A successful IPO in June 12th landed $35.4 million for ShotSpotter, Inc. The Use of Proceeds statement read well with all the proceeds going to the company.
Underwriters included Roth Capital, Northland Capital and Imperial Capital placed all 3.2 million shares at $11. In the following days the stock rose to about $15 before falling back to the IPO offering price.
During this period the overall equities market was strong especially for technology companies. So what happened?
Shotspotter faced the same follow up issues of most newly minted public companies. Initial research reports from underwriters don’t get issued immediately and sophisticated investors understand the heavy bias of these types of reports.
Secondly, with no criticism of the underwriters, their reach to the investment community is less than Goldman Sachs or one of the other major firms. Often times this lull in the follow through allows investors the opportunity to find good value.
Here is the Shotspotter story for you to decide.
It hardly needs mentioning that the many outbreaks of gun violence create the need for new and more effective ways of dealing with this problem. A March 2016 report published by The American Journal of Medicine stated that the gun homicide rate in the United States is more than 25 times the average of other high-income countries. Recent random acts of mass violence merely add another layer.
According to a 2016 report by the FBI, the number of active-shooter events in the United States in 2014 and 2015 was among the highest for any two-year average period in the preceding 16 years.
How best can law enforcement deal with random gun violence? Shotspotter is using technology to help first responders.
ShotSpotter claims to be the leader in being able to immediately detect the location of a gunshot and instantly relay this information to law enforcement officials. The idea is that by cutting the response time to violent attacks lives can be saved and bad guys quickly stopped.
Here is how it works. When strategically placed sensors detect a gunfire incident, software analyzes and validates the data and precisely locates where the incident occurred.
ShotSpotter IRP Screenshot
An alert containing a location on a map and critical information about the incident is transmitted directly to law enforcement or security personnel through any computer and to iPhone or Android mobile devices.
ShotSpotter founders have created a SaaS-based subscription model that already has signed up customers in urban high crime areas of the United States as well as Puerto Rico, the US Virgin Islands and South Africa.
In addition the company has tailored ShotSpotter for application to school and corporate campuses as well as public transportation centers.
Here is the key to success. Can ShotSpotter convince law enforcement to buy and place enough sensors in enough locations to improve violent crime statistics? This is no easy question if you understand the complexities to crime stats.
Shotspotter is not a startup. They have been around since well before 2010 with close to $20 million in annual revenues on their books. So far they have not turned a profit. Proceeds from the proposed $35.4 million public offering will help with working capital and other needs.
Management is lead by CEO Ralph Clark who has been with the company since 2010 and a veteran of the security industry for many years. The overall age of management is around 50 something. In other words, they are not kids on skateboards dreaming up the latest super awesome App.
Financial information shows the company revenues rising from $11.8 million in 2015 to $15.5 million last year. So there are signs the demand is responding to news events.
Another clue to the future may be the $15 million in deferred revenues on the company balance sheet as of March 31, 2017. Presumably, these relate to existing SaaS contracts that call for specific monthly payments over the course of the upcoming 12-month period.
We don’t make investment recommendations. We provide analysis without being biased. Our intention is to give you critical information to allow you to make an informed decision. Small capitalization companies going public can have a terrific story with great financials and still get lost in the aftermarket period.
It often takes many months for the big Wall Street firms to get wind of these orphans. For company managements, it can be a frustrating period making investment presentations, repeating the company story over and over. But for investors willing to dig into the companies, there can be some hidden opportunities.
Disclosure: James Waggoner does not have any positions in SSTI and does not plan to initiate a new position in the near future.