Q3 2025 SoundThinking Earnings Call

Forward looking statements for our future events and sound thinking 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 actual results to differ materially from those stated or implied by those statements.

Certain of these risks uncertainties and assumptions are discussed in <unk> SEC filings, including its most recent annual report on Form 10-K, and other SEC filings.

These forward looking statements reflect management's beliefs estimates and predictions as of the date of this live broadcast November 12, 2025, and some thinking undertakes no obligation to revise or update any forward looking statements to reflect events or circumstances. After the date of the date of this call and.

In addition, our comments on the call today contain references to non-GAAP financial measures such as adjusted EBITDA and key business metrics such as annual recurring revenue non-GAAP measures should be viewed in addition to and not as an alternative for the company's reported GAAP results. A reconciliation of these non-GAAP measures to their most directly comparable GAAP measures as well as Duff.

<unk> of the key business metrics referenced and management's reasons for including the non-GAAP measures and key business metrics.

Referenced may be found in the press release.

Finally, I would like to remind everyone that this call will be recorded and made available for replay via a link available in the Investor Relations section of the company's website at IR Dot sounds thinking dot com.

And with that I'll now turn the call over to Ralph. Thank you Ralph you may begin.

Good afternoon, and thank you for joining <unk> Q3, 2025 earnings call.

I will start by providing some high level commentary on our financial results and then share exciting updates about our strategic investment in growth initiatives.

Our key highlights for this quarter include expanded deployments of our core Shotspotter technology accelerating adoption of our AI powered investigative tools and growing traction in the health care security market. Following California's AB 29, 75 weapons detection mandate.

We are also seeing meaningful progress in our international expansion efforts with our Uruguay deployment, serving as a compelling proof point for broader Latin American market opportunities.

Our third quarter revenues were lower than we had expected at $25 $1 million.

Due to the absence of our Shotspotter renewal in Puerto Rico, and the delay of a statewide crime tracer booking we had targeted to close early in the quarter.

During the third quarter, we took shotspotter live in two new cities, one University, along with two expansions of existing customers.

And while our pipeline continues to expand reflecting healthy demand across both existing and new markets. We are not where we need to be in terms of sales execution.

Converting that demand into bookings remains a top priority.

We've already begun realigning our sales organization refreshing our go to market playbook, and tightening accountability around forecasting and conversion metrics to ensure sales leadership continuity. We've asked our former senior Vice president of sales to step back in on an interim basis as we launch a national search for a permanent leader.

These facts are delivered unnecessary and theyre designed to translate a strong pipeline into sustained predictable growth.

Early indicators give us confidence the changes are taking hold.

We're seeing stronger pipeline hygiene, better deal qualification and clear visibility into near term opportunities across Shotspotter safe point in prime tracer.

Just as importantly, the field and customer success teams are much more aligned around a unified sales motion that emphasizes value realization and renewal momentum.

We expect these operational improvements to drive more consistent conversion as we move through Q4 and into 2026.

We are seeing very encouraging signs and customer health and retention retention is coming in better than expected this quarter and year and that's not luck is a direct result of being intentional around customer success engagement and measurable satisfaction.

Our latest net promoter survey produced an NPS score of plus 70 up four points from last year with over 90% satisfaction and critical partnership areas like data and analytics customer success and technical support.

Those numbers speak for themselves our customers Trust us they see sound thinking not just of the technology vendor, but as a mission critical partner, helping them save lives build community confidence and deliver results. They can defend publicly.

<unk> is also being strengthened by how we're using <unk> AI inside the business.

We're not it's fair or meeting with AI for headlines we're using it in practical measurable ways.

We built an agenda customer success application that ingests and analyzes a wide range of internal and external data sources everything from city Council meeting minutes and local press coverage to community sentiment.

This helps us anticipate what our customers are dealing with politically socially and operationally and allows our customer success team to get ahead of issues before they become renewal challenges.

In simple terms AI is helping us move from reactive to proactive partnership is shortening response times, improving renewal predictability and deepening alignment with each cities local context, that's the kind of discipline innovation, we're known for practical ethical and measurable is one more way that were differentiate.

Things sound thinking as a trusted data driven partner delivering real world impact and sustained loyalty over time.

Looking at our strategic initiatives and key developments during Q3 2025, I'm excited to share several significant milestones that underscores our position as a leading integrated public safety technology platform first.

First let me highlight a major product advancement with the upcoming launch of crime tracer Gen. III scheduled for general availability next week.

This next generation investigative platform represents a quantum leap in AI powered law enforcement technology integrating over 1 billion law enforcement and public records and documents across 2000 plus agencies. The platform's Revolutionary features include voice enabled AI chat bot capabilities for Nash.

This helps us anticipate what our customers are dealing with politically socially and operationally and allows our customers success team to get ahead of issues before they become renewal challenges.

Language searches.

Document summarization that condenses lengthy reports into actionable insights and enhanced case folder functionality that creates a centralized collaborative workspace for investigations.

In simple terms AI is helping us move from reactive to proactive. Partnership is shortening response. Times improving, renewal predictability and deepening alignment with each City's local context. That's the kind of discipline Innovation. We're known for practical ethical and measurable its 1 more way that we're differentiating sound thinking as a trusted data driven, partner, delivering, real world impact and sustained loyalty over time.

Early customer feedback has been exceptionally positive with agencies, particularly excited about the platform's ability to transform fragmented data systems into a unified actionable intelligence.

Looking at our strategic initiatives and key developments during Q3 2025, I'm excited to share several significant Milestones, that underscores our position as a leading integrated Public Safety technology platform.

Safe point continues to gain tremendous momentum following California's AB $29 75, which requires automated weapons detection systems in all general acute care and psychiatric hospitals by March one 2027.

First, let me highlight a major product advancement with the upcoming launch of crime. Tracer, gen 3, scheduled for General availability next week.

This legislation has created a substantial addressable market opportunity and we're seeing accelerated interest in our safe weapons detection technology as a result, we.

We've been actively supporting hospitals through the compliance planning process, providing comprehensive risk assessment frameworks and implementation roadmaps.

Sponsors has been also overwhelmingly positive with multiple pilot programs already underway and a robust pipeline of opportunities develop as hospitals prepare for the 2027 deadline.

Investigative platform represents a Quantum Leap in AI powered law enforcement technology integrating over 1 billion law enforcement in public records and documents across 2,000 plus agencies, the platform's Revolutionary features include voice enabled, AI chatbot capabilities for natural language searches. AI document summarization that condenses lengthy reports in the actionable insights and enhanced case folder functionality. That creates a centralized collaborative workspace for investigations.

And we recently successfully booked another 26 lane opportunity.

With a nonprofit hospital in Florida, just this past month, demonstrating the strong product market fit our safe point solution represents.

Early customer feedback, has been exceptionally positive with agencies, particularly excited about the platform's ability to transform fragmented Data Systems into unified actionable intelligence.

Our data for good initiative has expanded significantly and is now actively operating across multiple cities, including Miami Dade County, Springfield, Illinois, and San Francisco.

Safe Point continues to gain. Tremendous momentum, following California's. AB 2975 mandate which requires automated weapons detection systems and all General acute care and psychiatric hospitals by March 1 2027.

This program enables secure sharing of gunfire and crime data with community violence intervention groups public health departments and local nonprofits addressing the critical gap, we're up to 80% of gunfire incidents go unreported to 91 one.

This legislation has created a substantial addressable Market opportunity and we're seeing accelerated interest in our safe Point weapons detection technology as a result.

This program has been instrumental in building community trust and demonstrating our commitment to holistic public safety solutions that extend beyond traditional law enforcement applications.

We've been actively supporting hospitals through the compliance planning process, providing comprehensive risk assessment frameworks and implementation roadmaps.

Our data platform is a perfect extension to our work in New York City, and complement <unk> mud Danis vision on elevating community response, including community violence interruption resources to bring to bear in New York City.

The response has been also overwhelmingly positive with multiple pilot. Programs already underway and a robust pipeline of opportunities developed as hospitals. Prepare for the 2027 deadline.

And we recently booked another 26, Lane opportunity.

With a nonprofit Hospital in Florida. Just this past month, demonstrating the strong product Market, fit our safe Point solution represents

On the drone is first responder integration front, we've made solid progress partnering with several drone providers as we enable drones as first responder capabilities in response to Shotspotter alerts the integration ensures that drones can be automatically dispatched to the exact location of gunfire incidents delivering real time <unk> intelligence to offer.

Our data for good initiative is expanded significantly and is now actively operating across multiple cities including Miami day, County, Springfield, Illinois, and San Francisco.

<unk> on the ground such as identifying victims, who need an E&S intervention, along with providing valuable situational awareness to arriving officers we've.

This program enables secure sharing of gunfire and crime. Data with Community violence, intervention groups, Public Health, departments and local nonprofits, addressing the critical Gap. Where up to 80% of gunfire incidents? Go unreported to 911.

We've seen a real world impact firsthand with a recent incident in Pueblo, Colorado, whereas Shotspotter alert initiated a drone response that led to the quick recovery of shell casings that were still warm enough to be seen thermally.

This program has been instrumental in building Community, Trust in demonstrating our commitment, to holistic, Public Safety Solutions, that extend beyond traditional law enforcement applications.

The combination of Shotspotter in drones extends the value of Shotspotter drug by delivering a powerful use case demanded by forward leading law enforcement agencies.

Our plate Ranger LTR technology, a partnership we began about a year ago now has already evolved beyond simple license plate recognition to become a comprehensive vehicle intelligence platform. Enhanced features include a smartphone based play capture for mobile deployments interdiction analytics that identify suspicious moves.

Our data for good platform is a perfect extension to our work in New York City and complement mayor, elect mandanis Vision. On elevating Community response, including Community, violence, Interruption resources to bring to bear in New York City.

Patterns and retrospective search capabilities that enable investigators subtract vehicle histories across multiple jurisdictions.

When integrated with crime tracers. This creates a powerful investigative workflow that can uncover criminal networks and accelerate case resolution.

On the Drone is first responder integration front we've made Solid progress partnering with several drone providers. As we enable drones, as first responder capabilities, in response to shot spot alerts, the integration ensures that drones can be automatically dispatched to the exact location of a gunfire incident, delivering real-time aerial intelligence to officers on the ground, such as identifying victims who need an EMS intervention along with providing valuable situational awareness to arriving officers.

Let me close by addressing the status of the Chicago gunshot detection RFP, which we bid on in April since our last earnings call. We've participated in live fire demonstration in early September for the short listed RFP respondents. This is a great opportunity to put an exclamation point on what we believe was a strong.

We've seen the real world impact firsthand with a recent incident in Pueblo, Colorado where a shot spotter alert initiated a drone responds that led to the quick recovery of shell cases that were still warm enough to be seen thermally.

The combination of shots fired and drones extends. The value of shot spotter by delivering a powerful, use case to manage by 4 leaning law enforcement agencies.

RFP response that perfectly matches, our demonstrated capabilities with the technical and operational needs of the city of Chicago as reflected in their published RFP.

In addition, we are pleased to note the subject of acoustic gunshot detection was actively discuss over two days during the recent Chicago budget hearings superintendent Snelling once again publicly reaffirmed his support for any technology and tools that enhance cpd's ability to respond to gunfire incidents.

Ranger Altr technology at partnership. We began about a year ago. Now it has already evolved beyond simple license plate recognition to become a comprehensive vehicle intelligence platform.

Enhance features include a smartphone based plate capture for mobile deployments interdiction analytics, that identify suspicious movement, patterns, and retrospective search capabilities, that enable investigators to track vehicle histories across multiple jurisdictions.

It was also highlighted that a specific line item is included in the Mers budget proposal for 2026 for gunfire detection technology and follow on remarks confirmed that the RFP process is coming to a conclusion.

When integrated with crime Tracer, this creates a powerful investigative workflow that can uncover criminal networks. And accelerate case resolution

As we focus on closing 2025 with growing momentum into 2026, we will continue to focus on driving deeper penetration into existing customer accounts, expanding the midsize and smaller municipalities growing non shotspotter safety smart recurring software revenue and delivering operational leverage as we scale.

Let me close by addressing the status of the Chicago, gunshot detection RFP, which we bid on. In April, since our last earnings call, we've participated in a live fire demonstration in early September for the short listed RFP respondents. This is a great opportunity to put a exclamation point on what we believed was a strong RFP response. That perfectly matches. Our demonstrated capabilities with the technical and operational needs of the city of Chicago as reflected in their published RFP.

As a result of our temporary sales execution challenges and resulting sales motion headwinds that have unexpectedly impacted a few but consequentially large contracts being pushed out we are lowering our full year revenue guidance range from 111% to $113 million to approximately 104 million.

And lowering our adjusted EBITDA guidance range from $20 to 22% to 14% to 15%.

Publicly reaffirmed, his support for any technology and tools that enhance, cpd's ability to respond to gunfire incidents.

Alan will review this in greater detail, but we still remain confident in our medium to long term prospects as we transition through what has been a challenging second half of 2025.

He was also highlighted that a specific line item is included in the mayor's budget, proposal for 2026 for gunfire detection, technology and follow on remarks confirmed. That the RFP process is coming to a conclusion.

I'll now turn the call over to Alan to discuss our financial results for the third quarter of 2025 as well as guidance for the full year 2025 in greater detail then we'll be happy to take your questions.

Thank you Ralph and good afternoon, everyone.

As we focus on closing 2025 with growing momentum into 2026 will continue to focus on driving deeper penetration into existing customer accounts, expanding the midsize and smaller municipalities growing non-shared revenue and delivering operational leverage as we scale.

Ralph mentioned, our third quarter 2025 results are behind our expectations due to delays in several large contracts that we had hoped to have completed prior to the end of the quarter.

That said, our cash generation positive adjusted EBITDA and continued growth in all of our products reflects our ongoing strategic initiatives.

Operational efficiency measures and our commitment to delivering value to our shareholders.

As a result of our temporary sales execution challenges and resulting sales motion, headwinds that have unexpectedly impacted a few of the consequently large contracts. Be pushed out. We are lowering our full year Revenue, guidance range from 111 to 113 million to approximately 104 million dollars and lowering. Our adjusted Eva dog. Guidance range from 20 to 22% to 14 to 15%.

Revenues were $25 1 million, representing a 4% decrease from the $26 $3 million in the third quarter of 2024.

Alan will review this in Greater detail but we still remain confident in our medium to long-term prospects as we transition through what has been a challenging second half of 2025.

It is worth noting that our 2024 third quarter revenue included approximately $2 $8 million related to the city of Chicago.

Gross profit was $13 6 million or 54% of revenue compared to $15 $2 million or 58% of revenue for the prior year period.

I'll now turn the call over to Alan to discuss our financial results for the third quarter of 2025 as well as guidance for the full year. 2025 in Greater detail, then we'll be happy to take your questions.

Our adjusted EBITDA was $3 $5 million compared to $4 5 million in the third quarter of 2024.

Thank you, Ralph and good afternoon everyone as Ralph mentioned. Our third quarter, 2025 results are behind our expectations due to delays in several large contracts that we had hoped to have completed prior to the end of the quarter.

As a reminder, adjusted EBITDA non-GAAP financial measure is calculated by taking our GAAP net income or loss.

And adjusting out interest income or expense income taxes, depreciation amortization and impairment restructuring costs and losses, including unrelated fixed asset disposals.

That said, our cash generation positive adjusted Ava and continued growth in all of our products, reflects our ongoing strategic initiatives, operational efficiency measures and our commitment, to delivering value to our shareholders.

<unk> based compensation expenses and adjustments to our contingent consideration obligations.

revenues, were 25.1 million representing a 4%, decrease from the 26.3% of 2024

Our operating expenses were $15 7 million or 63% of revenues down from the $16 3 million or 62% of revenues in the third quarter of 2024.

It is worth noting that our 2024 third quarter Revenue included approximately 2.8 million related to the city of Chicago.

Our operating expenses for the third quarter declined both from both the third quarter of 2024 and was also lower than Q2 of 2025, even as we invest in AI modeling and tools to enhance the capabilities of our platform product solutions.

Gross profit was $13.6 million, or 54% of revenue, compared to $15.2 million, or 58% of revenue for the prior year period.

Our adjusted Eva was 3.5 million compared to 4.5 million in the third quarter of 2024.

As a reminder, we expect operating expenses will continue to grow less than the revenue growth rate, even with our additional costs.

Breaking down our expenses sales and marketing expenses in the third quarter were reduced to $5 $8 million or 23% of total revenue compared to $7 $2 million or 27% of total revenue in the prior year period.

As a reminder adjusted Eva non-gaap Financial measure is calculated by taking our gaap, net income or loss, and adjusting out interest income work expense income taxes, depreciation amortization and impairment restructuring costs and losses, including on related fixed asset disposals.

Stock based compensation expenses and adjustments to our continued consideration obligations.

Our R&D expenses were $4 $1 million or 16% of total revenue compared to $3 $4 million or 13% of total revenue in the prior year period, reflecting our increased expenses related to our AI investments.

how pretty expenses were 15.7 million or 63% of revenues down from the 16.3 million, or 62% of revenues in the third quarter of 2024,

G&A expenses for the quarter were $5 8 million or 23% of total revenue compared to $5 $7 million or 22% of total revenues in the prior year period.

Our operating expenses for the third quarter declined, both from both the third quarter of 2024, and was also lower than Q2 of 2025, even as we invest in AI modeling and tools to enhance the capabilities of our platform product Solutions.

G&A expenses increased primarily related to additional internal and external efforts associated with the compliance with our Sox 404 b requirements.

As a reminder, we expect operating expenses will continue to grow less than the revenue growth rate, even with our additional costs.

As a reminder, we expect our G&A expenses to grow less than our revenue on a percentage basis as our company grows.

Our GAAP net loss was approximately $2 million or a loss of <unk> 16 cents per basic and diluted share for the quarter based on $12 8 million basic and diluted weighted average shares outstanding.

Breaking down our expenses sales and marketing expenses. In the third quarter were reduced to 5.8 million or 23% of total revenue compared to 7.2 million or 27% of total revenue in the prior year period.

This compares to a net loss of $1 4 million or loss of <unk> 11 per basic and diluted share based on $12 7 million basic and diluted weighted average shares outstanding for the prior year period.

Our R&D expenses were 4.1 million or 16% of total revenue compared to 3.4 million or 13% of total revenue in the prior year, period reflecting our increased expenses related to our AI Investments.

Deferred revenue as of September 32025 was largely in line at $43 9 million compared to $43 $5 million at the end of Q2 2025.

GNA expenses for the quarter. Were 5.8 million or 23% of total revenue compared to 5.7 million or 22% of total revenue for the prior year period.

We ended the third quarter with $11 $8 million in cash and cash equivalents compared to $9 million at the end of Q2 2025.

External efforts associated with compliance with our SOX 404(b) requirements.

We repurchased 160271 of our shares at an average price of $12 43.

As a reminder, we expect our GNA expenses to grow less than our revenue on a percentage basis as our company grows.

For approximately $2 million in the third quarter of 2025.

On a year to date basis, we have repurchased 225334 of our shares and the average share price of $13 15.

Our GAAP net loss was approximately $2 million, or a loss of 16 cents per basic and diluted share for the quarter, based on 12.8 million basic and diluted weighted average shares outstanding.

Approximately $3 million.

Yeah.

Currently we have approximately $36 million available on our line of credit as we only have approximately $4 million in debt outstanding all of which is on our line of credit.

This compares to a net loss of 1.4 million or loss of 11 cents for basic and diluted share based on 12.7% and diluted weighted. Average shares outstanding for the prior year, period.

As we close 2025, we remain focused on execution and long term value creation.

The third Revenue as of September 30th 2025 was largely in line at 43.9 million compared to 43.5 million at the end of Q2 2025.

We are encouraged by our pipeline visibility for the rest of 2025.

Our strong renewal rate of our customer base.

Spanning strategic partnerships and integrations, increasing momentum into 2026, and our ability to generate consistent cash flow, while investing for future accelerated growth.

We ended the third quarter with 11.8 million in cash and cash equivalents compared to 9 million at the end of Q2 2025.

Now turning to our guidance for full year 2025.

We repurchased 160,271 of our shares and an average price of $12.43 for approximately $2 million in the third quarter of 2025.

We are reducing our full year revenue guidance range from $111 million to $113 million to approximately $104 million. This shortfall is primarily attributed to delays in three expected bookings in deployments.

On a year-to-date basis. We've repurchased 225,334 of our shares and the average share price of 13.15 for approximately dollars.

The first relates to crime tracer, we had anticipated execution across approximately 18 agencies within a new state representing approximately $2 $5 million in revenue.

Currently we have approximately 36 million available on our line of credit as we only have approximately $4 million in debt outstanding, all of, which is on our line of credit.

As we close 2025, we remain focused on execution and long-term value creation.

While this deployment has been delayed we remain confident it will proceed in the near future.

The second relates to an expected capex shotspotter deployment in Brazil.

We are encouraged by our pipeline visibility for the rest of 2025, the strong renewal rate of our customer base.

This initiative was expected to contribute another $2 $5 million in the second half of the year.

However, due to recent governmental changes and tariff related impacts in Brazil, the timing uncertainty of this deployment are unknown at this point.

Expanding strategic Partnerships and Integrations increasing momentum into 2026 and our ability to generate consistent cash flow while Investing For future accelerated growth.

Now, turning to the guidance for full year 2025

The third factor relates to our thoughts about our renewable in Puerto Rico, we saw $1 $4 million reduction here again due to governmental changes but.

We are reducing our full-year revenue guidance range.

But similar to crime series to rollout in the new States. We expect this to move forward.

From 111 million to 113 million to approximately 104 million. This shortfall is primarily attributed to delays in three expected bookings and deployments.

Although on a delayed basis.

In total these three items represent approximately $6 $4 million in revenue. There was originally expected to be recognized in 2025.

The first relates to Crime Tracer, we had anticipated execution across approximately 18 agencies within a new state representing approximately 2.5 million in Revenue.

It's also important to note that approximately 70% of the revenue related to the three items mentioned above would have flowed through to our adjusted EBITDA, which means we would have been at or near our original adjusted EBITDA percentage guidance.

While this deployment has been delayed, we remain confident. It will proceed in the near future.

The second relates to an expected capex. Socks. Butter deployment in Brazil.

While we believe these are temporary setbacks, we remain optimistic about the long term value of these potential contracts and our ability to execute well on the ones that get booked.

This initiative was expected to contribute. Another 2.5 million in the second half of the year.

We continue to monitor these developments closely and will provide updates as visibility improves.

However due to recent governmental changes and tear for related impacts in Brazil. The timing and certainty of this deployment are unknown at this point

The third factor relates to our shots, but are renewal in Puerto Rico.

We are now lowering our full year 2025, adjusted EBITDA margin guidance range from 20% to 22% to 14% to 15%, which also takes into account potential costs.

We saw a $1.4 million reduction here again, due to governmental changes.

But similar to Crime traces to roll out in the new state, we expect this to move forward.

Associated with tariff changes and the investments, we're making in AI modeling and tools that we're incorporating in our products and our internal operational use.

although, on a delayed basis,

Now turning to our guidance for the full year 2026.

In total, these 3 items represent approximately 6.4 million in Revenue. There was originally expected to be recognized in 2025.

We are expecting our growth to continue into 2026 and are setting our 2026 revenue guidance range from $114 million to $116 million.

We are setting our full year 2026, adjusted EBITDA margin guidance range from 18% to 20%.

It's also important to note that approximately 70% of the revenue related to the 3 items mentioned above would have flowed through to our adjusted. Evita which means we would have been at or near our original adjusted Eva percentage guidance.

Overall, we remain optimistic with the progress we've made on each of our strategic initiatives and operational performance of the business.

While we believe these are temporary setbacks. We remain optimistic about the long-term value of these potential contracts and our ability to execute well on the ones that get booked.

And with that we're now happy to answer your questions. Operator will you. Please open the line for Q&A.

We continue to monitor these developments closely and will provide updates as visibility improves.

Thank you we will now be conducting a question and answer session.

Ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate that your line is in the queue.

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We are now lowering our full year, 2025 adjusted Eva margin. Guidance range from 20 to 22% to 14 to 15%, which also takes into account potential costs associated with tariff changes and the Investments. We are making in AI modeling and tools that we are incorporating in our products and our internal operational use.

We ask that you please limit yourself to one question and one follow up. Thank you one moment please pull for questions.

now, turning to our guidance for the full year, 2026

And the first question comes from the line of Richard Baldry with Roth Capital Partners. Please proceed with your question.

we are setting our full year 2026 adjusted Evita margin guidance range from 18 to 20%

Thanks.

Just looking from a high level, if you're 26 revenue guidance is about $2 million above what had been your guidance for 25.

overall, we remain optimistic with the progress. We have made on each of our strategic initiatives and operational performance of the business.

I'm sorry, perplexed at the margin guidance is lower than what you would've expected and in 25, you're about two points below.

And with that, we're now happy to answer your questions. Operator, will you please open the line for Q&A?

So can you talk about sort of what the changes are there is a revenue mix gross margin mix or something else.

Yeah. So this is Alan and it's a great question Rich I think at this point when we look at the revenue guidance is a couple of things that are not in there at all one in Chicago.

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tool will indicate that your line is in the queue. You may press star 2 to remove yourself from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys.

The other one is that the $2 $5 million in Brazil Capex.

We ask that you please limit yourself to one question and one follow-up. Thank you. One moment, please, while we pull for questions.

Did those come in then not only revenue would go up with the adjusted EBITDA on a percentage basis, we grew up as well I think we're just trying to be more perhaps.

Conservative in terms of where we expect that adjusted EBITDA to be.

And the first question comes from the line of Richard baldry with Ross Capital Partners, please, proceed with your question.

And the implied revenue guidance for the <unk>.

Thanks. Um, just looking from a high level. If you're 26 Revenue, guidance is about 2 million above, what had been your guidance for 25.

Fourth quarter would be.

It's sort of down from where you were any of the third quarter with sort of the delays that you had I would have thought some of that would have come in and you'd see a pretty good sequential bump. So is there is there something else missing from the December quarter, causing that.

The sort of perplexed that the margin guidance is lower than what you would have expected in in 25. You're about 2 points below. So if you talk about sort of what the changes are, there is it Revenue, mix gross margin, mix, it's something else.

Yeah. This is Alan again, and I think at this point and we expect it to be relatively flat.

If it is flat then we would exceed the $104 million. The reason I can because we do not expect some of these delays in Q3, I think we're trying to be appropriate and the fact that we're still working on some of these delays and although we know they're going to come in we just don't know when the timing, particularly the.

Large crimes registered deal two and a half million dollars in Puerto Rico, although making progress on.

On both of those the timing is a bit unknown at this point, so we'd rather make sure that we can set a number that we can meet for sure.

Yeah. So this is Alan and it's a great question Rich. Um I think at this point when we look at the revenue guidance there's a couple things that are not in there at all. Uh 1 in Chicago. Uh the other 1 is that the 2.5 million in Brazil capex. Um if either of those come in then not only Revenue would go up but the adjusted eval on a percentage basis would go up as well. I think we're just trying to be more uh perhaps conservative in terms of where we expect that it just either to be.

I guess can you then maybe talk about tying together the.

Inability to close on what your thought was on the time frames and your.

Desire now to change the leadership and the sales side now.

And and the implied Revenue guidance for the, the, the fourth quarter would be, you know, sort of down from where you were in the third quarter with sort of the delays that you had, I would have thought some of that would have come in and you'd see a pretty good sequential bump. So, is there, is there something else missing from the December quarter? Causing that

Do you think there is some new methods things you can put into to improve that process. Do you think you have to wait until someone permanently news in there or do you think that under the interim leadership beacon sort of scrub that better.

Yeah. So this is Ralph I think we're pretty encouraged by the recent changes that were seen in let me just state that.

First and foremost we're incredibly constructive about the medium to long term.

Opportunities in our business and I think when we look back to our sales execution or pull through a conversion of a very strong pipeline. It was that we made some changes organizationally, we change the playbook and frankly, we kind of took our eye off the ball on I'll call. It the point execution with respect.

Yeah, this is Alan again and I think at this point we expect it to be relatively flat. Uh, and if it is flat then we would exceed the 104 million, uh, the reason again because we did not expect some of these delays in Q3, I think we're trying to be appropriate in the fact that we're still working on some of these delays and all that. We know they're going to come in. We just don't know when the timing particularly the, uh, the large crime, Tracer deal of 2 and a half million dollars, and Puerto Rico, although making progress, um, on both of those. The timing is, is a bit unknown at this point. So we'd rather make sure that we can, uh, set a number that we can meet for sure.

The Shotspotter, we're asking our sales organization to be much more consultative and trying to sell the full product suite to customers and where we saw the uplift in our solutions beyond Shotspotter, where frankly going into brand new buying centers. So.

We're trying to be super intentional and kind of going back to our original playbook being a little bit less perhaps a consultative focusing more on the point.

I guess. Could you then maybe talk about tying together the the inability to close of what you thought was on the time frames and your you know desired now to change the your leadership in the sales side, you know, do you think there's some new methods things you can put into to improve that process? Do you think you have to wait until someone permanently news in there or do you think that under the interim leadership you can sort of scrub that better?

Solutions, and letting those opportunities kind of pull us through into those opportunities as opposed to trying to pitch the entire product suite. When there might just be of interest and Shotspotter for an example, and a change in the organization as well so.

Yeah. So this is Ralph. I think we're, we're pretty encouraged by the recent changes that we're, uh, seeing and let me just state that. Um, first and foremost, we're incredibly, uh, constructive about the medium to long term, um, uh, opportunities, uh, in our business. And I think, when we look back to our, uh, sales execution,

Earlier this year, we're asking we had more salespeople carrying more things in their bag.

They had to get trained up on it.

And it just didn't work out very well. So now we're kind of going back to say, it's OK fewer things in the bag.

Focus in on those opportunities and let those opportunities kind of pulled through as as they naturally should and being a lot more intentional around I'll call kind of sales force hi.

Hygiene and forecasting so we're still early on in the process. We're encouraged about some of the recent changes that we're seeing and we're going to be working on this through the remainder of the year and early next year and at the same time look at bringing on a new permanent senior VP of sales, but we are incredibly grateful for Gary to come back in to this role and help right.

The ship so that we can finish out the year on a pretty decent basis.

And in switchgear.

Switch gears away from sort of the government centric stuff to the same point in our commercial area can you talk about the Mac.

Agnes tuned.

Here. We're asking, we had more sales people, carrying more things in their bag.

Pipeline there I mean, just broadly speaking how much that could move the dial on growth growth rates of revenues.

In 26 are forward just trying to get a gauge for how much of that you can offset some of the challenges on the.

On the other side.

I'll try to say this and hopefully I won't sound to yeti, but we're incredibly excited about the opportunity inside point, particularly around the hospital vertical.

Just has extraordinarily strong product market fit and you'll notice over the past couple of quarters, we've announced some fairly substantial deals with safe point. There. We're in the kind of 400000 500000, plus types of bookings and we're seeing a lot of those opportunities kind of lineup for.

They had to get trained up on it, um, and it just didn't work out very well. So now, we're kind of going back to says, okay, fewer things in the bag. Um, focus in on those opportunities and let those opportunities kind of pull through, um, as uh, as a naturally should. And being a lot more intentional around, I'll call kind of Salesforce, uh, hygiene and forecasting. So we're still early on, in the process, we're encouraged about some of the uh, recent changes that we're seeing and we're going to be working on this through the remainder of the year in early next year. And at the same time, look at bringing on a a new permanent uh senior VP of sales. But we're incredibly grateful for Gary to come back in uh, to this role and help write this ship. Uh, so that we can finish out the year on a pretty decent basis.

So although I won't give you a specific number I would say that we're incredibly constructive around the <unk>.

Growing pipeline, our ability to execute to that growing pipeline that we don't have a sales motion problem and safe point at all I think that that's a business that's going to be fairly substantial for us over the medium to long term and again, we're even seeing traction outside of California, AB 20, 975, so when that thing begins to kick in.

And if, if switch gears away from sort of the government Centric, stuff to the safe Point, more commercial area, do, can you talk about the the magnitude of of pipeline there, maybe broadly, speaking, you know, how much that could move the dial on growth rates or revenues uh in 26 or forward to sort of get a gauge for how much that can offset sort of some of the challenges on the on the other side?

Going to be a real we believe significant tailwind for that business.

Thanks.

Okay.

And the next question comes from the line of Mike Latimore with Northland Capital markets. Please proceed with your question.

Yeah, Hi, this is vijay they work.

For Mike Latimore.

Couple of questions a lot how many enterprise security teams are in the pipeline for gunshot detection technology.

We will have to circle back. This is Ralph we'll circle back to you. That's a really good question I don't have the number off the top of my head, but its a fairly.

Good strong list of I would say new customer opportunities for gunshot detection, youre, saying gunshot detection I presume I heard gunshot detection as opposed to weapons detection, but.

We have a strong pipeline of new customers as well as some expansions that are on the books that we're having some good conversations around and not to be discounted is the unlock we expect to see.

Um, I, I'll try to say this and hopefully I won't sound, uh, too giddy, but, um, we're we're incredibly excited about the opportunity. Insight Point, particularly around the hospital, vertical, uh, it just has extraordinarily strong product Market fit, and you'll notice over the past couple of quarters, we've announced some fairly substantial, uh, deals with safe point. There were in the, you know, kind of 400,500,000 plus, um, uh, types of bookings. And we're, we're seeing a lot of those opportunities kind of line up, uh, for us. So, although I won't give you a specific number, I will say that we're incredibly, uh, constructive around, uh, the growing pipeline. Our ability to execute to that growing pipeline, that we don't have a sales motion problem in safe point at all. I think that's a, that's a business that's going to be fairly substantial for us over the medium, uh, to long term. And again, we're even seeing traction outside of California, AB 2975. So when that thing begins to kick in, that's going to be

A real We Believe significant Tailwind for that business.

Thanks.

Internationally, where we have a fairly.

Strong I would say pricing leverage internationally and we're seeing some early successes in Uruguay as we spoke about earlier along with our more recent deployment in <unk>, Brazil, and I think the Brazilian opportunity specifically is something we're incredibly excited about.

And the next question comes from the line of Mike Latimore with Northland Capital markets, please proceed with your question.

Hey, hi. This is Vijay dear for Mike Latinos. Um, a couple of questions 1, how many Enterprise security deals are in the pipeline for a gunshot detection Technologies?

Okay.

Sure sure on the first since I've been back when that flips and Oh, one question about the pipeline is that okay.

Hum.

Later, but all of the sales cycle for checkpoint changed now, let's say a couple of quarters ago.

Yeah. So the thing that we see around this is Ralph again that we see around the sales cadence with safe point versus traditional shotspotter those deals appear to be happening on a much faster cycle time, I think the sales cycle time, we can think about with respect to <unk>.

<unk> point is more in the kind of 12 month category, whereas Shotspotter is kind of 12 to 18 months and the reasons for that are pretty logical when you step back and think about it when youre dealing with safe.

Same point, you're typically dealing with commercial enterprises in our particular case hospitals in casinos is great example, so they operate in a very different different fashion when youre talking about shotspotter. The sales process becomes a lot more complicated because you have buying centers, which are the police departments.

I will, we'll have to Circle back. This is Ralph. We'll, we'll Circle back to you. That's a really good. Uh, question. I don't have the number off the top of my head, but it's a fairly, um, good strong list of I would say new customer opportunities. Uh, for gunshot detection, you're saying gunshot detection, I presume I heard gunshot detection as opposed to weapons detection, but, um, we have a strong pipeline of new customers as well as some expansions that are on the books that we're having some good conversations around and not to be. Uh, discounted is the unlock, we expect to see, uh, internationally where we have a fairly um, uh uh strong. I would say pricing leverage, uh, internationally and we're seeing some early successes in, uh, Uruguay as we spoke about earlier, along with our more recent deployment in niteroi. Brazil, and I think the Brazilian opportunity, specifically is something we're incredibly, uh, excited about

You have decision makers that need to weigh in that represent elected officials and elected officials arent necessarily driven by ROI stuff, there driven by sometimes optics and politics, a little bit as we know from our experienced funding sources come in from different places. So we're we're in a position where we basically have to weave all of those things together.

Okay, um, sure. Sure. On this section back on this question. Now, what percent of the pipeline is that, I mean, okay, we can discuss that in later. But, how about the sales cycle for safe Point change? Now versus a couple of quarters ago

Other without alienating anybody in the process and going through city Council meetings, where communities can appropriately weigh in and the like so that's just a much more.

Complicated process, but I will say and it's important to note offsetting that that longer sales cycle is the stickiness that we have been able to appreciate.

Appreciate and take advantage of over on that.

Acoustic gunshot detection side those customers tend to stay was a very long time thinking in terms of decades.

Thank you I appreciate that color.

And the next question comes from the line of Trevor Walsh with citizens. Please proceed with your question.

Great, Thanks, Hey, Ralph and Alan Thanks for taking the questions, maybe Ralph just to kind of dig in a little bit more on some of the comments that you made around the go to market changes.

It just seems a little bit reactionary to the three deals specifically that you mentioned is affecting kind of where the results came in on the topline for the quarter and in the guide.

Which you don't have that each of those have their own intricacies and kind of special I guess cases. So are you seeing something else I guess in terms of execution more broadly that's leading to these changes. It just seems like these deals again are a little bit more specific and wouldn't necessarily need to have a complete reworking of.

Departments. Uh you have uh decision makers that need to weigh in that represent elected officials and elected officials aren't necessarily driven by Roi stuff. They're driven by sometimes Optics and politics a little bit as we know from our experience funding sources can come in from different places. So we're we're in a position where we basically have to weave all those things, uh together without alienating anybody in the process and going through City Council meetings, where communities can appropriately weigh in and the like. So that's just a much more uh, complicated process. But I I will say and it's important to note offsetting that that longer sales cycle is the stickiness that we have been able to, um,

The sales team for just that Oh, yeah. Once is around they'll delay so could you maybe just.

Appreciate and take advantage of that. Um, the acoustic gunshot detection side. Those customers tend to stay with us for a very long time—think in terms of decades.

Thank you. I appreciate that color.

Kind of more going on there.

No I appreciate you asking that question Trevor because maybe I wasn't clear about that.

Sales.

And the next question comes from the line of Trevor Walsh with citizens, please proceed with your question.

Conversion challenge that I'm talking about are additive to the three deals that Alan spoke about those as kind of apples and oranges. So yes, even with those sales.

Deals that Alan spoke about we still have to recognize our knowledge that we have some sales execution challenges that we're addressing so that was something on the edge. So additive to the three deals. So that's not a part of the three deals with sales execution bit doesn't have anything to do with our large capex deal in Brazil doesn't have anything.

Great, thanks. Hey, Ralph and Alan. Thanks for taking the questions. Uh, maybe Ralph, just to kind of dig in a little bit more on some of the comments that you made around the go-to-market changes. It just seems a little bit reactionary to the three deals specifically that you mentioned as affecting kind of where the results came in on the top line for the quarter and then in the guide.

Really to do with our <unk>.

Crime tracer deal and the kind of quasi state that we were that we're talking about and of course, the Puerto Rico renewal is the Puerto Rico renewal that has nothing to do with the way we're kind of organized.

From a sales point of view of what our playbook is I think.

When you step back and look at the thing that the bit that I was talking about is really around we would expected have been I personally expect it to be much further along I would say on the shotspotter domestic side outside of those three deals. So I think we had spoke earlier about trying to get to like 100 square mile.

You know, have the each of those have their own intricacies and kind of special, I guess cases. Uh, so are you seeing something else? I guess? In terms of execution more broadly that's leading to these changes because it just seemed like these deals again are a little bit more specific and wouldn't necessarily need to have a complete reworking of the sales team for you just that are have nuances around sales delay. So could you maybe just what's kind of more going on there?

Is going live we're going to be less than that this year and that has a revenue impact.

Got it Okay does that answer you a great answer for you.

Yeah.

Yeah, absolutely. Thank you very helpful. Thank you yeah. Okay. So maybe just another follow up different topic.

When you on the commentary in your prepared remarks for integration with GFR initiatives can.

Can you just maybe give us a flavor you might not have hard stats, but just what how much of that is current shotspotter customers.

And then versus maybe influencing the pipeline of those new customers that you spoke about with <unk> that they're working on in tandem and like how much is that influencing more of that new customer pipeline as far as customer wanting to integrate with their GFR initiatives kind of at the same time that makes sense. Yeah. That's a great question I'll do my.

No, I appreciate you asking that question. Uh, Trevor because maybe I wasn't clear about that the, the, the sales, um, uh, conversion challenge. I'm talking about are additive to the 3 deals that Allan spoke about those are just kind of apples and oranges. So yes even with those sales um deals that Allan spoke about we still have to recognize or knowledge that we have some sales execution challenges that we're addressing. So that was something on the edge so additive to the 3 deals so not not a part of the 3 deals. So sales execution bit doesn't have anything to do with our large capex deal in Brazil. Uh, it doesn't have anything really to do with our um, crime, Tracer deal in the kind of Quasi State. The that we were uh that we're talking about and of course, the Puerto Rico, renewal is a Puerto Rico, renewal that has nothing to do with the way. We're kind of organized um uh, from a sales point of view or what our Playbook is. I think,

Best to answer it let me first say that we have a history of integrating with systems outside of Shotspotter. So the DMR happens to be the sexy thing today, but for years, we've been integrating with real time crime centers, we've been integrating with L. P. R.

When you step back and look at the thing that the bit that I was talking about is really around, we would expect it. Have been, I personally expected to be much further along, I would say on the shot spotter domestic side outside of those 3 deals. So I think um we had spoke earlier about trying to get to like a hundred square miles going live, we're going to be less than that this year and that has a revenue impact.

Got it. Okay. Did that answer your question? Did that answer your question? Yeah.

Been integrating with fixed cameras as well as Shotspotter alert goes off to be able to pan tilt zoom a camera.

To that specific location has been a game changer, and it's really a one plus one equals three frankly of <unk> is just a new version of that so instead of sending an alert to a fixed camera. We're now essentially sending it to a mobile camera and we're taking a I'll call. It an open standard approach here.

We'll integrate with anybody that the customer has as a partner <unk> platform, we'll send them a digital alert and allow them to direct that <unk> response to that specific lat long the incident that I spoke about earlier and we have experience with all the major drone platforms today, but one in Pueblo, California.

With a break.

VFR platform, if you went to ICP.

You would've seen a bird stop in our booth.

Absolutely, that's super helpful. Thank you. Yeah. Okay. So, maybe just um, another follow-up, uh, different topic. Um, when you on the commentary on your prepared, remarks for um, integration with dfr initiatives, uh, can you just maybe give us a flavor? You might not have hard stats, but just what, how much of that is current shot spot our customers, uh, and then versus maybe influencing the pipeline of those new customers that you spoke about with dfr that they're, you know, working on in Tandem and like, how much is that? I guess influencing more of that new customer pipeline as far as customer wanting to integrate with their dfr initiatives, kind of at the same time, if that makes sense. Yeah, that's that's a, that's a great question. I'll do my best to answer. Let me first say that we have a history of integrating with uh, systems outside of shot spotter. So the dfr happens to be the sexy thing today but for for years, we've been integrating with real time crime centers. We've been integrating

And we work with others as well so we're completely agnostic because I think it's all about making the customer win and helping them be more effective.

Great terrific I appreciate the color there and then maybe just one final one for you Alan.

Can you just explain or is there any additive comments around kind of why the gross margins broadly just slipped a little bit in the quarter I'm wondering if it's specifically related to the three deals that were expected or if there was something else kind of that work. Thanks.

No. That's a great question I think the gross margins did go down related to the deals that that is basically the primary reason, but I would also when if you take a look although the gross margin went down the cost of goods sold also went down because we are controlling our costs appropriately and it went down from 12.

$1 million in Q2 down to 11 five.

FR platform. We'll send them a digital alert and allow them to direct that dfr response to that specific lat. Long, the incident I spoke about earlier and we have experience with all the major, uh, drone, uh, platforms. Today, the 1 in Pueblo California, I think was a Brink um, dfr platform. If you went to ICP

In Q3, so if we see things reduce a little bit in revenue. We are doing everything we can to adjust the costs related to that so you're not only saw that in cost of goods sold going down but the same thing in the total operating expense going down from $16 $7 million in Q2 down to $15 7 million.

You would have seen a bird stop in our booth um and we work with others as well. So we're completely uh, agnostic. Because I think it's all about making the customer win and helping them be more effective.

In Q3, so we're being very intentional when we see things get a little bit delayed and what we can do from an operating or other.

Cost basis to improve the ultimate bottom line.

Great terrific. Appreciate the the color there and maybe it was 1 final 1 for for you Alan. Can you just explain or is there any um additive comments around kind of why the gross margin is broadly just slipped a little bit in the quarter. I'm I'm I'm wondering if it's specifically related to the 3 deals that we're expected or if there was something else kind of that work. Thanks.

Okay, Great I'll hop back in the queue. Thanks, all for taking the questions.

And the next question comes from the line of Max Mccandless with Lake Street Capital markets. Please proceed with your question.

Hey, guys. Thanks for taking my questions first one for me just around point 25, and 26 guide I know you have previously given sort of an air our outlook I was wondering if that $110 million what that stands at now for the projected ended point twenty-five earn was also wondering if you could provide.

No, that's a great question. I think the gross margins did go down related to the deals. Um, that that is basically the primary reason. But I would also, um, if you take a look, although, the gross margin went down the cost of goods sold. Also went down because we are controlling our costs appropriately and it went down from 1 2. 1 2 3.

Any color around 2026.

Vacations.

Yes. So this is Alan we generally give the air our guidance or our Q4 earnings report so that'll be in February.

So we intend to do the same thing again coming into 'twenty six and if you think about it in one of the main reasons for that is just two of the large projects that we're talking about two and a half million dollars for crime tracer in Puerto Rico would be $2 $8 million that moves at a lot. So we need to make sure that we get an accurate number and we'll know more.

So you not only saw that in cost of goods, sold going down but the same thing in the total operating expense going down from 16.7 million in Q2 down to 15.7 million in Q3. So we're being very intentional. Uh, when we see things get a little bit delayed, what we can do from an operating or other uh cost basis to improve uh the ultimate bottom line.

Okay, great, I’ll hop back in the queue. Thanks, all, for taking the questions.

More of that by the time, we do our Q4 earnings report.

And the next question comes from the line of Max Michaela with Lake Street Capital markets. Please proceed with your question.

Okay, and then I was just wondering if you could.

Can you just help clear up some confusion I have around the crime tracer and the delays around that I'm pretty sure in a few questions ago. You said it didn't really have anything to do with the go to market strategy in some of the reworking that you've done with the sales team, but so can you kind of help me understand sort of the pain points around that deal and are the main cause of that delay.

Okay.

Hey guys, thanks for taking my questions. Uh, first, 1 for me, just around, um, 2025 and 2026 guides. I know you have previously given sort of an ARR Outlook. I was wondering if that 110 million dollars, what that stands at now for, uh, the projected end of 2025 ARR and was also wondering, if you could provide any color around 2026 ARR, expectations,

Yes. This is Ralph I'll answer it and Alan jump in and add and correct as appropriate but.

This is Dave.

Basically a quasi state level deal we have some experiences with this with respect to climate change. So these are very very large transactions now that the local agency level, but more at the state level. So when we first acquired the company. We closed Tennessee that was a seven figure deal then I think 18 months later.

Yeah, so this is Alan. Uh, we generally give the our guidance in our, our Q4 earnings report, so that'll be in February. Um, so we intend to do the same thing again coming into 26. And if you think about it, 1 of the main reasons for that is just 2 of the large projects that we're talking about 2 and a half million dollars for Crime Tracer and and the Puerto Rico would be 2.8 million dollars, that moves that a lot. So we need to make sure

We closed a very large transaction with the state of Massachusetts recently, we closed the deal with Utah Theres. Another state or were not made me right now, but it's not the entire state. It's a number of agencies within this very large state that we're looking to close the deal and it's essentially like bringing a lot of cats.

Sure, that we get an accurate number, and we'll know more of that. By the time we do our Q4 earnings report,

okay, and then I was just wondering if you could

just help clear up some computers.

Into the process here because.

You have kind of one fund, they're basically in kind of one buyer, but there's and there's a number of agencies that are participating around this particular acquisition and I think I'll. Just say we were recently spending some time kind of walking the halls of the state capital here meeting with a number of.

And I have around a crime Tracer in the delays around that, I'm pretty sure in a few questions ago. You said didn't really have anything to do with the go to market strategy and some of the reworking that you've done with the sales team. But so can you kind of help me, understand, sort of the pain points around that deal and the, the main cause of that delay

Senator and representatives.

Within this particular state to reaffirm their support.

For the solution. The funding is there. So that's incredibly positive we just have to kind of work through the I'll call. It the bureaucracy of getting a deal done because this isn't a.

Just <unk> that gets us a lot in terms of having.

More than 10 agencies, all work together and collaborate together and agree on the same terms and conditions to get a deal done. So just this.

Yeah, so, this is Ralph. I'll answer it in. Alan, jump in and add incorrect, it's appropriate. But um this is a basically a quasi state level uh deal. Uh we have some experiences uh with this um with respect to uh crime trade. So, these are very very large transactions, not at the local agency level but more at the state level. So when we first acquired the company we closed Tennessee. That was a 7 figure deal. Uh then I think 18 months later, we crows a very large transaction with the state of Massachusetts. Recently we closed a deal with Utah. There's another state that we're not naming right now but it's not the entire State. It's a number of agencies within this very large state that we're looking to close a deal and it's essentially like hurting a lot of cats

It's just taken a long time and so that's where that is.

I don't know Alan would you add any additional color.

Yeah. The only thing I would add is this is something that they want very much and have wanted.

We thought actually we were going to close this around Q2.

This particular state has some other costs that came in that had them take a look at some of their priorities were still a very very high priority to get this contract done and when I say very high like humans top two priorities for this entire states that they're dealing with these types of things. So we expect it to have.

But it's just being a little delayed.

Alright, thanks, guys.

And as a reminder, if you would like to ask a question. Please press star one on the telephone keypad, a confirmation tone will indicate that your line is in the queue.

And the next question comes from the line of Jeremy Hamblin with Craig Hallum Capital. Please proceed with your question.

The, um, I'll call the bureaucracy of getting a deal done because this isn't a um, a muscle that uh, gets used a lot in terms of having, you know, more than 10 agencies, all work together and collaborate together and agree on the same terms and conditions to get a deal done. So just it's just taking a long time and um so that's where that is.

I don't know. Alan do you would you add any additional color?

Thanks for taking the questions.

Sorry to harp on this but I want to come back to the guidance change and you know it looks like about an $8 million change in revs, but also about an $8 million change in EBITDA.

And understand the you know the three key contracts that didn't come through from a timing perspective, but you know even if we're thinking about a kind of 70% flow through.

I wanted to just understand what else creates kind of that step function gap to the roughly 8 million dollar reduction in EBITDA.

Yes. Yeah. The only thing I would add is this is something that they want very much and have wanted, uh, we thought actually we were going to close this around the Q2, uh, this particular state had some other costs that came in that, uh, had them. Take a look at some of their priorities were still a very, very high priority, uh, to get this contract done. And when I say very high, I'm liking the top 2 Pryor for the this entire state that they're dealing with these types of things. So we we expect it to happen. Just, it's just being a little delayed.

All right. Thanks guys.

That just R&D costs are a bit higher or color that you might be able to share on that.

And as a reminder, if you would like to ask a question, please press star 1 on the telephone keypad. A confirmation total indicate that your line is in the queue.

Yeah. Thanks, Jeremy This is Allen in answering the question I think part of it is if you look at the actual profitability that we thought were going to get with those Puerto Rico has already deployed.

And the next question comes from the line of Jeremy. Hamlin with Craig Howland Capital, please proceed with your question.

So the actual cost turn that back on almost 100% of that revenue goes to the bottom line.

The crime tracer deal is the actual gross margins that we produced with that when we go live in a large deal like this are significantly high and then the Capex deal was something that.

Uh, thanks for taking the questions. Um, so sorry to um, to harp on this but I want to come back to the guidance change and you know, it looks like about an 8 million dollar change in revs but also about an 8 million dollar change in Evita.

This is like two and a half million dollars, which otherwise would have been a five year $500000 services deal and you know our gross margins internationally.

Are significantly higher and we would have gotten most of that money to the bottom line, because we would've been actually selling them some of the sensors. So.

The revenue is.

And you know, understand the, you know, the 3 key contracts uh that didn't come through from a time you perspective. But, you know, even if we're thinking about a kind of 70% flow through, um, I wanted to just understand what else, um, creates kind of that spec function Gap to the roughly 8 million dollar reduction in ebita, you know, is that just, you know, R&D costs are a bit higher or, you know, a color that you might be able to share on that.

It comes with a very very high adjusted EBITDA that we would've expected to cover the bottom line.

Okay got it.

I wanted to touch on Puerto Rico, a bit more as you noted you know.

Yeah, thanks Jeremy. This is Alan at answering the question. I think part of it is, if you look at the actual profitability that we thought we were going to get with those Puerto Rico is already deployed.

Prior customer kind of in a halted period and just in terms of if you have the infrastructure deployed.

I know this.

The process of getting it extended has has dragged on here.

But in terms of how you would expect that let's just assume that you get that you know back turned on in 2026.

Right? So the actual costs turn that back on. Almost 100% of that Revenue goes to the bottom line. The crime Tracer deal is the actual uh gross margins that we produce with that. When we go live in a larger deal like this are significantly high and then the capex deal was something that

This is like 2 and a half million dollars, which otherwise would have been a 5-year.

Would there be a catch up payment that would occur.

And let's just say it doesn't happen in Q4.

But it doesn't Q1 would you receive you know kind of a back revenues for the second half of 'twenty five that we're missing or how do you expect us or how do you think that that's going to get treated as you go through this process.

00000 Services deal and, you know, our gross margins internationally, um, are significantly higher and we would have gotten most of that money to the bottom line because we would have been actually selling them, some of the sensors. So, um, the, the revenue itself comes with a very, very high, uh, adjusted even but, uh, that we would have expected to come with the bottom line.

Yeah. This is Alan I'll answer and then Ralph can now to correct.

At this point and what we have historically seen with Puerto Rico is they do not back date.

Q2, the an earlier date based on when we get the actual contract signed so we really cannot expect that but I would say the second point here is the cost of them is is going to be going up so basically.

Some of these things are costing us some time and money as well.

Okay, got it. Um, I wanted to touch on Puerto Rico a bit more. Uh, as you noted, you know, kind of Prior customer kind of in a halted period and just in terms of you have the infrastructure deployed. Um, I know this, um, you know, the the process of of getting it extended has has dragged on here um but in terms of how you would expect that, um let's just assume that you get that uh, you know, back turned on in 2026.

Likely that they're going to have to pay a little bit more to get the same solution.

Yeah, Alan if I could just add something what makes Puerto Rico, a little bit different than other customers other customers who might be delayed in getting the renewal that they intend on doing we know theyre going to do it they have a history of doing it. So we won't turn the system offer them, we've turned the system off from Puerto Rico.

Would there be a catch-up payment, um, that would occur. Um, and let's just say it doesn't happen in Q4, um, but it does in q1. Would you receive, you know, kind of, uh, back revenues, um, for the second half of, of 25 that were missing, or how do you expect us? Or how do you think that that's going to get treated as you go through this process?

So theyre not getting any alerts right now and that's what that's another reason why they would not be backdating or excuse me that we wouldn't have any catch up revenues in this situation because they are not receiving the service.

As of the end of Q2.

That's helpful color.

And then just switching gears I want to come back to you know Chicago exciting potential there.

And no. This has been a really elongated.

Process with twist and turns.

In terms of the engagement that you have is.

Presumably.

To get the uh, same solution.

A potential decision is is getting made.

I assume that you're not actively engaged with the mayor's office, you know given that kind.

Kind of status, but do you have a sense for where you think there might be a resolution.

On whether or not this moves forward I mean are you thinking by next spring are that you'll have an answer and if we don't have an answer by then it's not happening.

Yeah, Alan if I could just add something, what makes Puerto Rico a little bit different than other. Uh, customers is other customers might be, uh, delayed in getting the renewal that they intend on doing. We know they're going to do it. They have a history of doing it so we won't turn the system off for them. We've turned the system off from Puerto Rico.

Yes, so I think something is definitely happening and I think we were quite encouraged to see that during the budget discussions there was specific commentary Q&A going back and forth that determined a couple of things. One we determined that there is a line item in the budget and the merit budget for acoustic gunshot detection technology.

So they're not getting any alerts right now and that's that's another reason why they would not be back dating or excuse me. We wouldn't not have any catch up revenues in the situation because they're not receiving the service.

As of the end of Q2.

So that's encouraging I think.

That's helpful caller. Um, and then just Switching gears. I want to come back to, you know, Chicago, exciting potential, um there. Um and know this has been uh, really elongated um, you know, process with twists and turns.

There is also a lot of discussion about the need for this type of first responder or acoustic gunshot detection technology need to be lit up as quickly as possible and during the course of two days of discussions.

in terms of the engagement that you have, um, you know, is presumably

It was acknowledged by an executive within the <unk> organization that they have fairly much completed the work.

On determining their recommendation for the vendor.

And now that has to go through the process of going through the chief procurement officers and then being presented to the mayor where the mayor excuse me not the mere specifically, but the mayor's office.

a a potential decision is is getting made. I assume that you're not actively engaged with the mayor's office. Um, you know, given that um, kind of status. But do you have a sense for where you think? There might be a resolution on on whether or not uh this moves forward. I mean, are you thinking by next spring uh that you'll have an answer and if we don't have an answer by then it's not happening.

Signs off on it and it moves forward and they suggested in a couple of different testimonies that we're coming close to the conclusion and then lastly in the most important thing for for me or anybody really around wanting to be involved with Chicago and helping them create <unk>.

<unk> spaces for the communities in Chicago It was.

Really nice to see selling reaffirmed publicly when asked the question directly about his feelings about he was asking about shotspotter, but his answer was he is and you know.

Very strong favor of any tools and our technology that can help them do a better job responding to gun violence. So he's not backing away from that so all those things are pretty encouraging and now we wait.

Yeah, so I think something is definitely uh, happening. And I think we were quite encouraged to see that during the budget discussions. There was specific, uh, commentary Q&A, going back and forth that determined a couple of things 1. We determined that there is a line item uh, in the budget in the mayor's budget for acoustic, gunshot detection technology. So that's encouraging. I think. Um, there's also a lot of discussion about the need for this type of first responder or acoustic, gunshot detection technology to be lit up as quickly as possible. And during the course, of 2 days of discussions, um, it was acknowledged by a, um, an executive within the mayor's organization that they have fairly much completed the work on, uh, determining their recommendation, for the vendor.

Great last one for me just in terms of the platform growing and having a lot more you know.

Services that you're offering them between you know crime tracer.

The base S. S T I a L. P. R. You know.

<unk> et cetera.

In terms of thinking about your R&D spend right, which has ticked up this year and wanted to get a sense for is that something where as these services have more AI tools, you're likely higher having to hire some more engineers to support that.

And now that has to go through, you know, the process of going through the chief procurement officers and then being presented to the mayor where the mayor just, you know, excuse me, not the mayor specifically, but the mayor's office, you know, signs off on it, and it it, and it moves forward and they, um, suggested in a couple different testimonies that we're, we're coming close to the conclusion. And then, lastly, the most important, uh, thing for, for me, or anybody really around, uh, wanting to be involved with Chicago and helping them, um, create safer spaces for the communities, in Chicago, it was really nice to see.

Should we expect you know similar growth next year in terms of what your R&D budget looks like.

Yes. This is Alan I'll I'll answer and then Ralph can correct and I think at this point.

We've been talking about this for a year. We we went into the year are fully expecting to spend a significant amount more in all of the AI initiatives, which goes into the R&D aspect.

Selling reaffirm publicly. When asked the question directly about his feelings about he was asking about shot spotter. But his answer was he is in, you know, very strong favor of any tools Andor technology that can help them do a better job. Responding to gun violence. So he's not backing away from that. So all those things are pretty encouraging and now we wait.

Great. Last 1 for me, um, just in terms of, you know, the platform, uh, growing having a lot more, um, you know,

Specifically you can also know about how we just.

Released the crime Chase with Gen three.

That is a very a great upgrade for us in that particular product that required some of our AI and other R&D personnel.

And also what we're doing in terms of safe point is continuing to improve the algorithms literally month by month on the product improvement is occurring and that's because we're investing in and the improvements not just the algorithms and software side of things, but other aspects of the actual.

Services that you're offering between, you know, crime Tracer. And you know, the base, ssti alpr, um, you know, capability Etc. Um, in terms of thinking about your R&D spend, right, which, which is ticked up this year and, you know, wanted to get a sense for is that something where as these Services, um, have more AI tools, your likely having to hire some more Engineers to support that

Safe point product as.

should we expect, you know, similar growth. Um, next year, in terms of what your R&D budget looks like.

As well, but those require FERC personnel either in the AI algorithms or in the R&D for the complete product development.

So the second year, and then if I could worsen.

No.

Yeah, No obviously and you should just add like the AWS band with the running the algorithms on some of these specialized processors and the opportunity we have there maybe in <unk>.

In source that on Prem and be able to save some money and still be able to do the work that we're doing with AI.

Yes, that's a great addition, and I mean at this point.

We are spending more on personnel, but also our cost related to that are in the millions at this point and we do believe that we can do some of it internally and save some money. So that you know your other question was do we expect to continue to have R&D go up year over year.

It may go up a bit, but we think it's going to go up for far lower than the actual revenue that it's producing.

Great. Thanks for the color I appreciate the detail.

The improvements, not just the algorithms and software side of things, but other aspects of the actual, uh, safe Point product, um, as well. And but those require, you know, Personnel either in the AI, for the algorithms, or in the R&D for the Complete product development.

There are no further questions at this time I would like to turn the floor back over to Ralph Clark for any closing comments.

So the second question. Yeah, go ahead, go.

Great. Thanks, a lot John I want to thank everyone for joining us today your engagement and thoughtful questions really do demonstrate the strong interest you have in our strategic vision and the market opportunities, we're pursuing and I also wanted to take a moment to thank my leadership colleagues and work employees colleagues for their strong.

Yeah, know obviously and you should just add like the the AWS spend with the uh running the algorithms on some of these specialized processors and opportunity. We have to maybe in uh insource that on-prem and be able to save some money and still be able to do the work that we're doing with AI.

Dedication and hard work and.

And certainly none of this would be possible or meaningful if it wasn't for the work that we're doing with customers and our community partners and we do value their continued trust and collaboration.

We're going to continue to remain committed to making community safer through technology transparency and innovation that address real world public safety challenges.

Yep, that's a good. That's a great addition. But I mean at this point, um, we are spending more on Personnel, but also our, our costs related to that, um, are in the millions at this point and we do believe that we can do some of that internally and save some money. So that, you know, your other question was, uh, do we expect to continue have R&D go up year over year, uh, we, it may go up a bit but we think it's going to go up, uh, far, far lower than the actual Revenue that it's producing.

And we're going to focus on executing our strategic vision and delivering shareholder value and thank you all very much and looking forward to some of the one on one discussions we're going to have here in a bit have a good evening everyone.

Great, thanks for the caller. Uh, appreciate the detail.

There are no further questions at this time, and I would like to turn the floor back over to Ralph Clark for any closing comments.

And thank you ladies and gentlemen that does conclude today's teleconference. We thank you for your participation you may disconnect your lines at this time.

Great. Hey, thanks a lot John. Um, I want to thank everyone for joining us today. Um, your engagement and thoughtful questions uh really do demonstrate the strong interest you have in our strategic Vision in the market opportunities, we're pursuing. And I also want to take a moment, uh, to thank my, uh, leadership, uh, colleagues and work employees colleagues for their strong dedication and hard work. Uh, and certainly, none of this would be uh, possible or meaningful if it wasn't for the work that we're doing with customers and our Community Partners, and we do value, uh, their continued trust in uh, collaboration. Uh, we're going to continue to remain, uh, committed to making Community safer through technology, transparency and Innovation that address real world Public Safety, uh, challenges and uh, we're going to focus on executing our strategic vision and delivering shareholder value, and thank you all very much. And uh, looking forward to uh some of the 1-on-1 discussions. We're going to have here in a bit. Uh, have a good evening everyone.

And thank you, ladies and gentlemen, that does conclude today's teleconference. We thank you for your participation, you may disconnect your lines at this time.