Good afternoon, and welcome to ShotSpotter's First Quarter 2022 Earnings Conference Call. My name is Tom, and I will be your operator for today's call. Joining us are ShotSpotter'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 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 by those statements. Certain of these risks and assumptions are discussed in ShotSpotter's SEC filings included in 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, May 10, 2022. And ShotSpotter 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 everybody that this call is being recorded and will be made available for playback via replay, a link available on the Investor Relations section of the company's website at ir.shotspotter.com. And now I would like to turn the conference over to ShotSpotter's CEO, Ralph Clark. Sir, please proceed.

Good afternoon, and thanks for joining us today. I hope everyone out there is doing well. As usual, I'll start with a quick overview of the quarter and our operational outlook before Alan details the quarterly results. We will then take your questions. After a strong 2021, we continue to build on our growing success with a fast and positive start to 2022. We reported record revenues of $21.2 million, up 41% from Q1 of 2021, and had a quarterly adjusted EBITDA of $4.5 million, up 35% year-over-year. Our adjusted EBITDA profitability once again demonstrates the unique operating leverage of our business model even at the sub-$100 million revenue run rate. We are pleased to go live in 4 new cities with ShotSpotter Respond, including Houston, Macon-Bibb County, Pasadena and Virginia Beach. We also expanded Respond coverage in Albuquerque, Syracuse and Louisville and went live with 2 new security customers, including a commercial manufacturing campus. We entered Q2 with a solid number of new city and expansion projects and the Respond ShotSpotter deployment pipeline that we expect to go live in Q2 and Q3 and are now targeting going live with at least 120 miles of domestic Respond in 2022. This will represent a 20% increase of go-live miles from 2021 and 144% increase of the miles that went live in 2020. We are seeing a strong and growing demand for our acoustic gunshot detection solution as agencies of all sizes across the country grapple with a measurable uptick in gun violence in their respective cities. Acoustic gunshot detection is a mission-critical technology that addresses the significant 80%-plus underreporting and lack of law enforcement response to criminal gunfire. Our unique, patented and proven gunshot detection solution bridges that public safety gap by precisely locating and alerting police of criminal gunfire…

Thank you, Ralph. We're very pleased with our performance in the first quarter. As Ralph mentioned, this quarter, we went live in 4 new Respond cities, expanded in 3 cities, added 2 new security customers and started a Respond pilot in Atlanta. Our only attrition was a 0.25-mile loss with an old customer. Financially, we achieved record revenue, record gross profit and record adjusted EBITDA. Let me provide more details in the quarter, and then I will share some thoughts around the balance of the year. First quarter revenues were ahead of expectations at $21.2 million, an impressive 41% increase over the $15 million in the first quarter of 2021. Revenue increased as our deployed miles are up year-over-year. We also recorded our first full quarter of revenue from Forensic Logic acquisition and revenue related to a contract delay from Leeds that we mentioned in our last earnings release. Gross profit for the first quarter of 2022 was $12.7 million or 60% of revenue versus $8.7 million or 58% of revenue for the prior year period. Gross margin may continue to be minorly impacted as we continue to replace 3G sensors through the end of the year. We also saw impressive growth in adjusted EBITDA for the first quarter, which is $4.5 million, a 35% increase from the $3.3 million in the first quarter of 2021. As a reminder, adjusted EBITDA, a non-GAAP financial measure, is calculated by taking our GAAP net income and adding back interest income, income taxes, depreciation, amortization, stock-based compensation expenses and acquisition-related expenses. Turning to our expenses. Our operating expenses for the second quarter were $12.2 million or 58% of revenues versus $8.5 million or 57% of revenues in the first quarter of 2021. Operating expense increases were primarily related to higher legal and employee-related…

Thank you, Alan. We're feeling confident about our long-term prospects as a precision policing platform provider. The law enforcement profession is at a critical juncture. Increasing demand for public safety without brute force policing while being manpower resource-challenged is driving the demand for precision policing solutions. We believe our growth opportunity is structural. Our solutions are both sticky and viral, as proven by our high retention rates and by our extremely low, less than $0.50 sales and marketing spend per dollar of new annualized contract revenue. When you put those factors together, we believe you get a compelling business franchise opportunity that has the additional benefit of engaging and making a difference while doing work that matters. We're now happy to take your questions.

[Operator Instructions] And our first question comes from Brian Ruttenbur with Imperial Capital.

Congratulations on the quarter and the guide.

You broke up a little bit there.

We can't hear the question.

We can't hear the question.

Sorry about that, Brian. Your line is now unmuted again.

Okay. Can you hear me now?

Yes.

Yes.

Okay. Great. So a couple of quick questions. In terms of guidance, you took the miles up from 100 to 120 but didn't change the revenue. Is that correct?

Yes, this is Alan. So that's correct. In terms of the revenue guidance right now, we feel really good about the miles going live. And as we have mentioned in the past, the revenue is somewhat obviously tied to when the miles actually go live. So you can expect that some of those miles are going to go live into Q3 and Q4, which will lower some of the revenue increase but significantly help us as we look at the ARR going into 2023.

Okay. So that leads me to the next question on 2023. It looks like you have a lot of momentum going into 2023. And because it's going to be back-end weighted, you should see a lot of -- it appears because of this, you should see a lot of growth in 2023 versus 2022. Is that correct?

Yes, that's correct. Although we're not formally giving guidance for '23, I think we're trying to set the pieces in place to have a terrific 2023 off of a pretty strong 2022.

Great. And then in terms of expenses, what you had in terms of sales and marketing, G&A in the first quarter, we should expect that level or somewhere around that level kind of going forward on a quarterly basis? Or was there anything onetime in nature that was in the first quarter?

Yes. This is Alan. You should look at those as general in terms of percentages. So for example, in Q1, our sales and marketing was about 24%. Q4 was 26%. So somewhere around there is about where sales and marketing would be. R&D has stayed pretty similar, the same, about 13%. G&A does have some additional costs related to that tied to legal that we are hoping will go down, so the actual G&A percentage should stay at 20% or less.

Okay. Did you break out legal in the quarter?

We did not break it out, but we can tell you that it was about $1 million in terms of legal expenses for the quarter, which is the highest we've had in the past.

Okay. And then final question on pipeline. Can you give us some kind of reference data point? It sounds like your pipeline is stronger than it's ever been with what's happening here. Can you give us some kind of reference how much you're up year-over-year or quarter-to-quarter or something as a data point?

Yes. So maybe I'll jump in, Alan, and then feel free to correct me or add on as appropriate. I think the one thing I would describe the pipeline as has been a lot more diverse than it's been. So it's certainly bigger and more robust, but it's also more diverse. We're less dependent, I would say, on domestic go-live miles. Although that's appearing to look very strong for us in 2022, we're going to expect to see more contribution of revenue coming from opportunities outside of domestic ShotSpotter Respond. So think Connect, think Investigate, think COPLINK, think about our work with Leeds and also think about international. We expect all those to be contributing to our revenues later this year and going -- certainly going into 2023.

The next question comes from Richard Baldry with ROTH Capital.

When we look at the OpEx side and the COGS side in the quarter, it steps up pretty strongly sequentially, but there was an acquisition in there. So curious if you can break into that and attribute a portion to the acquisition and so we can kind of see what you've spent to drive growth sort of organically as opposed to adding on from the M&A side?

Yes, this is Alan. And go ahead, Ralph, you can correct as well. From the actual acquisition, the OpEx is around $1.5 million. So that is a bit of a significant amount of the $12.2 million for the quarter. So as we just compare things, if you look at where we ended Q4 at around $10.6 million and you take out the $1.5 billion, it really hasn't been a significant increase in OpEx. It is something that we are working on to make sure that we're spending appropriately and spending in the right areas.

Okay. If you go back, say, only 2 years, your sales and marketing quarterly is about doubled now. Can you talk about how productive you feel that is, sort of what stage of maturities the additions you've been able to make, sort of building pipeline and getting to know the products? You've also expanded the products, how much people are able to cross-sell. When do you think that, that will really sort of gain its material traction?

Yes. Go ahead. Go ahead, Alan. Sorry.

Yes. I guess I would say the first thing is that the actual percentage of sales and marketing in the last 5 quarters stayed pretty close to 25%. So we are spending a lot more in terms of actual dollars, but as the revenue increases, that's because we have more products. Our sales and our marketing team has basically doubled over the last couple of years. So keeping it around the 24%, 25% is our goal, but that's because we already added a lot of capabilities there. I don't know. Other thoughts there, Ralph?

Yes, I think that's right. I think I would expect it to normalize off a little bit. I don't think it stays at 25%. I think as revenue grows, the rate of growth of expenses grows more slowly. So there's definitely nominal growth, but I would expect it to grow at a slower rate than top line revenue because I think we're at a fairly normalized place right now with the headcount that we've added both in marketing as well as sales to basically drive a much more robust solution set. I think if you go back 3 or 4 years, Rich, when you got to know us, we're basically acoustic gunshot detection domestically. Now we're much more global. We're including things like patrol management. We're including things like Investigate. We have this incredible Leeds opportunity that we've done really an amazing job with in terms of growing its top line. We've recently added, of course, Forensic Logic and the data services business, which has a lot of potential, much broader TAM that we're adding to our existing TAM. So of course, going along with that, it's going to require people to go out and sell those solutions. So we think we're in a pretty good place, and we've done the right thing in terms of how we've invested in our go-to-market resources.

Last for me would be if we look at -- the funding backdrop seems to be pretty good. Can you maybe talk about how many of the solutions fit into different buckets, whether that's infrastructure or earmark and whether you're starting to see prospects come into your pipeline that you might not otherwise see without those types of spending buckets being available?

Yes. So I think probably -- and Alan, jump in here as appropriate. But I think the best way to think about this is to think about our precision policing suite. So we start with acoustic gunshot detection. It produces some really interesting data. That data is also being used by our patrol management solution. When you add on the Forensic Logic piece, that is nothing but data. And really excited about that opportunity because, of course, certainly, precision policing requires data, and Forensic Logic has an amazing footprint and is quite synergistic with our ambitions of being a precision policing platform company. And then the Investigate product is also very data-oriented. And I think when you put all those things together, it's really around kind of how we think about automating and digitizing the front office, if you will, of a police department. I think police departments have made a lot of investments in the back-end infrastructure. You think about CAD and RMS. Those are very well-defined product a product spaces and places, I would say, whereas this kind of front office application area of how we're directing patrol, how we're helping detectives initiate and solve cases and the like and how we're getting officers to incidents of criminal gunfire, those are all very front-office-oriented. And there hasn't been a big investment there. And we see a huge greenfield opportunity for us to be a significant player in the kind of front office digitization process of policing or precision policing, if you will.

The next question comes from Matt Pfau with William Blair.

Nice results. I wanted to first ask on -- I think you said that there was a pilot launched in Atlanta in the quarter. Maybe just sort of expand on that. And I believe you got Houston through a pilot as well. Is that sort of a new strategy that you're starting to pursue with some of these Tier 1 cities?

I'd say on a very selected basis, yes. So there's certainly the Houston pilot that's been very successful. They ended up converting that to be a paid customer and then doubling the expansion in Houston. And then Atlanta, we have great hopes for Atlanta. We're still in the very early stages of our pilot in Atlanta. So I don't have anything to report on that. But we're hopeful that that's going to go a similar path as what we experienced in Houston.

Got it. And then, Ralph, I think you mentioned in your remarks something about the COPLINK X potential statewide contracts not included in the guidance. Maybe if you could just sort of expand on what those contracts would look like. And are there some of those in the pipeline currently?

Yes. So one of the interesting things about COPLINK is they sell to both our traditional local law enforcement buying center, which is kind of local police departments, but they've also been quite successful in selling these indexed and aggregated data plays at the state level into other law enforcement agencies that sit outside of our traditional local law enforcement, police department type of thing. I think point one, I would say, Tennessee is a pretty interesting case study where they've been able to sell the COPLINK solutions statewide in the state of Tennessee. That's a 7-figure deal to give you a sense of the scalability of these things. There are some other states that we're pursuing jointly outside of Tennessee that we're pretty excited about, although from a timing point of view, it's not exactly clear when those can happen. So that's why we're being a little bit cautious about not getting over our ski tips and including those in our guidance, but definitely in our pipeline and could contribute quite significantly to our 2023 results.

Got you. And last question for me, just in terms of the non-Respond potential contracts in the pipeline. Are those primarily cross-sells to your existing customer base? Or are you seeing the ability to perhaps target some non-Respond customers with those products as well? And I guess the states would kind of fit into that category that we just discussed.

Yes. I'd say it's a mix of the 2, both. I mean cross-selling to our existing installed base and then also leveraging the set of relationships that COPLINK has outside of our traditional ShotSpotter Respond installed base that's pretty interesting. but there's a lot of cross-sell, upsell opportunities for us.

[Operator Instructions] The next question comes from Will Power with Baird.

This is Charlie Erlikh on for Will. Ralph, I think you mentioned a couple of cities, the new Respond cities and the expansion in 3 cities. Would you mind just repeating which cities are the 4 new ones and which cities did you expand with in the quarter?

Sure. To repeat that, so the 4 new cities that we went live with domestically with ShotSpotter Respond in Q1 was Houston because that's when they became a paid customer effectively 1/1 of this year, Macon-Bibb County, Pasadena and then Virginia Beach. And then we had expansions in Albuquerque, Syracuse and Louisville, along with 2 new security customers. And one of those security customers was a really interesting commercial manufacturing campus. So a little bit outside of the traditional higher ed campus we typically have installed in with our security deployments.

Great. And then is there any way you could help us break out the revenue from Respond in the quarter, Connect, Investigate, Forensic just to get a little bit of a better picture of how much contribution each of those pieces had?

Yes. This is Alan. I would say the majority is still related to Respond. However, when we count some of the catch-up that we had related to the Leeds section, that ends up being about 20%, 25% of the revenue. We also had our first quarter of Forensic Logic. And the Forensic Logic was around $1.5 million as well.

Okay. That's very helpful. And then, Alan, I just wanted to talk about the increase from 100 miles to 120 miles expected in '22. Where did that increase come from in terms of -- is the delta the domestic Respond business, Tier 1s, Tier 3s, international? Any more color on that delta?

Yes. This is Alan. I'll start with this, and Ralph, go ahead and add as well. I think the biggest thing that we're seeing is there are some new opportunities that we know are in development right now that are helping us go from that 101 that we had last year to the 120. So those are expected to be under contract in the next several months. When they actually go live is where we will -- the revenue will actually be dependent on that. But we are also seeing some Tier 4, Tier 5, smaller cities. And sometimes those even come a little faster. That's generally like 1 to 2 miles. And we're seeing more of those as well. So it's a mix, actually.

I'd just add, those are all domestic, too, by the way. So that doesn't include international. That's a separate line item from our point of view. So the 120 is just for domestic miles.

Got you. That's helpful. And lastly for me on the international point. Any updated thoughts between now and 3 months ago and the increased confidence that you might get more miles than you previously thought you might? Or just any updated thoughts on international for 2022?

So this is Ralph, and Alan, jump in here. But I think we're feeling really good about international. I think we've talked earlier about us responding to a Cape Town issue tender. And although we haven't been officially awarded the tender, we have been in fairly constant, I would say, communications with the supply chain in Cape Town, discussing contractual coverage areas, pricing and the like. So we're feeling really good about that. And I think there's also opportunities beyond Cape Town, although they'll probably be in the second half of the year, outside of the U.S. and outside of South Africa. Think Central America, Caribbean and Latin America or South America. We think there's another opportunity in there for us in addition to the Cape Town opportunity.

At this time, this concludes our question-and-answer session. If your question was not taken, you may contact ShotSpotter's Investor Relations team by e-mailing ssti@gatewayir.com. I'll turn the call back over to Mr. Clark for any closing comments.

Thank you so much, and thanks, everyone, for joining the call today. Alan and I are both looking forward to seeing many of you in person, hopefully, over the next several months. Okay. Take care. Cheers. Bye-bye.

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