SoundThinking, Inc. (SSTI) Earnings Call Transcript & Summary

My name is Alan Stewart. I'm the CFO of ShotSpotter. Thank you for joining us today in our day 2 of investor presentations. Hopefully, you'll find the information interesting. Before we go too far, I do need to remind everybody that we are going to be sharing some forward-looking statements. This presentation does contain forward-looking statements within the meaning of the safe harbor provisions of the SEC dockets. So please listen to what we say, but know that some of this does have information that includes the future. So before we get started, I'll go ahead and give you a brief summary of the agenda. Contrary to what we did in day 1, day 2, we're going to talk about our sales, our pipeline review. We're going to go through technology, operations and support. We're also going to give you a product demonstration of our Connect product, I will give an update on the financials, and then we will also have at the very end, and hopefully, time left over to do a Q&A session. Hopefully, that gives us at least 15 to 20 minutes, where if you ask questions during the day, then -- or during the presentation, we will answer them at the end. We may not actually answer the presentation or answer the questions when you ask them, we'll hold them to the end. So before we get started, I'll go ahead and turn it over to Gary.

Good afternoon. Thank you, Alan. I appreciate the opportunity to present to you this afternoon. Over the next 30 minutes or so, I'm going to give you an update on the ShotSpotter sales program, including a very brief reflection of the company's accomplishments from 2020. I'm going to summarize the company's sales objectives for 2021 in the context of some of the market forces that are shaping our sales program here this year, I'm going to talk briefly about the transformation that is underway to shift our sales model and organization from one that was aligned around being a domestic gunshot detection vendor to one that is aligned to grow our business as a global precision policing solutions provider. And then I'm going to wrap up with the profile of our sales pipeline and talk about each of the sales funnels that are being developed to drive bookings and revenue across this expanding product suite. So getting started here. First, looking back in 2020. 2020 was no doubt one of the most challenging years we faced from a sales and business development standpoint. I'm not going to spend a lot of time talking about those challenges, but we did want to spend a few minutes talking about some of the key accomplishments that we achieved in spite of some of those challenges. Working from the left to right on this chart, I'm pleased to report that we finished the year at 107% of plan for Respond bookings and with 68 new Respond miles booked for the year. This chart tells much of the story as agencies shutter, sent command staff to work from home and put many technology contracts on hold to deal with more pressing or urgent matters dealing with the COVID pandemic. The result was very few deals were actually canceled, but many of the opportunities we were working slid to the right, many into Q4 and many into 2021. So we finished the year with Q4 being a record quarter with respect to Respond miles. In addition, we signed 12 brand-new accounts, including several very strategic wins for the company. Most notably, City of Detroit, establishing our first anchor customer in the State of Michigan, Harris County, Texas, which is the county surrounding the city of Houston, the largest county in Texas, the third largest county in the U.S. and Broward County, Florida, the second largest county in Florida and the 17th largest county in the U.S. We launched a new program focused on smaller, lower-tier agencies in 2020. And in doing so, we brought in 6 new Tier 4 accounts. Tier 4 accounts to us are agencies that have a gun violence problem, but our agencies with less than 100 sworn officers. In spite of COVID and the distractions and uncertainty that came with the pandemic, we also helped 9 existing customers enter into contracts to expand their ShotSpotter coverage. We entered into 2 very strategic pilots, one with the city of Houston, the fourth largest city in the U.S. The other with the city of Ferguson in Missouri, a very high-profile Tier 4 agency. These two pilots, targeting 2 key strategic accounts each at opposite ends of our domestic target addressable market. The combination of Harris County and the city of Houston represent a major step forward for ShotSpotter establishing a foothold in the Lone Star state, a new state for the company, a state where we had no active ShotSpotter service prior to these contracts, a state that represents a huge growth opportunity for ShotSpotter, with cities like Dallas, Fort Worth, Austin, San Antonio, in a state that has a total of 41 municipalities with populations greater than 100,000 people. We also saw growing interest from a number of retail, distribution, transportation enterprises, as more and more companies are seeing a need to take responsibility for protecting their employees, their customers, their profits and their brand. We wrapped up 2020 with a sales pipeline of 374 opportunities, totaling over $66 million in estimated value. We're going to talk more about that in a bit. Looking over at customer retention, very proud of the customer commitment and customer loyalty that was tested improvement in 2020. Again, in spite of COVID and the distractions and uncertainty in budget crisis that came with this pandemic, we saw many customers get creative, get aggressive, bend over backwards to continue their ShotSpotter service. We heard on a number of occasions, especially on the heels of the growing violence that unfolded in the summer of last year. We had a number of customers basically express that they were facing a huge budget crisis, but they needed ShotSpotter more than ever. By launching a proactive program to identify customers that were at risk, collaborating with those customers, getting creative in some cases and helping them work through their budget crisis by driving modest price increases where we could and securing multi-year renewals, wherever possible, we drove renewals to just over $22 million in bookings against the plan of just over $16 million or finished the year at 134% of renewal bookings for the year. At the same time, sitting down and saying, we know you're facing some big challenges, but we're here for the long haul, and we're prepared to roll up our sleeves and work through ways to navigate this temporary budget crisis together. We also forged some lasting partnerships with a number of agencies who truly appreciated our commitment to them in the communities they are serving. We only -- in the end, we only lost 3 accounts over the course of the year. When you look at the net impact on 2020 GAAP revenue and you weigh the positive adjustments, the negative adjustments in those few lost accounts, we finished the year with a net attrition of about $358,000. So we feel really good about how we finished this very challenging year. Let's now look forward. Moving forward. As Ralph and Sam referenced both on Tuesday, the company has made a great investment to position ShotSpotter with a new and expanded role in the public safety marketplace, and that is a role of a global precision policing solutions provider. As you know, we've traditionally offered response to alert law enforcement to gunfire and thereby assist in protecting citizens from gun violence, enhancing officer safety, improving evidence recovery, rendering aid to victims and enhancing community trust and law enforcement. That has been our sweet spot, our center of gravity for years. And naturally, we're very proud of what we've done to help law enforcement to protect the communities we serve. In 2019, we started expanding our augmenting that solution with Connect, allowing agencies to use historical data and other data sources to determine where their limited resources can best be deployed to the dark crime, and deployed using a data-driven model and not traditional gut based deployment models that can often be unknowingly biased. And now we're in the process of having Investigate to this product suite, an investigated case management solution, bringing data, analytical tools, collaboration tools and robust reporting tools to improve case closure rates, not just gun crime cases but all case types. Sales is on the pointy end of the arrow here. We have a lot of wood behind that arrow, but we have to transform sales from a domestic gunfire detection vendor to this global precision policing solutions provider that means we have to be skilled, credible and competent in representing multiple products. Means we have to be comfortable stepping into a new account in leading with gunshot detection or patrol management or case management, or all of the above. So a number of wheels are in motion to transform the ShotSpotter sales engine. Historically, and still to this day, we're organized around geographic regions with regional sales directors who own everything we do in each meeting. We worked for years in largely a distributed or geographic sales model with a couple of key team members available to support these regions. Starting late in 2019, with the introduction of Connect, we began building a more structured sales model. We're still working through the regions, but we started building a much broader sales support infrastructure to support these regions and drive sales through the regions. We hired a new VP of regional sales to provide leadership, strategy, and process across these regions. We created a new role to exclusively pursue lower-tier Respond sales opportunities. We formalized the sales operations team with proposal support, analytic support, demo support and ownership for many of the administrative tasks required to drive renewals. And most importantly, we established the Product Solutions Group, with subject matter experts or sales consultants for each product offering in the suite and created positions for Respond, Security and Connect. We're now taking the next step in building that sales organization to represent ShotSpotter as a global precision policing solution provider by expanding or building upon that infrastructure we laid just over a year ago. We've moved Latin American sales into this organization, and we're expanding sales operations, solution sales in the regions with the resources, some new hires and some traditional -- or transition from leads that will be dedicated to driving Investigate contracts through these regions. There are many, many steps we're taking here in early 2021 to drive these different products that now make up the ShotSpotter precision policing suite. In the limited time we have together, we just wanted to highlight what we felt were some of the higher priority steps that we're taking in each product area. Starting with Respond, with the impact that COVID has had on many municipal budgets, more and more agencies are exploring federal grant programs. So we have engaged a company that does nothing but write grant applications. We're going to bring them into select opportunities where we know the customer wants ShotSpotter, but the customer cannot secure their required local funding and needs assistance to properly apply for the appropriate federal grant program. As Sam mentioned, on Tuesday, the American Rescue Plan Act is making over $130 billion available to municipalities across the country. We're already working aggressively with a number of agencies educating them on how to secure their fair share of that funding and of course, for ShotSpotter. We're building a pipeline of lower-tier Respond opportunities with the expectation that we will build upon the success achieved last year, year 1 of this program to drive more logos, more new accounts every year moving forward. And we're working a number of very exciting security opportunities that really represent new markets like retail, distribution, sports and entertainment venues that represent significant growth opportunities in the months and years ahead. Looking to the right at Connect, one of our highest priorities on the Connect side is to capitalize on the early adopters that have already been signed and work with those customers to obtain and document, Connect successes and agency testimonials for use in our prospective sales efforts. We're seeing more and more communities take a more active voice in the technology decisions being made by local police departments and many of the opposing physicians are the result of being uninformed or misinformed regarding what technologies like Connect can do to help law enforcement deploy resources in ways that are more fair and equitable for the communities they serve. So we're putting a lot of attention into shaping our sales presentations and messaging to ensure that we're not only speaking to law enforcement and elected officials, but we're also speaking to local communities as well. The most significant step we're taking with respect to Connect sales in 2021, is for the first time we're stepping outside of the existing ShotSpotter customer base and proactively reaching out to new agencies that are not ShotSpotter users today. Up to this point, we've really restricted our Connect sales efforts to existing ShotSpotter customers. So this expands our playing field for Connect by orders of magnitude moving forward. And then looking at Investigate, our sales model for Investigate is really in its infancy. We're just beginning to define a sales program, recruit dedicated regional sales resources, define pricing, establish diagnostic processes, demo strategies and presentation material. And we're currently evaluating options to establish 2 Investigate pilots, one within the ShotSpotter customer base and one outside of the ShotSpotter customer base. Immediately following the product launch in Q2, we'll begin building an Investigate sales pipeline. Most of our sales efforts in the field of this year will be about filling that sales funnel with strong lead. And we'll talk more about that in a bit. So with that background, talk a little bit about sales objectives for 2021. No doubt, there have been many forces or there are many forces that are shaping or reshaping our market today with many local municipal budgets and prices with literally dozens of law enforcement leadership changes around the country and growing opposition and a growing voice for many community groups and civilian oversight groups, we do face a number of challenges in the public safety market today. At the same time, increases in gun violence over the past year, and recent active shooter events or tragedies are causing more and more agencies and more and more enterprises in the private sector to bring gunshot detection to the front burner. As we mentioned earlier, the American Recovery Act is pushing billions of dollars to local municipalities, and many are already looking at how to take some of that money to protect their citizens from gun violence. Staffing shortages of patrol resources, coupled with growing scrutiny or accountability from communities are prompting more and more agencies to evaluate technologies like Connect to help them deploy their limited resources in ways that rely upon data and avoid the biases that can often undermine gut level deployment models. So there are many forces at play in the market today. Some are working for us and some are working against us. In 2021, we set the goal of 90 new Respond miles for domestic sales. That is 80 traditional Respond miles and 10 from the lower tiers of the market. That equates to new Respond bookings totaling just under $7 million in new subscriptions for the year. We have over $33 million in contracts coming due for renewal in 2021 with help from customer success, customer support and others across the company, we will be laser-focused on securing hopefully every one of those pending renewals. We've set goals of $600,000 for new security bookings. That equates to approximately 8 new security contracts. We've set goals of $800,000 for new Connect bookings, and that too, equates to approximately 8 new Connect contracts. We have no sales bookings objectives for Investigate for 2021. As previously mentioned, we're really going to be focusing on building a sales pipeline for Investigate in 2021 in launching a sales program for Investigate. So with those objectives in mind, I'd like to take a look at the ShotSpotter sales pipeline that has been developed, created to support these objectives. First, look at U.S. domestic Respond. We have a very healthy and robust Respond sales funnel. We have over 250 identified opportunities, totaling over $50 million in estimated value. I would point out that this funnel represents about 10x the Respond sales bookings objectives for 2021. About 80% of these opportunities are new customers, 20% are expansions of existing customer systems. And we currently have 9 opportunities where we are in some stage of contract negotiations, meaning we have been selected, and we are moving forward in creating the necessary paperwork to enter into a contract with that agency. In 2021, you will see us focus on expanding on the strong start we generated in the lower Tier 4, Tier 5 market last year. You'll see us working to capitalize on the early successes we're having in states like Texas, with the initial anchored tenants that we referenced a bit earlier to drive more tipping point scenarios, like we've done in states like Ohio and Florida and some others. And you also see us focus more on select counties, like Harris County and Broward county, where the county Sheriff's office has responsibility for public safety and unincorporated areas around the county. Turning then to U.S. domestic security opportunities. Here, we're developing a much more diverse sales funnel. I say that because our security funnel is changing very quickly from what was largely a list of colleges and universities to a list that now contains some corporate campuses, big box retailers, some state capitals and some distribution opportunities. We have over 25 identified opportunities totaling about $2.2 million in estimated value. And this funnel represents about 4x the Respond sales bookings objectives for 2021. When you look at Connect, we have a very solid Connect sales funnel, but we expect to see this expand dramatically in 2021 as we venture outside our ShotSpotter customer base and open the aperture to the entire U.S. public safety market. We have over 60 identified opportunities totaling about $5.8 million in estimated value, making this funnel about 7x the Connect sales booking objectives for 2021. And again, that is before we've taken any steps to start selling outside of the ShotSpotter customer base. In 2021, you'll see us focus on building upon the successes of our early adopters. To drive deeper into our existing customer base and begin selling Connect to agencies that have never done business with ShotSpotter before. So there's a lot of upside here. We're just really getting started with Connect and very confident that you're going to see the sales funnel grow over the course of the year. That takes us to Latin America, Caribbean sales. Here, we're talking about Central and South America as well as the Caribbean. We have a number of opportunities we're working, primarily in Brazil, Mexico, Colombia, in several Caribbean nations. We have over a dozen active opportunities identified, totaling about $6 million in estimated value. This represents about 6x the Respond sales booking objectives for this geographic region. Our big challenge here is COVID even still. Brazil and to a slightly lesser extent Mexico is still reeling from the COVID pandemic, and it's been very difficult to capture and retain the attention of many government officials. We expect that challenge to remain until many of these countries can roll out vaccines and start defining a clear path to normalcy for their citizens. Last but not least, our domestic Investigate opportunities. As mentioned before, here's where we're really just getting started, but it's all upside. We have a small handful of opportunities that were really being worked by the leads team prior to the acquisition. We have about a half a dozen opportunities we're working that totaled somewhere around $3.6 million in estimated value. These include several really exciting opportunities in the federal space, really a new market for ShotSpotter. As previously referenced, we've just begun the process of identifying 2 pilot customers, one, the existing ShotSpotter customer and one new. And as we previously mentioned, this year is going to be all about building the sales funnel for Investigate. We'll start by approaching select ShotSpotter customers, but will quickly go beyond that to pursue leads across the entire U.S. public safety TAM as well as some select state and federal agencies. So this is a real exciting new opportunity for the sales organization, all new and all upside. So that is a quick summary. I hope you find it helpful. Thank you for your time and your interest. I would like to close by letting you know that I've been selling technology solutions to public safety agencies for almost 30 years now. I don't recall ever being armed with a unique blend of new, exciting and unique products that make up our precision policing suite today. We are uniquely positioned with products that no other company is providing with sales and marketing teams that are truly the best in the public safety market. And we're selling in a market that is going through tremendous change, but a market that is looking more and more for new and innovative ways, meaning innovative technologies to protect and serve. I think 2021, and the next few years are going to be very exciting for all of us at ShotSpotter. I appreciate your time. And with that, I'm going to turn the floor over to Mr. Paul Ames, our favorite Senior VP of Engineering.

Thanks, Gary. I'm going to spend the next 25 minutes or so, walking you through our ShotSpotter Respond and Connect products from a technology perspective. I have with me a key member of my team, Simen Oestmo, who's a data scientist, primarily focused on Connect. You'll be hearing from Simen a little later. I'm going to start with ShotSpotter Respond and take you through a couple of slides that describe some really cool projects focused on driving up the quality of Respond service delivery. But first, I want to take you through a quick recap of how wide area gunshot detection actually works. And to do this, I'm going to use the Insight app that Sam mentioned on Tuesday that's delivered as part of the Respond service. So rather than attempting a high wire act in this virtual format, I prerecorded a short video of the demo. So take it away, Paul. This map view shows a fictional ShotSpotter Respond coverage area of about 2 square miles for a city that we internally call Metropolis West. This red line here shows you the boundary of the coverage area and these squares on the map are the individual ShotSpotter acoustic sensor locations. As an internal user, I have access to a lot of data that allows me to assist in management of the delivery of our service. And specifically, these ShotSpotter locations are not divulged to the police department as dictated by our privacy policy. This yellow pin here shows the location of an individual gunshot incident that comprises of 5 individual shots. You'll notice that some of the sensors here are colored green. What this is indicating is that these sensors heard this particular gunshot incident. The primary role of a sensor, an acoustic sensor is to precisely time stamp the arrival of the acoustic event. The propagation time of the audio from the shooter location to this near sensor that's hiding under the pin is going to be almost 0. The propagation time from here down to here, the sensor, it's about 2 kilometers away, on the other hand, is going to be about 3 seconds. Let's take a look at some detail. What we're looking at here is a summary of the individual sensors that heard the -- this particular incident, along with their distance away from where the incident was located. There were 20 sensors in all. It is the difference in time of arrival of the acoustic event at these different sensors at varying distances away from the shooter that allows us to precisely locate this particular incident. After we've located the incident, it's time to classify. The first stage of classification is machine classification. We use a deep learning neural network classifier to take the metadata associated with the incident, run it through the classifier and come up with a classification that allows us primarily to filter out incidents that we feel really confident are not gunshots. In this particular case, this particular incident is classified as 98% likely to be gunfire. Let's take a look at this section, down here. What you see here 4 waveforms from 4 sensors that heard the gunshot. It's these 4 waveforms, plus the audio, plus the metadata, plus the machine classification that the human reviewer considers in their final classification step. If the reviewer believes that the acoustic event is a gunshot, may hit the publish button, the incident is pushed to the patrol officers in the field that are using our application. And we're at the end of the process. This process from beginning to end, takes typically less than 45 seconds. We'll just take a listen to this incident, just to see if the machine classifier actually got it right. [Presentation]

I think it did. Thank you. Okay. Let's turn our attention to driving our performance. When Joe and Nasim talk later this afternoon, you'll see that we have a bit of a preoccupation with driving continuous improvement with gunshots, whenever we miss or mislocate, we always investigate the root cause. In general, when we miss, it's because not enough sensors heard the sound. And in general, when an incident is mislocated, there were enough sensors that heard the gunshot, but we didn't do a good enough job of calculating the result. Calculating locations is no easy task, as Rob Calhoun, one of our cofounders, illustrated during last year's investor meeting. Motivated by the challenge and desire to take a big step forward at the beginning of 2020, we started a project to rewrite some of the core algorithms that -- specifically to resolve 2 situations where our root cause analysis told us we can really move the needle. The first area of improvement was in situations where the calculated location was significantly off from the ground truth. These areas were often introduced by coincident, but unrelated sound. So imagine a gunshot occurring in one area of the city and a backfire occurring at the other end of the city. If the backfire was inadvertently included in the location calculation, the location would be significantly off. So at a high level, the solution there was to consider the physical locations of the sensors rather than relying solely on mathematical consistency. The second area of improvement required us to reassess our priorities when calculating locations. So the old algorithms were optimized to calculate a location in the shortest possible time. In some instances, late arriving data from sensors perhaps because of network latency were not considered as part of the solution, reducing the level of accuracy. The change that we made was to trade a second or 2 increase in publication time for improved accuracy, which it turns out better aligned with police department priorities. The new algorithms were completed midway through 2020. When the new and old algorithms were running parallel in multiple cities, and the results were consistently good. So the picture on the slide captures a multiple shooter incident. The yellow pins represent locations calculated by the old algorithms and the blue, the new. The ground truth from this particular agency confirmed that the blue pins were on the nose. So although the improvements you see here in this particular incident are fairly modest, they're actually less than 20 meters. As Regan described on Tuesday, accurate locations drive evidence collection, recovery of weapons and locating gunshot victims. So location accuracy is critically important. These new algorithms were rolled out to all customers during the second half of 2020. The technology team invested a fair amount of time in 2020 to service KPIs through an internal dashboard. When an agency reports ground truth, this is added to our incident database that can be used to assess some aspects of human reviewer performance. These on the job classification accuracy KPIs can, of course, be used to drive targeted training plans. To execute these training plans, my team is currently working on the first version of a new training service. So at a high level, the training service will assign challenges to reviewers. The reviewer uses the standard reviewer application they use in production, but are presented with a set of incidents curated for a specific training purpose, for example, differentiating between fireworks and gunfire. Ultimately, the training service gives us another set of KPIS. So our plan is to use both of these KPIs to review workflow decisions in real time. We're piloting a feature called peer review, whereby policy or on demand a reviewer can request a peer to validate a classification decision. The assignment of this incident will be made by considering the KPIs associated with the individual reviewers on shift. Basically, the goal is to assign the peer review task to someone who is more skilled at classification for this particular situation. So all of these approaches drive up the quality of Respond service delivery. Now let's talk about Connect. The primary goal of Connect is to help drive down crime by directing officers to patrol in the parts of the city where Connect assesses the highest risk of crime occurring. Wendy Ethridge will be showing a Connect demo later this afternoon, that will give you a user perspective of the product. But for now, let's focus on the core of Connect, the crime risk assessment model, Connect is a machine learning application. We use a machine learner to discover relationships between crime data and publicly available data that describes features of when and where the crime occurred. The diagram on the slide shows a high level the data we use, and what we do with it. So let's start with the data. Unsurprisingly, there are multiple crime theories that attempt to explain when and where crime occurs, risk terrain modeling suggests the proximity to physical features of the city, such as the location of schools, bars, overpasses, et cetera, drive the likelihood of crime, temporal cycles suggest that day of week, time of day, season of the year, et cetera, are correlated with crime. Near repeat patterns suggest that crime occurring in one location is likely to be repeated subsequently in adjacent locations. So think, for example, about a rash of residential burglaries in a neighborhood. So all of these theories have some value and are used to varying degrees by police agencies. So for Connect rather than selecting a specific crime theory we consider all of them. The data we use for modeling are a superset of all the data that underpin the competing crime series. So this is a novel approach. We're effectively allowing the different crime theories to compete for the best prediction result. So let's look at the process, starting on the left-hand side of the diagram. First, we source and ingest a minimum of 3 years of historical data to train the crime risk assessment model. Then we test the model, again, 6 months of holdout data to confirm that it performs as we expect. Prior to each shift, we ingest updated data, such as the weather forecast for the next 8 hours and run them through the model to come up with crime predictions. Finally, the crime predictions are weighted, converted to risk scores and run through an allocation engine to create a patrol plan that you see on the right-hand side of the diagram. I'm going to hand over to my colleague, Simen, who will contrast how Connect compares to other approaches for creating patrol plans and take a look at how we mitigate against bias. Over to you, Simen.

Thank you, Paul. Okay. So let's talk about bias mitigation. First I want to provide some background. Generally, a significant amount of patrol time is dominated by responding to calls which are calls initiated by the community for help related to violent crimes, such as shootings, assaults, robberies or non violent crimes such as burglaries or thefts or motor vehicle theft. When not engaged in responding to calls for service, officers have something called uncommitted time, which is when they have some degree of discretion on what to do or where to go and the intent is to use this time proactively: to deter crime or suspicious activity and gather input from the community. There are several formal methods by which police have traditionally directed their resources during this uncommitted time. And they fall into 3 main buckets, and you can see that on the slide. Gut based policing, hot-spot policing and predictive policing. First 2 approaches are most frequently used by police today, and agencies with at least 1 crime analyst tend to do hot-spot policing. While well intended, these options have flaws that do not take into account potential harm to the community. This may leave citizens feeling over policed and discriminated against and not actually maximizing the crime deterrent effect. And these 3 methods mainly suffer from what I here called spatial bias. Spatial bias, spatial because they all have to do with location. In gut based policing, the spatial bias comes in 3 forms, bias because some communities call in crime more than others, and thus police attention is focused on those areas where people call the most or at all. And bias -- number two is bias from police patrolling some areas more than others due to "knowing" where crime is happening and this knowing can be due to more subjective bias or discriminatory behavior, unintentionally or not. And the third one is reinforcement bias, which happens when police discover crime while on patrol, then that data gets used in the decision making the next time the officers patrol. Discovered crimes are usually crimes such as drug crime, prostitution, trespassing, theft. In the second approach, the hot-spot policing, aggregated data on where crime happens and how it clusters is used to determine where to go. This approach alleviates much of the subjective policing bias, but it still suffers from community calls for service bias and from reinforcement bias since all types of crime, both discovered and called in by citizens, are used to model the crimes stat. In the newer approach, termed predictive policing, subjective police knowledge is countered by relying on crime data with precise times and locations to predict where crimes will occur. However, if you are predicting crime times that are predominantly discovered by police, such as drug crimes, you are creating reinforcement bias where the police will loop back to the areas where they discovered crimes themselves. Additionally, the use of only crime events as variables to predict crime do not alleviate the spatial bias that some communities calling about crime. Now in Connect, we are focused on limiting all 3 forms at the spatial bias state. First, we model with Part 1 crimes. That is more serious crimes, such as burglary, robbery and motor vehicle theft, aggravated assault, which limits reinforcement bias because these crime types are rarely discovered by the police out on patrol. This means that we are limiting the fact that discovered crimes, having police coming back or looping back to the places that they themselves have found the crime. And we also use our own ShotSpotter gunshot data that model the risk of gunfire inside of our coverage realm. This data source is much more objective in nature as it sidesteps the issue of people calling in gunshots and when and where police respond. Secondly, we consider multiple crime theories and patterns in our modeling, which Paul just described, such as risk terrain modeling, weather patterns, social cohesion and seasonality. And this helps to mitigate spatial bias due to different calls for service rates among communities. In other words, the use of these variables, such as weather, city features, census data, helps us model the context of the crime, which ensures we consider risks in areas where no crime has been called in or has -- or is rarely called in. And finally, we use what we call an allocation engine in our post modeling to increase fairness in patrolling. And so on the next slide, I will talk about that. The goal of allocation engine is to help reduce the policing gap. What I mean by that is that we want the meter patrolled in high-risk areas that often get visited by patrols and allocate more of the patrol time in underserved areas. The allocation engine uses risk scores that consist of cost of crime values in addition to the prediction of a crime occurring. The cost of crime weights allows for appropriate weighting scale between crimes with different seriousness to be considered when assessing the risk to the community. This helps prioritize areas with more serious, violent crimes, for example. The allocation engine considers all areas with risk above a set threshold and then randomizes the patrols assignments among those areas to avoid oversaturation and looping of any particular area during a shift. The spread of patrol boxes among a range of high-risk areas helps reduce policing gap, thus increasing fairness in police patrolling. Over to you, Paul.

Thanks, Simen. In the interest of time, I'll finish by quickly covering 2 of the 5 areas listed here that we're considering for Connect. First, the team is currently focused on launching a new Connect mobile app with a consistent user experience with our other ShotSpotter apps. The screens on the slide is the Connect app that's under development. This will drive consistency in user experience across our precision policing platform, including user authentication, how to reach out to support, maps filing, et cetera. This app will be launched over the coming months. Second, Sam outlined yesterday, 2 efficacy studies performed in Greensboro and Philadelphia. So both of these studies were designed and executed out-of-band from the product, meaning they required a tailored test design, execution and analysis of results by data scientists. This kind of efficacy test is going to continue to be extremely important, but a lighter version of efficacy reporting would be extremely valuable as part of the Connect product. I believe that ShotSpotter is uniquely positioned to drive this kind of product forward because of what's in our DNA, helping police provide equal protection for all. I see it myself every day in team conversations that revolve around community impact, police trust and bias mitigation. So this really is an exciting time for Connect. Okay. That wraps up our technical look at ShotSpotter Respond and ShotSpotter Connect. Let me hand over to my colleague, Joe Hawkins.

Thank you, Paul. As you all saw from Paul's and Simen's presentation, and as many of you know very well, ShotSpotter Technology is pretty amazing in terms of what it does, how it works and what it's capable of doing for our customers. But capability powered by great technology in and of itself does not translate automatically to performance out of the box when exposed to the real world, which is a chaotic and unpredictable system itself. Every city and every community, even different neighborhoods or districts within the same city is different, geographically, topographically, environmentally, even acoustically. And because of those differences, an acoustic gunshot location system must be implemented, managed and maintained with careful consideration of the environment in which it's being deployed. We often describe this as a blend of art and science, and the fusion of those 2 elements is a product of expert knowledge borne of deep and broad experience. This in a nutshell is what Operations does: deploy new ShotSpotter service to customers and keeping it running reliably from that point forward. Now service implementation and service assurance may sound like 2 different things, and they are. But they are united by a common thread, and that is the mission that drives operations. We are a mission-driven organization, and that manifests in a few ways that I'll touch upon over the next few minutes. First and foremost, though, is what you see in red italics right there, "We ensure the service our customers want to pay for works as promised... or better." To support that mission, Operations is comprised of 3 somewhat autonomous functions, a three-legged stool, if you will, but nevertheless have some important synergies. Put together, they form a virtuous circle of continuous improvement, as you see illustrated in my corny little graphic there on the right. The first leg is service implementation, leading the project teams in the design configuration and deployment of new or expanded service to our public safety and security customers. The second leg is service assurance, monitoring, managing and maintaining our rapidly expanding network of IoT-enabled acoustic sensors that are the backbone of our gunshot location service. The third leg is a commitment to continuous improvement. And this is what completes the virtuous circle I mentioned. That perpetual machine, if you will, is propelled by the overarching principles of measure and learn from everything and apply what we learn to make things better. I'll give you a few examples of how we put these principles into practice as we go. But first, let's take a closer look at each of these 3 components. ShotSpotter service implementation for Respond, Connect and our Security offerings is led by our project management organization. Now project management is, of course, a professional discipline, practiced by virtually every business in every industry in the world, whether that happens to be in technology, financial services, construction, research and higher education or government. In fact, some of the most common project management tools and techniques, like the image you see there on the upper right, originated in the U.S. military decades ago. Now ShotSpotter's project management team is a little different in that our project managers wear 2 very different hats. The first is classic project management. They lead the cross-functional interdisciplinary project teams charged with planning, implementing and activating service for our customers, including installation of sensors, provisioning and configuring our cloud-based compute and application services and the onboarding and training of those customers so that they're ready to hit the ground, taking full advantage from day 1 at go live. Project managers own the master project plan, and they manage schedules, resources, risks and change to make sure that high-quality service is delivered on time and on budget. The second hat is truly unique to ShotSpotter. Our project managers also design our acoustic sensor arrays, determining how many sensors we want and where we want them based on the unique characteristics of the planned coverage area and identify the sites that we'd like to place a sensor, usually tall buildings, but sometimes utility poles or street lights, again, depending on the physical topography of the neighborhood. They then have the responsibility of finding the owners or managers of these properties, selling them on the altruistic value of volunteering the use of their rooftop for us and securing written permission for us to install. This is essentially a sales and community relations job, and they're very good at. Lastly, our project managers plan, organize and conduct live fire tests with our customers. We call the police; the cops shoot the guns, all very safely under carefully controlled conditions but outdoors in public when it's advisable to do so. The purpose of these tests is generally to benchmark performance because we know where the shooter is standing, though they can be used for diagnostic purposes as well. It's the second hat the project manager wears where expertise borne of experience really matters. So allow me to introduce you to our project management team. That's the sixth gentleman in the upper right there, well 6 of the 8 in the picture anyway, the other 2 are former ShotSpotter project managers who moved on to other roles within the business. But once a project manager, always a project manager, and I really like that picture. So our project management team as it stands today, has been designing and implementing ShotSpotter's acoustic gunshot location services for a long time, longer than anyone, anywhere has ever done, in fact. 40 years collective experience, working directly with law enforcement and the communities they serve, approaching 200 deployment projects, which is over 275 separate ShotSpotter systems covering almost 800 square miles now. From over 100 miles in Chicago and close to that across the 5 boroughs in New York City to the smaller Tier 4 or 5 cities Gary described, like Monroe, Louisiana or Kankakee, Illinois. From the densest and noisiest urban centers to the broader, flatter residential neighborhoods of smaller towns and semi rural communities and everything in between. By now, we've tackled just about every urban challenge that's been thrown at us many times over. And each new project we undertake today looks like many others we've already done. Now this harkens back to the third leg of the stool I mentioned earlier, continuous improvement. We have accumulated the world's largest knowledge base on the design and performance of acoustic gunshot location services. We know how big our coverage areas are. We know their acoustic environmental properties. We know how many sensors are there and how our service performs. And with every new project, we apply that knowledge to design and implementation of the next system, ensuring we have the right number of sensors we want for -- and reliable service quality, but also optimizing for efficiency in terms of capital investment and time to go live. So speaking of optimizing for efficiency and time to go live, I described a little bit about the who behind our service implementation projects and what makes them special. Now I'll briefly show you what it looks like from a what and when perspective, otherwise known as our standard deployment project life cycle. As much as the design of our sensor arrays are customized to each community, like a bespoke suit, our approach to executing these projects is standardized, consistent and repeatable. This lends itself to highly effective, high-performing project teams. After a couple of hundred projects, team members know what to expect, what they need to do and when. The pie chart you see on the right shows the basic elements at play in all projects, roughly approximating the relative work effort for each element. Permissions acquisition is generally the most labor-intensive and time-consuming, although onboarding customers, especially new customers who haven't put a lot of thought into policies and practices yet, takes more energy -- the size of the permissions and onboarding effort can shrink or expand depending on the size of the contracted coverage, 3 miles versus 10 or the size of the law enforcement agency. Laid out over time in a schedule, we use concurrent engineering practices to parallelize as much work as possible to achieve the shortest possible duration from start to finish or from contract to go live. In fact, wherever -- whenever we can, with the agency's approval, we like to start our work before the contract is executed. We found that this is a risk well worth taking as permissions acquisition is almost always the long pole of the tent, and the lion's share of the project cost comes with sensor installation a bit downstream. But the short -- overall time of the deployment cycle means the customer gets their service faster, a big win for them; and we recognize revenue sooner, a big win for us. Now while this particular model is specific to ShotSpotter Respond's SecureCampus and SiteSecure, a very similar project model exists for our ShotSpotter Connect. Though there, the critical path or long pole of the tent is the data acquisition and creating, training and validating of the crime risk prediction model for directed patrols. Switching gears now to the second leg of the stool, service assurance is the principal domain of network and field operations. This small but mighty team is responsible for everything to do with the installation, monitoring, management, repair, upgrade and replacement of acoustic sensors and the other ancillary hardware, like radios, power supplies, mounts and so forth in the field. There are 2 distinct functions within this team, each staffed by specialists dedicated to those roles, field systems and field service. The field systems teams are the eyes and ears overseeing the health and performance of more than 18,000 sensors in the field today, and that number is expected to grow to 20,000 or more this year. They remotely monitor and manage our network of sensors, 24x7, 365 days a year, with the help of a lot of automated systems and provide second level diagnostics anytime we see devices or sensor arrays showing any indication of potential trouble. Keep in mind, our sensors, while built and ruggedized for long-term outdoor environments and are generally extremely reliable, still rely on electrical power that we don't directly control. So it's not uncommon for sensors to occasionally drop off the network. Again, that's why we overbuild our sensor arrays in the first place. If a sensor goes off-line, it doesn't come back in a reasonable amount of time, as they usually do in the event of a temporary power outage, our field systems engineers troubleshoot and attempt to restore the sensor remotely. If they cannot, they hand it off to the field service team. So the field service team are the eyes and ears, I guess you could say the field team are the eyes and ears. You could say the field service team are the hands and feet of the team. Our field service managers are responsible for scheduling, dispatch and management of field service technicians for both sensor installation and maintenance. We employ a team of our own field service techs and electricians and a cadre of third-party service partners to provide the regional coverage we need. Our internal tech service installation team leads our large projects. They train our third-party partner techs and provide dedicated coverage in the largest, most densely populated metro areas like New York City, Chicago, South Florida and the Bay Area in San Francisco. Now you, no doubt, noticed that I said we expect to grow our footprint from 18,000 to 20,000 sensors this year. Yet I've got 5,000 new installs noted on this slide. The difference is a very large maintenance upgrade project that we've just kicked off, necessitated by both AT&T and Verizon's announced sunsets of the 3G cellular band in 2022. AT&T 3G service will be discontinued next February. And Verizon will follow suit by the end of next year. And so our field service team will be systematically replacing all of our 3G sensors at a clip of about 250 to 300 a month with a goal of finishing a month or 2 ahead of their respective sunsets. Our network and field operations organization plays a big role in the third leg of our stool, the continuous improvement program. But before I dive into that, I need to tell you about 1 last vital part of the organization, and that's the service provisioning and engineering function. Service provisioning engineering is a bit of a bridge between service implementation and service assurance, having a solid foothold of both camps. Just as you see here, it is principally responsible for the allocation, setup, configuration of the cloud-based database network and application services that our sensors connect to for gunshot location services and that our customers connect to when they log in to get access to the ShotSpotter alerts and historical gunshot data. In the case of ShotSpotter Connect, they are also -- they're comparable services for connecting customers with the directive patrols and associated reports. This team manages our ShotSpotter Connect implementation projects as well. And lastly, they manage one of our most important tools, ServiceMax, that I'll get into in just a moment. We use a number of technologies and operations to supplement and amplify our human capabilities. But the 3 that I want to tell you about just briefly today are network monitoring, ServiceMax and something we call Sapphire. We use 2 primary tools for network monitoring, diagnostics and performance management: Prometheus from Grafana Labs and our own homegrown status tool. Prometheus provides fully automated remote monitoring of sensors and services, aggregated at the coverage area level and alerts us to events worth looking at 24/7. In the event a preestablished service threshold is exceeded, say, an outage on a local electrical grid that kills power to a large number of sensors, alerts are sent via e-mail, text or even a Slack channel, to watchers who can begin to investigate and take corrective action and to notify customers who may be affected by a temporary disruption of their service. One of the features we really like about Prometheus is a powerful graphical user interface for examining and conducting root cause analysis for historical events, whether that might be a network or a systemic issue or individual incidence of undetected gunfire. That historical data is the foundational building block to our continuous improvement program in that it provides visibility into patterns and trends that might suggest a chronic problem or gradual degradation of service that can be isolated and solved at its root cause. Status, on the other hand, is an internally developed tool going back to the earliest days of ShotSpotter, and it does just what its name suggests: device-level operational state right now and real-time telemetry on several health indicators to enable health and performance diagnostics on individual sensors and a bird's eye view of sensor array health, both of which inform our immediate field service plans and priorities. ServiceMax is a tool with even greater strategic importance for us. It's an application that lives in the Salesforce.com ecosystem and is designed for field service organizations like ours. We use it to track and manage service on our sensors and the sites they are installed as well as the vendors and technicians who service them. Project managers use ServiceMax to track permissions on their new deployment projects -- to our field service team to schedule new sensor installs. And ServiceMax work orders make tracking all sensor touches, whether it's installation or maintenance in the field, easy. Most importantly, though, is that tracking the history of all of our assets from cradle to grave, including the people that work on them, in 1 system provides the essential foundation for long-term sustainable quality improvement. It gives us the rich historical data we need to identify the most common causes of maintenance and repair trips, whether it's a failure from component or the way a particular vendor connects to power, so we can solve those problems and forever eliminate them as drivers of maintenance costs. And because field service maintenance is the largest driver of operating expense, that systemic quality improvement, in turn, will lead to long-term sustainable growth and profitability and gross margins. Lastly, Sapphire is the code name for a new interactive modeling tool we've been working on internally. You've heard me say in the past that sensor array design is a blend of art and science. Well, Sapphire aims to move us a little away from the art and more towards science. Leveraging the massive amounts of data we have accumulated over the years about the performance of the many ShotSpotter systems we have implemented and been operating for years. And we've identified 2 primary use cases so far. First is a sensor array design aid for our project manager, allowing them to inspect the as-built design and performance of existing coverage areas that are comparable to the new service we're implementing. So they can design for the redundancy, resilience and performance we want, while also optimizing for efficiencies, again, in terms of capital investment and speed to market. Taken together, these technologies are the keys to our progress towards our long-term objective of delivering the highest quality service while reducing the cost to do so. And with that, I would like to introduce Nasim, who will take you through the customer support and professional service organization.

Thank you very much, Joe. Good afternoon. My name is Nasim Golzadeh, and I lead our Customer Support and Professional Services organization. Well, under the umbrella of Customer Support and Professional Services, we really have 5 different teams that work together and provide service to our customers. And those teams are incident review center, customer support, forensic services and litigation support, integration services and training services. And today, we're going to briefly focus on the first 3. Let me begin with IRC, which is the heart and the human engine behind incident classification and review. Many of you are already familiar with IRC, IRC's operations are designed around 24/7, 365 service to our customers and again, that is just a continuous operation. In addition to their primary role, for incident review and classification, they are also in charge of providing customer support, Tier 1 customer support to our customers. Staffing is always extremely important for the IRC because it is important for them to be exactly staffed and appropriately staffed. And we use a smart way of managing that staffing by analyzing our historical trends and coming up with models that design our staffing based on the anticipated volume on different days of the week and hours of the day. That model has served us really well and has made us extremely cost-effective and efficient. Historically, our IRC has been located in our headquarters in North California, but in the past couple of years, we had the vision of having another center of gravity, another center of excellence on the East Coast which would provide us with 2 benefits. First, it is -- having resiliency of locating one of the most important teams within our organization into separate physical locations. And also being able to host guests and visitors, prospects, customers, elected officials and others to come and see IRC in practice, in person because we know that, that experience is extremely powerful. Well, in 2020, we achieved that goal, and we have a really nice impressive facility and office in Washington, D.C. within walking distance from U.S. capital. And as soon as it's safe and it's practical, we're going to have a grand opening event. When we think about incident review and classification, there are 2 really important factors that go hand-in-hand and are equally important. The first one, of course, is accuracy. Because in our business, there is very little tolerance for false negatives and false positives. And the second factor is speed because every second counts. And our team is extremely capable. They perform this function on average in about 45 seconds. From trigger pull to when the incident is published to the police department. And the reason they can do that is twofold. The first set of reasons for that is -- has to do with our technology. Paul covered some of this. But for example, the engine behind the machine classification is extremely sophisticated, and every time that an incident is presented to human for review, it goes with the machine classification and a confidence level tied to that. This is exactly the information we use for our suppression tool to control the incoming incidence when there are unusual activity, for example, extreme firework activities, wind or helicopters and that has made us very, very effective and very efficient. Another example of technology is proximal incidence which paints a very nice context around the incident that is being reviewed by showing the prior incidents within a specific proximity and time prior to the incident that is being reviewed. Peer review is another example. Peer review in simple terms is asking for a second opinion on a classification before classification is finalized, and that is a more recent capability that we have added to our toolbox. But aside from that, the second group of factors have to do with the incident review center training and their experience. So they go through extensive training and certification process to teach them how to perform the auditory review of the incident or how to use the waveform or sensor participation in determining whether an incident is or is not a gunshot. But if you talk to the incident review center reviewers, they will share with you that there are other intangible factors; the type of experience that they have gathered over the years. So for example, even gunshots sound differently in rural areas versus how they sound in dense metropolitan areas or closer body of water. They will also probably share with you that patterns of activities are very unique to different regions. So those patterns are different in Oakland than they are in Pittsburgh or Las Vegas or New York City. And that is the type of knowledge that we have gathered over the years, and we have contributed that to the vast knowledge base for our team. And that is exactly and precisely what sets us apart from competition. That is our competitive advantage. I cannot think of any other company in our space that has the extensive team that we've got with 25 highly qualified reviewers with the average tenure of 39 months. And that tenure has been lowered just a little bit, by recently adding a few folks to provide service for our D.C. office. But they perform with an extreme accuracy of better than 99%. And we -- I don't think that there is any other company who can claim to have the type of volume we've got to continuously build upon that knowledge base. Just in this past year, each of our reviewers reviewed more than 260,000 incidents. In 2020, we were all faced with a challenge that really tested our resilience, and that was COVID. So shortly after the pandemic broke out, we conducted a risk analysis and concluded that it was not possible for us. We would not subject our team and ultimately, by extension, the service that we provide to our customers to such risk. And we had to go to a remote mode. And it took us only a few days to provision the logistics, put our team through an orientation period and go 100% remote for the entire company, but also for the IRC. That happened on March 12, 2020. And the reason we were able to do that was, of course, the capabilities within the organization. But some of the investments, technology and infrastructure investments that we have done prior to the pandemic. As an example, we have an internal tool. We call that the leader agent, and its job is to distribute incidents to reviewers in a smart way. So it looks at multiple factors, for example, the overall size of the queue, how many incidents are being reviewed by each of the reviewers, some of the other factors. But also it dynamically prioritizes the incidents so that those incidents that are highly probable to be gunshots or have a higher probability are always prioritized ahead of the ones that are less likely to be gunshots. Peer review is another example. In general, communication is extremely important for the IRC, being located in the same room, being used to communicate on a continuous basis. Everything from when they publish an incident, they provide awareness to their peers or when they wanted to ask for peer review or simply just communicating a 5-minute break, and we could not let that to fail. So we took advantage of a channel-based messaging tool that we had already implemented. And we created dedicated channels to the IRC, so that they could take advantage of that and communicate as if they were in the same location, even though they were in 25 different locations. Peer review, Paul briefly talked about it, but that is a capability that our Technology team created for the team based on our unique requirements, and that has been extremely instrumental. Last but not least, as leaders, it was extremely important for us to be able to observe IRC's performance and manage that performance in real-time and as it was happening. And having access to a number of dashboards, some examples you are seeing on this screen make that very possible and very easy for us. So for example, at any given time, we can see the flow of incoming incidents into the system, and we can see how those incidents are being distributed. The queue size for each of the reviewers, the velocity, the speed that the incidents are being reviewed. And if we have any bottlenecks or we are experiencing any delays. If we have an unusual surge in incoming incident volume, then we can quickly see which zones are most contributing to that, and we can perform a diagnosis. So if the reason that we're having the surge is related to unusual hardware activities, for example, or wind or things similar to that, then very quickly, we could apply our suppression to normalize the situation and continue to perform our review process extremely effectively and efficiently. Here are the results. So this graph shows the year-over-year change in the volume of incidents being published, gunshots being published to our customers. And as you see, since the beginning of the year, to the end of the year, it continued to increase. And even though year-over-year, we had a 60% increase in the number of gunshots published to the customers, we maintained our accuracy, and we even had a slight improvement over 2019. We continue to perform remotely, and we very successfully managed our 2 most important peak times, July 4, and New Year's eve completely remotely and with extreme success. In fact, those were the most successful July 4, and New Year's eves in the history of our company. We recognize and we are confident that this trend will continue. The incident volume will increase plus as a company, we will grow, and we will expand our footprint, but we are very well positioned to scale in a cost effective manner and continue to maintain our performance. With that, let us transition to our customer support. Our customer support organization is structured around Tier 1 or basic support and Tier 2 or advanced support. Our Tier 1 support is performed by the IRC. And because IRC is live and it's operating around the clock, that has given us the advantage and the opportunity to provide 24/7 live support by a live human being to our customers, which is extremely unique. And I can say that probably we are one of the only vendors who provide that type of service in public safety. About 83% of all support inquiries are resolved at Tier 1, and we have a very impressive track record of 99% first day resolution for issues that are resolved by our Tier 1 support, or IRC. We continue to invest in tools and capabilities for IRC so that they can be even more efficient. And the picture you see on the screen, that is a chat tool that we have recently deployed. It replaced our older chat tool. And in addition to having a more modern look and feel, it is tightly integrated within applications. It can be launched directly from our applications, and it looks like an extension to our own system. In addition to that, it has other capabilities. For example, we can automate some of the responses for those situations that really does -- do not require any human interactions such as resetting passwords. It also, based on the past history of some of the questions being asked by the same customer, same person, it can even queue up for us, some of the articles or other resources so that we can provide better service and more rapid service to our customers. Our Tier 2 handles about 17% of support inquiries, which are more sophisticated, are more complex and require more time to get resolved. And we have about 93% of resolution under 7 days. One of the things that sets our Tier 2 apart from the rest is that we have a designated model of TSEs to customer. So each of our customers know their TSEs as a person with a backup and the advantage that has provided to us is that since they are always working with the same person. We have been building a very trusting intimate relationship with our customers. Also, it has provided the opportunity for the technical services engineers to build a comprehensive understanding, comprehensive view into their customers, know their geography, the universe of their issues, things that are -- they are more sensitive about. And that overall has provided a better level of customer service to our customers. We also have implemented another change into our support structure. And as we continue to perform and deliver reactive support, which is fundamental to any support organization, we are doing proactive support. Because our philosophy is that before an issue escalates and is sent to us by a customer, we should have a great view and a great understanding of our own performance and we take actions before it reaches a critical point. Of course, that impacts customer satisfaction, it improves customer satisfaction and it reduces cost of support for us. And the reason we can do that, Joe covered this, we have access to a number of dashboards. We can see unusual activities. If there is a drop in activities for certain zones, we can take a deeper look and take action. Also, if there is any degradation of service in terms of infrastructure or significant change to sensor availability, we recognize those. And as we work very closely with our IT team and operations team, we notify the customer so they are not surprised at all by any potential degradations. Also, our technical support engineers perform a continuous assessment for incident detection, classification and location. And if they see any trends or any troubling situations, they bring that up to your attention so that we can work together and we can solve that problem. On a monthly basis, we share a scorecard with our customers, and that is in complete transparency, informing them of how many incidents we have detected in their coverage area, how many gunshots have been published, how many false negative, false positives and missed incidents because we believe that, that type of transparency actually helps us in building stronger relationships with our customers. Result of all of that has been that when we ask the customers a specific question as part of our NPS survey about their experience with customer service, about 92% of them indicated that they had extreme satisfaction or they were very satisfied with our support. Now we recognize that providing good customer service is not a onetime achievement, and we will continue to invest in some of the internal tools and improving our processes to maintain and improve our support to the customers. On forensic front, we are going strong. As you guys may recall, back in 2019, we introduced investigative lead summary, or ILS, which is an automated report that can be generated on demand on a real-time basis from our applications. And ILS includes very important information, very useful information such as number of rounds, specific timing of the rounds, the sequence of rounds, location of the gunshots, and those satisfied about 90% of investigated needs for the police department. In 2020, we made another improvement to ILS, and that was the ability to generate ILS report from our notification API, and that was extremely useful, very instrumental for those agencies that have implemented a tight integration between our services and their public safety applications, for example, for New York City. Combination of those has increased the utilization of ILS. So in this past year, we had more than 70,000 ILS reports being generated. And it was so useful that it reduced the demand for detailed forensic report, which, of course, we continue to produce for those cases that went to court or for all officer-involved shootings. DFRs are reports -- generally detailed reports that are created by human like our forensic experts, and we continue to perform that function. Because of COVID, our presence in court and expert witness testimony was -- did slow down. It was challenged. But even with that, we participated in 18 expert testimonies last year, and some of them were delivered over Zoom. We have received multiple messages and e-mails unsolicited, talking to us about the effectiveness of our expert witness testimonies and our DFRs as corroborating evidence to the cases. And we are extremely proud of that. The reason we have been able to maintain our position is that we are completely neutral and our forensic services are completely based on science. I hope that this summary was useful to you. And with that, I would like to invite you to watch a brief demo of our Connect products prepared by Wendy Ethridge, the Director of our Connect Solutions.

Hello. My name is Wendy Ethridge. I'm the Director of Analytics Solutions for ShotSpotter. I've been with ShotSpotter since January of 2019. Prior to coming to work for ShotSpotter, I served as a criminal intelligence analyst for the Colorado Springs Police Department where I specialized in gangs and sex crimes for almost 10 years. I then transitioned up to the Denver Police Department where I served as a Deputy Director and managed the department's crime analysis unit. Today, I'm going to show you Shotspotter Connect. So what problems are we trying to solve with ShotSpotter Connect? Policing, like other professions, continues to evolve and so do society's expectations that police departments will find ways to more effectively deploy their resources and do it in a way that is transparent and equitable. That requires sophisticated analytic tools, the careful selection of data and the right set of practices that most police departments simply don't have access to it. ShotSpotter Connect is our risk forecasting and patrol management solution. It provides chiefs and command staff with automated, data-informed patrol operations that are designed to reduce crime and maximize the efficiency of the department while fostering community trust. Connect is built on the foundation of protecting civil liberties and provides directed patrols across the entire city to not over or under police one area. Connect also provides transparency into officer whereabouts and encourages interactions that are focused on community engagement and not enforcement. Now let's imagine you're a supervisor who needs a patrol plan for your officers who are coming on shift today. When you log into Connect, as you can see here, at your fingertips is a data-driven patrol plan with precise risk forecasts by being on shift that are crime and time specific. These forecasts are designed to maximize crime deterrence and have been generated by highly sophisticated algorithms that analyze and model real-time data sources. As a supervisor, you review the directed patrols and make any adjustments before presenting the plan to your officers during roll call, just moments before you send them out on patrol. With ShotSpotter Connect, you are confident that you have equipped your officers with the most effective way to utilize their unencumbered time they have during their shift. Now let's imagine that you're a patrol officer who just received your assignments for the evening. Upon opening ShotSpotter Connect, you can easily visualize your focus area for your upcoming shift, like we see here, and glean any analysts or command in hands to details. Each of these directed patrols is a 250-meter by 250-meter data-driven risk forecast designed to take you into the areas at the highest risk of crimes so you can prevent those crimes from recurring. So you can see the patrols for this shift. The presented forecast may, at times, validate your officer knowledge and experience. But where in the past, you've had to rely on educated guesses, you're now informed on where and when to focus your patrols with a much higher level of accuracy, increasing your confidence that the work that you're doing is making a difference. As you enter directed patrol, you are presented with a set of tactics to select from. These tactics are designed to prevent crime while fostering positive community engagement. I'm going to select patrol. Upon selecting the tactic, your timer starts and begins to count backwards from 15 to 0. This is the recommended dosage, and it's based on well-known research called the Koper Curve where we learned that if officers spend 10 to 15 minutes in an area this size, again, the patrols are 250 meters by 250 meters, 2 to 3 times throughout their shift is the equivalent to placing a marked [indiscernible] there on the saturation patrol for the entire shift. So we get in there, spend 10 to 15 minutes to create a presence that lingers and keeps the community safe long after we leave. Once I document any officer activities that I've completed while I'm on my patrol, and you can see I'm going to document 2 community interactions, I can simply close out my patrol and end my session. A dosage meter then indicates to the supervisor and the other officers on patrol that I have now spent time in this patrol during my shift. Now let's turn our attention to the reporting module so we can see how the officer's activity is documented and presented to supervisors and command staff. There are currently 4 reports in ShotSpotter Connect. This first report is a shift report that shows supervisors all activities or either the current or previous shifts. You can see there are a number of metrics on this report that supervisors can use in real-time to coach and direct officer activity. The second report in ShotSpotter Connect is an officer report. This is where we can look at officer activity and team activity over time. All of the reports have interactive charts and all of the data can be exported for further analysis with other tools. The last 2 reports in ShotSpotter Connect focus on tactics and crime types. So you can see here that this is the crime type report, and this allows officer -- an analyst and supervisors to see what crime types officers are focusing on over time. You can see again all of these charts and data are interactive and exportable. And finally, the last report is going to be the same data but reversed. So now we can look at what crime types we're focused on and what tactics that we're actually applying there. Lastly, I would like to show you how supervisors and analysts can create an ad hoc patrol to draw officers into an area for proactive interactions with the agency. It's just simple as selecting the Edit tool and drawing a directed patrol on the map, just like I'm getting ready to do. I click on the map, I get a drop-down arrow. I'm going to select the command directed patrol and hit Save. We can see that this patrol that I just drew on the map has diagonal lines to it, and that's how officers will know that this patrol is command or analyst directed and not a ShotSpotter risk forecast. And that is ShotSpotter Connect in a nutshell. I'll be glad to answer any questions during our Q&A session later this afternoon. Thank you so much for your time. Have a wonderful day.

Well, thank you, everybody. So today, you've seen a lot of information about our technology and why we're so competitively strong. We continue to invest and work on our technology, our products and all the uniqueness that strengthens our position. Hopefully enjoyed that Connect demo that we just showed. It's a very powerful tool. I would like to go over a couple of the financial summaries, though. So if I focus a little bit on the left, many of you who have been following us for a while know some of these. But in the top, we focus on annual subscription-based SaaS revenue. It's greater than 95% basically at this point. It will change a little bit now that we have Leeds acquisition, and they add a little bit of professional services to that. We operate with very high margin and very low variable costs. We also have significant leverage in every operating expense category that allows us to be profitable in just about everything we do. If you go to the second column, we have very efficient sales and marketing. This allows us to very low customer acquisition costs. I do have another slide where we'll talk a little bit about what those ended for us in 2020. We also have very low customer attrition and churn, which allows us to keep our high revenue retention that we have. In fact, you may recall that last year, at the very beginning of COVID, we thought we may have attrition that could have been as high as 5%. Ultimately, as you heard Gary mention earlier today, we ended up less than 1%. That's pretty supportive of our customers for us. And lastly, we also have very strong project and unit economics. We break even in less than a year for every contract that we conduct. On the right, you can see there's something very unique about our company versus most other companies. We're GAAP profitable on only a $10 million quarter, and that allows us to maintain our expenses and our operating controls. It also allows us to help build us customer relationships. Our goal is to keep those customer relationships very long. Hopefully, 10 to 15 years, that would be our goal. Okay. The next slide, for those of you who have seen day 1, you may have seen that Ralph presented a slide of our history. I thought it would be interesting to show it again for those of you who didn't see us in day 1. And for -- also for those of you who have followed us since the IPO, you may recall that we said our goal was for us to grow a 30% CAGR revenue growth for the first 5 years. And we're proud to say that we met that exactly. It went to 30% even through 2020, and it will also end up about 30% if we hit the midrange of our 2021 expectations. Also, you can see that our gross margin has also continued to improve throughout the years. We do see a little bit of flattening in 2020 and '21. Those are related to our customer success organization expansions in '21 where we start doing some of our 3D sensor replacements. That's addressing gross margin just a little bit. What that does not do is that, that does not change where we expect our gross margin percentages to get to, which we do believe that we can get to 70%. One thing you don't see on this slide is that our adjusted EBITDA continues to grow past the profitability and adjusted EBITDA has continued to grow significantly in the last 2 years as well. Now that's the history. Let's talk a little bit about where we're going and what we are committing to in terms of expected revenue and profit growth. It is important to understand this is not guidance. This is our goals, but it also tells you that we believe over the next 5 years, we can do significant things that are positive, which allows us to double our revenue growth from midrange of '21 to $59 million, doubling that to over $118 million. That would be approximately 50% CAGR growth on average. Even more importantly than that, though, if you think about what we've been able to do in terms of profitability and especially adjusted EBITDA in the last couple of years, we expect that we can increase our adjusted EBITDA on a dollar basis by 4x over the next 5 years. That's significant. And I also think if you -- most of you understand SaaS companies, other ones and what the Rule of 40 is, which is really a metric that talks about revenue growth and profit growth, these numbers put us well above the Rule of 40 as we continue to grow. In terms of the customer economics, we are very efficient in terms of the sales and marketing that we spend. In 2020, we only spent $0.51 to generate that new annualized revenue dollar of $1. We also achieved a revenue retention rate over 100%. We're at 107%, a little lower than the years slightly below that but still quite impressive. We expect to continue that as we continue to grow. Last time we did an Analyst Day, we put this slide out there. We thought it might be very interesting to show it again. If you think about our guidance, our guidance for '21 is between $58 million and $60 million. A lot of us have a focus of -- sorry, the middle of that, $59 million. If you take a look at these 4 areas that are basically building up our actual revenue, and this is GAAP revenue, we start the year with ARR. Basically, it's a little over $46 million. We have Leeds producing some revenue for us this year. We've already talked about $10 million. In terms of Respond, which is typically our domestic flex that we continue to sell, we're talking right now, that's about $4 million. Now there might be some less if we continue to have some attrition. Hopefully, we can do as well as we did in 2020, keep the attrition very, very low. And then the other one is just everything else. Basically, that's Connect, that's security, that's international. And you can see that's a bit of a low number right now. Things could continue, maybe they're a little faster than we expect. If you add all of this up, it adds to about $60 million. So it is something that we feel pretty strongly that we'll be able to achieve. And then it's always nice to get to the last slide, but I think this is a really important slide because you know many companies right now are searching ways to be significant in ESG, environmental, social governance, and their significance. The best thing about ShotSpotter is we're already there. If you think about what we do -- let's just start with environmental. On environmental and some of the things that we do, primarily through our labs division, in South Africa, we cover an area of Kruger Park, which is basically putting our sensors out there, helping prevent poaching from white rhinos. In Southeast Asia, we are doing blast fishing, which also helps keep people from -- through blast fishing, which is destroying the coral reefs. So from environmental, it's something we feel very strongly about. You will see more things in the future about what we're doing with labs and things like that. In terms of socially, I would say, in terms of a company, what we do is incredibly important. Not only are we helping people save lives by addressing the gun bonds that's going into their communities, but we're also helping police agencies transform the relationships that they have and build communities, very strong in terms of social. And lastly, if you think about in terms of the DEI or governance, it's -- we're a company that we feel quite strongly about this. We're very strong in terms of diversity. It's important for us. It's something we focus quite a lot. And the same thing with our corporate governance. So that's really the summary for us. We are doing pretty good in time. We're not quite at the 2 hours yet. So we are going to go into some question-and-answer period. And we have also already received quite a few questions and answers. So what we're going to do is I'm going to try to hit as many of those as we can, and then we'll be able to answer those with some of our folks. So I'm going to go ahead and start.

Let me see, the first one. First one was related to our Houston deployment. And basically, Chief Acevedo was going to be very important and influential for us in Houston. He is now no longer the Chief of Police in Houston, but he's moved to Florida. So I'll turn it over. Gary, why don't you give a couple of thoughts on that one? Gary, are you there? Make sure you unmute, Gary.

My apologies. Can you hear me now?

Yes. Thank you.

My apologies. The bad news is Chief Acevedo is leaving Houston. We were very sorry to hear that announcement. The good news is he's going to Miami, another ShotSpotter customer, a very important customer for ShotSpotter. We believe he's going to play an instrumental role in helping us continue pushing that tipping point across the state of Florida. The other good news is when I first set out with Chief Acevedo several years ago to start talking about bringing ShotSpotter to Houston, he turned to Assistant Chief Troy Finner, and he assigned Troy to work with us. Troy has been a great supporter. He's been involved every step of the way. He believes in what we're doing, and he was recently named as the new chief in Houston. So we've got strong support at the top of that organization even after Acevedo has departed.

Great. Thank you, Gary. I appreciate that. We're trying to move through these as fast as we can. There was a question about what percentage of the 90 miles in the sales objectives or respond were already signed or booked but not deployed during -- or turned on yet? And honestly, we can't really answer that completely. What we can do is say what we talked about on our last earnings call. At that point, we talked about the miles that were actually live versus the ones that were under contract. We said there were 779 miles live and 813 under contract. So you can think about the ones that are not live but under contract, that's about 34 of those miles. Next question was about the actual pricing in terms of several of our products, talks about security and the average sales value. And the same question in Connect. Gary, I'll go ahead and turn that back over to you. Hopefully, you can provide some information.

You bet. The question seemed to be about whether or not the average of $85,000 for security and $100,000 for Connect are reasonable averages. The answer is yes on both accounts. What I would say, however, is we have a tiered pricing model for Connect. The annual subscription for Connect can be well below $50,000. It can be well over several hundred thousand. So the price for those Connect deployments, the ongoing annual recurring revenue can vary considerably based upon the scope and scale of the agency. On the security side, pricing model is really based upon the size of the footprint, and those footprints can vary while -- significantly. And so the price can vary considerably as well.

Great. Thank you very much, Gary. The next question, there's a question regarding what Connect does and makes it different to other similar technologies. Wendy, I'll actually ask you. Can you give a summary of Connect? Wendy, you might be on mute. Let's kick it over to Paul then. Okay. Paul? Do you understand the question? There's question regarding Connect, what makes it different to other similar technologies? Can you just give a summary of Connect? Paul?

Sure. So the question, I think, is specifically relating to PredPol. So there are 2 areas that are kind of in the depth of product. There's the -- how we create the modeling, the crime risk assessment model and also how we deal with allocation, which offices go where. And so on the data modeling, the key difference is, as [ ascribed ] in the presentation, we model using data that is -- or underpins multiple crime territories. The PredPol learning is done purely on crime data. So that's a significant difference. The other, as I said, is on the allocation engine that Simen went through. PredPol doesn't have such a thing. So even with the product as it stands today, I think we're in a pretty strong position versus PredPol.

And Alan, Wendy is connected in an airport. She was having some microphone issues. But she is online if you want to turn to her, maybe able to just briefly add to Paul's response.

Sure. Wendy, over to you. Okay. So maybe let's go to the next question. Yes.

I'm not sure if anybody can hear me or not, but unlike any other tool, just like Paul just said -- can you hear me on?

Yes.

Okay. Good. Connect incorporates this multiple crime analysis series in our modeling. They include the evidence-based risk train modeling, near repeat patterns, collective efficacy in temporal cycles and events. Like Paul said, this is not only hard to attain without sophisticated modeling but also presents the most reliable risk assessment that focuses on crime deterrence while mitigating any bias.

Great. Thank you very much. Really appreciate that. Okay. Let's see. We have a lot of questions. I'm trying to make sure we can get through most of them at least. There was a question related to the CapEx related to the sensor upgrade program that is required by the 3G service sunsetting with AT&T and Verizon. I'll go ahead and answer that. We expect that, overall, it's about a $5 million cost. That will be adding to depreciation over 5 years. It will start small and then basically increase over the next couple of years. The good news is that as we're replacing these sensors, that number by itself ultimately may be replaced by other sensors where they have just gone past their depreciation. So the actual cost isn't going to be impacting as near as much. In terms of timing, we're expecting to do AT&T, most of those by February 2022, Verizon by the end of 2022. Next question, and see -- okay. So the question is related to -- in terms of M&A, what are we doing in terms of M&A? What are we thinking in terms of that? Ralph, maybe you want to put some comments there.

Yes, sure. Thanks, Alan. And my apologies for being frozen here. So with respect to additional M&A, I don't think we would never say never. But I think our feeling is that our plate is pretty full. We want to focus on successfully integrating the Leeds acquisition and then kind of executing on this precision policing solutions platform story that we've chat with you all about. There's a lot of work to do there. So we just want to digest what we've acquired already. We think we have a fairly broad product suite. It doesn't appear that we need much else. We just have to focus on execution.

Great. Thank you, Ralph. We had a question about in terms of what does the IRC require in terms of adding new customers? Or when are we required to add actually new IRC people and what value? Nasim, you can just give a couple of thoughts on that, a few thoughts.

Of course. So there is no hard number that exactly -- based on how many months or how many incidents we're going to add more people. And reason for that is the behaviors, as I said in the beginning of my presentation, is going to fluctuate over the course of different shifts, different data, so forth. But we may continue with analysis of the overall workload. In this past year, each of the reviewers reviewed more than 250,000 incidents, but that is not the limit. So based on that, I would say that it has to be higher than that number. But at the same time, it's about the overall performance of the team and overall workload and volume over the course of different days and different shifts. One of the models that we have followed is that when we think that we need specific staffing over just a few hours or a couple of days, then we are able to take advantage of hard time reviewers to fill in those gaps and remain efficient.

Great. Thank you very much.

That was a great answer, Nasim see. Maybe I can just add on to it because I think people are trying to understand the business model implications. And I think in a very kind of brief answer, it's highly inelastic, I would say. So we can grow miles, customers, alerts that we have to process, alerts that we are publishing. But to the extent that, that grows, we don't necessarily have to grow headcount and expense in the incident review center. It's certainly nonlinear, highly inelastic.

Great. Thank you, Ralph. Gary, this next question is going to come to you. It's basically asking -- I'm going to combine a couple of different questions. In terms of the pipeline, in 2020 versus pipeline 2021, what do you see the difference between the 2? And do you see that there was a consistent demand pattern basically being created through 2020?

When you compare the sales pipeline today to what we had this time last year, while there's not significant shifts in the size of the -- this overall respond pipeline, we've got a much healthier pipeline in terms of where we are in the sales cycle, the level of activity on some key opportunities. And some of that is demonstrated by the number of deals that are in negotiations today significantly in excess of where we were this time last year.

Great. Thank you very much. There was a question about whether we're using third parties to help find grants and whether that's something that we feel some of the new initiatives might be positive for us. I'm trying to think. Maybe, Ralph, maybe Gary, that's for you.

Yes. And Gary, jump in here as appropriate. So I think we've always had, I would say, a highly distributed set of resources to help customers identify funding grant opportunities. I think what's different here is that we have a kind of dedicated one throat to choke resource to go get at some of these grant opportunities, and that's all they do. And we're going to be very intentional about using that resource because there are so many opportunities that are bound now with the recent federal ingestion of capital municipalities, and they're actually talking about returning to earmarks, which is a very exciting prospect for us as a company. So you can look at it as adding net additional capacity to helping our customers identify financial resources. I don't know, Gary, if you would add anything to that or differ, but...

No. The only thing I would add is we've had assistance from a consultant out of Washington, D.C. for a number of years who's been instrumental in helping guide agencies regarding various grant funding programs. And with the step I referenced earlier, now having the ability to provide assistance in actually writing the grant application and submitting the grant, we're providing a lot of added value to these agencies and helping them find funding beyond what's available for them locally. And the feedback has been very, very positive.

Excellent. Thank you very much. We can probably fit at least 1 or 2 more questions in here. There was a question in general about our expected investigator case management software. Who are we going to be trying to focus, selling that to at first? Is it current customers? Or is it new customers? And any, basically, time lines for that. So I guess, Gary, I can -- if you have any additional thoughts on that, maybe you could provide something.

With respect to investigate and building a pipeline, we're certainly going to start with some known agencies where we believe, based upon our knowledge, contacts and the agency, there is a clear need for that type of case management capability. But I don't see us limiting our focus to our existing customers. As we take steps here and start building a pipeline here in 2021, we will definitely be looking within the ShotSpotter customer base and outside of the ShotSpotter customer base for prospects.

Excellent. Thank you. And then the last question we're going to do, Nasim, is over to you. The question is, is the IRC back to operating in the office? And if not, what do we expect or when do we expect that to occur? And how is that changing efficiency or performance related to what we had in prior years?

Sure. So as of this moment, we are so in complete remote work mode or not back to the office. But by no means we intend for that to be permanent. We will go back to the office, but we do recognize that it may be a little bit different from the previous model. And in terms of some of the changes, yes, from the perspective of performance, we have maintained our performance, but we are also very sensitive about corporate culture and other things. During this time, we have been posting several team building activities and so forth to maintain the morale and -- in addition to training and sales for the team, of their morale and the way they feel about their job. We are -- as the executive team, we're working on the timing to make sure that it will safe for the team to go back to the office or we will not do that even one day before it is the right time.

Great. Thank you very much. We do have a couple more minutes. There was a question, Paul, I'll turn it over to you. Would there be any value in having the 5G connectivity to our sensors or not?

Not really. The bandwidth requirements between an acoustic sensor and the cloud are actually pretty limited. 3G, we've been able to operate a very successful service based on 3G. As Joe was talking about earlier, we're migrating to 4G, but frankly, the move there is being pushed by the carriers rather than ourselves. So 4G is fine. 5G is really unnecessary.

Okay. Great. Well, I think that's it. Really, at this point, all the questions that we were able to answer, we've answered. Thank you very much. We really appreciate you taking the time to spend a couple of hours with us before the -- you start on the weekend coming up. Ralph, any additional thoughts?

Yes. No, thanks, Alan. We certainly appreciate everyone participating in today's session, and we hope it helped you better understand our business and, frankly, why we're so confident in our future to help transform how policing is getting done in this country and throughout the world. So we're thrilled, excited to share our story with you. And I think as Alan would probably suggest, if you all have any follow-on questions, feel free to reach out directly to Alan or myself, we'd be happy to answer your questions. And thank you very much for your interest. And have a great day. Continue to be safe and do well.