Q4 2021 Shotspotter Inc Earnings Call
Yes.
Good afternoon, and welcome to Shotspotter is fourth quarter and full year 2021 conference call.
My name is Carla 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 business strategy and future financial and operating performance.
These forward looking statements are only predictions and are subject to risks uncertainties and assumptions 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 T 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 'twenty, two 2022 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 web site at IR that Shotspotter Dot Com now I would like to turn the call over to Shotspotter CEO Ralph Clark Sir. Please proceed.
Good afternoon, and thank you for joining us today I'd like to start off by saying how thrilled we are to announce the acquisition of brink logic. This acquisition represents an important step in building out and executing 12 precision policing platform aspirations.
Before I dive into more details on where you think well I just I want to first share a brief review of our Q4 and 2021 year end results.
Your outlook for 2022 before turning it over to Alan and then taking your questions.
We reported Q4 revenues of $14 million, representing 10% year over year growth from the $12 $6 million of revenue we reported in Q4 of last year.
We had anticipated securing a contract amendment due in November .
Professional services maintenance and support a crime center in White P D.
However, due to a changeover in the administration of the New York City Comptroller's office, we're only able to formally secured the final signature on the contract Amendment in early January post our Q4 revenue cutoff date.
This will result in two plus million dollars of catch up revenue that will be recognized in Q1 of 2022 for services rendered and earned and there.
November and December of 2021.
We had another strong showing up domestic respond go live miles for Q4, including expansions in seven cities Albuquerque, which became Shotspotter client in 2020 is a particularly compelling case studies. There are Q4 expansion represents our third expansion to date.
Still another four and a half miles is expected to go live in Q1 of 2022, which will make Albuquerque, our fourth largest deployment at approximately 28 miles.
In total the company booked a record $100 million of business, including several large multi year renewals shotspotter respond was taken live in over 100, new miles for 2021 compared to 49 miles of your prior surpassing our earlier forecast at 90 miles for 2021.
We're pleased to see this accelerating traction.
We also experienced another incredibly strong year end customer retention, our customer attrition had an impact of less than 1% of GAAP revenue net of price increases for 2021.
This continues to demonstrate the sticky nature of our solution once deployed.
Not by accident, but by design we.
We enjoy a unique high quality technology solution that has been proven to perform in a variety of challenging acoustic trains.
Importantly, we are intensely focused on customer onboarding and training to help our customers adopt policies and best practices that help them achieve measure and communicate positive outcomes.
We also continue to benefit from strong brand loyalty reflected in our world class net promoter score or NPS of 59, which drives our SaaS industry, leading sales and marketing spend per dollar of new annualized contract revenue of only 37 cents.
We believe we're reaching the tipping point of having a critical mass of reference civil law enforcement executives are helping to drive low cost viral adoption of our solutions.
We have successfully overcome some selected organized campaigns from the abolished the police movement and have succeeded in keeping solid sales motion.
Extremely proud of the fact that numerous city council's after transparent discussion and thoughtful deliberation have overwhelmingly supported the adoption of Shotspotter as a part of their toolkit in addressing gun violence and saving lives a.
A few recent examples include a 10 to one votes in Denver, a seven to one vote in Pasadena, a 14 to one vote in Houston and a unanimous vote in mobile Alabama.
These elected officials recognize the importance of addressing the public safety gas and some of their most vulnerable neighborhoods that are struggling with persistent gun violence and they have supported shotspotter as a valuable tool to be used in saving lives and protecting their citizens.
On the international front, Cape Town, South Africa reissued their tender to procure and redeploy and expanded acoustic gunshot detection service over their original Shotspotter coverage area.
We have submitted our bid response, and we're confident that we're well positioned to meet the technical financial and experience requirements set forth in the tender.
Our $300 million destination suit against Vice media is still ongoing however, we've recently been successful in securing five formal and public retractions of material misstatements from publications that had repeated by since false assertions easily attractions were issued following their review of public court.
Occupants and unambiguous Lee support our position.
We remain confident in our ability to defend our stakeholder base correct the record and hold buys to account for their models.
Now that forensic logic.
We're very excited about adding forensic logic coplin cacciatore solution platform.
Zach logic comp point absolution is the largest law enforcement data sharing and crime analytics network, providing authorized subscribers access to more than 1 billion Federated Index records from over 2500 agencies.
The platform includes an advanced Google style search engine and analytical tools and it's used by hundreds of municipal County state and federal law enforcement agencies to create case momentum at a local and cross jurisdictional basis.
Top line ex users include investigators analysts patrol officers and command staff in order to initiate investigations find patterns across crimes and be more efficient and overall effective.
Similar to our lease acquisition, where we shared a common customer in N Y P. D. We've gotten to know forensic logic over the years through our shared Oakland Police Department relationship, we're already seeing strong operational product and go to market synergies between our solutions. There are a number of cross selling opportunities in both directions there.
Under way, including a collaborative pursuit of a state level investigative case management and data services RFID.
On the product side forensic logic has strong and established product market fit.
We see copper link at differentiating our investigate solution and extending responds reach deeper into crime gun Intel centers or <unk> with an integrated <unk> product feature that improves the investigative process when respond leads to increase recovery of shell casing evidence.
There's probably no more impactful use case study of operational synergy didn't he attempted violent robbery involving four assailants targeting a retired O P. D. Captain Bursty joiner in the afternoon of October the 21st this tragic incident resulted in one day or sell them.
Killed and earthly suffering from 'twenty, two gunshot wounds Fortunately due to the Shotspotter alert Oakland TD was able to respond rapidly to the precise seen for the first 911 call came in and immediately get Mercy to Highland Hospital, where surgeons were able to save his life.
Soon after investigators across multiple bay area agencies, we're acquiring the forensic logic platform and quickly learned that the disease. The sale. It was involved in a similar robbery attempt with a stick up crew and another local jurisdictions to year prior.
By connecting the dots it was not long before they had developed enough intelligence to get up on the other assailants and then make a rash and Sacramento in Houston, where the assailants will now stand trial.
Forensic logic grew revenue over 38% last year, bringing on customers like the Tennessee Department of safety and Homeland Security that uses the information sharing platform for all 25000 members of state and local law enforcement agencies within Tennessee.
We estimate forensic logic adds another $500 million plus of recurring revenue 10 to our franchise across domestic local state and federal law enforcement agencies.
And we believe that further enhances our position as a unique precision policing platform solutions provider and will become a key growth driver for the company in coming years.
We entered 2022 with a robust $63 million of organic annual revenue, including $10 million of annual recurring revenue from our recently upsized maintenance and support contract with N Y T D.
Forensic logic will add another $6 million of recurring revenue, which then totaled $69 million of visible or are going into 2022.
This compares to the $53 million of a R. R a year ago.
Given the accelerated growth of competence, we have in our core business combined with the revenue contribution from forensic logging and the $2 million of November December catch up revenue from our N Y T D.
Recognize in Q1 of 2022.
We are now raising our full year 2022 revenue guidance to $81 million to $83 billion from our last revenue guidance of $71 million to $73 million, our new guidance represents a 41% growth from 2021 to the midpoint of 2022 guidance.
Now Alan over to you.
Thank you Ralph.
I'll cover highlights for both Q4 in 2020 , one as a whole.
In Q4, we went live in one new city and one new security customer. We also went live with seven responds to the expansions and achieved revenue growth of 10% compared to the fourth quarter of 2020.
In spite of losing one city in Q4, our 'twenty to 'twenty, one revenue attrition will be less than 1% similar to last year's excellent results as Ralph has mentioned.
We're pleased to report that for the first time ever and really many customers renewing for multi full year periods. We had total bookings for the year of over $100 million.
We can provide more details on the quarter and then I'll share some thoughts around 2021 and updated guidance for this year.
But before I dive into details it's important to understand that our Q4 results in 2020 one as a whole were affected due to the contract amendment related to our leads work that we had hoped and expected to receive before the year end, but didn't get fully executed until January .
This reduced our GAAP revenues by over $2 million.
Our acquired you continue work during that time, while we were waiting for the contract amendment. So on an accounting basis, we had to continue recognizing and expensing the associated cost of goods sold related to this ongoing work.
This affected all of our financial metrics in the fourth quarter and ultimately the final results for the year.
That said, we were pleased to announce that the amendment has been fully executed. This will help our first quarter financial results and it was one of the three elements that are contributing to the significant increase in our revenue guidance for 2020 , two as a whole, which Ralph will cover in more details in a minute.
Fourth quarter revenues came in at $14 million, a 10% increase over the $12 6 million in the fourth quarter of 2020 .
Revenues increased as our deployed miles increased year over year, but we had minimal revenue contribution from our leads division in the fourth quarter.
We have routinely mentioned that revenue from leads is very lumpy on a quarter to quarter basis lease revenue in Q1 of 2022 will be significantly higher than all quarters in 2021.
Gross profit for the fourth quarter of 2021 was $7 $5 million or 54% of revenue versus $7 $5 million or 59% of revenue for the prior year period.
Gross margin was lower due to the delay of the contract amendment execution for leads and some of the ongoing costs related to a replacement of <unk> sensors, we expect this to improve in Q1.
Our net loss for the fourth quarter was $3 $3 million or a loss of 28 cents per share on 11 7 million weighted average shares outstanding.
Both a basic and diluted basis. This compares to a net loss of $220000 or two cents per share based on 11 5 million basic and diluted weighted average shares outstanding for the prior year period.
In addition to the delayed contract amendment the reason for the higher net loss for the quarter was related to several items.
Our expenses continue to be higher as a result of the ongoing strategic communication costs are sick.
Navigant increase in legal costs related to our lawsuit against Spice media and then increase in legal fees associated with addressing subpoenas for detailed information about our technology and details on historical incidents.
Our net loss for the quarter was also affected by expenses related to recent company acquisitions in two respects first an increase in the contingent consideration liability related to lean.
22 earn out by approximately $1 $3 million as lease related revenue in 2022 is now expected to be greater than $16 million second our acquisition of forensic logic added more than $540000 in expenses related to the transaction in Q4.
Is it acquisition related the mouse are both added back to adjusted EBITDA.
Adjusted EBITDA for the fourth quarter was $1 $9 million a decrease from the $3 1 million in the fourth quarter of 2020 as a reminder, adjusted EBITDA is calculated by taking our GAAP net income or loss and adding back interest taxes depreciation amortization stock based compensation acquisition related expenses.
Including adjustments to our contingent consideration liability related to earn outs.
Now turning to our expenses, our operating expenses for the fourth quarter were $10 $7 million or 76% of revenue.
It's a $7 7 million or 61% of revenue in the fourth quarter of 2020 .
As expected in addition to the operating expense increases related to legal and strategic communications. We also had costs associated with personnel expansion and costs related to the leads earn out liability, which were not included in the fourth quarter of 'twenty four.
Breaking down our expenses sales and marketing expense for the fourth quarter was $3 $6 million or 26% of total revenue versus $3 $1 million or 24% of total revenue for the prior year period.
Continue to focus on investing appropriately to grow ourselves marketing capabilities for all of our products.
Investments are important for our continued growth and I working well as we 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 one $9 million or 13% of total revenue compared to $1 $5 million or 12% of total revenue for the prior year period.
We continue to invest in increasing the functionality of all of our products.
G&A expenses for the quarter were $5 $2 million or 37% of total revenue compared to $3 $1 million or 25% of total revenue for the prior year period.
The increase in G&A expenses in absolute dollars were primarily related to increased legal and strategic communication expenses, which exceeded $900000 for the quarter and the $1.3 million and increased contingent consideration liability related to the <unk> acquisition.
Our revenue results for 2020 , one were $58 2 million an increase of over 27% from 22 or the.
The increase was related to revenues related sleeves and significant expansion in customers using our gunshot detection solutions, having added over 100 miles live during the year.
Gross profit for 'twenty, and 'twenty, one was $32 $5 million or 56% of revenue.
There's $27 million or 59% of revenue for the prior year period.
Gross margin was primarily lower due to the delay of the lease contract amendment expectation and some additional costs related to slightly higher prices for some sensor components as of today the ongoing challenges with a global supply chain have not materially prevented us from continuing our ongoing <unk> sensor replacement.
Or slow down the deployment of newly contracted respond miles where expenses will continue to closely monitor all ongoing supply chain initiatives.
Our net loss for 2021 was $4.4 million or a loss of 38 cents per share.
$11 7 million.
Weighted average shares outstanding on both a basic and diluted basis. This compares to net income of $1 $2 million or 11 cents per share based on 11.4 million basic weighted average shares outstanding and 10 cents per share based on 11 7 million diluted weighted average share.
<unk> outstanding for the prior year period.
Adjusted EBITDA for 2020 , one was $10 $4 million a decrease from the $11 9 million in 2020.
As a reminder, adjusted EBITDA is calculated by taking our GAAP net income or loss, adding back interest taxes, depreciation amortization and stock based compensation and acquisition related expenses, including adjustments to our contingent consideration liability related to earn outs.
Our revenue retention rate improved to 125% in 2021 up from 107% in 2020.
Additionally, our sales and marketing costs to acquire $1 of annualized contract value for the next 12 months also improved to only 37 per dollar in 2020 , one versus 51 cents per dollar in 2020 .
Deferred revenues as of December 31 was $26 $7 million, which was up from $21 8 million at the end of Q3.
We ended Q4 with $15 $6 million in cash and cash equivalents versus $13 1 million at the end of the third quarter in fact as of today, even after the expenses related to the forensic logic acquisition.
$5 million of cash as part of the purchase price the cost of replacing almost half of our <unk> sensors and even after paying all of 2020 one bonuses for the entire company, we still have cash of approximately $13 million.
We have no short or long term debt outstanding and a $20 million line of credit available if we ever need it.
Our revenue guidance for 2022 has increased by $10 million at mid range $281 million to $83 million. This increase is related to the added revenue from the delayed contract amendment.
Improvement in our core business bookings and approximately $6 million in revenue from our recent forensic logic acquisition. Additionally.
Additionally, and ordinarily we did not give any quarterly revenue guidance, we are indicating that we believe revenue in Q1 will be north of $20 million.
Our annual recurring revenue started.
On January one 2022 is north of $63 million up significantly from the $53 million, we started with in 2021.
It does not include the additional recurring revenue of $6 million from forensic logic, which will further support our growth and increased revenue guidance.
Well for some final thoughts and then we'll be happy to take your questions.
Thanks Alan.
Just a brief couple of comments before we take your questions I Hope many of you got a chance to see our inaugural ESG report that we published today.
We hope it will provide additional insight in how we work to make the world a better place I want to personally thank machine goes to death and the employees from the cross functional team that she led in producing such a wonderful first report as a company. We are passionate about leaning into our purpose in doing work that matters will now take your.
<unk>.
Yes.
Thank you.
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.
Request.
Using a speakerphone please pick up your handset before pressing any Keith.
Your question please.
Then too.
We'll pause for a moment, let's call it just trying to kill.
Your first question comes from Richard Baldry of Roth capital.
Go ahead.
Thanks Hamid.
Dig into forensic a little deeper or any metrics, we should be monitoring around that whether it's Tony.
Total customers are Peru, how do you think about their penetration of the market.
Whether your existing sales you know can sell or cross sell it or if they'll bring in their own sales team with them what she'll be primary can I. Just so we can better understand how it will integrate thanks.
Yeah.
Yes. Thanks for that question, Richard So maybe I'll start now and John jump in here, but I think the first thing to note about our forensic logic acquisition is the very strong product market fit that they offer as a part of their integrated comp link.
Platform.
Seen that platform perform in a number of places and we think that they're very.
Early in the stages of <unk>.
N a training a much broader market. They have made some really great progress, but there's a lot more to be done and I think of note was one of the transactions that I talked about during my prepared comments with respect to the statewide deployment in Tennessee, We think theres a number of opportunities to kind of take that what they're calling the smart program.
And apply it across a number of other states here in the U S and in fact, we are jointly collaborate just before we close the transaction we collaborated on a joint pursuit.
If I have a similar sort of a statewide agency. So we're we're pretty excited about that.
We think theres a lot of opportunities to cross sell into each other's markets.
We're already having them introducing them to a number of our cold tier one clients that don't have the <unk> X platform and because there is such a strong product fit between comp week acts and respond comp leak accident investigation as well as our connect solution. So we think theres a lot of value out there that we can capture.
From selling into our marketplace and frankly, they have some very good relationships in some places where we're looking to get some traction southern California being a key part Los Angeles County Sheriff's has a very large customer of theirs.
Just now are starting her penetration in southern California, with our Pasadena dealer deployment that just went live earlier this quarter. So we see a tremendous amount of opportunities to up sell the shotspotter.
Solution into.
Their installed base, where they've got great relationships.
A little bit about the metrics already last year. They grew their GAAP revenue over 30%, we're starting with a $6 million of annual recurring revenue base that we're going into 2022. So there's we think there's some upside there on the on the GAAP revenue side, although we're only modeling $6 million as a part of.
Our guidance, but we definitely think that there is an opportunity to do better than that.
The Bay area based on approximately 35 employees.
We've gotten to know them over the years.
Cause of our shared relationship and O P D and we're looking forward to sharing more metrics and progress and traction that we're making with forensic logic in our next earnings call.
And it could you talk a little bit about the pipeline entering the year, we look at the guidance minus the air or Theres, some business obviously to be done.
It may as part of that talk about the funding environment It seems like municipalities.
Municipalities do have pretty good funding and the earmarks, maybe moving their way along so putting those two together to give us an idea for how you feel about 'twenty two at the beginning of the year.
Do you want to add so this is Alan.
Afterwards.
Sure I'll I'll start with the talk a little bit about the pipeline.
We are.
Dealing with probably the strongest pipeline, we've ever had where and that is tied to somewhat of a funding with drought would talk a little bit about I would also say that you know we went live in over 100 miles of about 101 miles for 2021 and because of the pipeline and things we already know we're expecting to.
Get beyond that it'll be higher than that for 2022.
Maybe you want to cover some of the funding as well.
Oh sure Yeah. In addition to hopefully executing more than 100 go live miles. This year I think we're looking to have an international kind of come on board. This year, we haven't seen any new international revenues of substance in 2021, but we're expecting that to change kind of given our.
Responding to the Cape Town, South Africa, RFP and some.
Really nice sales motion, we have in the Caribbean and Latin America, and then we're obviously expecting some uplift in security our security solutions as well as our connect solution. We actually just went live today on a six figure annual recurring revenue deal of a very large agency in the southeastern region.
So we're excited about building on that and we've invested frankly and bringing on more sales resources to go drive some of those solutions outside of our traditional acoustic gunshot detection.
And then we're certainly expecting some really solid traction with the investigate solution and we've already talked about.
That leads is expected to contribute more than $60 million of revenue in 2022. The reason that we're making the investments we're making in kind of driving some growth outside of our kind of traditional acoustic gunshot detection. Although again, that's a very robust pipeline of deals is we're seeing a really unique opportunity.
To have impact the funding environment is probably better than it's ever been since I've been with the company and I've been with the company since 2010, the amount of federal resources that are coming in and municipalities is really really strong.
We've seen the current administration endorsed specifically acoustic gunshot detection as a very good use of funds for.
They are coming out of the federal.
Federal funding mandates and we're even seeing states step up as well I think probably some of you would notice governor Phil Murphy, New Jersey signaled that he is going to invest a lot of money in the local municipalities to help them deal with the gun violence problem and again mentioned acoustic gunshot detection as a viable solution. So.
We think the time is right we got a critical mass of really big.
<unk>.
We can sell off up and so we're really quite excited about 2022 and beyond.
Great. Thanks.
The next question comes from Charlie Ehrlich from Baird. Please go ahead.
Hey, guys. Thanks for taking the question I'm, just thinking about 2022 guidance I'm trying to get a sense for which drivers do you think could be the most meaningful maybe between just organic respond sales via your direct sales force to being cross selling.
Bond into some of the forensic customers that you've gained out and then three.
The international contribution as well I'd love to just hear you know what the main drivers of the revenue growth in 2012 2022 expectations are.
Yeah sure.
Alan just started routes so pleased to have her additional comments as well so I think.
It's the first time that we've been able to enter a year with the air or as high as it is of $69 million 63 for organic and also 6 million for forensic logic and so there's a couple of things that as Ralph mentioned, we have in there and several things that we don't.
We don't have too much in there for some of the expansion that we could see internationally. We also don't have much more than the $6 million that we know we're going into with forensic logic. So both of those are potential things that are going to add in terms of how the actual revenue gets achieved.
And I would say.
As the pipeline is knowing what we know already in terms of the contracts, we feel oh excellent about getting more than those hundred miles live and to the extent that those go lives sooner in the first half theater versus ladder them. Then the revenues are actually going to be a lot higher even for that.
Yes, So let me just add.
And again, I think well yeah I was just going to add that again, just we have to double click on the notion that we're starting the year with $69 million of visible annual recurring revenue, including what we're expecting from forensic logic, we've talked about the fact that there's another $2 million of catch up that we weren't able to book it or.
In Q4, that's going to come in in Q1, So I think he would add two.
$2 million of very visible revenue in fact, we've already gotten it for Q1 that you'd add to that the 69, so that kind of puts us at 71.
We have very visible backlog of professional services work as a part of our leads organization that we estimate to be in the $5 million range remaining for 2020 'twenty. Two so you put those two together it seven and then you'd get another seven from growth.
Domestic miles for respond along with international along with investigate along with connect along with security.
And then if.
Forensic logic does better than the $6 million because again, we're only we're only counting $6 million as a part of.
And are are that's where you kind of get to the upside potentially beyond our current guidance. So we have a lot of levers available to us to get to that range.
Got it that's very helpful and I also wanted to ask about attrition.
Both in Q4, and then 2022 expectation. So you mentioned that you have.
The attrition number you mentioned in Q4 was net of price increases. So I'm wondering if you're able to provide the gross price increase attrition in the quarter.
And then I'm also wondering what your attrition and expectations are for 2022 baked into guidance.
Yeah, So maybe I'll start on that front.
[laughter] go ahead, though.
We got to be in the same place when these days.
I was just going to say I don't think we're going to get into a lot of details about the moving pieces for the net attrition number but Alan I think if you want to talk about.
How we're thinking about attrition kind of going forward in 2022.
That would be awesome.
Sure Yeah. So I think that it is important to understand that you know when you talk about revenue.
58, north of 58 million and were saying that our attrition is less than 1%. Then you know it's less than $580000. So very very small in terms of only 1% attrition. We are looking in 2022, four hopefully similar amounts of attrition normally.
We would say prior to the pandemic, we would've said our attrition you might be closer to two to three per cent based on what we've seen the last two years and based on what we see in terms of the funding we expect attrition to hopefully still be around the 1% or close to that for 2022.
Awesome. Thanks.
The next question comes from Brian Rotenberg from Imperial Capital. Please go ahead.
Great. Thank you very much a couple of quick questions, let's start off with housekeeping.
Capex for 2021, and what do you expect for 2022.
Yeah. So this is Alan we had capex a little about seven $8 million for 'twenty 'twenty. One now that did include about $1.8 million of that was related to some of the three D sensor replacement.
The fact that the capex could be similar.
For 2022, as we finalize and finish the remaining amount of the <unk> sensors and have miles to go lives that is similar to what we have in the 2021 or slightly higher.
Thank you. Our next question is on the the flow of revenue.
So you're talking about if I heard it right north of or right around $20 million in the first quarter and then there'll be a drop off because you're getting that make up the 2 million a slight drop off and then kind of steady from there growing from that second quarter.
Is that how to look at it.
Yeah. This is Alan are you you're you're correct normally what you would see from US is a flat revenue from Q4 to Q1, obviously, adding the $2 million from the a contract amendment and more revenue from friends or project that doesn't make sense, but what do you think about in terms of Q.
One is if you just take the E. R. R of 69 million combined divide that by four you starting somewhere around $17 million by that alone you add the $2 million catch up from the NYPD Amendment.
We're over 19, and then Oh.
On top of that we know it's going to be over $1 billion for professional services and we're also going to be going live on respond miles. So that's how it's pretty easy to see how we're going to get to the $20 million for Q1.
Calling about Q2 is is is accurate, we're not going to get that $2 million again in Q2. So it is likely that there might be.
Somewhat flat ish revenue going from Q1 into Q2 or even a slight.
Reduction, but not not much based on what we're expecting right now.
Okay.
No. That's very helpful. Thank you very much and the profitability should we get a desk proportionate profitability bump in that Q1 because of.
The expenses that were already recognized I assume in Q4 without the revenue then your margins are going to be massively inflated maybe massive as not a financial term, but inflated in the first quarter, because youre not going to be recognizing those same kind of expenses for them that $2 million.
Yeah. This is Alan again, you are correct.
Did you.
Get most of the cost of goods sold well actually all of it related to the November and December performance of that contract in Q4, so when we get to $2 million in revenue, it's going to be mostly hitting down to gross margin and down below the net income we do have some commissions.
That are related to that so you won't see all of that however, Q1 is going to be significantly higher in terms of our profitability versus what it would be without that $2 million.
Okay, and then last question that's more of a macro.
And I like the acquisition of forensic logic that makes sense, what else do you need to add out there what else what are the missing components that you need to sell into these large municipalities and other.
Municipal local governments that makes sense for you to add on as it all software related or is there any other direction you're playing together.
Yeah. This is Ralph I think we're in a pretty good shape right. Now if you think about law enforcement is kind of pursuing a digital journey of automation and using.
Data to be more precise and impactful and hopefully equitable and how they.
Work with providing public safety two cities I think we're in a good place I mean, we have a really unique acoustic gunshot detection solution. We're now, adding just kind of massive dataset that.
Can be.
Purposely used I would say by law enforcement to engage in precision policing, we've got kind of patrol management solution and we have an incredibly.
Powerful investigative case management solution, which for US is interesting because it allows us to kind of move outside of our traditional Tam of local law enforcement agencies and kind of move upstream to kind of a state investigative agencies as well as federal investment date of agencies that typically wouldn't be a customer for acoustic gunshot detection. So.
I feel like our plate is pretty full right now and we have everything we need to kind of execute to a precision policing platform solution for local state and.
Federal investigative agencies.
Great and then just one other follow up to that.
Is it one sales force do you have to have.
Types of salespeople coming in you know into.
Las Vegas for example, you have yeah, one key contact cannot one key contact sell everything or do you need to bring in a different sales.
Fashionable to sell the different products.
Yes, so the way we've gone to market as we have kind of a territory based.
Sales organization and then we have overlaid sales reps that have specialties. So one for say connect one for our acoustic gunshot detection solution respond.
Investigative case management, the same thing will be true for principal logical, though where we have a little bit of a crawl walk run fly scenario with our acquisitions, so theyre going to be operating in somewhat independent state. They have a number of sales initiatives in place already we don't want to interfere with that but we are kind of coming together.
On some select opportunities again, where we can cross sell into each other's installed base.
Great. Thank you.
The next question comes from Jeremy Hamblin from Craig Hallum Capital Group.
Please go ahead.
Thanks for taking the questions here and I wanted to come back to the fiscal 'twenty two guidance here and make sure that I parse apart.
And a little more detail. So you know you've changed the total guidance by about.
$10 million for the year.
And you have roughly $2 million of our catch up payments included in there. So I guess the apples to apples guidance change would be about $8 million you have an acquisition, that's roughly kind of $6 million. So I'm just trying to yeah on an IRR basis in terms of.
Understanding the you know kind of the gross.
Impact of.
You know of the leads contract expense expansion is that just like kind of a couple of million dollars.
You know I guess, what I'm trying to understand the what the change was in your guidance for the legacy response side of the business.
Yes. This is Ralph it's up it's up $2 million I think you approached it correctly, there's a $10 million difference $2 million of it is catch up revenue from the contract Amendment, we're saying 6 million, we're adding from leads so that leaves another net $2 million from what I would call our kind of core business just not acoustic gunshot.
Detection, but investigate connect as well as security and international So all those things together.
Have are adding up to an additional $2 million. So you add that $2 million to the $2 million and catch up in the $6 million from leads and that's how you get to the $10 million bridge.
From our earlier guidance to the new guidance today.
The 6 million Theres, some forensic logic, nowadays I'm, sorry, I said Lee I'm sorry, Thank you for correcting me.
Yep forensic logic.
Okay got it and then understanding just the operating expense impact of the forensic logic acquisition as well as any additional costs that are going to be incurred related to the the larger contract on a go forward basis for a for the legacy leads business.
Any color you can share on that.
Yeah. This is Alan I mean at this point, we know that.
We're still working with forensic logic to maximize the profitability that they can get to and do you expect that a little bit of revenue growth will be required for some of that so we will be spending.
Some money related to that to help them continue to grow that said if you look at our earnings.
Script or the earnings release as well, we've already said they were going to be at the 15% to 20% adjusted EBITDA.
Margin is where we expect to end the year in 2022, so there.
There might be some more costs related to opex, but we also have higher profitability across the board and most of our areas.
Okay got it and then in terms of that coming back to the full year guidance are excited to hear that the south Africa's potentially coming back can I assume that that's not included in your your guidance figure.
Yeah. This is Alan.
Yes, so so Ralph mentioned it is risk adjusted when we do.
Expect our revenue guidance with some in incremental changes from international but risk adjusted means that if we do win at 100%. It is likely that the actual revenue that we receive on an ongoing basis might be a little higher than what we have originally in the guidance.
Okay, Great and then last one I guess in terms of you know this the ongoing litigation of defamation suit.
That's been a pretty costly in terms of the EBITDA impact totally understand the rationale for defending the company and the brand.
In terms of thinking about that potential impact in 'twenty. Two do you feel like the expenditures have peaked and are on their way down do you feel like there's potential for that to accelerate further any color that you could share on where you feel like.
That distraction kind of is for the company.
So this is Alan I'll go ahead and talk cost and then Ralph maybe thought intentions there it.
It is absolutely true that our costs related to legal fees are in 2020 . One we're north of $2 million for us that that is about twice what it normally would be the majority of that was related to not just AR device media, but also the additional legal costs.
We have related to a large number of subpoenas that we've been required to participate in related to our solutions.
So to answer your question directly where do we see 2022, we are expecting legal cost again to be somewhat north of $2 million.
Unless something happens with price sooner rather than later, we would expect to continue to have a quarterly cost you know north of $700000.
Okay got it any additional color you want to sure Ralph.
No no no I think Allen summed it up very well.
Alright, great. Thanks, so much for taking the questions guys best wishes this year.
Thank you.
The next question comes from Mike Latimore from Northland Capital markets. Please go ahead.
Great. Thank you.
Yeah, just on the investigate product can you give a little update on progress.
Progress selling that outside of New York account.
Yes. So this is round so the pipeline continues to build we actually have.
A sale that we're in the process of taking live right now for an intelligence unit of a.
I'll call. It 10, a tier two local agency.
We've responded to a RFID and also RFP.
One the ladder when we're pretty excited about that would be a seven figure <unk> deal if.
If we're able to bring that across the line and we're really quite excited about some of the things that we can do on the product side kind of emerging some aspects of the Princess logic Coplin ex solution into a investigative platform, that's a pretty pretty exciting.
Yeah.
And then in terms of the core respond business.
Hmm.
Should we assume that the states and cities that were important in 2021 are continue to be important with expansions or are there. Other reasons that are going to be elevated and more important this year.
Yes. So my expectation is again as Alan already pointed out what we expect to do north of 100 miles of go lives last year, we kind of forecast at 90, and we did over 100. This year, we're forecasting over 100, and I think those 100 miles of domestic miles.
By the way I think there'll be a mix of expansions and new deployments.
And there's some really interesting things are out there that people can look in the press since a couple of really interesting rfps that are coming out that we're pretty excited about.
For new customers and there is one particular customer is talking about doing a fairly major expansion, we haven't seen an order yet but were obviously kind of work in that one really hard. So we're we're pretty we're pretty excited and we were really pleased with the traction.
Traction we saw with our tier four tier five program. These are kind of smaller agencies, where we kept them out at no more than two miles typically at a slightly lower at a lower price and we've seen some really interesting kind of late in the year 2021 traction from agencies that have oh.
Our program, so we're expecting more growth there and outside of traditional respond to local law enforcement.
We continue to put up some really interesting use cases, I mean, sadly on our securities solutions, especially with the freeway projects were deployed in part of the freeway in the Bay area, that's encountered multiple tragic shooting incidents.
Where we've alerted on those and we're starting to see some other.
State.
Highway agencies take note of that so we're really quite excited about significantly expanding our footprint with respect to a freeway deployments. So that's also kind of contributing to our view.
Few of kind of bullishness for 2022.
Got it.
Last one on the <unk> replacement.
Obviously, you've done really well in miles this year, but I'm wondering as a three D replacement dynamics, maybe been a distraction and it actually slows some expansions.
Have had otherwise.
Yeah. So this is Alan no they didn't a slow us down at all in fact, we started out with about 55 Hundred's region sensors. We've already replaced 3000 of those so not only are we able to go live in 100 miles.
101 miles. We also did 3003 G replacements, which means we only have about 2500 bucks.
Oh God, yes.
Great. Thank you.
The next question comes from Eric temperature from JMP Securities. Please go ahead.
Yeah, Thanks for taking the questions.
First off I don't think you commented about the contribution from the patrol management in the investigative services can you give us any any color on what they were for 'twenty, one or what we might expect for 'twenty two.
Do you want to take this is al I think it's asking about yeah, I think you're asking about connect.
In terms of management side the product, yes. So.
We are continuing to work hard on expanding the number of customers that we have its probably a little slower than we had hoped although as Ralph mentioned earlier, we did go live with a larger city, Larry just today, which is a sort of a greater than six figure type deal. It is.
Something that we are adding additional more capability in the sales and marketing side.
And our hope that we see continued growth on that in 'twenty two.
Oh, Okay, and then on the investigative side.
Yeah.
So I think.
Go ahead Rob.
No go ahead I'm sorry.
I was going to say on the investigate side as Ralph just mentioned, we did just go live with one second tier city.
So that are working to go live with them or are we signed that contract a couple of months ago, and they're going live with them. Soon and then the larger projects that we have bid from the <unk> and Rfps.
Our our so still somewhat new but it could be as high as seven figures in terms of annual recurring revenue for those so we're still quite early in the stage with investigate them, but we're seeing a positive.
Momentum and a lot of it just come back.
Okay.
I think you'd said you only had one new account in 'twenty, one, but it sounds as though you have a pretty a pretty good pipeline of new opportunities can you give us some color around what new new account a number of new accounts you might hope.
Hope for.
I think we can.
Referring to one new account for Q for Q1 or excuse me Q4.
Not for the year alright.
Hey.
Alright.
Can you give us a sense of.
How many new accounts, we might look for though in in 'twenty two.
That's why we.
We don't we don't really break it out that way I think I mentioned, you know again, we're expecting to do more than 100 miles on kind of domestic local law enforcement respond miles, but it'll be a mix of expansions and new accounts.
Yeah.
Wouldn't want to throw out a number but it'll be it'll be more than a handful I would imagine because youre going to have some of those tier four tier five agencies that jump on it one or two miles and then you might have.
Another medium sized agency you know.
A handful of those kind of come on with three or four miles, but then.
We will expect to have some percent a reasonable percent of that 100 miles come from expansions.
So.
But I wouldn't I'd hesitate to give you a specific number.
Okay. The last question.
Any sense on time frame for the device media.
Lawsuit Ah shall we I presume that will be continuing through 'twenty two.
Any comments in terms of how that can how long.
Long that might last or how we might be a how the expenses might.
Through the year.
Yes, we're in it for the long haul so I can't I can't give you a timeframe. These things can take a while so we're.
You know it's ongoing it's probably the best I can I can tell you right now, but we are very.
Im happy about being able to extract out.
Retraction from at least five publications that are basically repeated the vice lives and so thats really quite encouraging so we're already getting I.
I would say some return on our investment.
In that regard again, our goal and device lawsuit is.
You know first defend our ecosystem stakeholders, because we were being accused along with local law enforcement of.
Engaging in framing innocent people, so we want to defend ourselves and our stakeholders and we're doing that we wanted to correct. The record is the second thing and we're doing that and have made good progress in getting these retractions and then the last thing we want to do is hold device to account and that's where the you know the.
The formal defamation suit just has to play out in the Delaware courts.
Alright, very good thank you.
Once again, if you have a question. Please press Star then one.
Press Star then one now.
The next question comes from Matt Pfau from William Blair. Please go ahead.
Great. Thanks for taking my questions guys wanted to ask on the improvement in the sales and marketing inefficiency and Ralph you called out you know that sort of word of mouth around shotspotter and hit an inflection point, but you know I always sort of thought of you guys having.
Good board of mouth, among police chiefs. So so maybe you could just sort of call out what changed or what's causing that that inflection that you mentioned.
Yeah, I mean, so more is better.
So you've got you know kind of going from maybe 20 net promoters to 30 net promoters that are coming from different size agencies in different locations has an impact.
Like on a go forward basis, I think we've talked a lot about.
The tipping point synergies that took place in the Ohio, The state of Ohio, and one of the key drivers of that was an assistant cheap and one of the cities in Ohio that is now chief of police in Virginia, and so we're anticipating that that you know.
That Virginia deployment, where we're now deployed.
Successful will be delivered and communicated it will make it a lot easier for neighboring agencies and we're already seeing it with some invitations were seen from cities to come into.
And the state of Virginia to talk about what we're doing acoustic gunshot detection, that's how that plays out.
Same thing in the state of Texas. This dynamic between the city of Houston in Harris County.
And so that's that's really good and so we kind of see that when we see that potentially spreading.
Our expectation is we're going to make Pasadena extremely successful and that'll be a very interesting a beachhead in the southern California region combined again with a very strong set of relationships and brand loyalty that forensic logic has been able to drive.
With Los Angeles County, Sheriff's organization, and all the municipalities that kind of roll up under.
The Sheriff's organization the county Sheriffs organization there. So that's how that's how that works you know from being around the company that we pay.
Very close attention just not to the net promoter score, but the feedback that we're getting from agencies and how they perceive value and things that we can do to enhance value and we're just very.
Intentional about kind of responding to that and improving every single day, and we're getting better and better at it and we've been able to maintain you know.
A world class NPS score and the benefits of the rapid reference ability that takes it takes.
It takes off from there because were pretty intentional about it.
Great and then just one more from me and in terms of the funding environment and great to hear that that's remain really strong with with inflation being a pretty big focus for everybody at let's say the economy were to cool down a bit how do you think about that.
Cooling of the economy in terms of its impact on the funding environment for you guys.
Well I'll jump in and Allen.
Come in behind and corrective, if I say anything offsetting but look I think the bigger thing that we have to appreciate is tenant besides inflation.
Is the cost of violence in crime in cities and I don't know, if you're paying attention or not but.
There's just a lot of pushback from a lot of cities that are experiencing any measurable uptick in crime.
And they they are compelling cities to do something about it. So this is a business of responding to preventing reducing engaging and violent crime suppression holding criminals to accountant alike.
It's got a very strong ROI case, and so I think the you know the.
Inflation stuff is a bit of noise element as far as I'm concerned it is way way.
Shadowed by just again, the real issues related to violent crime that is raging across small medium and large cities. It's real it isn't it isn't made up we see it in our numbers, but I don't know how long do you have a different point of view on that.
No I I don't in fact, I think the interesting thing and I think it's helpful. For US is it's not just the violence, it's increasing but what shotspotter does to help not just lower some of the violence, but help actually save lives I mean, we've been doing this for a long time and I would say the 12.
One was really one of the first years that we actually saw people focused more on the number of lives that we're helping save just by getting someone there earlier or getting someone there at all so.
So I would say you know there's always challenges, but we're starting to see people really understand the value that we bring related to that.
Great. Thanks, guys.
At this time. This concludes our question and answer session. If your question was not taken you may contact Shotspotter Investor Relations team by E. Mailing S. S. T I, a gateway IR dot com.
I would like to turn the call back over to Mr. Clark for his closing remarks.
Yeah. Thank you very much we really do appreciate everyone's support out there and we're really looking forward to engaging directly with many of you in person over the next couple of months. So thank you very much again, and we'll see you in three months or so.
Thank you for joining us today for today's call you may now disconnect.
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