Good afternoon, and welcome to SoundThinking's Third Quarter 2023 Conference Call. My name is Ariel, 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 S-1. These forward-looking statements reflect management's beliefs, estimates and predictions as of the date of this live broadcast, November 7, 2023, 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 at the company's website at ir.soundthinking.com. Now I would like to turn the conference call over to SoundThinking's CEO, Ralph Clark. Sir, please proceed.

Good afternoon, and thank you for joining our Q3 2023 conference call. After Alan and I share our update, we'll be happy to take your questions. I'm extremely proud of our ongoing efforts to build a powerful and growing business franchise. Our collective work is helping to save lives and make communities safer. And with respect to doing work that matters and expressing your values, it doesn't get any better than that. The solutions on our SafetySmart platform are seeing increased adoption across the board as agencies are dealing with increased demands for service and tackling a measurable uptick in crime, all the while facing diminished headcount resources. And with the recent acquisition of SafePointe and their AI-enabled weapons detection capability, we are now addressing a larger TAM opportunity than we were previously targeting. What is exciting about this new accelerated growth phase of our company are new and large adjacent buying centers outside of traditional local law enforcement that can now harness the power of technology in enhancing public safety initiatives. We hope investors, prospects and partners will be paying close attention to our progress. Turning to our Q3 2023 financial performance. We achieved record revenues of $24 million compared to Q3 2022 revenue of $18.8 million, representing 28% year-over-year growth. Adjusted EBITDA was $4.3 million or 18% of revenues compared to $3.1 million or 16% of revenues for Q3 2022. Adjusted EBITDA grew approximately 40% year-over-year and approximately 79% sequentially from last quarter Q2 2023. We also had another phenomenal quarter of ShotSpotter go-live activity with 7 new city captures, 2 city expansions and 1 university expansion this quarter. That puts us at 20 new city logo deployments year-to-date. The new city local deployments for this quarter include Chelsea, Massachusetts; Fayetteville, North Carolina; Baltimore County, Maryland; Suffolk County,…

Thank you, Ralph. We're very pleased with our performance in the third quarter. As Ralph mentioned, this quarter, with our ShotSpotter solution, we went live in 7 new cities, expanded in 2 current cities and 1 university. We're continuing to see an increase in the interest of our solutions across our SafetySmart platform. At this point, we expect to add over 140 new miles of ShotSpotter coverage this year, approximately 40% higher than 2022. Attrition in the third quarter was extremely small at only approximately $41,000 in GAAP revenue. Our bundled product strategy appears to be working well as we are starting to see an increase from customers who would like to contract with multiple products from our SafetySmart platform. We're also pleased to add SafePointe to our company and their products to our SafetySmart platform. Integration is going well, and we expect to see sales and related revenue continue to add to our growth as we head into 2024. Let me provide more details on the quarter, and then I will share some thoughts around the balance of the year. Third quarter revenues were ahead of expectations at $24 million, a 28% increase over the $18.8 million in the third quarter of 2022. Revenue increased as our deployed miles are up significantly year-over-year, and we had a small contribution from our SafePointe acquisition. Gross profit for the third quarter of 2023 was $13.8 million or 57% of revenue versus $10.3 million or 55% of revenue for the prior year period. We expect gross margins to continue to improve in the fourth quarter of the year. Our adjusted EBITDA increased approximately 40% to $4.3 million this year from $3.1 million last year for the third quarter. As a reminder, adjusted EBITDA, a non-GAAP financial measure is calculated by taking our…

Thanks, Alan. I want to take this opportunity to give a shout out to the entire company on achieving an NPS score of 64, representing an 8-point increase from last year's world-class score of 56. This is phenomenal. We're stoke that we also saw increase in the agency participation rate, which shows a significant amount of customer engagement. The insight and feedback beyond the specific score is what's most important. In addition to getting constructive feedback on how to make our services even better, we also learned that 42% of the respondents indicated an interest in learning more about our new platform strategy and expanded solution set. This represents a measurable upsell, cross-sell opportunity within our current installed base. Again, our NPS process and ultimate score is very much a cross-team collaboration and is core to our company DNA. I'm extremely proud of our collective effort in servicing our clients as trusted advisers in seeing the proof point that our strategy is making a difference. We're now happy to take your questions.

[Operator Instructions]. Our first question comes from Richard Baldry of ROTH MKM.

Maybe given that's where I live, could we start with the Philadelphia. I'm sort of curious, remind us where the entry point was. Can you maybe talk about sort of the opportunity there? Obviously, it's a pretty big city. Sort of curious what your thoughts are on building that from its foundation.

Great. Rich, can you hear me? This is Ralph.

Yes.

Yes. Hello. So maybe I'll start, and Alan, you can jump in as necessary to correct or add. So we're really excited about getting a footprint reestablished in Philadelphia. I think as you mentioned, the entry point is through the Philadelphia Housing Authority, but we're expecting a significant amount of collaboration and cooperation with the general Philadelphia police department. And of course, being a Tier 1 city with the amount of challenges they have around violent crime, we think it represents a fairly significant opportunity as a Tier 1 city to be able to deploy a significant number of miles once we prove success with our first entry point there, reentry point in Philadelphia.

And then switching to SafePointe. Can you go over sort of the new team build-out, the quota, I think it was something like 200 lanes or something. How does that compare historically to what they've typically done annually or life to date? And what kind of economics does that represent on a revenue basis on either per lane or any metric that can kind of help us with that.

Maybe, Alan, I'll start and you can jump in. And so I think SafePointe is a greenfield opportunity for us. And so it's not really quite relevant to compare what SafePointe was doing as probably under-resourced company focused on this very large TAM opportunity. We're looking at this as an opportunity to leverage our kind of scale and brand reputation and willingness to invest in significant go-to-market motion to completely change the trajectory point. Although it has performed very well as an independent company, we're expecting to take it to the next level. Alan, I'll let you address the unit economics.

Yes, sure. So this is Alan. It's interesting, each line is about $20,000 in terms of annual revenue. That can be a little higher or a little lower. But if you think about it, so 200 of those puts about $4 million roughly in potential revenue ultimately. So having 4 different salespeople related each with the target of 200 puts the potential revenue ultimately, if we were to hit all those north of $15 million. So it's going to take some time to do that, but we're already working hard to get closer to those types of numbers.

So could you talk about sort of the go-to-market motion there? Because it is different than your government-centric in the past. How do you feel about your ability to beat the bushes and find those opportunities? Is it digital marketing that's leading the way there? Is it referenceability of some early wins? So how do you build that pipeline? And what's the profile sort of who you bring in to do the sales in that?

Yes. So this is Ralph. Maybe I'll start. So I think it's all of the above. I mean, so we're building the pipe digitally. Of course, we inherited a pipeline when we acquired SafePointe along with some key deployments that represent a fairly nice referenceable accounts, if you will. We're going to be targeting our focus on a couple of industry verticals, I'll just mention a few. We think the healthcare vertical is really quite interesting, and we've had a lot of success there. We think higher ed is another interesting vertical. And we also like, I would say, the gaming vertical as well. And what's interesting about these verticals is they have a compelling need to do weapons detection, but they want to do it more covertly as overtly. And that's really the signature differentiation of the SafePointe solution is to have these kind of very covert sensors that you don't recognize you're actually walking through a very sophisticated AI-based metal detection capability. With respect to the adjacency in terms of the go-to-market motion on this in the buying center, what we found really interesting as we were doing our due diligence in acquiring the company when we're kind of talking to some of the existing customers as well as potential customers because a number of these folks actually come from law enforcement. And so we're talking to people that we're definitely aware of SoundThinking and their prior inclination of ShotSpotter. These are folks that maybe have spent 20, 30 years in a local law enforcement agency and then decide to retire and what are they retired to, they retired to their second job, which is the Senior VP of Security for XYZ Hospital chain or ABC Gaming Corporation. So we're selling [Technical Difficulty] into many ways an adjacent buying center where we can leverage our brand and reputation. And even in those situations where the customer doesn't directly come from law enforcement, they're socializing with local law enforcement because it's really all about public safety and kind of private sector environment. So we're pretty comfortable that we know how to go get at it, how to go get at that. And we're going to be excited to kind of share with you our progress in this greenfield opportunity.

Last for me to I'll turn it over to be. If you think about those deployments, what gates the speed at which after sort of contracts signed to get one up in the traditional gunshot detection side just field sensors sometimes in places that are not owned by people that are easy to deal with, presumably, this would be easier because the end clients, the ones who is giving you the location things line up. And then the other would be, are there major enterprise opportunities that like you mentioned chains of things like supermarkets, it could be hundreds of lanes in a single win? Or do you think you have to start with sort of smaller midsize deployments to sort of prove your referenceability before those would be on the table.

Yes. So this is Alan. Ralph can add in. Yes, I think at this point, in terms of a contract when the contract gets awarded, it's definitely faster in terms of once that's awarded to the deployment, you can think along the lines of maybe 2 months, a little more than that potentially or even faster than in some circumstances. So significantly faster than what we do with the ShotSpotter because the customers are already giving us permission, right, to hang the sensor. So it's a lot of easier than going out, getting permission to do that.

Our next question comes from Mike Latimore of Northland Capital Markets.

Yes. And congrats on the corrections deal here. I guess, can you just discuss when you might start seeing revenue on that? And then, I guess, it was $18 million, is that going to be recognized ratably over the period of the contract or might you get more upfront with professional services or something like that?

Yes. This is Ralph. So I think our expectation is this is a 6-year contract, we would expect to see a little bit more upfront as a good portion of the $18 million of ultimate contract value. I think $6 million or so is professional services. In terms of revenue recognition, I think our expectation is we'll see just a little bit this year, and we'll see it more kind of fulsome I would say, in 2024 and beyond. I mean it's really interesting for us because this is a contract we had hoped to get started on earlier in the year and be able to recognize a lot more revenue than ultimately we are going to be able to recognize just kind of given the fact that we're just now getting to contract and starting the work. But we're extremely excited about what this means for us in establishing a critical foothold in the sub corrections market because we think we bring some very unique capability to that in terms of investment data capability.

Yes. Great. And then in terms of the September quarter, can you just discuss how bookings were in the quarter, both kind of new and upsell?

Alan, do you want to take that?

Bookings for SafePointe, and bookings for across the board?

For Q3... For Q3. Just for Q3, just did it grow sequentially year-over-year? Just any color on booking?

Yes. Well, I think the nice thing is our pipeline is still incredibly strong across all of our products, right? So we continue to see bookings go relatively well in most of our solutions. There are still some that we're working that are starting to ramp up a little bit and things we've had a little bit of slowness in the past like ResourceRouter although that's actually ramping up now. And as Ralph mentioned earlier, we see things like New Jersey that are adding new kinds of possibilities for funding for the ShotSpotter solutions, and then you get like Philadelphia Housing Authority. There's a lot of things like that in terms of actual bookings that are going incredibly well. So I would say it's significant. It's certainly similar to what we've seen in the past several quarters. It's going to keep things going relatively positive.

Great. And then just last one on SafePointe. Clearly, increasing the sales and marketing emphasis there. How about just on the technology side of things? Do you feel like you're going to increase R&D for them? Or do you feel like it's a pretty good well positioned right now.

Yes. This is Alan. Well, I'll go ahead and start, and then Ralph can add. So we're definitely adding capability in R&D. They have a great R&D team already, had several things that they were planning over the next year. We're helping them accelerate that as well as looking at other things that we can do to improve the technology across the board. So not only are we adding capabilities in marketing and sales. We're also adding capability and deployment and R&D to keep things moving quite quickly and improve to the extent we can any of the technology as well.

And I did want to say one more thing that [indiscernible] did ask about in terms of enterprise targets and large hospital groups and things like that. The short answer is we are looking at those kind of things. There are more than just small customers are going to ask for 5 or 10 lanes. There are significantly larger opportunities as well. Just wanted to make sure that we did cover that tail.

Our next question comes from Yi Fu Lee of Cantor Fitzgerald.

Congrats Ralph and Alan on the strong revenue execution. Maybe start with the expansion of the leadership team. I know you brought on a lot of talents [indiscernible] Greg, Larry, you mentioned Anne, Mark and today, right? I was wondering on the bundled product strategy going forward, right? How would you think this new management team will help with this key strategy, assuming you let with ShotSpotter first and then you upsell to other products. Maybe you could comment on that.

Yes. So this is Ralph. So as you've noted, we've added a lot of firepower to the senior leadership team. And kind of principally one of the things that we did to your specific question around product management is we basically split up the marketing function, which had been done by one individual. And now we kind of split marketing up into kind of our outbound kind of brand marketing pipeline development, marketing organization led by Greg Greg Makuch along with a new separate marketing function led by Sam Klepper that's focused exclusively on product management. And when I say product management, I mean product management, not only in terms of the individual solution set, but also our SafetySmart platform and how we're working to kind of integrate our solutions to have a much more powerful integrated capability, not only in terms of look and feel, but also in terms of functionality. Another part of Sam's responsibility is also going to be kind of scouring the marketplace to see other capabilities that we can bring to market because we are making a fairly significant investment as a company in being a platform company. So although historically, we've been known in ShotSpotter and a part of our rationale behind changing the name to SoundThinking was really to kind of signal that we're much more than acoustic gunshot protection, although we appreciate that capability, it kind of gave us our start, if you will. But we have an opportunity to provide technology to help public safety initiatives across the board, become more efficient, effective and equitable by offering other solutions and capabilities. So we're really excited about that expansion, and we think it's going to be one of the things that helps us continue to drive profitable growth over the medium to long term.

Thanks for the color on that. And if I may follow up on the Chicago and Puerto Rico [indiscernible] it sounds like Puerto Rico, you're handling it very well. You got a 20% upside, right? I was wondering if you go double click on the Chicago side, you mentioned that in a couple of weeks, you'll know the outcome. But it sounds very positive, the new superintendent Snelling that like budgets aren't decreasing at least, right? I just want to see like ringfences exposure. Is it about $7 million, Alan, on the ARR exposure in Chicago and about $2 million in Puerto Rico. And it sounds like you guys are positive on the renewal in Chicago.

Yes. So I'll start with the actual ARR. Chicago is actually north of $8 million. Yes, that would be positive as well. And Puerto Rico is actually a little bit north of $2 million. So especially if we're able to continue the significant increase that Ralph mentioned, which is over 20% higher than the last contract that we have with them.

And I would just add, in terms of Chicago, I mean, we've put a lot of work in Chicago in terms of continue to build upon a positive relationship, frankly, that we've had for over 8 years. We were delighted to see the announcement and selection of superintendent Snelling to become the new leader of Chicago PD, he kind of grew up in Chicago PD, he's been a very strong local defender of technology at large and specifically acoustic gunshot protection. And so that's really, really quite encouraging. And then the next thing that was quite encouraging is that despite calls for selected folks or activists within Chicago around defund the police or reduce the budget that the new mayor has made the right decision, we believe, to increase the law enforcement budget of close to 3% to almost $2 billion, and there is a specific line item in that budget calling for acoustic gunshot detection. So we're not there yet. One of the reasons we're holding off on our guidance is a proposed budget, it's not a final adopted budget. And so we're going to wait and see what actually gets hopefully ultimately signed off on and finalized the final budget, and we'll be feeling a lot better about things. And we'll still have some gates to go through because then you have to kind of take those budget dollars and get them to a realized contract, which will have until mid-February to do, which is when our current contract with Chicago ends.

One last question for Alan. Is the MSRP price increase for about 7% you mentioned for 2024. I think you mentioned, is it like Tier 4 and Tier 3 cities. I was wondering if you could help us manifest on the exposure on that. So it's more of a modeling point for us. We just want to see the upside of the price increase. And that's it for us.

Sure. Yes, this is Alan. So it's a great question. I mean we haven't increased our actual prices for about 3 years. That was when we went from $65,000 to $70,000 a mile. So going from $70,000 to around $75,000 is appropriate for us to do right now. As Ralph mentioned, that was for tier for larger cities, the ones that we would call Tier 1, 2 and 3, we do believe it is still important for us to keep the Tier 4 and Tier 5, which are very small cities, normally only doing 1 to 2 miles at a price where they currently are. So I think overall, we continue to have price increases several hundred thousand dollars a year because those that are even paying less than the MSRP right now, get a 3% to 5% increase in those cases per year to the get to the MSRP. Now those that are even at the MSRP will be getting a little price increases. So it's all good in terms of actually helping us grow the revenue and all that flows down to the bottom line as well.

Our next question comes from of William Blair.

First, can you add any color on the demand you're seeing for bundled sales and demand for larger state level deals?

You want to take that Alan.

Sure. So I think the one thing that we know for now is that in terms of bundled sales that we have, we're essentially just going with ShotSpotter the only product, we started doing bundling just this year really. We're already seeing some increase in terms of the customers that are interested, not just one. Our sales team, their commission schedules are set up to do additional things related to bundling. So it's positive for them, positive for the customers. we're seeing some customers that are not only asking for 1 or even 2. Some of them are asking for 3 of our products. So that's something that we have focused on. And in fact, even with SafePointe, although it's generally a different TAM and additional things that Ralph mentioned in terms of commercial type customers, a lot of those, the ones that we have right now, police agencies, municipalities have relationships or have needs that need SafePointe as well. So we do expect that bundling is going to be very positive for us and extending us certainly throughout '24 and into the future.

And then one more for me. Did you see any further elongation of sales cycles in the quarter? And any additional information you can share on funding and budgets you're seeing from customers?

Yes. So this is Ralph. I mean so we're continuing to see a nice cadence of deal kind of pull through. It feels like the environment is very constructive. I mean we have a bit of a positive trifecta, if you will. The funding environment is very strong. Unfortunately, there's a real measurable uptick around crime, violent crime in particular, that is now becoming increasingly vocalized I would say, by residents in the community. And at least with respect to ShotSpotter specifically, I'll speak to that because I imagine that's really the line of question that you have. We continue to really dominate the space. So we don't deal with a lot of kind of competitive friction in our marketplace when someone decides that they want to do a kind of large-scale acoustic gunshot detection for a police department or city, we're kind of the only game in town in many respects. I mean we saw that with respect to the RFP we responded to in Puerto Rico that we're showing up as the only bidder. And in certain situations where it isn't sole source, and there's an RFP, if there's another bidder, we're typically winning those. So we're pretty encouraged by the sales cycles and the increased, I would say, pipeline deployment. I'll just quickly add to that. We should not underestimate the power of NPS in the way as a company we lean in on Net Promoter Score because, in fact, a lot of our sales motion is generated from the strong referenceability that we have in the marketplace, where effectively, our customers are selling new customers because they're saying, look, we've had a positive experience with this technology and the company providing this technology, you should try it too. So in many ways, it almost feels like we're kind of at the tipping point where this has become a standard of care. And I think it's well understood and acknowledged that if you don't have acoustic gunshot detection, you're basically deaf to a significant amount of criminal gunfire that it's just irresponsible to be that way. So we're pretty excited about where we are.

At this time, 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@gatewaygrp.com. I would now like to turn the call back over to Mr. Clark for his closing remarks.

Great. Thank you very much for that, and thank you all for joining the call. Alan and I are looking forward to engaging with many of you over the next couple of weeks. Thank you very much, and have a great day.

This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.