Q1 2020 Earnings Call
Ladies and gentlemen, today's conference is scheduled to begin shortly.
Continue to standby. Thank you for your patience.
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Good afternoon, ladies and gentlemen, and welcome to the wrapped technologies first quarter 2020 conference call. At this time all participants are in listen only mode. After the speaker presentation. There will be a question and answer session to ask a question. During the session. You will either press Star then one on your Touchtone telephone if he would acquire any assistance during the call. Please press Star then zero as.
A reminder, this call is being recorded.
Before we get started we will be referring to the press release filed today, which they tells the company's first quarter 2020 years old it can be downloaded from the company's events and presentation page at Www Dot wrap technologies dotcom.
Finally, a recording of the call will be available in the same events and presentations section of the company's website later this evening.
You'd be aware that some of the comments made during this call may include forward looking statements within the meaning other federal securities laws.
Statements about the company's beliefs and expectations, it's hitting words, such as May will could believe expect anticipate.
And similar expressions constitute forward looking statements.
These statements involve risks and uncertainties regarding the company's operations and future results that could cause wrap technologies results to differ materially from the managements current expectations.
The company encourages you to review the Safe Harbor statements risks factors contained in todays press release and the company's filings with the Securities and Exchange Commission, including without limitation. The company's most recent annual report on form 10-K and for other periodic reports, which identify specific risk factors that may cause actual results or events to differ materially and those described and forward looking statement.
The company does not undertake to publicly update or revise any forward looking statements. After the date at this conference call.
<unk> Company notes also notes that on this call data will be discussing certain non-GAAP operational metrics, such as backlog number of trainers agencies and distributors the company's providing that information as it supplements information prepared in accordance with accounting principles generally accepted in the United States or gap.
And now I'll turn the call over to David North of the company's Chief Executive Officer. Sir. Please proceed.
Thank you Amanda Thank you everyone for joining us today.
After the market close today, we issued our first quarter results for the period ending March 31st 2020, and a copy of which is available on the investor page on our website Www Dot Rep technology Scott cone.
As discussed on our last call 2019, Mark the Genesis of our company's growth phase and his financial result, and it's a financial results of the first quarter of 2020 indicate we've clearly been able to capitalize on the sales momentum we've generated in the back half of 2019 and accelerate growth right out of the gate in 2000.
20.
However, before we discuss specifics of the first quarter and why we were able to generate such successful results of the started this year I'd like to take a few minutes to address your question that I'm sure. It's at the forefront of everybody's minds.
How is cobot nine p., an impact be wrap technologies and how would we responded to the new normal.
The World is came substantially since our last call on March 10 cents and stay about home orders have been implemented across the nation and many people I've seen the daily routines uprooted, the social distancing and remote working and become the norm. There's no doubt that comes it covered 19 is profoundly impacted people's physical mental health and personal really.
Extra shifts in livelihoods and I'd like to personally extend our sympathies to anyone within the wrap community who has been adversely affected by the global pandemic.
Rapidly young and innovative company with a flexible culture and a customer base of the integral to the protection and preservation of everyone's wellbeing.
For those reasons I'm for others, who will discuss throughout the call I'm pleased to report that we're adapting to the dynamic working in social changes brought on by the global pandemic.
During the last call we mentioned the largest hurdles we had experienced from cope at night team were related to travel that's still remains a case, but the hurdles of obviously become larger as both international and domestic travel is ground to a halt.
Due to travel restrictions and social distancing measures in person demonstrations and training sessions have stalled for the time be.
In lieu of personal meeting in person meetings have physical a product demonstrations, we have transitioned where we can do video conferencing.
Tom will touch a little more on this later, but our customers prospects distributors and partners have all been quite understanding and accommodate them to transition while the situation not ideal everyone. Our customers and ourselves included are adapting and progressing.
Good day to day, we have not seen a significant impact in our supply chain and we continue to monitor suppliers and our lead times.
We spent a great deal of effort over the past two years, increasing our brand awareness, establishing the trust of both small and high profile law enforcement Department and building a strong pipeline to prospective customers through our training product demonstrations and distributor partners. We are therefore fortunate the slowdown has come at a time when rapids already known in the law.
Enforcement community and it has garnered some attention from the general populous as well.
And.
There is also an additional silver lining care, which is that we maybe able to agree decrease our expenses in the short term as our personnel spend less time traveling.
At the present moment, the covert 19 pandemic 10 years to one large for many but we have great confidence in our ability to weather the storm it continue executing against our strategic goals.
However, before I get to ahead of ourselves came in at Turner call over to our CFO, Tim bonds to walk us through the financial results of the first quarter.
Since will then come to provide some color on the sales channel key customer relationships before I return a in my closing remarks, and then after that we'll follow up with any questions.
Jim Barnes.
Thank you David and good afternoon, everyone. Our detailed operating results are set forth in the press release filed today and our quarterly report on form 10-Q also filed today.
As a reminder, we are still in the early stage of addressing a large worldwide target market for our remote restraint product kinda accessories.
First quarter revenues increased from a mix of agency distributor and international order fulfillment.
Revenues were $689000 for the first quarter 2020, compared $218000 in the first quarter 2019.
At the end of Q1, 20, Twond, we had $222000 up.
Customer deposits and a backlog of orders of approximately 1.4 million expected to be delivered over the next 12 months.
As a reminder, distributor and customer orders for future deliveries are generally subject to modification rescheduling or in some instances cancellation in a normal course for business.
We do not have enough insight into the timing a nature of large international and domestic orders to determine exactly how periodic backlog will relate to future revenues.
Gross profit margin was 41% for the first quarter 2020 compared to 48% on the first quarter 2019.
We rely on direct and distributor sales, both domestically and internationally and changes in sales channel mix can impact product margins other factors impact margins, including product updates raw material and component changes and warranty costs due to the start up nature of our sale.
And some production at activities, we do not believe historical margins should be relied upon as an indicator of future margins.
Sales general and administrative cost for the first quarter 2020 were 2.1 million compared to 1.2 million for the year ago corner.
The increase in ESG DNA is predominantly due to an increase in head count.
And plan to expansion in sales training and other activities to support our growth that's wealth and increase the noncash stock based compensation expense.
While we currently expect to expand comparable levels of resources on the marketing and selling of our products training distributors and customers and supporting our operations amounts could vary depending on sales levels and the impact of the code that 19 pandemic.
R&D cost for the first quarter 2020 were $533000.
375000 for the year ago quarter since a year ago, we have expanded our internal R&D team and we're committed to continuing to improve our product offering and developing new products. We expect our R&D costs will continue to vary depending on timing of specific research project.
Yes.
The GAAP net loss for the first quarter 2020 was 2.3 million or eight cents per share compared to 1.5 million or five cents per share during the prior years first quarter.
Net loss for each quarter included approximately 467000, and 227000, respectively of noncash stock based compensation expenses.
During the first quarter 2020, we obtained at $801000 from the exercise of warrants and options. We ended the quarter with $15.5 million and cash and cash equivalents, we have minimal debt and stockholders equity was 18.1 million at quarter end.
For more detailed analysis of our financial results. Please reference our form 10-Q filed today.
Tom over to you.
Thanks, Jim and good afternoon, everyone.
Impacted the Corona virus didn't really begin taking effect in the United States until March and up until that point, we were really rock and as you'll remember we started the year, what the $1.7 million backlog and we've been working to convert that into revenue right. At the started January received international purchase orders for 200 bowler apps in 2000 cartridges and accessories.
Sales momentum continued nearness right up until the second half a March when stayed home orders were ubiquitous leak instituted and sales activity began to slow down as David mentioned, we then transition to video conferencing, which has been relatively successful <unk> given the current state of things Theres, obviously know perfect substitute for an purpose demonstration of the polar opposites much more impressive to see.
Hi live from the sound to wrap and and how fast it happens.
Those of you that it had an opportunity to see the product for yourselves, where I understand it is one of those tools that people seem to immediately get when they can see it feel it.
And then here at deployed and once they have even been wrap themselves, but since our customers fad to adapt to the same changes. We have everyone has been very understanding an extremely supportive of the new sales methods.
In fact, we had the chance during the second half of March for Mike Ross ends and the team to do a bunch of the videoconferences with our distributors and it really find out what they're doing a get coordinator for them as for the second part of the year coming up.
The substantial improvement in revenue year over year and sequentially from Q4 to Q1 was in large part driven by our distributor model. As a reminder, we shifted to a distributor model in may of last year and clearly the momentum has been building ever sense to date, we have 11 domestic distributors, representing 45 states and 16 exclusive international distributors representing 26.
Countries during the first quarter distributors conducted at over 165 demos of the bowler App. We conducted in additional over 40 domestically during that same time period distributors showcase the ball rapid approximately 30 trade shows domestically. We also attended to international changed trade shows and hosted several international.
Allegations at our facility in Arizona and I personally attended several international demonstrations prior to the global slowdown in total we received over 700 inquiries for Boulder wrap during the first quarter.
As of March 30, Onest 2020, we've trained over 195 departments and have more than 720 instructors that have been certified to train their colleagues that their respective agencies. This compares to approximately 50 departments and 200 instructors who were trained by the ended the first quarter of last year.
We've mentioned before that we believe the international markets represent a large opportunity for route and the first quarter revenue mix certainly supports that theory, the bulk of sales in the first quarter from the international markets was primarily due to the activity that we've been doing for the last six to nine months and due to is confidential confidentiality requests, we will not be breaking out which.
Countries or regions have had the highest adoption rates. So far I'm sure investors are curious to know the specifics, but in our space providing that degree of granularity at this time could reduce some of our competitive first mover advantages from which we are currently benefiting however, I can share that in addition to the high adoption rates that we've seen it internationally. We've also seen a lot.
And number of smaller departments domestically coming forward requesting demonstrations or outright purchasing the product. We believe that the increase in orders from the solid Mahler departments is primarily attributable to improving brand awareness and the general law enforcement unit community, becoming more comfortable and accepting of the ball or App, which is still in its infancy relative to these rest of the tools.
On an officers belt, but we also suspected that shift could be a byproduct of the Tobin 19 epidemic.
Highly populated urban areas with large departments, some enacted more restrictive stay at home and social distancing measures than suburban or rural areas, Therefore, smaller departments, which for the most part operate and less populated areas may be less preoccupied with the current a virus and may have more time to test implement new tools like the ball or app.
In general we believe this trend bodes well for US going forward is smaller departments have been in remain our bread and butter. The contract sizes may not be as large but the departments tend to move faster and can serve as excellent case studies for wrap going forward.
There is one larger department, we've been working with it is worth discussing today and that is the Los Angeles Police department or LAPD. As many of you are aware LAPD began field testing the bowler wrap in February of this year tuner bowler apps have been circulating among approximately 1100 trained officers throughout la city as of today, there are a little over two three.
As of the way through their original 90 day trial period, However, given with the complications department as space from the Corona virus, we expect that they will likely extend the field trial and we will be more than happy to continue to support the department.
Large agencies evaluate new equipment constantly as products come to market, they're very few actually ever make it to a field try or regular adoption. The bowler App is most likely one of the fastest tools in the use of course protocol for LAPD that they have brought to field trial since they upgraded their Taser program, which originally started in the 19 70000, then became widely adopted roughly fit.
18 years ago. So we will tend to certainly continue to support them, where we can through their diligence process. We're limited in what we can say regarding field testing with LAPD because the department itself doesn't usually comment on cases until as they have been reviewed internally and their use of course reviews as well as worked its way through the criminal justice process to conclusion. However.
I can share that the device has been deployed and everything that we're hearing so far has been positive in fact, just since the LAPD field trial began we have also had field uses in Sacramento Minneapolis and just this past weekend in West Palm Beach with the nature of the low level of force of the ball a wrap we do not receive the reports on all of the incidents, but the responses from the users that we are a.
Where have continued to show the success of bowler happen its benefits not hurting of suspects.
From a sales us perspective, the first quarter of 2020 was obviously, our most successful quarter to date and while some regions have slowed down over the past two months, we've seen other markets come on line far more quickly than we anticipated in fact aspects of our pipeline and interest from different parts of the world are actually actually accelerating in some instances. We are surprisingly ahead of where we would be.
In a normal more normal market and while we can't guarantee that the coming quarters will be in line with Q1, we ultimately have good momentum and our distributors seem pretty well capitalized, especially with the recent surge in the firearm sales that they've experienced we therefore remain positive on our ability to continue driving sales over the coming quarters in years and.
We're happy to address any sales related questions during the Q in a but for now I'd like to turn the call back over to David. Thank you Tom.
As evidenced by our sales momentum and the overall improvement in our financial performance, we're clearly making progress in the business and moving in the right direction. It's apparent that the first quarter was a strong quarter for route.
These are uncertain times, and well past performance does not necessarily but get future success.
However, if you consider the market we serve and the current state of the business I believe there are many reasons to remain confident in our ability to whether the current environment and execute against our shorter and long term goals.
In recent weeks, we've seen an increase in protest around the world as people are becoming and patient and ready to return to work tencents arising today, perhaps more than ever. It's an everyone's interest first responders civilians that law enforcement officers have a tool that allows them to safely establish compliance without causing pain.
We cannot say for certain whether current events will be a driver or inhibitor for near term grow but what we do know as a bold rep fills a gap that exists regardless of whether world evolves over the coming months in years.
As a result, we've maintained good customer momentum we've generated substantial improvements in our topline not only year over year, but sequentially as well and on top of that we've maintained a robust backlog.
Equally important if not more given the current state of the world is that we have fortified our balance sheet as of March 30, Onest 2020, we have 15.5 million to cash in very minimal debt.
So to summarize Rep technologies remains on solid financial footing, we have a dynamic team that has and will continue to adapt to changes in the workplace. We have a product that is highly effective unfilled unique void that exist independent a broader market trends.
We serve a highly resilient customer base and we therefore stand well position to execute our strategy strategic initiatives the betterment of our shareholders on a long run.
With that I'd like to open up the calls for questions. The army.
Thank you as a reminder to ask a question you will need to press Star then one on your touched on telephone to withdraw your question press the pound key.
Please standby will we compile the Q and a roster.
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And our first question cousin, Jon Hickman with Ladenburg. Your line is now open.
Hi.
Okay.
Good afternoon.
Congratulations on the revenue number.
John.
Yes.
So I'm kind of try and give a little bit more information.
Do you have any.
Estimate like do you get to see numbers as far as like how many use cases, there been versus kind of reported to you.
Kind of hitting them.
Yes.
Yes. So this is Tom that's a great question and I've got I'm going to have Mike Robbins, who is joining us here answer that one directly.
Hi, John Yes for many departments across the United States. They look at this tool is one that's not a reportable use of four cents. So therefore, they don't bracket and obviously, they don't reported to us and other cases.
I would say in most cases across us is considered a low level use for so it's really the last thing when their mind to report to US every time. They use this product it's almost like reporting every time you'd handcuff somebody so we don't get the feedback that oftentimes, we want but what we do find out as when we make contacts at follow up contracts, whether through our customer service people, our salespeople or.
Trainers, that's when we learn of many of the uses in the success of the product.
Okay to follow up on that.
Can you tell us what Ellie looking for in this trial.
Looking for a certain number of use cases and then.
What what kind of outcome Thirtys, specifically are there any key performance metrics that they're looking at.
Sure.
Sure I'd be happy to answer that too.
Essentially permit original looked at a 90 day window and their chief and their press conference back in January has said that he was looking for about 30 or so uses in order to evaluate the effectiveness of the product and if it achieved the outcomes that they wanted meaning that they didnt have to use additional levels. A force that nobody was injured and they were able to pick people into custody or in many cases.
So treatment for a mental health issue without injury.
Now with the pandemic that a slow things down they were on progress to certainly meet those goals in the first 30 day in the first 90 days of their test.
The Chief I'd also mention that if they didn't receive the results in the first 90 days if they would probably extended from an additional 90 days and Tom alluded to that in his presentation earlier and so we plan to work with them on that.
But so far the progress has been very good they've used at quite a bit effective used at more than we anticipated there would be using it and the success rate has been really outstanding. So the feedback we've received from LAPD from the line level as well as from the executive level has been very positive.
Okay, and then one last question.
I guess, Tom or David.
Have you received any reorders from any of your Ethan season.
Yes, we have this is Tom yes, we have definitely received reorders from some of our agencies that are using the device.
Obviously, one of our and this is Dave one of our objectives is full deployment in every department and we've had a few departments go full deployment, meaning they they bought a few like so much they actually out for that their entire department with them.
Every officer.
And so I think I, we collect that we spoke you mentioned to me that.
Yes, It was 90 something about money being being more available now.
For agencies to actually purchased since product.
Where's that coming from.
Our pilot microphones and so that since weve.
Are the two year law enforcement professional and kind of how that works.
Well currently right now there are some several grants that are available and one in particular that came out as result of the Corona virus emergencies. It was issued by the department of Justice.
Justice assistance across the virus and Mercy supplemental funding program that allows law enforcements to apply for this grant for equipment and this case, how our product obviously would meet that.
Requirement is that it provides time distances space for officers to control somebody's movement, Restrictor mobility, allowing them time to put on pp equipment and to protect themselves is worse as well as people around and so that grant as well as several others. We provided that information to all of our customers and over potential customers as a funding source for them.
But we don't see that as a problem with regards to budgets cutting as a result of the Corona virus.
Okay, and then on down I'd say, that's very much.
Us.
Answer.
We've actually seen internationally.
No pushback on on budget or pricing because it is.
As you watch news, you'll see a number of countries have become much more restrictive menards and the impact of people in their personal business liability that it's been heavily impacted so as those police departments look for tools to to restrain and really give a second chance to somebody who maybe out of line noncompliance.
But has no criminal background is just basically hungry and in a difficult position so the.
In many cases budgets aren't even coming into question, if you see opportunity to apply in new tool.
So one more question I guess for Mike. So there are a reflection from a part of law enforcement right now to even.
Like approach people.
There is not that many people on the street so.
Yes, I guess that that would make it harder to get use cases.
Yes to answer that question. So is there is a reluctance I think that generally speaking across the us officers I've been encouraged to not be proactive for fear of being contaminated and bringing that back to it to a station house or department and therefore, limiting the ability to respond to emergent cost for service many agencies across.
US are only responding to our merchant calls and not routine calls, which means as opposed to being proactive and maybe.
Encountering somebody self initiated activity for somebody to suffer from mental health crisis somebody under the influence now there are a courage to stay away from that individual so that does limit the use and we've actually seen that even in lapd's trial.
But this of course is a limited period of time this is not going to care for us.
Okay.
Thank you Thats it from me.
Hey, John.
Thank you and our next question comes or Brian Kinstlinger with Alliance Global Partners. Your line is now open.
Hi, This is Jay given for Brian can you talk about how often officers and LNG or using the ramp devices compared to taser devices.
Well if you look at the report from 2018, I think with 9000 officers.
Reported like 313 uses and again ours is just in a trial. So there's 200 devices being shared between 1100 officers. So.
We're not far enough along yet to be able to see anything strategically related but Mike mentioned, it I mentioned it.
We've seen them use it more than we anticipated.
In the trial period, as we were first starting with them before the current of Iris.
Okay, Great and then could you provide any additional color on how big of 19 has impacted the sales cycle.
Yes, I mean, clearly theres nobody traveling there is no groups with the restrictive stay at home orders.
Right now all of those activities of have ceased which David mentioned it was going to see a short term reduction in expenses related to the travels and the demos that we were doing so clearly right now the departments are been trying to adjust to what the what is going to be the new Norman.
Now with that being the end of April and all the state starting to come back online, we're seeing more activity in calling to set up.
Trainings and things again, starting in the next couple of months so.
In terms of purchasing activity I don't think we have enough detail yet, but I think this is certainly a book it was a pause for us for about 30 days that now we're starting to see that activity packed up picked up and as I mentioned, even in some of the other markets, especially internationally were seen we have seen it really accelerate the activity that they were working on previously potentially even saving year.
He is on some of their analysis.
And we are definitely seen.
Large department slowed down, but when you look at our leads request for quotes smaller departments are generating significantly more leads than we've ever received in the past so our assumption is that.
While large department are really big cities, and they're they're swamp and so that they they're all busy doing their own thing and say keep the everybody socially distance small departments. Some with no corona virus in their neighborhood yet people are still stay home orders because theres statewide.
Those departments have a lot of free time, and they're very very interested in adding our product at this point.
Okay, and one more for me and you talked a little bit about.
How delays extended the trial have you can you talk about how police training using the device has been impacted by coconut 19 in places other than Elliot.
Could you ask that question again.
Sorry can you talk about have police training using the device has been impacted in places other than in la.
I wouldn't say, we've seen it to where it's been decreased as Tom had mentioned or come to a complete called as Tom mentioned in West Palm Beach, Florida, just a few days ago shoes.
It really just depends upon the circumstances, whether this would use during this corona virus or not but in many cases in many large cities where officers are being discouraged from making routine stops are handling routine cost for service. That's what limits use of any less legal option not just our product I would say I would say it would be the same thing for other Leslie Apple devices at the carry on.
I'll turn the trunk of their car.
But it doesn't mean that our uses have stopped completely.
And on a on a more specific on a training side, we are not sending our trainers out to as many departments. We have in the past because they're encouraging I'm not too.
Spent a lot of time with outside people from the department, but we are thing training continue within department feels more social distancing more outside the just like the rest of the world that really changed what theyre doing but they haven't stopped what they're doing.
Okay, great. Thanks, that's all for me.
Thank you and I'm showing no further questions in the queue at this time I'd like to turn the call back to David for any club correction two questions have come up in the queue. Our next question comes and Greg gave us with Northland Securities. Your line is now open.
Good afternoon, guys. Thanks for taking the questions and congrats on the record sales in the quarter.
I think I thought it was in the queue, but I guess now.
But.
Nice to see the new product orders from the eight states in the month Mark.
Specially given the challenging climate was just wondering if you could provide some color on.
How order demand I guess that youre seeing in April so far has compared.
Yes, as you've been able to kind of maintain the momentum even even with the difficult climate.
You know that that's a great question because this this is a bit of a lumpy business because we're selling the selling to the government. If you look at our last couple of quarters. The majority of the actual sales come in the last month of the quarter.
Well you that from what we're seeing from.
Request for quotes and demonstrations primarily in the U.S. was smaller departments.
Internationally from larger ones.
So far thing things seem to be moving along at a good pace.
Got it it's good to hear and then the 1.4 million in backlog right now why let's say 12 months I guess to fulfill those orders and when we think about the cadence of those orders being fulfilled will the majority be more near term focus.
It's kind of this is Tom again, it's kind of spread out because several of those orders have.
Trials as part of the process so.
They placed a large order, but they're still steps as that goes along the way. So I do believe it's going to be spread out and then you know it's like some of it will probably be delayed because of the virus just due to the travel restrictions and not being able to to get our instructors over internationally to some of these but thats, it's really based on the timing of the departments having to make.
Sure they get through the process of their training their trial their use of course policy implementation and then getting the equipment issues. So it's.
That's what that's really around.
But we're still comfortable that.
The 1.4 million in backlog will ship within the next 12 months, we just can't seem to get more specific than that.
Sure. Okay. That's helpful.
And then last one from me just the percentage and sorry, if I Miss this but the percent of sales that was direct versus distribution channels and then maybe the percent of sales that were domestic versus international.
So this is Tom we didnt give specific percentages, although the majority we did say the majority of sales in Q1, where international.
Compared to domestic that's for sure.
And then in terms of distributor versus direct the majority are going through distribution.
Got it thanks guys.
Thanks, Greg.
Thank you and I'm showing no further questions in the queue at this time I'd like to turn the call back to David for any closing remarks.
Well. Thank you hey, thank you thank everybody for joining us today I'd like to also especially thank our employees and partners who are dedicated who are dedicated to our vision of helping law enforcement interact with the public.
The last few months of required juggling additional responsibilities at home and in the community and I appreciate the professionalism I see from our two weeks in every day.
I know many of you on the call today, maybe new shareholders and I'd like to thank everyone for continued support abrupt technology.
I would also like to remind shareholders that our virtual shareholder meeting will be on June Fiveth 2020, obviously and details are going to be posted on our website. Thank you all again today for joining us and we look forward to speaking again soon thank you operator.
Thank you for joining us today for wrap technologies first quarter 2020 conference call you may now disconnect.
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