Q1 2022 Shotspotter Inc Earnings Call
Good afternoon, and welcome to Shotspotter as first quarter 2022 earnings Conference call. My name is Tom 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.
<unk> 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.
Certain of these risks and assumptions are discussed in its shotspotter SEC filings included in 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 May 10, 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 everybody that this call is being recorded and will be made available for playback via replay a link available on the Investor Relations section of the company's website at IR Dot Shotspotter Dot com and now I would like to turn the conference over to Shotspotter CEO Ralph Clark Sir. Please proceed.
Good afternoon, and thanks 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.
After a strong 2021, we've continued to build on our growing success with SaaS and positive start to 2022.
We reported record revenues of $21 2 million up 41% from Q1 of 2021 and had a quarterly adjusted EBITDA of $4 5 million up 35% year over year.
Our adjusted EBITDA profitability once again demonstrates the unique operating leverage of our business model, even at the sub $100 million revenue run rate.
We were pleased to go live in four new cities with Shotspotter respond, including Houston, making Bibb County, Pasadena, and Virginia Beach.
We also expanded respond coverage in Albuquerque, Syracuse in Louisville, and went live with two new security customers, including the commercial manufacturing campus.
We entered Q2 with a solid number of new city and expansion projects and the respond Shotspotter deployment pipeline that we expect to go live in Q2, and Q3 and are now targeting going live with at least 120 miles of domestic respond in 2022.
This will represent a 20% increase of go live miles from 2021, and 144% increase of the miles that went live in 2020.
We're seeing a strong and growing demand for our acoustic gunshot detection solution as agencies of all sizes across the country grapple with the measurable uptick in gun violence in their respective cities.
Acoustic gunshot detection as a mission critical technology that addresses the significant 80% plus underreporting and lack of law enforcement response to criminal gunfire.
Our unique patented and proven gunshot detection solution breeches that public safety gap by precisely locating and alerting police of criminal gunfire in real time.
It enables law enforcement to reduce response times increase evidenced collection accelerate investigations and ultimately improve community engagement.
We're seeing a growing contingent of successful law enforcement executives and their elected officials coming to view our solution as a critical component of any strategic gun violence prevention strategy.
In addition to the strong go live results of our core product Shotspotter respond. We're also pleased to have gone live with our largest deployment to date of our patrol management solution Shotspotter connect in Miami Dade County.
When completely deployed connect will drive directed patrol operations for almost 3000 patrol officers at Miami Day.
We currently have over 300 patrol officers across 10, plus other deployments that are actively using directed patrols in their respective agencies to more efficiently and effectively prevent crime without over policing or over relying on enforcement interventions.
We're proud to acknowledge that over 100 patrol officers have been admitted to the Shotspotter 100 connect club by conducting on average over 100 directed patrols per month using connect as of this year.
This is a positive indicator of the strong customer adoption and usage of connect which is producing positive results for our customers.
We also recently announced insight version, two which is the analytical and reporting tool integrated with both respond and connect which we believe further advances the product market fit of connect and will drive additional opportunities for this year.
I'm personally thrilled to have expanded our precision policing platform initiative with the acquisition of forensic logic in early Q1 of this year.
Principle logic provides the leading law enforcement data sharing and crime analytics network that is used daily by tens of thousands of authorized law enforcement users as they initiate investigation and drive case momentum on our local as well as cross jurisdictional basis.
Forensic logic is one of the largest aggregators of indexed and searchable CGM data with a robust national footprint, creating even more utility for current as well as perspective users.
We're very pleased to see the steady increased user engagement other forensic logic comp linked AD solution following our acquisition the.
The increase adoption is being fueled by broader usage by larger customers and the continued transition from legacy on Prem comp linked products to the modern cloud based comp link X.
We're already seeing strong product and go to market synergies, primarily between forensic logic comp link accident Shotspotter investigate our investigative case management solution.
We have recently engaged in three cross selling and up selling campaigns to each respective user installed base as well as to completely new prospect list of investigators. We believe the campaign results. While early have been positive and are allowing us to grow the pipeline for both comp link <unk> and investigate.
The funding environment is stronger than ever.
As local state and federal agencies focus their direction and prioritize their budgets to help local law enforcement turn the tide on violent crime.
I'm happy to report that the recently reintroduced earmark process, which included earmarks directly focused on funding acoustic gunshot detection was successfully passed in the appropriations Bill signed into law March 15 2022.
A few notable earmark requests for gunshot detection that were approved in the Bill included ones for Manchester, New Hampshire, Wilkes Barre, Pennsylvania, Mansfield, Ohio, and for Opa-locka, and Deerfield Beach, Florida.
We believe this is just the beginning.
Late last week, a formal letter was sent by several house members to the chairman and ranking member of the Subcommittee of Commerce, Justice and science appropriation or <unk> for short advocating the increase for funding for burn Jack and cops.
Burnt jagged cops technology grants are used by local law enforcement agencies to fund several initiatives, including improved tools and technologies like Shotspotter and crime intervention and prevention strategies.
We're maintaining our previous full year 2022 revenue guidance of $81 million to $83 million, representing 41% revenue growth from 2021% to 2022, while increasing our adjusted EBITDA margin expectation from 15% to 20% to 19% to 21%.
This guidance assumes no significant large state level comp link X deals are executed and taking live which could present, some potential upside to our guidance.
Let me now turn it over to Alan who will share some more detail on our financial results for the quarter.
I look forward to taking your questions. Once these finished over to you Alan.
Thank you Ralph.
We're pleased with our performance in the first quarter as Ralph mentioned this quarter. We went live in four new response cities expanded in three cities added two new security customers.
And start a response pilot in Atlanta.
Our only attrition was a quarter mile laws with an old customer buy.
Financially we achieved record revenue.
Record gross profit and record adjusted EBITDA.
Let me provide more details on the quarter and then I will share some thoughts around the balance of the year.
First quarter revenues were ahead of expectations at $21 2 million, an impressive 41% increase over the $15 million in the first quarter of 2021.
Revenue increased as our deployed miles are up year over year.
We also recorded our first full quarter of revenue from forensic logic acquisition and revenue related to contract delay from leads that we mentioned in our last earnings release.
Gross profit for the first quarter of 2022 was $12 7 million or 60% of revenue.
Versus $8 7 million or 58% of revenue for the prior year period.
Gross margin may continue to be moderately impacted as we continued to replace <unk> sensors through the end of the year.
We also saw impressive growth in adjusted EBITDA for the first quarter, which was $4 5 million.
A 35% increase from the $3 3 million in the first quarter of 2021.
As a reminder, adjusted EBITDA non-GAAP financial measure is calculated by taking our GAAP net income and adding back interest income income taxes, depreciation amortization stock based compensation expenses and acquisition related expenses.
Turning to our expenses, our operating expenses for the second quarter were $12 2 million.
Or 58% of revenues.
$8 5 million or 57% of revenues in the first quarter of 2021.
Operating expense increases were primarily related to higher legal and employee related costs as well as incremental costs related to our forensic logic acquisition.
Breaking down our expenses sales and marketing expense for the first quarter was $5 2 million or 24% of total revenue versus $3 9 million or 26% of <unk>.
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.
We also added sales capacity for investigate product to position. This segment for growth this year and into 2023.
Our R&D expenses for the first quarter were $2 7 million or.
For 13% of total revenue compared to $1 7 million or.
Or 11% 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 $4 3 million.
Or 20% of total revenue compared to $2 9 million.
Or 19% of total revenue for the prior year period.
The increase in G&A expenses was primarily related to an increase in legal costs.
Our G&A expenses will continue to increase in absolute dollars as our company grows for the year. We expect it would decrease as a percentage of revenues from what we experienced in the first quarter.
Our adjusted net income for the first quarter was $488000 or <unk> <unk> per share based on $12 2 million basic.
And $12 3 million diluted weighted average shares outstanding.
This compares to $244000.
<unk> per share based on the $11 6 million basic and $11 9 million diluted weighted average shares outstanding for the prior year period.
Adjusted net income a non-GAAP financial measure is calculated by taking our GAAP net income and adding back acquisition related expenses.
When accounting for acquisition related expenses, our GAAP net income was $387000 or <unk> <unk> per share basic and diluted for the quarter.
Deferred revenue at the end of the quarter increased to $35 5 million.
From $26 $7 million at the end of fourth quarter 2021.
And the increase was primarily related to our growth in revenues and the addition of forensic logic deferred revenue.
We ended the quarter with $8 $9 million in cash and cash equivalents versus $16 million at the end of fourth quarter 2021.
The decrease is primarily related to $5 million in cash used to acquire forensic logic and payment of 2021 company. One this is during the quarter.
During the first quarter, we also repurchased 57623 of our shares at an average price of $28 34 per.
For approximately $1 6 million.
We have no short or long term debt outstanding and as previously discussed we possess a $20 million line of credit to improve financial flexibility.
Turning to our full 2022 outlook, we are maintaining our full year revenue guidance at <unk> $81 million to $83 million.
And we are increasing our expected adjusted EBITDA margin from 15% to 20% to 19% to 21% of revenues.
Now back to Ralph for some final thoughts and then will be happy to take your questions.
Thank you Alan.
We're feeling confident about our long term prospects as a precision policing platform provider. The law enforcement profession is at a critical juncture <unk>.
Increasing demand for public safety without brute force policing, while being manpower resource challenged is driving the demand for precision policing solutions.
We believe our growth opportunity is structural.
Our solutions are both sticky and viral as proven by our high retention rates and by our extremely low less than 50, <unk> sales and marketing spend per dollar of new annualized contract revenue.
When you put those factors together, we believe you get a compelling business franchise opportunity that has the additional benefit of engaging and making a difference while doing work that matters.
We're now happy to take your questions.
We will now begin the question and answer session too.
To ask a question press Star then one on your Touchtone phone if youre using a speakerphone. Please pick up your handset before pressing any keys.
To withdraw yourself from the question queue. Please press Star then two we will pause momentarily to assemble our roster.
Okay.
And our first question comes from Brian Rittenberry with Imperial capital. Please go ahead.
Yes. Thank you very much congratulations on the quarter and the guide.
Yes.
You broke up a little bit there.
Okay.
Okay.
Yes, we can.
We can't hear the question sorry about that Brian Your line is now a muted again.
Okay can you hear me now yes.
Yes, yes, okay, great. So a couple of quick questions in terms of guidance you took.
Miles up from 100 to 120, but didn't didn't change the revenue is that correct.
Yes. This is Alan so that's correct in terms of the revenue guidance right now we feel really good about the miles going live.
And as we have mentioned in the past.
The revenue is somewhat obviously tied to when the miles actually go live. So you can expect that some of those miles are going to go live in.
Into Q3, and Q4, which will lower some of the revenue increase but significantly help us as we look at the <unk> going into 2023.
Okay. So that leads me to the next question on 2023.
It looks like you have a lot of momentum going into 2023, because it's going to be back end weighted you should see a lot of.
It appears because of that you should see a lot of growth.
In 2023 versus 2022 is that correct.
Yes, Thats correct, although we're not formally given guidance for 'twenty three I think we're trying to set the pieces in place to have a terrific 2023 off of a pretty strong 2022.
Great and then in terms of expenses.
You had in terms of sales and marketing and G&A in the first quarter, we should expect that level or somewhere around that level kind of going forward on a quarterly basis or was there anything onetime in nature of that was in first quarter.
Yes. This is Alan.
Look at those as as general in terms of percentages. So for example in Q1, our sales and marketing was about 24% Q4 was 26% so somewhere around there is about where sales and marketing would be.
R&D has stayed pretty similar or the same about 13% Jim.
G&A.
Does have some additional costs related to that tied to legal.
We are hoping will go down so the actual G&A percentage should stay at 20% or less.
Okay did you breakout legal.
In the quarter.
We did not break it out but we can tell you that there was about $1 million in terms of legal expenses for the quarter, which is the highest we've had to divest.
Okay, and then final question on pipeline.
Can you give us some kind of reference.
A data point it sounds like your pipeline is stronger than it's ever been with what's happening here can you give us some kind of reference how much you are up year over year or quarter to quarter or something as a data point.
Yeah, So maybe I'll jump in now and then feel free to correct me or add on as appropriate I think the one thing I would describe the pipeline.
As has been a lot more diverse than it's been so its certainly bigger and more robust, but it's also more diverse we're less dependent I would say on domestic go live miles, although that's appearing to look very strong for us in 2022, we're going to expect to see more contribution of revenue coming from <unk>.
<unk> outside of domestic Shotspotter respond. So think cannot think investigate thank top link I think about our work with leads and also think about international we expect all of those will be contributing to our revenues later this year and going certainly going into 2023.
Great. Thank you.
The next question comes from Richard Baldry with Roth Capital. Please go ahead.
Thanks.
Look at the Opex side, and the Cogs side in the quarter it steps up pretty strongly sequentially, but there was an acquisition in there.
Curious if you can break into that and attribute.
A portion to the acquisition and so we can kind of see what you've spent to drive growth organically as opposed to just adding on from the M&A side.
Yes. This is al and then go ahead, Ralph you can correct as well.
From the <unk> acquisition.
Opex is.
Round $1 5 million.
So that is.
US a bit of a significant amount of the $12 two for the quarter.
So as we just compare things if you look at.
Where we ended Q4 at around 10.6, and you take out the $1 five really hasnt been a significant increase in opex. It is something that we are working on to make sure that we're spending appropriately.
Spending in the white areas.
Okay.
Go back as he only two years your sales and marketing.
Quarterly is about doubled now you're talking about how productive you feel that is sort of what stage of maturity the additions you've been able to make.
So our building pipeline.
Getting to know the products. We've also expanded the products how much people are able to cross sell or when do you think that that will really sort of gaining material traction.
Yeah.
Yes, I would say the revenue split with that yes go ahead go ahead I'm sorry.
I guess I would say the first thing is that the actual percentage of sales and marketing in the last.
Five quarters has stayed pretty close to 25%. So we are spending a lot more in terms of absolute dollars, but as the revenue increases thats, because we have more products, our sales and our marketing team has basically doubled over the last couple of years.
So keeping it around that 24, 25% is our goal, but that's because we've already added a lot of capabilities there.
So well.
Yes, I think Thats right I think I would expect it to normalize off a little bit I don't think it stays at 25% I think as revenue grows.
The rate of growth of expenses grows more slowly so there's there's definitely nominal growth, but I would expect it to grow at a slower rate than top line revenue because I think we're at a fairly normalized.
Place right now with the head count that we've added both in marketing as well as sales to basically drive a much more.
Robust solution set I think if you go back three or four years rich when you got to know US we're basically acoustic gunshot.
Coosa gunshot detection domestically now we're much more global we're including things like patrol management, we're including things like investigate we have this incredible leads opportunity that we've done really an amazing job with in terms of growing its top line. We've recently added of course forensic logic.
And the data services business, which has a lot of potential much broader tam that we're adding to our existing Tam so of course going along with that.
It's going to require people will go out and sell sell those solutions. So we think we're in a pretty good place and we've done the right thing in terms of how we've invested in our go to market resources.
Last from me would be if we.
Look at the funding backdrop seems to be pretty good could you maybe talk about how how many of the solutions fit into different buckets, whether that's infrastructure or.
Earmark and whether you're starting to see prospects come into your pipeline that you might not otherwise see without those types of.
Spending buckets being available thanks.
Yes, so I think probably in Alan jump in here as appropriate, but I think the best way to think about this is to think about or.
Precision policing suite, so we start with acoustic gunshot detection.
It produces some really interesting data that data is also being used by our patrol management solution. When you add on the.
Forensic logic piece that as nothing but data and really excited about that opportunity because of course.
Certainly precision policing.
Requires data in forensic logic has an amazing footprint is.
And is quite synergistic with our ambitions of being a precision policing platform company and then the investigate product is also very data oriented and I think when you put all those things together, it's really around kind of how we think about automating and digitizing. The front office. If you will of a police department I think police departments have made a lot of investments in the <unk>.
Back end infrastructure, and you think about CAD in RMS those are very well defined product.
<unk> paste product.
Spaces and places I would say, whereas this kind of front office application area of how we are directing patrol, how we're helping detectives initiate and solve cases and the like and how we're getting officers two incidents of criminal gunfire. Those are all very front office oriented and there hasnt been a big investment there.
And we see a huge greenfield opportunity for us to be a significant player in the kind of front office digitization process of policing or precision policing if you will.
Alright. Thanks.
Okay.
The next question comes from Matt Pfau with William Blair. Please go ahead.
Hey, guys nice results and thanks for taking my questions.
First ask on I think you said that there was a pilot launch in Atlanta in the quarter, maybe just sort of expand on that and I believe you've got Houston through a pilot as well as that sort of a new strategy that you are starting to pursue with some of these tier one.
Cities.
I'd say on a very selected on a very selective basis. Yes. So there is certainly the Houston pilot that's been very successful they ended up converting that to be a paid customer and then doubling the expansion.
In Houston, and then Atlanta, we have great hopes for Atlanta, we're still in the very early stages of our pilot Atlanta. So I don't have anything to report on that but we're hopeful that that's going to.
Go a similar path as what we experienced in Houston.
Okay.
Got it and then Ralph I think you mentioned.
In your remarks, something about Cop link X.
Potential statewide contracts not not included in the guidance, maybe if you could just sort of expand on what those contracts would look like and are there.
Some of those in the pipeline currently.
Yes, so one of the interesting things about about comp link is they sell to both our traditional.
Local law enforcement buying center, which is kind of local police departments, but they've also been quite successful in selling these index and aggregated data plays at the state level into other law enforcement agencies that sit outside of attrition traditional local law enforcement police.
<unk> Department type of thing I think.
<unk>.
One I would say, Tennessee is a pretty interesting case study, where they've been able to sell the comp link solution statewide in the state of Tennessee.
It's a seven figure deal to give you a sense of the scalability of these things there are some other states that we're pursuing jointly outside of Tennessee that we're pretty excited about although from a timing point of view, it's not exactly clear when those can happen. So that's why we're being a little bit.
Cautious about not getting over our ski tips and including those in our guidance, but definitely in our pipeline and could contribute.
Quite significantly to our 2023 results.
Got you and last question for me just in terms of the non responders.
Potential contracts in the pipeline are those primarily cross sells to your existing customer base or are you seeing the ability to perhaps target some non respond customers with those products as well and I guess, the states would kind of fit into that category that we just discussed.
Yes, I'd say, it's a mix of the two.
Both I mean cross selling to our existing installed base and then also leveraging the set of relationships that.
Comp link has outside of our traditional shotspotter respond installed base, that's pretty interesting where theres a lot of cross sell upsell opportunities for us.
Okay.
Great. Thanks, guys I appreciate it.
Thank you.
As a reminder, if you'd like to join the question queue Press Star then one.
The next question comes from will power with Baird. Please go ahead.
Hey, guys. This is Charlie Ehrlich on for will thanks for taking the question.
Ralph I think you mentioned a couple of cities new responsibilities and the expansion in three cities would you mind, just repeating which cities are the four new ones in which cities did you expand within the quarter.
Sure to repeat that so the four new cities that we went live with domestically with Shotspotter respond in Q1 was Houston.
Because thats when they became a paid customer effectively one one of this year, making Bibb County, Pasadena in Virginia Beach.
And then we had expansions in Albuquerque.
Syracuse and Louisville.
Along with two new security customers and one of those security customers was a really interesting commercial manufacturing campus. So a little bit outside of the traditional higher Ed campus, we typically have installed and with our security deployments.
Okay. Thanks, and then is there any.
Way you could help us break out the revenue from respond in the quarter connect investigates forensics.
You get a little bit of a better picture of how much contribution each of those pieces Ed.
Yes. This is Alan I would say the majority is still related to two respond however.
When we count some of the catch up that we had related to the lead section.
That ends up being about 2025% of the revenue.
We also had our first quarter of forensic logic and the forensic logic.
Was was around $1 $5 million as well.
Okay, that's very helpful. Thanks.
And then Alan I, just wanted to talk about the increase from 100 to 120 miles expected in 'twenty two.
Where did that increase come from in terms of it.
Is the delta the domestic respond business tier ones tier threes international any more color on that Delta.
Yes. This is Alan I'll start with this and we're all going to add as well I think the biggest thing that we're seeing is there are some.
Some new opportunities that we know are in development right now that are helping US go from that 101 that we had last year to 120.
So those are those are expected to be under contract in the next several months when they actually go live is where we.
Well the revenue actually be up.
Dependent on that.
But we are also seeing some tier four tier five.
Smaller cities and sometimes those even come a little faster that's generally like one to two miles.
And we're seeing more of those as well.
So it's a mix actually.
And I would just add those are all domestic too by the way. So that doesn't include international that's a separate line items from our point of view.
So the 120 is just for domestic miles.
Got you that's helpful and lastly from me on the International point.
Okay.
Dated thoughts between now and three months ago any increased confidence.
You might get more miles than you previously thought you might or just any updated thoughts on international for 2022.
So this is Ralph and Alan jump in here, but I think we're feeling really good about international I think we've talked earlier about us responding to Cape town issued tender and although we havent been officially awarded the tender we have been fairly constant I would say communications with the supply chain in Cape town.
Discussing.
Actual coverage areas pricing and the like so we're feeling really good about that and I think theres also opportunities beyond Cape town, although they'll probably be in the second half of the year outside of the U S and outside of South Africa Central America.
Caribbean and Latin America, or South America.
We think theres another opportunity in there for US in addition to the Cape town opportunity.
Awesome, Thanks very much.
Mhm.
At this time this concludes our question and answer session.
Your question was not taken you may contact Shotspotter Investor relations team by E. Mailing S. S. T E at Gateway IR Dot Com I'll turn the call back over to Mr. Clark for any closing comments.
Thank you so much and thanks, everyone for joining the call today, Alan and I are both looking forward to seeing many of you in person hopefully over the next several months okay.
Take care Bye bye.
Thank you for joining us on today's call you may now disconnect.
Yeah.