ShotSpotter, Inc. (SSTI) on Q4 2021 Results - Earnings Call Transcript
Operator: Good afternoon, and welcome to ShotSpotter's Fourth Quarter and Full Year 2021 Conference Call. My name is Carl 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 including 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, February 22, 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 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.shotspotter.com. Now, I would like to turn the call over to ShotSpotter's CEO, Ralph Clark. Sir, please proceed.
Ralph Clark: Good afternoon and thank you for joining us today. I'd like to start off by saying how thrilled we are to announce the acquisition of Forensic Logic. This acquisition represents an important step in building out and executing to our Precision Policing Platform aspirations. Before I dive into more details on Forensic Logic, I want to first share a brief review of our Q4 and 2021 year end results. I'll then share our outlook for 2022 before turning it over to Alan, and then taking your questions. We reported Q4 revenues of $14 million, representing 10% year-over-year growth from the $12.6 million of revenue we reported in Q4 of last year. We had anticipated securing a contract amendment due in November for professional service, maintenance and support of CrimeCenter at NYPD. However, due to a changeover in the administration of the New York City's controller's office, we're only able to formally secure the final signature on the contract amendment in early January, post our Q4 revenue cutoff date. This will result in $2-plus million of catch-up revenue that will be recognized in Q1 of 2022 for services rendered and earned in November and December of 2021. We had another strong showing of domestic respond go-live miles for Q4 and including expansions in seven cities. Albuquerque, which became ShotSpotter client in 2020, is a particularly compelling case study. Their Q4 expansion represents their third expansion to-date. There's still another 4.5 miles expected to go-live in Q1 of 2022, which will make Albuquerque our fourth largest deployment at approximately 28 miles. In total, the company booked a record $100 million of business, including several large multi-year renewals. ShotSpotter Respond was taken live in over 100 new miles for 2021 and compared to 49 miles a year prior, surpassing our earlier forecasted 90 miles for 2021. We're pleased to see this accelerating traction. We also experienced another incredibly strong year in customer retention. Our customer attrition had an impact of less than 1% of GAAP revenue, net of price increases for 2021. This continues to demonstrate the sticky nature of our solution once deployed. This is not by accident, but by design. We enjoy a unique high-quality technology solution that has been proven to perform in a variety of challenging acoustic terrains. Importantly, we are intentionally focused on customer onboarding and training to help our customers adopt policies and best practices that help them achieve, measure and communicate positive outcomes. We also continue to benefit from strong brand loyalty reflected in our world-class Net Promoter Score, or NPS of 59, which drives our SaaS industry-leading sales and marketing spend per dollar of new annualized contract revenue of only $0.37. We believe we are reaching the tipping point of having a critical mass of referenceable law enforcement executives that are helping to drive low-cost viral adoption of our solutions. We've successfully overcome some selected organized campaigns from the Abolish the Police movement and have succeeded in keeping solid sales motion. We're extremely proud of the fact that numerous city councils, after transparent discussion and thoughtful deliberation have overwhelmingly supported the adoption of ShotSpotter as a part of their toolkit in addressing gun violence and saving lives. A few recent examples include a 10 to one vote in Denver, a seven to one vote in Pasadena, a 14 to one vote in Houston and a unanimous vote in Mobile, Alabama. These elected officials recognize the importance of addressing the public safety gap in some of their most vulnerable neighborhoods that are struggling with persistent gun violence, and they have supported ShotSpotter as a valuable tool to be used in saving lives and protecting their citizens. On the international front, Cape Town South Africa reissued their tender to procure and redeploy and expanded acoustic gunshot detection service over their original ShotSpotter coverage area. We have submitted our bid response, and we are confident that we are well positioned to meet the technical, financial and experience requirements set forth in the tender. Our defamation suit against Vice Media is still ongoing. However, we've recently been successful in securing five formal and public retractions of material misstatements from publications that had repeated Vice's false assertions. These retractions were issued following their review of public court documents that unambiguously support our position. We remain confident in our ability to defend our stakeholder base, correct the record and hold Vice to account for their malice. Now to Forensic Logic, we're very excited about adding Forensic Logic COPLINK X to our solution platform. The Forensic Logic COPLINK X solution is the largest law enforcement data sharing and crime analytics network providing authorized subscribers access to more than 1 billion Federated and index records from over 2,500 agencies. The platform includes an advanced Google style search engine and analytical tools is used by hundreds of municipal, county, state and federal law enforcement agencies to create case momentum on a local and cross-jurisdictional basis. COPLINK X users include investigators, analysts, control officers and command staff in order to initiate investigations, find patterns across crimes and be more efficient and overall effective. Similar to our LEEDS acquisition, where we shared a common customer in NYPD, we've gotten to know Forensic Logic over the years through our shared Oakland police department relationship. We're already seeing strong operational product and go-to-market synergies between our solutions. There are a number of cross-selling opportunities in both directions that are underway, including a collaborative pursuit of a state-level investigative case management and data services RFI. On the product side, Forensic Logic has strong and established product market fit. We see COPLINK X differentiating our investigate solution and extending response reach deeper into Crime Gun Intel Centers or CGICs with an integrated NIBEN product feature that improves the investigative process when respond leads to increased recovery of shell casing evidence. There's probably no more impactful use case study of operational synergy in the attempted violent robbery involving four assailants targeting a retired OPD captain Ersie Joyner in the afternoon of October 21. This tragic incident resulted in one of the assailants being killed and Ersie suffering from 22 gunshot wounds. Fortunately, due to the ShotSpotter alert, Oakland PD was able to respond rapidly to the precise scene before the first 911 call came in and immediately get Ersie to Highland Hospital where surgeons were able to save his life. Soon after investigators across multiple Bay Area agencies were querying the Forensic Logic platform and quickly learned that the deceased assailant was involved in a similar robbery attempt with a stickup crew in another local jurisdictions two years prior. By connecting the dots, it was not long before they had developed enough intelligence to get up on the other assailant and then make arrest in Sacramento and Houston where the assailants will now stand trial. Forensic Logic grew revenue over 38% last year, bringing on customers like the Tennessee Department of Safety and Homeland Security that uses the information sharing platform for all 25,000 members of state and local law enforcement agencies within Tennessee. We estimate Forensic Logic adds another $500 million plus of recurring revenue TAM to our franchise across domestic, local, state and federal law enforcement agencies. And we believe it further enhances our position as a unique precision policing platform solutions provider and will become a key growth driver for the company in coming years. We entered 2022 with a robust $63 million of organic annual revenue, including $10 million of annual recurring revenue from our recently upsized maintenance and support contract with NYPD. Forensic Logic will add another $6 million of recurring revenue, which then totals $69 million of visible ARR going into 2022. This compares to the $53 million of ARR a year ago. Given the accelerated growth in confidence we have in our core business, combined with the revenue contribution from Forensic Logic and the $2 million of November-December catch-up revenue from our NYPD amendment that we will recognize in Q1 of 2022, we are now raising our full year 2022 revenue guidance to $81 million to $83 million from our lost revenue guidance of $71 million to $73 million. Our lead times represents a 41% growth from 2021 to the midpoint of 2022 guidance. Now, Alan, over to you.
Alan Stewart: Thank you, Ralph. I'll cover highlights for both Q4 and 2021 as a whole. In Q4, we went live in one new city and one new security customer. We also went live with seven response to the expansions and achieved revenue growth of 10% compared to the fourth quarter of 2020. In spite of losing one city in Q4, our 2021 revenue attrition will be less than 1% similar to last year's excellent results, as Ralph has mentioned. We're pleased to report that for the first time ever and related to many customers renewing for multiple-year periods, we had total bookings for the year of over $100 million that we provide more details on the quarter and then I will share some thoughts around 2021 and update guidance for this year. But before I dive into details, it's important to understand that our Q4 results in 2021 as a whole were affected due to the contract amendment related to our Leeds work that we had hoped and expected to receive before the year-end, but didn't get fully executed until January. This reduced our gap revenues by over $2 million. We were required to continue work during the time while we were waiting for the contract amendment. So on an accounting basis, we had to continue recognizing and expensing the associated costs of goods sold related to this ongoing work. This affected all of our financial metrics in the fourth quarter and ultimately the final results for the year. That said, we're pleased to announce that the amendment has been fully executed. This will help our first quarter financial results and was one of the three elements that are contributing to the significant increase in our revenue guidance for 2022 as a whole, which we'll cover in more details in a minute. Fourth quarter revenues came in at $14 million, a 10% increase over a $12.6 million in the fourth quarter of 2020. Revenues increased as our deployed miles increased year-over-year, but we had minimal revenue contributions from our Leeds division in the fourth quarter. We have routinely mentioned that revenue from Leeds is very lumpy on a quarter-to-quarter basis. Leeds revenue in Q1 of 2022 will be significantly higher than all quarters in 2021. Gross profit for the fourth quarter, 2021 was $7.5 million or 54% of revenue versus $7.5 million or 59% of revenue for the prior-year period. Gross margin was lower due to the delay of the contract amendment execution for Leeds and some of the ongoing costs related to our replacement of 3G sensors. We expect this to improve in Q1. Our net loss for the fourth quarter was $3.3 million or lost $0.28 per share on a 11.7 million weighted average shares outstanding on both a basic and diluted basis. This compares to a net loss of $220,000 or $0.02 per share, based on a $11.5 million basic and diluted weighted average shares outstanding for the prior-year period. In addition to the delayed contract amendment, the reason for the higher net loss for the quarter was related to several items. Our expenses continue to be higher as a result of ongoing strategic communication costs, a significant increase in legal costs related to our lawsuit against vice media and an increase in legal fees associated with addressing subpoenas for detailed information about our technology and details on historical incidents. Our net loss for the quarter was also affected by expenses related to recent company acquisitions in two respects. First, an increase in the contingent consideration liability related LEEDS 2020 to earn out by approximately $1.3 billion as Leeds-related revenue in 2022 is now expected to be greater than $16 million. Second, our acquisition of Forensic Logic added more than $540,000 in expenses related to the transaction in Q4. This acquisition-related amounts are both added back to our adjusted EBITDA. Adjusted EBITDA for the fourth quarter was $1.9 million, a decrease from the $3.1 million in the fourth quarter of 2020. As a reminder, adjusted EBITDA is calculated by taking our GAAP net income or loss and adding back interest, taxes, depreciation and amortization, stock-based compensation and acquisition related expenses, including adjustments to our contingent consideration liability related to earn-outs. Now turning to our expenses, our operating expenses for the fourth quarter were $10.7 million, or 76% of revenue versus $7.7 million, or 61% of revenue in the fourth quarter of 2020. As expected, in addition to the operating expense increases related to legal and strategic communications, we also had costs associated with personnel expansion and costs related leads earn-out liability, which were not included in the fourth quarter of 2020. Breaking down our expenses, sales and marketing expense for the fourth quarter was $3.6 million, or 26% of total revenue versus $3.1 million or 24% of total revenue for the prior year period. We continue to focus on investing appropriately to grow our sales and marketing capabilities for all of our products. These investments are important for our continued growth and are working well as we continue to build our sales pipeline and expand our marketing efforts. We continue to focus on maintaining high levels of customer satisfaction, which helps keep our attrition rates low. Our R&D expenses for the third quarter were $1.9 million or 13% of total revenue, compared to $1.5 million, or 12% of total revenue for the prior year period. We continue to invest in increasing the functionality of all of our products. G&A expenses for the quarter were $5.2 million, or 37% of total revenue, compared to 3.1 million or 25% of total revenue for the prior year period. The increase in G&A expenses in absolute dollars were primarily related to the increased legal and strategic communication expenses, which exceeded $900,000 for the quarter and the $1.3 million an increase contingent consideration liability related to the LEEDS acquisition. Our revenue results for 2021 were $58.2 million, an increase of over 27% from 2020. The increase was related to revenues related to LEEDS, and significant expansion in customers using our gunshot detection solutions, having an over 100 miles live during the year. Gross profit for 2021 was $32.5 million, or 56% of revenue versus $27 million, or 59% of revenue for the prior year period. Gross margin was primarily lower due to the delay of the LEEDS contract amendment execution and some additional costs relates to slightly higher prices for some sensor components. As of today, the ongoing challenges with the global supply chain have not materially prevented us from continuing our ongoing 3D sensor placement or slowed down the deployment of newly contracted respond miles or expansions. We continue to closely monitor all ongoing supply chain issues. Our net loss for 2021 is $4.4 million or a loss of $0.38 per share and $11.7 million weighted average shares outstanding on both the basic and diluted basis. This compares to net income of $1.2 million, or $0.11 per share, based on $11.4 million basic weighted average shares outstanding and $0.10 per share based on $11.7 million diluted weighted average shares outstanding for the prior year period. Adjusted EBITDA for 2021 was $10.4 million, a decrease from the $11.9 million in 2020. As a reminder, adjusted EBITDA is calculated by taking our GAAP net income or loss and adding back interest, taxes, depreciation and amortization, stock-based compensation and acquisition related expenses, including adjustments to our contingent consideration liability related to earn-outs. Our revenue retention rate improved to 125% in 2021, up from a 107% in 2020. Additionally, our sales and marketing costs to acquire $1 billion of annual contract value for the next 12 months also improved to only $0.37 per in 2021 versus $0.51 per in 2020. Deferred revenues as of December 31 was $26.7 million, which was up from SEK 21.8 million. We’re ending Q4 with $15. 6 million in cash and cash equivalents versus $13.1 million at the end of the third quarter. In fact, as of today, even after the expenses related to the Forensic Logic acquisition, the 5 million of cash for the purchase price, the cost of replacing almost half of our 3G sensors, and even after paying all 2021 bonuses for the entire company, we still have cash of approximately $13 million. We have no short or long-term debt outstanding and a $20 million line of credit available if we ever need it. Our revenue guidance for 2022 is increased by $10 million at mid-range to $ 81 million to $383 million. This increase is related to the added revenue from the delayed contract amendment improvement in our core business bookings and approximately $6 million in revenue from our recent Forensic Logic acquisition. Additionally, and ordinarily, we did not give any quarterly revenue guidance. We are indicating that we believe revenue in Q1 will be north of $20 million. Our annual recurring revenue started on January 1, 2022, is north of $63 million, up significantly from the $53 million that we started with in 2021. This does not include additional recurring revenue of $6 million from Forensic Logic, which will further support our growth and increased revenue guidance. Now back to Ralph, just some final thoughts, and then we'll be happy to take your questions.
Ralph Clark: Thanks, Alan. Just a brief couple of comments before we take your questions. I hope many of you got a chance to see our inaugural ESG report that we published today. We hope it will provide additional insight in how we work to make the world a better place. I want to personally thank in the same goal for them in the employees from the cross-functional team that she led in producing such a wonderful first report. As a company, we're passionate about leaning into our purpose and doing work that matters. We’ll, now take your questions.
Operator: Your first question comes from Richard Baldry of ROTH Capital. Please go ahead.
Richard Baldry:
A - Ralph Clark: Yes, thanks for that question, Richard. So maybe I'll start now and - jump in here, but I think the first thing to note about our Forensic Logic acquisition is very strong product market fit that they offer as a part of their integrated COPLINK X platform. We've seen that platform perform in a number of places, and we think that they're very early in the stages of penetrating a much broader market. They have made some really great progress, but there's a lot more to be done. And I think of note was one of the transactions that I talked about during my prepared comments with respect to the statewide deployment in Tennessee. We think there's, a number of opportunities to kind of take that what they're calling the smart program and apply it across a number of other states here in the U.S. And in fact, we have jointly collaborated, just before we closed the transaction, we collaborated on a joint pursuit of an RFI of a similar sort of a statewide agency. So we're pretty excited about that, we think there's, a lot of opportunities to cross-sell into each other's markets. And we're already having them introducing them to a number of our called Tier 1 clients that don't have the COPLINK X platform. And because they're such a strong product fit between COPLINK X and Respond COPLINK X and investigate as well as our Connect solutions. So we think there's a lot of value out there that we can capture from selling into our marketplace. And frankly, they have some very good relationships in some places where we're looking to get some traction, Southern California being a key part. Los Angeles County Sheriff's is a very large customer of theirs. We just now are starting our penetration in Southern California with our Pasadena deployment that just went live earlier this quarter. So we see a tremendous amount of opportunities to up-sell the ShotSpotter solution into their installed base where they've got great relationships. I talked a little bit about the metrics already. Last year, they grew their GAAP revenue over 30%. We're starting with a $6 million annual recurring revenue base that we’re going into 2022.
Q - Richard Baldry:
A - Ralph Clark:
A - Alan Stewart:
A - Ralph Clark: Sure, yes in addition to, hopefully executing more than 100 go-live miles this year, I think we're looking to have our international kind of come on board this year. We haven't seen any new international revenues of substance in 2021, but we're expecting that to change kind of given our response to the Cape Town, South Africa, RFP and some really nice sales motion we have in the Caribbean, in Latin America. And then we're obviously expecting some uplift in security, our security solutions as well as our connect solution. We actually just went live today on a six figure annual recurring revenue deal of a very large agency in the Southeast region. So we're excited about building on that, and we've invested, frankly, in bringing on more sales resources to go drive some of those solutions outside of our traditional acoustic gunshot detection.And then we're certainly expecting some really solid traction with the investigate solution. And we've already talked about the fact that our LEEDS is expected to contribute more than $16 million of revenue in 2022. The reason that we're making the investments, we're making in kind of driving some growth outside of our kind of traditional acoustic gunshot detection, although again, that's a very robust pipeline of deals as we're seeing a really unique opportunity to have impact. The funding environment is probably better than it's ever been, since I've been with the company. I've been with the company since 2010. The amount of federal resources that are coming in, in municipalities is a really, really strong. We've seen the current administration endorsed specifically acoustic gunshot detection as a very good use of funds for - they're coming out of the federal, federal funding mandates and we're even seeing states step up as well.
Operator: The next question comes from Charlie Erlikh from Baird. Please go ahead.
Charlie Erlikh:
A - Alan Stewart: Yes, sure. So this is Alan I'll just start and Ralph please add your additional comments as well. So I think it's the first time that we've been able to enter a year with the ARR as high as it is of $69 million, $63 million for organic and also $6 million for Forensic Logic. And so there's, a couple of things that, as Ralph mentioned, we have in there and several things that we don't. We don't have too much in there for some of the expansion that we could see internationally. And we also don't have much more than the - the $6 million that we know we're going into with Forensic Logic. So both of those are potential things that are going to add in terms of how the actual revenue gets achieved. And I would say, as the pipeline is, knowing what we know already in terms of the contracts.
A - Ralph Clark: Yes. So let me just add again, I think yes, I was just going to add that again, just we have to double click on the notion that we're starting the year with $69 million of visible annual recurring revenue, including what we're expecting from Forensic Logic. And we've talked about the fact that there's another $2 million of catch up that we weren't able to book and/or recognize in Q4 that's going to come in Q1. So I think you'd add $2 million of very visible revenue. In fact, we've already gotten it for Q1 that you'd add to the - to the $69 million. So that kind of puts us at $71 million. And we have very visible backlog of professional services work as a part of our LEEDS organizations that we estimate to be in the $5 million range remaining for 2022. So if you put those two together it’s seven. And then you'd get another seven from growth of domestic miles for respond along with international along with investigate along with Connect, along with security. And then if Forensic Logic does better than the $6 million because again, we're only - we're only counting $6 million as a part of our going in ARR where you kind of get to the upside potentially beyond our current guidance. So we have a lot of levers available to us to get to that range.
Charles Erlikh: And I also wanted to ask about attrition both in Q4 and then 2022 expectations. So you mentioned that the attrition number you mentioned in Q4 was net of price increases. So I'm wondering if you're able to provide the gross of price increase attrition in the quarter. And then I'm also wondering what your attrition expectations are for 2022 baked into guidance?
Ralph Clark: Yes. So maybe I'll just start on the front ...
Alan Stewart: Go ahead, Ralph.
Ralph Clark: We got to be in the same place one of these days. Yes, I was just going to say, I don't think we're going to get into a lot of details about the moving pieces for the net attrition number. But Alan, I think if you want to talk about how we're thinking about attrition kind of going forward in 2022, that would be awesome.
Alan Stewart: Sure. Yes. So I think it is important to understand that when you talk about revenue of $58 million - north of $58 million. And we're saying that our attrition is less than 1%, and you know it's less than $580,000. So very, very small in terms of only 1% attrition. We are looking in 2022 for hopefully, similar amounts of attrition. Normally, we would say prior to pandemic, we would have said our traction might be closer to 2% to 3%. Based on what we've seen in the last 2 years and based on what we see in terms of the funding, we expect our attrition to hopefully still be around 1% or close to that for 2022.
Operator: The next question comes from Brian Ruttenbur from Imperial Capital. Please go ahead.
Brian Ruttenbur: A couple of quick questions. Let's start off with housekeeping. CapEx for 2021? And what do you expect for 2022?
Alan Stewart: Yes. So this is Alan. We had CapEx a little about $7.8 million for 2021. Now that did include about $1.8 million of that was related to some of the 3G sensor replacement. We would expect that the CapEx could be similar for 2022 as we finalize and finish the remaining amounts of the 3G sensors and have miles to go live there similar to what we have in 2021 or slightly higher.
Brian Ruttenbur: Next question is on the flow of revenue. So you're talking about, if I heard it right, north of or right around $20 million in the first quarter. And then there'll be a drop off because you're getting that makeup of the $2 million slight drop-off and then kind of steady from there growing from that second quarter. Is that how to look at it?
Alan Stewart: Yes. This is Alan. You're correct. Normally, what you would see from us is a flat revenue from Q4 to Q1. Obviously, adding the $2 million from the contract amendment and more revenue from Forensic Logic that doesn't make sense. But what you think about in terms of Q1 is if you just take the ARR of $69 million combined, divide that 4 million you're starting somewhere around $17 million by that alone. You have a $2 million catch-up of the NYPD amendment for over '19. And then on top of that, we know it's going to be over $1 million for professional services, and we're also going to be going live on Respond miles. So that's how it's pretty easy to see how we're going to get to $20 million for Q1. Your comment about Q2 is accurate. We're not going to get that $2 million again in Q2. So it is likely that there might be somewhat flattish revenue going from Q1 into Q2 or even a slight reduction, but not much based on what we're expecting right now.
Brian Ruttenbur: Okay. No, that's very helpful. And the profitability, should we get a disproportionate profitability bump in that Q1 because of the expenses that were already recognized, I assume, in Q4 without the revenue, then your margins are going to be massively inflated, maybe massive is not a financial term, but inflated in the first quarter because you're not going to be recognizing those same kind of expenses for - on that $2 million?
Alan Stewart: Yes. This is Alan again. You are correct. We did get most of the cost of goods sold, well, actually all of it related to the November and December performance of that contract in Q4. So when we get to $2 million in revenue, it's going to be mostly hitting down to gross margin and down below the net income. We do have some commissions that are related to that. So you won't see all of that. However, Q1 is going to be significantly higher in terms of our profitability versus what it would be without that $2 million.
Brian Ruttenbur: Okay. And then last question, it's more of a macro. I like the acquisition of Forensic Logic that makes sense. What else do you need to add out there? What are the missing components that you need to sell into these large municipalities and other municipal and local governments that makes sense for you to add on. Is it all software related? Or is there any other direction you're planning to go?
Ralph Clark: This is Ralph. I think we're in a pretty good shape right now. If you think about law enforcement is kind of pursuing a digital journey of automation and using data to be more precise and impactful and hopefully equitable in how they work with providing public safety to cities, I think we're in a good place. I mean, we have a really unique acoustic gunshot detection solution. We're now adding this kind of massive data set that can be purposely used, I would say, by law enforcement to engage in precision policing. We've got kind of patrol management solution, and we have an incredibly powerful investigative case management solution, which, for us, it's interesting because it allows us to kind of move outside of our traditional TAM of local law enforcement agencies and kind of move upstream to kind of state investigative agencies as well as federal investigative agencies that typically wouldn't be a customer for acoustic gunshot detection. So I feel like our plate is pretty full right now, and we have everything we need to kind of execute to a precision policing platform solution for local, state and federal investigative agencies.
Brian Ruttenbur: Great. And then just one other follow-up to that. Is it 1 sales force? Do you have to have different types of sales people coming in into Las Vegas, for example, you have 1 key contact. Can that 1 key contact sell everything? Or do you need to bring in different sales professionals to sell the different products?
Ralph Clark: Yes. So the way we've gone to market is we have kind of a territory-based sales organization, and then we have overlay sales reps that have specialties. So 1 for, say, Connect, 1 for our acoustic gunshot detection solution respond, investigative case management. The same thing will be true for Forensic Logic, although we're we have a little bit of a crawl walk run fly scenario with our acquisitions. So they're going to be operating in a somewhat independent state. They have a number of sales initiatives in place already. We don't want to interfere with that. But we are kind of coming together on some select opportunities, again, where we can cross-sell into each other's installed base.
Operator: The next question comes from Jeremy Hamblin from Craig-Hallum Capital Group. Please go ahead.
Jeremy Hamblin: And I wanted to come back to the fiscal '22 guidance here, make sure that I parse this apart in a little more detail. So you've changed the total guidance by about $10 million for the year. and you have roughly $2 million of a catch-up payment included in there. So I guess the apples-to-apples guidance change would be about $8 million. You have an acquisition that's roughly kind of $6 million. So I'm just trying to - on an ARR basis, in terms of understanding the kind of the gross impact of the LEEDS contract expansion. Is that just like kind of a couple of million dollars? I guess what I'm trying to understand the - what the change was in your guidance for the legacy response side of the business?
Ralph Clark: Yes, this is Ralph. It's up $2 million. I think you approached it correctly. There's a $10 million difference, $2 million of it is catch-up revenue from the contract amendment. We're saying $6 million we're adding from LEEDS. So that leaves another net $2 million from what I would call our kind of core business, just not acoustic gunshot detection. But Investigate, Connect as well as Security and International. So all those things together have - are adding up to an additional $2 million. So you add that $2 million to the $2 million in catch-up and the $6 million from LEEDS, and that's how you get to the $10 million bridge from our earlier guidance to the new guidance today.
Alan Stewart: The $6 million is from Forensic Logic, not LEEDS.
Ralph Clark: I'm sorry, I said LEEDS. I'm sorry. Thank you for correcting me. Yes. Yes. Forensic logic.
Jeremy Hamblin: Okay. Got it. And then understanding just the operating expense impact of the forensic Logic acquisition as well as any additional costs that are going to be incurred related to the larger contract on a go-forward basis for the legacy LEEDS business. Any color you can share on that?
Alan Stewart: Yes. This is Alan. I mean at this point, we know that we're still working with Borenziclogic to maximize the profitability that they can get to and do expect that a little bit of revenue growth will be required for some of that. So we will be spending some money related to that to help them continue to grow. That said, if you look at our earnings strip or the earnings release as well. We've already said that we're going to be at the 15% to 20% adjusted EBITDA margin is where we expect to end the year in 2022. So there might be some more costs related to OpEx, but we also have higher profitability across the board in most of our areas.
Jeremy Hamblin: And then in terms of that coming back to the full year guidance, excited to hear that South Africa is potentially coming back. Can I assume that that's not included in your guidance figure?
Alan Stewart: Yes. So Ralph mentioned it is risk adjusted. We do expect our revenue guidance with some incremental changes from international - but risk-adjusted means that if we do win it 100%, it is likely that the ops revenue that we receive on an ongoing basis might be a little higher than what we have originally in the guidance.
Jeremy Hamblin: Okay. Great. And then last one, I guess, in terms of the ongoing litigation and deformation suit, that's been pretty costly in terms of the EBITDA impact, totally understand the rationale for defending the about that potential impact in '22. Do you feel like the expenditures have peaked and are on their way down? Do you feel like there's potential for that to accelerate further. Any color that you could share on where you feel like that distraction kind of is for the company?
Alan Stewart: So this is Alan. I'll go ahead and talk cost and then Ralph can maybe talk intentions there. It is absolutely true that our costs related to legal fees in 2021 were north of $2 million for us. That is about twice what it normally would be. The majority of that was related to not just Vice Media, but also the additional legal costs that we have related to a larger number of subpoenas that we've been required to participate in related to our solutions. So to answer your question directly, where do we see 2022, we are expecting legal cost again, to be somewhat north of $2 million. Unless something happens with Vice sooner rather than later, we would expect to continue to have quarterly cost north of $700,000.
Jeremy Hamblin: Okay. Got it. Any additional color you want to share, Ralph?
Ralph Clark: No. No, I think Alan summed it up very well.
Operator: The next question comes from Mike Latimore from Northland Capital Markets. Please go ahead.
Michael Latimore: Just on the Investigate product, can you give a little update on progress selling that outside of the New York account?
Ralph Clark: Yes. So this is Ralph. So the pipeline continues to build. We actually have a sale that we're in the process of taking live right now for an intelligence unit of a, I'll call it, a kind of Tier 2 local agency - we've responded to an RFI and also RFP. The one - the latter one we're pretty excited about, that would be a 7-figure ARR deal if we're able to bring that across the line. And we're really quite excited about some of the things that we can do on the product side kind of merging some aspects of the forensic logic Coupling X solution into an investigate platform. That's pretty exciting.
Michael Latimore: Yes Makes sense. And then in terms of the core Respond business, should we assume the states and cities that were important in 2021 are continue to be important with expansions? Or are there other regions that are going to be elevated and more important this year?
Ralph Clark: Yes. So my expectation is, again, as Alan already pointed out, we expect to do north of 100 miles of go live last year, we kind of forecasted 90 and we did over 100. This year, we're forecasting over 100. And I think those 100 miles, domestic miles, by the way, I think there'll be a mix of expansions and new deployments. And there's some really interesting things that are out there that people can look in the press. There's a couple of really interesting RFPs that are coming out that we're pretty excited about for new customers, and there's 1 particular customer that's talking about doing a fairly major expansion, and we haven't seen an order yet, but we're obviously kind of working that one really hard. So we're pretty excited, and we're really pleased with the traction we saw with our Tier 4, Tier 5 program. These are kind of smaller agencies where we cap them out at no more than 2 miles typically at a slightly lower - at a lower price, and we've seen some really interesting kind of late in the year 2021 traction from agencies that have adopted that program. So we're expecting more growth there. And outside of traditional response to local law enforcement, we continue to put up some really interesting use cases. I mean, sadly, on our security solutions, especially with the freeway projects. We're deployed in part of the freeway in the Bay Area that's encountered multiple tragic shooting incidents where we've alerted on those. And we're starting to see some other state highway agencies take note of that. So we're really quite excited about significantly expanding our footprint with respect to freeway deployments. So that's also kind of contributing to our view of kind of bullishness for 2022.
Michael Latimore: And just last one on the 3G replacement. Obviously, you've done really well in miles this year. But I'm wondering, as a 3G replacement dynamics, maybe been a distraction and actually slowed some expansions that you might have had otherwise?
Alan Stewart: Yes. So this is Alan. No, they didn't slow us down at all. In fact, we started out with about 5,500 3G sensors. We've already replaced 3,000 of those. So not only were we able to go live in 100 miles - 101 miles, we also did 3,000 3G replacements, which means we only have about 2,500 left.
Operator: The next question comes from Erik Suppiger from JMP Securities. Please go ahead.
Erik Suppiger: Yes. First off, I don't think you commented about the contribution from the patrol management and the investigative services. Can you give us any color on what they were for '21 or what we might expect for '22?
Ralph Clark: You want to take that Alan?
Alan Stewart: I think you're asking about - yes. I think you're asking about Connect in terms of the petrol management product, yes. So we are continuing to work hard on expanding the number of customers that we have. It's probably a little slower than we had hoped, although as Ralph mentioned earlier, we did go-live with our larger city Larry just today which is sort of a greater than 6-figure type deal. It is something we are adding additional more capability in the sales and marketing side and hope that we see continued growth on that in 2022.
Erik Suppiger: Okay and then on the investigative side?
Ralph Clark: Yes, so...
Alan Stewart: Go ahead, Ralph.
Ralph Clark: Go ahead. No, go ahead, Alan, sorry.
Alan Stewart: I was going to say on the investigator side, as Ralph just mentioned, we did just go live with one second-tier city so that - we're working to go live with them. We signed that contract a couple of months ago, and they're going live with them soon. And then the larger projects that we have bid from the RFIs and RFPs are still somewhat new, but it could be as high as the seven figures in terms of annual recurring revenue for those. So, we're still quite early in the stage with investigate, but we're seeing positive momentum and a lot of interest from that.
Erik Suppiger: Okay. I think you had said you only had one new account in 2021, but it sounds as though you have a pretty good pipeline of new opportunities. Can you give us some color around what new account number of new accounts you might hope for?
Ralph Clark: I think he was referring to one new account for Q1 - excuse me, Q4 - not for the year.
Erik Suppiger: All right okay. All right can you give us a sense of how many new accounts we might look for though in 2022?
Ralph Clark: We don't - really break it out that way. I think I mentioned, again, we're expecting to do more than 100 miles on kind of domestic local law enforcement respond miles. It will be a mix of expansions and new accounts. I wouldn't want to throw out a number, but I mean it will be more than a handful, I would imagine, because you're going to have some of those Tier 4, Tier 5 agencies that jump on at one or two miles. And then you might have another medium-sized agency, a handful of those kind of come on with three or four miles. But then the we'll expect to have some percent - a reasonable percent of that 100 miles come from expansions. So - but I wouldn't - I'd hesitate to give you a specific number.
Erik Suppiger: Okay. Then last question any sense on timeframe for the Vice Media lawsuit? Shall we - I presume that we'll be continuing through 2022. Any comments in terms of how that can - how long that might last or how we might be - how the expenses might progress through the year?
Ralph Clark: Yes. We're in for the long haul. So I can't give you a timeframe. These things can take a while. So we're - it's ongoing it's probably the best I can tell you right now. But we are very happy about being able to extract out retractions from at least five publications that have basically repeated the Vice lives. And so that's really quite encouraging. So we're already getting, I would say, some return on our investment in that regard. Again, our goal in the Vice lawsuit is to, first, defend our ecosystem of stakeholders because we were being accused along with local law enforcement of engaging and framing innocent people. So we want to defend ourselves and our stakeholders, and we're doing that. We wanted to correct the record is the second thing, and we're doing that and have made good progress in getting these five retractions. And then the last thing we want to do is hold Vice to account. And that's where the formal defamation suit just has to play out in the Delaware courts.
Erik Suppiger: Very good, thank you.
Operator: The next question comes from Matt Pfau from William Blair. Please go ahead.
Matt Pfau: Great, thanks for taking my questions guys. Wanted to ask on the improvement in the sales and marketing efficiency. And Ralph, you called out that sort of word-of-mouth around ShotSpotter hit an inflection point. But I always sort of thought of you guys having a good word-of-mouth among police chief. So maybe you could just sort of call out what changed or what's causing that inflection that you mentioned?
Ralph Clark: Yes. I mean, so more is better. So kind of going from maybe 20 net promoters to 30 net promoters that are coming from different sized agencies in different locations has an impact. Like on a go-forward basis, I think we talked a lot about the tipping point synergies that took place in the Ohio, the state of Ohio. And one of the key drivers of that was an assistant chief in one of the cities in Ohio that is now at chief of police in Virginia. And so, we're anticipating that that Virginia deployment where we're now deployed, those successfuls will be delivered and communicated and it will make it a lot easier for neighboring agencies. And we're already seeing it with some invitations we're seeing from cities that come into in the state of Virginia to talk about what we're doing in acoustic gunshot detection. That's how that plays out. We're - same thing in the state of Texas, this dynamic between the city of Houston and Harris County. And so that's really good. And so we kind of see that -- we see that potentially spreading. Our expectation is we're going to make Pasadena extremely successful, and that will be a very interesting beachhead in the Southern California region, combined again with a very strong set of relationships in brand loyalty that Forensic Logic has been able to drive with Los Angeles County Sheriff's organization and all the municipalities that kind of roll up under the sheriff's organization - the county sheriffs organization there. So that's how that works, from being around the company that we pay very close attention just not to the Net Promoter Score, but the feedback that we're getting from agencies and how they perceived value and things that we could do to enhance value. And we're just very intentional about kind of responding to that and improving every single day, and we're getting better and better at it. And we've been able to maintain a world-class NPS score in the benefits of the reference ability that takes - off from there because we're pretty intentional about it.
Matt Pfau: Great. And then, just one more for me. In terms of the funding environment, great to hear that, that's remained really strong. With inflation being a pretty big focus for everybody, let's say, the economy were to cool down a bit. How do you think about that cooling of the economy in terms of its impact on the funding environment for you guys?
Ralph Clark: Well, I'll jump in, and Alan come in behind and correct if I say anything offsetting. But look, I think the bigger thing that we have to appreciate is kind of besides inflation is the cost of violence in crime in cities. And I don't know if you're paying attention or not, but there's just a lot of pushback from a lot of cities that are experiencing a measurable uptick in crime, and they're compelling cities to do something about it. So the business of responding to preventing, reducing, engaging in violent crime suppression, holding criminals to account and the like, it's a - it's got a very strong ROI case. And so, I think the inflation stuff is a bit of a - is a noise element as far as I'm concerned, and it's way, way overshadowed by just, again, the real issues related to violent crime that is ranging across small, medium and large cities. It's real. It isn't made up. We see it in our numbers. But I don't know, Alan, do you have a different point of view on that?
Alan Stewart: No, I don't. In fact, I think the interesting thing, and I think it's helpful for us is not just the violence that's increasing, but what ShotSpotter does to help not just we lower some of the violence, but help actually save lives. And we've been doing this for a long time. And I would say that 2021 was really one of the first years that we actually saw people focused more on the number of lives that we're helping save. Just by getting someone there earlier or getting someone there at all. So I would say there's, always challenges, but we're starting to see people really understand the value that we bring related to that.
Operator: 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'd now like to turn the call back over to Mr. Clark for his closing remarks.
Ralph Clark: Yes, thank you very much. We really do appreciate everyone's support out there, and we're really looking forward to engaging directly with many of you in person over the next couple of months. So thank you very much again. And we'll see you in three months or so.
Operator: Thank you for joining us today for today's call. You may now disconnect.
