{"id":56221,"date":"2021-04-25T20:57:38","date_gmt":"2021-04-26T03:57:38","guid":{"rendered":"https:\/\/drduru.com\/onetwentytwo\/?p=56221"},"modified":"2021-04-27T07:04:13","modified_gmt":"2021-04-27T14:04:13","slug":"shotspotter-amid-rethinks-on-policing-still-delivering-results-and-value","status":"publish","type":"post","link":"https:\/\/drduru.com\/onetwentytwo\/2021\/04\/25\/shotspotter-amid-rethinks-on-policing-still-delivering-results-and-value\/","title":{"rendered":"ShotSpotter: Amid Rethinks on Policing, Still Delivering Results and Value"},"content":{"rendered":"\n

Introduction<\/strong><\/h2>\n\n\n\n

I have supported and invested in precision policing and gunfire detection company ShotSpotter (SSTI) for four years<\/a>. I have even attended an annual shareholder meeting, spoken with the CEO and other company executives, and received a tour of the Newark, CA headquarters. SSTI experienced its best trading days in a 1-year burst that took the stock from under $10\/share to over $60\/share. Since the all-time high in the fall of 2018, SSTI has experienced fits and starts of sell-offs and rallies with trading opportunities in between. Through it all, I stick by ShotSpotter because I still see the growth potential. I also believe that the end game for ShotSpotter is a lucrative acquisition that will elevate the company into integrations with the “Smart Cities” of the future.<\/p>\n\n\n\n

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ShotSpotter<\/a> (SSTI) traded back to its 200-day moving average (DMA) (the blue line above) after reporting earnings in February.<\/em><\/strong><\/figcaption><\/figure><\/div>\n\n\n\n

The earnings report from February<\/a> delivered another disconnect between the business realities and the stock price. Before I review that earnings report, I want to address some scathing criticism that ShotSpotter received in the tragic wake of a police shooting in Chicago in late March. American policing sits at a critical crossroads with the rapidly growing awareness of the many ways in which America’s policing practices are broken, especially when it comes to the treatment of Black and Hispanic people and communities. These dysfunctions have existed for generations, but the country sits at a fresh moment in history where the will is building to make fundamental and needed changes. I claim that ShotSpotter is not a part of the problem and is much more likely one part of the solution.<\/p>\n\n\n\n

Tragedy and Accusations<\/strong><\/h2>\n\n\n\n

On the same day as the insurrection against the Capitol on January 6th, ShotSpotter (SSTI) released a dire report on gun violence in America in 2020<\/a>. The stock surged over the next month as if traders and investors anticipated ShotSpotter playing a role in the solution. The momentum soon faded. Even after a solid earnings on February 25th, SSTI completed a roundtrip from January’s gains. Yet, this year’s tragic start with mass shootings and other types of gun violence have kept this issue in the forefront of headlines and political agendas. These days, with almost everything about life and death caught on video and distributed instantly and broadly on social media, America’s trauma with gun violence is inescapable. <\/p>\n\n\n\n

Police shootings and the killing of police are part of America’s persistent problem with gun violence. For example, in late March, even with the on-going trial of ex-cop Derrick Chauvin for the murder of George Floyd, a policeman shot and killed a 13-year old Hispanic boy in Chicago. Bodycam evidence<\/a> apparently shows the kid was shot after he already dropped his gun and was surrendering to the officer who pursued him on foot. (Many years ago I stopped watching these tragic videos – they now overwhelm my emotions – so I cannot provide my own interpretation of the video evidence). In this case, the cop and his partner responded to a ShotSpotter report of a shooting.<\/p>\n\n\n\n

Chicago is a long-standing ShotSpotter customer. The city has documented success in fighting crime with ShotSpotter. Yet, this incident turned into a fresh opportunity to indict ShotSpotter as ineffective and wasteful. An online publication called “The Intercept” took a particularly accusatory stance on ShotSpotter’s culpability. In an article titled “Chicago Awaits Video of Police Killing of 13-Year Old Boy<\/a>” and sub-titled “After the police killing of Adam Toledo in Chicago, the ShotSpotter gunfire detection system deserves serious scrutiny”, The Intercept transitioned from scrutinizing to condemning ShotSpotter. The article focused on negative research and opinion and spent little time considering the company’s documentation of successes<\/a>.<\/p>\n\n\n\n

The Intercept specializes in “adversarial journalism”<\/a> which appears to be a brand of journalism that takes a particularly aggressive approach to exposing “corruption and injustice wherever they find it.” With that context, the Intercept wrote what the financial community might call a “hit piece.” In fact, some elements of the article are flashbacks to a hit piece from a short-seller back in November, 2017<\/a>. SSTI bottomed soon after that report hit the press. This time around, ShotSpotter barely budged following the release of The Intercept piece. The reaction likely reflects the market lessons learned from four years ago…and the relative confidence the company has earned from investors.<\/p>\n\n\n\n

The Case and the Evidence<\/strong><\/h2>\n\n\n\n

ShotSpotter detected 8 gunshots at 2:36am on March 29th in the Little Village section of Chicago. The police were notified at 2:37am and on the scene by 2:38am. The author of The Intercept article provides a good description of the context that led up to the ensuing foot pursuit and the fatal shooting:<\/p>\n\n\n\n

“…foot pursuits most often take place in Black and Latino neighborhoods and that the frantic, adrenaline-saturated dynamics [Chicago Mayor Lori Lightfoot] evoked generate a mode of attention in which threat assessment is likely to be shaped by implicit bias. At such moments, ‘split-second decision’ is a misnomer, for it is the sheer unthinking momentum of the interaction rather than a deliberate decision that results in the use of deadly force.” <\/p><\/blockquote>\n\n\n\n

The author goes on to effectively blame ShotSpotter for placing officers at the scene and providing the spark that ignited the tragedy: this incident is “a powerful occasion for assessing the hypothesis that this technology, as used by CPD [Chicago Police Department], creates an unacceptable risk of producing ‘split-second’ situations \u2014 situations that would not otherwise occur \u2014 in which officers respond to perceived threats with deadly force.” Yet, ShotSpotter is a detection technology. It does not and cannot provide guidance to police on how to respond to the evidence they find at a scene. Humans ultimately remain in control. In this case, the police are the decision makers. The scenario is actually no different to the ways in which an officer should respond to a 911 call about gunshots. Scrutiny and reform should start with the procedures involved with responding to any<\/strong> report of a crime.<\/p>\n\n\n\n

The article contains an unstated presumption that ShotSpotter reports are less accurate than human reports of gunfire. The author goes on to cite several studies of the ineffectiveness of ShotSpotter and comes up with a “conservative” false positive rate of 85.35% (not 85%). False positives can be difficult to measure since suspects flee a scene. Moreover, the knowledge that police can respond quickly to gunfire can serve as its own deterrent (some of Shotspotter’s cases make that point). Regardless, the author quickly dismisses the case ShotSpotter makes because the company has no peer-reviewed studies. ShotSpotter posts case studies<\/a> from 18 different cities about various kinds of success in saving lives and reducing shootings. <\/p>\n\n\n\n

The Las Vegas police department reported the detection of hundreds of gunshots that would have otherwise gone unreported. This is akin to a false negative problem of human reports of gun fire. ShotSpotter quotes a 2016 Brookings Institute study that claims residents report just 20% of gunfire incidents<\/a>. Moreover, at its last Investor’s Day<\/a>, ShotSpotter reported 96 victims were found in cases where no corresponding call was made from the public. What value can be placed on this kind of false negative? The Investor’s Day presentation is an important source of information on the value ShotSpotter delivers for its customers and the public.<\/p>\n\n\n\n

In 2017, Chicago noted a great reduction in homicides at least partly thanks to ShotSpotter.<\/a> According to The Intercept, the MacArthur Justice Center studied 6 months of 2019 data to demonstrate the 85.35% false positive rate. The two results can actually be quite consistent even as I do not know how to resolve the conflict with ShotSpotter’s claims of vastly better false positive rates. The question for any city is whether the false positive rate is worth the value of the successes. ShotSpotter’s record across multiple cities suggests that the cost\/benefit still works in ShotSpotter’s favor. I remain open-minded to reassess my conclusions as more research gets done. In fact, ShotSpotter plans to provide more research to answer these kinds of questions.<\/p>\n\n\n\n

Monitoring<\/strong> and Policing<\/h2>\n\n\n\n

The Intercept article complains that Black and Hispanic neighborhoods are specifically targeted for monitoring. Yet, venture across an array of American neighborhoods. We can find homes outfitted with all manner of alarm systems, security cameras, neighborhood watches, etc…. For example, in 2018, Alarm.com (ALRM) announced<\/a> that every new home from D.R. Horton (DHI) will come with a suite of smart home products including video monitoring (like a doorbell camera). The company claims<\/a> to have “tens of millions of devices” in “millions of properties.” Alarm.com is just one of many companies serving the rapidly growing market for home monitoring equipment and services.<\/p>\n\n\n\n

In other words, constant monitoring has become an accepted way of life in America. The question now is not whether to monitor but how to wisely and judiciously use the information and data. The starting point is the decision-making capabilities of the people responsible for deploying and using these systems. <\/p>\n\n\n\n

In a more balanced article looking at various controversies in New York City involving ShotSpotter, the publication The City interviewed CEO Ralph Clark in July, 2020<\/a>. The article includes descriptions of other police responses to ShotSpotter reports that went wrong. Clark’s claims are telling about the mission of the company when it comes to gunshot detection:<\/p>\n\n\n\n

“He noted ShotSpotter operates across 70 square miles in the city, ‘prioritized around areas within those boroughs that had higher incidence of gunfire. When people kind of push back with the notion that, you know, ShotSpotter is a tool of oppression. It\u2019s in fact the exact opposite…It\u2019s a tool of service.’<\/p>

A native of Oakland, Calif., Clark said he feels strongly about providing a service for ‘communities that are over-policed and underserved at the same time.’ If police don\u2019t respond, he said, ‘gun violence becomes normalized.'”<\/p><\/blockquote>\n\n\n\n

The Intercept article worries about the refrain that predictive policing systems go to where the crime is:<\/p>\n\n\n\n

“Here, we encounter the circular logic of predictive policing by which supposedly scientific methods yield racist results, as overpolicing of communities of color drives an \u201cevidence-based\u201d dynamic that produces more overpolicing and attendant harms.”<\/p><\/blockquote>\n\n\n\n

In other words, The Intercept worries that these systems supposedly create self-reinforcing signals that encourage constant over-response. Yet, this kind of dynamic conflicts directly with the claims of exorbitantly high false positive rates. A system should respond to false positives with less response and less policing. Something is likely broken with police procedures here, but it is not simply with the use of ShotSpotter technology. <\/p>\n\n\n\n

A Red Herring<\/strong><\/h2>\n\n\n\n

The Intercept article also went searching for the company to impugn itself. The process uncovered a red herring<\/a> in statements from a standard SEC (Security Exchange Commission) filing. The risk statements in these filings try to cover every imaginable negative scenario. Companies make these broad and sweeping statements to try to avoid lawsuits that claim a company did not properly disclose risks to investors. As a result, companies will include risks that are extremely unlikely but are worth stating to avoid a costly lawsuit. The Intercept quotes the following risk from the Form 10-K filing on March 29th<\/a> as proof of the need to question the company’s technology:<\/p>\n\n\n\n

“We may be adversely affected by ongoing social unrest, protests against racial inequality, protests against police brutality and movements such as \u201cDefund the Police\u201d or increases in such unrest that may occur in the future. These events may directly or indirectly affect police agency budgets and funding available to current and potential customers. Participants in these events may also attempt to create the perception that our solutions are contributing to the \u201cproblem,\u201d which may adversely affect the Company, its business and results of operations, including its revenues, earnings and cash flows from operations.”<\/p><\/blockquote>\n\n\n\n

I addressed the issue of the defund movement in a previous post covering an earnings report last year<\/a>. At that time, CEO Clark had this to say (quoted as-is from the transcription): <\/p>\n\n\n\n

“What the core of the movement is calling for is a fundamental change in how policing happens in America. The kinds of things being demanded are changes of our technology supports and enable[s]\u2026.In my mind, it comes down to the simple choice between a posture of over-policing while underserving versus precision policing combined with community-inspired engagement\u2026<\/p>

It\u2019s difficult for police department to credibly claim that it protects and serves the community if it doesn\u2019t respond to 80% to 90% of gunfire events that happen on a persistent basis, even if those gunfire events are not reported in the first place. This leads to normalized violence which can produce all manner of negative outcomes, including pediatric trauma.”<\/p><\/blockquote>\n\n\n\n

This statement positions ShotSpotter as part of the solution for the community. Indeed, the same SEC filing contains this quote: <\/p>\n\n\n\n

“Since our founding, 25 years ago, ShotSpotter has been and continues to be a purpose-led company. We are a mission-driven organization that is focused on improving public safety outcomes. We accomplish this by earning the trust of law enforcement and providing them solutions to help them better engage and strengthen the police-community relationships in fulfilling their sworn obligation equally to serve and protect all. Our inspiration comes from our principal founder, Dr.\u202fBob Showen, who believes that the highest and best use of technology is to promote social good. We are committed to developing comprehensive, respectful, and engaged partnerships with law enforcement agencies, elected officials and communities focused on making a positive difference.”<\/p><\/blockquote>\n\n\n\n

Brutality in Policing<\/strong><\/h2>\n\n\n\n

For those interested in understanding more about how America got to this point of issues with police brutality, I highly recommend watching the following recent interview with Princeton sociology professor and founder of americanviolence.org<\/a> Patrick Sharkey. Sharkey discusses how America as a country disinvested in its cities, turned to a model of punishment as a way to solve social problems, and over-burdened police with resolving all the social ills that come with America’s entrenched systems of inequities. This toxic mix has helped bring the country to this critical point of confronting police brutality.<\/p>\n\n\n\n

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