Q3 2021 Digital Ally Inc Earnings Call

November 17, 2021

This conference contains forward-looking statements within the meaning of section 21 E of the Securities Exchange Act of 1934, as amended relating to Digital Ally's future business expectations, and predictions and financial condition and results of operations. These forward-looking statements involve certain risks and uncertainties. Digital Ally has listed some of the important factors that could cause actual results to differ materially from those discussed in such forward-looking statements, which are referred to as cautionary statements in its earnings press release, which can be viewed under the company's website. All subsequent [inaudible] forward-looking statements attributable to the company appraisings acting on its behalf are expressly qualified in theory entirety by such cautionary statements. I would now like to turn the call over each on speaker today, Stanton Ross, you may begin.

These forward looking statements within the meaning of section 21 E of the Securities Exchange Act of 19th 34, as amended relating to digital allys future business expectations, and predictions and financial condition and results of operations.

This forward looking statements involve certain risks and uncertainties.

Digital ally has listed some of the important factors that could cause actual results to differ materially from those discussed in such forward looking statements, which are you afraid to as cautionary statements in its earnings press release, which can be viewed under company's website. All subsequent re Senate oral forward looking statements attributable. Container company Appraisings acting on its behalf are expressly qualified in theory entirety by such cautionary statements I would now like to turn the call over each on speaker today, Stan Ross you may begin.

Container company Appraisings acting on its behalf are expressly qualified in theory entirety by such cautionary statements I would now like to turn the call over each on speaker today, Stan Ross you may begin.

Thank you very much and thanks, everybody for joining us. This is going to be quite an exciting call. We're very excited to be able to go over and recap the third quarter numbers with you. Tom Heckman, our CFO is here to do that. We also want to have the opportunity to, I guess really for the first time, to elaborate a little bit on the acquisitions that we've made to date. Including give you some insight on valuations associated with those acquisitions. And then also to give you some insight in regards to how we see the remainder of this year playing out along with 2020 and 2022 in regards to new products acquisitions and stuff that we have along the lines.

Able to data to be able to.

Go over and recap the third quarter numbers with you Tom Heckman, our CFO is here to do that.

We also want to have the opportunity to I guess really for the first time to elaborate a little bit on the acquisitions that we've made today.

To date.

Very.

Give you some insight on valuations associated with those acquisitions.

And then also.

To give you some insight in regards to how we see the remainder of this year playing out along with <unk>.

2022 in regards to new products acquisitions and stuff that we have along the lines.

And then we're going to close with, as we haven't done some time, but because of the clarity, I think of where we're at and what we have to offer, we'll give you guidance on what we believe how our fourth quarter will come in and then also guidance on 2022. Right before we closed up to go into the Q&A. So a couple of exciting things to cover today, but let me, let's get started with the third quarter numbers with Tom Heckman.

What we have to offer we'll give you guidance on what we believe.

Our fourth quarter will come in and then also guidance on <unk>.

2022.

At.

And right before we closed up to go into the Q&A. So couple of exciting things to cover today, but let me, let's get started with the third quarter numbers with Tom Heckman.

Thank you, Stan. And welcome everyone. I appreciate you joining us today. We will be filing our 10-Q shortly so please review the 10-Q for a more a complete discussion of what happened during the quarter. We did really do a press release, this morning, and showing our third-quarter financials, which really is the first quarter that everyone can see the results of our new strategy of acquisitions, and not just relying on our core business the video segment and shield segment. Just as a recap when COVID-19 hit it really had a damaging impact, especially on our commercial video segment. The cruise lines shut down taxi cabs pretty much shut down. And so forth. So through the board and Stan's leadership, we decided to go out and embark on an acquisition strategy to diversify somewhat away from our core business, not that we're not going to focus on the core business, but we wanted to grow the company by accretive acquisitions. And we did finalize our three acquisitions here year to date that we'd like to go over a little further. Our overall goal through these acquisitions is we look for companies that can benefit from our corporate infrastructure, our access to capital and our synergies and leadership. And as we get deeper into the acquisitions that we've done, I am hopeful that you'll see the type of synergies and in infrastructure and capital access. How that's going to impact positively the acquisitions that we did as well as our consolidated company after the acquisition.

We will be filing our 10-Q shortly so please.

Please review the 10.

For a more.

A complete discussion of what happened during the quarter.

We did really do a press release, this morning, and showing our third quarter financials, which which really is the first quarter that everyone can see the results of our new strategy of acquisitions.

10-Q, not just relying on our core business the video segment and shield segment. So.

Just as a recap when COVID-19 hit it really really had a damaging impact, especially on our commercial video segment.

Cruise lines shut down taxi cabs pretty much shut down.

And so forth so.

That and through the board and Stan's leadership, we decided to go out and embarked on an acquisition strategy to diversify somewhat away from our core business not that we're not going to focus on the core business, but we wanted to grow the company by.

And so accrue.

Accretive acquisitions, and we did finalize our three acquisitions here year to date that we'd like to go over a little further.

Our.

Our overall goal through these acquisitions as we look for companies.

Companies that can benefit from our corn.

By infrastructure, our access to capital and our synergies and leadership and as we get deeper into the acquisitions that we've done.

I am hopeful that you'll see the type of synergies and in infrastructure and capital access. How that's going to impact positively the acquisitions that we did as well as our consolidated company after the acquisition.

How that's going to impact positively the acquisitions that we did is.

And so our consolidated company.

After the acquisition.

If you look at the acquisitions, we really did two different areas. First was the health care division. And that that is really a medical billing service, where they bill doctor services, hospital services and really just professional services. It's a roll-up strategy, it's a very steady business. It's a very fragmented business out in the marketplace right now. In fact, we're seeing over 6000 individual companies out there, no companies with over 5% of the total business. So it is an area that we believe is ripe for. Consolidation and doing a roll-up strategy. We did two acquisitions, one closed on June 30th. So it wasn't in the last quarter in terms of balance sheet, but we had no revenue impact or operating impact in the second quarter. We had all three months in the third quarter and then we did complete a larger Health Care Act was medical billing acquisition on September 1st. So we only had one month of operations from that and that was three times the size of the first ones so.

And that that is really a medical billing service, where they bill Doctor Services Hospital services.

Really just professional services.

It's a roll up strategy strategy, it's a very steady business.

It's a very fragmented business out in the marketplace right now in fact, we're seeing over 6000 individual companies out there no no companies with over 5% of the total business. So it is an area that we believe is ripe for.

Consolidation and doing a roll up strategy. We did two acquisitions one closed on June 30th So it wasn't in the last quarter in terms of balance sheet, but we had no revenue impact or operating impact in the second quarter. We had all three months in the third quarter and then we did complete a larger.

Health Care Act was medical billing acquisition on September 1st. So we only had one month of operations from that and that was three times the size of the first ones so.

Three times the size of the first ones so.

We were successful in doing two acquisitions there. The second area is a much bigger company and a much bigger acquisition. It's TicketSmart.com. And for those of you that don't know who TicketSmarter.com is, we hope you assume will number one but it is an online event ticket marketplace. They use the website to distribute sell tickets. They do sponsorships with conferences, Bowl games, NFL teams. NBA team, so on and so forth. And create a marketplace for their tickets. As you might expect COVID-19 damage that business terribly in 2020 and then shortly into 2021.

A much bigger company and a much bigger acquisition.

It gets smarter dot com.

And for those of you that don't know who tickets smarter dot com is we hope you assume will number one but it is an online event ticket place tick.

Ticket marketplace.

They use the web site.

To distribute sell tickets.

They do sponsorships with with conferences Bowl games.

NFL teams.

NBA team, so on and so forth.

And create a marketplace for their tickets.

As you might expect COVID-19 damage that business terribly in 2020.

2020, and then shortly into 2021.

We've been talking with the TicketSmarter for some time. And looked at it and really liked what we saw. That business has done 15 to 20 million annually in revenues in the past, but with COVID, the business was obviously damaged seriously. And they really were in need of working capital a little bit of infrastructure in that so we were able to complete that acquisition. From a revenue standpoint, you'll notice how much of an impact these acquisitions have had especially TicketSmarter. If you look at TicketSmarter, TicketSmarter was our largest segment. And there was only one month of activity in the third quarter, but yet it produced more revenues than any of our other segments, including the traditional video segment. It produced $2.1 million of revenue in one month's time. So you can kind of see the run rate that TicketSmarter is going at.

And looked at it and really liked what we saw that business has done 15 to 20 million annually in revenues in the past, but with Covid the business was.

Obviously damaged seriously.

And they really werent need of working capital a little bit of infrastructure in that so we were able to complete that acquisition.

From a revenue standpoint, youll notice how much of an impact these acquisitions.

We had especially tickets smarter if you look at tickets smaller tickets smarter was our largest segment.

And there was only one month of activity in the third quarter, but yet it produce more revenues than any of our other segments, including the traditional video segment.

It produced $2 1 million of revenue.

In one month's time. So you can you can kind of see the run rate that ticket smarter is going at.

Let's look at overall revenues. Overall revenues year over year for the third quarter increased $1 million or 29%. Product sales however were down 1.6 million, but if you look at prior year products sales included about $1.1 million. ThermoVu sale in it that really did not it was a kind of a one-time event. So if you take that out, it was still about a half a million dollar decline in product sales. We are seeing a movement from upfront hardware sales to a subscription model. So you would expect product sales to go down and service revenues could go up. And if you look at service revenues for the quarter, it was $2.7 million in the quarter, that's a 421% increase year over year. So obviously, we've seen an increase in service sales. Now, 7% of that was a video subscriptions, about $50000 year over year increase. The largest piece again was TicketSmarter because we count all the TicketSmarter revenue is service revenue. It was $2.1 million for the quarter alone and it was only one month of activity. So we're very high on that. The health care division produced $560000 worth of revenue for the quarter.

Product sales included about a $1 $1 million.

Thermo view sale in it that really did not it was a kind of a one time event. So if you take that out it was still about a half a million dollar decline in product sales. We are seeing a movement from upfront hardware sales to a subscription.

So you would expect product sales to go down and service revenues could go up. And if you look at service revenues for the quarter, it was

$2.7 million in the quarter, that's a 421% increase year over year. So obviously, we've seen an increase in service sales. Now, 7%

of that was a video subscriptions, about $50000 year over year increase. The largest piece again was TicketSmarter because we count all the TicketSmarter revenue is service revenue. It was $2.1 million for the quarter alone and it was

It was $2 1 million for the quarter alone and it was.

only one month of activity. So we're very high on that. The health care division produced $560000 worth of revenue for the quarter.

Seven the health care Division produced $560000 worth of revenue for the quarter.

The first acquisition was in place for three months. It was the smaller of the two. The second one was only in place for one month, we closed on September 1st. So really if you look into it, our revenues are running pretty steady at a $4 million annual run rate just in these two acquisitions. And we do have probably at least one more acquisition that will close by the end of the year and then several more. We're looking at closing pending due diligence early in 2022, so our roll-up strategy in health care business, our health Health care Division is really working and there are opportunities there and quite frankly, we're trying to buy those companies of approximately one times annual revenue. You know when you're generating the margins they are that that really is accretive to the company as a total.

So really if you if you.

At Intuit, our revenues are running pretty steady at a $4 million annual run rate just in these two acquisitions and.

And we do have probably at least one more acquisition that will close by the end of the year and then several more.

We're looking at closing pending due diligence early in 2022, so our roll ups.

in health care business, our health Health care Division is really working and there are opportunities there and quite frankly, we're trying to buy those companies of approximately one times annual revenue. You know when you're generating the margins they are that that really is strategy to the company as a total.

You know when you're when you're generating the margins they are that that really is.

Strategy to the company as a total.

If you look at gross margins historically, our gross margin goal has been much higher than we achieved in this quarter. But what you're seeing is the impact of the acquisitions, both TicketSmarter nobility. We had a 30% overall gross margin in 2021, third quarter versus 34% in prior year. Our TicketSmarter margins run around 30% or did in the quarter. We believe that those will improve as we get further and further away from the COVID impact and we're able to create some synergies with some of our activities at the corporate level. The nobility margins are around 35%, we expect some substantial improvement in the nobility margins, nobility is our Health Care Division.

But what Youre seeing is the impact of the acquisitions, both ticket smarter nobility we.

We had a 30% overall gross margin in 2000.

Accretive only one third quarter versus 34% in prior year, our ticket smarter margins run around 30% or did did in the quarter.

We believe that those will improve as we get further and further away from the Covid impact and we're able to create some synergies.

With some of our.

Our.

Activities at the corporate level the nobility margins are around 35%, we expect some substantial improvement in the nobility margins would nobility is our health care Division.

Because we have yet to consolidate the billing services into our platform and our people. So that's really running on the old format and platform and given time, we will get that integrated into our platform, the mobility platform and hopefully improve significantly that margin. So with that all going on, we believe that our overall gross margin will improve from 30% gross margin in Q3 as we continue to integrate these acquisitions. SG&A expense overall in 1.$9 million increase which is 63% year over year again, the acquisitions alone represented over 80,0000 of that increase. Promotions and advertising increased roughly 650,000. A part of that is tickets smarter is very dependent on digital media marketing because they are a website. So obviously there is an impact on the promotions advertising. Because of the business model that TicketSmarter has.

<unk> services.

Into.

Our platform and our people. So that's the really running on the old format and platform and given time, we will get that integrated into our platform the mobility platform and hopefully improve significantly that margin.

So.

With that all going on we believe that our overall gross margin will improve from 30% gross margin in Q3 as we continue to integrate these acquisitions SG&A expense overall in one $9 million increase which is 63% year over year again, the acquisitions alone represented.

Over 800000 of that increase promotions and advertising increased roughly 650000 part of that is tickets smarter is very dependent on digital media marketing because they are a website. So obviously there is there is an impact on our promotions advertising.

Because of the business model that TicketSmarter has.

But from a corporate standpoint, our affiliations with NASCAR or Indy car, NFL and other teams and NBA and such. We're looking at leveraging those into the ticket smarter platform and hopefully, in the near future, we will have some pretty great announcements based on how we are leveraging those activities. Other costs that went up significantly was insurance cost up almost 200,000 year over year. The insurance marketplace has really been difficult for us as a small public company. The impact that we're actually looking at developing our own captive insurance company to control and contain those costs. So we may have some announcements on that in the near future as well. Below the operating line items and we've talked about this in the past, we had $11.6 million worth of gain from the change in fair market value, the warrant derivatives again, I usually discard the impact of the warrant derivatives, because they are noncash charges and gains. And they are very unpredictable. This quarter was $11.6 million of gain next quarter it could be $11 6 million of loss. I mean, it just moves with the market. So I don't give it much creams, but that did have a huge impact on our bottom line. Net income-wise, we made $8 million for the quarter or 16 cents per share.

We're looking at levering leveraging those into the ticket smarter platform and hopefully.

In the near future, we will have some pretty pretty great announcements based on on how we are leveraging.

Those activities.

Other costs that went up significantly was insurance cost up almost 200000 year over year.

The insurance marketplace has really really been difficult for us.

Because as a small public company.

The impact that we're actually looking at.

Developing our own captive insurance company to control and contain those costs. So we may have some announcements on that in the near future as well.

Below the below the operating line items and we've.

US about this in the past, we had 11 $6 billion.

gain from the change in fair market value, the warrant derivatives again, I usually discard the impact of the warrant derivatives, because they are noncash charges and gains. And they are very

The warrant derivatives, because they are noncash.

Charge as an gains.

And there.

unpredictable. This quarter was $11.6 million of gain next quarter it could be $11 6 million of loss. I mean, it just moves with the market. So I don't give it much creams, but that did have a huge impact on our bottom line. Net income-wise, we made $8 million for the quarter or 16 cents per share.

Per share.

If you look at our balance sheet, we remained very strong. Cash balances over $41 million, positive working capital over $35 million. Our net equity is over 56 million. So our balance sheet is a strength of ours and it provides us with a great platform to continue the acquisition strategy that we've we've already implemented.

Okay.

I'd like to end with a little bit of a discussion about our special meeting of shareholders that we're going to hold on December 13th. We have issued a proxy regarding that. We're proposing an increase in authorized shares from 100 million to $300 million. I know that seems like a huge increase but the reason we're doing that is because you have to pass those sort of changes with the majority of all shares outstanding, not just shares voted at the meeting. If you look back at the results of our annual meeting, an overwhelming majority passed that Increase in authorized but it was not a majority of all shares outstanding. So we're going back to shareholders to try and get a majority of all shares outstanding which is the difficulties compounded because some of the larger brokers do not vote NOBOs, we call non-objecting beneficial owners.

Issued a proxy regarding that.

We're proposing an increase in authorized shares from 100 million to $300 million.

I know that seems like a huge.

<unk> increase but the reason we're doing that.

Is because you have to pass.

Those those sort of changes with the majority of all shares outstanding not just shares voted at the meeting.

If you look back at the results of our annual meeting.

An overwhelming majority.

<unk> passed that.

Increase in authorized but it was not a majority of all shares outstanding. So we're going back to shareholders to try and get a majority of all shares outstanding which is the difficulties compounded because some of the larger brokers do not vote NOBOs, we call non-objecting beneficial owners.

The difficulties compounded because some of the larger brokers do.

Do not vote.

Nova.

<unk>, we call non objecting beneficial owners.

So each one of the individual shareholders and their broker base. Has to vote their own shares and that includes Charles Schwab, TD Ameritrade, some of the larger brokerages that way and it really makes it difficult on getting the numbers of shares voted the was we need to. So the reason we need and want this increases. Many of the acquisitions that we have done in the past and are looking at doing in the future, the owners of the sellers in those cases are requesting or wanting at least a portion of the consideration paid in the form of common stock. So we want to have the ability to issue those shares to complete acquisitions as we see fit. Now, going from 100 to 300 million is a large job. We just don't want to have to do this every two or three years because it is a costly process. It's taken a lot of management time, and a lot of professional time to get to hopefully get this passed. So we hope everyone on the line today, we'll look at their shares in the proxy and hopefully vote along with management in the board's recommendation to approve the increase in authorized shares. So with that, I'll turn it back to Steve. Thanks a lot, Tom.

Has to vote their own shares and that includes Charles Schwab TD Ameritrade some of the larger brokerages that way and it really makes it difficult on getting.

The numbers of shares.

<unk> the way, we where we need to so the reason we need and want this this increases.

Many of the acquisitions that we have done in the past and are looking at doing in the future.

the owners of the sellers in those cases are requesting or wanting at least a portion of the consideration paid in the form of common stock. So we want to have the ability to issue those shares to complete acquisitions as we see fit. Now, going from 100 to 300 million is a large job. We just don't want to have to do this every two or three years because it is a costly process.

At least.

A portion of the consideration paid.

In the form of common stock. So we want to have the ability to two.

Issue those shares to complete acquisitions.

As we see fit now going from 100 to 300 million is a large job. We just don't want to have to do.

This every two or three years because it is a.

Costly process in it.

It's taken a lot of management time, and a lot of professional time to get to hopefully get this passed. So we hope everyone on the line today, we'll look at their shares in the proxy and hopefully vote along with management

in the board's recommendation to approve the increase in authorized shares. So with that, I'll turn it back to Steve. Thanks a lot, Tom.

We're very excited about the acquisitions that we made. And I think one of the things that I want to touch on is that when we do look at opportunities that are out there, we're looking at number one is how this acquisition we can sit there and enhance it. What I mean by enhancing it is through our contacts, our relationships whether that be with law enforcement or situational security. Or some of our partnerships that we've had over the years. And we're starting to see that rather quickly in regards to ticket smarter for sure and we know that we will get there as well with mobility on the health care. We've been very successful in selling our ThermoVus in some of our other products into very nice hospitals and clinics throughout the country.

When we do look at opportunities that are out there.

We're looking at number one is.

Is how this acquisition.

We can sit there and enhanced by enhancing it through our contacts our relationships whether that be with law enforcement or situational security.

Some of our partnerships that we've had over the years and we're starting to see that rather.

Rather quickly in regards to ticket smarter for sure and we know that we will get there as well with mobility on the health care.

<unk> been very successful in selling.

Our thermal abused in some of our other products into a very nice hospitals and clinics throughout the country.

And those are acquisitions or those are opportunities that nobility, we could make the introduction and they possibly could be able to do the billing for them. Whether they just go ahead and outright do it and handle the fee side of it. Or maybe they've already had someone and that they get defer them too. And it may be a potential acquisition for nobility. So we look at those types of things and like TicketSmarter obviously. We've talked about NASCAR, we've talked about and we've talked about the situational security we do for NFL teams again, we have some of the highest level of capability of introducing them and hopefully because of our relationships getting them the business. Of either clearly being involved in the secondary market that may be even being able to primary and that would continue to enhance their numbers. Which we believe we are seeing and then I'll elaborate on that when I give guidance here in a little bit. But at the end of the day you also we want to look and make sure we're accretive to our shareholders. And these acquisitions make a lot of sense.

The billing for them, whether they just go ahead and outright do it in the <unk>.

Handle the fee side of it or maybe they've already have someone and that they get defer them too and it may be.

Potential acquisition for nobility so.

We look at those type of things and like tickets smarter obviously.

We've talked about NASCAR, we've talked about and we've talked about.

Situational security we do for.

NFL teams again, we have some of the highest level of.

Ability of introducing them and hopefully because of our relationships getting them the business.

either clearly being involved in the secondary market that may be even being able to primary and that would continue to enhance their numbers. Which we believe we are seeing and then I'll elaborate on that

Which we believe we are seeing and then I'll elaborate on that.

when I give guidance here in a little bit. But at the end of the day you also we want to look and make sure were accretive to our shareholders. And these acquisitions makes a lot of sense.

So you have to sit there and look at okay, well, how do I compare with what's going on from private sector public sector, and who is out there? And is this really just hidden in the Digital Ally law enforcement side of the equation? And so what I'm trying to do today is to point out just a couple of and if you do your homework you can find out that there are medical billing companies out there that are in the public space and one in particular is an [inaudible] company when I'm talking about the medical billing. They go by our [1R] RCM, Inc. [inaudible] their ticker symbol is RCL.

From private sector public sector, and who is out there and is.

Is this really just hidden in the.

Digital ally law enforcement side of the equation and so what I'm trying to do today is to point out just a couple of and if you do your homework you can find out that there are medical billing companies out there that are in the public space and one in particular is.

Click company when I'm talking about the medical billing.

They go by our one <unk>.

RCM, Inc.

<unk> their ticker symbol is R. C L.

They basically are out there trading at a five times revenue number or almost a 30 times EBITDA number. And so, when Tom had mentioned earlier that the market is so fragmented and you could go out there and we have been successful in picking up acquisitions at one-time revenue when the traditional market right now is trading. Call it five. That's very accretive in value that will bring it to the shareholders. So very excited about continuing to do that and look for those opportunities and continue to consolidate that with the 6000 different agencies that are out there. So there's a lot of small ones that are that we're able to get out there and get in touch with. So we're excited about that and we felt great about the acquisitions we've made to date.

The Nashville, when Tom had mentioned earlier that the market is so fragmented and you could go out there and we have been successful in picking up acquisitions at one time revenue when the traditional market right now is trading.

Call it five.

That's very accretive and value.

will bring it to the shareholders. So very excited about continuing to do that and look for those opportunities and continue to consolidate that with the 6000 different agencies that are out there. So there's a lot of small ones that are that we're able to get out there and get in touch with. So we're excited about that and we felt great about the acquisitions we've made to date.

6000 different agencies that are out there. So there's a lot of small ones that are that we're able to get out there and get in touch with so we're excited about that and we felt great about the acquisitions, we've made to date.

And so and clearly there is underlying value that's there. And hopefully, the mobility in our medical billing side increases. Getting to a goal of $30, $50 million run rate a year, obviously would come very attractive for the much larger entities that are out there trading at market caps in excess of $7 billion. So we'd be receptive to revisiting. That's on the medical billing side. You take TicketSmarter.

Underlying value, that's there and hopefully win.

The mobility in our medical billing side increases.

Getting to a goal of $30 50 million run rate a year, obviously would come very attractive for the much larger.

<unk> entities that are.

After trading at market caps in excess of $7 billion, so we'd be receptive to revisiting that.

That's all that's on the medical billing side, you take ticket smarter.

There's a lot of names out there that you are probably familiar with but some of them may not be familiar with that or put fleet Hill. We've done our homework on that and looked at what's out there, what's publicly held and again, where they are trading in regards to revenue and an EBITDA number. And again ticket smarter they have the ability to, I think at full price acquisition, we'd probably going to come in around $15 million roughly. That being said, it's still a number that is very consistent with possibly a onetime revenue number that they were at a run rate. Well, the public market has got on an average and again, this is an average number as we did our valuations,

<unk> Hill.

We've done.

Our homework on that and looked at what.

What's out there what's publicly held and again, where they are trading at in regards to <unk>.

Revenue and an EBITDA number and again ticket smarter they have the ability to.

<unk>.

At a full price acquisition, we'd probably going to come in around $15 million roughly that being said, it's still a number that is very consistent with possibly a onetime revenue number that.

They were at a run rate well the public market has got on an average and again. This is an average number as we did our valuations.

So we're six so again very accretive should've been very accretive the day, we announced it because our game the street notice that we anticipated that in 2022 that they would do in excess of $25 million and I'll touch on that a little bit more here when I when we get into the guidance. So if you look at that in the. Evaluation that ticket smarter alone brains, and where I get back to is the value added that we can bring into it with the fact that we do have relationships with NASCAR and NASCAR tracks and NASCAR.

Evaluation that ticket smarter alone brains, and where I get back to is the value added that we can bring into it with the fact that we do have relationships with NASCAR and NASCAR tracks and NASCAR.

Just a lot of synergies in all our partnerships that we introduce these guys to, and we have and it's starting to show benefits right away. So do a little homework realize that these acquisitions that we're making. We're going into them with a lot of knowledge of value that's accretive to our shareholders and trying to expand on that.

Just a lot of synergies in all our partnerships that we introduced.

Introduce these guys too and we have and it's <unk>.

Starting to show benefits right away.

Do a little homework realize that these acquisitions that we're making.

We're going into them with a lot of knowledge.

Our value that's accretive to our shareholders and trying to expand on.

All this being said, let's touch on those two big acquisitions. Now, let's talk about the core business. We clearly are prepared and we announced that we've got a new body camera that we're coming out with. So the market has been very receptive to that. We look for that to have a very good impact in the law enforcement market and the situational security and other areas related to where body cameras would be of value in 2022. The fact that we now can offer a subscription model. It's very convenient in handy for a lot of agencies. So we continue to be excited about where we're headed in our core business with our body camera technology.

We clearly.

Our prepared and are seeing the.

We announced that we've got a new body camera that we're coming out with so the market has been very receptive to that.

For that to have a very good impact in the law enforcement market and the situational security and other areas related to where <unk> body cameras would be of value in 2022.

We now can offer a subscription model.

Very convene.

Convenient in the handy.

We looked at a lot of agencies. So we continue to.

bexcited about where we're headed in our core business with our body camera technology.

Our evo product. <unk> seen numerous press release, where it and Thats. Our in car video system has been very successful and very well received in law enforcement. For a lot of them, we will be launching a commercial version of that yet in 2022 and again a lot of tremendous features that will now let.

<unk> seen numerous press release, where it and Thats. Our in car video system has been very successful and very well received in law enforcement.

For a lot of them, we will be launching a commercial version of that yet in 2022 and again a lot of tremendous features that will now let.

Any type of fleet that's out there really be able to have some very very strong technology to sit there and monitor.

As well there the driver behavior of their vehicles.

Keep tracking of where people are at that commercial division again, we anticipate to be launching in the second quarter. So.

The demand as Tom had mentioned on our subscription model continues to grow.

<unk>.

We're very excited that we have seen such.

Wonderful growth in 2020 to 2021 and do anticipate that continue into 2022.

Couple of other things.

Obviously with Covid.

Got it down so many events are situational security.

Or their side of things like we do now currently for the Chiefs and we've got stuff at Metlife Stadium, where body cameras are being utilized a lot of that had slowed up because of COVID-19 and now with event, starting and you do have incidences that occur whether it be a concert or whatever.

The importance.

<unk>.

Security at all these venues that everyone is so hungry to start attending.

Has been escalated we've got to sit there have strong security.

Crowd control and having the capability haven't body cameras into play.

<unk> is definitely a request that we're seeing.

And big demand, so our situational security looks very strong we.

We see similar.

Situations with our international market, just now really starting to expand and open up.

So we're excited about what the outlook looks like for 2022 and the remainder of this year. So one of the things I did say.

Beginning here, we'd be interested in we think it's important to give some guidance.

Instead of just waking up with numbers that clearly we exceeded what the street was anticipating but the fourth quarter looks very good we see the growth that we're seeing in and ticket smarter, we continue to know.

Baird full enhancement on some acquisitions that medical billing side of our industry's AD and we know where laws coming in as well. So we anticipate that for the fourth quarter that we will exceed $9 million in revenue, that's a very big number for us.

I'd have to go back.

Get some of the beginning days to think of a revenue number that was higher than the $9 million. So it was maybe one quarter in our early beginning days, but.

We do anticipate that we should be able to.

Eclipsed 9 million in the fourth quarter, which would get us coming in in excess.

Of $18 5 million for 2021.

Again, just refresh everyone's memory in 2020.

We finished our revenue of right at 10.500 million so greatly increase of.

But in excess of $8 million.

Since we have been able to come out of Covid.

To implement in some of our acquisition comments now for 2022 again.

We've said there we've looked at it we've got a very strong understanding of ticket smarter with no.

Pretty good sense, where law is going to come in and our medical billing what im not including in this guidance number is our capability.

Capability of maybe making some additional acquisitions.

We're not putting a real heavy burden on our.

Shield Division, which is our PPE products that we have and we are developing and creating the shield brand, but for 2022, we anticipate that we will have revenues.

And so that's a $50 million again $50 million, we're talking about almost five fold of what we did in 2020 so.

Obviously, you can see where my enthusiasm and excitement is where this is coming in we're excited about using our contacts and expand the acquisitions that we've already made.

And again, we still have a very very solid foothold in our relationship with law enforcement and situational security. So the video side of our business.

It continues to look very strong as well.

With all this being said I will open up the floor for Q&A.

Yes.

As a reminder to ask a question you will need to press star one on your telephone to reach all of your questions.

<unk>.

We.

Thank you Mike.

Our first question comes from the line of room allergy in Asia from Aegis capital.

Good morning, congratulations on the quarter it sounds like you guys.

A lot of exciting things going on.

So I wanted to ask you I was wondering were chatting about this I'm talking about the.

Supply chain challenges with regard to components and shipping could.

Could you maybe walk us through the impact that might have hasnt Cora Lee I realize there's a lot of moving parts.

It was probably had more to do with your core business than anything else, but could you just maybe talk us through the margin impact and maybe the outlook going forward for that and to the extent also just on top of that.

Maybe pass through some price increases too.

Are your customers there. Thanks, Yeah, I'll, let Tom handle a little bit up, but I will just make one comment but.

Things that we did early on when we were fortunate to.

Have some additional capital come in.

The company, we did look at our long lead items and some of the more crucial items and went ahead and bought in and rather large quantities.

A couple of reasons.

One the discounts that we could get associated with that and just knowing that because of the lead time.

We needed to make sure and be in a position that if their did become a <unk>.

Supply issue, we wouldn't be facing.

<unk> face on it but it is truly out there in the pricing.

And such that some of our PPE.

One of the products, we're seeing <unk> being affected and yes from a shifting time in shipping cost, it's just been very very difficult.

Just getting getting.

Cargo on the ship.

Been difficult in the pricing of the shipping has been.

Been very difficult as well, so but I think.

One of our bigger challenges is people.

We've taken a couple of initiatives to incur.

Increased salaries due a little more stock.

Compensation for for people to retain them.

But it's very very difficult.

We're market, we're seeing direct results of that especially in our video segment on the sales side.

<unk>.

We're challenged with.

Getting the number of salesmen and the quality of salesmen out there that we really would like to have so we're getting we're getting.

Difficulties.

On the labor both sides labor and the cost of shipping in the supply chain itself.

Okay, and just to clarify the guidance.

That was very very helpful. Tryst for for you to do that for us.

Looking at $50 million in excess I think you said for next year is that all from.

<unk>.

It would just be the company with what you've acquired so far.

<unk>.

Or does that assume additional acquisitions. So just wanted to clarify that.

I'll give you a little more insight on it a little bit.

I think the medical billing company.

What they really got four as a run rate right now.

And I'm talking about right now and.

A couple of.

Acquisitions that they've already got some letters of intent on.

Probably going to come in somewhere between.

Eight and 10, Okay and so then if you look at ticket smarter and how they are.

Performing and again.

Excited about the opportunities to introduce them to a lot of our partners that we've already have out there.

The NASCAR as I've mentioned numerous times, but.

I'd be.

Surprised if.

They will come in around 30, and so you look at our new products and you look at the run.

Right and you don't try to get too Crazy because you know that our subscription model, obviously is a lot better.

<unk> revenue looking when you're.

Deferring the cost over five years or three to five years.

So you don't try to.

Ramp that up just dramatically but.

Again Theres no reason, it's not going to do.

<unk>.

$15 million and so I'm not putting any burden on the shield I'm not putting any new burdens on us having to go out there and create new acquisitions. So I know, where I believe I know where you're going on the question, but that's pretty much what we see is a.

A run rate right now let alone if we can be successful in finding more opportunities.

Great Alright, Thanks, again, congratulations again guys.

Our next question comes from the line of Bryan Lubitz from Aegis capital.

Good morning, gentlemen.

Good morning, Brian.

Nice quarter and it looks like.

We're going to have some wind in our sales moving forward.

<unk>.

In terms of the $50 million in guidance.

Dan you just elaborated now.

These companies that you're acquiring.

Are you looking for your basic synergies, where you are going to leverage a rolodex and it's going to grow from the $50 million and you anticipate year over year, just consistent growth or is this the run rate you just kind of expecting as you acquire more companies that'll add to the bottom line.

You hit it on the head, Brian I mean, the very very.

First thing I look at you know.

Obviously, we don't want to catch a falling knife, we're not looking to get too involved in startups and stuff like that we're looking for companies that are rolodex, our relationship with all our partners.

The let's say the distribution channel that we have in and doors that we can open.

That is number one if we can sit there much like ticket smarter and or the medical billing.

And know that if they could just get introduced to this party and get a little more business here and there and maybe even expand on that.

Instead of the secondary market more of the primary market because of.

And ships that is absolutely number one on the box, it's got to be the need.

For the Rolodex and our infrastructure number two is where the capital comes into play if we can find companies out there that are steel.

Trying to recover from Covid and.

Related to.

What was it that the PPP money help them and maybe there's some other monies after that that's helped them stay afloat, but to really get healthy and get back into the game.

<unk>.

It's going to take time, although their numbers have turned around much like ticket smarter I mean, there we.

Maybe they were turning the corner so instead of them taken a couple of years to get healthy we can help them.

Up overnight and not without not a lot of capital needed to do that but.

What gives them the real.

Jumpstart and hit a leg up.

Could see that happen to recover slowly so.

Number one and two and then a really theres a lot of entities out there, where if you really look at R. R.

Again infrastructure that we have on the corporate level, whether it would be.

Some assistance.

Although in engineering some assistance in.

Web design assistance in HR, I mean insurance all of the above I mean, there's things like that that we bring to the table that can be very accommodating as well and so those are the three things that we really want to see and then we also are are checking the box.

<unk> to make sure that we're doing things that we believe are very accretive.

To our shareholders.

Okay now with all that being said you guys. Your core business for a very long time has been the body camera and I know you guys. Just released Evo to which does look exciting I've seen all the features on.

On it.

Service revenue revenue that you generate from that as you mentioned is spread out over time.

Subscription program Great margins are you guys shifting your business model, where.

That's not going to be your core business I mean, because $30 million from the ticket sales alone is going to do more revenue than I've seen you guys doing five or six years.

So if the cameras.

I mean.

Brian I think our all time high with when we were just in the.

In car system, and I don't even know that we had that many body cameras way back win was $33 million that was our all time high in annual sales. So.

Obviously looking at shattered.

In 2000.

'twenty two.

We will not lose focus on our core business.

The only difference is that we got to look at it a little differently instead of the core business being law enforcement, it's more video solutions.

We continue to expand.

Our footprint because.

The law enforcement sector is only 18000 agencies and you may notice.

The 800 pound gorilla in the industry is now started getting into.

Dabbling into the commercial side of the business as well because you go sell up in.

In car system to an agency that has a five year.

Warranty or is on a five year subscription or the same thing with a body camera.

We're pretty much out of the market for you for at least five years, unless they want to upgrade or getting another car or additional <unk>.

Personnel, so you've got to sit there and expand into the different markets.

With the in the taxi cabs and other fleets.

In other areas where.

This type of technology comes in so while we will always have a good position in law enforcement, we got to look at ourselves as a video solutions company.

Because we are going to get into.

We have other areas that are just extensions of what we started 10 years ago or better in law enforcement.

We're not abandoning okay, I'm not saying that you are I'm just I'm curious to know when you get ticket sales.

These acquisitions is your goal to not only introduce.

And to launch them to the NASCAR, and Metlife and Kansas City partnerships, but is your goal to get there.

For example, it doesn't it doesn't take a company managed over 200 college stadiums as to call to get to the shield product and hopefully the body cameras on the people that work at those stadiums is that where you see the synergy absolutely.

Yes, Youre dead on you're dead on.

So there are certain areas, where his infrastructure has.

Our distribution channel However, you want to say it.

We have some very good contacts because <unk> negotiated some very good deal deals at the very highest level of those.

Absolutely institutions, and so again, he can make that introduction.

For our video solutions Division, our Shield Division and hopefully again, we expand on.

<unk>.

The digital ally.

Family.

Companies are slashed products.

I've already seen it I mean, there's a couple of instances right now, where we went and talked to them and they understand all the services and products and capabilities that we have many digital ally and they don't they all of a sudden look at us differently than a.

Secondary ticket.

Company far as when he is going in there so yes.

The web the networking that.

These acquisitions are very very important.

To us.

Okay last question I think this is more for Tom I'm not sure Thomas you've covered.

Where you guys sit.

And in terms of your cash position.

Yes.

Brian we're over $41 million in cash so we got plenty of cash on the balance sheet.

We've got 30.

$35 million in positive working capital of $56 million in net equity so our.

Our balance sheet is very very strong right now and it gives us a great platform to do.

We do more acquisitions and that's why it's so important that we do get these this increase in authorized shares approved by the shareholders.

Ryan again, that's why I sort of wanted to point out and really emphasized on the acquisitions that we've made.

Well.

It's going to take some analysts and some people that really.

See what's going on to get get behind it we're going to get there, but these are very accretive acquisitions that we've made and there are.

Comparisons out there on the street that you can look at and if you.

It did.

Value the medical billing company.

As I mentioned compared to other publicly held companies and you did ticket smarter the same way as some other privately held companies and then law and everything else.

We're as frustrated with the stock price is anybody because.

There is a lot.

Underlying value there.

It's clear that you guys are undervalued and our safety again, I've said it probably over the last four or five calls I know Corona has kind of put a crimp in you come and hang out with me in New York.

Got to get you guys out here, you've got to get on the road show, California wherever because our.

They are like this and no one knows we got to get that word out there we need more analysts we need more support because $50 million. If you guys get to that next year. When you get to that next year I've been with you guys for 10 years on and off it I've never seen you do a number like that so I'm real excited for you guys as well.

I appreciate it Brian and look at your calendar after Thanksgiving I'll be.

Are you there.

And Tom get something for that cost back there it looks like you're going through the same thing we are up here right.

Alright, guys listen happy Thanksgiving to you I look forward to speaking to you soon.

Sounds good same to you Bryan.

Our next question.

She comes from the line of Patrick Mcgrady from Sterling capital.

Hey, good morning, guys. Thanks for taking my question.

Tom I wanted to see I may have missed it but can you just breakdown the gross and the net margins for the three business lines.

Well at the gross margin line.

I'm well.

We're looking at about 30% in the traditional business.

As gross margin.

The same in tickets smarter business, 30% and 35% and nobility now nobility.

Prior to any integration and synergies because.

Our partner and ability.

<unk>.

Gosh, they employ about 500 people billing specialists that are going to be leveraged into that platform. So we're up.

Accuse me were.

We're looking for much improvement on an ability side as well as the ticket smarter and hopefully.

The traditional video segment.

Okay, Great and then one follow up question.

Now that you guys have acquired these two are starting to these new to these two new businesses and it seems like Youre generating some good net income you got a lot of cash on hand.

I know that you are proposing to do an increase.

In shares our share sales potentially in the future, but can you talk a little bit more about using organic cash flow and cash on hand for these acquisitions.

Yeah.

This is Stan and I'm sure Tom will chime in as well I mean, absolutely me right now.

Think that.

Okay.

Kris or valued in and wood.

Refer to look at opportunities and utilize the cash.

What happens, though you do have.

And like a lot of our acquisitions were really not looking to acquire something that we've got a backfill with personnel and so those.

Quite on that or want to stay.

Recognize you know the difference will be in privately held versus publicly held and maybe also recognize.

The.

Upside value associated with it so they are requesting stock and so we want to do.

<unk> like Tom said, its a very expensive.

Do those procedures, especially with you really got to reach out and try to grab that guy that has 1000 shares.

So they.

Can you vote your shares please and hopefully you will support the board and management and how you vote, but to get the Mount of numbers that we.

<unk>, who is expensive. So we want to go ahead and do it one time and be in a position that when we do find more ticket smarter and medical billing companies that we can make sure and do something that's accretive obviously, but we also can.

I'm very happy and committed.

Employees that.

<unk> may coming along with that entity.

Yes.

I'll just echo what Stan said a lot of these acquisition the owners and the upper level management.

Once they see the synergies and the incentive.

Joining the digital ally companies.

And with that they want common stock they want.

As part of the consideration that they are being paid for the acquisition as well as some restricted stock based on on cash flows in the future and operating results. So we just need to have that quiver and are at arrow in our quiver.

To be able to use when and as needed and we're not going to just give away stock hopefully that's not not coming through here.

I realize we are asking for a large increase of 100, Meg and the $300 million, but again. The reason we're doing that is so darn expensive and it's such a drag on.

The focus of management right now that could be spent better.

On operations and then we're having to do a lot of.

Outreach as to potential.

Shareholders to talk to them about voting and all that stuff. So that's more of the reason we're going to be judicious in.

Out those shares but.

But I think.

By doing so it is going to attract better management is going to attract better acquisitions.

For the company that it will be accretive to the current shareholders.

Yes, that's very helpful. I appreciate that explanation.

Our nation.

And then mobility and tickets smarter you guys, obviously, great deals for you guys.

Good price points. It seems like in terms of getting in there you're still seeing those types of opportunities in the marketplace. I know I think you probably hit hit it at a good time when you made those acquisitions are you still seeing opportunities.

And the RCM business it.

It seems to seem like Theres a lot of growth there in the future here.

Yes, so I guess the easier one is the medical billing side because it is so fragmented. It is theres a lot of mom and Pops out there that you know that being part of a bigger organization.

Helps them too because they can go into different clinics and hospitals and I'll say no. We're a size of 600 employees not not.

<unk> 30, or something along those lines. So it helps their core business too. So we're seeing quite a bit of those opportunities that are out there is the key.

Just to make sure and do your due diligence and make sure the contracts.

And long term.

On that front and the ticket smarter.

While we're excited about.

Potential maybe theres some other entities out there along those ways.

What I'm excited about is just the <unk>.

Relationships and how well.

Good he's relationships introductions that we've made how receptive they obey them too.

Entertain ticket smarter as maybe not just a secondary.

Partnership, but actually step in as the primary which again is a bigger.

Bigger margins bigger numbers bigger all of the.

The above so I'm really been focusing on.

Getting them in front of them.

Those opportunities, but meanwhile might have my eyes open for what else may be out there. Yes. There are some complementary businesses to tickets smarter that we have been in touch with and its complementary not.

Not not.

Competitors of tickets smarter and really what we're seeing is.

Customers don't want more vendors, they want fewer vendors and the more services, we can provide around that.

A one stop shop for better so there is a number of.

Laterals.

<unk> that we could go go with with tickets motor and nobility for that matter.

That's that's available for us and we're looking at very very serious yes, well said because it is like I said the one.

The one entity, it's a professional.

Club and when they realize what all we can do everything from stepping in with.

Once that expires utilizing our ACO <unk> shield products to situational security an outfit in their security people on game day with body cameras, along with helping them with the ticket sales.

In or a concert we offer.

Quite.

Right a bit so far and like Tom said, there's some other.

Complementary opportunities that were out there that we've been in talks with it.

We think we will continue to enhance.

The company.

Yes.

Perfect No that's great a lot of exciting growth.

I appreciate you guys answering my questions and.

Congratulations again on the quarter and on the acquisition.

You very much and tell you what we're going to go ahead and.

Take one more call.

We've got them.

We'll take one more and then we'll go ahead and.

Wrap this up.

We have your line.

Allergy Nishu from Asia capital.

Thank you so much guys I'll make it a quick one.

As I look at the ticket smarter business.

I just wanted to ask what does it do you suppose skills helps for.

Company to be part of the publicly traded larger financially stable, obviously significant cash reserve company in that segment of business. Please do you have.

So thats, how I see that they have links with ESPN somebody's other really high profile did you just get the sense that just being part of you guys are a bigger company with all its credibility.

<unk> in the marketplace and obviously your other businesses brings credibility enables them to help win business faster than they otherwise would've one standalone. Thanks.

Well, absolutely I mean, I'm glad you brought that up because.

Yeah.

Jeff Goodman his name he's the CEO of ticket smarter he is still.

That.

Ticket smarter as CEO and he has reflected that to me that.

Because of now the association with digital ally and some of the other.

Things that we have to offer and the financial strength has greatly enhanced his ability to win business. So.

Youre dead on that was a great question.

It has clearly.

That assisted in what he is.

What we're doing.

Great. Thanks, so much guys.

Thank you all listen thanks, everybody for joining us today, sorry, we had to delay it a couple of days.

As Tom.

So we'll get that.

In Q filed right away and then also really encourage you to if you would reach out to your brokers wherever you need to.

Submit your votes hopefully.

You will follow that.

The board and managements.

Decision.

Mentioned, we learned on how we're going.

And again, we're just very excited about the future so have a wonderful Thanksgiving.

Happy holidays.

B be watching this closely we're excited about finishing this year strong and having wonderful.

<unk> 2022, thank you all.

<unk>.

Ladies and gentlemen, this concludes today's conference call. Thank you everyone for participating you may now disconnect.

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Decision.

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