ShotSpotter, Inc. (NASDAQ:SSTI) Q1 2024 Earnings Call Transcript

ShotSpotter, Inc. (NASDAQ:SSTI) Q1 2024 Earnings Call Transcript May 14, 2024

Operator: Good afternoon and welcome to SoundThinking’s First Quarter 2024 Conference Call. My name is Joe and I will be your operator for today’s call. Joining us are SoundThinking’s CEO, Ralph Clark, and CFO, Alan Stewart. Please note that certain information discussed on the call today will include forward-looking statements about future events and SoundThinking’s business strategy and future financial and operating performance. These forward-looking statements are only predictions and are subject to risks, uncertainties, and assumptions that are difficult to predict and may cause the actual results to differ materially from those stated or implied by those statements. Certain of these risks and assumptions are discussed in SoundThinking’s SEC filings, including its registration statement on Form S1.

These forward-looking statements reflect management’s beliefs, estimates, and predictions as of the date of this live broadcast, May 14, 2024, and SoundThinking undertakes no obligation to revise or update any forward-looking statements to reflect events or circumstances after the date of this call. Finally, I would like to remind everyone that this call will be recorded and made available for replay via a link available in the investor relations section of the company’s website at ir.soundthinking.com. Now, I would like to turn the call over to SoundThinking CEO, Ralph Clark. Sir, please go ahead.

Ralph Clark : Good afternoon, and thank you for joining our Q1 2024 earnings conference call. Before I review the specifics of this quarter’s results, I want to first share with you how very excited we are about the growth prospects for this year and our strong start to 2024. As we highlighted in SoundThinking’s recent investor letter, our growth strategy can be summarized as a land, expand, cross-sell, and retain model. Our land opportunities or new customer acquisitions have greatly expanded beyond our historical acoustic gunshot detection business. We’re now going to market with five offerings that comprise our SafetySmart platform announced last year. As we land new customers on any specific solution on the platform, our goal is to maximize the value those customers experience.

We believe this strategy drives retention and if there’s an identified need, it can also potentially lead to appropriate expansions and or cross-sell opportunities. We believe we’re early in the law enforcement and now commercial security digital transformation market and that this opportunity remains extremely attractive and significantly under-penetrated. We believe our go-to-market strength as a trusted advisor uniquely positions us to capitalize on this opportunity as we’re now able to offer relevant solutions that addresses the pressing needs of this large and growing market. Here’s what we accomplished in Q1 of this year. Revenues were in-line with our expectations of $25.4 million compared to Q1 2023 revenue of $20.6 million, representing over 23% year-over-year growth.

Adjusted EBITDA was $3 million, or 12% of revenues compared to $2.9 million, or 14% of revenues for Q1 2023. Our revenue attainment was primarily the result of our previously booked and deferred revenue, professional services revenue from our Technologic Solutions business combined with net new business from the platform. Net new business included go-live traction with 11 new ShotSpotter customers in the quarter, including one campus security deployment at University of Georgia. Four of the new public safety customers were in New Jersey, which is specifically budgeted for acoustic gunshot detection at the state level. We also went live with a strategic deployment in Philadelphia with the Philadelphia Housing Authority. This gives us an important strategic foothold in the city of Philadelphia, with the possible future expansion opportunity in a major Tier 1 city.

ShotSpotter also saw two expansions in Boston and Suffolk County. ResourceRouter went live in three new cities in the quarter and we’re seeing exceptional pipeline and bookings traction in new customer captures and cross-sell opportunities for ResourceRouter this year. In addition, we added two new crime tracer data providers, growing our already exceptionally large data footprint. We continue to make progress on our New York City Department of Corrections case builder implementation, which has led to several new corrections opportunities, including Orleans Parish, which has been booked and is expected to go live in the next 60 days, along with a case builder deployment within the California Department of Justice. Lastly, we landed four new SafePointe customers consisting of a hospital, a gaming venue, and two schools.

Looking forward, we have 16 ShotSpotter go-live projects underway, representing eight new customers and eight expansions. We believe all these developments further validate the demand that we are seeing in the marketplace in the strong execution on our key growth initiatives. On the international side, we were very pleased to report on the rapid adoption of best practices by our Montevideo, Uruguay, ShotSpotter customer in the first 90 days of deployment. The client went live in mid-December 2023 with an array totaling 4.6 square miles. In the first 90 days of deployment, the agency has begun to effectively leverage ShotSpotter data to allocate policing resources to impacted areas and to support investigations, including the use of ShotSpotter data as evidence in a recent tragic killing of a police officer.

In addition, the agency is fully embracing integrating ShotSpotter with other digital tools used in their policing and community engagement efforts. We believe these positive results in the client’s willingness to broadly share their successes with other countries will seed the potential market opportunity for ShotSpotter in the larger South American market. In fact, we are making steady progress to [book and] (ph) go-live with another major South American city in early Q3 of this year. Overall, we continue to refine and enhance the SafePointe solution, including a major software upgrade coming this quarter. We are leveraging the existing SoundThinking software stack in order to provide a new and more modern user experience. For example, we are making it easier to monitor multiple facilities and entrances and to quickly find historical incidents of interest.

Moving to this new code base will make future enhancements faster to deliver as well. We also expect to deliver an upgrade later in the year to the object detection classifier by integrating a new camera system and machine learning model using the company’s deep experience in artificial intelligence and machine learning, which we believe will enhance SafePointe’s detection efficacy. In fact, we’ve been granted a new fundamental patent on using passive magnetic moment in motion to detect weapons, which allows the systems to be unobtrusive, helping to provide a better experience for visitors and employees, all the while providing an important layer of security protection. Our SafePointe demand generation engine is fully operational with two dedicated BDRs who are assigned to drive over 250 discovery calls for the year, of which they have successfully delivered on 65 calls in a compressed Q1 2024.

As a reminder, we also have in place five season territory sales professionals combined with two recently hired and experienced security experts as customer success directors to help guide our go-to-market discussions, as well as onboard new live customers. So far this year, we’ve secured business from our top three verticals, healthcare systems, casinos, and enterprise corporate accounts. And our momentum in healthcare is particularly impressive with having either secured lanes or being in advanced contract negotiations with multiple healthcare systems. We have seen security professionals in the healthcare system vertical that have already deployed competing products turning to SafePointe due to its lower total cost of ownership and discrete footprint.

The SafePointe pipeline continues to grow in these key verticals and is currently over $12 million. We believe this provides solid coverage to meet the $5 million target for booked ARR forecasted for SafePointe this year. With respect to our full year outlook, we are reaffirming our revenue guidance of $104 million to $106 million for 2024, along with our adjusted EBITDA margin guidance of 18% to 20% for the year. Now, Alan, over to you.

Alan Stewart : Thank you, Ralph. We’re pleased with our performance in the first quarter. As Ralph mentioned, this quarter we went live with our ShotSpotter gunshot detection solution in 10 new cities in one university, expanded our ShotSpotter coverage in two cities, and added seven new customers with our other software solutions, as well as several previously booked customers that have now gone live. Revenue is in-line with our expectations and it was attained from deferred revenue previously booked being recognized in the quarter, professional services revenue from our technology solutions business, and also from new business mentioned above that went-live. We had minor attrition of only six miles this quarter. Let me provide more details in the quarter and then I will share some thoughts around the balance of the year.

First quarter revenues were slightly above expectations at $25.4 million. Revenue is over 23% higher than first quarter of 2023, as we continue to grow in all aspects of our business. Gross profit for the first quarter of 2024 was $14.9 million, or 59% of revenue versus $11.3 million, or 55% of revenue for the prior year period. We expect gross margins to continue to improve as the year progresses. Our adjusted EBITDA for the first quarter of 2024 was $3 million, up slightly from $2.9 million in the first quarter of 2023. Our adjusted EBITDA is lower than [analyst expectations] (ph), primarily because of continued higher than expected legal costs, some other one-time expenses, and also because we conducted our company all-hands meeting in the first quarter, which added a one-time cost of almost $1 million.

It is important to understand that we do not provide guidance on a quarterly basis for revenue or adjusted EBITDA. Adjusted EBITDA, a non-GAAP financial measure, is calculated by taking our GAAP net loss and adding back interest expense, income taxes, depreciation, amortization, and impairment, stock-based compensation, acquisition-related expenses, including adjustments to our contingent consideration obligation. Turning to our expenses. Our operating expenses for the first quarter were $17.5 million, or 69% of revenues, versus $13.1 million or 64% of revenues in the first quarter of 2023. Operating expense increases were primarily related to higher headcount and employee-related costs, including personal cost increases related to expected SafePointe growth.

Breaking down our expenses. Sales and marketing expense for the first quarter was $7.1 million, or 28% of total revenue, versus $5.8 million, also 28% of total revenue for the prior year period. Our sales and marketing teams continue to build our sales pipelines and expand our marketing efforts. We also continue to focus on maintaining high levels of customer satisfaction, which helps keep our attrition rates low. Our R&D expenses for the first quarter were $3.6 million, or 14% of total revenue, compared to $2.7 million, or 13% of total revenue for the prior year period. We continue to invest in increasing the functionality of all of our products. G&A expenses for the quarter were $6.8 million or 27% of total revenue compared to $4.6 million or 22% of total revenue for the prior year period.

G&A expenses were higher due to legal costs, our headcount increase, and other employee-related costs such as our all-hands meeting mentioned previously. We expect our G&A expenses will fluctuate quarterly throughout the year in absolute dollars as the company growth will require some investment that will be offset by the expected reductions of certain one-time expenses incurred during Q1. Our net loss for the first quarter was $2.9 million, or $0.23 per share based on 12.8 million basic and diluted weighted average shares outstanding. This compares to net loss of $1.8 million or $0.15 per share based on 12.3 million basic and diluted weighted average shares outstanding for the prior year period. Deferred revenue at the end of the quarter was $50.8 million versus $42.1 million at the end of the fourth quarter of 2023.

We ended the quarter was $8.5 million in cash and cash equivalents versus $5.7 million at the end of the fourth quarter of 2023. The increase is primarily related to AR collections, partially offset by the payment of the company annual bonuses in February. We have approximately $7 million of debt outstanding on our $25 million line of credit related to cash used to partially fund the SafePointe acquisition last year. Turning to our full 2024 outlook, we are reaffirming our full year 2024 revenue guidance range of $104 million to $106 million, representing over 13% year-over-year growth at the midpoint compared to 2023. We are also reaffirming our expectation for adjusted EBITDA margin to approximately 18% to 20% of forecasted revenues in 2024.

Now back to Ralph for some final thoughts, and then we’ll be happy to take your questions.

Ralph Clark : Thanks, Alan. And just to close my prepared remarks, it was exactly one year ago when we acknowledged the ultimate sacrifice of Chicago police officer Areanah Preston, who was tragically killed in an attempted carjacking when returning home from work. Sadly, we are here again, one year later, with the killing of another Chicago police officer, Luis Huesca, this past month in another attempted carjacking. Our sincere thoughts and prayers go out to his family, loved ones, and the Chicago Police Department. We believe these tragic incidents require us to even be more determined to do our part in providing tools and critical expertise to help law enforcement, first responders, and the communities they serve to save lives and to drive better public safety outcomes. We’re now prepared to take your questions.

Q&A Session

Operator: [Operator Instructions] And our first question comes from the line of Richard Baldry with ROTH Capital Partners. Please proceed.

Richard Baldry: Thanks. I was wondering if you could go into a little more detail on the Philadelphia win. I noted it was with the Housing Authority. How will they work between themselves and the local police? Is it something where you have the ability to grow outside of the Housing Authority relatively easily or do you have to build new relationships outside of that to grow into other areas of Philadelphia? So we sort of understand what that initial employment represents.

Ralph Clark: Yeah, thanks for that question, Rich. This is Ralph. So there is a very strong collaboration between Philadelphia Housing Authority, which is the buyer of the ShotSpotter Services for this particular implementation, and the broader Philadelphia police department. So we’re really quite encouraged that they’re, in fact working very closely together. And we very much think that it will open up a potential opportunity for us to expand beyond a Philadelphia Housing Authority to broader Philadelphia, because they can certainly use a technology like ShotSpotter and other solutions to help them address the crime problem in Philadelphia.

Richard Baldry: Thanks. And can you remind us in terms of the $12 million in identified pipeline on SafePointe, the economics [around that] (ph), I think I recall it’s $20,000 a lane, which would imply something like [$600] (ph). Where was that pipeline when you bought the company, so we can start to gauge how quickly it’s expanding?

Ralph Clark: Yeah, so when we bought the company, they had a pipeline. And we’ve gone through the vetting process to have that pipeline match up to our standards. So there were some puts and takes there. And so I think what you see in the current pipeline is some subtractions of the pipeline that we inherited. We kept some, but I think there’s been a lot of healthy growth with the BDR investment that we’ve made. And also our six — or excuse me, our five quota carrying salespeople are also developing their own pipeline. So it’s been fairly strong and really quite encouraged, and we’re seeing that pipeline develop across those three key verticals that I spoke about earlier.

Richard Baldry: And maybe last for me, following on SafePointe, any challenges you’ll see ahead or areas you might need to smooth out in the supply chain in order to kind of scale up your ability to do those deployments. Are there any custom deliverables you need to make sure you have access to? Or is it something you feel that the [friction to growth] (ph) should be pretty minimal?

Ralph Clark: Pretty minimal. I think we’re in pretty good shape from a supply chain point of view. So no constraints.

Richard Baldry: Great. Thanks.

Operator: And our next question comes from the line of CJ DiPollino with Craig-Hallum Capital Group. Please proceed.

CJ DiPollino: Hey, everyone. I’m on for Jeremy Hamblin tonight. Thanks for taking my questions. First, wanted to touch on the income statement. It looks like you guys made some nice progress with gross margin expansion. Is there anything specifically that you could point to that led to the increase year-over-year and actually sequentially too?

Alan Stewart : Yeah, so this is Alan. Thanks for the question. Yeah, If you think about it, we’ve gone up 2023 as a whole, had a gross margin of about 57%. Q4 was 58%. Now we’re 58.6%. So it continues to improve. As we expect, it’s going to continue to go higher, and that’s for a lot of things. As we continue to grow the revenues, we don’t have to increase the cost of goods sold as much across the board for pretty much any of the software solutions that we have. So revenue growth is going to continue to help drive that gross margin lot higher. We do expect to end the year closer to 60%.

CJ DiPollino: Okay, great. Thank you. And then one more on the income statement. I know you said G&A being higher due to some — it sounded like some one-time expenses. Do you mind just trying to quantify how much of the G&A increase of — we’ll call it, you know, $2.2 million year-over-year came from the increase in headcount, just so we have sort of a baseline moving forward?

Alan Stewart : No, absolutely. Great question. Alan again as well. It’s almost significantly in two major categories. Number one, last year we did our all-hands meeting in Q2. So you would see G&A go higher in Q2 last year. This year we did it in Q1 and that was almost $1 million. The company has grown. We have over 300 people now. So it costs a lot more to do that. That was done in Q1. So out of that, $1 million was there. We also had additional legal costs related to some issues we had with two of our employees that did things that were inappropriate. We continued to defend ourselves on that. That was about almost a [$0.25 million] (ph) as well. So just between those two alone, which are certainly the all-hands at one time, and the legal costs, we’re hoping those continue to go down, that would have been a [$0.25 million] (ph). The delta is just slightly other higher things related to G&A with the growth of the company.

CJ DiPollino: Okay, great. That’s very helpful. And then one more on the Philadelphia Housing Authority contract, if you don’t mind. Is there any details you could share on economics surrounding that deal, maybe the contract length, things in that nature?

Ralph Clark: Yeah, fairly standard. I mean, that’s our standard MSRP pricing. We write annual contracts, so nothing unique there on the Philadelphia Housing Authority transaction.

CJ DiPollino: Okay, got it. Thank you guys. That’s all from me.

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

Aditya Dagaonkar: Hi, this is Aditya on behalf of Mike Latimore. Could you give some color on the sales cycle for gunshot detection? Is it stabilizing or could you give some color on that?

Ralph Clark: Yeah, this is Ralph. Thank you for that question. So the question, just to repeat it is, what we’re seeing in terms of sales cycle for acoustic gunshot detection solution, otherwise known as ShotSpotter. I think there’s some interesting puts and takes there. We’re certainly seeing a little bit of headwind that’s lengthening the sales process in certain situations because of some of the noise coming out of Chicago to be candid. But then also we’re seeing some collapsing sales cycles as we more deeply penetrate Tier 4 and Tier 5. You’ve probably noticed that in this particular quarter. We put up a lot of new customers, kind of 10 ShotSpotter customers and a number of those customers were smaller customers and those sales cycles tend to happen much shorter. You can think about those sales cycles being nine months to 12 months and our other sales cycles being more the traditional 18 months with a little bit of headwind that’s been added to the larger deals.

Aditya Dagaonkar: Got it. And what percentage of your gunshot detection pipeline is international?

Alan Stewart : Yeah, so this is Alan. I think at this point it’s still relatively small. We have international deployments in the Bahamas, in South Africa, and also in Uruguay. We are expecting, and if you just add all those together, it’s pretty much just a couple million dollars. But we are also looking to expand and hopefully in Q3, we’ll have another one in another country that we’ve talked about in the past. And that should add another probably $500,000, $600,000 per year for the first deployment there. And we are still expecting some growth, both in the new one that we’re going into, possibly in South Africa as well, as well as Uruguay.

Aditya Dagaonkar: Got it. Thank you.

Operator: And the next question comes from the line of Trevor Walsh with JMP Securities. Please proceed.

Trevor Walsh: Hi, thanks gents for taking my questions. Ralph, maybe I’ll start with you. You made some comments in your prepared remarks about just best practices. I think, it was more in the context of international business. But just piggybacking-off of that a little bit. If a customer was to kind of want to evaluate the cost benefit analysis specific to ShotSpotter, I know you’ve talked about in the past have not necessarily wanting to go down the slippery slope of kind of quantifying kind of human life save, even though we have kind of good examples of ShotSpotter doing just that. What in terms of best practices are you seeing customers that do want to do that kind of cost benefit analysis? What other metrics might they use to just help illustrate that and kind of justify to city councils, wherever they kind of might be as kind of the spend being — saving officer time, whatever it might be. How do you measure that?

Ralph Clark: Sure. Yes. Thank you very much for that question. So it is a couple of things. I think, first there’s the overall awareness of criminal gunfire that takes place in neighborhoods. And we know from years of experience across multiple deployments that 80% to 90% of criminal gun fire goes unreported via the traditional, I would describe broken 911 system analog manual system. And so having the ability to have real-time alerts that are completely vetted get to a dispatch center and then dispatch out to an officer in less than 60 seconds with a very precise location is a game changer. It shows a community that police are prioritizing the response to gunfire. And when police are responding to gunfire, certainly they’re getting there — if they’re not encountering a perpetrator perhaps they are aiding a victim, which is where you get into live-save.

We have lots of evidence that the physical forensic evidence collection process is significantly enhanced. And of course, that’s really critical for downstream investigations, getting those shell casings and running them through the [indiscernible] system and embracing a kind of very strong robust gun crime intelligence platform where you are investigating shootings that don’t necessarily lead to a gunshot wound victim and the like. We’re very excited about our data for good initiative, where we are repurposing the data, I should say, our clients are repurposing the data and sharing it with other outside of law-enforcement agency resources that help get critical non-enforcement resources to these communities that are suffering through the trauma of gun crime.

We’re also seeing our customers be able to aggregate the data over time and really being able to better plan their resource deployments based on exactly where gunfire is taking place over specific time windows. I think, there is an overall theme of encouraging our data — excuse me, our customers to be much more transparent in sharing data and the outcomes that they are getting and it really does get down to getting cops to dots, recovering physical forensic evidence, recovering prime guns, recovery physical forensic evidence in the form of shell-casings. And I’m very much leaning into the idea of valuing the saving of a life, because I mean those lives are critically important and have value. They mean something. I think the line that we don’t want to go down as much is taking on the responsibility for overall prevention and reduction of gun violence from a singular point of view because we know that gun violence in total is a very complex issue.

And it really does take a grouping of kind of technologies and processes all working together with very strong leadership that drives the effect of reductions in gun violence. You can’t single out a particular technology to be able to do that on its own. So we do resist that non-line of sight I guess, outcome if you will. But I think there are several line of sight outcomes that our customers can embrace when they do implement best practices and really get cops to every single shooting and try to save lives, we cover physical forensic evidence and take gun crimes off the street.

Trevor Walsh: Great. Thanks for that color. Maybe one more higher level question for you, and then I have a couple for Alan. You mentioned the kind of momentum within the state of New Jersey and how that’s more state level funded. What do you think the appetite is for that type of kind of funding profile to come from state government versus local kind of just more broadly across the US?

Ralph Clark: Yes. So there is a couple of states beyond New Jersey. I won’t name them in this conference call, but we’re working quite closely with a few states on copy basically what the Governor of New Jersey did, in terms of allocating some specific funding for acoustic gunshot detection. Because it is recognized how important this critical technology is and helping police better respond to criminal gunfire. So more to come there, but we are quite encouraged with some of the movement we’re seeing in a couple of other states.

Trevor Walsh: Great. Terrific. Alan, maybe for you. I appreciated the ARR guidance kind of how you build your 2024 number. Was there — and I know you don’t necessarily guide on a quarterly basis to that metric. But was there anything in the quarter from a trending perspective that gave you kind of more or less confidence around that 2024, call it just $100 million ARR number?

Alan Stewart : No, thanks for the question. So no there’s nothing that changed. We are still struggling a bit with Puerto Rico, trying to get that in there are back online but we already included that. So the ARR growth getting north of $100 million already included that we didn’t get Puerto Rico at all. So we still work with that, hoping that we could be positive there. Nothing else has really changed based on the buildup to get that north of $100 million. You already heard about the pipeline with SafePointe, we’re excited about that. You talked — you heard about the 10 cities going live and the university. So things are going well there. Everything else seems to be going really well across the other products as well. So no major changes there.

Trevor Walsh: Okay great. Maybe just one more just kind of piggybacking on some of the SafePointe questions. I appreciate the comments earlier around just the overall pipeline build. Have you seen kind of maybe asked in a different way, have you seen a noticeable change in sales cycles, particularly to SafePointe kind of compare and contrasting from when the company was kind of standalone versus in the short time that’s been kind of part of the SoundThinking family. Have you seen any kind of acceleration, I guess there in terms of just the overall — the deal flow?

Ralph Clark: Yes. So I think I would first acknowledge that this is still relatively new for us. But I think one of the approaches that we take is a very consultative approach and really making sure that we’re thoughtful and intentional around doing diagnostics and discovery calls, if you will with our customers. We are really making sure that we understand what they are trying to accomplish and then making sure that our solution can fit with what they are trying to accomplish. So we take a little bit more of a deliberate approach. We’re not trying to be transactional. That’s never really been a part of the DNA of this company. We like it sticky. And so if we like to get in, solve a problem and be able to be with a customer really over decades.

And so we are not into the transactional sales. So more to come there. We’re pretty comfortable with the way we see the pipeline building. This is a huge market opportunity for us. There is certainly a very strong compelling need out there, particularly in the verticals that we are addressing to be able to provide a layer of security. But then also have a fairly seamless experience for visitors and employees and the like that you don’t want them to have to go through the friction of getting frisked down, going through a traditional metal detector. So we are going to be picky and diligent. And I think our idea is that when we get a customer, we’re going to have a customer for life.

Trevor Walsh: Great. Thanks both for the questions. Appreciate it.

Ralph Clark : Thank you.

Operator: And the next question comes from the line of Yi Fu Lee with Cantor Fitzgerald. Please proceed.

Yi Fu Lee: Thank you for taking my question. Hello, Ralph and Alan. So first question is really on the go-live customer underway for SoundThinking? And I think, Ralph — I think Alan mentioned the 16 of them. Can you guys give us a little more color on this pipeline, whether it be Tier 1, Tier 2, Tier 3 cities? And what kind of profile are these?

Ralph Clark: So I think we stated earlier — this is Ralph, I’ll try to answer the question as much as I can. So we’re trying to give people a flavor for — obviously, Q1 went very well with the customers that went live. We’ve got 16 customers — or excuse me, 16 projects I would say, in [Q4] (ph) ShotSpotter. And I think eight of those customers are expansion customers, so we know the customers very well, and that’s a mix of various types of customers in that expansion side. And then on the new customers, I think it is another mix of customers. Certainly, if there were huge kind of Tier 0 or Tier 1 city, we would call that out. But I think, there is a combination of Tier 2, 3s and 4s in there. I think you are going to see us kind of put up more higher customer members, customer — new customer acquisitions and there’ll be smaller customers.

But in aggregate, they will add up to the miles. So we are still holding to our target of 120 miles going live this year for ShotSpotter across the board and we are on track.

Yi Fu Lee: Okay. Thanks for that Ralph. And then along the same lines right, great job on the cross-sell for the CaseBuilder and CrimeTracer on the Virginia win. And I understand you guys have done that in New York City as well as well as looking to California. I was wondering if you could give us more color in terms of like the cross-selling opportunities now that you have more experience, right in this motion. How frictionless is the selling experience now that your sales team has a couple of these deals under your belt already?

Ralph Clark: Yes. Do you want me to take that, Alan? Or –.

Alan Stewart : Yes. I mean, Yi Fu Lee this is Alan. I think the good news is we’ve been doing cross-selling and bundling products now for over a year and it is working. I mean we have had — I think we’ve got about probably close to 17, almost 20 of our customers that have more than one at this point. And a couple of them have three of our products, and one of them has four. So the good news is the more that we are doing this, the better our sales team is getting at doing it. So it is working well. We’re just going to keep doing what we’re doing and not change too much of that. We do give a slight discount for when they go from one product to — very small, though, and that hasn’t really hurt us at all as you can see in terms of the revenue growth.

Yi Fu Lee: Got it. And then on the Puerto Rico incident, in terms of — I understand both of you gents are trying to get this back online. What needs to happen? I understand like in the past you mentioned there wasn’t a second like competitor, right? I guess what’s the holdup to get this contract back-live?

Ralph Clark: Yes, 100% funding. It’s a funding issue.

Yi Fu Lee: It’s a funding issue. Okay. That’s nice and easy Alan. And then last one Alan, is more of the numbers — is the long-term guidance you gave in terms of 70% gross margin and obviously 40% EBITDA margin. What’s the time horizon that we should think about this? Because right now we are about high-50s in terms of the GM, gross margin, and probably low-double digits, right high-single digits in the EBITDA margin, right? How should we think about the time horizon? And that’s it for me. Thank you.

Alan Stewart : Yeah, this is Alan. That’s a great question. I mean we’ve guided for 18% to 20% adjusted EBITDA right now. You can expect and we are going to expect that it is going to go about 5% a year. So maybe in the next 3.5 years, 4 years, I would expect this to be close to about 40%. And at the same time –.

Yi Fu Lee: So Alan 5% per year for the GM expansion — gross margin expansion?

Alan Stewart : Yes. To be fair, we’re not giving you guidance on that right now. We’re just trying to give you the long-term in terms of where we think we can get. So the short answer is probably about four years. We would expect that gross margin to be close to that 70% and the adjusted EBITDA closer to that number.

Yi Fu Lee: Got it. Thanks for that Alan, and thank you Ralph, Congrats again on a strong start to 2024.

Ralph Clark: Thank you.

Operator: [Operator Instructions] And our next question comes from the line of Louie DiPalma with William Blair. Please proceed.

Louie DiPalma: Ralph and Alan good afternoon. I’m doing well. From a bookings perspective, at the end of 2023 I think you ended with 170 cities under contract and 19 campuses for gunshot detection. Did those figures move higher in the first quarter despite the noise from Chicago and the elongated sales cycle?

Alan Stewart : This is Alan. Yes, they did move higher. They did not move a lot higher just to be honest, but that is — it is somewhat lumpy. I mean, we have quarters where we add a lot. And then we have quarters where we are executing going live in a lot, and the bookings maybe just take a little longer, but it went up.

Louie DiPalma: Great. And you discussed cross-selling of CaseBuilder and CrimeTracer specifically with the Newport News account, which I believe is also a ShotSpotter customer. But how many of your existing ShotSpotter cities use multiple solutions? And is there a lot of opportunities there in the pipeline for that?

Alan Stewart : This is Alan. At this point, there’s about 20 of them that are using more than one. And we do expect that there is a pretty strong pipeline. We are seeing through a relatively strong growth in some of the ResourceRouter that we have not necessarily seen in the past years, which is excellent and of course CaseBuilder as well. So we’re excited about where things are going. So the short answer is we are seeing more opportunity there in the pipeline.

Louie DiPalma: Great. For SafePointe how significant are the software enhancements that you are implementing? And does the effectiveness of the solution to — continue to improve over time with the machine learning technology in terms of the different types of weapons that people attempt to bring past the scanners and how your technology works with that?

Ralph Clark: So we’re making a fairly significant investment in the technology platform for SafePointe. We are really encouraged by the fact that we’re starting in a really good place. I think the innovation around using kind of magnetic moment in motion as a kind of a passive sensor technology that can be completely unobtrusive is really, really interesting and highly differentiated. And our plan is to continue to build on that not only in terms of the core, in terms of improving the overall detection efficacy. But also kind of applications that are built around it. We have a lot of experience in applying that to ShotSpotter. When you think about ShotSpotter detecting and locating gunfire and all the apps that we’ve built around that — that have really moved that solution forward.

We are going to apply the same playbook to SafePointe. And we’ve a strong collaboration with the various engineering groups kind of working together. We are really excited about the fact that we can leverage the existing software — excuse me, the existing SoundThinking software stack used for ShotSpotter that can be applied to the application that SafePointe is going to be coming out to market with. So we are in a really good place, and we’ll continue to invest in this because it’s such a significant market opportunity.

Louie DiPalma: Great. And one final one for me. Do you expect the Chicago noise to die-down in that? It seems that Chicago is an anomaly here in that you have 170 cities under contract and there is one — very loud one here that seems to be opposed. But do you expect that to die down for the sales cycles to return to normal this year, in terms of you meeting your guidance in terms of adding another 120 miles of coverage.

Ralph Clark: Yes. Well, first thing I’ll say is Alan owes me $10 because I made them a bet that we weren’t going to get through this call without someone asking about Chicago. But thank you for that question. So let me make it perfectly clear with Chicago. First and foremost our guidance is not dependent, our 2024 guidance is not impacted at all by Chicago’s actions. And in fact, when you talk about the subject of Chicago, what you are really talking about is the Mayor of Chicago — Mayor Brandon Johnson. I think if anyone’s kind of following the news there, it is Brandon Johnson kind of versus what his Superintendent has been fairly public in supporting ShotSpotter along with the City Councilmen or the vast majority of the Aldermen of the city of Chicago.

And we know the residents of Chicago are being quite vocal along with the local press around the need for this technology. We’ve been deployed now in Chicago since 2011. And our focus is to continue to build on that great service tradition through the end of the current contract period with 2,000 — excuse me that will take us through November of 2024. With respect to the impact around it — I think there might have been a little bit more noise late last year. As we kind of move into this, we don’t see customers really slowing down ultimately from jumping on the platform. We have to answer more questions. But I think people are understanding this to be a fairly kind of isolated situation. I mean, we added 10 new customers in Q1 and we are working on eight new customers for Q2.

So the momentum is still there.

Alan Stewart : And 10 is the highest we ever had in a quarter actually.

Louie DiPalma: Okay. And is RFP activity similar or greater or less than this year versus last year? How would you access just the RFP activity?

Ralph Clark: Yes. So RFPs with respect to ShotSpotter that was your question related to ShotSpotter, RFPs have never really been a significant portion of our business because this is viewed fairly much as a kind of sole source technology. It is a technology solution that we invented and we continue to kind of I guess, lead the category if you will. So I don’t know, RFP stuff is really kind of noise. And RFPs that we have — the few RFPs that we have tended to respond to, I don’t think we’ve ever lost one.

Alan Stewart : You know when they ended up selecting someone.

Ralph Clark: Yes. If they selected someone, they selected us. They maybe didn’t move forward with RFP. But if they made a decision to execute against RFP, we’ve been the winner.

Louie DiPalma: Yes. No the context of my question is how some emerging competitors in the market, they’re bundling gun detection with ALPR cameras, and I was wondering if that has had any impact on the win rate or even like the pipeline expanding in terms of RFP activity?

Ralph Clark: No low impact on win rate, no impact on pipeline. I mean there is questions that we have to answer about this, especially some of the smaller cities. But I think people recognize that you probably don’t want to combine your ears with eyes on the same platform, the exact same physical platform. It is pretty challenging. So we’re pretty comfortable that we are in a good space from a competitive landscape point of view.

Louie DiPalma: Great. Thanks Ralph and Alan.

Ralph Clark: Thank you.

Alan Stewart : Thank you.

Operator: Thank you. Ladies and gentlemen, this concludes our question-and-answer session. If your question was not taken, you may contact SoundThinking’s Investor Relations team by e-mailing ssti@gateway-grp.com. Now, I’d like to turn the call back over to Mr. Clark for his closing remarks.

Ralph Clark: Great. Thank you very much, Alan. And I want to thank everyone that took the time to dial-in, and thank you all very much for your questions and looking forward to a number of follow on calls with you all in the next few hours. Thank you all very much. Be safe.

Operator: This concludes today’s conference. You may now disconnect your lines at this time. Thank you for your participation.