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ShotSpotter, Inc. (NASDAQ:SSTI)
Q1 2019 Earnings Call
May. 9, 2019, 4:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good afternoon, and welcome to ShotSpotter's First Quarter 2019 Earnings Conference Call. My name is David, and I'll be your operator for today's call. Joining us are ShotSpotter CEO, Ralph Clark; and CFO, Alan Stewart.

Please note that certain information discussed on this call today will include forward-looking statements about future events and ShotSpotter's business strategy and future financial and operating performance. These forward-looking statements are only predictions and are subject to risks, uncertainties and assumptions that are difficult to predict and may cause actual results to differ materially from those stated or implied on those statements. Certain of these risks and assumptions are discussed in ShotSpotter's SEC filings, including its registration statement and Form S-1. These forward-looking statements reflect management's beliefs, estimates and predictions as of the date of this broadcast, May 9, 2019. And ShotSpotter undertakes no obligations to revise or update any forward-looking statements to reflect events or circumstances after the date of this call.

Finally, I'd like to remind everyone that this call will be recorded and made available for replay via a link available in the Investor Relations section of the company's website at ir.shotspotter.com.

Now, I'd like to turn the call over to ShotSpotter's CEO, Ralph Clark. Sir, please proceed.

Ralph A. Clark -- President and Chief Executive Officer

Thank you very much, and good afternoon to those of you joining us today. I'm going to start with a quick overview of the quarter and then Alan will review our financial results, before we take your questions.

We're very pleased with our first quarter financial results, which were in line with our expectations. We grew year-over-year revenue 39% to $9.6 million. Our net loss was only $362,000 versus $1.2 million for the prior period. And adjusted EBITDA increased to $1.6 million from just $26,000 a year ago. On a sequential quarter basis, revenue was essentially flat as we guided in our last call. This comparison includes a one-time payment of approximately $170,000 we received in Q4 from the US Virgin Islands. Our gross margin of 58% was in line with our expectations and our reported net loss of $362,000 or $0.03 per share, primarily reflects our focused investment in marketing and sales.

We're very excited about the four new cities that went live including; Greenville, North Carolina; Pleasantville, New Jersey; Columbus, Ohio and our first international deployment outside of South Africa in Nassau, Bahamas. Many of you have heard me explain that ShotSpotter's business is the best viewed annually rather than quarterly. Through that lens we believe our future is bright reflecting solid technology and service performance, our strategic expansion into adjacent markets and our unmatched customer loyalty. Illustrating the somewhat lumpy characteristics of our quarterly cadence, we went live with 19 gross miles, which netted to 12 mile after factoring in the loss of 7 miles from one customer in the Northeast.

The pullback in this deployment was due to limited gun violence incidents in large portions of their coverage area, after seven years of ShotSpotter service. We're in discussions with the customer about pockets of gun violence in a targeted portion of their jurisdiction and believe a subset of the miles can possibly come back. But for now we're netting the 7 miles against our go-live miles for the quarter and for the cumulative miles of our installed base

Given this backdrop and development that I will describe in more detail later, we've decided to modestly tighten and reduce at the mid point our full year 2019 guidance by a $1 million. As we've previously stated, the quarterly cadence of our business can be quite lumpy. It's the nature of our business that we're going to have some quarters with a great deal of contract and go-live activity and we're going to have calmer quarters where the pipeline is active, but with fewer confirmed contracts and more modest go-live activity. Case in point, we currently have several projects including expansions under way totaling over 50 new miles that we expect to go live over the next 90 plus days, a portion of these miles are already live and producing positive results for our customers.

Here are few other initiatives in place that only reinforce my excitement about our growth opportunity. We spoke a bit about our trauma and healthcare initiative at our Investor Day last year. We remain very active in engaging this advocate and funding source for our solution. Hospitals are looking for ways to improve response to gun fire events for three very important reasons. One, fewer gunshot wound victims that are often uninsured and can cost up to $100,000 to treat can offer significant financial savings for the hospital. Two, faster law enforcement response to shootings can potentially lead to faster trauma care interventions and improved patient outcomes. And three, solutions like ShotSpotter that help to improve safety in the broader community or hospital staff, work and live is simply good corporate business. We've had a great deal of interest from leading urban medical centers and we look forward to collaborating with these community meeting organizations to increase adoption of ShotSpotter technology.

We recently announced a major Flex feature enhancement call Investigative Lead Summary or ILS. ILS is a detailed report that is generated in near real time and provides a time sequence spatially separated round by round count of the incident. It is designed to help police conduct more effective on scene evidence collection, witness interviews and is essential to responding to and investigating multiple round incidents or when multiple shooters are involved. The user response has been strong and more than 500 reports have been downloaded and delivered in the past two weeks. ILS is a no charge feature available as a part of the Flex subscription service.

We continue to invest in core technology innovation as well. We recently put into production a new AI based machine classifier that can ultimately reduce by 40% the number of incidents degree reviewed by our incident review center, bringing up our acoustic analysts to spend more time evaluating order line incidents and adding context to published alerts improving the overall quality of the customer experience. The approach we have taken in applying machine learning to acoustic classification is still novel. We are pursuing what we hope will become our 33 issue patent, if successful.

We're equally excited about creating ShotSpotter Labs, which is currently supporting (inaudible) sustainability projects. Our Kruger deployment is helping combat rhino poaching and our South East Asia Project, we'll be deploying a pilot version of our technology to help address the problem of blast fishing. What we can learn here about using our technology in low power and limited infrastructure environment can help inform our ability to develop and deploy better more resilient technology for Flex in our other urban ready services. We believe these technology innovations will help drive growth, deliver more customer value, and increase the overall stickiness of our solution, while we widen our already large competitive mode.

Before I hand it Alan there are a few more thoughts I want to share. One, I want to reaffirm our commitment to expanding ShotSpotter's international footprint. Beyond our projects in South Africa and now the Bahamas, we're actively building a pipeline in Latin America. Our progress here has been methodical and steady. We're encouraged by all of the positive feedback and interest from prospects in Colombia, Mexico, Brazil and Argentina resulting in our submission of a few budgetary proposals and we hope to have more to share with you later in the year on this front.

A second avenue for expansion continues to be building out our public safety platform to deliver high value pre-incident intelligence to the public safety market. Last year, we acquired HunchLab, premier provider of AI based analytics for predictive policing application. This is a growing area of public safety and a way for police departments to maximize limited financial and personnel resources. Precision based real time analytics can help police do their job faster, better, and more efficiently. We have been diligently working on tightly integrating the predictive model with ShotSpotter incident data along with some other reporting and analysis enhancements. We plan to formally introduce our first ShotSpotter based Mission's release to the market later in Q2 of this year.

Our sales and marketing teams have been collaborating on engaging a target list of customer prospects in order to build a robust sales pipeline. So as you can see we're expanding in so many exciting areas and the future has never been brighter. Nonetheless, as I said earlier we are going to tighten and reduce the midpoint of our full year 2019 revenue guidance by $1 million to $44.5 million to $45.5 million versus the earlier $45 million to $47 million communicated in our last earnings call. There are a couple of key factors that went into adjusting our 2019 revenue guidance. In addition to the 7 miles of attrition I mentioned earlier, there were also two projects where we formally submitted RFP responses to in late 2017 and one in 2018. In one case, we were officially awarded the bid, but we had not been successful in getting agreement to the terms and conditions of our standard form of contract.

The second opportunity is a fairly large one, representing $1.5 million of annual recurring revenue, that RFP is yet to be awarded and is facing bureaucratic delays and administrative obstacle, which is pushing out the date for a formal award, and negotiated and executed contract. As a result, we no longer expect material revenue contributions in 2019, if and when the contract is awarded. We believe both opportunities will ultimately come to fruition as the gunfire detection need is compelling. However, we also want to be clear eyed and prudent in how we think about the near-term revenue guidance. Although our 2019 outlook is slightly lower, our optimism and confidence in 2020 and beyond has only increased.

Okay, that's it for me. I look forward to answering your question and here's is Alan to review the Q1 numbers.

Alan R. Stewart -- Chief Financial Officer

Thank you, Ralph and good afternoon, everyone. The first quarter came in largely in line with our plan. As expected, we reported a small loss for the quarter, but are still on track to be GAAP profitable for 2019 as a whole. We also significantly improved our cash position at the end of the quarter (inaudible) proceeds with the equity offering we did in March, but also from the almost $9 million in operating cash flow that we generated during the quarter.

Revenues in the first quarter increased 39% to $9.6 million. It was also largely flat with the Q4 run rate and up slightly from $9.5 million, which is where Q4 would have been if we exclude a one time contribution of approximately $170,000 from US Virgin Islands. As a reminder, while quarterly performance can be lumpy depending on the point and schedules, we generally experience flat revenues Q4 to Q1 and offset in Q2 then flat to Q3 with another step up in Q4. We expect 2019 results will follow this pattern with the exception that Q3 revenues should be up from Q2 due to the expected case to go-live mile.

Gross profits for the first quarter was $5.6 million or 58% of total revenues, up from $3.6 million or 52% in the first quarter of 2018. Gross profit continues to increase as we gain leverage from a higher revenue base. Adjusted EBITDA for the quarter, which is calculated by taking our GAAP net income and adding back interest, taxes, depreciation and amortization and stock based compensation was $1.6 million. This is a step-up from the $26,000 in adjusted EBITDA for first quarter of 2018, demonstrating the power and efficiency of our business model.

Now turning to our expenses. Our operating expenses for the first quarter were $5.9 million or 62% of revenues versus $4.8 million or 17% last year. We are pleased and as we grow we continue to gain leverage on our spend even as we make thoughtful increases in key areas. We will continue to increase our investments in each area of our operating expenses, but still expect overall OpEx to increase at a rate that is less than our rate of top line revenue growth, increasing our operating margins for 2019.

Looking at each of the line items, sales and marketing expenses for the first quarter were $2.6 million or 27% of total revenues versus $1.6 million or 22% of total revenues for the prior year period. As we've discussed, we've made a strategic decision to expand our sales and marketing program such as the healthcare initiative Ralph mentioned as well as increasing spending on our customer success program, which contribute to our score of 50 in our net promoter score. We are pleased with the early returns on these investments and we expect this level of spending to continue for the balance of the year.

Our R&D expenses for first quarter were $1.3 million or 13% of total revenues compared to $1.2 million or 18% of total revenues for the prior year period. We continue to invest in R&D to add features and functionality to our Mission's product to improve our analyst capabilities and conduct others initiatives. G&A expenses for the quarter were $2 million or 21% of total revenues compared to $2 million or 29% of total revenues for the prior year period. Our G&A expenses will continue to increase modestly throughout the year.

Our GAAP net loss for the quarter was $362,000 dollars or $0.03 per share based on 11 million basic and diluted weighted average shares outstanding, reflecting the $250,000 shares issued in the equity offering in March. This compares to a GAAP loss of $1.2 million or $0.12 per share in the prior year period based on $10.1 million in basic diluted weighted average shares outstanding. The loss was in line with our expectation reflecting increased operating expenses, with flat revenues from Q4 to Q1. We're still guiding that we will be profitable for fiscal year 2019 as a whole.

We added 12 net new go-live miles in Q1, reflecting the unevenness inherent in our business. As Ralph mentioned, we expect go-live miles to pick-up in Q2 in the balance of the year. As we discussed our internal plans are built around the goal of adding 300 gross miles domestically over a two year period, and quarterly variability is to be expected. We ended the quarter at approximately 660 live miles in almost 100 cities and 11 campuses/sites.

Deferred revenue at the end of the first quarter was $24.5 million, flat with the prior quarter. Of this amount, $23.4 million was short term and $1.1 million was long term. In general, we expect short-term deferred revenue to be recognized within four quarters. We ended the quarter in a very strong financial position. Cash at quarter end was $29.6 million, which included almost $11 million generated from the offering in March. A strong cash position increases our flexibility, funding not only our organic growth, but allows us to pursue selective strategic initiatives to expand our platform in adjacent markets.

Our confidence in ShotSpotter's opportunity remains very strong and we continue to believe that approximately 30% CAGR growth for the foreseeable future is achievable given expected revenue contributions from international expansion, Mission sales, and as we continue to target new Tier 1 and Tier 2 cities.

As always, we appreciate your confidence and loyalty and look forward to speaking with many of you in the coming weeks and months. Now, back over to you Ralph.

Ralph A. Clark -- President and Chief Executive Officer

Thanks, Alan. We'd like to take your questions now, but before we do I want to take this opportunity to congratulate and thank my work colleague at ShotSpotter on achieving a great places to work commendation. I'm proud of the collaborative and customer centric culture we're building at the company. We're truly making a difference.

And lastly, I would like to remind all of you that we recently published our 2018 Annual Report and 10-k that includes a shareholder letter where I cover our strategy and the dynamics of our business in more detail. And although I am no Warren Buffett quite yet, I did try to explain the what, the how, and most importantly, the why and the moral purpose of our business. Hopefully, the letter will provide you more insight into why we're so confident about the future of ShotSpotter. I would be grateful if you were to read it and be generous with your constructive feedback.

We can now take your questions.

Questions and Answers:

Operator

Thank you. (Operator Instructions) We will take our first question from Joseph Osha with JMP Securities. You may proceed well.

Joseph Osha -- JMP Securities -- Analyst

Ralph I'll have to make sure I read that letter that you kind of built-up expectations. The -- I have, just I want to make sure I understand what you're saying on net new go-live, that's 300 for total of calendar 2018 and 2019. Is that that essentially what you're saying?

Alan R. Stewart -- Chief Financial Officer

Yes, this is Alan. I think what we're looking is in general I would say that's more over 2019 and 2020.

Joseph Osha -- JMP Securities -- Analyst

Okay. Are you willing to talk about a net new go-live number 2019 only and then also I'm curious, if you can maybe give us a little color on the break down of well this number -- this quarter wasn't that big, but how you think about the breakdown between new additions and adds with existing customers?

Alan R. Stewart -- Chief Financial Officer

So this is Alan, I would say we went live in 168 miles last year, 68 of those were from Chicago, the Tier 1 expansion. We aren't currently projecting a Tier 1 expansion or new city in 2019. So it will be logical to expect that 2019 miles will be less than that. We are still targeting Tier 1 cities and do expect that we'll have some of those coming in 2020. So 2020 would be a higher number versus the two years.

In terms of expansions versus new cities, we did add four new cities this quarter. We are seeing an increasing number of cities joining our platform. They generally start with a smaller footprint, but still adding new cities at an increasing rate is exactly what we're expecting and have a forecast for 2019.

Operator

We'll take our next question from Matt Pfau with William Blair. Please go ahead. Your line is open.

Matthew Pfau -- William Blair -- Analyst

Hey, guys thanks for taking my questions. First, I wanted to start-off on the two deals that were delayed. I'm sure with all the deals you signed you face a certain level of bureaucracy. So maybe just, you can help us understand are these deals just facing you know significantly more approval headwinds than you would see in the typical deal. And then yeah, are there other deals included in the guidance that could be a potential issue for as well?

Ralph A. Clark -- President and Chief Executive Officer

Yeah. So this is Ralph. Thank you very much for that question. I would say these two particular deals that we referenced in our earnings call are actually really quite unique. We have never faced or encountered a situation where we're actually awarded a bid and then ultimately weren't able to get to a final contract based on negotiating terms and conditions. I want to make it very clear, it wasn't about price it was really about terms and conditions. And ultimately we believe that we are going to prevail because in this one particular case the gun violence issue is really quite -- quite persistent.

In the other case, this really is a situation of a very significant amount of bureaucratic delays and administrative delays, I would say. Ultimately, we think we're going to prevail in this situation as well. This is a fairly large opportunity, but the level of I would say administrative bureaucracy is probably not like any we've ever faced before. But again we're highly confident that this deal is going to come into fruition for us again like the other case. The need is so compelling and we're very familiar with this particular customer I would say.

Matthew Pfau -- William Blair -- Analyst

Okay. Got it. And then on the -- on the customer that elected to turn off the ShotSpotter service, if I recall correctly few years back you had a similar situation like this with the town in Washington state. So you can see all the gun incidents that are occurring. So you would presumably be able to tell if there's customers that maybe would be at risk to turn-off service because they're just not having you know very many gun violence incidences. So as you look across your customer base, are there other customers like this one where they're just not seeing that many gun violence issues or was this sort of a unique case.

Ralph A. Clark -- President and Chief Executive Officer

Yeah, I'd say this is a fairly unique case in that one, this was a customer that actually started out with a significant amount of gun violence. This is probably one of our longest lived original Flex customers, they've been with us for seven years or so. We believe that across their 7 square miles or so, there is some portion of those miles that are still exhibiting some amount of gunfire. And so for them I think it's really issue of helping them understand that it doesn't have to be a binary situation kind of going zero to seven, but there's something probably in the middle that is still reasonable for them to be concerned about. And so we're hoping/expecting that we're going be able to recapture some of those miles.

I mean literally this particular customer they have several different arrays across that 7 square miles in different hamlets without naming the particular customer. So it's a bit of a happy circumstance I guess in some degree because I think what we are about is helping customers address gun violence. And in this particular case, they're extremely successful in a good portion of their array and so we're going to just get them to focus on the areas where that continue to exhibit or experience gun violence. But this doesn't really have any impact across the rest of our installed base as we as we do. It is something we obviously pay very close attention to.

Matthew Pfau -- William Blair -- Analyst

Got it. And last one for me, just on the Verizon partnership, the reseller agreement. Any update on how that's progressing?

Ralph A. Clark -- President and Chief Executive Officer

Yes, so we're still in conversations with Verizon. They've actually been very constructive in terms of getting us introduced to a couple of potential opportunities that we're hoping we're going to be able to talk to more about in the next earnings call. So still onward and upward with Verizon.

Matthew Pfau -- William Blair -- Analyst

Got it. That's it for me guys. Thanks a lot.

Ralph A. Clark -- President and Chief Executive Officer

Thank you.

Operator

Question from Charlie Erlikh with Baird. Please proceed.

Charlie Erlikh -- Baird -- Analyst

Great. Thanks for taking the question. Could you provide a little bit more detail on the Missions product in terms of initial interest or traction from existing customers? Anything surprisingly there positive or negative, now as you've had the product in the market now for a couple more months?

Ralph A. Clark -- President and Chief Executive Officer

Yes. Thank you for that question. So this is Ralph. With respect to Missions, we're really excited about the conversations we're having with our existing installed base that's really has been our focus for two reasons. One, we already have a relationship with those customers and really quite familiar with their strategies is around how to use kind of real time gunfire alerts to address gun violence and now introducing this concept of using kind of -- you know kind of pre-crime intelligence if you will, to be even more impactful is really quite exciting.

And so we're doing two things. We're building up the pipeline, but we're also getting some really critical feedback as well in terms of feature enhancements to take this already fairly robust platform that we acquired from HunchLab to make it even more meaningful in the context of the way our customers like to move in this particular space. So what we've been doing from an engineering point of view is we have a fairly reasonable amount of investment that we're engaged in to kind of do two things. One, more tightly integrate the ShotSpotter data into the predictive model. That's something we heard very consistent feedback around from our customers on. And then two, I think there was a 2.0 version of kind of reporting and analysis tools that our customers or potential customers thought was very important.

So we're -- been working on that in partnership. We do have some of our own internal resources, but we're also doing some work in partnership with (inaudible) to kind of bring those features to bear and a release we expect to make happen later this quarter. So it's going to be a I guess very intentional and focus, we've also got some inbound interest interestingly enough from a few customers that aren't our -- few potential customers I would say that aren't existing ShotSpotter customers. But our real focus is to work with existing customers where we have relationships and then build our success stories for them that we think can help us more deeply penetrate our 100 plus or so customer installed base. We were expecting to have a reasonable uptake emissions from a reasonable percentage I would say of our customers. Does that answer your question?

Charlie Erlikh -- Baird -- Analyst

Yeah, absolutely. If I could just get one more in to, do you have any updated thoughts Puerto Rico, are you more or less confident now than you were three months ago about Puerto Rico coming back or anything you could share on that front, would be great?

Ralph A. Clark -- President and Chief Executive Officer

I think we've pretty much said all we can say about Puerto Rico.

Charlie Erlikh -- Baird -- Analyst

Okay. All right. Thanks for answering the question.

Operator

We'll take our next question from Jeremy Hamblin with Dougherty & Company. Please go ahead.

Jeremy Hamblin -- Dougherty & Company LLC -- Analyst

Thanks. And I wanted to start actually on the expense side of the equation and you noted that you have made some commitment on sales and marketing, you are making some investments there. You know I think on a year-over-year basis it's up almost 70% versus your R&D investment that's up about 5%. You know as I think about this for the remainder of 2019, you know, how do you expect those relationships to drive the remainder of the year. It sounds like we're going to see some deleveraging overall on sales and marketing, but what about in terms of investments on the R&D side?

Alan R. Stewart -- Chief Financial Officer

Sure. This is Alan. We are continuing to invest in R&D. You may have heard that Ralph mentioned a couple interesting things that we've been able to do in the algorithm side. So we're going to continue to invest there. We're continuing to invest in R&D on the Missions development, call it the Missions 2.0, essentially what Ralph just alluded to. So you are going to see an incremental increase in OpEx spend for R&D and also for G&A throughout the year.

Sales and Marketing is our focus area though so that's where most of the increases are going. And frankly have already sort of built themselves into the OpEx run rate right now. I would say though that also across the board we are going to see OpEx increases, but still at a rate lower than our top line revenue growth. So our operating margins will continue to improve.

Jeremy Hamblin -- Dougherty & Company LLC -- Analyst

Okay. Great. And then in terms of -- you've provided some nice color I think on the next 90 days turning on I think 50 plus net new Miles. What about in terms of the back half of the year visibility that you might have now to help us maybe understand any potential lumpiness in your net to go-live mile in the back half of the year. Any color you might be able to share on that front.

Alan R. Stewart -- Chief Financial Officer

Sure. So this is Alan, I think as we looked at our revised guidance we had to make some assumptions in what we knew to be true for the next 90 plus days plus what is in our pipeline is expected to go-live. That's where the build up kind of comes in. I would say that we certainly expect Q3 and Q4 from a go-live mile perspective to be stronger than we have in Q1.

Jeremy Hamblin -- Dougherty & Company LLC -- Analyst

Okay. Great thanks. That's it for me. Good luck guys.

Alan R. Stewart -- Chief Financial Officer

Thank you.

Operator

(Operator Instructions) Next we'll take a follow up from Joseph Osha with JMP Securities. Please go ahead. Your line is open.

Joseph Osha -- JMP Securities -- Analyst

I'm sorry. I got kicked off further in mid question. I won't go back to the miles question. I did want to ask given the shift in mix that you all are seeing how you think about ASP on a per mile basis because you've talked before about how nice the rates were in that South Africa business you have just in general how you think about the shift and mix potentially impacting your ASP per mile?

Alan R. Stewart -- Chief Financial Officer

Sure. So I would say the one thing that we know for sure is our international deployments have a much higher ASP price. You can take 2 times to 3.5 times, what we charge domestically. So as international rolls in more the latter part of the year, obviously the price in average go up. We are also planning on in 2020 changing increasing actually what we call more of our MSRP price increasing that base from 65,000 to 70,000. So we're not seeing pricing pressure on the downside. We're seeing that we do have the ability to continue to increase the prices on our standard contracts.

Joseph Osha -- JMP Securities -- Analyst

Okay. Thank you very much.

Operator

We'll take our next question from Matthew Galinko with National Securities. Please go ahead. Your line is open.

Matt Galinko -- National Securities -- Analyst

Hi. Thanks. Thanks for taking my questions. Regarding the customer that disengaged. Can you sort of peg their decision to whether it was you know, I guess you know did it come down to budget or maybe just big picture you know how do you avoid becoming a victim of your own success if you are able to ultimately demonstrate that you are able to you know cause a reduction in gun violence?

Ralph A. Clark -- President and Chief Executive Officer

Yes, this is Ralph. I guess I'll try to answer that. This is a customer again that had been with us for seven years. I think their array is pretty interesting they are -- in many ways you could probably think of them being like maybe three to four customers in a way. And it's like it's two of the customers just really knocked out their gun violence problem in total, but you still have another two that still have some level of gun violence issues that we think again that we can be helpful to helping them address that. So it's a fairly unique situation we're kind of calling it one customer but they really have kind of very different I guess hamlet situations that that we're that we're dealing with.

And most of our customers, I would say there are just ongoing issues with gun violence and although they can work really hard to reduce it, it still exist in some form and it's really difficult for most customers to decide to go completely kind of deaf and blind to gun violence. We saw in one particular situation in fact where there was a turn off of service for just a very short period of time where it caused a lot of -- it caused a lot of problems because they were having these gun violence event that their officers weren't aware of, couldn't respond to, it is officers safety issue et cetera.

So I mean our application is fairly, fairly sticky and I think customers get accustomed to the idea of being responsive to these events that are underreported and it's very tough for them to go back. And what we're left with is this one particular situation that we're talking about and you know just in terms of a general reminder of funding, when you have a subscription, SaaS based subscription business there is a thing called attrition that we just have to expect to some degree and we work really hard to mitigate it as much as possible, but it does happen and I think this is our first customer attrition for the past like three or four quarters, so it's not -- it's not a very frequent issue that we deal with and so.

Matt Galinko -- National Securities -- Analyst

Got it, all right. Thank you.

Operator

We'll take our next question from Tim Klasell with Northland Securities. Please go ahead. Your line is open.

Tyler Wood -- Northland Capital Markets -- Analyst

This is Tyler wood on for Tim. So first given you've had some time now since the HunchLab acquisition and now you're talking about ILS in the upcoming labs offering. When should we expect to see revenue from these additional solutions kind of move the needle? And then with ILS being included in the platform with no cost versus for example like HunchLab going separately how do you approach that decision as far as selling something back into the base versus including it in Flex? Thank you.

Alan R. Stewart -- Chief Financial Officer

Yeah. So this is Alan. I would say that we would expect an increasing amount of revenue coming in probably more toward the end of Q3 and Q4 for both labs which we do expect to be a revenue contributor as well as Missions. I guess what we look at more from the cadence is Q2 is going to be a lot of the reduction in the guidance is probably going to be taken out of the earlier part of the year primarily in Q2 maybe earlier Q3 and then as the Missions ramps up and the lab ramps up and then they go-live miles continue to ramp up we would expect to see the revenue contributions to go into Q3 and Q4 and set us up very nicely into 2020.

Tyler Wood -- Northland Capital Markets -- Analyst

Yeah, one more. And then you talked about customer attrition. How do you think about the possibility that maybe a customer win totally turn off you know a certain area like we have in this six neighborhoods and crime has gone down significantly in this one so we don't need it there anymore maybe.

Ralph A. Clark -- President and Chief Executive Officer

Yes, this is Ralph, again. I think in this particular case again just to emphasize these were separate non-contiguous coverage areas. So the decision to kind of cut them off because of a different characteristics at each of the coverage area is probably something that be considered in our own situation. We're typically talking about contiguous coverage area so it's really hard to kind of you know dissect and slice a total commentary. You basically would have to decide you know all or nothing. And again, historically we would recognize that most of our customers always pretty much decide to go all in. And that's why we don't have a lot of attrition as a company.

Operator

(Operator Instructions) We'll take our next question from Reed Motulsky with Imperial Capital. Please go ahead. Your line is open

Reed Motulsky -- Imperial Capital -- Analyst

Hi. How does ShotSpotter's new software integrate into not just police and law enforcement, but also into securing cities, peace apps and other civil safety solutions?

Ralph A. Clark -- President and Chief Executive Officer

Well, this is Ralph. I'll try to answer that question. So we have a solution called notification engine and what notification engine does it takes our alert -- our digital alert and through XML and a pushing technology, we can push that digital alert into other systems to basically adjust that digital alert. So think in terms of video management systems, CAD systems, computer aided dispatch, record management systems and the like, analysis systems. And we have a number of our customers that exploit that technology. And you're on a very important point because we find that were ShotSpotter integrated into other technologies and other processes it creates more value to the customer and also kind of creates more stickiness as a result of that. And so we're very thoughtful and intentional around trying to be able to support those integrations through (inaudible).

Reed Motulsky -- Imperial Capital -- Analyst

Great. Thank you. And are you guys beginning to see regional differences and international differences between what law enforcement is looking for from the information ShotSpotter provides or is it just simply city by city?

Ralph A. Clark -- President and Chief Executive Officer

I think it is city by city. But I would note that I mean we're beginning to see a little bit of, I guess tipping point viral impact in certain geographies where agency demonstrates and success with a ShotSpotter and that news carries over very quickly and gives confidence to another agency. So if you look at some regions like South Florida as an example or the New England area as an example, more recently I think, Ohio as a state in a region, we have a number of recent wins there , had some very interesting discussions going on with other cities in that region. As a result of the, you know, early positive experiences of cities like Cincinnati as an example. We saw a little bit of that at play in California.

So what we're really about is really trying to plant flags particularly for this year because we knew that we weren't going to land a kind of Tier 0 city like Chicago. So it's really about hitting a lot of smaller cities and so getting them successful, and then the news spread to other cities that might have an interest in shots fired. So case and point for this quarter, two of our cities really quite interesting. And this is why we have so much confidence in our future.

Greenville has a population of 68,000 citizens in it, that's incredible that really wouldn't even come up on our 1400 TAM list. Pleasantville is even smaller than that, 21,000 residents in the city of Pleasantville, New Jersey. And this is the city that figured out that this was important enough for them that they self assessed their property tax of some sort to be able to pay for ShotSpotter. I mean this is incredibly encouraging and really says or suggests to me and hopefully others that the market is deeper and wider than maybe we thought. And so we're really excited about these because again once they've proved to be successful, we believe other agencies are going to want to weigh in on this solution as well.

Reed Motulsky -- Imperial Capital -- Analyst

Great. Thank you very much.

Operator

This concludes our question and answer session. If your question was not taken, you may contact ShotSpotter's Investor Relations team at ssti@gatewayir.com. I'd like to turn the call back over to Mr. Clark for his closing remarks.

Ralph A. Clark -- President and Chief Executive Officer

Yeah. Well thank you very much for dialing in and for your questions. We're really quite excited about the remainder of 2019 or even more confident about 2020 and beyond. And looking forward to seeing you all out on the road as we participate in investor conferences and the like. And of course, in the meantime if you have any questions or feedback for us feel free to email, Alan, myself and we'll be happy to engage with you.

So thank you very much again.

Operator

Thank you for joining us for today's call. You may now disconnect.

Duration: 44 minutes

Call participants:

Ralph A. Clark -- President and Chief Executive Officer

Alan R. Stewart -- Chief Financial Officer

Joseph Osha -- JMP Securities -- Analyst

Matthew Pfau -- William Blair -- Analyst

Charlie Erlikh -- Baird -- Analyst

Jeremy Hamblin -- Dougherty & Company LLC -- Analyst

Matt Galinko -- National Securities -- Analyst

Tyler Wood -- Northland Capital Markets -- Analyst

Reed Motulsky -- Imperial Capital -- Analyst

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