SoundThinking, Inc. Common Stock 2026 Q2 Earnings Call

Good afternoon, and thank you for joining us. I want to start today's call in an unusual place by going back to last quarter's call. In Q1, we discussed several strategic initiatives that we believed would shape our year. I want to review those strategic initiatives and share where we delivered and where we fell short, and more importantly, what we're doing on a go-forward basis. Let's start on where we delivered. I told you our year had structural shape and that Q1 sat below our operating leverage line and that Q2 through Q4 would sit above it, with incremental revenue converting to adjusted EBITDA. Despite sequential flattish revenue growth, we crossed that line in Q2. Adjusted EBITDA moved from roughly negative $100,000 in the first quarter to a positive $1.2 million in the second quarter.

We've been aggressively applying AI across our own operations, and that is a meaningful part of why we believe the workforce and business optimization initiatives we actioned this year, from which we expect approximately $4 million of annualized savings, is structural rather than a one-time cut. This was not a headcount reduction dressed up as strategy. We believe it is a lower, more scalable cost base that lets us intentionally reduce our expense burn going forward while protecting the investments that drive growth. Our cost discipline can cushion the profitability impact of a lighter top line. We believe it is a durable advantage, not a one-quarter maneuver. Revenue retention continues to be a business model differentiator for us as we drive revenue renewals to protect the revenue growth gains. We closed more than $23 million in total contract value across several multi-year renewals.

A five-year ShotSpotter renewal with Albuquerque, covering approximately 42 square miles, three-year ShotSpotter renewals with Worcester, Massachusetts, Richland County, South Carolina, Macon-Bibb, Georgia, Peoria, Illinois, and a two-year CrimeTracer renewal with the Massachusetts State Police. Additionally, we saw a key ShotSpotter renewal in Fayetteville, North Carolina, funded through 2029 as a part of the city's $324 million fiscal 2027 budget. Further, we also secured a modest term but critically important nine-month extension of our 38-square-mile Detroit deployment to bridge them to and through their RFP process, which is expected to conclude early 2027. The number and quality of these multi-year renewals speaks to the stickiness of our solutions and the high confidence and satisfaction our customers have in our capabilities. We also saw two key ShotSpotter win-backs recently with Erie, Pennsylvania and Cambridge, Massachusetts. Erie's deployment lapsed in January due to funding challenges.

However, our customer and their local civic leadership were motivated and successful in securing outside funding to come back online with 6 miles, which we're targeting for later this month. As for Cambridge, this is a win-back that was unfortunately driven by tragedy. When Cambridge City Council decided to withdraw from the Boston five coverage area against the protests of Cambridge Police leadership, their allocated coverage mile was quickly absorbed into the larger Boston five coverage area, making it a commercial neutral impact for us. But within three weeks of this withdrawal, a young city employee by the name of Xavier Batista was shot and found dead, an estimated hour plus after his shooting.

Xavier was a father, a fiancé, a son, and a beloved friend who deserved more than to bleed out without first responders even knowing that he was shot and wounded, and therefore they were unable to render potentially life-saving assistance. The response from his family and the broader community was swift, along with local and even national attention, including, but not limited to, editorials from The Boston Globe, The Boston Herald, as well as the editorial board of The Washington Post, all questioning the wisdom of voluntarily and intentionally taking this potentially life-saving technology offline. This forceful public response, which by all accounts led to the city council to reverse its decision and reinstate ShotSpotter for an initial 90-day reevaluation period, was both encouraging and correct in our view.

For our part in being a good corporate partner and citizen, and also paying homage to Xavier's legacy, we're investing in restoring the ShotSpotter coverage at no cost to the city of Cambridge during this period. Lastly, we discussed in last quarter's earnings call an impending large state CrimeTracer deal that, in my words, was no more than 30 to 45 days from being papered. I'm pleased to report that CrimeTracer deal is now fully executed as a new multi-year contract worth approximately $2.5 million in annual recurring revenue for the Texas Anti-Gang Program, which is also known as TAG, which has regional Texas anti-gang centers across the state. These multi-agency hubs are funded through the Public Safety Office within the Office of the Texas Governor and coordinated alongside the Texas Department of Public Safety, DPS.

We're very excited to share more in the future with respect to the use case and strategic implications for what is now our fourth CrimeTracer state-level deal beyond Tennessee, Massachusetts, and Utah, and now includes the great state of Texas. We believe once we can demonstrate early success, that this can potentially expand to triple the footprint beyond the initial user base of this current phase one deployment. We cannot underestimate the value of our over 1 billion proprietary CEGIS records and documents, combined with our recent significant investments in user interface and artificial intelligence enhancements and features, which we believe makes CrimeTracer a unique solution. Now for the more difficult review of where we came up short.

We had long held and even reaffirmed the view that on a top-line revenue basis, we expect a roughly $50 million in GAAP revenue in the first half of 2026 and $60 million in the second half of 2026. We came in at about $48 million in revenue in the first half with a Q2 revenue attainment of $23.9 million. A near miss, but a miss nevertheless, and should be counted as one. Most of the $2 million shortfall can be attributed to some renewal timing and professional service project delays from TechnoLogic Solutions and New York City Department of Correction. These delays in projects are solely customer-oriented, and because they're already booked and budgeted, it is not a revenue loss, but it is effectively a revenue push-out into 2027.

Our second half $60 million revenue expectation was tied to our full-year revenue guidance range of $109 million-$111 million, which we are now revising to $99 million-$100 million. We had expected to recapture the Puerto Rico ShotSpotter contract in the second half, as we did with the Texas Anti-Gang contract. But now that recapture has been pushed out of our 2026 plan entirely. We are now pivoting from engaging exclusively with the state of Puerto Rico, where our project is delayed, along with several other post-hurricane initiatives, toward another procurement avenue in order to get something across the line sooner. This restart effectively puts us on a different deal clock post-2026. The rest of the second half reduction comes from our two growth engines, and I want to be precise about which problem is which, because they are not the same problem.

The first is SafePointe, and here the issue is cadence, not demand. Our SafePointe bookings remain strong and our hospital pipeline continues to build. SafePointe revenue is recognized as systems go live, and go-lives are inherently lumpy, especially as we begin to implement double-digit lane deployments within the enterprise. These deployments depend on customer site facility readiness, construction, door schedules for credentialing, and the sequencing of multi-site rollouts, much which sits beyond our control. Several go-lives we had modeled for the back half have moved by a quarter or two onto customer timelines, which pushes the associated revenue, though not the underlying bookings, into 2027. The booked ARR is still intact and growing. What has shifted is the timing of when it converts to recognized revenue. I'm not troubled by SafePointe's trajectory.

We're simply not going to model lumpy go-live cadence as though it were linear, and our revised guidance reflects that discipline. The second driver, and frankly, the more disappointing one, is ShotSpotter, and here we will not hide behind cadence because this quarter it was both bookings and go-lives that came in well below our expectations. Some of this is explainable. The wind-down of ARPA, the slower flow of federal budget dollars to municipalities, has delayed funding that several new and expansion deployments were counting on. That would be too easy and not fully honest to lay it all on federal timing. The fuller truth is that ShotSpotter sales cycles are elongating at the same time our sales team is underperforming. Deals that historically closed within a predictable window are now moving through more stakeholders, more budget scrutiny.