Q4 2021 Wrap Technologies Inc Earnings Call

Good afternoon, and welcome to the wrap Technologies' fourth quarter 2021 earnings Conference call. My name is Paul Manley, and I'm, Vice President of Investor Relations Today, we'll provide a report on our progress and performance during the fourth quarter and full year.

Good afternoon and welcome to the WRAP Technologies fourth quarter 2021 earnings conference call. My name is Paul Manley and I'm Vice President of Investor Relations.

Paul Manley: Today we'll provide a report on our progress and performance during the fourth quarter and full year, and an update on our strategy and the executive search process.

And an update on our strategy and the executive search process.

Joining me on the call today are Wayne Walker Chairman of our board of Directors and Jim Barnes, Our Chief Financial Officer.

Speaker Change: Joining me on the call today are Wayne Walker, Chairman of our Board of Directors, and Jim Barnes, our Chief Financial Officer.

I'd like to take a moment now to remind you that certain statements made during the call today constitute forward looking statements made two pursuant within the meaning of the safe Harbor provisions of the private Securities Litigation Act of 1995 as amended.

Speaker Change: I'd like to take a moment now to remind you that certain statements made during the call today constitute forward-looking statements made to pursuant within the meaning of the safe harbor provisions of the Private Securities and Litigation Act of 1995 as amended.

Speaker Change: Such forward-looking statements are subject to both known and unknown risks and uncertainties that could cause actual results to differ materially from such statements. These risks and uncertainties are described in our earnings press release and in our filings with the SEC. The forward-looking statements made today are as of the date of this call and we do not undertake any obligation to update the forward-looking statements. With that, I'll turn the call over to you, Wayne.

Such forward looking statements are subject to both known and unknown risks and uncertainties that could cause actual results to differ materially from such statements. These risks and uncertainties are described in our earnings press release and in our filings with the SEC. The forward looking statements made today are as of the date of this call and we do not undertake any app.

Obligation to update the forward looking statements.

With that I'll turn the call over to you Wayne.

Okay.

Thank you Paul and good afternoon, everyone.

I want to start by thanking our entire team at rap.

Wayne Walker: I want to start by thanking our entire team at WRAP for helping the organization take a significant step forward during fiscal year 2021.

They should take a significant step forward during fiscal year 2021.

We invested heavily in research and development to increase in the basin.

Wayne Walker: We invested heavily in research and development to increase innovation, expand our product portfolio, and lay a foundation for long-term value creation.

To expand our product portfolio and lay a foundation for long term value creation.

Wayne Walker: Perhaps the biggest output of the year was the fourth quarter introduction of our next generation BolaRab 150.

Perhaps the biggest output up a year well the fourth quarter introduction of our next generation bowler wrap 150.

Just the first upgrade in our original bowler route 100 device.

Wayne Walker: which is the first upgrade in our original Bola Rev 100 device.

The launch of the Bolivar out 115 was an important achievement for us.

Wayne Walker: The launch of the BolaRoute 150 was an important achievement for us.

And assign that wrap this executing and maturing as an enterprise.

Wayne Walker: and assign that RAP is executing and maturing as an enterprise.

Thanks to innovation, we enhanced many features based on feedback from law enforcement officers using our products in the field.

Wayne Walker: Thanks to Intense Innovation, we enhanced many features...

Wayne Walker: based on feedback from law enforcement officers using our products in the field.

The updates we apply it to the Bolivar at 150 include one switching to electronics development and deployment from mechanical.

Wayne Walker: The updates we applied to the BOLURAP 150 include, one, switching to electronic development and deployment from mechanical.

To.

Reducing discharge steps down to two steps from three.

Wayne Walker: Reducing discharge steps down to two steps from three.

Three incorporating an L E D indicator to indicate when a device is ready.

Wayne Walker: Three, incorporating an LED indicator to indicate when a device is ready.

Four increasing battery life and power re kitchen.

Wayne Walker: Four, increasing battery life and power retention.

Bye.

Improving durability and water resistance and six making it smaller and lighter with an enhanced grip.

Wayne Walker: Improving durability and water resistance and safety.

Wayne Walker: making it smaller and lighter with an enhanced grip.

We are excited about the level of engagement and interest in the dull around 115, and we believe many customers held off on orders in recent months awaiting this next generation.

Wayne Walker: We are excited about the level of engagement and interest in the Volarep 150, and we believe many customers held off on orders in recent months awaiting this next generation.

We will talk more about customer demand in a few moments.

Wayne Walker: We will talk more about customer demand in a few moments.

As many of you know.

Wayne Walker: As many of you know, our other main product is Wrap Reality.

Our other main product is rap reality.

We continue to raise awareness for the product during Q4, including across domestic and international markets.

Wayne Walker: We continue to raise awareness for the product during Q4, including across domestic and international markets.

The rap reality training platform is very comprehensive.

Wayne Walker: The graph reality training platform is very comprehensive.

Wayne Walker: And we feel it can help us make virtual reality a new training tool for law enforcement.

And we feel it can help us make virtual reality, a new training tool for law enforcement.

It demonstrates the benefits to prospective customers, we havent been presenting an interactive simulation based learning model.

Wayne Walker: To demonstrate the benefits to prospective customers, we have been presenting an interactive simulation-based learning model.

This model is especially intuitive, but a new generation of recruits and drink police academies now.

Wayne Walker: This model is especially intuitive for a new generation of recruits entering police academies.

But neither is too complicated nor congressman for seasoned officers.

Wayne Walker: But neither is too complicated, nor cumbersome for seasoned authors.

We look forward to continuing to introduce rap reality to more customers in Q1.

Wayne Walker: We look forward to continuing to introduce RAP reality to more customers in Q1 as part of our productive diversification push.

As part of our productive diversification push.

Let me now turn to a high level of our results.

We grew fourth quarter sales by 74%.

Wayne Walker: We grew fourth quarter sales by 74%.

We achieved this growth despite operating in a supply constrained environment and with many customers awaiting our next generation bowler wrap 150.

Wayne Walker: We achieved this growth despite operating in a supply-constrained environment and with many customers awaiting our next generation BolaWrap 150.

During Q4.

We also saw our trade law enforcement agencies increased to 940.

Wayne Walker: We also saw our trade law enforcement agencies increase to 940.

Representing growth of 9% from the end of 2020 .

Wayne Walker: representing growth of 109% from the end of 2020.

Our certified officer instructors also increased to 3250, representing 139% Roe from.

Wayne Walker: Our certified officer instructors also increased to 3,250.

Wayne Walker: representing 139% growth from the end of.

From the end of 2020.

We believe these are positive indicators.

Wayne Walker: We believe these are positive indicators of future growth prospects.

Future growth prospects.

Turning to the full year.

We grew sales to seven one and $7 million.

Wayne Walker: We grew sales to $7.7 million.

Wayne Walker: representing 96% growth while we're.

Representing 96% growth.

While we are not taking any victory laps.

Wayne Walker: These are solid results that the company can build on in the coming year and beyond.

These are solid results that the company can build on in the coming year and beyond.

This now brings us to what they would be the key points of today's call.

Wayne Walker: This now brings us to what may be the key points of today's call.

Routes go forward strategy.

Wayne Walker: Routes, go forth strategy, and executive search process.

In the executive search process.

When the company announced his leadership transition in late January the.

Wayne Walker: When the company announced its leadership transition in late January .

Wayne Walker: The board emphasized RAP has significant opportunities to grow and scale.

The board emphasize rep has significant opportunities to grow in scale.

Wayne Walker: as the addressable market for public safety technologies and services continues expanding.

The addressable market for public safety technologies and services continues expanding.

This statement holds just as true today.

Wayne Walker: This statement holds just as true today.

That's the addressable market for public safety technologies and services crosses $60 billion.

Wayne Walker: as the addressable market for public safety technologies and services crosses 60 billion dollars.

Over the past several weeks.

Wayne Walker: The board has focused on two parallel tracks.

<unk> has focused on two parallel tracks to help establish a stable lasting foundation for innovation growth and shareholder value creation.

Wayne Walker: help establish a stable, lasting foundation for innovation, growth, and shareholder value creation.

First and foremost.

I've been considering the best strategy for season broader market share.

Wayne Walker: We have been considering the best strategy for seizing broader market share.

We know the evolving social political and regulatory climate are creating new and expanding needs for our customers.

Wayne Walker: We know the evolving social, political, and regulatory climates are creating new and expanding needs for our customers.

The board believes the best path forward is for route to Bill its existing foundation.

Wayne Walker: The best path forward is for RAP to build on its existing foundation by diversifying the company's mix of products and services beyond just the bolder RAP and RAP reality.

Diversify the company's mix of products or services.

And just the Boulder rap and rap reality.

We want the pursuit of recurring revenue stream opportunities to be a priority for the next management team.

Wayne Walker: We want the pursuit of recurring revenue stream opportunity.

Wayne Walker: to be a priority for the next management team.

But at the same time.

Well, we recognize rat and needs to be adept at yesterday from innovating to commercializing two distributing products and services.

Wayne Walker: We recognize RAP needs to be a debt activity from innovating, to commercializing, to distributing products and services.

We know that diversification cannot com.

Wayne Walker: We know that diversification cannot come.

Wayne Walker: at the expense of executing on the rollout of the Bola RAB 150.

At the expense of executing on the rollout of the bowl of wrap 150.

This is why.

Wayne Walker: This is why we are in the process of searching for leaders who can implement a multi-faceted growth strategy.

We are in the process of searching for leaders, who can implement a multifaceted growth strategy.

The second area of focus for the board has been working with a top search firm to identify the right Chief Executive Officer to turn the aforementioned addition into an actionable measurable operating to plan.

Wayne Walker: The second area of focus for the board has been working with a top search firm to identify the right chief executive officer to turn the aforementioned vision into an actionable, measurable, operating plan.

We are searching.

Wayne Walker: for a leader that has the experience and skills aligned to our needs and opportunities. We are at an

We're a leader that has the experience and skills.

Lines to our needs and opportunities.

We are at and that's at an advanced stage and we look forward to announcing the appointment of our next C. E O in due course.

Wayne Walker: And we look forward to announcing the appointment of our next CEO in due course.

With that I will now turn the call over to Jim Barnes to discuss our financial results in greater detail.

Wayne Walker: With that, I will now turn the call over to Jim Barnes to discuss our financial results in greater detail.

Thanks, Dwayne good afternoon, everyone I'll move straight into discussing our financial highlights for 2021 and the fourth quarter.

Jim Barnes: Thanks, Wayne. Good afternoon, everyone. I'll move straight into discussing the financial highlights for 2021 and the fourth quarter.

First we generated record quarterly revenue of $2 4 million in the fourth quarter of 2021.

Jim Barnes: First, we generated record quarterly revenue of $2.4 million in the fourth quarter of 2021. That represented 73% growth over Q4 2020. Revenues for the

That represented 73% growth over Q4 2020.

Revenues for the full year were.

7.7 million, a 96% increase over revenues of $3 9 million and 2020.

Jim Barnes: $7.7 million, a 96% increase over revenues of $3.9 million in 2020.

International revenues represented 60% of <unk> 2021 revenues compared to 64% for 2020 domestic revenues grew by 120% over the prior year with positive momentum driven in part by bubble wrap success stories documented on body Cam footage.

Jim Barnes: International revenues represented 60% of 2021 revenues compared to 64% for 2020.

Jim Barnes: Domestic revenues grew by 120% over the prior year, with positive momentum driven in part by Bolo Wrap success stories documented on body cam footage.

While market penetration is still small with significant room for growth in a large addressable market, we believe bubble wrap and our related virtual reality training product is making and can continue to make a difference in modern safer policing.

Jim Barnes: While market penetration is still small, with significant room for growth in a large addressable market, we believe BoilerApp and our related virtual reality training product is making and can continue to make a difference in modern, safer policing.

International revenues grew by 83% in 2021 , but we believe growth was negatively impacted by pandemic related travel restrictions severely restricting our ability to demo and training distributors and customers in 2020 and 2021 .

Jim Barnes: International revenues grew by 83% in 2021, but we believe growth was negatively impacted by pandemic-related travel restrictions, severely restricting our ability to demo and train distributors and customers in 2020 and 2021.

Jim Barnes: International pandemic-related restrictions are lessening in 2022, but it may take time to schedule and build momentum. We also cannot predict at this time the impact recent geopolitical conflicts and sanctions will have on our international operations.

International pandemic related restrictions are lessening in 2022 but it may take time to schedule and build momentum.

Also cannot predict at this time the impact recent geopolitical conflicts and sanctions will have on our international operations.

Jim Barnes: We have consistently flagged that our revenue growth could be lumpy as we balance pandemic travel restrictions and limitations and now face uncertainties related to international conflicts.

We have consistently flagged that our revenue growth could be lumpy as we balance pandemic travel restrictions and limitations and now face uncertainties related to international conflicts.

Our international business.

Tends to be large national law enforcement agencies as the end user and they are especially sensitive to geopolitical events.

Jim Barnes: tends to be large national law enforcement agencies as the end user, and they are especially sensitive to geopolitical events.

Jim Barnes: We are focused on managing our business for continued growth, especially with the late 2021 launch of the new BolaWrap 150.

We are focused on managing our business for continued growth, especially with the late 2021 launch of the new polo wrap 150.

Our gross margin for the fourth quarter was 30% compared to 33% for Q4 of 2020.

Jim Barnes: Our gross margin for the fourth quarter was 30% compared to 33% for Q4 of 2020.

Jim Barnes: The reduced margin was primarily the result of product mix from international orders announced in October and January , as our cartridges generally have a lower margin than devices.

The reduced margin was primarily the result of product mix from international orders announced in October and January as our cartridges generally have a lower margin than devices.

In the second quarter, we incurred a planned product line exit expense of $747000 preparing for the bubble wrap 150 launch.

Jim Barnes: In the second quarter, we incurred a planned product line exit expense of $747,000 preparing for the BoloWrap 150 launch.

This affected 2021 margins, which were 35% without that one time charge.

Jim Barnes: This affected 2021 margins, which were 35% without that one time charge.

This is comparable to 34% reported for the prior year.

Jim Barnes: This is comparable to 34% reported for the prior year.

We expect them out of 150 will have higher margins that will be realized during 2022 after a startup period and after a phase out of the model 100.

Jim Barnes: We expect the model 150 will have higher margins that will be realized during 2022 after a startup period and after phase out of the model 100 and as our volumes

And as our volumes grows we invested significant costs and efforts in 2021 to automate bowler at $1 50 production and we are pleased with the progress led by our Chief operating Officer, Glenn Heckman.

Jim Barnes: We invested significant costs and efforts in 2021 to automate BOLAWRAP 150 production, and we are pleased with the progress led by our Chief Operating Officer, Glenn Hick.

But margins are difficult to predict due to the product transition and the effects of sales channel and product mix.

Jim Barnes: But margins are difficult to predict due to the product transition and the effects of sales channel and product mix.

We also faced global supply chain risks and challenges that can affect margins and impact our operations.

Jim Barnes: We also face global supply chain risks and challenges that can affect margins and impact operations.

Jim Barnes: While we assemble product in Tempe, we rely on global suppliers.

While we have assembled product in Tempe, we rely on global suppliers well.

While most of our components are small and can be air freighted without undue cost impact, we do face availability and price risk since a model $1 50 includes electronic components laser and battery materials.

Jim Barnes: While most of our components are small and can be air freighted without undue cost impact, we do face availability and price risk since the Model 150 includes electronic components, laser, and battery materials.

We are at risk of and have faced shortages and unexpected delays of key components.

Jim Barnes: We are at risk of and have faced shortages and unexpected delays of key components. We have also seen price increases.

We have also seen price increases of certain components price changes and shortages can increase costs and delayed production.

Jim Barnes: Price changes and shortages can increase costs and delay production.

We also from time to time may need.

Jim Barnes: We also, from time to time, may need to design around certain components that can further delay production and require development time and costs. All these factors can impact.

Design around certain components that can further delayed production and require development time and cost all of these factors kind of impact future results.

R&D expense was $6 2 million for 2021 compared to $2 8 million for the prior year.

Jim Barnes: R&D expense was $6.2 million for 2021 compared to $2.8 million for the prior year.

R&D expense was $1 9 million for Q4 2021.

Jim Barnes: R&D expense was $1.9 million for Q4 2021.

We invested significant costs to develop and launch the bubble wrap $1 50 in late 2021, we continue to improve and upgrade our products to respond to the market. We expect R&D cost to be less in 2022 due to the completion of bowler at $1 50 development and management cost containment.

Jim Barnes: We invested significant costs to develop and launch the BOLARAP 150 in late 2021.

Jim Barnes: We continue to improve and upgrade our products to respond to the market.

Jim Barnes: We expect R&D costs to be less than 2022 due to the completion of BOLAWRAP 150 development and management cost containment efforts. However, future R&D costs may fluctuate due to the timing of important initiatives or new opportunities.

Efforts, however, future R&D costs may fluctuate due to the timing of important initiatives.

Or new opportunities.

SG&A expense was $20 3 million in 2021 and included $4 6 million of noncash share based compensation costs.

Jim Barnes: SG&A expense was $20.3 million in 2021 and included $4.6 million of non-cash share-based compensation costs.

Our main SG&A investments are focused on sales demonstrations training and product awareness awareness efforts targeting our worldwide customer base. We expect these costs to remain stable overall, but our focus in 2022 will be more on direct sales related activities.

Jim Barnes: Our main SG&A investments are focused on sales, demonstrations, training, and product awareness efforts targeting our worldwide customer base.

Jim Barnes: We expect these costs to remain stable overall, but our focus in 2022 will be more on direct sales-related activities with less requirement for product promotional and awareness costs.

<unk> with less requirement for product promotional and awareness costs.

Jim Barnes: During 2021, we invested in growing our sales and support organization to support worldwide sales growth.

During 2021, we invested in growing our sales and support organization to support worldwide sales growth.

During 2021, we incurred significant public company and class action to defense costs, aggregating $3 3 million.

Jim Barnes: During 2021, we incurred significant public company and class action to defense costs, aggregating 3.

Jim Barnes: Our motion to dismiss the meritless class action case filed in 2020 was granted in November 2021 and represented a clear rejection of the baseless allegations made regarding management, our products, and our performance.

Our motion to dismiss the merit less class action case filed in 2020 was granted in November 2021, and represented a clearer rejection of the baseless allegations made regarding management our products and our performance, we expect public company related costs and overall.

Jim Barnes: We expect public company related costs and overall SG&A costs to decrease in 2022 as part of our cost containment effort.

SG&A costs to decrease in 2022 as part of our cost containment efforts.

Our balance sheet remains strong with approximately $35 million of cash and short term investments to support our growth needs.

Jim Barnes: Our balance sheet remains strong with approximately $35 million of cash and short-term investments to support our growth needs.

Speaker Change: I would like to thank our entire team that contributed to our 2021 growth. With that, I will turn the call back.

I would like to thank our entire team that contributed to our 2021 growth.

With that I will turn the call back over to Wayne.

The past few months have obviously been a period of change and transition at rack.

Speaker Change: The past few months have obviously been a period of change and transition at WRAP, but amidst

But I Miss the uncertainty.

Our team has maintained its focus and produce strong results.

Speaker Change: Our team has maintained its focus and produced strong results. We also now have

We also now have clear priorities for the early part of fiscal year 'twenty to 'twenty two.

Speaker Change: for the early part of fiscal year 2022.

One.

Identifying a highly qualified chief executive officer.

Speaker Change: identifying a highly qualified chief executive officer.

Two <unk>.

Speaker Change: Adding new talent to our executive leadership.

Adding new talent to our executive leadership team.

Three empower wing, new management to develop and put out a clear strategic plan.

Speaker Change: Three, empowering new management to develop and put out a clear strategic plan.

Bore.

Shifting our emphasis from intense R&D to sales out of distribution of the bowl of about 155.

Speaker Change: shifting our emphasis from intense R&D to sell the distribution of the Bola Wrap 150 and five.

Speaker Change: expanding training programs and relationships across domestic and international markets.

Expanding training programs and relationships across domestic and international markets.

We look forward to providing updates on these priorities in the coming weeks and months.

Speaker Change: We look forward to providing updates on these priorities in the coming weeks and months.

With respect to our outlook.

We expect to achieve top line growth in fiscal 2022 .

Speaker Change: We expect to achieve top-line growth in fiscal 2022.

We feel like there is a strong pent up demand, but the bola wrap 150.

Speaker Change: We feel like there's a strong pent-up demand for the BolaWrap 150.

Speaker Change: However, geopolitical headwinds and supply chain issues could make quarterly sales choppier than we otherwise would like. Bigger picture and in close.

However, geopolitical headwinds and supply chain issues can make quarterly sales choppy or other.

Otherwise would like.

Bigger picture and in closing.

We are incredibly optimistic about wraps long term potential now that the board has assessed the company strategy. It started a search for a new CEO .

Speaker Change: about RAP's long-term potential now that the board has assessed.

Speaker Change: company's strategy is start a search for a new CEO .

We firmly believe that the right growth focus plan and the right management team can help wrap be an increasingly important player in our $60 billion addressable market.

Speaker Change: We firmly believe that the right growth focus plan and the right management team can help RAP be an increasingly important player in our $60 billion addressable market.

The steps, we're now taking will hopefully be the catalyst for strong value creation in quarters and years down the road.

Speaker Change: The steps we're now taking will hopefully be the catalyst for strong value creation quarters and years down the road. Thank you for your time today.

Thank you for your time today.

And for your ongoing interest in Iraq.

Thank you Wayne and thank you everyone for joining our call today due to our CEO transition, we will not be doing a formal Q&A session. This quarter. If you do have any follow up questions. Please do not hesitate to email me at P. M. A N L E Y at wrapped up.

Speaker Change: Thank you, Wayne. And thank you everyone for joining our call today. Due to our CEO transition, we will not be doing a formal Q&A session this quarter. If you do have any follow up questions, please do not hesitate to email me at pmanleyatwrap.com and I will respond in a timely manner. Have a great evening.

Tom and I will respond in a timely matter.

Have a great evening.