Good afternoon, and welcome to SoundThinking's Third Quarter 2025 Earnings Conference Call. My name is John, and I will be your operator for today's call. Joining us are SoundThinking's CEO, Ralph A. Clark, and CFO, Alan R. 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, uncertainties, and assumptions are discussed in SoundThinking's SEC filings, including its most recent annual report on Form 10-Ks and other SEC filings. These forward-looking statements reflect management's beliefs, estimates, and predictions as of the date of this live broadcast, 11/12/2025, and SoundThinking undertakes no obligation to revise or update any forward-looking statements to reflect events or circumstances after the date of this call. In addition, our comments on the call today contain references to non-GAAP financial measures such as adjusted EBITDA and key business metrics such as annual recurring revenue. Non-GAAP measures should be viewed in addition to and not as an alternative for the company's reported GAAP results. A reconciliation of these non-GAAP measures to their most directly comparable GAAP measures, as well as of the key business metrics referenced in management's reasons for including the non-GAAP measures and key business metrics, may be found in the press release. And 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. And with that, I will now turn the call over to Ralph. Thank you, Ralph, and you may begin.

Good afternoon and thank you for joining SoundThinking's Q3 2025 Earnings Call. I will start by providing some high-level commentary on our financial results and then share exciting updates about our strategic investment and growth initiatives. Our key highlights for this quarter include expanded deployments of our core ShotSpotter technology, accelerating adoption of our AI-powered investigative tools, and growing traction in the healthcare security market following California's AB 2,975 weapons detection mandate. We've also seen meaningful progress in our international expansion efforts with our Uruguay deployment serving as a compelling proof point for broader Latin American market opportunities. Our third-quarter revenues were lower than we had expected at $25.1 million due to the absence of our ShotSpotter renewal in Puerto Rico and the delay of a statewide Crime Tracer booking we had targeted to close early in the quarter. During the third quarter, we took ShotSpotter Live in two new cities, one university, along with two expansions of existing customers. And while our pipeline continues to expand, reflecting healthy demand across both existing and new markets, we are not where we need to be in terms of sales execution. Converting that demand into bookings remains a top priority. We've already begun realigning our sales organization, refreshing our go-to-market playbook, and tightening accountability around forecasting and conversion metrics. To ensure sales leadership continuity, we've asked our former Senior Vice President of Sales to step back in on an interim basis as we launch a national search for a permanent leader. These tests are delivered as necessary and they're designed to translate a strong pipeline into sustained predictable growth. Early indicators give us confidence that changes are taking hold. We're seeing stronger pipeline hygiene, better deal qualification, and clear visibility into near-term opportunities across ShotSpotter, SafePoint, and Crime Tracer. Just as importantly,…

Thank you, Ralph, and good afternoon, everyone. As Ralph mentioned, our third quarter 2025 results are behind our expectations due to delays in several large contracts that we had hoped to have completed prior to the end of the quarter. That said, our cash generation, positive adjusted EBITDA, and continued growth in all of our products reflect our ongoing strategic initiatives, operational efficiency measures, and our commitment to delivering value to our shareholders. Revenues were $25.1 million, representing a 4% decrease from the $26.3 million in 2024. It is worth noting that our 2024 third-quarter revenue included approximately $2.8 million related to the City of Chicago. Gross profit was $13 million or 54% of revenue compared to $15.2 million or 58% of revenue for the prior year period. Our adjusted EBITDA was $3.5 million compared to $4.5 million in 2024. 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 or expense, income taxes, depreciation, amortization and impairment, restructuring costs and losses including unrelated fixed asset disposals, stock-based compensation expenses, and adjustments to our continued consideration obligations. Our operating expenses were $15.7 million or 63% of revenues, down from the $16.3 million or 62% of revenues in 2024. Our operating expense for the third quarter declined both from 2024 and was also lower than 2025 even as we invest in AI modeling and tools to enhance the capabilities of our platform product solutions. As a reminder, we expect operating expenses will continue to grow less than the revenue growth rate even with our additional costs. Breaking down our expenses, sales and marketing expenses in the third quarter were reduced to $5.8 million or 23% of total revenue compared to $7.2 million or 27% of total revenue…

Thank you. One moment please while we poll for questions. And the first question comes from the line of Richard Baldry with ROTH Capital Partners. Please proceed with your question.

Thanks. Just looking from a high level, if your 2026 revenue guidance is about $2 million above what had been your guidance for '25, I'm sort of perplexed that the margin guidance is lower than what you would have expected in 2025. You're about two points below. So can you talk about sort of what the changes are there? Is it revenue mix, gross margin mix, and something else?

Yeah. So this is Alan, and it's a great question, Rich. I think at this point when we look at the revenue guidance, there's a couple of things that are not in there at all. One is Chicago. The other one is that the $2.5 million in Brazil CapEx. If either of those come in, then not only revenue would go up, but the EBITDA on a percentage basis would go up as well. I think we're just trying to be more perhaps conservative in terms of where we expect that adjusted EBITDA to be.

Okay. And the implied revenue guidance for the fourth quarter would be sort of down from where you were in the third quarter. With sort of the delays that you had, I would have thought some of that would have come in and you'd see a pretty good sequential bump. So is something else missing from the December causing that?

Yes, this is Alan again. And I think at this point, we expect it to be relatively flat. And if it is flat, then we would exceed the $104 million. The reason again, because we did not expect some of these delays in Q3, I think we're trying to be appropriate in the fact that we're still working on some of these delays. And although we know they're going to come in, we just don't know the timing. Particularly the large Crime Tracer deal of $2.5 million in Puerto Rico, although making progress on both of those, the timing is a bit unknown at this point. So we'd rather make sure that we can set a number that we can meet for sure.

I guess, can you then maybe talk about tying together the inability to close of what you thought was on the time frames and your desire now to change your leadership in the sales side? Do you think there's some new methods, things you can put into improve that process? Do you think you have to wait until someone permanently new is in there? Or do you think that under the interim leadership, you can sort of scrub that better?

Yes. So this is Ralph. I think we're pretty encouraged by the recent changes that we're seeing. And let me just state that to our sales execution or pull-through conversion of a very strong pipeline, it was that we made some changes organizationally. We changed the playbook and frankly, we kind of took our eye off the ball on, I'll call it, the point execution with respect to ShotSpotter. Asking our sales organization to be much more consultative and trying to sell the full product suite to customers. And where we saw the uplift in our solutions beyond ShotSpotter, we're frankly going into brand new buying centers. So we're trying to be super intentional and kind of going back to our original playbook. Being a little bit less perhaps, and it pitched the entire product suite when there might just be an interest in ShotSpotter for an example. And changing the organization as well. So earlier this year, we're asking we had more salespeople carrying more things in their bag. They had to get trained up on it. And it just didn't work out very well. So now we're kind of going back to say, okay, fewer things in the bag, focusing on those opportunities and let those opportunities kind of pull through as they naturally should and being a lot more intentional I'll call it, kind of sales force hygiene and forecasting. So we're still early on the process. We're encouraged about some of the recent changes that we're going to be working on this through the remainder of the year and early next year. And at the same time, look at bringing on a new permanent Senior VP of Sales. We're incredibly grateful for Gary to come back in to this role and help right the ship, so that we can finish out the year on a pretty decent basis. And switch gears away from sort of the government-centric stuff to the SafePoint more commercial area. Can you talk about the magnitude of pipeline there? Maybe broadly speaking, how much that could move the dial on growth rates or revenues in 2026 or forward? Just sort of get a gauge for how much that can offset sort of some of the challenges on the other side?

I'll try to say this and hopefully I won't sound too giddy, but we're incredibly excited about the opportunity in Point, particularly around the hospital vertical. It just has extraordinarily strong product market fit. And you'll notice over the past couple of quarters, we've announced some fairly substantial deals with SafePoint that were in the kind of $400,000 to $500,000 plus types of bookings. And we're seeing a lot of those opportunities kind of line up for us. So although I won't give you a specific number, I will say that we're incredibly constructive around the growing pipeline, our ability to execute to that growing pipeline. We don't have a sales motion problem in SafePoint at all. I think that's a business that's going to be fairly substantial for us over the medium to long term. And again, we're even seeing traction outside of California AB 2,975. So when that thing begins to kick in, that's going to be a real, we believe significant tailwind for that business.

And the next question comes from the line of Mike Latimore with Northland Capital Markets. Please proceed with your question.

Hi, this is Vijay Devar for Michael Ademore. Couple of questions. One, how many end enterprise security deals are in the pipeline for the gunshot detection technology?

We'll have to circle back. This is Ralph. We'll circle back to you. That's a really good question. I don't have the number off the top of my head, but it's a fairly good strong list of I would say new customer opportunities for gunshot detection. You're saying gunshot detection, I presume. I heard gunshot detection as opposed to weapons detection. But we have a strong pipeline of new customers as well as some expansions that are on the books that we're having some good conversations around and not to be discounted is the unlock we expect to see internationally where we have a fairly strong, I would say pricing leverage internationally. And we're seeing some early successes in Uruguay as we spoke about earlier. Along with our more recent deployment in Nidoroy, Brazil. And I think the Brazilian opportunity specifically is something we're incredibly excited about.

Okay. Sure. Sure on this. First thing, so I can back on this question. No. What percent of the pipeline is that, I mean? Okay. And we can discuss that in later. But how are the sales cycle for sales point change now versus a couple of quarters ago?

Yes. So the thing that we see around this is Ralph again, that we see around the sales cadence with SafePoint versus traditional ShotSpotter. Those deals appear to be happening on a much faster cycle time. I think the sales cycle time we can think about with respect to SafePoint is more in the kind of twelve-month category. Whereas ShotSpotter is kind of twelve to eighteen months. And the reasons for that are pretty logical when you step back and think about it. When you're dealing with SafePoint, you're typically dealing with commercial enterprises. In our particular case, hospitals and casinos is a great example. So they operate in a very different fashion. When you're talking about ShotSpotter, the sales process becomes a lot more complicated because you have buying centers, are the police departments, You have decision makers that need to weigh in that represent elected officials elected officials aren't necessarily driven by ROI stuff. They're driven by sometimes optics and politics a little bit as we know. From our experience. Funding sources come in from different places. So we're in a position where we basically have to weave all those things together without alienating anybody in the process and going through city council meetings where communities can appropriately weigh in and the like. So that's just a much more complicated process. But I will say, and it's important to note offsetting that that longer sales cycle is the stickiness that we have been able to appreciate and take advantage of over on that acoustic gunshot detection side. Those customers tend to stay with us a very long time, think in terms of decades.

Thank you. I appreciate that color.

And the next question comes from the line of Trevor Walsh with Citizens. Please proceed with your question.

Great, thanks. Hey Ralph and Alan, thanks for taking the questions. Maybe Ralph, just to kind of dig in a little bit more some of the comments that you made around the go-to-market changes. It just seems a little bit reactionary to the three deals specifically that you mentioned as affecting kind of where the results came in on the top line for the quarter and in the guide, which have the each of those have their own intricacies and kind of special, I guess, cases. So are you seeing something else I guess, in terms of execution more broadly that's leading to these changes? It just seems like these deals, again, are a little bit more specific and wouldn't necessarily need to have a complete reworking of the sales team for you're just that are having nuances around delay. So can you maybe just what's kind of more going on there?

No, I appreciate you asking that question, Trevor, because maybe I wasn't clear about that. The sales conversion challenge I'm talking about are additive to the three deals that Alan spoke about. Those are it's kind of apples and oranges. So yes, even with those sales deals that Alan spoke about, we still have to recognize or acknowledge that we have some sales that to the three deals. execution challenges that we're addressing. So that was something on the edge. So additive So not a part of the three deals. So sales execution bit doesn't have anything to do with our large CapEx deal in Brazil. It doesn't have anything really to do with our Crime Tracer deal in the kind of quasi state thing that we were that we're talking about. And of course, the Puerto Rico renewal is a Puerto Rico renewal that has nothing to do with the way we're kind of organized from a sales point of view. Or what our playbook is. I think when you step back and look at the thing that the bit that I was talking about, it's really around we would expect it have been I personally expect it to be much further along, I would say, on the shop Spotter domestic side outside of those three deals. So I think we had spoke earlier about trying to get to like 100 square miles going live. We're going to be less than that this year. And that has a revenue impact. Got it. Okay. Does that answer your question?

Yes, absolutely. That's super helpful. You. Yeah. Okay. So maybe just, another follow-up, different topic. When you on the commentary in your prepared remarks, for, integration with DFR initiatives, Can you just maybe give us a flavor, you might not have hard stats, but just what how much of that is current ShotSpotter customers, and then versus maybe influencing the pipeline of those new customers that you spoke about with DFR that they're, you know, working on in tandem and, like, how much is that, I guess, influencing more of that new customer pipeline as far as customer wanting to integrate with their DFR initiatives kind of at the same time? If that makes sense. Yes, that's a great question. I'll do my best to answer it.

Let me first say that we have a history of integrating with systems outside of SHOT Spotter. So the DFR happens to be the sexy thing today. But for years, we've been integrating with real-time crime centers. We've been integrating with LPR. We've been integrating with fixed cameras as well. ShotSpotter alert goes off to be able to pan, tilt and zoom a camera. To that specific location. Has been a game changer. And it's really a one plus one equals three. Frankly, a DFR is just a new version of that. So in instead of sending an alert to a fixed camera, we're now essentially sending it to a mobile camera And we're taking a, I'll call it an open standard approach here We'll integrate with anybody that the customer has as a part of their DFR We'll send them a digital alert and allow them to direct that DFR response to that specific lat long The incident I spoke about earlier, and we have experienced with all the major drone platforms today. The one in Pueblo, California, I think was a brink a DFR platform. You went to ICP, you would have seen a bird stop in our booth and we work with others as well. So we're completely agnostic because I think it's all about making the customer win. And helping them be more effective.

Great. Terrific. Appreciate the color there. And then maybe just one final one for you, Alan. It Can you just explain or is there any additive comments around kind of why the gross margins broadly just slipped a little bit in the quarter? I'm wondering if it's specifically related to the three deals that were expected or if there was something else kind of at work? Thanks.

That's a great question. I think the gross margins did go down related to the deals. That is basically the primary reason. But I would also well, if you take a look, although the gross margin went down, the cost of goods sold also went down because we are controlling our costs appropriately. It went down from $12.1 million Q2 down to $11.5 million in Q3. So if we see things reduce a little bit in revenue, we are doing everything we can to adjust the costs related to that. So you not only saw that in cost of goods sold going down, but the same thing in the total operating expense going down from $16.7 million in Q2 down to $15.7 million in Q3. So we're being very intentional when we see things get a little bit delayed and what we can do from an operating or other cost basis to improve the ultimate bottom line.

Okay, great. I'll hop back in the queue. Thanks all for taking the questions.

And the next question comes from the line of Max Michaelis with Lake Street Capital Markets. Please proceed with your question.

Hey guys, thanks for taking my questions. First one for me just around 2025 and 2026 guides. I know you have previously given sort of an ARR outlook. I was wondering if that $110 million what that stands at now for the projected end of 2025 ARR? Was also wondering if you could provide any color around 2026 ARR expectations?

Yes. So this is Alan. We generally give the ARR guidance in our Q4 earnings report, that will be in February. So we intend to do the same thing again coming into 2026. And if you think about it, one of the main reasons for that is just two of the large projects that we're talking about $2.5 million for Crime Chaser and the Rico to be $2.8 million that moves that a lot. So we need to make sure that we get an accurate number and we'll know more of that by the time we do our Q4 earnings report.

Okay. And then I was just wondering if you could just help clear up some confusion I have around the Crime Tracer and the delays around that. I'm pretty sure in a few questions ago, you said didn't really have anything to do with the go-to-market strategy and some of the reworking that you've done with the sales team. But can you kind of help me understand sort of the pain points around that deal and the main cause of that delay?

Yes. So this is Ralph. I'll answer it and Alan jump in and add in correct as appropriate. But this is a quasi state level deal. We have some experiences with this with respect to Crime Tracer. These are very, very large transactions. Not at the local agency level, but more at the state level. So when we first acquired the company, we closed Tennessee, that was a 7-figure deal. Then I think eighteen months later, we closed a very large transaction with the state of Massachusetts. Recently, we closed a deal with Utah. There's another state that we're not naming right now, but it's not the entire state. It's a number of agencies within this very large state. That we're looking to close a deal. And it's essentially like herding a lot of cats into the process here because you have kind of one funder basically and kind of one buyer, but there's an 's number of agencies that are participating around this particular acquisition. And I think I'll just say we were recently spending some time kind of walking the halls of the state capital here meeting with a number of Senator and representatives within this particular state. To reaffirm their support for the solution. The funding is there. So that's incredibly positive. We just have to kind of work through the, I'll call it the bureaucracy of getting a deal done because this isn't a muscle that gets used a lot in terms of having more than 10 agencies all work together and collaborate together and agree on the same terms and conditions. To get a deal done. So just this has taken a long time. And so that's where that is. I don't know, Alan, do you add any additional color?

Yes, Alan. The only thing I would add is this is something that they want very much and have wanted. We thought actually we were going to close this around Q2. This particular state had some other costs that came in that had them take a look at some of their priorities. We're still a very, very high priority to get this contract done when I say very high, I'm liking the top two priorities for this entire state that they're dealing with these types of things. So we expect it to happen just it's just being a little delayed.

All right. Thanks guys.

And the next question comes from the line of Jeremy Hamblin with Craig Hallum Capital. Please proceed with your question.

Thanks for taking the questions. So sorry to harp on this, but I want to come back to the guidance change. And it looks like about an $8 million change in revs, but also about an $8 million change in EBITDA. And understand the three key contracts that didn't come through from a timing perspective, but even if we're thinking about a kind of 70% flow through, I wanted to just understand what else creates kind of that spec function gap to the roughly $8 million reduction in EBITDA. Is that just R&D costs are a bit higher or color that you might be able to share on that?

Yeah, thanks Jeremy. This is Alan answering the question. I think part of it is if you look at the actual profitability that we thought we're going to get with those, Puerto Rico is already deployed. Right? So the actual cost turn that back on almost 100% of that revenue goes the bottom line. The Crime Tracer deal is the actual gross margins that we produce with that when we go live in a large deal like this are significantly high. And then the CapEx deal was something that this is like $2.5 million which otherwise would have been a five-year $500,000 services deal. And you know our gross margins internationally are significantly higher and we would have gotten most of that money to the bottom line because we would have been actually selling them some of the sensors. So the revenue itself comes with a very very high adjusted EBITDA that we would have expected to cover the bottom.

Okay, got it. Wanted to touch on Puerto Rico a bit more. As you noted, kind of prior customer kind of in a halted period, and just in terms of you have the infrastructure deployed I know this you know, the process of getting it extended has dragged on here. But in terms of how you would expect that let's just assume that you get that back turned on in 2026, would there be a catch-up payment that would occur and let's just say it doesn't happen in Q4, but it does in Q1, would you receive kind of back revenues for the second half of 2025 that we're missing or how do you expect us or how do you think that that's going to get treated as you go through this process?

This is Alan and I'll answer then Ralph can add it correct. At this point and what we have historically seen with Puerto Rico is they do not backdate to the an earlier date based on when we get the actual contract signed. So we really cannot expect. But I would say the second point here is the cost to them is going to be going up. So basically, because some of these things are costing us some time and money as well. It is likely that they're going to have to pay a little bit more to get the same solution. Yes. Alan, if I could just add something. What makes Puerto Rico a little bit different than other customers is other customers might be delayed in getting a renewal that they intend on doing. We know they're going to do it. They have a history of doing it. So we won't turn the system off for them. We've turned the system off from Puerto Rico. So they're not getting any alerts right now. And that's another reason why they would not be backdating excuse me, we would not have any catch-up revenues in this situation because they're not receiving the service. As of the end of Q2.

That's helpful color. And then just switching gears, I want to come back to Chicago, exciting potential there. And know this has been really elongated process with twists and turns. In terms of the engagement that you have, is presumably a potential decision is getting made I assume that you're not actively engaged with the mayor's office, given that kind of status, but do you have a sense for where you think there might be a resolution on whether or not this moves forward? I mean, are you thinking by next spring that you'll have an answer and if we don't have an answer by then it's not happening?

Yes, so I think something is definitely happening and I think we were quite encouraged to see that during the budget discussions, there was specific commentary, Q and A going back and forth that determined a couple of things. One, we determined that there is a line item in the budget, in the Mayor's budget for acoustic gunshot detection technology. So that's encouraging, I think. There's also a lot of discussion about the need for this type of first responder or acoustic gunshot detection technology to be lit up as quickly as possible. And during the course of two days of discussions, it was acknowledged by an executive within the mayor's organization that they have fairly much completed the work on determining their recommendation for the vendor. And now that has to go through the of going through the Chief Procurement Officers and then being presented to the Mayor where the Mayor excuse me, not the Mayor specifically, but the Mayor's Office signs off on it and it moves forward. And they suggested a couple of different testimonies that we're coming close to the conclusion. And then lastly, the most important thing for me or anybody really around wanting to be involved with Chicago and helping them create safer spaces for the communities in Chicago. It was really nice to see Snelling reaffirmed publicly when asked to question directly about his feelings about was asking about ShotSpotter, but his answer was he is in very strong favor of any tools and or technology that can help them do a better job responding to gun violence. So he's not backing away. From that. So all those things are pretty encouraging. And now we wait.

Great. Last one for me. Just in terms of the platform growing, having a lot more services that you're offering between CrimeTracer and the base SSTI, ALPR capability etcetera. In terms of thinking about your R&D spend, right, which has ticked up this year and wanted to get a sense for is that something where as these services have more AI tools, you're likely having to hire some more engineers to support that. Should we expect similar growth next year in terms of what your R&D budget looks like?

Yes, this is Alan. I'll answer then Ralph can correct. I think at this point, and we've been talking about this for a year, we went into the year fully expecting to spend a significant amount more in all the AI initiatives, which goes into the R&D aspect. Specifically, can also know about how we just released the CrimeTracer Gen 3. That is a very great upgrade for us in that particular product. That required some of our AI and other R&D personnel. And also what we are doing in terms of SafePoint literally month by month the product improvement is occurring and that's because we're investing in the improvements not just the algorithms and software side of things, but other aspects of the actual SafePoint product as well. But those require personnel either in the AI for the algorithms or in the R&D for the complete product development.

Yeah. No. I was just and you should just add like the AWS spend with running the algorithms on some of these specialized processors and the opportunity we have to maybe in source that on-prem and be able to save some money. And still be able to do the work that we're doing with AI.

Yes, that's a great addition. I mean at this point, we are spending more on personnel, but also our costs related to that are in the millions at this point. And we do believe that we can do some of that internally and save some money. Your other question, was, do we expect to continue to have R&D go up year over year. It may go up a bit, but we think it's going to go up far lower than the actual revenue that it's producing.

Great. Thanks for the color. Appreciate the detail.

There are no further questions at this time. And I would like to turn the floor back over to Ralph Clark for any closing comments.

Great. Hey, thanks a lot, John. I want to thank everyone for joining us today. Your engagement and thoughtful questions really do demonstrate the strong interest you have in our strategic vision and the market opportunities we're pursuing. And I also want to take a moment to thank my leadership colleagues and work employees colleagues for their strong dedication and hard work. And certainly none of this would be possible or meaningful if it wasn't for the work that we're doing with customers and our community partners. And we do value their continued trust and collaboration. We're going to continue to remain committed to making communities safer through technology, transparency, and innovation that address real-world public safety challenges. And we're going to focus on executing our strategic vision and delivering shareholder value. And thank you all very much and looking forward to some of the one-on-one discussions we're going to have here in a bit. Have a good evening, everyone.

And thank you, ladies and gentlemen. That does conclude today's teleconference. We thank you for your participation. You may disconnect your lines at this time.