Will an IPO save Gunshot Detection Company ShotSpotter?

The US holds some of the world records when it comes to guns. It is one of those countries where guns are used every day, thanks to the Second Amendment. Sometimes it may be hard for law enforcement to tell when someone has been shot in an area because there are so many gunshots fired in a day and many more false alarms. That’s why starting a business like a gunshot detection firm might sound like a good idea. If ShotSpotter’s performance is anything to go by though, it might take a few years for that statement to come true.

ShotSpotter (NASDAQ: SSTI) was founded in 1996, but it started commercializing its software until 2004. ShotSpotter offers pre-packaged gunshot detection software that lets its users when and where a shot has been fired. According to the company’s website, ShotSpotter operates in early ninety locations across mainland USA. Most of the company’s clients are law enforcement agencies and the odd educational institution now and then.

For a company that has been in operation for fifteen years, ShotSpotter’s funding and revenue are a little on the lower end. The company has had more than four rounds of series funding and more than five of venture funding yet all that only adds up to an estimated $70 million. Its backers include Lauder Partners and UK-based Motorola Solutions. The story is the same when it comes to the company’s revenue stream. In the last two years, the sales revenue for ShotSpotter has averaged at $14 million, which is well under what’s expected of a security company over a decade after it’s started.

Now, ShotSpotter has no direct competitors. It’s practically a monopoly in the US market. With that in mind, it is hard to understand why the company has been making annual losses in the millions since it was founded. In 2015 the company lost about $6.2 million of net income. In 2016 the company performed even worse, making an increased net loss of $6.9 million. The elevated revenue figures and increased gross margins cannot negate the fact that ShotSpotter is a company doing badly despite being the only player in the market.

Last year ShotSpotter CEO Ralph Clark was questioned about these continuing losses. At some point, he was asked whether the company would have to shut down because of them. To that question, Clark answered, “Sadly, not in the US.” The implication was that the US needed ShotSpotter’s software because of the high number of gunshots that occur daily. That raises the big question: if America is so in need of gun detection software, then why the low sales for ShotSpotter?

The company blames the low sales on a negative public attitude towards gunshot detection software. If that’s the case, is an IPO at this time the best deal for the company? ShotSpotter intends to sell off 2.8 million of its shares at $10 to $12 to make an estimated $30.8 million at the midpoint. At best, ShotSpotter can raise$33.6 million in the IPO. With liabilities of $35 million almost due, can an IPO really do much for the Newark-based company?