Q1 2020 Earnings Call
[noise] This conference call make it came forward looking <unk>, what's the meaning of section 27 <unk> of the Securities Act 1933, and section 21, and the Securities Exchange Act of 1934.
The words delayed expect anticipate in Chad estimate.
You should see we'll plan future continue and other expression that our predictions or indicate future events trends in that you're not were like two historical matters identify forward looking statements.
She's forward looking statements are based largely on our expectations or forecast a future advance.
Can be affected by interact in x. accurate assumptions and are subject to various business brisk and now and and uncertainties.
<unk> are beyond our control.
Therefore actual results could differ.
Really from the forward looking statements contained in this document and readers or caution that took place do you have reliant on such forward looking statements.
<unk> ally for undertake no application to plot publicly update or revised any forward looking statements whether as <unk> information.
Advance or otherwise.
A wide variety of factors kicked calls or contribute to such differences could adversely impact revenues profitability cash flows and capital nave.
There could be no assurance step forward looking statements contained in this document will in fact transpire or proved to be accurate.
Ladies and gentlemen, thank you <unk> welcome to the 2021st quarter operating results conference call.
At this time operatives spent are in English and I only made.
Please be advised that today's conference is being recorded.
Speakers presentation there'll be a question and answer session.
Question during the session you will need to press star want on your telephone <unk>.
If you require any further assistance. Please press stars zero I would now like teleconference over to your speaker for today, Mr Stand Ross C.E. out. Thank you Mister Rossi you make began.
Thanks, Tammy thanks, everybody for joining us today I have Tom Heckman worthless R.C.F. zero.
So we got our your and call not too many weeks ago.
But we do want to make sure and touch on some of the new events that have occurred.
With our launch of our new disinfectant sanitizer.
Also update everybody on some of the litigation matters, but probably more important to make sure and share with you the the financial side of.
Things for the company and how things are.
Continue to see a progression of improvements in that forefront so with bad I'll turn over the call to Tom Hackman.
Thank you stand and walk endeavor, one I'm very happy that you're you're able to spend some time with this this morning.
We did father 10, q. with the F.C.C. this morning's what is available and I do.
Refer you guys to to to that website. It for a pool depiction of what happened in the first quarter.
As a company goes so with that you know obviously the world changed in the first quarter 2020 with the quote a virus.
We we started seeing effects of that middle middle part of the quarter and certainly towards the end.
Had a very very large impact on on the company and certainly our first quarter earnings.
Earnings if you look at it.
No or law enforcement customers.
Especially new ones generally require on site training and installation.
That obviously got cut short towards the end of the quarter.
That had an impact on a revenues.
And then you look at our commercial customers some of our very largest commercial customers like the cruise ships the taxi cabs the parking spots in the world and NASCAR virtually shut down.
We're.
They are largest commercial customers so.
It obviously had an impact on us one thing that that really.
Turn a quarter for us was our inability to to ship the first.
Order on our large international.
Body camera order I will tell you we had it.
Stacked up on the pallets ready to go out the door and then we got the call that the country and shut down.
Incoming and outgoing people in in in that so we obviously couldn't ship.
Down there and especially because youre installed would not be able to get in or we couldn't train home and all that so that obviously had a very large impact on the quarter or else.
Talking about from very different numbers had that had that order gone out even with all that going on our first quarter revenues were slightly higher than our queue for 2019 revenues.
About 10000, or so and then from but and only 5% down from Q1 2019 quarter. So.
Actually I am.
With the thing.
Happening to us with the grown a virus.
I'm pretty happy with the results on the revenue side.
Having been down only 5% year over year. The good news is that our our cost of revenue declined.
To where we had more gross profit in the first quarter 2020, as compared to 2900, even though we had 5% less in sales are gross margins were 52% for the quarter for the 2020 quarter.
Versus 46% in the 2019 quarter. So obviously you know we we we had better sales mix.
We still see migration of customers over to more of a service model base, which which obviously gives us better gross margins.
On those sales and it really showed up in a gross.
Gross profit line being higher even those sales were lower for the quarter.
If you look at S.G.N.A. expense for the quarter, a dramatic drop in in the amount as S.G., an overall S.P.N.A. it dropped by almost $1.1 million year over year, which is a 25% decline.
Looking at the numbers are the are the the details.
You know travel travel costs were were much reduced because of the kroner virus.
Pandemic, we we did do some staff level reductions.
Align with what was happening primarily on our commercial customers.
NASCAR was shut down so we we had we had people that were dedicated to that.
As well as a cruise ships taxi cabs in that so we made some head count reductions.
Showed up somewhat in the in the first quarter and then obviously, it's going to have good impact on the on the balance of 2020 as well.
Unfortunately, our legal expense was down in what reason I say Unfortunately is that there there has been some developments me acts on appeal. There was a three judge panel that that had an adverse ruling.
As far as the appeal goes and we are in fact looking at asking for rehearing in front of that so with the the appeal happening.
You are legal span was much reduced.
Year over year, and it really reflected in lower S.G.N.A. for the quarter.
Look at our operating loss wine. It we had an improvement a 1.2 million or 38% year over year. So that's obviously a a good trend hopefully we can report operating profits.
It's some time in 2020.
But we did see a very very nice improvement in the in the operating loss for the quarter in the below the line items.
We had interest expensive 307000, that's primarily due to the convertible debt that was outstanding partially in in the first quarter.
That entire issuance, which happened back in August 2000. My team has now either been converted are paid off so those notes are no longer outstanding.
We had a non cast change change and fair value those.
Convertible notes 412000 dollar charge below why and then.
If you look at the the proceeds investment agreement the change in that was a non cash credit.
307000 for the quarter now I'll remind that that's the litigation proceeds financing, we did a year or two ago and it. It's really only paid back are most of it's only paid back if we're successful in our suit.
Let's see what the developments on the X. on side, the the estimate of that.
Obligation was reduced by 307000 during the quarter. So with all that said we were about $900000 better.
Improvement in our overall net loss with a quarter, which given the.
The world change with the <unk>.
I'm happy to report that we had an improvement in or let loss from that standpoint, let's look at some other important developments, we'd have talked about the staff reductions.
Already in addition that we're moving to new facilities.
With the staff reductions and and the our movement more too.
Service level a service model.
We're not needing near the space. We have now so we we were lucky that our our lease was ending.
You know I think it ended in April April 30th. So we were we we time that just write the new facilities right now look to be about one third of the costs total occupancy costs that we currently have in our in our old facility. So I would hope that makes good impact in the S.G.N.A. for for me.
Quarters to come.
We did talk about the X. on appeal I'm sure.
You will have some questions about that will <unk> section stand already alluded. The fact that we did add the disinfectant line and if you step back and look at it that's really a natural fit with our customer base. Your first responders law fire ambulance E.M.S. obviously.
A need for disinfectant and this is an eco friendly disinfectant.
It's not not toxic or anything like that in it then even if you have look at our commercial winds wants the cruise ships gets going gets going again.
They will be obvious users of that product taxicabs the same thing.
NASCAR, obviously, we'll have a need for it so.
We think that this is a is a good AD on line two our product suite and we're actually looking at at adding some different products in that same category.
Even some hardware like borders sprayers.
Temperature reading devices, so on and so forth. So we hope that this is a a long term product line force and it really will backfield some of the revenue challenges we have.
Caused by the Corona virus, we just recently in April raise the million and a half in in new convertible notes. So our cash position is much better than than it was at 331, we also applied for and received $1.4 million in the pay pay payroll protection program.
<unk>.
The S.B.A., so we're focusing on getting as much of that as we can forgiven.
But we're not we're not caring.
Additional staff just to carry them to get it for Kevin we've made the the appropriate reductions where necessary and you know we believe that that will will set us up for good results later in 2020.
We also received a smaller what they call him eat alone E.I.D.L. loan from the S.B.A. It is alone it's repayable over 30 years.
3.75% interest.
Was a small through 150000, we just received that week or two ago.
We still have our challenges with the NASDAQ.
You'll recall that that we have until June 30 to meet the minimum equity requirement or market capitalization requirement and as of now that that has not been delayed or or a change do the corona Bowers, although I have expectations and it will but it has not today.
We also have until December 28th to meet the one dollar minimum bid price to stay on NASDAQ. So we have we have our challenges with that but I think with the Corona virus will be able to get get a delay in in in.
You know the deadlines imposed by that.
We've also.
To date have tabled our annual shareholders meeting because of the kroner virus. We didn't know if we could we could meet face to face or even have that large a meeting.
With the you know the rules that that come down from from the Health Department in that we will proceed with the proxy in in the near future and I'm I'm talking to next week, or two will probably fall or or or preliminary proxy and then set the the annual meeting and so forth, but it is is going to be later and it has typically been.
So to wind it all up you know given the headwinds that the kroner virus cause for the first quarter I'm pretty happy with with the transit we're seeing in or P.N.L. I would do warn you that June 30 will be.
We'll see some definite reductions in revenues because of the.
Corona virus in what has happened on certainly with our international waters in that but we've dealt with the cost side of it and I hope to minimize any any overall impact.
Especially when you consider the hopefully the added revenue the did the disinfectant line will bring to us so that I'll turn it back down. Thanks, a lot column and just continue on the the disinfectant liner lines that we may be carrying where you now currently working with one of the largest manufacturers in the country and working with him.
Directly with some of the the products that we would like to see being able to.
Offered to our existing customers and hopefully a new customers as well we have seen quite a bit of pick up over the last.
You know two weeks, even we now have a major I guess chain that as a approximately 140.
Stores that are starting to get out there and do a little bit of the marketing of the product. So that's those orders and started rolling in on a daily basis, which is very encouraging and so just like Tom said, while you know we have our guidance out there at the 13 and a half million that we would try to exceed.
They're just too many headwinds for us to go ahead, and and keep that number out there until we know for sure you know how quickly things do turned back around to get back to normal we hope so we're going to have to.
Pulled out from you as a target but at the same time, you know I say that and I look at the growth that we're having on the disinfectant in the other.
Products that we're we're looking to introduce including the breathalyzer that we have been continue to work on in in additional opportunities. We may be well surprised in regards to how this plays out so there's a lot of encouraging things and we have made a lot of the right moves dissenter preserved.
Cash and to sit there and and look for business opportunities in this environment. So tell me I think we'll go ahead and opened up the the for for Q. and a now.
Thank you as a reminder to ask a question do you want me depressed <unk>. This telephone so let's try your question press the pound key.
<unk>, okay roster.
You're a first question, how some online Brian bits.
With ages cappuccino.
Morning, guys <unk>.
Born and Brian Brian.
Right into it so obviously corona has.
Cause a monkey wrench and pretty much everyone's plans over the course the last three months. We're you know even though we we deal with first responders we're not.
I guess immune to it what I Wanna focusing on is the the 5000 body camera.
That you guys announced earlier in the year.
Obviously, they you know I I think you guys alluded to this on the last quarter as well we had you know the product at the.
Shipping yard and then we had to pull it off a week any any feedback from.
This I guess Ah.
Customer in regards to when we can actually ship these out and it's only delete it's not cancelled my writing that.
Right, where we're at right. Now is you know we still are talking to them, there's another opportunity within the country that.
Still wanting to continue to move forward to make you know maybe a little more aggressive been what.
The federal police are wanting to so.
We still see this starting to pick back up and I would anticipate it you know maybe some sign of it.
Beginning here of this quarter sense things are opening back up so.
We have nots.
Had a scenario, where they're just up and walk away. If that's what you're curious about Brian Yeah, I wanted to make sure that the contract is still you know valid if you will can I ask stand in the in the delay.
Are you guys loading up so that when we can actually shipped out you know it wouldn't be a miss in terms of the amount of a camera should be sent out.
Yeah, I mean, I think honestly I think we're just sort of steel.
Being cautious because we want to make sure and and watch the cash and and make sure that this thing continues to move forward. So you know we haven't gotten overly aggressive in regards to stocking up inventory at this point in time, but we also are very much aware that the long term items that that would be needed those.
Would be very comfortable that we have those available to us so we wouldn't be.
Cotton pinched, we're waiting 90 days on on the long lead item parts.
Okay. Tom this one's for you.
Obviously, it's awesome that we're seeing our margins scope from 46% to 52% I mean that that increases solid do you have an idea.
Obviously again and all this is assuming we're back to normal but do you have an idea where we can kind of get on top line for margins.
Well our stated goal has been for some time to get to 60% overall gross margins I think that's that's a very attainable target, especially with the the service aspect of things in in the the very nice margins thrown off by that.
So I think 60% is a good goal, but it maybe even lower too low given a where we're headed with the the service piece.
Okay. When when you say server so you lumping in.
The data storage part of it as well or is that separate.
Yeah. That's that's included in there that's clouds categories that installation that's maintenance contracts you know so and so forth. Okay sticking with you. Tom you know obviously, we've issued do shares we have some warrants out there et cetera, you had mentioned earlier in the call that you're looking for us to get you know to a a profitability for any.
Per share.
What do we need for revenue with the shares that a new out there for us to kind of break a profit do you have that number in mind.
Well I I do but we can't really project that that'd be a forecast yeah, we're not that far away from it and reality, Brian we've cut a lot of S.G.N.A. out in that [noise] that obviously lowers our our break even from the revenue side and then you a couple.
With the fact that that you know this disinfectant line the margins that that'll be thrown off by that are quite nice how big of a part of that that it will be so you know I I think the the cost side is the big driver, though S.G.N.A. is going to going to continue the trend down.
And and hopefully rather sharply because some of the actions we've taken already.
And I have two two more questions guys sticking with Dan.
Brought it up.
Stand you had said in the past that you guys are exploring all options in terms of other vendors.
Other suppliers and potentially even having a your own label if you will for digital ally itself.
Oh, we had any type of an update on how we're doing sales wise with Dan late that we can kind of share. It this time.
Yeah.
Not right now for a couple of reasons, Brian I want to make sure.
That we are able to secure a few things.
In regards to that area that we're we're focusing on without tipping our hands too much in but I would anticipate a full blown update on the next quarter call and can share some some numbers with you and not only.
By then I would anticipate.
The things that we're exploring will be finalized and we will be able to talk about indoor you'll see in the form of of a release.
Well piggy backing off of that you had mentioned earlier in the call that we're dealing with a chain and they've started to.
Obviously get some orders that a little bit more steady you mentioned in the last call grocery.
<unk>.
I don't know if this is to grocery store chain or if this is a different Jean.
But that being said if if you were to secure that contract with those guys before the quarter. A conference call next next quarter is that something that you would let us know about.
I think so and again the bottom line is they've they've already started doing a real preliminary looking into the product and they basically have over 300.
This particular contract three over 300, what's called a store fronts and they did a real quick.
You know a circle with everybody and 140 of them said, Hey, we were interested in this product, let's let's start getting it in here and see what we can do and that just started corinne here in the obviously in the second quarter. So <unk>.
If we if they will continue to.
Build on what they've already got going on and get the other.
You know, let's call. It 160, plus stores come on board that'd be a very very nice relationship and what would make it nicer.
US being able to continue to move towards.
Possibly or own label and even greater margins in regards to the product itself.
So but <unk>.
Definitely will be a.
Main topic in our second quarter call.
Okay.
Tom.
The the money on on the books at the end of the.
The first quarter of was.
No. It's it's eye opening if you will only 300000 at my right. We've got roughly another 3 million on the books and send a 1.6 million and promise or even 1.4 for the the P.P.P. So we're closer to 3 million on hand right now.
Yeah, I I can't give exact numbers, Brian, but you're right. We we raise one and a half million of of cash in in the convertible note deal and we raised between the two different loan programs with the S.B.A. about a million million 550 or roughly in that in that neighborhood. So yeah. We we added a.
Pilot cash.
To the books and but I can't tell you exactly where we're at right now.
And last thing stand is there any update you can give us on the.
Mobile insight data partnership to you guys had announced earlier in the year are we getting any traction with that partnership yeah. It's still has came along real nicely and again with everything being sort of shut down we haven't had a real opportunity to go out and get in front of a lotta people, but we are absolutely poised to go and start talking to.
Some of these vendors that we've been talk or potential customers for over the road opportunities and with NASCAR getting fired back up that's that's a positive.
The Indy you know series is getting ready to go so yeah, we're going to be able to see and have the opportunity to start getting in front of these customers right away.
<unk> alright, well Tom stand. Thank you guys for your time and wish you guys. The best of luck and then next quarter and hopefully we see some of these contracts materializing soon.
Thanks, right Yup bye-bye.
Huh.
<unk>. Please please stop one telephone keypad.
Your next question Cups of online I've, Mike Cynic.
Just shareholder.
<unk> <unk> a quick question. So the the entities didn't public now for 11 years that correct.
Well, we've been public since 2005, we've been on the NASDAQ since 2008. So we we were we Republic before that but we we went on the NASDAQ January 2008.
Have we ever turned a profit.
Oh, Yeah, we we.
Our first 12 quarters <unk>, Yeah, we're we're all profitable sequentially.
Okay. So the first 12, then since then no profit of building.
No. We've we've had sporadic quarter here quarter, there type earnings.
Some I'm just trying to understand how we're not executing and what we're doing to identify that and what immediate changes are being implemented besides cutting costs.
And diversifying the business into P.P.E. and and some of the niche markets you mentioned.
Yeah, Mike There's a couple of things you know obviously you know you're over very much aware of the the history. We've had in regards to the the body camera and some of the litigation side of things and also the launching of our new evil product evil product, we probably should have had out a good year year and a half before.
We had a current launch so that.
Should help us out quite a bit in just the the markets were looking at right now now the server side of things continues to grow and as we've had pretty good grip there year over year and the service motto is a lot more.
Yeah profitable to US then just the straight sale to to law enforcement. So we have been making that transition along with the hopefully introduction to new products that would be to our existing clientele. You know our customers that we have such as the breathalyzer.
You know obviously the different back then in some of those low hanging fruit opportunities the situational security side of things <unk>.
Evaporated with you know everything being shut down, but we do anticipate that starting to pick back up and that was a very nice entity force as well.
And what's our burn rate right now per quarter.
Well, we're we're roughly a million million too short if you look at the cash flow statement and that but I would tell you that.
You know our our trend line is is much improved in a in a lot of that is because the cost containment. They had count reductions and you know we're looking at.
Or occupancy costs dropping to a third of what it is now so I expect improvement throughout the balance of 2020 in or or or cash burnt.
So so call it two and a half to three.
Months of cash available how are we going to bridge that gap.
I I'm not not falling you there, but you know our our quarterly burners about a million.
Oh, you're quarterly or that you said monthly.
No no no no.
And that it is.
Two.
The three quarters, how how do you plan on bridging that gap.
Well, we're adding a disinfectant line, we're we're <unk> migrating customers over the service model, we're cutting costs I mean, we're we've got to plan and we're executing right now.
I mean in all fairness I'm sure everybody on this call's received countless P.P.E.
Opportunities from domestic can't abroad providers. So the competition is going to be fear switch. It already is I, probably will receive personally a half dozen or more a day.
So that's that's kind of difficult to see a company more from law enforcement products into into P.P.E.
And then into some some of that the niche markets you mentioned that have a finite.
Gross capability, so I'm, just concerned that you're going to run out of cash.
Yeah, I mean, the one thing, though Mike you got to realize what we've got you know for as long. Unfortunately, we probably sold over half of the agencies out there you know <unk> of the 18000 about 9000, we've sold to we still haven't active.
You know five 6000 that are out there that that we sell to and so while probably heard the.
You know this comment before too I mean, we truly have that last mile that touches the end user. So we have a very good relationship with our you know the customer base and so these products that we're talking about there's already.
Tremendous amount of confidence and trust in digital Allied to where you know, we're seeing them being very receptive into given a shot and try and you know try and our product and and so hopefully it will turn into increasing the top line, which again, we'll go and help the.
The bottom line in the marine what you're referring to.
So it seems to me.
You'd probably run multiple things in tandem obviously trying to run the business profitably, but also consider M&A are you considering M&A and if so where are you.
So that's a great question, Mike the the industry.
Just like back in Oh, 910, 11, when things were pretty tough far as the economy. There was a lot of consolidation and or companies that just by the wayside.
I do anticipate there'd be an opportunities out.
Out there and there may be some consolidation whether or not we're on what end, we're on who knows but I do see the consolidation and do see that there's going to be some opportunities, especially if they're not they do not have access to capital. There's some out there that are just really going to have a challenging times.
So that that's great question, Mike and where are our eyes wide open to for opportunities along those lines.
And do you see the value of the enterprise greater than what the market value is currently I call It 13.5 million.
You know, it's it's so frustrating when you sit there and you see other entities out there that are trade net.
You know really big multiples of whether it be revenue or whether it be you know earnings whatever so I you know right now we're we're we're keeping her head down in in.
Going to try to make sure and do what we can do to get to profitability and and you know the stock should take care of itself, but we definitely will make sure that the news about the successes in the in the progress we make will get out to the shareholders in in the street.
Thank you.
Thank you my.
Right next question.
Patrick's that's hard private investor.
Good morning, I was wondering where are you guys, possibly looking into offering your disinfectant two d. airlines. Besides the cruise lines also.
Yeah, absolutely you know, we're we're talking to them all in one of the things that.
<unk>, we're pretty well, we have a pretty good relationship with the airline industry because of NASCAR and indie they they both have airlines that they work with real closely. So we're looking at not only the product because we feel like the product clearly we'll meet their needs, but even also some of the.
Equipment for such as electrostatic sprayers and and other.
Dispensary type of stuff that will be needed for that but absolutely airlines is definitely on our on our radar no pun intended.
And and what about the other smaller businesses like the restaurants, and you know salons and other businesses like that are you trying to set something up.
Where they can order directly from you or how are you planning on.
Getting into that section of the business too.
Yeah, we are and what we'll do is will definitely we already have a little bit of an E.E. commerce platform on our website that they can get on line in order directly, but we look to actually have a much more.
I want to say stronger I guess platform for this particular product in indoor products to be talked about inhabit really focused on disinfectants Sanitizers you know cleansers stuff along those lines. So.
It it definitely we don't want it to be he situation where people look at this and see.
Company that's involved in video solutions now some doing disinfectants I mean, we absolutely are working with premium top notch.
Manufacturers scientists.
All the above.
To be able to deliver you know the the a strong line of products and we will have the platform in which an individual can go or the store can go or a company can go and buy from.
Yes, we're working on that and and I would hope to have it all up and flying within the next 10 days.
Oh, Okay very good. Thank you very much I appreciate the information.
Thank you.
Well listen we want to think everybody for their time again today.
You know again I know this was sort of the short turn from our you're in coal.
But we do you know really good about the the direction of of where we're going with with our with our product lines with our expenses and do believe that we are going to get back to level of normalcy to where the top line should start improving as well.
Therefore, we we can all hopefully meet the goal of of <unk> stock appreciation in earnings from this company. So thanks, everybody. So much for your time be safe and we'll be talking soon.
Ladies and gentlemen next please today's conference call. Thank you for participating.
Disconnect.
[music].