SoundThinking - Earnings Call - Q4 2024

Executive Summary

• Q4 2024 underwhelmed on reported results due to ~$3.5M of delayed NYPD renewals: revenue $23.4M (-10% y/y), gross margin 50% (vs 58% y/y), GAAP EPS $(0.32), Adjusted EBITDA $1.7M (7%). Management stressed delays were administrative (registration) rather than demand-related and have since largely been resolved or are expected imminently.
• Despite the Q4 timing impact, FY 2024 delivered record revenue of $102.0M (+10% y/y) and management raised FY 2025 guidance to $111–$113M revenue and 21–23% Adjusted EBITDA margin (from $107–$109M and 19–21% previously).
• Strategic wins underpin the outlook: a three-year ~$21.9M NYPD ShotSpotter renewal through Dec-2027, a new Chicago RFP for city-wide gunshot detection (company evaluating a response), and growing international activity (e.g., Brazil, South Africa, Uruguay).
• Near-term stock catalysts: confirmation of the remaining NYPD registration, Chicago RFP outcome, SafePointe pilot conversions (healthcare vertical) and ARR progress toward ~$110M at the start of 2026 from $95.6M entering 2025.

What Went Well and What Went Wrong

What Went Well

• Raised 2025 outlook: “We are raising our 2025 revenue guidance range to $111.0 million to $113.0 million… We are also raising our 2025 Adjusted EBITDA margin guidance range to 21% to 23%”.
• NYPD multi‑year renewal and momentum: “successfully executed a 3‑year contract renewal of approximately $21.9 million securing the ShotSpotter service for NYPD through December of 2027”. International pipeline strengthened with new city captures and expansions (e.g., Niterói, Nelson Mandela Bay, Montevideo).
• Platform progress and AI: Management emphasized integrating “AI-driven capabilities” across the SafetySmart platform; SafePointe advanced with 3D camera integration and SOC2/HIPAA, helping land pilots at two top‑10 hospital chains.

What Went Wrong

• Q4 timing-driven miss optics: Revenue fell to $23.4M (from $26.0M y/y), gross margin compressed to 50% (from 58%), and GAAP EPS swung to $(0.32) from $0.28–$0.29 y/y due to ~$3.5M delayed NYPD renewals and continued service delivery without revenue recognition.
• Higher operating expense optics y/y: Q4 opex rose to $15.5M vs $10.6M y/y; the prior-year quarter benefited from a $4.8M reduction in contingent consideration (Forensic Logic/SafePointe).
• Chicago loss still a drag and funding noise: Chicago contract ended in Q4 2024; while a new city-wide RFP was issued (evaluating response), the loss weighs on y/y comparisons; management also noted ARPA funds are drying up, requiring creative funding (e.g., state-level programs).

Transcript

Operator (participant)

Good afternoon and welcome to SoundThinking's fourth quarter and full year 2024 earnings conference call. My name is Diego, and I'll be your operator for today's call. Joining us are SoundThinking CEO Ralph Clark and CFO Alan Stewart. Please note that certain information discussed on the call today will include forward-looking statements for our 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 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 this registration statement on Form S1. These forward-looking statements reflect management's beliefs, estimates, and predictions as of the date of this live broadcast, February 25th, 2025.

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. With that, I'll now turn the call over to Ralph.

Ralph Clark (CEO)

Good afternoon, everyone, and thank you for joining us today for SoundThinking's Q4 2024 earnings call. I'll start by providing some high-level commentary on our Q4 and year-end 2024 financial results, along with an update on our key strategic initiatives. Alan will then review our financial results in more detail before we take your questions. 2024 is in the books, and it was a year of measurable strategic, financial, and operational progress for SoundThinking, even as we successfully pushed through some isolated headwinds. Our Q4 revenue decreased by 10% year-over-year to $23.4 million, primarily due to approximately $3.5 million of a delay due to two contracts with New York City Police Department, or NYPD, that we had been working on to renew prior to contract expiration in Q4 2024.

One of the two contracts was formally signed and registered this February, and the other is currently signed and working its way through New York City's formal registration process, expected to be in the next 30-45 days. This delay is directly related to some of the recent and well-documented political distractions and personnel turnover in the city and NYPD command staff. Despite that, our full year 2024 revenue still grew by 10% to a record $102 million. We believe this is a reflection of the strong demand for our public safety and security solutions across the SafetySmart platform, as law enforcement agencies and security organizations respond to the ever-increasing demands to be more responsive and accountable in delivering public safety outcomes to communities they are accountable to serve and protect.

In 2024, ShotSpotter went live in 20 new cities, five new universities, we recognized 24 expansions, and took 126 mi live. Overall, we booked $75.7 million in net new and renewal subscription-based ACV, with 59% of those bookings representing multi-year agreements. We're very pleased with the ShotSpotter International pipeline growth and 2024 bookings momentum, including new city captures in Niterói, Brazil, Nelson Mandela Bay, South Africa, and an expansion doubling our footprint in Montevidéo, Uruguay. We believe our international sales momentum is a testament to the effectiveness of ShotSpotter in a large and virtually untapped market outside of the U.S. We expect to see future opportunities in new international cities in the Caribbean and Latin American markets, building on our recent collective successes in Bahamas, Uruguay, and soon-to-be Brazil. We were also very pleased to reestablish our approximately 30 sq mi ShotSpotter deployment in Puerto Rico in Q4 of this year.

Here, too, we believe there may be opportunities to grow the ShotSpotter footprint beyond the current 30 sq mi, given the compelling need other communities and cities in Puerto Rico have in responding to and addressing gun violence on the island. As a reminder, our ShotSpotter service in Chicago operationally concluded in late September, with a formal contract termination in November. In a very recent development, Chicago issued a formal RFP for gunshot detection technology to potentially cover the entire city of up to 230 sq mi for a five-year term with three one-year extensions. The vendors' conference was held last week, and formal bid submissions are due this April.

While we're in the process of evaluating a potential response, we would note that the speed and compressed timeline of the Chicago gunshot detection RFP is, in fact, a testament not only to the compelling need, but also the positive impact that gunshot detection has on communities and saving lives. NYPD is currently our largest ShotSpotter customer, and as mentioned earlier, we are thrilled to have successfully executed a three-year contract renewal of approximately $21.9 million, securing the ShotSpotter service for NYPD through December of 2027. The renewal extends our long-term partnership and relationship of close to 10 years and is indicative of the value at scale our ShotSpotter services provide. As we discussed in our 2024 Investor Day, our technological capabilities and proven ability to execute at scale to drive public safety is what differentiates us in the marketplace.

Our SafetySmart platform is uniquely and competitively positioned, and we're excited about the platform roadmap and intentional investments we're making in leveraging advanced AI/ML capabilities in order to optimize our solutions. In 2024, we launched the next generation of our SafePoint weapons detection system, offering enhanced security solutions for various institutions, including hospitals and corporate locations. The next-gen SafePoint features included advanced 3D camera integration and added SOC 2 and HIPAA compliance, which were critical success factors in securing two recent pilot wins with two separate hospital chains that are both in the top 10 hospital chains in the United States based on number of hospitals. We're hopeful that once we successfully move past the pilot stage, we will be positioned to drive multi-million dollar ACV contract billing with these two chains while leveraging their early adopter status to other hospital chains.

Our leading and comprehensive patrol management tool, ResourceRouter, is continuing to grow both in impact and sales traction. We believe the product-market fit is strong and delivering value, and this fact is supported by 100% ASP growth from 2023 to 2024 in approximately $4 million of the 2025 pipeline. The patrol division within a police department typically represents the largest portions of an agency's budget, and ensuring efficient, effective, and equitable public safety outcomes can be a complex challenge. ResourceRouter is the only patrol operations tool on the market that provides real-time, relevant information that is easily accessible and actionable in the field. Early customer feedback has been very strong on the positive impact that ResourceRouter has enabled in field patrol operations. We're very excited about pioneering a whole new category in data-driven patrol management that enhances officer and public safety in an objective and transparent fashion.

In 2024, we also announced our strategic partnership with Recore Systems for the rollout of our co-branded Plate Ranger, Automatic License Plate Recognition, or ALPR solution, which is fully integrated into our SafetySmart platform. We believe our Plate Ranger offering to be highly differentiated with respect to the seamless integration with our SafetySmart offerings, along with our collaborative approach to integrate with other non-SoundThinking offerings. While still in the early days with our partnership, we're progressing well, and we look forward to discussing more on this as the year progresses. In terms of market positioning, our strategic initiatives, ongoing product enhancements, and new launches have strengthened our offerings. Our strategic partnerships and product innovations are the driving force behind our operational excellence, which has resulted in another world-class net promoter score of 66%, moving up 200 basis points from last year's 64%.

As a reminder, a score of 60 or higher is considered world-class in any industry. It's also notable that since 2020 to year-to-date, the company has added over 85 new ShotSpotter customers, executed 50-plus expansions, and processed over 660 annualized renewals, compared to only 15 non-renewals, which is effectively over a 40-to-1 ratio of renewals to non-renewals. As of year-end 2024, we had approximately $50 million of 2025 qualified ACV pipeline across our SafetySmart Platform. Approximately 62% of that pipeline was non-domestic ShotSpotter pipeline, signaling our successful diversification efforts. We're making intentional investments in our top-of-funnel demand generation activities to continue to build on that pipeline for 2025 and beyond. We believe we're well-positioned to drive 2025 revenue growth, given our entering 2025 with $95.6 million in annual recurring revenue, or ARR, despite the non-renewal of Chicago in November of 2024.

As such, we're increasing our full-year revenue guidance to $111 million-$113 million, representing approximately 10% year-over-year growth. If we were to include the revenue from Chicago last year to our pro forma revenue growth from 2024 to 2025, it would have been 19%. We're also increasing our full-year 2025 adjusted EBITDA margin guidance range to 21%-23%. We're confident in our guidance and believe we're well-positioned to drive diversified and profitable growth in 2025 and beyond. In summary, 2024 was a transformative and productive year for SoundThinking, highlighted by milestone achievements and the showcasing of our collective grit in moving forward in our purpose. While we're not immune to some of the challenges with respect to market conditions, we're very proactive across our strategic and financial growth strategies and are constructive about the opportunities moving forward.

Alan Stewart (CFO)

We're pleased with our financial performance, operational excellence, product innovation, and market leadership. We remain committed to advancing public safety through our unrelenting passion on making a positive impact. I'll now turn the call over to Alan to discuss our financial results for the fourth quarter and full year 2024, as well as guidance for 2025 in more detail.

Thank you, Ralph, and good afternoon, everyone. We're pleased with our fourth quarter and year-end 2024 results. Our strong financial performance reflects the success of our ongoing strategic initiatives, operational efficiency measures, and our commitment to delivering value to our shareholders. In the fourth quarter, revenues were $23.4 million, representing a 10% decrease over the quarterly record $26 million in the fourth quarter of 2023.

As Ralph mentioned, all of our financial results were impacted primarily due to the delayed renewal of two contracts with New York Police Department, reflecting an approximately $3.5 million delay and reduction of quarterly revenue by the same amount. One contract has already been awarded for our ShotSpotter renewal, and the second contract is currently signed and working its way through the New York City's formal registration process, expected in the next 30 to 45 days. Bookings of all of our SafetySmart Platform solutions, some of which are multi-year contracts, are also growing healthily. Gross profit was $11.7 million, or 50% of revenue, versus $15 million, or 58% of revenue for the prior year period. Our adjusted EBITDA was $1.7 million, compared to $4.8 million in the fourth quarter of 2023. Our adjusted EBITDA decrease was directly related to delayed contracts.

As a reminder, adjusted EBITDA, a non-GAAP financial measure, is calculated by taking our GAAP net income or loss and adjusting out interest income, income taxes, depreciation, amortization, and impairment, restructuring costs, and losses, including on-related fixed asset disposals, stock-based compensation expenses, and acquisition-related expenses, including adjustments for contingent consideration obligations. Our operating expenses were $15.5 million, or 66% of revenues, versus $10.6 million, or 41% of revenues, in the fourth quarter of 2023, after including the change in fair value consideration related to our acquisitions of $4.8 million in 2023. Breaking down our expenses, sales and marketing expense in the fourth quarter was $6.5 million, or 28% of total revenue, compared to $7.4 million, or 28% of total revenue, in line with the prior year period.

Our R&D expenses were $3.5 million, or 15% of total revenue, compared to $3.2 million, or 12% of total revenue in the prior year period. G&A expenses for the quarter were $5.5 million, or 24% of total revenue, compared to $4.8 million, or 18% of total revenue for the prior year period. As a reminder, we expect our G&A expenses to grow less than our revenue on a percentage basis as our company grows. Our G&A net loss was approximately $4.1 million, or a loss of $0.32 per basic and diluted share for the quarter, based on $12.6 million basic and diluted weighted average shares outstanding. This compares to a net income of $3.6 million, or $0.29 per basic share and $0.28 per diluted share, based on $12.7 million basic and $12.9 million diluted weighted average shares outstanding for the prior year period.

The increased loss was also related to delay of the approximately $3.5 million in contract renewals as we continued to perform the services at the request of the customers, adding COGS and operating expense without the associated revenue. Turning to our full 2024 results, revenues were a record $102 million, representing a 10% increase over the $92.7 million in 2023. The increase in revenues was primarily due to new and expanding customer subscriptions. Having not had the NYPD contract renewal delays, we expect to have achieved over $105.5 million in revenue, matching our original revenue guidance for 2024. Gross profit was $57.9 million, or 57% of revenue, versus $52.7 million, or 57% of revenue for the prior year period.

Gross profit was also impacted by the contract renewal delays of the approximately $3.5 million in revenue as we continued to provide the services at the request of the customer, adding cost of goods sold expense without the associated revenue. Our adjusted EBITDA was $14.4 million, in line with the $14.3 million we achieved in 2023. Our operating expenses increased 22% to $65.7 million, or 64% of revenues, versus $54 million, or 58% of revenues in 2023. We had a contingent consideration adjustment of $5.7 million in 2023 and $600,000 in 2024, associated with the ForensicLogic and SafePoint acquisitions. In addition, 2024 included a full year of operating expense for SafePoint, versus only four months of expenses included in 2023. We also had an increase in other costs in 2024 as we continued to grow our business.

Breaking down our expenses, sales and marketing expense in 2024 was $28.1 million, or 28% of total revenue, compared to $27 million, or 29% of total revenue, in line with the prior year period. Our R&D expenses were $13.9 million, or 14% of total revenue, compared to $12.1 million, or 13% of total revenue in the prior year period. G&A expense for the year was $23.9 million, or 23% of total revenue, compared to $20.6 million, or 22% of total revenue for the prior year period. As a reminder, we expect our G&A expense to grow less than our revenue on a percentage basis as our company grows. Our GAAP net loss was approximately $9.2 million, or a loss of $0.72 per basic and diluted share for the year, based on $12.7 million basic and diluted weighted average shares outstanding.

This compares to a net loss of $2.7 million, or $0.22 per basic and diluted shares, based on 12.4 million basic and diluted weighted average shares outstanding for the prior year period. The increased loss for the year was also related to the delay of the approximately $3.5 million in revenue as we continued to perform the services. Deferred revenue as of December 31st, 2024, was largely in line at $44.2 million, compared to $49.5 million at the end of Q3 2024. Revenue retention rate for 2024 achieved 105%, compared to 107% in 2023, and our sales and marketing spend per dollar of new annualized contract value was $0.63, compared to $0.52 in 2023. We ended the year with $13.2 million in cash and cash equivalents, versus $15.3 million at the end of Q3 2024, and much higher than the $5.7 million that we had at the end of 2023.

We repurchased $418,940 of our shares at an average price of $14.31 for approximately $6 million throughout 2024. Currently, we have approximately $21 million available on our line of credit, as we have approximately $4 million in debt outstanding, all on our line of credit. Now, turning to our guidance for the full-year of 2025, we are increasing our full-year revenue guidance range to $111 million-$113 million. We're also increasing our full-year 2025 adjusted EBITDA margin guidance range to 21%-23%. This updated guidance reflects the strength and momentum we are experiencing in our business, in spite of the loss of approximately $9.7 million from the loss of the Chicago contract in 2024. Overall, we are pleased with the progress we have made on each of our strategic initiatives and operational performance of the business. With that, we're now happy to open the call for questions. Operator, will you please open the line for Q&A?

Operator (participant)

Thank you. At this time, we'll conduct our question-and-answer session. Attention, you will be limited to one question and one follow-up question per each time that you queue up. To ask a question, press star one on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Once again, to ask a question, press star one. To remove your question, you can press star two. We'll pause for a moment while we pull for questions. Our first question comes from Trevor Walsh with Citizens JMP. Please state your question.

Trevor Walsh (Senior Equity Research Analyst)

Great. Hi, team. Thanks for taking the questions. Ralph, maybe for you, it sounded like when you were giving the update around the Chicago kind of new RFP that you were maybe on the fence around replying or kind of putting in a bid within that. Can you maybe just confirm if I heard that correctly, or maybe just explain kind of how you're thinking about that engagement versus maybe prior kind of engagements with the city there?

Ralph Clark (CEO)

Sure. Yeah. Thank you for that question. I think the first thing I would say is that we're extraordinarily encouraged to see Chicago actually issue an RFP for a gunshot detection system. We are still evaluating our potential response. We haven't made a formal decision yet. I can assure you that we're extraordinarily confident about the fact that we are the very best gunshot detection solution in the marketplace that has been proven at scale. That's where we are with Chicago.

Trevor Walsh (Senior Equity Research Analyst)

Got it. Okay. Thanks for the color. Alan, maybe just a quick one for you. You talked about some of the multi-million-dollar opportunities with hospital chains related to SafePoint. Is that included in the guidance for 2025, or is that still out, just given where they're at in the sales cycle?

Alan Stewart (CFO)

Yeah. Thank you for that. That's a great question. I think it's important to know that in SafePoint right now, each quarter, we've gotten a little bit more in the bookings. Q1 was about $500,000. Q2 was close to $1 million. Q3 was a little over $1 million. Q4 was over $3 million. Now, these bookings are multi-year bookings, so they aren't necessarily all going to be annual revenue, but that's an indicator of sort of what we're talking about. We are expecting some of those to contribute to the revenue guidance, the increased revenue guidance that we gave for 2025.

Trevor Walsh (Senior Equity Research Analyst)

Great. Back in the queue.

Operator (participant)

Your next question comes from Bruce Goldfarb with Lake Street Capital. Please state your question.

Bruce Goldfarb (Managing Director)

Congratulations on your results. Thanks for taking my question. Are you anticipating or nervous about any pipeline disruption from federal government DOGE efforts? Any exposure there?

Ralph Clark (CEO)

Yeah. Thanks for that question. This is Ralph. I'll start, and then Alan jump in as appropriate. I think there are probably three real important demand drivers that it's important to understand. That is, first and foremost, we've seen a really strong overall sentiment with respect to policing and public safety has shifted dramatically to the positive. That's something we probably couldn't have said maybe a couple of years ago.

The second issue is understaffing continues to be a challenge for agencies. The third and last point is that we're seeing agencies that are very receptive to leveraging technology as a force multiplier. That's kind of the backdrop or the demand drivers. I mean, offsetting that, I think, to your question or point is that we are watching very carefully the issues around kind of budgets and where budgets are being funded from. We do know and can expect that ARPA funds are beginning to dry up, which means that we have to be extraordinarily kind of creative along with our customers and prospects to go seek funding from other sources, both the private sector as well as increasingly moving to state-level initiatives where we've seen some success at the state-level. New Jersey being a great example of that.

I think New York State is another example where they're taking on much more responsibilities to kind of work with local agencies to make sure that they have the resources they need in light of the fact that they are understaffed to be able to work with protecting the residents of their community. It is something we're paying close attention to. It's not so much a DOGE impact. It's more around an ARPA impact, I would say. We've got some creative approaches we think that can help mitigate that issue.

Bruce Goldfarb (Managing Director)

Great. Thank you.

Ralph Clark (CEO)

Thanks.

Operator (participant)

Thank you. Just a reminder to the audience to ask a question, press star one on your telephone keypad. Our next question comes from Michael Latimore with Northland Capital Markets. Please state your question.

Michael Latimore (Analyst)

Great. Yep. Thanks very much. Yeah. In terms of your ARR guidance for the year, can you give a rough range of how much of that would, how much of the incremental growth would come from the gunshot detection category?

Alan Stewart (CFO)

Yeah. Sure. This is Alan. I would say at this point, going from around the $96 million to we ultimately think it's going to be around $110 million, which is a significant increase. We expect that the gunshot detection, if you start including some of the international, will be somewhere between $8 million and maybe $9.5 million of that is what we would expect. Historically, we've had somewhere around there. The rest of it is coming from the other growth and the other products, which is also quite positive to get the delta.

Michael Latimore (Analyst)

Yep. Great. In the SafePoint weapons detection area, you highlighted a couple of nice healthcare wins. Is that sort of the number one vertical where you're seeing momentum, or what would be the top couple here, couple of verticals for weapons detection?

Ralph Clark (CEO)

Yeah. Thanks for that question. The three verticals that we're focused on are healthcare, gaming centers, because, again, both the healthcare and gaming centers have an issue of wanting to do weapons detection, but doing it in a very low-friction type manner, which is very unique to our particular solution versus other solutions. The third vertical are some selected corporate sites where we're already deployed in some very large financial institutions in their lobby. If you were to be in New York City and walk through a couple of kind of world-class financial institutions, you could probably recognize our bollards out there.

Michael Latimore (Analyst)

Yeah. No. Okay. Thanks very much.

Operator (participant)

Thank you. There are no further questions at this time. I'll hand the floor back to Ralph Clark for closing remarks.

Ralph Clark (CEO)

Great. Thank you to everyone that joined us today. And thank you to my SoundThinking colleagues, clients, and partners for all of your support. Innovation and consistent execution against our strategic growth priorities really defined our achievements for 2024. We believe this gives us very strong momentum heading into 2025. We have an outstanding company and will continue to be focused on maximizing shareholder value. I want to thank all of you for your insightful questions and for joining us today on this earnings call. We appreciate your continued interest and investment in SoundThinking. We look forward to sharing our progress with you in the coming quarters. Thank you and have a great day.

Trevor Walsh (Senior Equity Research Analyst)

Thank you. This concludes today's call. All parties may disconnect. Have a good day.