Q2 2021 Wrap Technologies Inc Earnings Call
Today constitute forward looking statements made pursuant to and within the meaning of the safe Harbor provisions of the private Securities Litigation Act of 1995 as amended such forward looking statements are subject to both known and unknown risks and uncertainties that could cause actual results to differ materially.
Such statements these risks and on.
Certainties are described in our earnings press release and in our filings with the S E T.
The forward looking statements made today are as the date of this call and we do not undertake any obligation to update the forward looking statements with that I'd like to call low turn the call over to you Tom.
Thank you Paul and good afternoon, everyone for those of you that are new to our story. Thank you for joining us today.
As a global leader in pioneering public safety technologies and services. It continues to be a privilege for wrap technologies to be on the forefront of driving innovative solutions and training for global law enforcement officers and other agencies.
For those of you who have been following us all along thank you for your support I am pleased to report some exciting foundational and financial growth developments that continue the growth trajectory of the company, we're moving fast and consistently making strong progress on executing our strategy for educating and training and securing sales for our devices and accessories.
When it wrap technologies remains deeply driven by our unyielding dedication to our mission of providing our technology platform the officers and agencies worldwide.
We live the mission every day.
We believe policing is safer and more effective with early intervention and Deescalation solutions, we work hard to ensure we're in the right place at the right.
Right time with an unrivaled product suite that has seen growth in demand as the agencies on the front lines confirm what we've known all along that our solutions are valuable and can help save lives for the quarter. We continued to gain traction with U S. Based police agencies, primarily those with 100 officers are less.
These agencies typically have.
A shorter buying cycle, which translates to faster sales since overall orders are generally smaller and have fewer levels of approval.
This has served as a significant source of revenue for us as these orders add up in a meaningful way.
This is important as we scale our business and then are longer sales cycles with the larger agencies are successful.
It is of all sizes continues to be bolstered by our steady stream of body Cam videos, showing actual body wrap field deployments, which enable officers to see how effective the bowler up actually is during real life crisis situations.
Our international business continues to grow despite COVID-19 headwinds there are still many important.
The agencies with ever changing COVID-19 related travel restrictions, which are limiting our ability to demonstrate the bubble wrap and wrap reality in person, which is the most effective sales weighted demonstrate the effectiveness of our products. However, we have adapted to this headwind nicely. We are generating increasingly strong interest in the bowl wrap and wrap reality with our.
Countries in pursuit of educating and marketing to the industry.
As a result, our international team continues to make steady progress as.
As a reminder, in these early stages, we do not expect our consolidated revenue ramp to remain linear we have a number of mid sized and large agencies in various stages of pilot and trial program.
Unreleased can take weeks months and longer to close depending on the timing of the orders for larger agencies, we could see lumpy growth rates from quarter to quarter, but year over year I believe our growth will accelerate.
We believe wrap is in the early stages of a revenue ramp with a long runway ahead.
In the U S alone we.
We have devices in less than 4% of total agencies, representing a tremendous growth opportunity in a massive addressable market.
Another notable area of progression. This quarter is a wrap reality training platform. Our wrap reality library is already robust and our vision is to become a global industry leader for law enforcement.
Forsman virtual reality training, we're still on the process of building out an extensive and immersive catalog of scenarios for police officers.
<unk>, we expect our simulations to go far beyond our products, we expect our library will not only consist of situations involving a bubble wrap but all the tools available to the officers.
Officers, including verbal commands and any other situation in office or May face, making wrap reality more versatile and valuable across the training spectrum.
We believe our approach directly addresses the public demand for police training reform that is at the center of the media community and government calls to action.
We believe better training.
Since our essential tools for better policing, we know training that is accessible and in real time can help officers prepare for hundreds of potential scenarios without ever leaving their home or precinct.
Allied market research has cited the market opportunity for virtual reality training and simulation is projected to exceed 600 billion.
Dollars by 'twenty 'twenty 7 growing it at a compounded annual growth rate of 13.7% from 'twenty to 'twenty to 'twenty twenty-seven driven in large part by law enforcement and military which are at the heart of our target market.
As virtual reality evolves to become the preferred training solution for any situation.
I'm confident our wrap reality platform is a perfect fit for police officers and the evolving training environment.
I will now move to our operations highlights we'd like to share some of our notable progress from this quarter.
We grew U S agencies trained to over 800, that's up 29% from the first quarter.
And nearly 4 times on a number a year ago.
This isn't an important an important metric because we believe it serves as a leading indicator for sales orders.
For the first time, we surpassed $1 million on quarterly sales in the U S. Although we expect our topline to grow years into the future as I mentioned earlier, we do not expect this growth.
Just stay linear Nevertheless, we are pleased with this newest milestone.
Our growth strategy is driven by 2 product lines on a single synergistic technology platform..1 is the ball wrap device. The other is a wrap reality virtual reality training system. While they are designed to integrate seamlessly both offer exception.
Exceptional value as a standalone product or service, providing an easy point of entry for new customers with the potential of generating a meaningful recurring revenue stream. We expect that as officers has success with 1 of our products. This will lead to goodwill and be a generator or the other products with a bowl of wrap our approach to growth is through market.
Penetration, we believe the visual appeal of seeing a real life full wrap deployment in the field triggers word of mouth and social media attention. Both are proven drivers of spontaneous or referral inquiries on sales.
We are strategically targeting a diverse range of agencies from large to small across police military.
And private security, which include college and University campuses as well as spread out geographically both domestically and internationally. We are in the very early stages of our growth curve and we think our new agency customers metaphorically as planting seeds that eventually will generate new business referrals from.
Other or similar nearby agencies.
Additionally, we are tender exhibit at major law enforcement conferences and equipment trade shows in the U S and several internationally.
These provide an excellent opportunity to meet with and demonstrate to hundreds of protests prospective customers in a short period of time. These.
These conferences and trade.
[laughter] shows are now returning to the old normal in person rather than virtual attendance over the past 17 months.
A wrap reality service is a highly immersive virtual reality training system. We currently have 48 different modules and our wrap reality library, most of which are centered around encountering and restraining a wide range of Noncompliant sub.
1 of our biggest Differentiators is the 360 degree immersive experience we offer when combined with our ball wrap it provides an attractive value proposition for agencies and we're just getting started agents.
Agencies throughout the U S are enhancing training for officers as their collective first step towards police reform at wrap.
<unk> continued to prove our module to ensure the best and most realistic library for law enforcement training from cadet to retirement.
It's also worth noting that we are structuring wrap reality as a subscription service, which lowers the cost of entry for agencies, while providing a growing stream of revenue recurring for wrap.
We wrap and wrap reality, our state of the art, we intend to have continuous innovation and development of our current and potentially new devices and services. We are committed to be recognized as the leader in escalating shouldn't avoidance technology and training and are aggressively working to develop upgrade or acquire technologies that provide.
While both synergistic fit to our products marketing and distribution strategy.
On the subject of new product development I'm pleased to introduce the newest member of our executive team, our Chief operating Officer, Glenn Hickman.
I met Glenn a little over 10 years ago. When we were both at Taser. When then had a 9 year career there most.
Recently as the Vice President of research and development, where he led the product launch of 6 hardware products doubled the size of the engineering team and established a manufacturing presence in China.
Over the past 2 years he earned his MBA at northwestern University and his immediate responsibilities that wrap will be research and development operations.
<unk> engineering and supply chain management as well as spearheading our new product developments, we could not be more excited to welcome him aboard Glenn.
Thank you Tom Hello, everyone is a pleasure to be here and excited to join the saline team are.
Our professionals, which I strongly believe will continue to redefine the law enforcement technology landscape and number 1 reason I wanted to join this company with it I've recognized it as a time per rep. The bowl wrap is revolutionary and the opportunity is massive with its early track record of effectiveness now is the time to scale on racetrack close potential on I'm excited to be part of that effort I believe.
If we can achieve this with a disruptive new era of human restraint technology and training I started on the first of July and hit the ground running wrap is an outstanding team from our managed funds for our frontline manufacturing workers, but I find the best about wrap is its culture, everyone always strive to do better than yesterday on every level with R&D and supply chain.
1 of my mandate is to ensure that the crew can match or surpass the needs of our customers and as we scale manufacturing volume, we remain dedicated to delivering the highest levels of quality assurance and quality control I am delighted to be here and look forward from meeting many of you down the road now I would like to show 1 of our more recent the body Cam videos that we received.
Receipts in June highlighting the early success of the ball wrap by an agency in Ohio.
There's just been an emotional interest your person that was encountered.
Right mouse yourself.
Trying to price them into a suicide bicarb in some manner.
Net of firearm and.
Threatening isn't a fight.
Regardless.
Go compliant way try to offer multiple times. They can we can take your hospital here's what we wanted to do here's what I'd do after E properly charged the board he was able to discharge a effective deployment.
It took them into.
And then does this.
Work properly and we were able to take them into custody without any further.
Incident, and it actually I mean, you seem very compliant once he was wrapped and once we're able to income.
So it worked out as best as we could have wanted.
We're new to add on the rig out this year.
He got trained back in March.
Actually our third deployment, our first 1 we were able to catch on.
Our mobile video cameras.
And all 3 have been with emotionally disturbed persons any day.
Fantastic you never had a failure with it.
Each one's resolve this situation that could have gotten a lot worse.
Low ingrained in them that hey, we can avoid fighting subjects.
You can stop them from hurting themselves, even further and lessen the force response.
It's being used a lot lot more often.
Everybody is really really.
Taken to it very well.
So wrap deploys to every officer they are required to carry it on your person I look at it this way I know I know some departments are looked at as far as a <unk>.
Cost benefit.
And.
Yeah.
Oh this way for instance that could really sell for us didn't so.
As a bolt on those 3 appointments already paid for it in terms of being achieved especially on the 2 that we're trying to do sort of semi cap. If we can stop it right. There in rate to an effective resolution that's peaceful for us peaceful for the subject and get them to treat the help they need debt that's.
More than pays for the cost.
Cost of the deployment of the bowl of reps My apartment I think my guys are really really.
Enjoyed that.
Knowing that they have a tool now.
Net is going to prevent that escalation in force, especially in this situation where somebody might be threat and they are a firearm you don't see it you don't want it.
So at a higher level unless you need to.
And this gives us the opportunity to be able to take them on the control even without going to the taser or any other intermediate force before you pass the resorts are deadly force.
Yeah.
Thank you Chief Shafer those body Cam videos are just really incredibly powerful for us to be able to show how the bowler wrap is making a difference out there and the cheap really highlights a lot of the points that we talk about this is on the frontline officers is deployed to everyone within the department because that's our goal is every frontline officer, having access to this.
Jumped empty escalations on those higher levels of force not just domestically, but around the globe and obviously, we have a long way to go on that but that's the ultimate goal is at some apprehension tool that can be used early to prevent the escalation of force to higher levels of force on paying compliance tools being used like a taser like a firearm or baton on chemicals.
Chemical price. So these really are great points with the cheap highlights and it's really things that have made a difference for us over the last 6 months as we continue to get these body cams. We continue to talk about full deployment, we continue to talk about how.
Very quickly this tool can pay for itself on its used early on these interventions and it really has to be on those frontline officers.
To prevent have time to wait for somebody to bring it or wait for someone to.
We'll go back to the car and get it. So it's really a lot of points that she makes there that really carried through all the messaging that we're now doing through the wrap company. So right now I'd like to turn the call back over to Jim to discuss our financial results on that and we'll come back and will have further discussion after Jim.
Thanks, Tom and welcome on Board and Glenn We had another solid quarter on financial performance, we posted $1.9 million in revenue from the second quarter for 132% growth year over year.
International revenues represented 43% on second quarter 2021.
Revenues compared to 65% from the second quarter of 'twenty 'twenty year to date revenue for the first 6 months from 2021 increased to 3.5 million a 128% increase over a year to day 2020 <unk>.
International revenues represented 51%.
<unk> 2020, 1 year to date revenue compared to 74 per cent per year to date 2020.
As Tom mentioned I wanted to note that travel is still challenged worldwide and is negatively impacting our international revenues and contributing to the Lumpiness, we have spoken about over the past several quarters.
We expect our international business to be a major part of the growth going forward and in spite of international challenges as you can see on the accompanying chart Q2, 'twenty 'twenty..1 continues steady revenue increases over the last 4 quarters, our gross margin per Q2 was impacted.
By the planned line production change.
Excluding a 1 time noncash product line excellent expense of 0.7 million, our gross margin was 36% in the second quarter compared to 32% for the comparable prior year quarter.
Our goal is to improve.
<unk> gross margin through a combination of new production line efficiencies scale and product innovation.
Selling general and administrative expenses were $6.6 million per Q2, and included 2 million of noncash share based compensation costs, including some 1 time Q2 charges.
We expect non cash compensation on allocated to SG&A to approximate $1 million a quarter for the next several quarters subject to personnel changes and other factors in Q2, we also experienced increased demand for domestic demonstrations and training and SG&A expenses included.
Approximately 850000 on these vital activities.
We believe increased trained agencies as Tom mentioned before are a leading indicator of future sales.
Research and development expenses of $1.2 million in Q2 of 2021 compared to 0.6 million for Q.
So a 2020, we expect research and development expenses to increase somewhat throughout 2021 as we have important initiatives that we believe respond the valuable market opportunities during.
During the second quarter 1.8 million warrants were exercised for $12 million in cash with force.
$2 million in cash and short term investments on our June 30 balance sheet, our financial position remains exceptionally strong and provides wrap with ample flexibility.
Considering the boat or App was only commercialized in 2019, we are satisfied with our global reach and our financial.
Performance I appreciate the excellent work by our finance team with that I will turn the call back to Tom.
Thanks, Jim now I'd like to provide you with a few more metrics related to our progress in the second quarter all.
Through June 30th.
We had over 2800 officers certified to train their departments, which is up 106% from December 31, 2020, and then nearly 3 fold increase year over year, we have sold product to a 49 states in the United States and have shipped product into 44 countries.
From a gov.
All as effective we recently added 4 new directors with a wide breadth of experience. They are T. J Kennedy, Jeff Kukowski, Kim Stern of Itch, and Kevin Sherman, we're fortunate to have them join our board. In addition, we are keeping the best practices of corporate governance by adding an independent board Chairman Patrick can seller who is.
Vernon's personally named to that post Scott Cowen continues to be an active member of the board I was also elected to the board in June bringing my experience of serving as executive Chairman of Tasers Board for 6 years.
ESG remains a primary guide for our business practices, we bolstered our ESG efforts and our recent initiatives including.
As recent pending our relationships with suppliers, continuing our engagement with shareholders through consistent and transparent communication with.
We joined the United Nations Global compact pledging our intent to further incorporate their 10 principles on human rights labor environment, and anti corruption operations and engage in activities that advance.
Its sustainability goals, we published our code of ethics, and launched our diversity and inclusion and anti harassment training program, which has been completed by the entire company.
Wrap is monitoring and reporting our executive board and workforce diversity in an effort to continue improving in that area.
We continue to make progress toward.
Towards reducing our inventor on mental impact and with our purpose value strategy and business model in clear alignment, we delivered record financial results in superior stakeholder value.
Before I close I'd like to reiterate my high degree of confidence that we're onto something special I know this industry extremely well and I have been at.
Mentally involved with building the playbook that deliver scale quickly and can successfully commercialize a new disruptive technology in law enforcement.
Wrap technologies platform is here at the right time to help solve an enormous and highly visible problem.
As always my final comments are directed to our team. Thank.
Your positive attitude skills and hard work are greatly appreciated as we endeavor together to change the world. We are making a difference in the world is paying attention right.
Right now I would like to share a video highlighting our activities during our second quarter. After the video Paul will moderate our question and answer session with.
Jim and me.
[laughter] Seattle's police Chief just Greenlighted, a pilot project to test out this new non lethal takedown devices. They use enforced by police that's come into question all across the country with police departments, you're evaluating their policies and procedures looking.
<unk> products that will help keep officers and the public safe, it's less likely to be mistaken as a pistol by the officers. This here is called what they call a bowl of wrap kind of seems pretty effective now being used by 500 law enforcement agencies across the country. The device acts as a remote handcuffed to restrain anyone.
On this thing you click a button you get wrapped up restrained.
Yeah.
Yeah.
Yeah.
From it.
Okay.
We want to hear as you wrap reality wherever we can make sure our Oxford save her make her citizens safer and makes her suspects.
[noise].
Yeah.
Okay.
Okay.
It's really an apprehension tool that helps us subdue someone without using force without injury.
And her at all you've got some part of it which is a good day.
No.
Okay.
Okay.
Second 1 on 1.
So on and I want you to get on the ground.
And on 1.1.
[laughter] standard have an opportunity to essentially.
<unk> lives within.
And it makes it very.
A very valuable piece of our.
Equipment from the same valuable piece of equipment was also used to detain This mountain Lake terrorists.
Just last month.
Down on the non Britney Hollinger didn't comply with their orders and officer used a new tool a bowl of wrap pork fantastic work just the way we thought it would this video from Tempe PD shows police officers trying to talk to a man they say.
They appeared to be in crisis and running through traffic.
Okay.
Sometimes people need to be taken into custody that don't need to be injured young man.
Really incentive fee.
On a coherent is a big strong guy he comes out swinging towards the device it was a perfect deploy.
This man, they're getting getting the help you need right away.
Having a manic episode.
Yes.
Okay.
Yeah.
Yeah.
Hi, guys.
Okay.
Okay.
Okay.
Okay.
Alright, I hope you enjoyed that video as much as our team loves putting that together as we now move to the question and answer portion of the webcast with Tom and Jim I'd like to remind you that if he would like to ask a question.
Please submit it via the Q&A portal portal and not the chat function, we're going to start with are 3 equity analysts who are publishing.
Research on wrap our first analyst will be Jon Hickman from Ladenburg Thalmann. Please go ahead John.
Hey.
Right.
And you can answer them in whatever order you want.
Tom I was wondering if you can.
Tell us anything about.
If you don't if theyre getting any use cases, so that they can make any kind of determination in the future.
My second question has to do with could you break down the revenues from the training the virtual reality stuffs vs.
The bullet wrap.
Uh huh.
Activities and then my last question has to do with can you give us any more granularity on.
On the link between the training that's going on in actual purchases.
Uh huh.
Of polo wrap.
Equipment.
That's it from me Paul.
Well, Thanks, John and I will go through those I'm trying to remember on best I can so the first 1 was regarding L. A P. D. L. A P. D has not put them out on the street yet.
They're still working through some internal issues and I believe they'll be getting started in August probably late August or early September.
So we don't have any use of there obviously, because they're going through a retraining and re planning they've had a quite a bit of a shuffle on staff. So we're talking to them on a very regular basis, and we'll obviously keep everybody informed there.
And that 1 year timeframe because that's obviously the question that was approved back in May it doesn't begin until they actually get them on.
The streets in trial, so let's say they start in September then it would go for 1 year from September 21 until September 22, So we're still working with them on that and that's upcoming I. What was the net freshman Paul The second question. Tom was the revenue breakdown between the boiler and the virtual reality at this time, yeah. Great question, So right now.
There's not much revenue was quite frankly associated with wrap reality, our focus right now is on getting that product integrated getting it up to speed, we're going to have some more things that are going to be announced on it here. We've got a big trade show called <unk>, which is the International Association of Chiefs of Police conference coming up here in September so.
We're working with select agencies of various sizes, and obviously Wheaton college to get feedback on the different parts of rough reality that want that we want to improve on them that we want to continue to expand so right now we've got on in the field with a bunch of these different agencies that are there, obviously, we've announced and they're working with us to give us feedback on that so.
Right now and focus on making sure that the product is where we want it to be as we roll it out and so again not going to be just here domestically, we're getting a lot of inquiries for it globally as well.
So very excited about that platform, but I would also say don't expect a lot of revenue for it over the next even into 'twenty 2 as we are really ramping it up.
That weekend in a subscription model that will be spread out over multiple years. So there won't be a lot of revenue upfront like on the Ebola rapid from base business right now, where we get a purchase order and we ship and then we recognized when we ship wrap reality is going to be a subscription model, which means it can be over and in certain cases 5 years on that revenue that gets.
Recognized each quarter over that 5 year time period and a last question on in the last question. I think was can you talk about how the training all the training that we're doing currently how does that lead to purchases in the police departments in law enforcement Yeah. Another great question, and that's really the tip of the spear for us because the agencies have to go through training. Because then those are the expert.
Birds, the subject matter experts that the department relies on to oversee the program. So our relationship our work with those trainers getting those officers trained it really is a key metrics force as we look forward on the agencies that are going to be adopting this so we always we're going to see that number ahead of the curve in terms of officers being trained.
Because then once they're trained then they'll start to move into purchasing and as I mentioned during the video our goal is to get to full deployment every office or on the frontline and we really you've been following US you really noticed a change in our messaging of talking a lot about these body Cam videos about the uses are we've learned a lot over the last 18 months or so.
So about where the products really excelling and getting these smaller agencies to let us use the body Cam videos to show what the different scenarios indoor outdoor day.
Anytime nighttime and really what's coming back as those frontline officers, having having an accessible if you have to wait to call forward or if you have to go back to your car that.
<unk> from opportunity to use it early in the compensation is going to pass and that's 1 of the things that we're really focused on now is the focus on these outcomes in the frontline officers to use it that's what's having the most impact and those getting the officers trained with that message is really going to carry it through and you heard a lot of the chiefs and the videos talk about it as an apprehension tool a.
Window on don't even consider it a use of force it's like handcuffs.
Then the other higher level pain compliance tools will be considered use of force. So as long as we can continue that trend continue and not to be a use of force and the way it's being used being used by those frontline officers, that's really where we're seeing the growth accelerate and.
A lot of it has led to a change in the inbound inquiries and net we're seeing more and more qualified inquiries more and more command staff and purchasing inquiries, especially over the last few months now that we're getting more and more body Cam video showing how it is being used out there in the field. So with that I think that was all on John's question. So Paul we'll go back to you alright.
It is very much John for those great questions. Our next set of questions is going to come from Allen Klee from the Maxim Group. Please go ahead Ellen.
Yes, Hi, 2 questions first question is on margins you talked about.
Some added costs related to.
Working on improving your manufacture.
Thanks Richard.
Could you maybe go into that a little bit on what you think the opportunity is from that and the timing of getting that and then the second question is related to international if you could just maybe give us a little more detail on.
Where your focus is now and how you're.
In fact that market is going to open.
<unk> open up for you. Thank you.
So Jim why don't you start with the margin.
Sure.
We are working closely with Glen and his team to make both product changes product line changes and we've made tooling changes and that was part of.
The exit adjustment related to those activities and working with Glenn and his team. Our goal is to achieve those greater than 50% margins that we've been talking about and we expect that to be very near term not a long term goal. So we're working closely to make those.
<unk> happen and you see that in our upcoming.
Coming quarters.
And I think the next question was around the international markets.
This new from Delta variant is obviously, causing ups and downs, we are able to get some of our trainers to go visit some of our overseas clients and then we've had them also revert back to doing zoom demonstrations because the travel borders and its restrictions came into.
Play and again I think 1 of the key factors that <unk> been able to continue the international growth and sales activities have been having these relationships with distributors that are still able to to support the local department. So international I'm not changing my opinion on that I think it's still going to be the majority of our business as we go forward. It's just certainly raise.
The difficulty level on on executing with that strategy because it's we're not able to go and do a lot of these in person, but we are getting them here and there obviously, if we can get more and more vaccinations and more and more borders to lift I believe that's going to accelerate but we are looking at adding some personnel overseas as well in the second half of the year that are also going to help.
Meet those goals because a lot of times the U S restrictions are the hardest in terms of the international travel and as I mentioned, we're getting a lot of inquiries around the wrap reality as well. So we are pivoting again for integrating that into the zoom demonstrations on video demonstrations and participation and the enthusiasm is really still.
Still there it doesn't change my opinion on where I think we're gonna be internationally I, just really wish as all of US do that this pandemic would would let us get back to business as normal. So we can start traveling again, because it really is our most effective opportunity because it doesn't it's not only the travel for us to go there. It also presents a big challenge in the actual shipping of the.
Our products, there's not as many freight aircraft flying so trying to get freight shipped overseas.
That's been a challenge as well, but we've been successful in navigating that.
And the team has done a great job working with our international distributors on our freight forwarders, but I.
I still remain very optimistic on the international market. So Allan I didn't know if you had any other questions.
Yeah.
Great. Thank you.
We will go back to Paul Alright, great. Thank you very much Allen our last set of questions will come from Greg Gibbous from Northland Capital markets go ahead, Greg.
Great.
Jim Thanks for taking the questions congrats on the record sales again.
I guess first from me the pace I guess of your product demos with departments changed in any way either within the quarter or into July.
Or maybe how does the number of product demos compare on a year over year basis, I guess anything you could share there would be helpful.
Yeah, Great question, So obviously last year we've.
<unk> talked about it several times, we did see quite a dip in fact, a year ago. It went to zero in the month I believe it was in the month of April I would tell you right now our demos are kind of back at the same levels that were they were kind.
Kind of pre Covid in Q1 of 2020, and we're still seeing a huge number of requests I can also say that the quality.
On the inbound requests that we're getting has certainly increased I also mentioned that some of the trade shows that were attending are now kind of going back to in person trade shows there was 1 called the F. B I on a conference that was held in Orlando.
Couple of the folks that Ive talked to from that show really made the comment about it's probably the best show that we've been to.
The past several years because of the quality of attendees.
Has changed quite a bit and the profile of the company because these bull wrap a body cam videos are really making a difference for people to see it that it previously it had just been us showing demos.
Trainings and things, where now when youre seeing it being used in a number of different scenarios on the streets.
In the low we've kind of revamped all of our communications marketing and the training to really emphasize what's going on with the body cams and that frontline officer, having it available I think all of those things have been coming together to continue the momentum and so I would say to your basic on the original long winded answer here, it's back to pre levels that I.
<unk> before in terms of volume because the distributors are picking it up as well.
Okay, great Yeah, that's good to hear.
Wanted to ask to if youre seeing maybe anything changing in any way on the legislative side of things I know you've been working with Congress for some time now.
Just wondering if you can touch on that.
I would think maybe talk about anything related to grants or federal funding that might support departments purchases on the Bora.
Yeah. So we've been working with police brands helped dot com through our website, we've been getting an enormous number of inquiries for grant funding and we did get clarification that the burn drag grant, which is under the department of Commerce.
And then we use those funds can be used in purchasing our equipment and then obviously, we put out a release recently about the house Appropriations Committee, putting out their report language, which I referenced a lot of the work that we've been doing over the past year to make sure were included in that so.
I think at the federal level, there's been a lot of stagnation.
Scandal with the police reform Bill both sides were pretty dug in on some language around the.
Differentiation on qualified immunity.
I don't know if they'll ever get past that but if they do we have done a very very good job in talking with a lot of different people on both the house side as well as the Senate side and.
Nation have in communicating with them showing our products and even getting them to attend demonstrations you saw 1 of the representatives and the video of our highlight video where we actually wrapped her and then she actually mentioned this on the house floor. During 1 of her her comments around the police reform Bill. So I'm very excited about what we've been able to.
And the stakes for for a company at our stage and our growth level with only 500 agencies out of 18000 debt. We are engaged in the national conversation and with the members of both the Senate and the Congress and then they've been very very supportive and I think that's what's so exciting about being included in that report language that came out.
Okay great.
Last 1 from me I guess.
Related to financials, I know you aren't providing official guidance, but.
Just wanted to ask how youre thinking directionally about profitability Youre adjusted EBITDA expectations going forward.
Well I'll I'll jump on that 1 so right now were margins was a question that we've.
Yeah on before and I've been asked about that many times on our goal is to get about 50% and 1 of the things with Glenn joining is really getting it on operational focus on not only the R&D quality enhancements of the products changing our production equipment and all those things are going to contribute to that so obviously women with.
If we can get to that goal assuming sooner than later I was going to have a tremendous impact on on our cash flows as well as on our potential opportunity to get to profitability quicker. So are our goal in the short term is to really focus on getting those margins up.
So we're going to we have a very strong balance sheet. So we can use that cash wisely invest.
Talked to them, we need to but once those margins come up that is going to have a huge impact on the company and then allows us to really again keep fiscal responsibility on looking at where we're investing that cash.
We want to grow the company and work on those future generations of the technologies. So cant give us specific yet on on profitability, but I can say that.
The margins of our short term focus because that is going to have the quickest and most immediate impact on on what we're going to see in terms of the cash.
Okay, great. Thanks, guys.
Thank you very much Greg.
And thank you to all 3 of you for your support of wrap technologies over the time that you've.
Now we're going to go on to the submitted questions that have come through the Q&A portal. We do have a fair amount of questions that have really have been answered by the 3 analysts, but we'll start here and we'll start with the first 1.
The first 1 coming in says can you discuss it a little bit more detail the house appropriate Appropriations Committee report and.
And the police reform language in it and why that is a benefit to wrap.
And I think Greg we had talked on that briefly and again I think the biggest thing to note here is that the report language is kind of what starts the ball rolling So that is the recommendation that comes out of the Appropriations Committee and being included in that with that sentence of saying he might humane.
Remote restraint.
<unk> is great for us because that's obviously, what we're doing in language that we worked with obviously theyre never going to include the name of our company specifically, so getting that generality in there the discussion around virtual reality training. The conversations we're having are very effective so by being included in that report as they now come back.
Appropriations language and approvals and the actual bills were involved in that so if we had not been a part of that it would have been a lot bigger hurdle to try and get included so I think that can't be overlooked is the work that we've done over the last year with the members of Congress from its members of the Senate to make sure that were included in that.
Was just it was.
Great to see it in there and make sure that we're part of that conversation going forward when they start to allocate the funds.
Alright, great. Thank you Tom the other 1 that has come in and actually a few of them can you further elaborate on ESC and why is it important for you as a company and also for the investing community.
Sure. So earlier this year we.
We went through our ISO certification on our ISO 9001, 2015, and this was a natural roll in for ESG that it just really becomes ingrained in our culture, which is extremely important to me and the members of the company because we all are here almost all the time.
During the day and as we go through our ESG process, having it included in becoming.
Coming just involved and incorporate it into the culture is that much better force, we want to make sure. We're good corporate citizens obviously, the ASP in there the social aspects, there's probably no bigger impact than any other company can having trying to stop people from getting hurt or from price of ending people from having force used on them excessively or in the wrong manner.
<unk> or in pain compliance situations and looking at the bolt wrap device, having that impact you watched that video that we played out of defiance, Ohio that individual wanted the police to shoot and kill them even use the term I wanted suicide by top he wanted it to happen they were able to use the bubble wrap and and that was not that next viral video.
When you couple that together with the environmental on the governance, it's really the things again that we're focused on if we're reaching out to partners to really help us with it making sure environmentally interest across the board that its really ingrained in our corporate culture and so we're really excited about it and we do expect to have a report or a first letter out on it in the next couple of weeks with.
With more details on all the different initiatives and even getting approved through the U N that was another accomplishment. So we're very excited about the way we are proceeding as an organization. So it's making a huge impact very few companies get to change the world and then we're also making sure. We're doing it is good corporate sponsors and partners with our ESG initiatives.
Alright, great. Thank you Tom.
We've had a lot of questions come in about gross margins I think we already hit on that earlier in our conversation. So I will skip over that 1 unless you want to add anything.
A lot of questions coming in about Covid, and we briefly discussed debt or any further comments you can talk about the effects on our business and are we seeing any improvements. So I think we should.
1 time.
Certainly and we did touch on it but it's it's presented a lot of hurdles on a lot of challenges more so in our international markets.
Because right when you think it's going to get better then all of a sudden it's cut delta variant shows up and change the restrictions. So we're constantly having to monitor what each country is deciding whether they're allowing people to.
Answer that but again through our distributors on that relationship on that network. We've been able to continue the growth there we've been able to continue to support them.
Domestically it certainly has eased because we've been able to continue our in person demonstrations on our in person training.
As I said earlier, those have gotten back to kind of pre COVID-19 levels domestically.
Come on <unk> internationally, but I think again the team has done a great job, we've got a great distribution network out there that's continuing that progress. So it is something that we obviously keep an eye on and watch daily as does everybody and tried to navigate that and I think the team has done a really good job with that.
Great. Thanks, Tom and speaking of distribution networks I get this.
Just a lot on a weekly basis, how big is our sales force and what is your distribution network look like.
So 1 of the things I've done before at my previous job at Taser, We had of about 5 people in the field and we used the distribution network and grew that to over $100 million. So we're using kind of the same format here, we have 14 distributors domestically.
Question.
And those 14 distributors or like putting another 100 people out on the ground roughly with boots on the ground talking to all those small agencies, because again out of those 18000 agencies over 80% of them are less on 100 officers. So its.
Great that our distributors have those relationships with them because it would be very high cost for us to have a direct salesperson having to go.
<unk> on agencies that are 10, 2030, 40 officers, but by using our distributors in those partnerships. We can do these now more regionally focused we can have more conversations through zoom or through our distributors doing it on their own which just it's an exponential number 2 our team. So we've got about a couple of dozen between sales.
So call it getting domestic and international and then internationally. It does work a little bit differently, because our distributors are much more on an exclusive basis typically those decisions internationally are made at the ministerial level rather than hear we have 18000 cheese Thats 18000 decision makers. So there are 2 different programs there, but we're really excited with our partners.
<unk> margin again with the 14 domestic distributors and then a couple of dozen folks between our sales marketing internal sales that does a lot of a telephonic support and then our outside sales that are the boots on the ground going and visiting with these agencies doing the in person demonstrations and attending trade shows.
Alright, Thank you Tom a lot.
Lot of questions coming coming in on the VR training, we have talked about a little bit, but how big is the market do you see for wrap and then speaking of sales can you further discuss kind of what youre doing to get the police departments to buy the system.
So great questions, it's gonna be it on.
Huge market, but again, if you look at law enforcement.
<unk> is an oral they do not change quickly again, even on the weapons side of the company with the bowler wrap that technology is the latest technology that was introduced the last 1 that came to market was taser over 20 years ago.
And so when you look at training there've been enhancements from training, but overall in general in law enforcement.
When they have budget cuts that's usually the first thing that gets cut his training budgets and they also train very similar to the way. They did 50 years ago. So we're now bringing in technology to training, that's really going to make a difference it's much more immersive we can show much a huge cost benefit. So we can do stuff in the virtual reality training in 30 minutes that.
They take 2 hours on a classroom setting the officers are going to be much more comfortable with the content.
And especially with the generational change of younger officers coming in that are familiar more with the gaming platforms, they're going to be more adapt to take on the virtual reality immersive training. So it's going to take time, it's not something that's going to happen overnight, but I think the opportunity.
Attunity to be involved in it.
And some of the people on the partners that we're talking with about this is really an exciting opportunity.
I can't give you how big it is I'm, just giving some references to some other market studies, but the response, we're getting right now with the officers on the agencies that are using our equipment are really validating all the beliefs that we have on this.
And the feedback has been tremendous that we are really getting positive feedback from these agencies that want to use this and want to see this going forward. So very very exciting market I don't want to set very high expectations on the revenue as we roll it out because we want to get it right. We want to work with the agencies to make sure. It's meeting their needs because if it is great and they don't use. It then it's of no benefit.
Benefit so we've got to make sure that it's great and they're using it and it meets their needs and that's what we're really focused on to make sure that when we do really turn the gas up on we're getting that rolled out that it's going to meet the needs and get the those subscription models going for us.
Perfect. Thank you Tom maybe 1 for Jim coming in here SG&A, a slight increase.
Quarter do you expect this to continue.
Yes no.
Why.
Yeah.
The address that in the prepared remarks on our SG&A was $6.6 million for the quarter and $2 million of that was non cash stock compensation expense and we expect that to go.
Down by about $1 million on that.
Next couple of quarters, so you're talking about a $1 million reduction there and there were some nonrecurring costs in Q2 for example, the annual shareholder meeting. So we expect those numbers to stay fairly flat through the balance of 2000 on 'twenty, 1 and we wouldnt see a huge.
Kris and decrease in the SG&A line as we move forward.
Alright, great. Thanks, Jim and just in the interest of time and keeping this in with it about 60 minutes I think I'll do 2 more questions here.
On the second to last 1 yet.
1.7 million in backlog right now when do you expect this to shift and also be recognized as revenue.
Our backlog is basically a quarter in our situation, we expect to ship that backlog in Q3, and we typically fill orders pretty much as they come in we manufacture product in the United States. We don't have at this point really long lead times.
And fulfilling orders so we expect.
Backlog to vary quite a bit mainly because it's a quarter end type situation and we don't look at as an indicator of of sales at this point and May change later on when you have more recurring revenue from wrap reality, but right now it's out on.
<unk> cater that we looked at that closely.
Great. Thank you Jim.
I like this 1 we've got a few of these come in for the rest of the year and in the second half of 2021 and into 2022 and beyond what are you most excited about at wrap technologies.
There was a bunch of stuff I'm really excited about first of.
And the team that we're building getting Glenn on board was really exciting for us because it's.
It's really again going back to that margin focus we've talked about it we're starting to make a lot of progress on that area that I think everyone's going to get to see especially in the second half of the year on into 2020..2 it's really it really is a goal of us.
To get over that 50% margin and that again is going to have a big impact on the financials for us so having glenn in here working full time with the staff and just the whole team that we're building and the execution that we're seeing and again with the bowler wrap seeing these field uses come in and the body cams and really showing that the belief that we have and what this is going to do for policing is.
All of us being a difference and having conversations with the community leaders again, even the elected officials.
And all the media coverage that we're getting we've talked about it but it is making a difference and it's it's really really exciting to be able to see the hard work paying off within body cams are showing the use and then that's leading to even more inquiries.
Make your officers coming in and saying, Hey, I really need to learn about this again so its upgrading the quality of the inquiries that we're getting there not just to use the term tire kickers looking at us trying to learn something about this now a lot of the conversations are we're looking at wanting to get this started and are used with our agency and our officers how do we.
We do that and who can we talked to as references. So that just continues to to go for us. So I'm Super excited about the again the team that we're building the products that we're coming out with the roadmap. This platform that we're creating there is no better time for it between the bowl wrap family of products on the 1 side and the devices matching up with a wrap it all of the training on the other side it's.
And 1 customer that we're talking to so it's not only the equipment, we're putting in the hands of the police to make a difference for them, it's going to be enhancing the training thats going to cover again, not only bola wrap but all the tools that they have available to them to try and prevent that escalation on use of force and trying to help them on their communications on conversations because we've I've talked.
To many many people that have said you know on a lot of cases, a hairdresser gets more training on an annual case, then police and we need to change that and we're going to change that through technology, we're going to change that through the program that we're putting together.
And it's really again easy for people to point out the problems. This company and all of Buddy everybody associated with it are we're using technology to provide.
It's the solutions to those problems and that's very very satisfying so super excited about what we're where we're going what they had for us on the second half of this year on really rolling into 2022, and it's the continued execution on what we've been doing to date, but it is getting us the validation that what we've been talking about the conversations we're having on it's working.
And that's.
<unk>.
The body cams validate that the conversations with the agencies validate that and we really appreciate the support from our investment community.
And again, having the strong balance sheet to be able to do that and invest that wisely and even press the envelope on how much quicker. We can bring these technologies to market. So a lot of things on I'm really excited about for.
The next 18 months.
That's great Tom Thank you Jim Tom. Thank you very much I think that's a great..1 to end on thank you to everybody who did submit a question if I if I did not get to your question. Please email me at P. Manly at wrap Dot Com and I will get back to you as soon as I can now I'll turn the call back over to our CEO Tom Smith.
And again.
Thanks, Paul and thank you everyone for joining us. This afternoon, we really do have a unique and exceptional products and services platform that only continues to get better we will continue to add industry, leading talent as our management and our board levels and in terms of both timing and marketplace demand. We have a historic opportunity now and for the next several years with which to radically change the world of law enforcement.
Better and solve these really difficult problems that our communities are facing and we are deeply driven to continue to make fast progress towards achieving our goal of positioning the bowl wrap and wrap reality is the industry is ubiquitous technology platform. So again I'd like to thank everybody and wish you all to have a great evening and we look forward to providing you with our next update so take care.
<unk> for the safe and be healthy talk to you soon.
Okay.
[music].
Yes.
Okay.
Okay.
[music].
Stacey.
Okay.
Okay.
[music].
Okay.
Okay.
Sure.
Yeah.
From Goldman.
Good day.
Free cash.
Okay.
Thank you.
Okay.
Okay.
Okay.
[music].
Yes.
[music].
Sure.
Yeah.
Yeah.
Yeah.
Okay.
Right.
Okay.
Yes.
Okay.
Okay.
Thank you.
Yeah.
Hum.
Hum.
Thank you.
Okay.
Okay.
Okay.
Right.
Yeah.
Okay.
Yes.
Yes.
Yeah.
Hum.
[music] offenses.
Yeah.
Mhm.
Okay.
Okay.
Okay.
Okay.
Yeah.
Right.
Okay.
Okay.
Okay.
Okay.