Q3 2022 Wrap Technologies Inc Earnings Call

Team as well as our distributors.

Lastly, we analyzed our training programs as part of our strategic review and consider the immense value each provides to our agencies and partners based on our review we decided to begin charging for training services similar to other companies in our space. This decision is consistent with industry standards and has been further validated in discussion with our agents.

Partners, who did not raise concerns about discharge.

We have also implemented changes to how we sell rap reality, resulting in new wins and solidified our go to market virtual reality offering as a software as a service model. So far we have seen acceptance of our new training methodologies and the feedback and interest in rap reality has increased substantially during the quarter.

To that point in October we announced the launch of rap reality adapt.

New major upgrade to our virtual training software platform.

Adapt allowed variable real world scenarios can be customized and conducted with the trainer acting as the voice of the subject through VR headset users will be able to experience variable real world scenarios, where the situation is customized and the subject of voices transmitted to create an immersive training experience.

This format provides the highest level of engagement for training and allows for almost unlimited scripting and up to the moment training possibility, eliminating costly setup and tear down of older traditional scenarios created with live actors or with built in hardware on two dimensional sets this enhancement to our <unk>.

<unk> will provide a higher level of engagement for agency customers and a substantial return on their investment financially and operationally.

I'll now provide a brief update on sales during the quarter.

Both domestic and international sales grew over Q2 this year.

Moving to our ongoing pilot program with the LAPD trial remains underway. This.

This quarter, we expanded the pilot to large scale field deployment, we now have 500 BOE a wrap devices into divisions in the city of Los Angeles. The early feedback is encouraging and we will continue to provide updates as the program moves forward over the next few years.

In discussing this program. It also makes sense to review our product strategy and how that also relates to our typical sales cycle. As mentioned previously we have made the decision to deliver the bowler at $1 50 to the marketplace for the next five to 10 years to get certainty to our customers and to our distributors.

We will also be innovating new products through our R&D efforts that these will be additive to the bowler F 150, and not replace it to avoid getting into any revenue or longevity issues that occurred with the bowler at 102 to $1 50 transition the sales cycle for both of our products also takes time as most law enforced.

The agencies must trained on how to use the device right policy around it and field test and use it before agency full deployment internationally. This process can take much longer because we are typically working with larger customers, where we are essentially working with a new product in a new transition with its own rules and regulations to follow as.

Evidenced by the recent EMEA and South America orders, we believe our efforts in this area are justified by the large and untapped sales opportunities represented in these geographies and.

In summary, we believe our improved go to market changes will help drive more consistent sales moving forward over the long term the tremendous amount of interest we received at our tenants at last month's ICP conference with an eye opening experience for many members of the team and we have a healthy pipeline of opportunities.

The show floor.

While we are building success in our domestic repeatable sales this year for bowler F. 150. We are also implementing changes to our international approach to sales of <unk> 50 that will generate momentum to carry current sales into Q4 and into 2023.

I'll now turn it back over to T J.

Yeah.

Thanks, Kevin and closing I am proud of the progress we have made thus far to execute against our new strategic roadmap.

We remain focused on expanding sales in the United States ramping internationally and expanding within existing agencies.

I am confident that we have the right plan and are building the right team to continue to grow revenue drive stronger margins and support long run profitability.

Looking ahead, we are in a strong position to meet our year end goals to complete this transition and expect another meaningful step function improvement and sequential revenue growth as we fully transition to our next generation product lines.

We also remain committed to delivering on our cash flow and profitability outlook for 2023 and 2024, respectively.

Law enforcement agencies across the globe are continuing to look for alternatives to paying compliance.

Bullet wrap is now considered by many departments as not elevating to the level of a higher level of use of force and usage is being rewarded as force avoidance.

Prevention.

As those departments deal with an increasing number of mental health calls and also deal with expensive settlements. It is clear that the polo Ralph $1 50 is gaining more traction and that our sales show that.

There are also increasing opportunities for police departments in the U S to secure funding from government grants to acquire our product.

We are now seeing agencies using multiple federal and state grants to purchase bowler app as well as rap reality.

We are also seeing agencies dedicated budget to these important investments and are convinced that it will reduce use of force payoffs on a yearly basis.

Rap reality with the New addition of rap reality adapt is a powerful tool that we see as a successful step forward towards the future of law enforcement training.

We saw an increased interest in rap reality at ICP last month.

And as enhanced capabilities, we believe it can become a dynamic tool in law enforcement and corrections departments training regimens.

Our efforts are all part of a continuous push to improve the way law enforcement and corrections departments offer training to their staff.

This also highlights wraps own mission.

To change the way law enforcement saves lives.

We want to empower public safety with innovative training and tools moving forward.

We are achieving this by working not just with the agencies, but also with the community and leadership as well.

Kevin and I are almost at the six month Mark since joining.

And I can tell you I continue to be more optimistic and excited about the enormous market opportunity for Ralph than I have been to date.

With the team now executing on our strategic roadmap I.

I am determined to lead us through this transformative period and establish a foundation for <unk> long term success.

I will now turn over the call to kelcey to facilitate the Q&A.

Thank you T. J will now open the line for questions from the company's publishing analysts as well as pre selected question.

Some investors our first question will come from Greg <unk> with Northland capital market. Please Christine.

Hey, Thanks for taking the questions T J, Chris Kevin and Kelsey Congrats on the record order well.

Was just wondering it sounds like pipelines building are you seeing changing interest levels, some departments, either domestically or internationally or would you kind of attribute that more to your new go to market strategy.

I think it's a little bit of both Greg as TJ I think first off we at ICP definitely had a shift and change in the way chiefs and decision makers were coming to the <unk> booth and talking to US as an example in the past they seem to be more about we haven't seen it show it to US. This particular ICP it was very.

About we've seen it we would like to have it somewhat on my staff accurately said, we you should come and check it out and learn more and to make sure that we get it into our department. So a lot more awareness a lot of people have seen our videos have talked to other agencies, who already use bullet wrap or rapid reality and that referral business has certainly grown I do.

I think our new approaches are definitely helping us close deals faster than we had before in some cases and certainly having more follow up on even outbound approaches to our sales approach, but definitely.

Increasing interest in increasing desire to leverage both the rap and rap reality.

Yeah.

Great good years.

To follow up on the LAPD.

Nice to see that trial extended set 500 volt devices with them.

Just kind of wondering.

When you expect to maybe get more definitive results when that trial ends or.

Just anything more conclusive.

Yes, the trial started.

In late August and it was expected to last for 12 months in this phase part of that is so that they can gather data over time. So we're a couple of months into that now we are getting some positive feedback I've been out there to listen to the officers in the field and they expect to continue throughout the next year. So I think we'll have a lot more overt.

Time, they're looking at a little more longitudinally and we'll share that as we get more data.

Okay sounds good.

Regarding the new so the record orders of $1 5 billion and then you also mentioned a pretty sizable order.

In South America.

I'm wondering if any relative.

The relative size I guess, the best that order and then kind of would you expect both of those will be recognized in Q4.

Yes, so the South America order came in actually late in Q3, but we were already in a blackout period, which is why we didn't announce that sooner and that's a six figure order.

And Thats included in Q3 results the $1 5 million. Those are Q4 order. It was in October and so that will be part of Q4 results.

Great and I guess, just last one for me.

Just regarding your liquidity position do you think you have sufficient liquidity to bridge that gap to generating cash.

Based on your album, we do.

Yes based on our outlook right now.

Great.

Given where we project sales growth to be in the current cash we have on hand that that would be sufficient for us going forward.

Okay, Great I'll pass it on thank you.

Our next question comes from Allen Klee with Maxim Group. Please go ahead.

Okay. Thank you just following up on the question on the.

The two big orders is it reasonable to assume that both of them you recognize all the revenue in the quarter that you received it.

That is it one quarter good.

Yes.

Correct Alan so.

South America.

Dan mentioned actually happened in the third quarter. So that was fully recognized in the third quarter.

Larger EMEA order.

Happened when we received it and it occurred in in October so that will be part of Q4 revenue recognized in the fourth quarter.

Okay, Great I think I heard you say your goal is to keep on.

Operating expenses below $5 million.

Hi.

Is that still a goal once we get into next year, where you kind of normally in the beginning of the year.

<unk> kind of go.

And sales commission likes to.

Sales related costs tend to be a little more variable. So so I was just trying to understand how long of a goal is that thank you.

Absolutely that is our stated goal that we would keep.

Opex costs $305 million kind of in the foreseeable future.

No.

That will grow over time.

<unk> grabbed but we're going to be very conscious about how we do that so at this point, we want to keep costs low through deeper and going into next year.

We will be able to achieve that I mean, there is some seasonality as we mentioned just in cost structure overall, but at least on an average basis, we think will be below the five out of the rate of the 5 million Mark in 2023.

And then look I mean, we'll see ourselves take off I mean.

We're being very aggressive in our sales approach.

We were going to assume cells grow and build.

And so that could lead to some additional costs, but like I said, we'll keep a very tight tight lid on that are very conscious about how we expand our costs going forward.

Great and my last question is.

Are you still dealing with travel restrictions.

Restrictions for international just trying to sell.

Celebrated international sales or or have you found that about Scott better.

Feel better.

We have found that it has improved there are some regions of the world, where there is still more restrictions, but they are much better.

Here in Q4 of this year versus even.

Four to six months ago. So we've seen a major improvement and we expect that to stay fairly opening based upon the knowledge we have right now.

Thank you very much.

Thank you Alan we now have a few questions that we've received from investors I will repeat those now.

Question number one when may professional security agencies be allowed to work with this technology.

Currently right now in the U S law enforcement agencies are able to leverage <unk> and those that have different departments that work for those law enforcement agencies, but not private or professional security today, we're working on ways to improve that in the future and have engaged a number of avenues long term to try to improve that and allow that.

Open up much broader but as of right now it's still focused on law enforcement in the us.

And question number two what factors as wrap looking at to drive revenue growth.

On the main factors for US is really building that repeatable domestic and international sales and we're continuing to do that through our improvements in the strategic roadmap. Another element for US is building a customer success organization that is focused on our existing agencies today and really making sure we're supporting them as they grow to more full deployment.

Cross the agencies and help grow with them every step of that way and so we believe that supported and actually implementing a customer success organization will help us grow more intrinsically from our existing base of customers, while we're continuing to add both new domestic and international customers.

Okay P. J at this time that concludes our question and answer session. Thank you for joining us today for our third quarter 2022 earnings Conference call you may now disconnect.

Yeah.

Yes.

The recording has stopped.