Q4 2024 SoundThinking Inc Earnings Call
Speaker Change: Good afternoon and welcome to Sound Thinking's fourth quarter and full year 2024 earnings conference call.
Diego: My name is Diego and I will be your operator for today's call. Joining us are SoundThinking CEO Ralph Clark and CFO Alan Stewart.
Diego: Please note that certain information discussed on the call today will include forward-looking statements for our future events and sound thinking, business strategy, and future financial and operating performance.
Diego: These forward-looking statements are only predictions and are subject to risks, uncertainties and assumptions that are difficult to predict and may cause actual results to differ materially from those stated or implied by those statements.
Diego: Certain of these risks and assumptions are discussed in sound thinking SEC filings.
including this registration statement on Form S-1.
These forward-looking statements reflect management's beliefs, estimates...
Diego: and predictions as of the date of this live broadcast, February 25th, 2025. And sound thinking undertakes no obligation to revise or update any forward-looking statements to reflect events or circumstances after the date of this call.
Diego: 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.soundthinking.com
With that, I'll now turn the call over to Ralph.
Ralph Clark: Good afternoon, everyone, and thank you for joining us today for Sound Thinking's Q4 2024 earnings call. I'll start by providing some high-level commentary on our Q4 and year-end 2024 financial results, along with an update on our key strategic initiatives.
Diego: Alan will then review our financial results in more detail before we take your questions.
Diego: 2024 is in the books and it was a year of measurable strategic financial and operational progress for sound thinking even as we successfully pushed through some isolated headwinds.
Diego: Our queue for revenue decreased by 10% year-over-year to $23.4 million.
Diego: primarily due to approximately 3.5 million dollars of a delay due to two contracts with New York City Police Department or NYPD that we have been working on to renew prior to contract expiration in Q4 2024.
Diego: One of the two contracts was formally signed and registered this February, and the other is currently signed and working its way through New York City's formal registration process expected to be in the next 30 to 45 days.
Diego: This delay is directly related to some of the recent and well-documented political distractions and personnel turnover in the city and NYPD command staff. Despite that, our full year 2024 revenue still grew by 10% to a record $102 million.
Diego: We believe this is a reflection of the strong demand for our public safety and security solutions across the Safety Smart platform.
Diego: As law enforcement agencies and security organizations respond to the ever-increasing demands to be more responsive and accountable in delivering public safety outcomes to communities they are accountable to serve and protect.
Diego: In 2024, ShotSpotter went live in 20 new cities, five new universities. We recognized 24 expansions and took 126 miles live.
Diego: Overall, we booked $75.7 million in net new and renewal subscription-based ACV, with 59% of those bookings representing multi-year agreements.
Diego: We're very pleased with the ShotSpotter International Pipeline growth in 2024 bookings momentum, including new city captures in Niteroi, Brazil, Nelson Mandela Bay, South Africa, and an expansion doubling our footprint in Montevideo, Uruguay.
Diego: We believe our international sales momentum is a testament to the effectiveness of ShotSpotter in a large and virtually untapped market outside of the U.S.
Diego: We expect to see future opportunities in new international cities in the Caribbean and Latin American markets, building on our recent collective successes in Bahamas, Uruguay, and soon-to-be Brazil.
Diego: We were also very pleased to reestablish our approximately 30-square-mile shots fired deployment in Puerto Rico in Q4 of this year.
Diego: As a reminder, our shots fired service in Chicago operationally concluded in late September with a formal contract termination in November.
Diego: In a very recent development, Chicago issued a formal RFP for gunshot detection technology to potentially cover the entire city of up to 230 square miles for a five-year term with three one-year extensions.
Diego: The Vendors Conference was held last week and formal bid submissions are due this April.
Diego: While we're in the process of evaluating a potential response, we would note that the speed and compressed timeline of the Chicago Gunshot Detection RFP is in fact a testament not only to the compelling need, but also the positive impact that gunshot detection has on communities and saving lives.
Diego: NYPD is currently our largest ShotSpotter customer, and as mentioned earlier, we are thrilled to have successfully executed a three-year contract renewal of approximately $21.9 million, securing the ShotSpotter service for NYPD through December of 2027.
Diego: Renewal extends our long-term partnership and relationship of close to 10 years and is indicative of the value at scale our Shots Fired services provide.
Diego: As we discussed in our 2024 Investor Day, our technological capabilities and proven ability to execute at scale to drive public safety is what differentiates us in the marketplace.
Diego: Our Safety Smart platform is uniquely and competitively positioned, and we're excited about the platform roadmap and intentional investments we're making in leveraging advanced AI ML capabilities in order to optimize our solutions.
Diego: The next-gen SafePoint features included advanced 3D camera integration and added SOP2 and HIPAA compliance which were critical success factors in securing two recent pilot wins with two separate hospital chains that are both in the top 10 hospital chains in the United States based on number of hospitals.
Diego: We are hopeful that once we successfully move past the pilot stage, we will be positioned to drive multi-million dollar ACD contract billing with these two chains, while leveraging their early adopter status to other hospital chains.
Diego: Our leading and comprehensive patrol management tool, Resource Router, is continuing to grow both in impact and sales traction.
Diego: We believe the product market fit is strong in delivering value, and this fact is supported by 100% ASP growth from 2023 to 2024 in approximately $4 million of 2025 pipeline.
Diego: The patrol division within a police department typically represents the largest portions of an agency's budget, and ensuring efficient, effective, and equitable public safety outcomes can be a complex challenge.
Diego: ResourceRouter is the only control operations tool on the market that provides real-time relevant information that is easily accessible and actionable in the field.
Diego: Early customer feedback has been very strong on the positive impact that Resource Router has enabled in field patrol operations. We're very excited about pioneering a whole new category in data-driven patrol management that enhances officer and public safety in an objective and transparent fashion.
Diego: In 2024, we also announced our strategic partnership with Recore Systems for the rollout of our co-branded Plate Ranger Automatic License Plate Recognition, or ALPR, solution, which is fully integrated into our Safety Smart platform.
Diego: We believe our plate ranger offering to be highly differentiated with respect to the seamless integration with our Safety Smart offerings, along with our collaborative approach to integrate with other non-sound thinking offerings.
Diego: While we're still in the early days with our partnership, we're progressing well and we look forward to discussing more on this as the year progresses.
Diego: In terms of market positioning, our strategic initiatives, ongoing product enhancements, and new launches have strengthened our offerings.
Diego: Our strategic partnerships and product innovations are the driving force behind our operational excellence, which has resulted in another world-class Net Promoter Score of 66%, moving up 200 basis points from last year's 64%.
Diego: As a reminder, a score of 60 or higher is considered world-class in any industry.
Diego: It's also notable, since 2020, to year-to-date, the company has added over 85 new Shots Fired customers
Diego: executed 50-plus expansions and processed over 660 annualized renewals compared to only 15 non-renewals, which is effectively over a 40 to 1 ratio of renewals to non-renewals.
Diego: As of year-end 2024, we had approximately $50 million of 2025 qualified ACV pipeline across our Safety Smart platform.
Diego: Approximately 62% of that pipeline was non-domestic shot spotter pipeline, signaling our successful diversification efforts. We're making intentional investments in our top of funnel demand generation activities to continue to build on that pipeline for 2025 and beyond.
Diego: We believe we are well positioned to drive 2025 revenue growth, given our entering 2025 with $95.6 million in annual recurring revenue, or ARR, despite the non-renewal of Chicago in November of 2024.
Diego: As such, we're increasing our full-year revenue guidance to $111-$113 million, representing approximately 10% year-over-year growth.
Diego: If we were to include the revenue from Chicago last year to our pro forma revenue growth from 2024 to 2025, it would have been 19%.
Diego: We're also increasing our full year 2025 adjusted EBITDA margin guidance range to 21% to 23%. We're confident in our guidance and believe we're well positioned to drive diversified and profitable growth in 2025 and beyond.
Diego: In summary, 2024 was a transformative and productive year for sound thinking, highlighted by milestone achievements and the showcasing of our collective grit in moving forward in our purpose.
Diego: While we're not immune to some of the challenges with respect to market conditions, we're very proactive across our strategic and financial growth strategies and are constructive about the opportunities moving forward.
Diego: We're pleased with our financial performance, operational excellence, product innovation, and market leadership.
Diego: We remain committed to advancing public safety through our unrelenting passion on making a positive impact. I will now turn the call over to Alan to discuss our financial results for the fourth quarter and full year of 2024, as well as guidance for 2025 in more detail.
Alan Stewart: Thank you, Ralph, and good afternoon, everyone. We're pleased with our fourth quarter and year-end 2024 results. Our strong financial performance reflects the success of our ongoing strategic initiatives, operational efficiency measures, and our commitment to delivering value to our shareholders.
Alan Stewart: In the fourth quarter, revenues were $23.4 million, representing a 10% decrease over the quarterly record $26 million in the fourth quarter of 2023.
Alan Stewart: As Ralph mentioned, all of our financial results were impacted primarily due to the delayed renewal of two contracts with New York Police Department, reflecting an approximately $3.5 million delay and reduction of quarterly revenue by the same amount.
Alan Stewart: One contract has already been awarded for our ShotSpotter renewal, and the second contract is currently signed and working its way through the New York City's formal registration process expected in the next 30 to 45 days.
Alan Stewart: bookings of all of our Safety Smart Platform solutions, some of which are multi-year contracts, are also growing healthily.
Alan Stewart: Gross profit was $11.7 million or 50% of revenue versus $15 million or 58% of revenue for the prior year period.
Alan Stewart: Our adjusted EBITDA was $1.7 million compared to $4.8 million in the fourth quarter of 2023.
Our Justin Evita decrease was directly related to delayed contracts.
Alan Stewart: Interest Income, Income Taxes, Depreciation, Amortization, and Impairment, Restructuring Costs, and Losses, including on Related Fixed Asset Disposals.
Alan Stewart: stock-based compensation expenses, and acquisition-related expenses, including adjustments to our contingent consideration obligations.
Our operating expenses were $15.5 million or 66% of revenues.
Alan Stewart: versus $10.6 million or 41% of revenues in the fourth quarter of 2023.
Alan Stewart: after including the change in fair value consideration related to our acquisitions of $4.8 million in 2023.
Alan Stewart: Breaking down our expenses, sales and marketing expense in the fourth quarter was 6.5 million dollars or 28% of total revenue compared to 7.4 million dollars or 28% of total revenue in line with the prior year period.
Alan Stewart: G&A expenses for the quarter were $5.5 million or 24% of total revenue compared to $4.8 million or 18% of total revenue for the prior year period.
Alan Stewart: As a reminder, we expect our G&A expenses to grow less than our revenue on a percentage basis as our company grows.
Alan Stewart: Our GNA net loss was approximately $4.1 million or a loss of $0.32 per basic and diluted shares for the quarter, based on 12.6 million basic and diluted weighted average shares outstanding.
Alan Stewart: This compares to a net income of $3.6 million or $0.29 per basic share and $0.28 per diluted share based on $12.7 million basic and $12.9 million diluted weighted average shares outstanding for the prior year period.
Alan Stewart: The increased loss was also related to delay of the approximately $3.5 million in contract renewals as we continue to perform the services at the request of the customers, adding COGS and operating expense without the associated revenue.
turning to a full 2024 results.
Alan Stewart: The increase in revenues was primarily due to new and expanding customer subscriptions.
Alan Stewart: Having not had the NYPD contract renewal delays, we expect to have achieved over $105.5 million in revenue, matching our original revenue guidance for 2024.
Alan Stewart: Gross profit was $57.9 million or 57% of revenue versus $52.7 million or 57% of revenue for the prior year period.
Alan Stewart: Gross profit was also impacted by the contract renewal delays of the approximately 3.5 million dollars in revenue as we continue to provide the services at the request the customer adding cost of goods sold expense without the associated revenue.
Alan Stewart: Our adjusted EBITDA was $14.4 million in line with the $14.3 million we achieved in 2023.
Alan Stewart: Our operating expenses increased 22% to $65.7 million or 64% of revenues versus $54 million or 58% of revenues in 2023.
Alan Stewart: We had a contingent consideration adjustment of $5.7 million in 2023 and $600,000 in 2024 associated with the forensic logic and safe point acquisitions.
Alan Stewart: In addition, 2024 included a full year of operating expense for SavePoint, versus only four months of expenses included in 2023.
Alan Stewart: We also had an increase in other costs in 2024 as we continue to grow our business.
Alan Stewart: Breaking down our expenses, sales and marketing expense in 2024 was $28.1 million or 28% of total revenue compared to $27 million or 29% of total revenue in line with the prior year period.
Alan Stewart: Our R&D expenses were $13.9 million, or 14% of total revenue, compared to $12.1 million, or 13% of total revenue in the prior year period.
Alan Stewart: DNA expense for the year were $23.9 million or 23% of total revenue compared to $20.6 million or 22% of total revenue for the prior year period.
Alan Stewart: As a reminder, we expect our G&A expenses to grow less than our revenue on a percentage basis as our company grows.
Alan Stewart: Our gap net loss was approximately $9.2 million or a loss of 72 cents per basic and diluted share for the year based on 12.7 million basic and diluted weighted average shares outstanding.
Alan Stewart: This compares to a net loss of 2.7 million dollars or 22 cents per basic and diluted shares based on 12.4 million basic and diluted weighted average shares outstanding for the prior year period.
Alan Stewart: The increased loss for the year was also related to the delay of the approximately $3.5 million in revenue.
as we continue to form the services.
Alan Stewart: Deferred revenue as of December 31st, 2024 was largely in line at 44.2 million dollars compared to 49.5 million dollars at the end of Q3 2024.
Alan Stewart: Revenue retention rate for 2024 achieved 105% compared to 107% in 2023.
Alan Stewart: and our sales and marketing spend per dollar of new annualized contract value was 63 cents compared to 52 cents in 2023.
Alan Stewart: We ended the year with $13.2 million in cash and cash equivalents versus $15.3 million at the end of Q3 2024 and much higher than the $5.7 million that we had at the end of 2023.
Alan Stewart: We repurchased 418,940 of our shares at an average price of $14.31 for approximately $6 million throughout 2024.
Alan Stewart: Currently, we have approximately $21 million available on our line of credit as we have approximately $4 million in debt outstanding.
all on our line of credit.
Alan Stewart: Now, turning to our guidance for the full year of 2025.
Alan Stewart: We are increasing our full-year revenue guidance range to $111 to $113 million.
Alan Stewart: This updated guidance reflects the strength and momentum we are experiencing in our business in spite of the loss of approximately $9.7 million from the loss of the Chicago Contract in 2024.
Alan Stewart: Overall, we are pleased with the progress we have made on each of our strategic initiatives and operational performance of the business.
Alan Stewart: With that, we're now happy to open the call for questions.
Operator, will you please open the line for Q&A?
Alan Stewart: Thank you. And at this time, we'll conduct our question and answer session.
Speaker Change: Attention, you will be limited to one question and one follow-up question per each time that you queue up.
Speaker Change: To ask a question, press star 1 on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star 2 if you would like to remove your question from the queue.
Speaker Change: Our first question comes from Trevor Walsh with Citizens JMP. Please state your question.
Trevor Walsh: Great. Hi, team. Thanks for taking the questions. Ralph, maybe for you, it sounded like when you were giving the update around the Chicago kind of new RFP that you were maybe on the fence around replying or kind of putting in a bid within that. Can you maybe just confirm if I heard that correctly or maybe just explain kind of how you're thinking about that engagement versus maybe prior kind of engagements with the city there?
and RFP for a gunshot detection system.
Trevor Walsh: But we are still evaluating our potential response. We haven't made a formal decision yet, but I can assure you that we're extraordinarily confident about the fact that we are the very best gunshot detection solution in the marketplace that has been proven at scale.
And that's where we are with Chicago.
Speaker Change: Okay, thanks for the color. And then Alan maybe just a quick one for you. You talked about some of the the multi-million dollar opportunities with hospital chains related to SafePoint. Is that included in the guidance for 25 or is that still out just given where they're at in the sale cycle?
Yeah, thank you for that. That's a great question.
Speaker Change: I think it's important to know that in SavePoint right now, each quarter we've gotten a little bit more in the bookings. You know, Q1 was about a half a million.
Speaker Change: Q2 was close to a million, Q3 was a little over a million, and Q4 was over three million dollars. Now these bookings are multi-year bookings, so they aren't necessarily all going to be annual revenue, but that's an indicator of sort of what we're talking about. So we are expecting some of those.
Speaker Change: to contribute to the revenue guidance, the increased revenue guidance that we gave for 25.
Great
Back in the queue.
Speaker Change: And your next question comes from Bruce Goldfarb with Lake Street Capital. Please state your question.
Bruce Goldfarb: Congratulations on your results. Thanks for taking my question. Are you anticipating or nervous about any pipeline disruption from federal government DOJ efforts? Any exposure there?
Ralph Clark: Yeah, so thanks for that question. This is Ralph. I'll start and then Alan jump in as appropriate.
Bruce Goldfarb: There are probably three real important demand drivers that it's important to understand and that is first and foremost
Bruce Goldfarb: We've seen a really strong overall sentiment with respect to policing and public safety has shifted dramatically to the positive, and that's something we probably couldn't have said maybe a couple of years ago. The second issue is understaffing continues to be a challenge for agencies.
Bruce Goldfarb: And the third and last point is that we're seeing agencies that are very receptive to leveraging technology as a force multiplier. So that's kind of the backdrop of the demand drivers. I mean, offsetting that, I think, to your question or point, is that we are watching very carefully.
Bruce Goldfarb: worked with local agencies to make sure that they have the resources they need in light of the fact that they are understaffed to be able to work with protecting the residents of their communities. So it's something we're paying close attention to. It's not so much a Dodge impact, it's more around an ARPA impact, I would say, but we've got some creative approaches we think that can help mitigate.
All right, thank you. Thanks.
Bruce Goldfarb: Thank you and just a reminder to the audience to ask a question press star one on your telephone keypad.
Speaker Change: And our next question comes from Mike Lattimore with Northland Capital Markets. Please state your question.
Great, yep, thanks very much.
In terms of your ARR guidance for the year
Thank you.
Alan Stewart: Yes, sure. This is Alan. I would say at this point, you know, going from around the 96 to we ultimately think it's going to be around $110 million, which is a significant increase. We expect that the gunshot detection, if you start including some of the international, will be somewhere between $8 and maybe $9.5 million of that.
Alan Stewart: is what we would expect. Historically, we've had somewhere around there. The rest of it is coming from the other growth and the other products, which is also quite positive to get the Delta.
Yep. Great. And then on the...
Speaker Change: Yeah, thanks for that question. The three verticals that we're focused on are health care,
Speaker Change: gaming centers because again both the health care and gaming centers have an issue of wanting to do weapons detection but doing in a very low low friction type manner, which is very unique to our particular solution versus other solutions. And the third vertical are some selected corporate sites where we're already deployed in some very large financial institutions in their lobby. If you were to be in New York City and walk through a couple of kind of
Speaker Change: world-class financial institutions you could probably recognize our bollards out there.
Yeah, okay. Thanks very much.
Mm-hmm.
Speaker Change: Thank you. There are no further questions at this time. I'll hand the floor back to Ralph Clark for closing remarks.
Speaker Change: Great. Thank you to everyone that joined us today and thank you to my sound-thinking colleagues, clients, and partners for all of your support. Innovation and consistent execution against our strategic growth priorities really defined our achievements for 2024.
Speaker Change: And we believe this gives us very strong momentum heading into 2025. We have an outstanding company and will continue to be focused on maximizing shareholder value.
Speaker Change: I want to thank all of you for your insightful questions and for joining us today on this earnings call. We appreciate your continued interest and investment in sound thinking. We look forward to sharing our progress with you in the coming quarters. Thank you and have a great day.
Speaker Change: Thank you. This concludes today's call. All parties may disconnect. Have a good day.