Q4 2021 Digital Ally Inc Earnings Call
Yeah.
This conference call may contain forward looking statements within the meaning of section 27 eight of the Securities Act. Thank you 33.
In section to anyone E of the Securities Exchange Act of 1934.
The words.
Belief.
Correct.
Dissipate intent estimate.
Shoot.
Good.
We'll plan.
Sure continue and other expressions that are predictions of or indicate future events and trends and that do not relate to historical matters identify forward looking statements.
These forward looking statements are based largely on our expectations or forecasts of future events can be affected by inaccurate assumptions.
And are subject to various business risks and known and unknown uncertainties, a number of which are beyond our control.
Therefore actual results.
Could differ materially.
From the forward looking statements contained in this document.
Readers are cautioned not.
Let's please enter your reliance on such forward looking statements.
Digital ally will undertake no obligation to publicly update or revise any forward looking statements, whether as a result of information future events or otherwise.
A wide variety of factors could cause or contribute to such differences.
Good said Bruce the impact revenues.
Profitability and.
Cash flows and capital needs there.
There can be no assurance that the forward looking statements contained in this document will in fact change.
Spy or prove to be accurate.
Good day and thank you for standing by welcome to the 2021 fourth quarter and year end operating results conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session. If you'd like to ask a question. During this presentation simply press.
Star one.
Please be advised that today's conference is being recorded if you require any further assistance for star Zero I would now like turn the conference over to your Speaker today, Mr. Stan Ross. Please go ahead.
Thank you thanks, everybody for joining us today with me is Tom Heckman, the company's CFO , Tom will do a in depth.
A review of our numbers for both the <unk>.
Year end of fourth quarter, but first of all I'd like to just sit there and.
Sort of reflect back on what we've been able to accomplish.
In 2021, I mean as you all know in 2020, it was a tough year for a lot of people. We ended up with revenues right around $10 5 million.
And then to sit there and have.
Make the transition that we did with the capital that came in early in 2021, the acquisitions that we were capable of doing.
Throughout the year and ended up completing a pretty strong 2021 with revenues now at 21, four so more than a double was able to be retained and not only that we have given guidance that we believe in 2022, we.
We will do it in excess of $50 million in revenue. So just excited about what our employees in the company has accomplished over the last let's call. It 18 months.
And really excited about what 2022 and the future has for us so.
I'll, let Tom go ahead and get into the numbers and then we'll do a little.
Q&A afterwards, Tom Thanks, Dan and welcome everyone. I appreciate you joining us today I do want to tell you that we did get the 10-K filed last Friday, a little later than normal, but within the extension period and I think as we go through.
The 10-K, and certainly the highlights youll understand the complexity and the changes that happened during the year.
<unk> made the 10-K, a little more complex and the complexion pretty pretty detailed so any event.
As Stan mentioned, we went into 2021.
Having suffered through 2020 and all the COVID-19 uncertainties of NAD and.
The board and stand and I got together and we've.
We decided that we needed to make some changes transformed the business to where it's not as dependent upon the law enforcement the video segment.
And in particular, the law enforcement channel because it has proven to be difficult to.
To measure and break into certain areas of it and that so we wanted to expand beyond that.
The traditional law enforcement video segment and into some newer areas that we felt we had some level of expertise and understanding.
But in order to accomplish that with first and foremost we had raised the capital necessary to do that and then early in 2021 I think it was both in January maybe early February .
The capital markets were very favorable for raising money, especially for us.
Given our plans to expand into new business lines.
So we were able to raise a substantial amount of money in January $66 6 million in two registered direct offerings.
Roughly about $3.
A share each and those those offerings so.
First and foremost we raise the capital necessary to expand our platform and expand our business to achieve the strategy that we had undertaken for 2021.
The second piece.
Well, we had to do some.
Acquisitions and change the business to where it was not dependent on the law enforcement area.
The first thing we did was we formed digital ally health care.
We are a majority owner of 51% with another group that has vast experience in medical billing industry.
And had a fairly good business going private business, but had a good good business going but they needed the capital to expand.
They're roll up step strategy that fit what we were we were looking for.
And so we invested in digital Allied health care, we have a preferred return there as well as 51% ownership.
The joint venture.
And it is that it has undertaken a roll up strategy in the medical billing industry. The medical billing industry. As we've described before is very fragmented and there is a lot of so called mom and Pops that are that are trying to transition or retire or are.
Get out of the business for whatever reason.
So.
This group.
We included in digital ally healthcare had developed kind of a template that they've gone around and used to acquire businesses.
The basic tenet of that is pay roughly one times annual revenues and three times.
Annual EBITDA.
And that that template has proven to be very effective in appealing to.
Acquisition targets. So during 2021, we completed two acquisitions in the medical billing space total of $4 3 million paid for those two acquisitions and then we will go over the results of that a little later here the second <unk>.
The acquisition that we did or the area of acquisition was a company called tickets smarter Dot com.
It is a primary and brokered online ticketing service.
We're too I think everybody is probably.
Use ticket master Vivek tickets are CE.
It's very similar to that but they do have a little bit of a business wrinkle in how they approach the market and do sponsorships and so on and so forth.
As you might expect 2020 was a very difficult year for ticket smarter up until that point. They were they were very solid business private company very solid business growing year in year out doing doing.
Very good numbers.
But 2020 hit with Covid.
All the beds were canceled gatherings were restricted if not banned.
2020 was a very devastating year for tickets smarter.
As a private company so staying.
Stan and I met with the principals and the business, whom standard is known for quite some time.
And we were able to negotiate a fairly lucrative.
Acquisition.
For both sides.
Provided the capital necessary to get back on our feet and get moving again.
Two tickets smarter and then we got attractive purchase price. So we acquired tickets smarter.
Stock and cash of $9 four may in on September one 2021, so roughly four months left in the year.
There was also an earn out a potential earn out of $4 3 million and that was a short term earn out to be determined on annual EBITDA for 2021, and if you remember the omicron variant hit during that time period in November December of 2021, many of the states went back into Lockdowns.
And gatherings, where restricted mass were enforced and all that so.
The fourth quarter.
2021 is you let me let me back up the fourth quarter is normally the largest quarter.
Our ticketing business.
Holidays, its a bowl season, it's football.
And what have you so.
The earn out was heavily weighted towards that last quarter of revenues and Lo and behold the omicron variant hit it impacted.
The revenues and bottom line dramatically and to the point, where the earn out was not one it was written off to zero. So.
In fact bought tickets smarter for total of $9 4 million in stock none of the earn out was on.
Cause of the variants that hit during that time.
Unfortunately for the sellers fortunate for us obviously.
So we paid a total of $9 4 million, but if you look at what.
Ticket smarter did for us on a combined on a consolidated basis.
From the time of acquisition of 12, 31, it generated $10 $7 million in revenue of $10 $7 million in revenue. It had a net operating income of 235000 in EBITDA 662000, So if you annualize those and.
I understand I'm, not saying that that's how you do it but if you annualize those two figures.
We paid $9 4 million for an annualized revenue of roughly $40 million.
Very good metrics there.
The annualized EBITDA would be a little over three times annualized EBITDA.
For what was actually earned and remember it was negatively impacted by Covid. So.
Stan and I and I think the board are very happy with that acquisition, we have a good strong management team in place they're there they've got great plans and operating strategies for 2022 and beyond hopefully we don't have a recurrence of.
The COVID-19 varian or anything like that that impacts our business dramatically in 2022 and beyond.
But we are very happy with that business acquisition.
If you look at the total operating results.
And we have segment information in the 10-K for everyone that wants to look at it but.
Our net revenues more than doubled year over year, but looking at it the ticketing segment. The ticket smarter segment generated 50% of our revenues on an annual basis.
Even though it was only part of the consolidated group for four months in 2021, but it contributed 50% of revenues the revenue cycle management or the the medical billing segment generated 8% of the revenues.
And I think the acquisitions were in the first and second quarter of 2021.
And then the video solutions, which is our legacy business, both commercial and law video plus a shield products line Gen.
Generated 42% of consolidated revenues. So we've transformed the business significantly from a revenue standpoint now let's look at gross margin by segment the video solutions segment.
Generated gross margins of 22% that was a little.
Decrease because of some write downs, we took in some excess inventory and such we believe that.
We will bounce back.
In 2022 and beyond.
Some more.
Some larger gross margins, but it was 22% and in.
In 2021, the revenue cycle management gross margins were 32% and the ticket ticketing segment, our ticket smarter was 29% gross margin so.
We've spread our risk we've got we've been able to expand the business into some different areas that.
Hopefully stabilize our business and give us some predictable growth and revenues in the future.
If you look at SG&A expense increased $8 7 million or 74% year over year.
Much of that as well a lot of it is attributable to the acquisitions and the SG&A that's attendant to those acquisitions, but also there was some one time or nonrecurring SG&A cost because of the requirement to write off all the due diligence legal accounting.
SEC reporting all of those those costs for acquisitions or expense rather than capitalized part of part of the acquisition.
So there was some one time costs in there one of the big drivers though.
In SG&A as the insurance expenses that that.
That we've experienced I think a lot of lot of companies have experienced increases in general liability.
<unk> and related areas because of the COVID-19 concerns in that and everything that's going on there.
But it really really hit us hard in 2021.
We're looking at ways to minimize and manage that expense, including potentially using a captive insurance company.
So we're managing that.
That part of the business that cost because it has it has gone up tremendously and does impact our overall earnings if you look at non operating income.
We reported a total of $40 3 million of nonoperating income in 2021 versus $5 million in 2020 looks.
We're looking at what caused that there was $36 6 million.
Income from the change in fair market value of the detachable warrants.
That is derivative accounting treatment that the SEC requires.
As to follow and basically if a if a war can be.
Our cash settled rather and settled in stock outside of our control than they require you to book it as a liability and the changes go through the P&L.
That's what happened there are $36 6 million.
It is likely a nonrecurring charge, although we do still have those warrant derivatives.
On the books the second piece of it was $3 7 million, which is a change in fair market value of the earn out agreements. We previously talked about the earn out that was zeroed out with ticket smarter that was the largest piece of that but also the medical billing acquisitions. There is an earn out agreement piece to that as well roughly 2020.
5% of the purchase price was medical billing practices.
Our attributable.
Attributable to earn out agreements and there was some chain smaller changes in fair market value there, but the largest one was the change in the ticket smarter earn out agreement.
Just remember that these are nonrecurring likely nonrecurring so next year.
That number could be the opposite way.
By 30 million or so, it's just very unpredictable and nonrecurring.
Other items of interest in 2021 in December the board authorized the repurchase of up to $10 million of common stock on the market and an open transactions.
If you remember we raised capital earlier in the year roughly $3 per share we looked at the decline in market price and.
The board reacted and instituted this repurchase plan.
As of 12, 31, 2021, we have repurchased a total of $2 1 million shares of our common stock at an average price of $1 seven roughly.
$1 seven.
So just remember we're not committed to this plan on an ongoing basis and it can be stopped at any time so.
That was one the one big item in 2021.
We have done since the end of the year, we've done three more medical billing acquisitions totaling $7 $2 million two of those are already closed the two smaller ones. The larger one should close on or around may 31st. So we're remaining very active in the medical.
Billing acquisition side.
Obviously, our acquisition template is working and very attractive to the targets out there.
I would also add that one of the acquisitions.
Was that of a dental billing company.
Rather than a medical billing company, which is a different avenue.
For our subsidiary.
And we believe it's a growing piece of the business the dental billing practice seems to be growing at a pretty good clip and we're pleased with that acquisition.
We continue you know Stan may or May not have some information for you, but we continue to look at other business acquisitions in other lines.
And we're looking for accretive acquisitions, obviously that fit with the rest of the companies in our long term strategy of building shareholder value here.
Just a quick look at the balance sheet, our balance sheet remains very strong at the end of the year, we had $32 million in cash $33 million and positive working capital of 56 million in stockholders equity. So we still have a very strong balance sheet in order to continue our transformation of the company.
With that I will turn it back to Stan Thanks, Tom.
Yes.
Very great peril.
I guess recap of where we've been and where we're headed in regards to 2022, a couple of things I'll add before we go to then open it up for Q&A is just a little bit on let's talk about the legacy business, our video solutions side of things.
We're excited about 2022 because of the launch.
Couple of new products, we've got our next generation body camera.
We announced and has been very well received we're seeing probably some of the best.
Responses in the the body camera side of our business that we've seen in years. It is really a next generation, we feel very very confident that it has.
All the features that law enforcement is now looking for.
Keep keep both sides safe and so it's been a been very well received and the orders are starting to show that along with the subscription agreement that were allowed to offer our agencies in regards to the 345 year plan. So thats worked out on the financial side well, we also have a new device.
For the commercial market that's an in car system that has a lot of features and with some of our partnerships that we have been able to establish over the last year or 18 months.
We're seeing a lot of traction there as well so I think youre going to see the legacy business continue to.
Thrive, it's going to definitely continue to grow and we're going to see some things that are pretty exciting come out of that based upon what we've developed over the last couple of years analysis into the marketplace.
Tom touched on the medical billing side of things and again that template.
Is working no need to sit there and try to get to.
Crazy around it let it keep.
Acting the way it is and functioning the way it is and looking for opportunities. There. So real excited about that and then ticket smarter.
A little excited about the strategy here, we've been able to go from.
It was called <unk>.
Secondary ticket.
Agency.
To where we've been able to utilize contacts capital and move into more of a primary.
Ticketing agency as well and where we're doing this is we are actually getting the exclusive naming rights and ticketing rates two stadiums, whether it be stadiums or ballparks or.
Amgen theaters, where all the acts that we'd be going through there would be ticketed by ticket smart and not only that particular smarter so choose they actually could.
<unk> and bringing access to those particular venues.
Again helped there.
Increase their overall I wanted to say topline and bottomline because they would have a lot more control over that so real excited about.
The companies that we have within digital ally right now and also very encouraged by the opportunities that we have it in front of us, especially with the capital positions that we have an access to the capital. So at this time, let's go ahead and open it up for Q.
Q&A please.
Alright.
So that's a question you will need to press.
And your telephone.
Your question price dependent.
Please stand by we'll be compile the Q&A roster.
Okay.
We do have a question from Ben <unk> from.
Yes, Hi, Tim Your line is now open.
Yeah, Hey, Dan This is Mike on for Ben.
Thanks, There was a really nice overview, thanks, guys and congrats on that.
<unk> finished to the year there.
Integration is probably a lot of work and a bit of a headache. So congrats on getting everything out.
Just a couple of questions first one just wanted to.
And kind of touched on it at the end here, but it just kind of wanted to talk about partnerships a little bit more I mean, you announced some really interesting and exciting partnerships.
Radio.
<unk> broadcast group and then the.
Future alignment in Peru.
And then maybe just tell us a little bit more detail about what the plan. This year what your expectations are for me.
Yes, so I'm glad you brought that up I mean.
The partnerships that we've been able to do on the ticket smarter side of things with I Heart and Sinclair is really really.
Allowed a lot more traffic to come to ticket smarter as platform.
We're actually out there and there'll be an article that may be about a concert upcoming concert or a sporting event and then right to the side of of that or even in the body of that article there'll be a.
Ticket smarter icon that they can sit there and and hit and it will take them straight to ticket smarter as platform. So that they can buy tickets.
From ticket smarter right there.
Have you got to realize they've got collectively I'm going to say between the three big ones that with the Sinclair USA today.
Hart.
Probably have north.
$500 million.
The annual visitors to their sites Theyre, just Theyre entertainment and.
Sports site, so by having these partnerships.
Ticket smarter being right there alongside of them. It is dramatically increase the amount of.
Is on ticket smarter and the visitors that were having to that platform.
When we acquired to get smarter and Tony May have to help me here, but I am not too sure they had less than $1 million.
Organic visitors coming on a monthly basis, and I think we are well in excess of four maybe $5 million.
Visitors today and Thats continuing to grow as you know these these partnerships were just recently.
So they're there.
They are starting to pay some really good dividends.
Yes, really nice really nice guys. It seems like that would be a significant tailwind for that business. So thanks for the added color there.
And I guess just kind of.
Follow up.
More so kind of on the balance sheet.
A pretty fortified balance sheet as Tom discussed a lot of cash level that you have these three different business segments, you recently announced the share repurchase.
Maybe tell me a little bit about how youre thinking about the balance sheet kind of what your priorities are for allocating capital as we move out into.
2022 2023.
Obviously, a few different avenues you can go there.
Yes, I mean, right now we're going to.
Probably.
Not to get too.
Outside of our over our skis right now we are very comfortable with the three let's call. It the core businesses that we have and we want them to mature a little bit more and keep developing but that being said, if we do find opportunities that fall within the template.
We're able to clearly allocate capital for those acquisitions and growth I think we're at a point right now.
We need to let a little time pass in regards to allowing ticket smarter to mature and again.
As Tom mentioned four quarters, most likely the strongest quarter for ticketing in first quarter is probably one of the weaker but as we go into.
Late spring summer fall I mean that things start to happen all the big festivals that are going on you get all sorts of baseball Theres, just a lot going on so we'll probably continue to do.
Do what we can to help and mature.
For businesses, but we are looking at a couple of.
Offshoots that may make little sense to bring into the fold and Tom do you have to elaborate.
Yes.
I would just echo the fact that we're looking for businesses that can integrate well and we can show some synergies with the businesses. We have I don't think we're really going to go out there and do some way way out of our trajectory we want to stay in our lane and what we do well.
Excuse me and what.
And potentially businesses that can be additive and accretive to the other businesses we have.
The ticket smarter platforms, very very intriguing theres a lot of offshoots of that Theres a lot of events out there there is.
Gosh, It's got Broadway ticketing, and Scott got baseball football the sports and such so there's there's certainly a lot of.
Ancillary businesses around tickets smarter that might make sense to us, but again, we don't have anything.
Out there in terms of any firm commitments at this time.
Gotcha.
Awesome. Thanks, guys.
Really it for me for now.
Again, congratulations on a strong finish to the year here looking forward to.
Kind of watching things unfold over the next year.
Thanks, Mike one of the things I would just add that last little comment from Tom is you've got to sit here and look at this I mean again, we're just knocked out 'twenty one four for 2021.
We're not backing off of our guidance of $50 million for 2022.
And we believe that that number is obtainable with just the core businesses. We have so we're excited about what this really really could grow into over the next definitely this year and beyond so thanks again for your questions Michael.
Thanks, Dan.
Again, if you would like to ask a question. Please press star one.
One on acute is Bryan lubitz from Aegis capital. Your line is now open.
Hey, guys. Good morning, congrats on the quarter.
Thank you Bryan Bryan somehow just became French.
But it's always there.
We noticed that.
They must not though.
[laughter] alright, so guys numbers across the board I mean, they just look great.
Couple of things that I.
Looked at obviously your employees you have increased to $1 46, do you guys anticipate that youre going to be doing more hiring in the future.
I think so I mean again as we continue to develop.
These core businesses.
We can see as needing to be out there trying to find talent and we brought on a few additional.
Key personnel I would say over the last 90 days that I'm really excited about in regards to the.
I guess, I guess theres somewhat upper management.
The bigger picture because it's just something that this thing has gone from like 10 million to $50 million of two years.
A lot to get your arms around.
We don't want to stop there. So we got some very talented people that we brought onboard over the last 90 days that I believe are going to help.
Help us for many years going forward.
Yes, Brian I would add that if you look at the three segments that we're in the video solutions segment, probably will we will be hiring.
Because I think we're going to see a rebound in revenues that we've got the subscription plans out there and we got the new products. The body worn cameras that I think will help both la <unk> and commercial and so that will lead to more hiring the revenue cycle management segment, those kind of interesting.
We use all contract help oversee so.
If you look down into the Dungeons here.
We probably got four or 500 people overseas that are doing these these medical billings, but they don't show up we don't have the liability of that we just pay them a contract rate so that revenue cycle management business can grow.
Exponentially and not really add a lot of new people because its just management level.
Integration people.
At the at the subsidiary level. The ticketing segment is interesting they did $10 7 million in revenue and four months time in 2021, they've got roughly 15 16 employees are doing that kind of revenue. So it's a very very high leverage business in terms of that customer is.
Online, obviously in mostly technology.
That ticketing side can go up significantly and not really add that many head count.
And we will be will be particular about the head count that we do have add add there to ticket smarter. So.
Okay, So what I'm getting at and obviously that's high leverage that's good because the.
Despite hits compared to when you guys took over have gone up dramatically.
One of the things that Ive noticed recently as you guys have been rolling out the new website is that.
Finally.
You know pretty much where given the cameras away.
At least to the police officers with their credit.
Cameras on their desk and they are paying $41 a month with the subscription program.
We are we looking to get that word out via marketing how are we going to get that out there. Because obviously you guys have a Twitter feed and you have you know, Kansas locked down for a lack of a better term, but how are we going to get you guys to really monetize that you are doing something like that and.
Get the word I guess in terms of marketing out to the rest of the street because again I know, it's long winded, but you guys are going from year over year numbers of 10 million to 21, youre going quarter over quarter more than double.
Going with assets up to $83 million at the end of 2021.
And at the end of 2020 your assets were $20 million yet the stock was $4 and today, we are a quarter of it so not none of it makes sense if youre looking at numbers wise. The only thing I can fathom up is that not enough people know about you.
Yes.
Brian We agree I mean, obviously, that's one of the reasons we.
Jumped in and started doing the buyback.
We just felt like the street does not comprehend and really what's going on there I will tell you that we just recently did bring on.
An outside Investor relations firm.
And we wanted to wait and make sure before we brought demand that we had our year end numbers out there we have basically the story.
More defined so that it can be talked about and the work can be spread and people are still are not confused I mean, we've made that transition and so I think youll see a much more aggressive.
PR campaign not only.
Talking about our products with now having the next generation body camera out there in our commercial division out there, but also on the stock side of things with our Investor Relations.
We do work for NASCAR, and we have an association with Andy and but a lot of these events will allow me to go maybe a day early and meet with brokers and different.
Firms and tell the story, so youre going to see.
A lot more of me being able to spend time towards let's say the stock side of things because of the personnel that we brought in that.
Let's now have a pretty good understanding of the vision that we are in the door.
Directionally, we're heading that they can take the range there and allow me to get back in and come out to New York and see you in your shop, and others and start telling the story because we agree with you. That's why we went out and bought up all of that stock back.
Okay speaking of just the buyback Tom you mentioned earlier $2 1 million shares was bought back.
As of what date was that bought back was that as of December 31st because I thought I saw one seven.
No it was.
December 31st it was $2 163 million shares purchased back under the plan.
And in the last quarter do you guys think you knock down more of that.
Alright.
I'm sure. We did we don't know what that number is or haven't reported that number yet.
We did have a subsequent event in the.
In the.
Financials, so other than that we havent reported on the amount of buybacks for the quarter.
Right.
Good <unk>.
We're about a third of the way through far as needing to report our first quarter, So and I anticipate we'll be on time, there and be able to.
Reported and give that number out when we do our first quarter call.
You guys are retiring no shares.
Yes, yes.
Okay.
And then the last thing for me. So obviously again numbers look great on a year over year up over 100% your p/e multiple of two times earnings I mean.
Average company S&P has 25, I think NASDAQ may be even higher and you guys are at two times earnings a lot of that I'm, assuming is coming from the major revenue coming from the tickets. Obviously you guys have.
You've gone out there with the hospitality part of it.
With the hospital billing part and then you have to the other segments with the shields et cetera are you.
It's going to look to rebrand in the future as a part of your marketing program.
I mean, Brian Thats, something Thats definitely been talked about I think when the time's right.
It would make sense to do that you almost have to because we are going to see a tremendous amount of the revenue side coming from our non traditional business. So there's a good chance that.
Transition you know a rebranding will need to occur.
And there are no further question on queue I'll now turn the call over back to the presenters.
Again, thanks to everybody for attending thanks for the questions.
Really excited about 2022.
The fact that the company has really been able to.
Reinvent itself I would say in some fashion, but.
Excited what we have in front of us.
As Tom mentioned, the 10-K is on file.
You do have any further questions feel free to give us a call here at the office. Thanks, everybody.
This concludes today's conference call. Thank you for participating you may now disconnect.
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