Good afternoon, and welcome to ShotSpotter’s First Quarter 2019 Earnings Conference Call. My name is David, and I’ll be your operator for today’s call. Joining us are ShotSpotter CEO, Ralph Clark; and CFO, Alan Stewart. Please note certain information discussed on this call today will include forward-looking statements about future events and ShotSpotter’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 on those statements. Certain of these risks and assumptions are discussed in ShotSpotter’s SEC filings, including its registration statement and Form S-1. These forward-looking statements reflect management’s beliefs, estimates and predictions as of the date of this broadcast, May 9, 2019. And ShotSpotter undertakes no obligations 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 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.shotspotter.com. Now, I would like to turn the call over to ShotSpotter’s CEO, Ralph Clark. Sir, please proceed.

Thank you very much, and good afternoon to those of you joining us today. I’m going to start with a quick overview of the quarter and then Alan will review our financial results, before we take your questions. We’re very pleased with our first quarter financial results, which were in line with our expectations. We grew year-over-year revenue 39% to $9.6 million. Our net loss was only $362,000 versus $1.2 million for the prior period. And adjusted EBITDA increased to $1.6 million from just $26,000 a year ago. On a sequential quarter basis, revenue was essentially flat as we guided in our last call. This comparison includes a one-time payment of approximately $170,000 we received in Q4 from the U.S. Virgin Islands. Our gross margin of 58% was in line with our expectations and our reported net loss of $362,000 or $0.03 per share, primarily reflects our focused investment in marketing and sales. We’re very excited about the four new cities that went live including; Greenville, North Carolina; Pleasantville, New Jersey; Columbus, Ohio and our first international deployment outside of South Africa in Nassau, Bahamas. Many of you have heard me explain that ShotSpotter’s business is the best viewed annually rather than quarterly. Through that lens we believe our future is bright reflecting solid technology and service performance, our strategic expansion into adjacent markets and our unmatched customer loyalty. Illustrating the somewhat lumpy characteristics of our quarterly cadence, we went live with 19 gross miles, which netted to 12 mile after factoring in the loss of 7 miles from one customer in the Northeast. The pullback in this deployment was due to limited gun violence incidents in large portions of their coverage area, after seven years of ShotSpotter service. We’re in discussions with the customer about pockets of gun violence…

Thank you, Ralph and good afternoon, everyone. The first quarter came in largely in line with our plan. As expected, we reported a small loss for the quarter, but are still on track to be GAAP profitable for 2019 as a whole. We also significantly improved our cash position at the end of the quarter, need not only for the proceeds with the equity offering we did in March, but also from the almost $9 million in operating cash flow that we generated during the quarter. Revenues in the first quarter increased 39% to $9.6 million. It was also largely flat with the Q4 run rate and up slightly from $9.5 million, which is where Q4 would have been if we exclude a one time contribution of approximately $170,000 from the U.S. Virgin Islands. As a reminder, while quarterly performance can be lumpy depending on the point and schedules, we generally experience flat revenues Q4 to Q1 and offset in Q2 then flat to Q3 with another step up in Q4. We expect 2019 results will follow this pattern with the exception that Q3 revenues should be up from Q2 due to the expected case to go-live mile. Gross profit for the first quarter was $5.6 million or 58% of total revenues, up from $3.6 million or 52% in the first quarter of 2018. Gross profit continues to increase as we gain leverage from a higher revenue base. Adjusted EBITDA for the quarter, which is calculated by taking our GAAP net income and adding back interest, taxes, depreciation and amortization and stock based compensation was $1.6 million. This is a step-up from the $26,000 in adjusted EBITDA for first quarter of 2018, demonstrating the power and efficiency of our business model. Now turning to our expenses. Our operating expenses for…

Thanks, Alan. We’d like to take your questions now, but before we do I want to take this opportunity to congratulate and thank my work colleague at ShotSpotter on achieving a great places to work commendation. I’m proud of the collaborative and customer centric culture we’re building at the company. We’re truly making a difference. And lastly, I would like to remind all of you that we recently published our 2018 Annual Report and 10-K that includes a shareholder letter, where I cover our strategy and the dynamics of our business in more detail. And although I am no Warren Buffett quite yet, I did try to explain the what, the how, and most importantly, the why and the moral purpose of our business. Hopefully, the letter will provide you more insight into why we’re so confident about the future of ShotSpotter. I would be grateful if you were to read it and be generous with your constructive feedback. We can now take your questions.

Thank you. [Operator Instructions] We will take our first question from Joseph Osha with JMP Securities. You may proceed.

Well, Ralph, I'll have to make sure I read that letter that you kind of built-up expectations. I have – just I want to make sure I understand what you're saying on net new go-live, that's 300 for total of calendar 2018 and 2019. Is that essentially what you're saying?

No. This is Alan. I think what we're looking is in general, I would say that's more over 2019 and 2020.

Okay. Are you willing to talk about a net new go-live number 2019 only and then also I'm curious, if you can maybe give us a little color on the breakdown of well this number – this quarter wasn't that big, but how you think about the breakdown between new additions and adds with existing customers?

So this is Alan. I would say, we went live in 168 miles last year, 68 of those were from Chicago, the Tier 1 expansion. We aren't currently projecting a Tier 1 expansion or new city in 2019. So it will be logical to expect that 2019 miles will be less than that. We are still targeting Tier 1 cities and do expect that it will have some of those coming in 2020. So 2020 would be a higher number versus the two years. In terms of expansions versus new cities, we did add four new cities this quarter. We are seeing an increasing number of cities joining our platform. They generally start with a smaller footprint, but still adding new cities at an increasing rate is exactly what we're expecting and have a forecast for 2019.

We'll take our next question from Matt Pfau with William Blair. Please go ahead. Your line is open.

Hey, guys thanks for taking my questions. First, I wanted to start-off on the two deals that were delayed. I'm sure with all the deals you signed you face a certain level of bureaucracy. So maybe just, you can help us understand are these deals just facing significantly more approval headwinds than you would see in the typical deal. And then yes, are there other deals included in the guidance that could be a potential issue for as well?

Yes. So this is Ralph. Thank you very much for that question. I would say, these two particular deals that we referenced in our earnings call are actually really quite unique. We have never faced or encountered a situation where we're actually awarded a bid and then ultimately weren't able to get to a final contract based on negotiating terms and conditions. I want to make it very clear, it wasn't about price it was really about terms and conditions. And ultimately, we believe that we are going to prevail because in this one particular case the gun violence issue is really quite – quite persistent. In the other case, this really is a situation of a very significant amount of bureaucratic delays and administrative delays, I would say. Ultimately, we think we're going to prevail in this situation as well. This is a fairly large opportunity, but the level of I would say administrative bureaucracy is probably not like any we've ever faced before. But again, we're highly confident that this deal is going to come into supervision for us again like the other case. The need is so compelling and we're very familiar with this particular customer I would say.

Okay. Got it. And then on the – on the customer that elected to turn off the ShotSpotter service, if I recall correctly few years back you had a similar situation like this with the town in Washington state. So you can see all the gun incidents that are occurring. So you would presumably be able to tell if there's customers that maybe would be at risk to turn-off service because they're just not having very many gun violence incidences. So as you look across your customer base, are there other customers like this one where they're just not seeing that many gun violence issues or was this sort of a unique case.

Yes, I'd say this is a fairly unique case in that one. This was a customer that actually started out with a significant amount of gun violence. This is probably one of our longest lived original Flex customers. They've been with us for seven years or so. We believe that across their 7 square miles or so, there is some portion of those miles that are still exhibiting some amount of gunfire. And so for them I think it's really issue of helping them understand that it doesn't have to be a binary situation kind of going zero to seven, but there's something probably in the middle that is still reasonable for them to be concerned about. And so we're hoping/expecting that we're going be able to recapture some of those miles. I mean literally this particular customer they have several different arrays across that 7 square miles in different hamlets without naming the particular customer. So it's a bit of a happy circumstance I guess in some degree because I think what we are about is helping customers address gun violence. And in this particular case, they're extremely successful in a good portion of their array and so we're going to just get them to focus on the areas where that continue to exhibit or experience gun violence. But this doesn't really have any impact across the rest of our installed base as we as we do. It is something we obviously pay very close attention to.

Got it. And last one for me, just on the Verizon partnership, the reseller agreement. Any update on how that's progressing?

Yes, so we're still in conversations with Verizon. They've actually been very constructive in terms of getting us introduced to a couple of potential opportunities that we're hoping we're going to be able to talk to more about in the next earnings call, so still onward and upward with Verizon.

Got it. That's it for me guys. Thanks a lot.

Thank you.

Question from Charlie Erlikh with Baird. Please proceed.

Great. Thanks for taking the question. Could you provide a little bit more detail on the Missions product in terms of initial interest or traction from existing customers? Anything surprisingly there positive or negative, now as you've had the product in the market now for a couple more months?

Yes. Thank you for that question. So this is Ralph. With respect to Missions, we're really excited about the conversations we're having with our existing installed base that's really has been our focus for two reasons. One, we already have a relationship with those customers and really quite familiar with their strategies is around how to use kind of real time gunfire alerts to address gun violence and now introducing this concept of using kind of pre-crime intelligence if you will, to be even more impactful is really quite exciting. And so we're doing two things. We're building up the pipeline, but we're also getting some really critical feedback as well in terms of feature enhancements to take this already fairly robust platform that we acquired from HunchLab to make it even more meaningful in the context of the way our customers like to move in this particular space. So what we've been doing from an engineering point of view is we have a fairly reasonable amount of investment that we're engaged in to kind of do two things. One, more tightly integrate the ShotSpotter data into the predictive model. That's something we heard very consistent feedback around from our customers on. And then two, I think there was a 2.0 version of kind of reporting and analysis tools that our customers or potential customers thought was very important. So we're – I’ve been working on that in partnership. We do have some of our own internal resources, but we're also doing some work in partnership with [indiscernible] to kind of bring those features to bear and a release we expect to make happen later this quarter. So it's going to be a I guess very intentional and focus, we've also got some inbound interest interestingly enough from few customers that aren't our – few potential customers I would say that aren't existing ShotSpotter customers. But our real focus is to work with existing customers where we have relationships and then build our success stories for them that we think can help us more deeply penetrate our 100 plus or so customer installed base. We were expecting to have a reasonable uptake emissions from a reasonable percentage I would say of our customers. Does that answer your question?

Yes, absolutely. If I could just get one more in to, do you have any updated thoughts Puerto Rico, are you more or less confident now than you were three months ago about Puerto Rico coming back or anything you could share on that front, would be great?

I think we've pretty much said all we can say about Puerto Rico.

Okay. All right. Thanks for answering the question.

We'll take our next question from Jeremy Hamblin with Dougherty & Company. Please go ahead.

Thanks. And I wanted to start actually on the expense side of the equation and you noted that you have made some commitment on sales and marketing, you are making some investments there. You know I think on a year-over-year basis it's up almost 70% versus your R&D investment that's up about 5%. As I think about this for the remainder of 2019, how do you expect those relationships to drive the remainder of the year. It sounds like we're going to see some deleveraging overall on sales and marketing, but what about in terms of investments on the R&D side?

Sure. This is Alan. We are continuing to invest in R&D. You may have heard that Ralph mentioned a couple interesting things that we've been able to do in the algorithm side. So we're going to continue to invest there. We're continuing to invest in R&D on the Missions development, call it the Missions 2.0, essentially what Ralph just alluded to. So you are going to see an incremental increase in OpEx spend for R&D and also for G&A throughout the year. Sales and Marketing is our focus area though so that's where most of the increases are going. And frankly have already sort of built themselves into the OpEx run rate right now. I would say though that also across the board we are going to see OpEx increases, but still at a rate lower than our top line revenue growth. So our operating margins will continue to improve.

Okay. Great. And then in terms of – you've provided some nice color I think on the next 90 days turning on I think 50 plus net new Miles. What about in terms of the back half of the year visibility that you might have now to help us maybe understand any potential lumpiness in your net to go-live mile in the back half of the year. Any color you might be able to share on that front.

Sure. So this is Alan, I think as we looked at our revised guidance we had to make some assumptions in what we knew to be true for the next 90 plus days plus what is in our pipeline is expected to go-live. That's where the build-up kind of comes in. I would say that we certainly expect Q3 and Q4 from a go-live mile perspective to be stronger than we have in Q1.

Okay. Great thanks. That's it for me. Good luck guys.

Thank you.

[Operator Instructions] Next we'll take a follow up from Joseph Osha with JMP Securities. Please go ahead. Your line is open.

I'm sorry. I got kicked off further in mid question. I won't go back to the miles question. I did want to ask given the shift in mix that you all are seeing how you think about ASP on a per mile basis because you've talked before about how nice the rates were in that South Africa business you have just in general how you think about the shift in mix potentially impacting your ASP per mile?

Sure. So I would say the one thing that we know for sure is our international deployments have a much higher ASP price. You can take 2 times to 3.5 times, what we charge domestically. So as international rolls in more the latter part of the year, obviously the price in average go up. We are also planning on in 2020 changing increasing actually what we call more of our MSRP price increasing that base from 65,000 to 70,000. So we're not seeing pricing pressure on the downside. We're seeing that we do have the ability to continue to increase the prices on our standard contracts.

Okay. Thank you very much.

We'll take our next question from Matthew Galinko with National Securities. Please go ahead. Your line is open.

Hi. Thanks. Thanks for taking my questions. Regarding the customer that disengaged. Can you sort of peg their decision to whether it was you know, I guess you know did it come down to budget or maybe just big picture, how do you avoid becoming a victim of your own success if you are able to ultimately demonstrate that you are able to cause a reduction in gun violence?

Yes, this is Ralph. I guess I'll try to answer that. This is a customer again that had been with us for seven years. I think their array is pretty interesting they are – in many ways you could probably think of them being like maybe three to four customers in a way. And it's like it's two of the customers just really knocked out their gun violence problem in total, but you still have another two that still have some level of gun violence issues that we think again that we can be helpful to helping them address that. So it's a fairly unique situation we're kind of calling it one customer but they really have kind of very different I guess hamlet situations that that we're that we're dealing with. In most of our customers, I would say there are just ongoing issues with gun violence and although they can work really hard to reduce it, it still exist in some form and it's really difficult for most customers to decide to go completely kind of deaf and blind to gun violence. We saw in one particular situation in fact where there was a turn off of service for just a very short period of time where it caused a lot of problems because they were having these gun violence event that their officers weren't aware of, couldn't respond to, it is officers safety issue et cetera. So I mean our application is fairly, fairly sticky and I think customers get accustomed to the idea of being responsive to these events that are underreported and it's very tough for them to go back. And what we're left with is this one particular situation that we're talking about and just in terms of a general reminder of funding, when you have a subscription, SaaS based subscription business there is a thing called attrition that we just have to expect to some degree and we work really hard to mitigate it as much as possible, but it does happen and I think this is our first customer attrition for the past like three or four quarters, so it's not – it's not a very frequent issue that we deal with and so.

Got it, all right. Thank you.

We'll take our next question from Tim Klasell with Northland Securities. Please go ahead. Your line is open.

Yes, this is Tyler wood on for Tim. So first given you've had some time now since the HunchLab acquisition and now you're talking about ILS in the upcoming labs offering. When should we expect to see revenue from these additional solutions kind of move the needle? And then with ILS being included in the platform with no cost versus for example like HunchLab going separately how do you approach that decision as far as selling something back into the base versus including it in Flex? Thank you.

Yes. So this is Alan. I would say that we would expect an increasing amount of revenue coming in probably more toward the end of Q3 and Q4 for both labs which we do expect to be a revenue contributor as well as Missions. I guess what we look at more from the cadence is Q2 is going to be a lot of the reduction in the guidance is probably going to be taken out of the earlier part of the year primarily in Q2 maybe earlier Q3 and then as the Missions ramps up and the lab ramps up and then they go-live miles continue to ramp up we would expect to see the revenue contributions to go into Q3 and Q4 and set us up very nicely into 2020.

Yes, one more. And then you talked about customer attrition. How do you think about the possibility that maybe a customer win totally turn off you know a certain area like we have in this six neighbourhoods and crime has gone down significantly in this one so we don't need it there anymore maybe.

Yes, this is Ralph, again. I think in this particular case again just to emphasize these were separate non-contiguous coverage areas. So the decision to kind of cut them off because of a different characteristics at each of the coverage area is probably something that be considered in our own situation. We're typically talking about contiguous coverage area so it's really hard to kind of you know dissect and slice a total commentary. You basically would have to decide you know all or nothing. And again, historically we would recognize that most of our customers always pretty much decide to go all in. And that's why we don't have a lot of attrition as a company.

[Operator Instructions] We'll take our next question from Reed Motulsky with Imperial Capital. Please go ahead. Your line is open

Hi. How does ShotSpotter's new software integrate into not just police and law enforcement, but also into securing cities, peace apps and other civil safety solutions?

Well, this is Ralph. I'll try to answer that question. So we have a solution called notification engine and what notification engine does it takes our alert – our digital alert and through XML and a pushing technology, we can push that digital alert into other systems to basically adjust that digital alert. So think in terms of video management systems, CAD systems, computer aided dispatch, record management systems and the like, analysis systems. And we have a number of our customers that exploit that technology. And you're on a very important point because we find that were ShotSpotter integrated into other technologies and other processes it creates more value to the customer and also kind of creates more stickiness as a result of that. And so we're very thoughtful and intentional around trying to be able to support those integrations through [indiscernible].

Great. Thank you. And are you guys beginning to see regional differences and international differences between what law enforcement is looking for from the information ShotSpotter provides or is it just simply city by city?

I think it is city by city. But I would note that I mean we're beginning to see a little bit of, I guess tipping point viral impact in certain geographies where agency demonstrates and success with a ShotSpotter and that news carries over very quickly and gives confidence to another agency. So if you look at some regions like South Florida as an example or the New England area as an example, more recently I think, Ohio as a state in a region, we have a number of recent wins there , had some very interesting discussions going on with other cities in that region. As a result of the early positive experiences of cities like Cincinnati as an example. We saw a little bit of that at play in California. So what we're really about is really trying to plant flags particularly for this year because we knew that we weren't going to land a kind of Tier 0 city like Chicago. So it's really about hitting a lot of smaller cities and so getting them successful, and then the news spread to other cities that might have an interest in shots fired. So case and point for this quarter, two of our cities really quite interesting. And this is why we have so much confidence in our future. Greenville has a population of 68,000 citizens in it, that's incredible that really wouldn't even come up on our 1,400 TAM list. Pleasantville is even smaller than that, 21,000 residents in the city of Pleasantville, New Jersey. And this is the city that figured out that this was important enough for them that they self assessed their property tax of some sort to be able to pay for ShotSpotter. I mean this is incredibly encouraging and really says or suggests to me and hopefully others that the market is deeper and wider than maybe we thought. And so we're really excited about these because again once they've proved to be successful, we believe other agencies are going to want to weigh in on this solution as well.

Great. Thank you very much.

This concludes our question-and-answer session. If your question was not taken, you may contact ShotSpotter's Investor Relations team at ssti@gatewayir.com. I'd like to turn the call back over to Mr. Clark for his closing remarks.

Yes. Well thank you very much for dialling-in and for your questions. We're really quite excited about the remainder of 2019 or even more confident about 2020 and beyond. And looking forward to seeing you all out on the road as we participate in investor conferences and the like. And of course, in the meantime if you have any questions or feedback for us feel free to email, Al and myself, and we'll be happy to engage with you. So thank you very much again.

Thank you for joining us for today's call. You may now disconnect.