SoundThinking (SSTI) Q1 2026 Earnings Transcript

Image source: The Motley Fool.

DATE

Thursday, May 14, 2026 at 4:30 p.m. ET

CALL PARTICIPANTS

• Chief Executive Officer — Ralph Clark
• Chief Financial Officer — Alan Stewart

TAKEAWAYS

• Revenue -- $24.2 million, down from $28.3 million in the prior year quarter, due to $0.5 million lost without the Puerto Rico ShotSpotter contract and $3.5 million prior-year catch-up revenue attributed to NYPD contract renewals.
• Adjusted EBITDA -- Approximately negative $100,000, versus a positive $4.5 million in the prior year period; impacted by continued SafePointe investment and Q1 being the highest-cost quarter.
• Gross Profit -- $11.3 million, representing 47% of revenue, compared to $16.6 million and 59% gross margin in the previous year, with the decline attributed primarily to the absence of prior-year catch-up revenue.
• Operating Expenses -- $18.1 million, up slightly from $17.8 million the prior year, driven by higher employee-related costs and restructuring charges, partially offset by reduced sales and marketing spend.
• GAAP Net Loss -- $7 million, or $0.54 per share (basic and diluted), compared to a $1.5 million net loss or $0.12 per share previously; attributed to the absence of catch-up revenue, restructuring charges, and continued platform investment.
• Deferred Revenue -- $40.4 million, down from $43.9 million at year-end 2025, reflecting typical contract cycles and revenue recognition timing.
• Cash and Cash Equivalents -- $14.2 million at quarter end, with $36 million available under the line of credit and $4 million outstanding debt drawn on that revolver.
• Full Year 2026 Revenue Outlook -- Guidance reiterated at $109 million to $111 million, representing 5%-7% growth at the midpoint, with adjusted EBITDA margin expected at 16%-18%.
• Annual Recurring Revenue (ARR) Exit Rate -- Reaffirmed target of $110 million, cited as 15% growth for 2026.
• SafePointe Segment -- Generating over $8 million in annualized losses, but management expects breakeven by late 2027 or early 2028; segment revenue is projected to rise from $3.6 million to north of $6.5 million year over year.
• Q1 Seasonality -- Costs are heavily front-loaded in the first quarter (audit, legal, tax, proxy, and annual compliance costs), while revenues are expected to be back-end loaded due to deployment and contract timing.
• Cost Reductions -- Workforce and business optimization efforts, including a reduction of about 20 employees and lower operating expenses, are projected to yield $4 million in annual savings, with $2.5 million impacting the rest of 2026.
• Large Contracts and Pipeline -- Management highlighted recent SafePointe wins, including a $3.2 million, 3-year booking with a top 5 hospital group (~$1 million ARR), and an additional $1 million+ deal (~$300,000+ ARR) with a Northeast clinic.
• Integration and Retention -- Field deployments include ShotSpotter mileage live at 7 accounts, 50 new PlateRanger LPR cameras, and 85 SafePointe lanes activated in Q1; Cleveland’s renewal cited as evidence of "performance deciding deals."
• DFR Integration -- 16 cities now live with ShotSpotter-to-drone integrations that reportedly strengthen customer retention rather than drive immediate revenue expansion.
• AI Product Expansion -- SafetySmart Field Agent, an AI-powered analytics and reporting tool, entered beta with 12+ agencies, with public rollout planned for later in 2026 across all integrated data sources.
• International Expansion -- Deployments in Montevideo (Uruguay) and Niterói (Brazil) cited as proof points; pipeline growth is aided by the hiring of in-country sales executive Bruno Bolorino.

Need a quote from a Motley Fool analyst? Email pr@fool.com

RISKS

• Stewart said, "The guidance that we have given for the year has higher attrition than we have in the past, primarily related to budgets and no longer having ARPA funds that cities or states are even allowed to use," explicitly citing expected customer attrition as a negative factor.
• SafePointe operating losses remain substantial, with Stewart projecting "over $8 million" negative adjusted EBITDA for the segment in 2026, and breakeven not expected before late 2027 at the earliest.
• International revenue growth remains "a little slower right now for the first half of the year," per Stewart, implying potential softness in this segment despite pipeline expansion efforts.
• Net loss increased sharply year-on-year, from $1.5 million to $7 million, attributed to the absence of catch-up revenue, restructuring costs, and ongoing platform investment.

SUMMARY

SoundThinking (NASDAQ:SSTI) management reaffirmed both top-line and adjusted EBITDA guidance for 2026, projecting 5%-7% revenue growth and a 16%-18% adjusted EBITDA margin, supported by annualized cost reductions and anticipated second-half revenue acceleration. The recently signed SafePointe contracts, including a three-year, $3.2 million agreement with a major hospital system, underscored traction in the health care vertical and contributed to the targeted $4 million incremental ARR for SafePointe this year. Integration momentum was highlighted by active deployments of ShotSpotter-to-drone solutions in 16 cities and introduction of SafetySmart Field Agent, which broadens the AI footprint across the company's product suite. The revenue composition remains back-end loaded, with two major deals—CrimeTracer (~$2.5 million) and Puerto Rico ShotSpotter (~$2.7 million)—identified as key contributors to second-half revenue, pending completion.

• Management cited the Cleveland renewal as a competitive data point, with Clark stating that ShotSpotter's "97% in 2024 against a 90% contractual standard" and operational integration are driving wins over newer entrants.
• SafePointe remains a strategic focus despite current operating losses, with the team positioning recent contract wins as early indicators of adoption within the hospital and casino markets in light of regulatory tailwinds, notably California AB 2975.
• Clark said, "Performance decides these deals, not narrative and not pitch decks," framing operational execution as the primary market differentiator.
• Alan Stewart noted that over 90% of new revenue growth above the current run rate is expected to contribute directly to adjusted EBITDA, reinforcing expectations for profitability improvement as revenue scales in the latter part of the year.

INDUSTRY GLOSSARY

• DFR (Drone as First Responder): Integration of automated drone response systems with incident alerts to enable rapid situational awareness for law enforcement agencies.
• PlateRanger: SoundThinking's license plate recognition and vehicle identification solution.
• SafePointe: AI-driven physical weapons detection platform targeting hospital and casino entry security.
• ARR (Annual Recurring Revenue): The value of contractually committed subscription revenue expected to be recognized over the upcoming year, often used as a forward-looking indicator for SaaS-based business models.
• Field Agent: AI-powered user experience within the SafetySmart platform that enables natural-language queries and cross-product analytics for public safety agencies.

Full Conference Call Transcript

Ralph Clark: Good afternoon, and thank you for joining SoundThinking's Q1 2026 Earnings Call. I'll start by providing some high-level commentary on our financial results, share updates on our strategic investments and growth initiatives and frame how we're thinking about the year. Alan will then walk through the financials in greater detail, after which we'll be happy to take your questions. Let me start with the headline numbers. Q1 revenue was $24.2 million, essentially in line with consensus. Q1 adjusted EBITDA was approximately negative $100,000.

We are reaffirming our full year guidance of $109 million to $111 million in revenue, representing approximately 6% year-over-year growth at the midpoint and an adjusted EBITDA margin guidance of 16% to 18% and exiting ARR of $110 million, representing 15% growth in 2026. Let me give you some high-level commentary on the structural shape of our year because once it becomes clear, the math becomes fairly straightforward. Q1 is by design and by calendar, our most cost-heavy quarter and our lightest revenue quarter. Annual costs concentrate in Q1 such as audit fees, proxy and shareholder meeting costs, year-end legal and tax work. These items are largely absorbed in Q1 every year and do not repeat in subsequent quarters.

At the same time, our revenue is back-end loaded as deployments, renewals and expansions build throughout the year. Our business has substantial operating leverage as quarterly revenue scales above our cost run rate. Once we're past our cost base in any given quarter, we expect incremental revenue contributes disproportionately to adjusted EBITDA. Q1 sits below that point and Q2 through Q4 are above it. Combined with approximately $4 million of annual savings expected from the workforce optimization we executed effective April 1, we believe we have clear line of sight to our full year adjusted EBITDA guidance. Alan will walk through the detailed bridge in his section.

Let me share some updates on our strategic execution, which gives us confidence in the second half ramp and what reflects the deeper transformation underway in our business as we continue to evolve into a broader public safety technology company. In Q1, we took ShotSpotter mileage live across 7 customer accounts, added 50 PlateRanger cameras on our LPR platform and went live with 85 lanes of SafePointe. Customer health and retention remain a real strength of our business and the trust we've built over time continues to be reflected in our Net Promoter Score in the world-class category and our renewal performance, which is currently ahead of plan. I want to highlight one renewal in particular, Cleveland.

Over the last several months, there was significant public commentary in the trade press, in local city deliberations and even some investor conversations suggesting that we were at risk of losing Cleveland to a newer entrant in our category. The narrative was that the contract was slated to be a competitive loss. I'm pleased to share that the Cleveland renewal is in process and that Mayor Bibb and the city's public safety leadership have publicly touted the technology and specifically credited ShotSpotter's contribution in Cleveland's 80% homicide solve rate. I want to be direct about what Cleveland represents because it speaks to a broader competitive dynamic that I know is on investors' minds.

Anyone can promise gunshot detection in a pitch deck. The category has been around long enough that the marketing materials have started to converge. Same buzzwords, same accuracy claims, same talking points. But running an acoustic detection system that actually works across 1,000-plus square miles of dense, noisy urban environments with sub-meter precision and conditions ranging from fireworks to construction noise to weather with audio data that withstands real-world scrutiny, that's an entirely different proposition from describing it on a slide. And that is where the moat is.

25 years of ground truth physical data, accuracy performance that has been independently validated at 97% in 2024 against a 90% contractual standard and deployment tested integration depth that newer entrants are now only learning they need. When agencies move from the marketing to the operational reality, what they tend to find is that there is only really just us. Cleveland is a clear data point on that. Performance decides these deals, not narrative and not pitch decks. With respect to deep operational integration, our efforts complementing drone as first responders is another area where we're seeing meaningful traction, and it's a natural fit with ShotSpotter. We now have 16 cities live with ShotSpotter-to-drone integrations across Skydio and BRINC.

The cadence has accelerated. Las Vegas, Pittsburgh, Suffolk County, Monmouth County, West Palm Beach, Fresno, Tampa and Virginia Beach all came online within the last 2 months. In Albuquerque, a ShotSpotter trigger drone arrived on scene and observed a subject actively firing a weapon, relaying that to responding officers in real time. In a separate incident, the drone located a gunshot wound victim. That's the kind of operational outcome our customers are realizing today. The strategic point is that these aren't simple ShotSpotter-to-drone alert handoffs. They're integrations into the operational fabric of how an agency responds. Physical AI at work in the real world.

That's what creates durable value for our customers, and that's what's made the SafetySmart Platform increasingly difficult to replace. Last week, we launched SafetySmart Field Agent, an AI-powered user experience within our SafetySmart platform. It is now in beta with more than a dozen ShotSpotter agencies. Broader availability is targeted for later this summer. With SafetySmart Field Agent, a police chief, an investigator, a crime analyst or even a city council member can ask questions in plain English and get back what they need, an insight, a chart, a map or a briefing-ready summary. How much gunfire has occurred near our public schools this year? What are the emerging hotspots? Create a command staff briefing for this month's trends.

Until now, getting these types of answers required an analyst, a query language and a dashboard. Field agents puts that capability directly in the hands of any authorized user with a question. And let me say why this is a meaningful step forward for us. Field Agent works across all SafetySmart data sources, gunfire data from ShotSpotter, crime data from ResourceRouter, license plate reads from PlateRanger through one unified experience. That's something we believe only we can deliver because only we have this breadth of public safety data running on a single platform. It's our integrated SafetySmart platform showing up in a real day-to-day customer experience. And it's a tangible expression of the physical AI moat thesis that SoundThinking exemplifies.

AI value is only as good as the data foundation underneath it, and ours is genuinely broad, genuinely unique, represented by 25 years of ground truth acoustic detection data across 1,000-plus square miles of deployment that we believe no competitor can replicate. SafetySmart Field Agent is our second AI-driven user experience following CrimeTracer Gen 3, which we launched last fall and the next step in a broader rollout of AI capabilities across the SafetySmart Platform. We also continue to make innovation progress on our SoundThinking [ glass ] initiatives, including our sniper threat detection solution targeted at critical infrastructure. We have demonstrated early technical success in the perimeter protection use case that is relevant to the substation utility market.

We look forward to sharing more as we gain commercial traction. Internationally, we continue to see growing interest in acoustic gunshot detection as global markets mature in their approach to public safety infrastructure. Our deployments in Montevideo, Uruguay and Niterói, Brazil have served as compelling proof points for broader Latin American expansion. We're building pipeline in these and additional markets in the region, driven by our recently hired in-country sales executive, Bruno Bolorino. We view international as a multiyear expansion runway for the core platform, and we're investing deliberately to capture it. Our SafePointe pipeline and go-live momentum through Q1 has been particularly encouraging.

Monthly recurring revenue more than doubled from January to March of this year as Moffitt, Morgan State and other key go-lives came online, and we're entering Q2 at a meaningful higher run rate. In addition, earlier this week, we executed a 3-year $3.2 million booking, representing over $1 million of ARR from a top 5 major hospital chain for all of their hospitals in just one of the states and where they have operations. In addition, we anticipate closing a 15-lane 3-year $1 million-plus booking for $300,000 plus of ARR with a clinic in the Northeast.

These 2 transactions are important validation points of our health care security focus and a meaningful proof point for the SafePointe addressable market in the hospital vertical. The health care opportunity is substantial. As we've discussed on prior calls, California's AB 2975 will require weapon detection capabilities across more than 400 hospitals by March 2027, and that's just one mandate in one state. The broader health care market is moving in the same direction as systems prioritize patient and staff safety. Across the portfolio, what we're seeing is consistent. Customers are choosing platforms over point solutions.

Our SafetySmart platform, ShotSpotter, PlateRanger, CrimeTracer, ResourceRouter, CaseBuilder and SafePointe, now all augmented by Field Agent and our deep DFR integrations give agencies an integrated approach to public safety that we believe no point solution competitor can match. The trust that drives our world-class customer retention is what allows us to keep deepening that platform and the data foundation we've built over 25 years, and that's what makes our AI investments compound rather than commoditize. Before Alan walks through the financials, I want to add some strategic context on how we think about our capital allocation strategy.

At a high level, you would see that SoundThinking today is 2 very distinct businesses at very different stages of development in our broader transformation into a vertical physical AI company. Our core public safety platform, ShotSpotter, CrimeTracer, PlateRanger, ResourceRouter and CaseBuilder is a modestly growing but profitable business generating strong adjusted EBITDA and free cash flow beyond what we're showing today on a consolidated basis. SafePointe, on the other hand, is an early stage but rapidly growing business in which we are deliberately investing in today in order to capture what we believe is a category-defining opportunity in physical AI security. The blended adjusted EBITDA profile you see at the consolidated level reflects that deliberate capital allocation choice.

Alan will provide additional color on the magnitude and the path and time line for the SafePointe breakeven. So stepping back, revenue tracked at consensus, Q1 adjusted EBITDA reflects the structural shape of our year, our customer momentum across retention, SafePointe acceleration and our investments in innovation like our SafetySmart Field Agent and growing DFR integration reinforces our conviction. The underlying strength of our business remains intact and the differentiated platform we've built grounded in trust, performance and 25 years of physical AI data, we believe, positions us well for the rest of 2026 and beyond.

I'll now turn the call over to Alan to discuss our financial results for the first quarter and our outlook for the full year 2026 in greater detail. Then we'll be happy to take your questions. Okay, Alan, over to you.

Alan Stewart: Thank you, Ralph. Good afternoon, everyone. Revenues in the first quarter were $24.2 million compared to $28.3 million in the first quarter of 2025. As a reminder, first quarter of 2025 included approximately $0.5 million of revenue related to our Puerto Rico ShotSpotter contract where it has not yet been renewed as well as the nonrecurring impact of approximately $3.5 million in prior year catch-up revenues related to the 2 3-year renewals of our large contracts with NYPD. Gross profit was $11.3 million or 47% of revenue compared to $16.6 million or 59% of revenue in the prior year period.

The decrease in gross margin reflects the continued costs related to servicing existing and new customers without the benefit of the catch-up revenue recognized in the prior year quarter. Our adjusted EBITDA was approximately negative $100,000 compared to a positive $4.5 million in the first quarter of 2025. It's important to highlight that our first quarter adjusted EBITDA was impacted by costs associated with ongoing product development, most notably in SafePointe, which is currently generating over $8 million of annualized losses as we invest ahead of expected revenue. Absent these investments, adjusted EBITDA would have increased year-over-year in the first quarter, underscoring the continued improvements in our core business.

We are deliberately making these investments based on what we're seeing in customer demand, pipeline growth, contract size and long-term margin opportunity, and we expect this pressure to moderate as these programs mature and begin contributing more meaningfully to profitability. In fact, given the large SafePointe pipeline and expected growth, we expect that product group to achieve profitability at the end of 2027 or early in 2028. 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 related fixed asset disposals, stock-based compensation expenses and acquisition-related expenses, including adjustments to our contingent consideration obligations.

Our operating expenses were $18.1 million compared to $17.8 million in the first quarter of 2025. Operating expenses remained relatively consistent year-over-year, reflecting higher employee-related compensation costs and restructuring charges, partially offset by reduced sales and marketing spend. Breaking down our expenses, sales and marketing expense in the first quarter was $6.5 million or approximately 27% of total revenue compared to $7.3 million or 26% of total revenue in the prior year period. Our R&D expenses were $4.4 million or approximately 18% of total revenue compared to $4.1 million or 14% of total revenue in the prior year period, reflecting continued investment in product innovation, AI-driven capabilities and platform enhancements.

G&A expenses for the quarter were $6.7 million or approximately 28% of total revenue compared to $6.5 million or 23% of total revenue in the prior year period. We expect our G&A expenses to grow more slowly than revenue over time as we scale the business. Our GAAP net loss was approximately $7 million or $0.54 per basic and diluted share for the quarter based on 12.9 million basic and diluted weighted average shares outstanding. This compares to a GAAP net loss of $1.5 million or $0.12 per basic and diluted share based on 12.6 million basic and diluted weighted average shares outstanding in the prior year period.

The increased loss was driven primarily by the absence of prior year catch-up revenue, restructuring-related charges and continued investment in our platform. Deferred revenue as of March 31, 2026, was $40.4 million compared to $43.9 million at December 31, 2025, reflecting normal contract receivable variability and revenue recognition during the quarter. We ended the quarter with $14.2 million in cash and cash equivalents compared to $15.8 million at the end of 2025. Currently, we have approximately $36 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 guidance for the full year 2026.

We are reiterating our full year revenue guidance range of $109 million to $111 million, which represents approximately 5% to 7% year-over-year growth. We are also reiterating our full year 2026 adjusted EBITDA margin guidance range of 16% to 18%. We expect to achieve this adjusted EBITDA range through 3 primary things. First, Q1 is historically our most expensive OpEx quarter of the year, so we expect our quarterly OpEx costs to go down. In addition, our recent cost reductions should add an additional $2.5 million for the remainder of the year. And lastly, we believe that over 90% of new revenue growth beyond our Q1 revenue run rate will flow directly towards adjusted EBITDA.

Our guidance reflects the structural shape of the year that Ralph discussed earlier. As a reminder, revenue and profitability are back-end loaded as deployments, renewals and expansions build throughout the year. Our outlook reflects the investments we are making in SafePointe, AI-driven capabilities, platform innovation as well as the benefit of approximately $4 million in annualized cost savings from our workforce and business optimization actions that became effective at the start of the second quarter. As we move through the balance of 2026, we expect improved revenue scale and operating leverage to drive a materially stronger profitability profile in the second half of the year.

We are confident in our ability to execute against our full year framework and remain focused on disciplined cost management while continuing to invest in long-term growth opportunities. Overall, we're pleased with the progress we've 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: [Operator Instructions] The first question comes from Richard Baldry with ROTH Capital.

Richard Baldry: Could you talk about the visibility you have into the growth for the balance of the year, sort of how much is signed but needs to be deployed versus what's the go get that you'd have to sign and be able to deploy intra-year?

Ralph Clark: Do you want to take that, Alan? Or do you want to address it?

Alan Stewart: Sure. No, I can go ahead and start. I think at this point, although Q1 was a little slow in certain areas like our ShotSpotter sales, I would say that we are ahead of schedule in several other ones and certainly will be by the end of the first half of the year. You heard Ralph mention about the 2 new SafePointe contracts that got signed literally this week, one which was $3.2 million and another one, which is over $1 million, adding about $1.4 million per year. If you recall from our last call, we said we were going to add about $4 million in ARR for SafePointe alone.

When we're getting large contracts like that, that add 70 new lanes and literally both of those just signed this week, it's showing a lot of positive activity there. Ralph also mentioned the other things that we're adding like the 50 PlateRanger cameras that we've got as well as the other solutions that we're feeling quite positive about. Internationally, although things are a little slower right now for the first half of the year, we still -- are still expecting the top line revenue to be able to be hit based on what we're seeing in the pipelines right now. Ralph, you may have additional comments as well.

Ralph Clark: Yes. I think I would just add, and I agree with everything that Alan said. I think as we had commented earlier, we feel really good about hitting $50 million or so for the first half. We've acknowledged that our structure of our year is going to be more back-end loaded. So the way to think about at least the revenue coming on board is $50 million in the first half and then $60 million in the second half of the year.

And a big portion of that growth in the second half, as we talked about previously, are 2 very large deals that are multimillion dollar deals, one with a large statewide or semi-state-wide CrimeTracer deal of about $2.5 million. And then we're expecting the recapture of Puerto Rico, which can add another $2.7 million of ARR. And of course, how they convert to revenue is pretty much time sensitive. So we're looking to get those closed early in the second half of the year in order for it to contribute to the revenue escalation we expect for 2026.

Richard Baldry: And if you look at the 2 hospital deals, one is a $3 million deal, one is $1 million, let's call it. So there's a pretty big gap between those 2. How typical are either end of that? Or is that both ends of what an average deal should look like? How do we think about that versus the 400-hospital opportunity in California?

Ralph Clark: Yes. So yes, that's a good call out, Rich. So I would say we're so early in the process. I don't know that I'm ready to define what the cadence of deals look like. What I can say is the pipeline is growing very, very quickly. We're hyper focused on casinos and health care. We're building momentum in health care as we get more customers that are positive references for us. There's one state -- excuse me, the one larger deal, the $3 million-plus deal that we talked about is basically consolidating SafePointe across all the hospitals they have in one particular state. This particular hospital chain has presence in multiple states.

So that's just a big opportunity in and of itself. And that -- again, that's all prior to 2975. So I think our expectation is we're going to see a mix of deals from 10 lanes to 50-lane type of opportunities as we saw in this large case. And then we're going to see expansion start to play in this thing, too, as people standardize on our solutions after they have deployed in just a percent of their hospital. So we're really encouraged about SafePointe in the hospital and casino vertical.

Richard Baldry: One last for me. When you look at the $8 million sort of drag from SafePointe right now, how much of that is in the sales and marketing really sort of going demand driving side of the table versus ongoing product development or back office?

Alan Stewart: Yes, that's a great question. And if you think about it, the $8 million, by the way, is what we expect to have the negative adjusted EBITDA for '26. In '25, it was actually over $9 million. So we're already improving. But I would say, if you want to break it out between the different categories, out of that total loss, our revenue is going to go from somewhere around $3.6 million last year to north of $6.5 million this year. We do believe that the cost of goods sold, which does have a lot of personnel cost in it, is going to go from about $8 million last year to maybe about $9 million.

We don't need to add a lot more there as we're adding over $3 million in revenue. And the actual OpEx goes from about $7 million to close to $9 million. So as revenue goes up by $3 million and the other stuff only goes up by $2 million, that $9 million loss goes down to $8 million loss. So it really is a mix of different ones. Specifically your question about sales and marketing, we really only had 1 person in the sales and marketing group last year for SafePointe, we now have 4. And we think we're fully staffed to be able to hit those numbers.

And as the pipeline continues to build and we see large contracts like this, it's proving itself that what we're expecting can happen is actually happening.

Operator: The next question comes from Trevor Walsh with Citizens.

Trevor Walsh: Ralph, maybe I'll start with you on more platform product level questions. For the DFR commentary and the integrations you got with, I think, the 16 cities on that front, I see how that can definitely be making ShotSpotter sticky there. Can you walk us through or talk about how that's maybe creating actual like kind of additional, like not just keeping of revenue, but getting more revenue as those integrations and that particular use case comes about?

Ralph Clark: Yes, that's a fair call out. I think I'm not being an incredibly greedy person. I think the right way to think about our drone or DFR integrations is to think more about adding value to customers and being more embedded in their operational fabric about how they respond to the ShotSpotter alert. So the net result or net benefit to us beyond adding value to our customers and integrating with their operational fabric is really around retention and stickiness. And I think that has to be the focus for us for right now. We're not looking to add on additional revenues or whatever.

I think our focus is much more on how to add value around ShotSpotter to our customers in terms of how they respond to ShotSpotter alerts. So frankly, we'll probably be investing more. So like right now, I would describe our DFR integrations as kind of Level 1 DFR integrations where we're basically sending a digital alert that can be consumed by DFR, sending them to a lat/long opportunity. What would be really interesting is to make those integrations bidirectional.

So we would love to, in terms of Phase 2, be thinking about how we can get once the eyes are on target, getting that visual back incorporated into a ShotSpotter alert and have it all be combined into one data package, which then, frankly, could go to our CrimeTracer solution, right, and then combined with LPR, then goes to CaseBuilder for case management stuff. I mean, you see some really existing opportunities. So I think our focus is really about how to be more valuable to customers, and we'll get the proper benefit that we need to get in terms of retention. That's where the focus is, not in terms of revenue enhancement. Did that answer your question?

Trevor Walsh: Yes, absolutely. That's great color. I appreciate it. Maybe switching over to the Field Agent piece and kind of AI empowerment within the platform. Is that just being offered for free as core service? Or do customers have to own a certain set of products to kind of turn that on? How is that from just a kind of a deployment/kind of [ saleable ] item looking like?

Ralph Clark: Yes. Thanks for that question as well. So again, I think Phase 1, very similar to my response to the DFR integrations. We're looking just to roll that out to add value and stickiness. I think the more individuals that we can get interacting with the data, the more valuable it becomes frankly, we can have these briefing packages prepared for city councils. Again, it's really around adding value to customers and improving stickiness. I think going forward, we're going to continue to invest in this area. And I think the Field Agent can be something that goes across the platform, not just for ShotSpotter, but for kind of LPR with PlateRanger, also CrimeTracer, CaseBuilder, et cetera.

There's a lot of really interesting possibilities there. This is about a data game for us and capturing the data and building the physical AI moat that comes along with the data.

Trevor Walsh: Got it. Perfect. Maybe just one more -- one last one for me for you, Alan. Can you just help me understand, I guess, maybe first talk a little bit about the workforce optimization. Was that kind of broad-based across business functions as that took effect? And then I think you had called out in your remarks that there's $4 million in annual savings specific to that workforce optimization. But then when you were kind of rolling through your points around adjusted EBITDA, there was cost reductions of $2.5 million in savings for the year. So the -- I guess, for the balance of the year.

I don't know if that's the same as the workforce optimization or related but separate. So if you could maybe just again, give us a sense of what the workforce, like the kind of qualitative piece was and then the bridge in terms of how that's kind of going to affect EBITDA for the year, that would be terrific, if that makes sense.

Alan Stewart: Yes. Absolutely. Great question. Thank you for asking that. So we did -- it was about 20 people that were part of our reduction, but it wasn't just people. We had some other reductions we had in terms of things, some meetings that we were no longer going to have like the all-hands meeting, we definitely decided we didn't need that. We had some marketing changes. So in terms of the total $4 million, that is over a year. So it basically took effect April 1. So the first quarter of that, you would expect to be somewhere between $500,000 and maybe as high as $700,000.

So that $2.5 million that I mentioned in my script is probably $500,000 to $700,000 in the first or the second quarter of the year and then approximately $1 million in Q3 and approximately $1 million in Q4. That's how you get to the $2.5 million, might even be a little higher than that. The savings will continue, though, because it is 12 months of savings where we get the $4 million savings. So we will continue to have that. All of that's going to help us in terms of reducing our total cost and increasing our adjusted EBITDA.

But in order to get to the guidance that we talked about in terms of 17%, we're only counting $2.5 million of that towards the increase to be able to get to that -- to the guidance.

Operator: The next question comes from Michael Latimore with Northland Capital.

Mike Latimore: Just a couple of questions on, I guess, SafePointe to start. Nice wins there, it sounds like. Can you just talk about why you win -- you won those deals? And then within the hospitals, are they being used kind of at the front door in the emergency room? Or like how extensively are they being used?

Ralph Clark: So this is Ralph. I'll start and Alan jump in and add -- and complement. But I think the wins are for hospitals, the focus that a hospital has is how to provide some level of security without having a checkpoint and frustrating the free, I would say, kind of ingress, egress of individuals coming in and out of the hospital. We hear a lot when we talk to hospitals about the patient experience and the visitor experience being very important. They want a dignified experience and having people to be almost effectively criminalized by going through a checkpoint, yielding -- having to discard themselves of keys, laptops and the like is just a negative.

And frankly, it creates a security risk profile in terms of a soft target as people kind of aggregate around going one by one through a checkpoint. We address that very nicely with our very unique [indiscernible] setup where we're not having an active sensor solution, it's passive sensors. It's very discreet, not very noticeable, very wide lanes. So people can go in and out. And we're specifying a very low false positive rate.

So think in terms of kind of low single-digit false positive rate because you are going to have false positives in these kind of situations, which is considerably lower false positive rate than some of our competitors have and still having a very effective true positive rate in terms of capturing a number of weapons that are coming through. So the balance is there, and it's prioritized for us at least in a hospital environment, where we would not play very well, frankly, and we're rooting other folks on in this environment. If you go to an arena or go to a stadium, I think people are kind of conditioned to have more of a TSA experience.

And so our uniqueness doesn't play as effectively there. And so we're ceding those kind of opportunities to folks that have checkpoints. But we want to really own the hospital vertical and casino vertical that has the same type of requirements. Casinos don't want to slow people down from getting into casino and having a good time and perhaps losing a little bit of money. So that's where we're going to focus, and we think we have a competitive advantage in those particular environments. And I think with respect to the lanes that people are deploying in hospitals, it's across the board. It's visitor lanes, emergency lanes, some employee entrances are also being covered by our solution.

Mike Latimore: And is the -- you mentioned casinos and health care as key verticals, I guess, is health care the prominent one? And are you seeing a pickup in California given this legislation?

Alan Stewart: Yes. This is Alan. I'll go ahead and say we do have hospitals in California. We haven't really seen them specifically tied to the Assembly Bill 2975, which we've talked about for the last couple of quarters, which is requiring about 400 hospitals in California to have a weapon detection solution. We believe that some of the hospitals that we're doing right now are just getting ahead of that. In terms of actual casinos, we're seeing casino expansions as well. We've got casinos now expanding in Illinois, in Alabama. Those have been in the last couple of quarters. elsewhere as well. I mean even as you heard Ralph talk about Morgan State, which is a university.

So it isn't necessarily a focus area for us, but they basically came to us and they also deployed ShotSpotter as well. So we are seeing about half of our customers are in the hospitals, maybe a little north of 50% and then about half are in the casinos with a small percentage, the delta would be for other things.

Mike Latimore: Okay. And then in terms of the ARR growth for the year, it sounds like you're expecting roughly $3 million to come from SafePointe. Can you provide any detail on kind of the major other categories that would drive that $15 million?

Alan Stewart: Yes. This is Alan. We're expecting actually about $4 million in SafePointe, and we believe we'll be over $2 million by the end of the first half of the year or certainly close to that. So well on our way with the SafePointe. We did say that we're going to have about $7.3 million in ARR for ShotSpotter, of which $2.7 million of that is getting Puerto Rico back online. So out of that $7.3 million, $2.7 million is Puerto Rico, that leaves about $5.6 million left. That would include both domestic lanes and international lanes.

So if you think international's maybe $1 million of that, which would be really just 2 new products -- projects for us, which we believe we can get that leaves the domestic down to about $4.6 million. So you have to have somewhere around 60 to 70 new lanes domestically. That's less than we've done in past years, and we believe that -- and certainly hope that we can get there from that. The other products that we have are relatively smaller in terms of the ARR.

We do expect that the PlateRanger is going to be somewhere around -- maybe around $1.5 million in terms of new ARR, which will give us approximately $800,000 to $900,000 in actual GAAP revenue versus 0 from last year. So that's nice growth. And then the balance of the rest relatively small. I should say CrimeTracer, it adds about $3.2 million of that. So that's the delta. $2.5 million of that is the large new state that Ralph mentioned. So out of the $3.2 million, $2.5 million comes there, that only adds another $600,000 in other CrimeTracer new customers.

Operator: [Operator Instructions] The next question comes from Eric Martinuzzi with Lake Street.

Eric Martinuzzi: I wanted to follow up on the 2 significant contract delays, the Puerto Rico and the state CrimeTracer. Just the fact that they are such needle movers for you all in the second half of the year, curious to know where are they in the kind of renew approval process? Is this -- the ball is in their court and we're waiting for them to get back to us? Or is there a time line and they're hitting their time lines as far as internal approvals, and that's why we've got them teed up for the second half?

Ralph Clark: Yes. So this is Ralph. I'll start and then Alan jump in as appropriate. With respect to the CrimeTracer deal, I would say we're literally exchanging paper with the entities. And so that's really quite encouraging. In fact, I was really hoping we were going to be able to be more specific actually on this call. So I think our large CrimeTracer deal is probably no more than 30 to 45 days away from getting paper is my hope. We were actually as a team down in a particular state meeting with the governor's office around this. We got the contracting vehicle. I think we've pretty much agreed on all the language.

And as I said, we're literally swapping paper back and forth. Puerto Rico is still positively engaged. I would say that, that is as far along as CrimeTracer, although there's still very positive engagement down there. There have been some moves, I would say, organizationally and politically that are net positive for us, but that one is still -- there's still some work that needs to be done with respect to Puerto Rico.

Eric Martinuzzi: Okay. And then the other thing that you guys have over the past couple of years -- actually, I guess, since the Chicago nonrenewal, you had put in place procedures to get ahead of renewals, whether it's proactively reaching out even at the council member level to demonstrate the efficacy and the power of the ShotSpotter system. Any changes in how you're approaching that process and any significant renewals that we should be aware of here in the next 6 months?

Alan Stewart: Go ahead, Ralph.

Ralph Clark: No. Go ahead, Alan. sorry.

Alan Stewart: No, I was going to say that we are being very proactive about this. The guidance that we have given for the year has higher attrition than we have in the past, primarily related to budgets and no longer having ARPA funds that cities or states are even allowed to use. So we do expect attrition to be a little higher, which is causing us to spend more time and maybe going to our customers a little earlier than we would have in the past. So it is something that we are doing very aggressively.

I wouldn't say the process has changed too much other than we are trying to get some potential funding sources for them in some cases that we haven't necessarily done aggressively in the past, if the customer tells us in advance that they're having challenges. So I would say that would be the only thing that's really different in terms of how we're doing it. In terms of large renewals that we are expecting, we have Detroit, which is a large customer has over 30 miles. We've already submitted our proposal with an RFP that they put out. That should hopefully get awarded in the next couple of months. We do have another one in Suffolk County.

That is a very interesting customer for us because we were with them before and then they ultimately canceled their 7 miles that they had and then renewed and went above 20 miles. So that's one. It's a little later in the second half of this year, but something that we're focused on. Other than that, our larger customers like Albuquerque, fully supportive of us, have expanded by 4x. There aren't a lot of other ones other than Puerto Rico that are, I would say, are large enough to be concerning.

Operator: Thank you. At this time, I would like to turn the call back over to Mr. Ralph Clark for closing comments.

Ralph Clark: Great. Thank you, operator. So thank you all for joining us today, and thank you for your thoughtful questions. As you can tell, we're pretty excited about the trajectory of our business and feel as though we have very clear line of sight around our reaffirmed guidance. So we're looking forward to updating you on our progress in the next quarterly call. And of course, if you have any additional questions, feel free to reach out to Alan or myself, and we'd be happy to engage.

Operator: Thank you. This does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a great day.

This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. Parts of this article were created using Large Language Models (LLMs) based on The Motley Fool's insights and investing approach. It has been reviewed by our AI quality control systems. Since LLMs cannot (currently) own stocks, it has no positions in any of the stocks mentioned. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability.

The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.