yes, so maybe it's Alan.
Yes, yes, yes.
Yes, so LNG would you say anything.
Do you have any add to that.
Moderation to that no I know I think you covered it well.
Sorry about that.
Okay last question in terms of federal funding coming down.
Do you see anything in the near term.
End of the fiscal year.
<unk> already happened the government fiscal year. So we're in a new fiscal year or do you see any appropriations settle sides that you can touch with your product.
Yes, so I think we talked about getting.
So, making some really good progress on the earmarks process. So earmarks are coming back we've been very successful in advocating for eight year marks across the Senate and the house.
That does still haven't been formally approved as overall appropriations package, but they have kind of come out of their respective <unk> Committee. So that's extremely positive and certainly the American Rescue Act has had a lot of beneficial tailwind to our business and increasingly we're seeing municipal governments that are allocating budget.
To address gun violence, because of the significant and measurable uptick in gun bonds. So I don't think the funding environment has been more constructive or positive than it's ever been in the past 11 years that I've been with the company. That's probably one of the really strong things about our business that we're quite encouraged by that.
<unk> is not an issue, it's creating a significant tailwind for us.
Great. Thank you.
The next question is from Ryan Kimbrel from Craig Hallum. Please go ahead.
Hey, guys I know, it's been touched on already but I just wanted to clarify is there any is there a minimum base run rate, maybe I guess of what we should be expecting on a go forward basis from the legal costs associated with the defamation suit.
Yes. This is Alan I do think that.
In terms of what we are spending right now we did spend quite a bit preparing to actually filed the lawsuit. So it is possible that maybe on a quarterly basis. It goes down a little bit.
Although it could also go go.
Or even stay the same so I would say, it's pretty appropriate to expand.
For the next couple of quarters to say, it's going to be about the same.
Okay, Great and then last one for me I just wanted to touch on the Houston trial I believe we are coming up on that one year Mark.
Can you give us an update of how things are going there have you started to see any of the the positive network effect happened like you've talked about and.
Is there anything you can tell us on a long term contract talks that you haven't already.
Yes. So this is Ralph I would say things in Houston, and also Harris County by the way, which is next door to Houston are going extremely well both of those agencies are excellent practitioners.
Averaging our real time alerts to help respond to and ultimately prevent and reduce gun violence in both those areas are expectations are that we're going to see a.
A go forward on that Houston dips.
Deployment.
And there will be a paying customer going into 2022 that is our full expectation.
Okay, great. Thanks, guys.
Thank you. Thank you.
The next question is from Mike Latimore from Northland Capital. Please go ahead.
Okay.
Hi, this is on behalf of Mike Lattimore.
Could you give me some color on the sales cycle, how would you characterize your sales cycle has had been shrinking in the recent times.
But we are effective we looking at add another $3 million of gap revenue, which if we were to do something on the order of 100 miles next year evenly spread over the year that would kind of get us to three and a half million dollars assuming.
$7 million kind of on average are are spread across the year. So that gives you a sense of how we're trying to be thoughtful about guidance going forward, knowing that we're going into some headwinds great tailwinds, but also seen some headwinds as well.
Alright, Alright, and also could you give some color from the international market do you see the international monetary quite constrained at the moment.
Yeah. So this is Alan I mean, we continue to see sounds internationally, they're still dealing with the results of the pandemic I would say we did go out you know in the Nelson Mandela Bay at the end of last year, and there's Ralph mentioned about Cape Town, We hope.
That that will still come live in 2022 other than that we're still pursuing options and opportunities that are in places like Mexico, Brazil, and other areas as well, except maybe some expansions and some other international that we have but it is still <unk>.
LNG and it is not a significant expectation in a curtain guidance to get to our our 71 to 73 from international at this point hopefully that changes.
Alright, alright, thank you.
This concludes the question and answer session Hello, Thanks to turn the conference back Richard Ralph Clark for any closing remarks.
Oh, great. Thank you very much really appreciate everyone's support over the year and certainly this past quarter. We're excited to kind of get back to work and finish the year on a really strong putting and I'm looking forward to being very successful in 2022. So.
Thank you all very much really appreciate it.
This concludes today's conference calls you may disconnect. Your lines. Thank you for participating and have a pleasant day.
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