Q3 2021 Wrap Technologies Inc Earnings Call
Europe's multiple times and while our engineer staff has been working on this for over a year. It is something we're really excited about and it is available to ship now.
Okay.
Yeah.
Spider Man would be proud.
At least from our other region gathered ambush counties to get a look at new technology that aims to keep officers safe by letting them restrain people from the spring season for samsonite controversial topic for so many years across the country and Theres, a new piece of technology that level officers have a local Maryland town are using and they say it could help.
They actually had put situation defiance colleagues have a new device that they've taken helps bring suspects same crisis and officers who a more peaceful resolution. This is a tool police officers had never had before it is called the ball law rack. The new Tech is called Butler Ranch here. It is it's called the Beaumont rather.
<unk> deputy stages. They can use this to safely deescalate a dangerous situation.
It is called the bowl of Raptor Phenomenally full device has been called a lifesaving tool for officers across the country.
Yeah.
With over 12 months of research and development. This is an extremely important achievement for our company.
As effective as the Revolutionary original first generation model is we enhanced many features nearly all of which were the result of direct feedback from officers using our product in the field.
We now have the benefit of increasing the number of real life field deployments, all of which helped us with our development efforts and to capture the voice of the customer.
Accordingly, we considered the 150 as designed by police or beliefs Vista.
This direct feedback loop is crucial to our ongoing research and development efforts, which we expect to lead to more innovative products in the future.
The updates we applied for the bowler up $1 50 include.
Our most recent and important upgrade is the switch to electronic development and deployment from mechanical this reduced the steps to discharge for an officer from three down to two and.
In L. A D indicator that chosen officer when the device is ready it.
It is important to note that once turned on and activated it performs an internal diagnostic check to become ready.
However, when seconds matter like in a confrontation with the subject it's helpful. The Cedar Green ready light.
Professor powered by micro gas generated which is the same technology used in the automotive industry to power airbags. This.
This is just one example of the many changes we made to ensure that the reliability and quality of the mobile rub one trippy is up to the needs of law enforcement.
We increased the battery life by a multiple of 10, which is significant. In addition, there is an automatic shutoff feature which further saves the battery life.
For aim enhancement the bowler at 115 projects are multi dot green laser, which illuminates on its target versus the single line laser of the bowler up 100.
This makes it easy to see where the bowler app will be deployed.
New dual led lights that automatically eliminate when the devices powered on freeing up and officers hands for meeting a flashlight or other device for visibility in the dark.
This capability can also be turned off in the event an officer or department refers only to green laser.
We also included integrated safety caps on the anchors to tether and protects further from the subject in the officer from any minor scrapes or cuts when removing the tanker tethers anchors.
Bowler wrap 150 is also about 20% smaller and lighter with enhanced texture grip pads, making it more functional and easier to handle especially when wet.
I'm extremely pleased with these meaningful enhancements in the execution of our research and development operations and manufacturing teams to deliver this upgraded product in a cost effective manner.
Our company is here to serve our global communities and the police officers, who protect them and.
Incorporating their needs and feedback is essential to our overall R&D process we.
We see our customer centric commitment to excellence is a distinct competitive advantage.
From an officer field news perspective, the initial feedback on the bull or up 150 has been extremely positive to date.
It has been particularly satisfying to return to agencies, who initially showed interest but held off on those orders since the bowler App 100 did not have something that was important to them.
Now that we've incorporated many of these enhancements and suggestions we are starting to have success converting these agencies.
The benefit of the updated products are expected to be financially accretive over time.
First we were able to incorporate all of the upgrades and maintain our existing end user pricing levels.
Although price was not near the top of reasons for delayed purchase it was still important not to raise prices in order to safeguard our products value proposition.
We believe we accomplished that based on the feedback and activity from our customer base so far.
More importantly, the $1 50 and positions us well to drive to our long term gross margin targets.
There are several reasons for this number one we made the production of the bowl of rub 150, more efficient, allowing us to manufacture more units at a faster rate and a lower cost number two the raw materials supplies and parts, we use in the bullet wrap 150 or more cost friendly.
We expect to continue to invest in research and development.
Adequate R&D is vital to driving our differentiation the.
The rap culture is about commitment to excellence and market leadership.
This includes future development of next generation, while our apps, our wrap reality platform or any other new police technology products that fit within our mission.
Now a couple of points on our bowl wrap 100 model with the release of the $1 50.
We have managed our inventory levels over the past couple of quarters in anticipation of the bowler F. 150 launch we discontinued manufacturing of the bowler at 150 100 over the summer and expect to sell through our remaining inventory over the next few months, we will continue to support the 100 into 2022, and we have implemented a trade.
Liam program for our customers, who currently have the bola wrap 100 device.
This was similar to the model used by other companies when they release technology upgrades. We expect this to be considered a nice benefit and strong customer service from police agencies, we've done business with.
Our other key product is rap reality, we made notable progress growing awareness of this newer product offerings during the quarter, while we make outreach sales efforts, we're receiving up multiple referrals and inquiries about this important product from a global audience.
Our rap reality training platform is robust and our objective is to become a global leader in this industry for law enforcements virtual reality training.
To do this we are implementing a gain based learning model to our approach.
This game braced game based learning model is more intuitive to the generation of recruits are currently entering the national police academies.
Thus it is easier for seasoned officers to engage.
Our virtual reality modules, our immersive interactive and accessible to training of all levels or duty of tenure.
We have training officers direct control over all of the elements in the scenario, allowing them to lead trainees through different variations and outcomes with any single scenario.
We believe this leads to the best retention of the learning objectives. So just like a video game, where several scenarios can play out within a single game the modules for our training operate in the same way.
Examples of these different scenarios options could include is a day or night, how many characters are there what type of situation or are you in and which tool are you using the last one is very important we not only provide training modules for the bowler wrap but we also train officers on the many tools as well as verbal commands.
Different situations call for different tools, and we want our virtual training to be versatile and comprehensive.
This is vastly different from existing police training platforms, which are static predictable and can result in going through the motions.
Our goal is to Incent officers to train more often which will lead to better application of the desired learn behaviors wrap realities mission is to provide training for any possible scenario, a police officer might encounter during the course of their career.
I'd like to give you a real life example, one of the modules and our current library trains officers on how to deal with the suspects who appears to be a non-violent, but is ignoring verbal commands.
All of our scenarios. They can proceed in a variety of directions, depending on the decisions being made by the officer such as de escalation through careful communication.
Use of a bowler rap chemical spray or any tool based on the objective being trained by the instructor.
We firmly believe safer policing starts with training.
We continue to be amazed by the fact that some professions such as hairdressing have more annual training options and police officers.
We look at the continuing education of some other professions, which are defined annual requirements based on time spent and where content covered.
We see police training headed in this direction and even beyond since People's lives are at stake.
Moreover, we recognize that doing this is the most effective form of training as compared to the classroom model.
Rap reality combined with our bowler App device creates a platform to provide our sales team and district distribution network with a highly complementary product portfolio to offer agencies.
We believe this is leading to a synergistic opportunity for training and field operations when selling the agencies.
Reverting back to our board business in the United States, We continue to focus our sales efforts on all sides of agencies. However, we still see a heavier weighting of sales orders coming from smaller agencies with 100 officers are less since they typically have a shorter sales cycle due to quicker approvals, we continue to add new agencies.
Who have full wrap devices during the third quarter, we added just under 18% more new agencies to finish up more than 940, who have our products.
We have a large and growing agency base, which is already familiar with our company and the bullet wrap 100.
The all new bowler wrap 150 is the perfect catalyst for a follow up call and is fertile ground for the introduction of our addition to newer rap reality system.
Our investment in our international business continues to pay off as well.
Although the Covid headwinds and government shutdowns remain a factor in countries outside of the U S. Due to surges in cases and ever changing travel restrictions.
The ability to conduct virtual meetings and virtual demonstrations has been helpful. In starting an initial dialogue, but onsite demonstrations remains important to reaching order placements. We will continue to travel as much as safely possible, while following local and international guidelines. The international market is important for wrap due to it.
<unk> and consolidated decision, making with a typically nationalized process compared to the 18000 plus decision makers here in the United States.
As I've said in the past the international total addressable market is 12 times the size of the U S market.
Actually as I alluded to earlier, we just received our single largest purchase order ever and it came from an international customer.
The final key highlight from the quarter that I would like to touch on is my senior leadership team is now in place over the last few months. We have added several key executives to help drive the business in areas such as operations training and international sales. Our team is seasoned with an incredible amount of diverse experience both from wind within and outside.
The industry.
In addition, we have bolstered our engineering team with additional talent, we are positioned well and I look forward to our team's performance together over the coming months with that I'd like to turn the call over to Jim Barnes to discuss our financial results.
Thanks, Tom I'll move straight into discussing our financial highlights for the quarter first we generated $1.8 million in revenue for the third quarter.
That represented 79% growth over Q3 2020 inner.
International revenues represented 42% of third quarter, 2021 revenues compared to 70% for the third quarter of 2020.
Revenue for the first nine months of 'twenty, one increased to $5 3 million, a 109% increase over the $2 5 million for the same period of 2020 International revenues represented 48% of our 21 year to date revenue compared to 72% for year to date 2020.
Domestic revenues grew by 296% over the prior year driven in part by bowler App success stories documented on body camera footage.
These results also show that our 2021 international business has faced significant COVID-19 headwinds over the past four quarters, we have consistently flagged that our revenue growth could be lumpy as we balance COVID-19 related travel restrictions and limitations.
This is particularly true with our international business that tends to be large national law enforcement agencies as as the end user.
But overall, we are focused on managing our business for continued growth, especially with the October launch of the bowler F 150.
Our gross margin for the third quarter was 79% compared to 32% for Q3 of 2020.
As a reminder, in the second quarter, we incurred a planned line exit expense up to $747000 preparing for the $1 50 launch this impacted year to date margin, which was 38% without the one time charge. This compares to a 34% for the same prior year period.
We expect the amount of $1 50 will have higher margins that will be realized in 2022. After a startup period and after phase out of the model 100, but near term margins are difficult to predict and could be lower due to the product transition and the effects of sales channel and product mix. In addition.
I'd like to make a few comments about our global supply chain challenges facing us while we assembled product in Tempe, we rely on global suppliers, while most of our components are small and can be air freighted without undue costs impact, we do face availability risk since the amount of $1 50 includes.
Electronic components laser in battery materials, we proactively plan, our materials inventory and work to diversify our suppliers. This may result in higher levels of raw material and parts inventory from time to time intended to ensure we meet planned production needs, but we are at risk for.
Shortages and the unexpected delays of key components that could impact future results.
R&D expense was $2 1 million for the quarter compared to $927000 last year, the increase related primarily to increased staffing and outside consulting costs, along with cost a bowler F 150 development and other research initiatives future.
Future R&D costs will fluctuate primarily due to the timing of outside Belmont costs, an important research initiatives SG&A expense was $4 7 million for Q3 and included $1 1 million of noncash share based compensation costs.
Our main SG&A investments are focused on sales demonstrations training and product awareness efforts targeting our worldwide customer base, we have been able to decrease our expenditures on promotional costs as bowler Apple awareness continues to grow and law enforcement use use.
The utility of our early intervention solution, our balance sheet remains strong with approximately $40 million of cash and short term investments to support our growth needs with that I will turn the call back over to Tom.
Okay.
Thanks, Jim as mentioned earlier, we grew U S agencies with trained instructors to just over 940, that's up nearly 18% from the second quarter and over three times, our number from a year ago. This is a leading indicator for our sales team.
We have now certified 3250 officers to train their departments, which is up 16% from the second quarter and 194% increase year over year.
As of September 30th 2021, we have products in 49 States and 50 countries. We believe 50 countries is an important milestone for our young company.
We are already seeing early repeat orders and this will accelerate.
As always my final comments are directed to our team here at rack.
Thank you for your time and energy to help drive our mission what we do is bigger than any individual we are helping create renewed faith in one of the most needed and noble her fashion in the world. It has never been harder to be a police officer, then in today's world that needs to change the men and women, who devote risks and sometimes sacrifice.
<unk> their lives to protect our communities need to be supported.
At rap, we are making a difference one agency at a time.
It is always easy to point out problems wrap is focused on providing a platform of solutions to help law enforcement and their communities solve these problems right now I invite you to watch a short video highlighting our activities during the third quarter. After the video Paul will moderate our question and answer session.
Okay.
Uh huh.
Yeah.
It's the latest tool available to department as a D escalation tactic that could help de escalate a temperature range. This last though like tool acts as a set of remote Hancock and device that's not as intimidating I think either or pepper spray, it's an electronic they tool that uses cord and fish hooks to stop somewhere.
A lack of data from them think about it.
They are designed to help us. She denied this may look like a gadget built for spies, but the blue rapids, helping improve police work across the country hopping a suspect from up to 25 feet away. While also minimizing pain can help officers safely and humanely detained suspects.
Yeah.
So you can't go back there.
The city of Miami Police Department, a Saturday to a tool to help capture suspected criminals and a non violent manner 13, Colorado agencies, including the Greenwood village beliefs and purchased a new device that's meant to be pain.
Arm suspects Hillsborough County Sheriff's office that they will use our new non lethal tour de escalate dangerous situations.
Yeah.
[music] Preston Police Department has entered into a virtual reality program VR technology of note is graded by <unk>.
Any named morale and as a fully immersive state of the art stimulating that offers real life situations for law enforcement officers, who did it.
Assessment of some of the products out there and by far rap reality with the best product on the market for us.
It seems like technology is also sort of more accepted as a means of training.
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Okay.
Yes.
Okay.
Yes.
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Police officers reduce past due a disorder objected the swing item.
Vehicles are passing by that person.
The individuals.
Hi area and in the video you can see he tried to take a step cost looking down at Mueller rack to figure out what's going on they get officers the time and opportunity to move in quickly and placed them in the handcuffs without anyone being in there was no resistance.
I'm going to handcuff no injury to the officers no injuries to the effect.
And everyone's got to go home, a happy and healthy.
Well that is such a great video. Thank you to our marketing team for putting that together. So now let's move to the Q&A with Tom and Jim as we've done in the past we will start our question from our three analysts who are currently writing research on it then after they have finished.
We will answer the questions that have come in from those on the call.
If after the Q&A session. Your question has not been addressed please send me an email or give me a call and I'd be happy to answer it my contact information will be available on the left side of this call with that being said our first question will come from Gregg Gilbert from Northland Capital markets. Please go ahead Greg.
Hey, good afternoon, guys. Thanks for taking the questions.
First in terms of the amount of demos or quotes that you guys are giving on a quarterly basis is that still trending higher sequentially.
Just trying to understand if metrics are still ramping there and if so what do you attribute the sequential decline in sales too.
Yeah, It's a great question and the short answer is yes, we did see a slowdown between July and August when that first Delta Varian came into kind of hit the market people were doing vacations, it's really slow Europe shuts down for the month of August. So I think that's really what attributed to the slowdown that we saw and then obviously domestically that.
To do really well for us I was very pleased with what happened in the domestic market we are seeing an.
An increase in the number of inquiries for quotes are again, it's changed that conversation to.
Seeing all the body cams that we have out there from before and then internationally, we get a lot of information coming you know that they're seeing more and more information on how it's being used here versus elsewhere and that's what's I think we're really driving a lot of this but it certainly impacted us over the summer and then we were really focused on the transition to the bowler at 115.
So that's something that we were really spending a lot of time on and that's what really.
Keeps us going but we are seeing an increase we're doing now it's almost a training a day now.
I mentioned the number of agencies that are getting trained over 940. The number of officers over 3250. Those are all the trends that really are setting.
The future performance for us on where I think we're going to end up at so we do see it continuing to increase.
Okay, great and.
Nice to hear that you just received the single largest purchase order to date.
Is that do you expect that to be recognized in Q4, and then how should we think about kind of gauging the size of that order yes.
Yeah, Great question. He was actually really nice because our single previous biggest order was back at the beginning of August we announced and then this one was a exceeded that order are we.
We expect it to go in Q4, and Q1 is just going to come down to timing of the production in all of those types of things. So that's why we're taking a conservative approach with it to say Q4 and Q1.
And it is for the below 100, so it's something that we've been working on for an extended period of time and it was really nice to get that over the goal line there've been some delays obviously with that that we were hoping it would come in sooner, but we do think it's going to be a Q4 Q1 slipped just like the one we announced earlier this year was kind of a Q2 Q3 split.
Okay got it great and you mentioned.
Margins.
Being higher for the new 150 device versus the 100 model, but probably not till 2022.
Do you expect there to be any other impacts on financials, just on the cost side of the equation.
And then how I guess, how should we think about kind of the difference in margins between the two devices.
Yeah. So we are I have been talking about margins and our goal of getting above 50% in 2022, and it's because we knew that the $1 50 was coming that's really what's been setting us up for that so I don't think it's going to really impact much in Q4, especially with this large international order being below 100, the gen. One but 2022 were.
We're very excited about the margins that we're seeing.
Even better than the expectations I originally had so we do expect that to start rolling in next year, but I think it's gonna be a blend and a crossover is as to how many people stay with the first generation versus move up to the second generation and I think you know again from my history I've seen this before because what the first generation really did for US was to establish the market that this works that piece.
Wanted and now we came out with Gen, two which incorporates a lot of the feedback that people were asking for meeting customers, it's getting the margins where they need to be it's mainly it was designed for manufacturer was designed by the officers and Gen. Two being 20% smaller and lighter really answered a lot of those questions and again I've lived this before I saw what it did for us and that's.
What I'm really excited about for 22 of them it really having an impact on those margins.
Okay. Thank you I'll pass it on.
Okay. Thank you Greg very much. Our next question will come from Jon Hickman from Ladenburg Thalmann go ahead John.
Can you hear me okay.
Yes, Sir we found them okay.
So the new 150 is powered by electronics airbag technology.
<unk>.
In my mind, it should be regulated by the Etfs anymore.
Can you guys comment on that.
Yeah, It's a great question and that was actually the hope when we were really were originally designing us because it's regulated under a different category. So when we went through the original process of development with this we still did have to go back and check with ACF to make sure that they were going to not cover us under the National firearm Act, but because.
They are so backed up there are literally telling us. It's a 12 to 18 month timeframe for them to be able to give us. The decision. So we did that back in the spring and so that would tell us we're gonna here sometime in the spring of 'twenty two to about a year from now and of course I asked but with this new technology can we go ahead and assume that it's not.
Going to be covered under national firearm acts on the answer was no. So actually the answer was you guys make the decisions when talking with counsel and they said the best approach for US conservatively was to keep selling at the way we're selling it today with the same process in place and then if we do get the ruling that we're hoping and expecting then the ATF Reese.
Frictions would go away on the firearms side, and we would be a it would open up private security and all these other markets for us but.
Right now because we don't have a definitive answer from ACF, we're taking again.
Conservative approach in making continuing to sell it the way we did with the first generation.
So youre seeing theres, a chance that you'll still be a firearm.
There there is a chance there if ACF because we're under their explosives division with the current technology and we would be under the national fire Mac, both within a T. F. So it doesn't make any sense to me that that would be the case.
The explosive side is clearly the precedence here however, because our previous device was under the firearms division. There is a possibility that they can cover a son or both.
I don't rule anything out when the government is going to make a decision, but we're hopeful that they will let it stay with just explosives.
So.
So if they if they regularly.
You as a firearm with this new technology that means automobiles, our firearms to [laughter] hearing because you're dead on on the argument logic that I had with them.
Because those are millions of them, they're used by NASA and everybody else. So that's exactly the same argument we've had with them, but that's why they can't give us a definitive answer we had to file a formal application again that was done in the spring and Theyre, just taking 12 to 18 months to respond to those.
We're continually asking but until we get a formal response when we can't we're not going to change the way we're doing it.
What happens if you sell it so anyway.
So great question, because I had the same I had the same question and what happens is if I sell it without going through the ATM process and they do come back with a ruling that.
They are going to continue to regulated there than we would have to recall every device. That's out there every one of them would have to physically come back to us we can face all kinds of really bad stuff from ATF from fines and other things.
Fines and all the other things that they could do because at that point. They would say we were selling a firearm improperly illegally.
Okay.
Okay. So.
So let's assume you get your the regulation has changed how will you fill it in.
Once the regulations change then Theres no restrictions then we don't have nobody youre not set up for that right. We would change at that point, but until that comes down we don't want to risk it or we go through the cost and prepare we've had conversations to be able to do that but right now until we know otherwise we didn't want to distract from our current.
Our plan of execution with the law enforcement markets and we've seen that overseas you know that was a big step in Canada that they are not regulated in yet as a firearm and they can sell to other than law enforcement. So we are seeing some progress in other countries that we're hoping are going to make a difference, but even up there. The <unk> 50 has to now be regulated or or looked at.
Again, which that can take another extended period of time for them to give a different ruling because it is a different device. So.
One fact comes down and they give us the decision then we'll scramble to do it but I just don't want to distract the team right now on an unknown and unnecessary time expenditure until we get confirmation.
Okay. One last question you intimated in your comp.
Procured.
Materials that there might have been some people who delayed purchase for the for the 150.
Can you.
Can you elaborate on that or quantify that yeah.
Yeah. We are you know we've had and I'll use the LAPD because that's a an agency that everybody who follows that approval was given back in may to start the trials and they had some definite requirements in those trials that they wanted to see them improve battery life and lights on the device. So we had been obviously in conversation with them and the reason there.
The trial has not started yet because they don't have the devices out there. So we've seen them delay as an example in starting this process. We've seen some other agencies that just that when they took a look at it they knew that Elliott made some requests.
Whether they were talking with them I'm not sure, but we certainly have had some customers that in the voice of the customer program have made requests to us, but those requests were incorporated into the polo wrap 150, and now it's given us the chance to go back to them and some of those agencies. You know again, they were very anxious for us to get out the new device and.
Now it's restarted some of those conversations.
Yeah.
Okay. Thanks.
Thanks, John Yes, John Thank you very much for those great questions. Our third analyst as Allen Klee from the Maxim Group. Please go ahead Alan.
Good afternoon can you talk about the steps, you're taking to overcome international headwinds, perhaps a little bit maybe how you're using them.
Dealers.
And as partners and then also.
Kind of a best guess on the timing to get the international markets to improve to levels that you would expect them to be at and in more normal times. Thank you.
Yeah. Thanks, Alan So some of the things that we're doing and I can use the recent trade show that just happened Millimole that was in Paris as a matter of fact, it was last week. It was very challenging and almost impossible for us to go and attend with all of the requirements to get over there. So in building our team in London with Jag Gill with Becky Newman, who just joined us.
We're getting a you know where we're taking steps with people out in Europe. The thing can go on traveling going to tend that trade show. So I didn't go nobody from the U S. When we had our European team attended that and if you noticed during the quarter. We you know in Italy, Denmark and some of the other Belgium countries, we actually are using the team that.
We're building in London to help service the European markets because of travel restrictions aren't as.
As difficult as they are here as in the Middle East, that's still up and down on the travel. So really it's it's I wish we could predict when it's going to change, but we are trying to supplement with different members on the team that are in different locations to try and travel.
And then.
Through the zoom videos and the virtual conferences for example, this order that we just got this week, that's something that we've been working on for quite a while but we haven't visited that country in over a year and so all the work was done by the distributor on the ground with the government through the tendering process and that's how we're also seeing some of these other countries and.
It is a challenge to get their attention when they're dealing with with COVID-19 or the different scenarios that are out there, but we are seeing our distributors still being able to move these programs forward and that's you know it was really exciting to get a big order in in August and then this order come in this week to be able to announce it because those are things, we've known about and getting them over the goal line.
It is ultimately where we want to be.
That's great. Thank you.
You mentioned, so help us understand the process of.
No.
Working down the inventory on the polo wrap 100.
How long do you think that takes and then the potential impact of that I think you said trade ins, but how does it how does that work in terms of the impact on the financials.
Yeah. So one of the things that we had to do as we were preparing for the for the $1 50 as a team is we were starting to get a lot of restrictions on components from the below 100 or earlier in the year in the first half of the year. So at that point, we had to make decisions and we have actually stopped purchasing a bunch of those components, but we had we built up the raw inventory to make sure when carriers now.
Only through the rollout of the new boiler 150, but also into supporting it into next year for agencies that have that device that don't necessarily want to change to the $1 50 right away.
I can tell you. This large international order that went with the <unk> the first generation below 100.
It certainly has changed the dynamic because they took a lot of the inventory and 500 devices and 50000 cartridges. Because we had obviously been building. Those ahead of time, because we transitioned our production over the summer to shut down the 100 line and put the 150 line in place. So it's been a quite a group effort to make sure from supply.
Change to operations to sales and manufacturing.
To keep everything together, because we didn't leave and let the sales group know the official launch of the $1 50 until it was literally out there and a lot of them watch the the official video on October 12th because it was the timing we're still unsure so we built up on the inventory you'll see the raw material or the finished goods inventory I think will change obviously with these orders coming in in that inventory.
Tori dwindling down but at the same time with some of these supply chain challenges one of the ways. We're mitigating that as the buy ahead on some of the materials for the below $1 50, So you'll see a change between finished goods and raw materials as we are transitioning from the 100 to the $1 50.
Okay.
Last question I mean, if we're looking over the next three to six months, what would you say would be the key things that we should be focused on as potential data points and catalysts for for your company.
Yeah. So when I look at is the continued site the tip of the spear for me is the instructors right. There's continued number of instructors increasing because they're the subject matter experts and the agencies that are going to communicate with this command staff as well as with their communities on what Theyre doing so obviously, we get a lot of media attention around that seeing the number of demo.
And trainings converts I'm seeing the number of trained departments increase because that numbers you know several hundred ahead of the agencies that have already purchased so those are the things that we're going to watch like we for example, just last week had our master instructor score when you brought out over 50, their master instructors and necessarily in one week to get them all trained on the new debt.
So that we can rollover very quickly and start doing the demos and trainings for the second generation technology, and then obviously getting the international border was fantastic for us to continue to continue to see that market grow.
And then just it's blocking and tackling of of the growth and the continued expansion of trainers agencies using this body camera is coming in.
It's really it is wrapped two pointed out what is the next generation of the company as we expand in this new generation technology, which is literally the responses are just amazing from people that are that have seen the device and its answered a lot of the questions that were nice to haves not need to haves and I think that's what's also going to change the dynamic because we get it out there.
Because there was a lot of little tweaks behind the scenes that don't make it to the so the spotlight that really make a difference in that technology and again from my from watching this 20 years ago and what Gen. One to Gen. Two did forest my previous group I am I'm, hoping and expecting we're going to see that same change here within the law enforcement community and the response has already been indicating that with people that.
It came out last week sight unseen never having seen it and gone through the training just rave reviews on it. So I think that's those are the things are going to want to watch it and then you're going to watch next year those margins start to tick up because that $1 50 is set that expectation. It's been a goal internally, but we can control to get the margins to increase.
Q4 is going to be obviously impacted with this large first generation order by the end of 'twenty two as we get into the new generation Youre going to see those margins starts to change and hopefully quite a bit.
Okay. Thank.
Thank you my last question and I know, you don't give guidance, but it sounded like.
Some of the headwinds that were in this quarter such as.
The peak in the Delta variance and the summer slowdown and in Europe.
And transitioning your product it sounds like some of them were should lessen in the fourth quarter.
All else being equal so that there's a potential of the stronger quarters is that a reasonable way to think about this.
Yeah, I certainly hope so I mean, another thing that affected us in the third quarter is the biggest law enforcement trade show and in the U S and one of the biggest in the World. The International Association of Chiefs of Police conference ended up having a hurricane hit New Orleans, so they canceled that trade show. So there's there's certainly been a number of different dynamics that have affected the market.
And at a bunch of the headlines from other companies supply chain, that's why Jim talked about that as something we're keeping a close eye on but I do agree that as we try and get COVID-19 hopefully to get a little bit more control in these states will allow us to keep traveling and then internationally as we've got you know Jag Becky Alex in the group over there and the distributors that we were.
I do expect us to continue growing but I just don't know what the future holds with any of these challenges from from this pandemic are or are the travel restrictions that may or may come come or go.
Thank you very much.
Thanks, again, Alan and thank you again to all three of our analysts that are covering US right now at this time I would really appreciate your support.
We do have a lot of questions that have come in and they try to get to some of a lot of them have been overlap with some of the analysts as well Tom.
Tom or Jim do you want to give any further update on kind of the LAPD trial, where it is now what devices and you know when it's going to start and when do you expect it to end.
Yeah. So as I mentioned the approval came back in May obviously, LAPD has been working with us on the on the below $1 50, a they have the devices. They're planning a I believe is going to be to start rolling that out in late November and December and then the original trial was given for a year. So we do talk to them on a very regular basis.
They're very involved in what's going on but we do expect that trial to start before the end of the year as there as theyre getting that program up and running and then it would take.
Hopefully less than a year, but the plan would be 12 months from that point once they actually get the two precincts and all the officers trained it out on the streets with the bowler App.
Alright, great. Thank you a few questions are coming in about our monthly burn maybe that's a question for Jim what is your monthly burn and you expect that to stay the same go up go down.
Over the next few quarters.
Our cash operating expenses in Q3, we're actually.
Down from Q2, and we expect.
In the near term, we'll be adding a few people that are cash operating expenses.
We're running about a half dollar per month.
Cash burn.
At a time when we don't see huge increases in that.
And the foreseeable quarter or two.
Next year, we can expand further you would expect.
To wrap.
And continue our growth curve.
Alright, Thank you Jim.
He is a good one how do you typically get the body Cam videos from police agencies.
Yeah. So when we are conversing with the police departments through training and continual conversation and sending them new materials.
We do have.
Request that they send us in field used for ports and field. These data. So we don't always get body cams with them.
Or if there is a body camera Alaska, they can share that with us because we can use it for training purposes. So it's just through a converse day, a continual conversation, sometimes we've offered to to give them some equipment to help get.
The body cameras, but it's really been around the training tool that we can share with other agencies. So they can see how that works.
And then be able to share that with everybody. When it gets released publicly so each agency different the smaller ones move quicker, which is what we talked about and that's how we've received so many so far.
Alright, perfect. Thank you.
With all the recent hires what is your employee head count currently and do you see this change and do you have any opposed to build either management or in other positions within the company.
So right now we're about 50 people.
Plus or minus as I said on the on the prepared remarks, where we're confident where we're at on the command staff. So as we grow we'll address it there but right now we feel really good you know it might be a couple of people here and there and we are going to add to our team in rap reality now with Clark on board, especially on the development side to address some of the roll out there that we've been doing with Amazon Web service.
But right now we're right around 50 50 employees here at the company.
Lot of questions have come in about Covid, and how it's affecting us internationally.
Seen glimpses of it opening up or is it still pretty buttoned down internationally, how your international salespeople traveling or doing a demonstration of their presentation to the different agencies or distributors overseas.
So within Europe, we've seen obviously a lot of the European community they've been able to travel over there. That's one of the reasons, we added with Becky Newman coming on with Jags with Alex that they've been able to go to Italy, they've been able to go to France, they've been able to go to Denmark, Finland, a number of different countries. So within the European area. We've seen at other parts as I mentioned Asia and the Middle East.
There've been a lot more restrictive in terms of the travel so we haven't been able to really make it to those parts of the world yet.
And hopefully if this variant settles down and.
We will open up and we can start really hitting those areas as well.
Alright, Thank you Tom.
Maybe one for Jim is that this wasn't just given last quarter you had some cash come in from the exercise of the warrants you have any other warrants out there that can still be exercise.
Yes, we have about $1 3 million in warrants that.
Due in middle of next year that could provide about $8 million worth of additional proceeds from others.
Those but we have sufficient cash to manage and finance our growth and our continued operations for.
Approximately two years or more so we're in pretty good shape as a young company and to manage our growth.
Great. Thank you Jim a few of them coming in wanting to civilians to purchase I know, we've kind of talked about that with Jon Hickman with the ACF, but when were civilians to be able to purchase our device.
We do get a lot of inquiries from the civilian market as well as private security, but until we get that rolling back from ACF on.
From new firearms brands, whether they're gonna continuous in that or not and let us just stay with explosives right now with this generation we have to wait for that ruling to come in so in the foreseeable future. There is no plans outside of what we're doing today with law enforcement, but in addition to the waiting for that ruling from ETF. That's something we're obviously, taking a look at in the R&D area as they they continue.
When you look at the next generation technologies in the future.
Perfect. Thank you.
Interest of time, I think we have a couple more questions I will get to right now.
Here's a great one what is your next device coming often you plan to upgrade.
A great question, we get it all the time and as you can tell we're very quiet about it just like Apple does.
Telling anybody at a time, we're not going to be saying anything in terms of when that type of technology is coming out, but obviously with this one just hitting the market the previous device hit production a little over two and a half almost two and a half years ago. So there is a cycle between them, but we don't give any real advancements on when the next tax coming and we're super excited with the below 150.
It answers so many questions. So many requests. This is for me previously what really took off was to really set us on the map and you know at the previous company and I believe this will help to do the same here. So right now we're just focused on getting the 150 out getting it into production and getting it out to our customers.
That actually leads me to the last question Tom a couple of people actually ask what makes you most excited about the 150 product.
Well it was a long time coming and I'm not gonna why there was a little bit painful, but it's now that it's out there. It's so exciting because it reminds me of just beige AVO of what happened to US last time, you know we established that the market's there we're seeing the body cams.
With a lot of the questions as I said before they've gone from how does this thing really work to now, saying, Hey, I saw a body Cam that was really similar how do I get it and now they get this device in their hands that really feels good it operate super simple. It incorporates a flashlight incorporates all the changes that they wanted to see there even with a cassatt now being made of plastic and the big.
<unk> impact is that we were able to keep the price constant we didn't have to increase the price just because we incorporated all this manufacturing technology and all of this technology into the device itself to make it Super simple for the officer in the Street.
That was really really important that was one of our biggest design goals was to make sure. We didn't have to increase the price on it and then allow us to also see the margin increases that we want and expect of ourselves. So those are the things I'm really excited is now that the market. We've got the whole 150 here. It was just announced two weeks ago and the response has been tremendous with our instructors last week.
You've seen that on social media. So keep following is there as the agencies now start to see it and get it in their hands in the field.
Give us that same feedback that I'm expecting and hoping for.
Great. Thank you and thank you everybody for attending and such great questions. I know I didn't get to all of them again, please reach out to me via email or by phone number will be on the last night as well.
Thanks again for all the questions that came in they're great questions. We appreciate it so with that I'll turn the call back over to Tom for his closing comments.
Well, thanks, Paul and thank you all for joining us today to review another quarter of continued innovation in community policing solutions. We look forward to the launch of the whole 150 is the next step in ensuring our officers have the best tools to protect and serve our communities I Hope you felt our excitement for our enhanced updated device a rap reality in the future of wrap technologies, we have the privilege and honor to be at the <unk>.
Front of incredible opportunity to radically change the world of law enforcement for the better and we will continue our steadfast progress towards achieving our goal of setting a new standard and first level response tools with the <unk> family of products and industry training with rap reality.
Every employee from a great production line workers to senior management continue to be deeply passionate and driven to achieve our goals.
Hope you and your families have an enjoyable and safe holiday season, and new year and I look forward to our next webcast in early March when we will provide you with our Q4 in 2021 2021 yearend results and updates. Thank you again and have a great evening.
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