ShotSpotter, Inc. (NASDAQ:SSTI) Q4 2023 Earnings Call Transcript
ShotSpotter, Inc. (NASDAQ:SSTI) Q4 2023 Earnings Call Transcript February 27, 2024
ShotSpotter, Inc. beats earnings expectations. Reported EPS is $0.28, expectations were $0.04. ShotSpotter, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good afternoon, and welcome to SoundThinking's Fourth Quarter and Full Year 2023 Conference Call. My name is Paul, 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 and uncertainties and assumptions that are difficult to predict and may cause the actual results to differ materially from those stated or implied by these statements. Certain of these risks and assumptions are discussed in SoundThinking's SEC filings, including its registration statement on Form S-1.
These forward-looking statements reflect management's beliefs, estimates and predictions as of the date of this live broadcast, February 27, 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's CEO, Ralph Clark. Sir, please proceed.
Ralph Clark: Good afternoon, and thank you for joining us today. Alan and I have a lot to cover in today's earnings call. So we're going to go ahead and get started. Fiscal 2023 was significant for us, starting with our transformational rebrand to SoundThinking and the introduction of our SafetySmart platform that includes a suite of complementary solutions that are extremely powerful. The SafetySmart platform fairly signaled our broad ambitions to move beyond the acoustic gunshot detection space, primarily focused on domestic law enforcement and to embrace new solutions with new commercial vertical markets and new buying centers. Two very important developments that capstoned that 2023 transformation journey are the closing of a greater than $13 million CaseBuilder deal with New York City Department of Corrections that we expect to grow to be worth approximately $18 million in addition to our entry into the $25 billion weapons detection space with our strategic acquisition of SafePointe.
Accordingly, we believe our market opportunity has significantly increased, yet remains largely underpenetrated and is incredibly attractive. Our proven ability to execute at scale as the company approaches $100 million in revenue with over 300 employees is encouraging as a proof point that we are up to the challenge to drive long-term profitable growth. Our relentless focus on product innovation and quality, combined with our passion for the customer in developing deep trusted partnerships, provide an important opportunity to make an impact on making the world a better place and doing work that matters. Turning to Q4 2023 financial performance. Our revenues increased 24% to a quarterly record of $26 million from the prior year's $21 million in Q4 2022.
Adjusted EBITDA came in at $4.8 million or 18% of revenues compared to $4.3 million or 20% of revenues for Q4 2022. ShotSpotter went live with six new cities, including our third international deployment with a go-live in the city of Montevideo, Uruguay, along with three expansions for the quarter. Q4 2023 also saw SafePointe deployments on over 30 lanes. In addition to the CaseBuilder New York City Department of Corrections deal, several other projects were kicked off for CaseBuilder, CrimeTracer and ResourceRouter. Revenues for the full year increased 14% to a record $92.7 million with a $14.3 million of adjusted EBITDA or 15% of revenues. ShotSpotter finished the year with 25 new cities, 19 expansions and 155 miles taken live in a year. Our ShotSpotter go-live cadence represented a greater than 50% increase from last year.
Overall, we had another strong year with 107 new miles booked in 77 subscription renewals with 37.5% of those bookings representing multiyear agreements. Of note was the exceptional performance of our Tier 4, Tier 5 initiative, which represented almost 20% of the domestic new miles booked in 2023. We view this specific vertical as a significant untapped TAM expansion opportunity and are keenly focused on continuing to build upon the successful inroads we've made in this largely untapped segment. We believe our customer retention results remain best in class for an operating SaaS company. In 2023, we're able to realize approximately only 1% of GAAP revenue attrition. As I reported on our last earnings call, our customer success organization, robust customer onboarding program, world-class Net Promoter collaborative process and score of 64% are essential to our customer retention strategy.
In addition to helping drive positive outcomes that promote stickiness, it also contributes to a strong sales and marketing spend of only $0.52 for a dollar's worth of annualized contract value for 2023. Now many of you have probably been following the news coverage of our situation in Chicago. We're very pleased to report that we reached a compromise with Mayor Johnson in order to prevent a disruption in the critical ShotSpotter service that was scheduled to end on February 16 when the then current term expired. ShotSpotter has been serving the city of Chicago and its residents for over seven years, and we believe the impact of pulling the plug in February would have been less than optimal for everyone involved. The now executed contract extension has a term that ends in September, which provides Chicago with service through the historically challenging summer months of gun violence and both the Democratic National Convention and the Republican National Convention.
There is an additional two months of reserve term that effectively carries the contract extension through November 22, 2024. We're incredibly inspired and grateful to have seen the large and vocal outpouring of support for the ShotSpotter solution received from local press, downtown business interest, older persons and the Chicago Police Department and most importantly, community members residing in our collective coverage areas. These residents have responded with an 85%-plus favorable rating for ShotSpotter, according to a Fallon Research poll we commissioned in January of this year. We intend to use the remaining time of the Chicago contract extension to continue our work with the Chicago Police Department on tracking and reporting out data and metrics as well as building upon and galvanizing the support we've seen over the past two weeks.
We believe this will provide a compelling case to support CPD's continued use of this critical tool and hope the business case will be considered in Chicago's go-forward plans. Now despite some limited headwinds from our Chicago situation, we believe our overall SafetySmart platform demand drivers and funding sources remain strong. There are increasing demands on cities to deal with elevated violent crime in a transparent fashion, while many agencies are materially under resource headcount-wise. As a reference point, we published over 330,000 gunshot alerts in 2023. An overwhelming percent of those alerts did not have a corresponding 911 call, which hobble the efforts of any agency to respond to and investigate criminal gunfire as well as save lives.
Given these demand drivers and the constructive funding environment, we continue to be bullish on our ability to drive profitable growth for the foreseeable near and medium term. We recently brought on significant senior leadership talent to help us scale over the next several years, and we continue to innovate across our suite of proprietary technology solutions. We're establishing 2024 revenue guidance at $104 million to $106 million. Supporting that outlook is $95.4 million of annual recurring revenue as of January 1, 2024, combined with $6 million of booked professional services revenue through our Technologic division and their work with both NYPD and New York City Department of Corrections. This then totals $101 million. The remaining $3 million to $5 million of revenue we expect to come from new sales of solutions from our SafetySmart platform that has $45 million in growing pipeline.
We intend to continue to execute on top line growth while being prudent in managing expenses to ensure we are delivering cash flow back to the business to continue to improve our balance sheet. And with that, let me turn the call over to Alan.
Alan Stewart: Thank you, Ralph. I'll cover highlights for both Q4 and 2023 as a whole. In Q4, we went live in six new cities, one of which was international in Montevideo, Uruguay, and expanded with one commercial security customer. We also expanded with two current ShotSpotter cities and achieved revenue growth of 24% compared to the fourth quarter of 2022. We did lose two small customers with less than 2 miles of coverage in total. That said, our 2023 GAAP revenue attrition, net of price increases, was still the only 1% for the fourth year in a row. We also went live with three CaseBuilder customers, including the long awaited but large contract with New York City Department of Corrections currently worth over $13 million.
We expect this to be worth approximately $18 million in total later this year to cover the six years of the contract. We are also pleased to report that we had total bookings for the year of over $70 million across our various solutions. Let me provide more details on the quarter, and then I will share some thoughts around 2023 and guidance for this year. Fourth quarter revenues came in at $26 million, an approximately 24% increase over the $21 million in the fourth quarter of 2022. Revenues increased primarily due to the increase of our deployed miles year-over-year as well as revenue growth from our expanding SafetySmart platform products. Gross profit for the fourth quarter was $15 million or 58% of revenue, a 26% increase over the $11.9 million or 57% of revenue for the prior year period.
Gross margin for the fourth quarter was higher than the prior year period as our revenue base grows. Our net income for the fourth quarter was $3.6 million or $0.29 per share on a 12.7 million weighted average shares outstanding on a basic basis and $0.28 per share on 12.9 million weighted average shares outstanding on a diluted basis. This compares to a net loss of $1 million or $0.09 per share on a 12.2 million weighted average shares outstanding on both a basic and diluted basis for the prior year period. In Q4, our expenses for the quarter were reduced primarily due to a reduction in the contingent consideration liability related to both Forensic Logic and SafePointe earnouts of approximately $4.8 million as the related revenues in 2023 were lower than expected, and we reduced the expected future revenues for SafePointe.
Adjusted EBITDA for the fourth quarter was $4.8 million, an increase from the $4.3 million in the fourth quarter of 2022. As a reminder, adjusted EBITDA is calculated by taking our GAAP net income or loss and adding back interest, taxes, depreciation, amortization, stock-based compensation and acquisition-related expenses, including adjustments to our contingent consideration liability related to earnouts. Our operating expenses for the fourth quarter were $10.6 million or 41% of revenue versus $11.9 million or 57% of revenue in the fourth quarter of 2022. Breaking down our expenses, sales and marketing expense for the fourth quarter was $7.4 million or 28% of total revenue versus $5.7 million or 27% of total revenue for the prior year period.
We continue to focus on investing appropriately to grow our sales and marketing capabilities for all of our products. These investments are important for our continued growth, and we are seeing success as we continue to build our sales pipeline and expand our marketing efforts. We continue to focus on maintaining high levels of customer satisfaction, which helps keep our attrition rate low. Our R&D expenses for the fourth quarter were $3.2 million or 12% of total revenue compared to $2.5 million or 12% of total revenue for the prior year period. We continue to invest in increasing the functionality of all of our products. G&A expenses for the quarter were $4.8 million or 18% of total revenue compared to $4 million or 19% of total revenue for the prior year period.
G&A expenses in absolute dollars were reduced due to the $4.8 million reduction in the contingent consideration liability related to the Forensic Logic and SafePointe acquisitions. Our revenue results for 2023 were $92.7 million, an increase of 14% from 2022. The increase was primarily due to revenues related to significant expansion in customers using our gunshot detection solutions, having added 25 new customers, expanding in 19 customers and going live in over 155 miles during the year. There was a slight addition of revenues from our new New York City Department of Corrections contract and SafePointe for less than $2 million combined. Gross profit for 2023 was $52.7 million or 57% of revenue versus $46.8 million or 58% of revenue for the prior year.
Our net loss for 2023 was $2.7 million or $0.22 per share based on 12.4 million weighted average shares outstanding on both a basic and diluted basis. This compares to net income of $6.4 million or $0.52 per share based on 12.2 million basic weighted average shares outstanding and 12.3 million weighted average shares outstanding computed on a diluted basis for the prior year. Adjusted EBITDA for 2023 was $14.3 million, a reduction from the $15.9 million in 2022. Our revenue retention rate remained positive at 107% in 2023, down from 124% in 2022. Additionally, our sales and marketing spend per dollar of new annualized contract value for the next 12 months was $0.52 per dollar in 2023 versus $0.40 per dollar in 2022. Deferred revenue as of December 31 was $41.9 million versus $43.7 million at the end of 2022.
We ended Q4 with $5.7 million in cash and cash equivalents, similar to the $5.8 million at the end of the prior quarter. At the end of 2023, we had $7 million of debt outstanding related to the partial funding of our SafePointe acquisition and approximately $18 million available on our line of credit if we ever needed. Our annual recurring revenue started on January 1, 2024 was $95.4 million compared to $79.7 million that we started with in 2023. Our revenue guidance for 2024 is $104 million to $106 million. As Ralph explained and to provide a bit more detail as to how we got to that range, the following may be helpful. We start with slightly over $95 million in ARR. We then went out and already booked $4 million of professional services from our Technologic Solutions division in support of ongoing New York City projects and then $2 million of professional services related to the CaseBuilder deployment for the Department of Corrections.
This gets us to a preliminary total just over $101 million. We expect to recognize another total $3 million to $5 million of revenue from a cumulative 2024 pipeline of greater than $44 million from domestic and international ShotSpotter, SafePointe, CaseBuilder, CrimeTracer and ResourceRouter bookings to get to our $104 million to $106 million GAAP revenue guidance. We are also providing guidance for our 2024 adjusted EBITDA. We expect our adjusted EBITDA to be higher than the 15% we achieved in 2023 and are raising our guidance range to between 18% and 20% in 2024. Now back to Ralph for some final thoughts, and then we'll be happy to take your questions.
Ralph Clark: Thanks, Alan. Let me take a moment to thank my fellow colleagues and partners for a truly remarkable 2023. We are all committed to and excited about continuing to build and service safer communities and gathering places globally. Operator, I think we're now available to open it up for questions.
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