SoundThinking’s Revenue Surge Signals a Turnaround: A Contrarian Buy Alert!

SoundThinking, Inc. (NASDAQ:SSTI) has delivered a critical earnings beat that hints at a potential turnaround, despite lingering near-term losses. The company’s Q1 2025 revenue surged to $28.3 million, a 12% year-over-year increase, driven by catch-up revenue from renewed New York City Police Department contracts and expansion into four new cities. This outperformance of consensus estimates—by $1.39 million—sparked a 23.6% stock surge post-earnings, signaling investor optimism about its path to profitability. While the reported EPS of -$0.32 missed expectations, the broader narrative of operational resilience and strategic innovation makes SSTI a compelling contrarian buy for investors willing to look past short-term noise.

Revenue Growth: A Foundation for Future Dominance

SoundThinking’s $28.3 million Q1 revenue marks a clear inflection point. The renewal of delayed NYC contracts injected $3.5 million in catch-up revenue, while geographic expansion into four new cities and product diversification via its SafetySmart™ platform are fueling sustainable growth. Management reaffirmed full-year revenue guidance of $111.0–$113.0 million, a 10% YoY increase, which now excludes the Chicago contract renewal—a sign of confidence in its core business.

The company’s Annual Recurring Revenue (ARR) is projected to grow from $95.6 million at the start of 2025 to $110 million by early 2026, underscoring the scalability of its subscription-based model. New revenue streams, such as its SafePointe® AI weapons detection system—targeting commercial markets like airports and schools—are unlocking a $3 billion Total Addressable Market (TAM) extension. This diversification reduces reliance on government contracts and positions SSTI to dominate both public safety and private security sectors.

Margin Improvement: Betting on AI and Operational Efficiency

While SoundThinking reduced its 2025 Adjusted EBITDA margin guidance to 20-22% (from 21-23%), this reflects strategic investments in machine learning and AI technologies to enhance its platform’s value. The long-term targets—70% gross margin and 40% Adjusted EBITDA margin—remain intact, and management insists these goals are achievable through automation and cross-selling of solutions like CrimeTracer™ and ResourceRouter™.

The dip in margins is a calculated trade-off. By prioritizing R&D and AI integration, SSTI is future-proofing its offerings against competitors and regulatory shifts. For example, SafePointe’s commercial adoption addresses rising demand for compliance-driven security systems—a trend that’s already yielding contracts in key verticals.

Why Buy Now: A Contrarian Play on Turnaround Stocks

SoundThinking’s trailing 12-month P/E ratio of 0.0 (due to losses) masks its $11.7 million cash balance and $45.4 million in deferred revenue—a testament to its strong recurring revenue model. Analysts now project a narrowing loss of -$0.18 per share for 2025, with EPS improving to -$0.03 by 2026. The stock’s average price target of $22.33 (a 42% upside from current levels) reflects this optimism.

This is a buy signal for three reasons:
1. Execution Beating Expectations: SSTI’s ability to deliver on revenue targets despite macroeconomic headwinds suggests management is executing its roadmap.
2. High-Growth Markets: Public safety tech and commercial security are $20 billion+ sectors with limited competition, giving SSTI a first-mover advantage.
3. Valuation Discount: At $15.47, the stock trades at a fraction of its peers (e.g., Perfect Corp. at 38x P/E).

Risks? Yes—but the Reward Outweighs Them

Critics will cite dependency on government contracts, execution risks, and the pending Chicago renewal. However, SSTI’s ARR growth, AI-driven product pipeline, and geographic expansion into 12 new cities since 2023 mitigate these concerns. Even if Chicago’s contract lapses, the company’s revenue guidance excludes it, meaning upside is baked in.

Final Verdict: Buy the Dip

SoundThinking’s Q1 results are a turning point. The revenue beat, margin-investment trade-off, and new TAM opportunities suggest it’s primed to deliver sustained growth. With shares up 23.6% post-earnings but still undervalued, this is a contrarian’s dream: a stock trading at zero P/E with $30.61 upside potential (GuruFocus estimate) and a $25 million share buyback program to boot.

Act now—before the Street catches on.

— Jim