Q4 2019 Earnings Call
[noise]. This conference call me may contain forward looking statements within the meaning of section 27 eight of these Securities Act of 1933 and section 21. Each of these Securities Exchange Act of 1930 for the words believe expect anticipate intend estimate me.
Should could well planned future continue and other expressions that our predictions.
Oh for indicate future events and trends and that do not relate to historical matters identify forward looking statements. These forward looking statements are based largely largely on our expectations or forecast future events can be affected by inaccurate assumptions and are subject to various business risk.
And known and unknown uncertainties and number of which are beyond our control. Therefore actual results could differ materially from the forward looking statements contained in this document and readers are cautioned not to place undue reliance on such forward looking statements.
Digital ally will undertake no obligation to publicly update or revise any forward looking statements, whether as a result of new information future events or otherwise a wide variety of factors could cause or contribute to such differences and could adversely impact revenues profitability.
Cash flows and capital needs there can be no assurance that the forward looking statements contain industry document will in fact transpire or proved to be accurate now I'd like to turn the call over to generally.
Thanks, everybody for joining us today I've got with me, Tom Heckman Company CFO.
Total doing quick recap of last years numbers in fourth quarter numbers, and then we'll probably rather quickly on him too.
This isn't about what we still believe a 2020 looks like in regards to our existing products and also touch on our most recent press release that we announced today concerning the disinfectant.
That we would now be marketing to our first responders as well so Tom I'll, let you a little quick recap and then we'll get into the.
Forward looking stuff all right. Thank you Stan and welcome everyone. I. Appreciate you joining us today I do want to let you know that we have filed or our form 10-K would be the FCC. This morning, and it is a a full recap of the year 2019 versus 2018, I certainly refer you to that I'm not.
I'm going to go through that and in any significant detail I'll try and hit some of the high points that I know you know what the current environment and everything that's going on you know 2019 seems like ancient history with what we're dealing with right now so I won't spend a lot of time with it will will talk about what what's happened recently, including into first quarter.
Order here and where we sit today. So it was that in mind I would tell you that 2019 or a bottom line, we were about five and a half million dollars better.
Then the previous year and that was primarily due to the patent litigation settlement that we we entered into with Watchguard, we gained $6 million and in a funding through that offset by 3.3 million dollar increase in our patent litigation liability the fair value of that so.
In essence that [noise] that contributed about three little less than $3 million to our bottom line. So we we had good good improvement elsewhere.
If you look at the top line really I think it's more indicative of two factors number one we're trying to move people more to a service plan, a and platform rather than a a product sale a hardware sale program.
In that regard your overall sales declined 15%, but our service and the other income increased by 25% not income I mean revenue.
And it's clear why we're doing that our margins gross margins on service a hit 77% in 2019 versus 76% in 2018. So our overall plan seems to be working from that standpoint, we are shifting more sales to the service.
Service channel rather than the hardware sales and the second reason for that is we did introduce evoke H D. In the middle point of last year and Asics as expected.
Our customers took a pause to look at bad and evaluated a it is a revolutionary new new platform that we're very proud of but it is taken some time for for our customers to review it tested and and adopted and in that regard that you know we did do a press release I think last week about.
Pretty nice order, we got E. Bose I would tell you also domestic water that we got for evils I will tell you that we had a a rather large international order a in the hopper to ship and in March of 2020.
That was was and is delayed because of the krona virus outbreak.
Countries and certainly foreign countries have have a their hands full with the krona virus. So I think the bottom line here is that we're seeing some very good traction customers are very receptive to the evil HD than in the new platform in the connectivity of that platform and I believe it will be the bellwether for four.
For years to come with that mine it did hamper our hardware sales in 2019, a as well so.
Let's talk about a few other things that have happened more recently, yeah. We did have a complete a two and a half million dollar underwritten public offering in March of $1.15 per share a gross proceeds of roughly $3 million, a we're very happy to get that done before the crop.
From a epidemic really became a problematic in the capital markets. So we got that done in early March and we're glad we did that you know our first quarter over quarter revenues I will say are very similar to last year.
Which you know I think given the situation most people would be pretty happy with that but for I was speaking for myself and I think even Stan we're both very disappointed in that we started the year January February.
With double digit increases over prior year revenues. We were we were seeing good traction or nearly Eva was starting to hit a little bit and in March we had several large international orders as well as domestic orders.
That we're set to go out we even had him on pallets ready to ship at one time, a that got delayed because of the the impact of the wrote about her so although first quarter could be very similar to last year. A we're disappointed in that we did not get the opportunity to ship orders that that should have been shipped a given normal times rather than what were.
We're currently experiencing so [noise].
Also I would tell you that the axon litigation.
We did a press release that announced the oral arguments were we're supposed to happen today.
Because of the krona virus thing and other.
Factors the the appellate court issued a a order that they were not going to do oral arguments that they were going to rule upon.
A brief as submitted by the by the two parties stay alive.
Really look looking through the tea leaves it's only our judgment is we believe that's good news, but we don't know until they actually issue.
And quite frankly, we don't know when they're going to issue with what's going on when they're going to.
You know meat and go over the the briefs and determine.
An outcome for that appellate hearing so it's my understanding Tom that the briefs will be submitted today. So that's still taken place [noise].
And you know in talking to our.
Litigation team.
We believe that maybe because of the fact that they're not now going through the trouble oral arguments, but our ruling based on just the briefs that they may be able to actually move a little quicker. So we still think at least from what we're hearing unless there's a you know they shut.
Actually shut the courts down and don't allow them to.
Make any kind of rulings that we should see something I would say within the next 45 days. So it could be rather quickly is a they're not having people walking through and in and out of the court room, they could be sitting around the table right now all parties looking at it and and.
And then what's your thoughts on so.
But we do we do think that.
The fact that that they did not a and they did elect to go ahead and instead of postponing it.
Went ahead and did a well do and say just said hey, guys you don't need to come come here, we've got enough or believed that our position we can get to a position to rule on it by just using the briefs.
Look we look upon that is somewhat favorable we would have thought that if for some reason.
They weren't interested in in here in our side of it as were the ones that actually filed it they would at least postpone and gave given us our day in court. So.
We're hopeful that it will continue to move forward and we'll get something on that in the next 45 days. Okay. Thank you Stan I just got a couple other things I'll mention.
We were a in deficient with the NASDAQ listing requirements continued listing requirements.
We filed several eight Kazan and releases that described that event a standard I met with the NASDAQ Board in February.
In presented our compliance plan, which we're happy to to announce or I think we have announced already that the NASDAQ was very receptive and an approved our plan.
And gave us until June Thirtyth 2022 to achieve that plant now with the current environment, we kind of expect that that that will be delayed because of you know everything is going on with kroner virus and I know, there's a lot more NASDAQ companies with deficiency is issues.
As well as as us that the nasdaq's dealing with so I I hope that that gets delayed but I don't know that it'll get delayed we don't and we will certainly a price the market when and if we hear from the NASDAQ on on the exact date.
If that is gonna be delayed at all I would tell you from a corona virus perspective, we have made some changes in our operating plans you include and having people work from home and I think you guys have have seen hopefully have you seen the press release. This morning, we've taken a on a new line of products to help our for.
First responders deal with the krona virus onset to disinfect cars or any kind of surface jails table whatever it is the product that I'm sure you guys will will want to know more about has been around for a number of years.
We have a a distributor ship for that we're going to hit our our customer base with the email blast today and we expect them. We hope that we'll get a very good response from that because this this is exciting product it's non toxic.
It's a approved by the EPA to fight the Corona virus as well as a number of other you know contaminants in bacteria and viruses, including HIV Murcia.
I can't remember the C. diff Salmonella area, there's a ton of them. If you go if you go to our website.
Again bear with us that.
And.
More more information put on it you know virtually every hour, but you could get on there and get a pretty good understanding and there's some links that take you to the I think it's the FDA the.
And the EPA all the the appropriate government sites to give you a little more understanding of what it's capable of doing and you're not just touching on thompsons runner right. Now is the the product itself, we've been knowledgeable ball about it and sector and.
Due to little bit a preliminary.
I would say marketing in talking to a few of our key customers. If they would have a level of interest in the product and we were over to well with.
Those that that clearly said they have an interesting in talking to our team, but we realizes this was going to be a situation far as sanitation you know the cleanly nurse on an on you know that is going to be looked at scrutinized and even our government. They said that they're concerned about if we get paid.
Pass these next month or so that still need to be on high alert and putting in us and stuff as we go into the flu season. Later this year that it could come back around and until we really get a vaccine for it it's it's going to be with us. So.
With the.
Thousands of.
Departments that currently buy from us that could utilize that the amount of taxicabs.
Just you know there are multiple customers that we have added all shown very strong.
Levels of interest in the product I would be.
We just literally launched it today and and told our sales team and we do have or email blast went out here and in a few hours but.
Just really surprised by the amount of interest and those that are already.
Placing orders.
For shipments better go out later this week, we have a very good relationship with the the bottling company or let's say the the master distributor that.
We worked very closely with an have had a relationship with for some time. So we're excited about it we think that this is a area that.
Really could have an impact in our 2020 numbers and we will update you all in the form of a press release as we see how things play out for let's just say the month of April would give you an update let you know how many.
You know gallons or thousands gallons or whatever the magic number maybe we'll let you know, but we're very excited about this product.
Yes, I would just add a couple of comments and then turn it back to stand to I'm sure you guys have many comments and questions about where we're headed but.
We're looking at this is a new.
Channel for digital ally to help first responders not only first responders, but you know what really fits in well with the rest of our businesses. We have the event solutions business. The taxi cab the cruise ships ambulances ambulances. So it really fits like a glove with our.
Current customer listen obviously, we're going to exploit that but we believe it's going to bring in new new channels as well and give us avenues to also sell them hardware and services surrounding our.
Recording products. So anyway, we're excited about it we're looking for other ones too I mean, there's there's other products that we're looking at that we may take on in a similar category.
But you know look for us to try and try and improve revenues through through other channels as well so with that I'll turn it back to stand and I'm sure you guys have more questions for us yes, Tom.
Everybody should know that's on the call that we also had been making quite a bit of headway in regards to our.
New breathalyzer that has our.
And associated with it that continues to come come along real nicely in in the development and we still anticipate being able to have that out later this year. So yeah. We will continue to look at.
Mainly different products I don't know if I want to say channels different products that can really easily fit into.
The existing distribution channels that we have and then.
That will have a ripple effect leading into other areas, obviously with our relationship.
And partnerships with a lot of the entities from football to.
NASCAR you know those are avenues that we'll continue to.
We'll be able to expand on with some of our products and we also will be actually bringing in a sub distributors in regards to a couple of our products that have their own channels and network in place to so excited about you know.
What we have ahead of us and and really were just like to see like all of us things get back to normal c. so that.
We can all be.
Shaking hands again at some point in time, and and being able to talk business across from a table versus a over the phone. So it was went ahead and.
Open this up for the Q and ate side of our call.
At this time, if he would like to ask your question. Please press star one again that star one for any questions well pause for just a moment to compiled the kuni roster.
The first question will come from Brian Kinstlinger with Alliance Global Partners. Please go ahead.
Hey, guys hope you're doing well.
Hi, Brian E.
With the current revenue base, how are you dressing overhead and can you talk about.
It was your business being essential print volumes down where are you can take operating expenses. It looks like you worried about 15 million in 2019, which I assume includes a 3 million litigation expense or just so what can we take that too right now.
Yes overhead wise Weve pare down Oh, I wouldn't say substantially but we've we've pared down in the areas that that really are flat or or or actually not exist. In this economy right now with Corona virus I'm thinking like event solutions and likewise.
So we've made cut backs, both employees and overhead and those areas that makes sense.
But I would tell you that a certain areas of commercial is revving up a private security seems to be doing real well.
As well as our regular law enforcement business. So you know there's areas that we have cut back in because those areas are dead in the water right now until the economy really opens back up.
As far as what to expect from an overhead perspective, it will go down Uh huh.
But I cannot tell you how much.
Depending on where else, we cut and what else we do but we're looking at every every overhead expense obviously in trying to trying to make it a right versus you know what what kind of revenues were generating from those channels. Yeah, a lot a lot of it some of the expenses as you can imagine instead of.
You know us.
Going to trade shows another events I mean, even all our outside reps are basically considered inside reps I mean, there happened to keep the relationships by phone.
We do a tremendous amount of webinars.
You know to try to keep everyone educated and get new business through through those means but the the expense was a being out on the road is nonexistent in a pretty much right. Now. So there are lot of areas that the expenses and came down dramatically let alone the areas, where we really did have to pare back.
As Tom was saying that because the the opportunities our non existent for awhile.
Great and then turns into disrupted supply chain lots supplies are you having trouble concerning wherever they procure and is there any communication from suppliers as to when this might improve.
Yeah as you might expect we do get some of our camera products.
From the Orient, specifically, China Philippines.
South Korea.
Those those suppliers, obviously, you've been affected but it really hasn't hurt us that bad we've had some delays, but weve eventually got the order quantities and.
Products. So yes, we had been affected it asked slowed down but but we.
We are getting products from those those companies and suppliers and we don't think that that it will be an ongoing problem. Once the thrown a virus thing kind of passes.
Great and then last question can you expand on the press release comment that you are evaluating every.
For abuse and rights for sub upon its just some more detail how much might mean.
Yes, as we look at and have seen the level of interest in the current products that we're we're out there with its clearly opened our eyes up too.
Other.
Potential products, such as even hardware that though we have the capability of being able to produce and could implement and sell through our existing channels. So we're looking at what all not only that the current product, but additional ones a long distance.
Line.
How we can expand on that and again as I mentioned, we're still excited about.
Our breathalyzer hitting the marketplace, we do have a next generation of body camera that.
We have not pump the brakes on at all we're still going full speed ahead for it to to get to development. We have the what we called the 250 in a box or or or the 250 fleet.
That's for over the road.
Truckers and that product to is is right around the corner. So there are several additional products that we haven't given that we've been working on and others that we believe now with.
The the changing environment that we clearly have the capabilities to.
To get into and you know one again I'd.
One one I just need to wait a little longer doesn't explain on but there are some even medical devices that we have the capability.
Design and producing.
Okay, great. Thank you.
Thank you.
The next question is from Bryan Lubitz with Aegis. Please go ahead.
Good morning voice Warner Brian.
Hope or the family and all the friends out there are being safe and everyone is healthy.
As you know I'm on the island, and we're becoming the hot spots so [noise].
You know my my thoughts and prayers route you guys and your family's put it that way, yeah, and your way as well right.
All right. So first thing I wanted to touch base on and then I'll segue back to obviously cove, it but I want to start on the service revenue.
The quarter and obviously for the full year going up substantially from last year. As you guys are struggling from being more of a product space sales company too.
Having that residual sticky business if you will.
Can you guys give us a mix of how much of that is actually from generating.
Well for the data plans are mostly storage fees and how much of it is actually from I guess warranties and services.
Yeah, the lion's share that Brian is from a warrant.
Extended warranty services and installation services. If you will the data plans as you might expect there they're covered over three to five years. So it's a much smaller number but there's really no costs associated with it. So if you look at sheer numbers the warranty revenue the extent of war.
<unk> revenue is larger and the installation revenues larger, but theres virtually no cost very little cost on the Oh on a data plans and that's so it's a little misleading from that standpoint.
Okay. So now off of that Tom in regards to gross margins and being that there's very little cost and the data.
How do we get that number up is it just by you guys signing new contracts or is that three year deal does it kind of.
Could you, even with new contracts getting that number higher and higher.
No I I think the the major effect on this year and even last year's gross margin numbers is some reserves we took against.
Inventory of the older product you know we were introducing the even though H.D. and so we knew that the older product lines, which really dissipate.
So we took some some necessary reserves in order to get our inventory in line with bringing on this new evil business. So that's really what what's affecting that I think now that we've we've pretty much got that behind us we know where we're headed there I think you're going to see some some growth in the gross margins.
Just from the standpoint that we've already taken our hits on on a on obsolete in excess inventory.
Okay as far as your sales team is it I don't want to see a mandate but is it.
Up most importance that they sign up customers with the data program being that the margins to so good there.
Yeah, well, we're [laughter] this new evaluates the platform is a connected platform Brian so.
By by definition, you sell an evil HD, you're generally selling a connected program you know a cloud based program. We're also moving.
You know full speed ahead on our ore body cameras, because you know we just don't make much money on the hardware for body camera the real money isn't isn't the data plan and the storage. So we're moving headlong into that and we're trying to phase out the older storage requirements, which would be.
You know local in nature. So we're moving post haste into that type of scenario.
Okay Super.
No I also want to touch base with stand I believe you mentioned that you guys human had product on.
The discounts to go out one pallets and then you kind of had to pull it back.
Is that based upon international orders were.
Our borders are being shut down their borders are being shut down what's the reason why that.
Order didn't actually get shipped out.
It was Brian I mean because of the.
You know the virus. They they said look we want to put everything on hold your mind you know just hold that so we see where things right. Because it's one thing to sit there and have the product set and on our dock versus sitting on there's because they still need they have us come over and assist in the deployment and get them all set up and so.
It's not that the opportunity or the orders are going away. It's just a matter of of timing when the travel.
You know opens back up for us all we.
An example, Brian I mean, unfortunately, we had.
One of our key employees.
Oh, it was out in Colorado, and just made a quick trip and while they are out there our governor said anyone that's traveling from Colorado, Kansas ask yourself quarantine for 14 days so.
No. It's just one of those that stay at home is even though were somewhat exempting and have the ability to come into the office. We're still trying to do the best we can to keep those people that can work from home at home in and and safe. So I'm just.
It just got pushed back a little bit okay. So I just want to be.
Clearly no orders to be cancelled they've just been delayed yeah. So here, here's where I'm at I mean, one of the things as you know, we gave guidance or the 13 and a half and I know that a lot of people have been pulling their guidance.
We are still seeing law enforcement to be somewhat strong. We also you know realized with some of the new products that we have coming in and the strength that they could add to our.
Overall numbers.
I'm reluctant to.
Pool, our guidance at this point.
As I believe that we still clearly have the capabilities of of hitting our number and that's going to be big year over year number is as you can tell I mean, we're still saying they will exceed 13 and a half now.
Let me get another 30, 60, 90 days down the road and we continue to see you know things put on hold then I may on on our next call.
A little different but at this point in time, a pretty excited about.
Still very excited about 2020.
Okay. So youd give still confidence in the numbers and that's good. It. Obviously you guys are essential one of the things I can tell you just this effect, it's being reported here in New York.
By the Wall Street Journal that over 1500 police officers actually have the virus I'm right.
It's so I don't know obviously, they're still working there still out there a as a whole, but those 1500 a home.
He.
5000 body camera order that you guys got from the police force down I believe in South America is that something where is a weird senior disruption with Devon is well being that their international or a is that something that's moving full speed ahead, no no, but within being international it's it's a slowed up.
Little bit okay. So that is for that again, okay that when was that when it was never end the kit in the in what I want to say the Q in regards to our numbers, we never had that one in that wasn't even on the radar in regards to our 13 and half number by the way Yeah. When you guys gave guidance in October of last year, what you're saying is that guidance for 13 and a half million.
Does not include the 5000 body cameras, we yeah. We did we didnt know how that was going to play out okay. One other things stand you had mentioned back.
You know into third quarter, when you gave guidance and.
Also seen you on Bloomberg and given some interviews and radio dial ins and things of that nature.
That you guys have you know that you expect it first quarter it'd be really big with new contracts. Obviously, we've had some but do you guys really close to a.
Nationwide suite in terms of a trucking company can you elaborate on that at all.
So thats still the works that's still looks like it's coming together and what we did and have been doing is working with a couple.
Of companies one in particular that really has I would say the last ingredients that we need to.
You know to finalize.
You know the recipe, but we're putting together for the over the road a industry, we have pretty much everything and they're actually missing you know.
What we haven't so we look to a try to get that still finalize right away and then that would be a very big launch that we would anticipate because of our partnerships in a lot of areas.
Would have a very good and quick significance to our numbers.
Your fees being specific Stan.
Is that related to the partnership you guys announced with mobile insight data.
That that is absolutely one of them absolutely okay.
And now that guidance or you know that that guidance came before that announcement of that contract. So obviously, if you announce something with the partnership with them that would be in addition to 13 million as well.
Hole, we knew this was coming into play I, We just don't know how big it so.
We've been working on this for some time. So we just went to see I.
Let me, let me have a good quarter of.
Right.
You know being able to be out on the streets, and then I'll have a better sense of how to give some guidance.
Okay. One last thing I would say to you is ER with your press release today again everyone's being affected by Corona virus or.
You know.
Obviously, you guys are moving into a a new revenue streams potentially with Ah you are the partnership and distributing of the Dan a light solution.
Are you guys going to just be a distributor and using your.
Your channels that you already have with your customers.
The ambulances and the police stations and taxes et cetera, or are you actually get to be sending in crews to do we do the disinfecting in all the work.
Related to that product as well right at this time, we're just be in what I would call more of a master distributor, we haven't relationships with others that will be sub distributors that have different marketing channels that could utilize the product as well, but we clearly have a very nice.
The agreement.
And you know with room to bring on some additional sub distributors and at that point in time that that will be our role now some of these end users would be those that would be utilizing the product for cleaning for sale.
Ladies and as such.
We don't see us walking and they're doing that at this point. So you don't have to worry about obviously getting you know your workforce suited up in your messed up and actually flying around the country, you're just going to ship the product via your partnership with.
The solution dental white.
Right right I think I think what we'll do is continue to provide the product and then.
Those that have a lot more experience at it then us let them go ahead and do that actual applications, okay, now as far as that market being concerned.
Well, obviously here again long Island, New York, what kind of a I'd be center, you were all kind of getting.
It's very fluid, let's put it that way the whole situation of the krona virus, but you don't have to be a rocket scientist to figure out two things that American needs to get back to work is gonna be testing and obviously cleaning how big do you see this market being for this type of a product I mean do I see it moving it to schools and hospitals.
Or is it just gonna be you know police and ambulances, Brian we we've we've had numbers that.
Well you know we've had numbers that we believe.
If they play out because you do know that we do have relationship from schools taxicabs ambulances. Please.
You know cruise ships on order and on that you know I don't I don't want to say something happened that it just goes crazy, but I mean.
You guys can put two and two together I mean it.
Maybe you may see it at least for 2020.
You know reinvent the company in some fashion and I'd hate to say this but where you guys are calling up in saying how many you know.
Tens of thousands and thousands gallons did you sell this quarter versus how many body cameras I mean, it's.
It's the hot item right now and.
Some of the preliminary numbers that.
We hear that some of our end users are going through and would like to give us a shot or just.
You don't mind boggling, how big that can be side right I don't know what I really don't want to touch it you guys get to the tune to together on that one.
I'll I'll make sure and again I'll try to give an update at the end of the month when I when I've got the numbers and just do something in the form of Oh, we have a press release, the says to everyone that I'm.
I'm very pleased with the launch.
To date, we have seen orders and shipments in excess of.
Our next whatever that may be so that would give you as much.
Visibility as I can give you.
The next question is from Allan Lyons with sold in term capital. Please go ahead.
Okay. Thank you operator high standard time glad to hear you guys are all safe and healthy if this.
Terminal is time for sure.
The question I had I noticed you have.
4.8 million warrants outstanding.
You can have you given any consideration to reduce the extra fries price for one month.
And that people exercise.
Current price they can do it and if they don't it reverts back to the original terms.
You know that some of that's been thrown around a as an option and instead of doing anything new in and you know additional dilution far or something new coming off.
The table.
I think what you know sort of where we're postured right. Now is just really want to see how.
A couple of events play out I mean.
Let's just say that we are fortunate enough to have.
You know ruling and fortunate enough that ruling goes in our favor in regards to the appeal.
I would think you'd have a very very very strong impact on the stock and so a lot of those warrants would be getting exercise that I believe at full price. So.
We have taken into consideration, what you're saying and thought about it. We're just hand, there's just so much going on right now that we're.
Try and figure out how to play the cards every day, but that's it that's a great.
Great comment that you made there.
I understand you don't want to do it prematurely, but obviously cash is king here and depending how these tour how oh.
Yeah, I don't know, so oh, yeah, I'm glad you're thinking about it that's for you guys and the side.
Yes. Thank you very much appreciate it.
All right.
Okay.
Thank you you too.
Listen I want to thank everybody for.
Calling in today and all the great questions I'm on behalf of digital ally and all of our employees we to wish.
Everyone, the best and to be safe and can't think our first responders and in all our healthcare workers and so many people that are still out there on the front lines of doing what they can unit for the betterment of US all so we we appreciate.
Everybody's effort and and we'll do the best to keep everyone informed on how we're doing and everybody be safe.
Talk to you soon thank you.
Ladies and gentlemen, thank you for participating in today's conference call you may now disconnect.
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