Q2 2023 Digital Ally Inc Earnings Call
Good morning, ladies and gentlemen, and welcome to the digital ally incorporated second quarter 2023 operating results conference.
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There can be no assurance that the forward looking statements contained in this document will in fact transpire or prove to be accurate.
I would like to remind everyone that this conference is being recorded on August 15th of 2023.
I will now turn the call over to Stan Ross CEO . Please go ahead Mr. Ross.
Thanks, Michele thanks, everybody for joining us today.
Also in the room with me is Brody Green the President and also.
We have Tom Heckman.
Is called in as the CFO , but Brody now will be.
Conducting the call today.
Thank all the <unk> employees, and especially the hard efforts that went into getting the 10-Q filed on time.
Which was really.
Task when you look at.
The significant amount of work that is also going on concerning.
The announced.
Business collaboration agreement that we have.
Turning custom entertainment with cloverleaf so it wasn't an easy task a lot of.
Folks at where a lot of different hats, but.
Real nice to see that everyone pulled together and got it done on time.
Also very proud of seeing the.
<unk> starting to really start to come into play that I think we talked about on the last call concerning the moves that we started making some transitions that we.
We're making to get away from some of the.
Contracts that we were in in regards to tickets smarter.
That has really helped to dramatically bring down a lot of the expenses so while the revenue side.
It was off a little.
That is very explainable, recognizing that we have such a.
Massive amount of capital allocated towards.
Some programs that just were not successful for us and so getting through those and get those on one hand.
It was quite quite a project.
The other thing is.
Yeah.
This was a very important.
10-Q to get completed.
It is also now gives us.
Very current numbers that will be a big part of the next filing that will be done.
Very shortly in regards to.
Essentially its an ask for those that youre familiar with.
Spec purchases.
Anyways so.
Now that we have that.
I think we're going to see a lot of.
Our movement towards the custom entertainment cloverleaf agreements, so with that being said I'll, let Brody go over into a lot more details on the numbers and then we'll come back with some comments and then open it up for Q&A.
Thanks, Dan.
So I'm gonna roll through the numbers I will sorry, the balance sheet and then go through the P&L and touch on a few other points and then probably turn it back over to Stan to go further detail on the transaction itself is im sure thats going to be.
Hot topic for this call. So I'll just briefly go through the balance sheet as you cannot guys everybody saw in the 10-Q.
Our cash and cash equivalents was about $2 9 million.
End of the quarter.
Total receivables, we had about $4 6 million in receivables along with a net inventory of $5 eight and prepaid expenses of $7 million.
Current assets to a little over 20 million along with some other non current assets. Our total asset value at June 30 was $53 5 million.
Our current liabilities that at $23 4 million with long term liabilities, bringing our total liabilities of $31 million. So you can see his total stockholders equity at June 30th of about $22 5 million.
With $2 8 million shares outstanding.
At June 30, and I think that number stands true today as well.
On the P&L side, our total revenue was just under $8 3 million as Dan mentioned, it's slightly down from Q2 of last year, but as we go down this.
P&L, you'll notice it really directly correlated with our cost of revenue as we rein back quite a few things on the ticket smarter side, especially the pay per click and some other sponsorship agreements that didn't really.
<unk> reached the benefits that we are hoping for with a high price tag.
Our cost of revenue for the quarter was $5 five brand of gross profit to two 7%.
For the second quarter of 2003.
Up almost as up over $1 million from the same quarter in 2022 so.
As Dan mentioned, we really focused on working on our cost of revenue.
The increase in those margins.
You can see in a $1 million boost in gross profit for the quarter, even with lower revenues.
You can see our total SG&A expense was just under $7 7 million, bringing our operating loss of $4. Nine. However, that's a dramatic improvement from the operating loss of $6 seven in the quarter prior year prior.
Also there is some other income or expenses flowing through related to the interest expense for the convertible note. We did in April .
Along with that.
Cruel, we put together for.
Lawsuit, we're dealing with as well, bringing a total net loss to $8 3 million for the quarter.
Eight four once you pull out.
Income attributable to the medical billing side.
One point I would like to touch on is our deferred revenue balance so thats up $1 $5 million from the beginning of the year. So we have a current balance of $9 5 million in deferred revenue at June 30, 'twenty three so.
As it relates to the subscription model and that.
To grow and evolve I think this quarter, we had over 36 new subscriptions.
300, pros and almost 50 Evo is included so you can see those.
From all of US are just starting to stack up as we've discussed historically and I think that deferred revenue numbers is going to continue to grow quarter over quarter as we move forward.
Net inventory was $5 8 million at June 30, that's down about $1 million from yearend.
As we continue to try and right size, our inventory levels to keep less unnecessary inventory on hand.
And rapid capital in that sense.
Related to the $3 million convertible note. We did in April we issued a little over 1 million warrants along with that those be at $5 $55 50 exercise price of $6 $57 50.
Each tiered up as we've disclosed previously.
So that's all high level stuff. We also during the quarter completed our first event under the has some 440 <unk>.
Division.
That featured Chris Young and Gabby Barrett. It was a very successful show I think everybody that attended great. John We are pleased with our win and obviously, that's just a stepping stone for us moving forward as well look forward to announcing more events, yet this year and especially into 2024.
It's good to get the first one under our belt.
From there.
Outside of that we have some new products coming out on the <unk> side and the <unk>.
<unk> for Q3, and Q4 of those being the Evo fleet the commercial in car systems, along with the interview room solution.
It does.
<unk> all been disclosed through press releases so.
Just about how the marketplace are taking those and we'll see some good results here in Q3, and Q4 with those newer product lines.
For any further details.
More detail I encourage you guys to all read the Form 10-Q.
We filed yesterday afternoon.
And with that I'll, just turn it back over to Stan and I'm sure. We'll go into more detail from there, yes, thanks, Brady and again a couple of things.
Yes.
And the environment.
Yes.
Sure.
The stock markets and in.
How hard it is sometimes to really get.
Lot of exposure out there, especially go through the summer to win there is there's so many people doing their vacations and they are off on their trips, but schools kicking back up and I think people will start focusing again on other investments, but to sit there and.
Again digital I have in the market cap of only.
$10 5 million and shareholder equity at $22 5 million.
<unk> revenue.
Brody was talking about is really just the video solutions side of things at $9 5 million.
And then when you look at the.
The value that the medical billing company.
It continues to generate and build.
Right now again with the ticketing platform and the customer for 40, having the ability and has had it.
Our very first.
Production or concert festival will have whatever you want to call it.
Which really did well.
Pleased it probably exceeded by.
As much as 20% of what our target was so.
It turned out was great the lineup was great.
Without any.
Any hiccups in regards to the advance so looking forward to being able to repeat that not only repeat that model and back to you in Kansas City again, but we have identified numerous locations that will be announced.
In the coming months in regards to Quebec in the similar festivals.
In other parts of the country in which we will also be utilizing our ticketing platform.
To maximize the profitability on those so yes, it was I.
I was very very pleased and continue to be.
Be very excited about.
The direction that <unk> gone and the opportunities that it has in front of us, including some new and innovative.
Products that.
I do believe that will be talked about before the year's out as well so.
Shall I think I'd like to go ahead and open up the floor for questions and answers.
Thank you, Sir ladies and gentlemen, we will conduct a question and answer session. If you have a question. Please press the star key followed by the number one on your Touchtone phone you will hear Tom Croft acknowledging your request.
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The first question in the queue comes from Allen Klee with Maxim Group. Your line is open. Please proceed.
Hi, This is Derek Glynn Burger on for Alan.
First question is just if you could maybe provide an update on how sales are going to fleets correct.
And as we go into what I'm sorry.
Sales to our fleet.
Fleets fleets.
Yes.
Really as a product I think we rolled out in early Q3.
We had a quite a big pipeline prior to that.
Several <unk> out there right now as well as some existing customers that are starting to utilize that new commercial product.
As well as we finally finalized.
Some of this pricing and whatnot with our large insurance partner, we have so they can push it out to their current customers as well so.
It's really starting to pick up it just rolled out recently, so I don't really want to speak to sales that happened in Q3, either but it's really gaining some traction early this quarter and into this latter half of the quarter as well that I think we're going to see the fruits of that labor here pretty soon Alan one other thing too is you may <unk>.
Call that I think we've talked about it maybe a little bit on the on the previous call but.
Neat thing about.
Insurance company that we're working with they actually did a white paper on <unk>.
Fleet.
In car video system.
Brett.
Brody you may have to help me with the numbers again, but essentially they've seen a such a dramatic reduction in the incidences that that particular.
The company was having that they paid for almost 90%.
The cost of the equipment and the very first year of a five year contract with just the reductions that they had and costs associated with those incidences. They had prior to the year prior.
So.
They clearly clearly are a big fan and advocate of.
But did you analyze commercial in car system, and they've got a 200 reps or so that they'll be pushing it out to some added 35000.
The customers that they have.
So we've really got to be.
Top of our game in regards to making sure that we can keep up with what we hope to be a very strong demand.
Be able to have the product in house and get it out to them.
Okay, great. Thanks for that color there.
I just wanted to touch on the medical building segment of the business I was wondering if you maybe saw any opportunities to expand that.
And just your overall outlook.
Right now, we've really been focusing on so part of that we're buying.
Decent mom and pop sized companies and really pushing for increased gross profit within those companies.
Some of the <unk>.
Procedures and practices that we have in place with our managing member. So I think we've been the process of maximizing the profitability of those.
For the time being with us for recent acquisitions.
But our eyes are always open and looking at other opportunities as well and that same.
Same segment. So right now were just working on right sizing and maximizing the bottom line of the recent acquisitions, but we're also keeping our ear to the ground for potential opportunities.
Pop ups.
In the near future as well.
Okay great.
I just have one last question.
Just relating to revenue I was wondering what percentage of that is recurring.
I want to say.
Our current per quarter is about three quarters of a million dollars every quarter.
And Thats all pertain to the video solution side.
So.
I would say on the <unk>.
Our solution revenues, probably 35% to 40% of the quarterly recognize revenue.
Is that recurring portion.
Got it alright, thank you for taking my question.
Absolutely. Thank you thanks Alan.
The next question in the queue comes from Robert Cowell with Allergies capital. Your line is open. Please proceed.
Good morning, Thank you.
Just a couple of questions on the entertainment segment.
I appreciate your comments earlier on the continuous vessel I Wonder if you could just give us a little more color in terms of what kind of attendance relative to expectations. The reception you had.
The marketplace sounds like you generated from those product revenues and as we look forward do you expect that to really start to generate so looking at the 2020 for 2025, the lion's share of its revenues from proprietary events such as this one thanks.
Yes, so look.
Give you a little ideal.
We have a sort of a structured.
We have an entity called <unk>.
<unk> hundred 40, and it is the production company that actually puts on.
Festivals.
So to give you a little insight on what we do before we go in and.
Take on it even.
Our attempt to look at a market.
And then a lineup.
Obviously the facility the food and beverage in the deal terms that we do a full blown analysis in regards to the economics of it and so in this particular one.
Being here in Kansas City, they've had quite a few.
Advanced going on in town I think.
Brooks and Dunn was just a week or two earlier at the T Mobile center and so we are essentially doing this in a minor league ballpark in the actual base ballpark.
So our goal was trying to exceed over 6000 tickets sold and I think we came in right around 7200. The other thing that was a little bit very.
A very nice surprise is the food and beverage side of things we were looking at about $29 far as per head and we came in closer to 49.
That's sometimes a real combination to weather because weather was beautiful I mean, we got lucky.
And it just it was just beautiful so there was a lot of people will have a lot of fun.
They were out there we are.
Actually putting a presentation together that we will do an 8-K filing so that you could take a look at just.
The attendance.
The people, having a great time and get a feel for what kind of a bit that we put on.
So we clearly we have representatives from other venues that came to town too.
See what we were talking about <unk> the country reach festival.
Everything that I've heard from those that are whipped back is how soon can you come in new country routes at our festival and.
Is there a chance that you could do one yet this year things.
Things along those lines. So it went really well.
Our expectations are.
Try to do somewhere.
I'm afraid to throw out a number a bit.
Will.
Yes.
I think the country roots itself.
That brand that brand, we'll try to do approximately 10 of those throughout the country in 2020 for now we will mix that up with other different genres as far as.
We may have.
440 rock classic or something.
Just have a different mix within what you can do there what.
What I can do is one day I'm doing the country genre and the next day on May be doing the rock in that way then your numbers really get to look nice because you're essentially already hit the stage the lights the power.
Sure.
Arena everything is already there or if you're really doing is switching out signage and change it up the theme a little bit right. So that's when I think we're really going to start to maximize some numbers associated with the festivals that we'll be able to put on.
Possibly even that in three days and the the bigger cities. So we've got a lot of them identified like I said there will be.
Our presentation in fairly soon that we will file an 8-K and you'll be able to go on there and then it'll have some not only.
Alert you to.
What happened, but also we'll go ahead and identify some of the cities that we anticipate doing this app.
Great well, please do one on the east coast and selecting the 10, thanks very much you got it.
Yes.
And ladies and gentlemen, as a reminder to ask a question. Please press star one.
Next question in the queue comes from Bryan Lubitz with incredible.
Please proceed.
Good morning Boys.
Good Brian .
Alright, good glad to see the SG&A is going down the expenses are coming down.
And obviously, we're working through the cycle with the sponsorship deals we fully through that sponsorship deal.
I think there are real close Brian .
They may have a little bit that wraps over.
Sure.
Through the remainder of the year, but I think there is.
There's stuff there that we were able to negotiate some value out and what I mean by there is it doesn't have to be just a 100% driven by.
Ticket smarter.
So what we may be able to do is utilize the.
The spots the money that we're committed to spend for <unk>.
Advertisers for cut the roots of our next festival or some things along those lines.
So I think I think we're at a point, where what what little bits remained dean.
We're going to be able to get.
Some value out and whether it would be like I said, the advertising of concert or maybe even the announcement of new products that are.
Video solutions coming out with.
Brian Real quick I also think the school deals and whatnot, we had their year end is 630, because they do the summer year ends.
I do think in Q3 Youll see that number continue to go down and I think after Q3, probably should be where the number lands going forward without some other adjustments, we make along the way, but I do think you saw still a bit of a implications from those deals hit Q2, I think Q3 will continue to see improvements there just do.
What the schools year ends are.
Got it got it okay.
Okay, so as far as.
With the custom entertainment when you guys moves with the merger does that that deal I assume just goes with you guys over its got some entertainment.
Canceled out because you no longer tickets smarter right.
Correct.
Okay Alright.
I actually have two questions more I'd like if you guys can indulge me.
First one is about the actual merger.
And I know Stan you talked earlier about filing the S. Four.
Hopefully thereafter, we can see you on that road show. So we can start to see exactly what's going to be.
And it out to the shareholders.
As far as the $125 million takeover.
Just looking at the shares that you guys have outstanding and the shares that we have outstanding.
If I'm reading this right $18 million is coming in cash and the rest of it is going to be coming in the form of stock.
Well the way the way it's structured is based upon.
And of course with specs they have the ability to do.
What do you want to say, some redemptions and stuff like that and they had a meeting the other day and had minimal redemption. So that was very very encouraging.
So once the.
I will say this fact really understands the customer entertainment story.
Everyone will be able to really wrap their arms around it and so then then you really get a sense of the amount of cash versus stock, but right now I think their stock is still trading north of $11 a share.
Is where it's at.
Okay Alright.
But that could change, but essentially shareholders of digital are going to get roughly $125 million take over for the custom entertainment that's the value.
Correct.
Okay Alright.
So now as far as and this might be a Brody question, because obviously stand we know youre going to be moving with.
With customer entertainment.
As far as just looking at your guys balance sheet, having assets over $50 million.
Having 9 million in deferred income coming your way in.
20 million worth of revenue roughly that youre going to be looking at and then looking at a market cap of 2014.
Again, we find ourselves in this spot where.
I don't know if we have a poison pill a protection for us, but what you guys are generating the market's just not simply giving you value. It at some point Brody or you're looking to.
Shop, the company because again, you have 50 million in assets out there and have a market cap of 15, but then to sell a portion of.
The company had 125, just the numbers, it's just not working out where you guys getting valued be public.
Yeah, and I think thats part of the driver for us doing this spin off slash.
Sure.
Agreement with the merger agreement.
Provide clarity between the two companies and two stocks to show.
What digital ally has and what customers because we think theres been a lot of confusion in the marketplace about what the company is because we were kind of a conglomerate of quite a few things so.
I think we're going to see how it plays out post <unk>.
Separation.
See if we can start getting it.
Increased value in the marketplace for what digital ally has as well as what customers going to be and I think we'll go from there. There is no eminent plans to shop it around by any stretch, but yes. We're just I think we're going to see where the market takes it. After this separation is this kind of one of the driving forces is the lack of value we're getting as we currently sit.
Paul.
Yes, because I mean.
Our market cap of 15, and a portion of the company sold for 125 it just.
Landing for the shareholder as you guys know I've been with you guys for a long time.
It just.
For whatever reason, we're not getting the respect that we deserve and I know I said guys I had two I actually just have one more.
This might be a.
Upon question, but.
I'm going to ask in regards to this year being really really.
Positive one that.
Hi.
And I know you guys have had a lot of AI incorporated into your body cameras as well.
The thermal views and things of that nature do you see digital ally going more down that route that road in the future in regards to AI with your products.
Yeah, absolutely I think the whole market is going to trend towards AI in some way shape or form and I don't see us not being included in that I think youre going to have to utilize AI in some fashion down the road now to what extent.
That's yet to be determined I know AI is also a bit of a scare for quite a few people. So it's a fine line to walk obviously, we know AI is coming but.
But yes, we careful with how how much.
Dabble with it in.
It'll be interesting to see how we develop that into our current products and systems and to what extent it will be.
But yes, we are looking.
And where it is whether the market is going we all know that.
So the thermo view has like facial recognition and stuff like that are included in it right where else do you guys have AI attached to your products right now if any.
Hi.
Brian I mean, obviously the.
The in car video systems, and even a lot of the body cameras have some of it in and I will tell you this as well I mean.
There is ways to continue to bring AI, even into the custom entertainment side of things. Obviously, we've got a lot of people coming into arenas, we're going to be wanting to make sure and monitor that.
Everything from <unk>.
On the ticketing side and keep track of that to where you are not only a production company that's doing great events, but youre a ticketing company that is working right along with the security of those events. Therefore, we can identify if there happens to be someone let's say on the no fly list.
In other words.
They're not supposed to be attending.
Taylor Swift concerts, so AI is going to be big.
Our world throughout.
Well listen guys I am glad to see that.
Expenses are coming down.
Revenues, hopefully will start going into right direction for us and we're all very excited to see that S. Four that you're talking about Stan and obviously in the next leg of the.
The custom slash digital chapter so.
Kudos to the quarter and looking forward to seeing more news from you guys soon.
Thanks, Brian .
Okay. I think we're going to go ahead and wrap things up now and really do appreciate the.
Everyone that attended I appreciate the questions.
And like <unk> said, please take a look at the 10-Q please keep.
Youre alerts on for win.
<unk> filed and also the presentation that I referred to earlier.
If there is some additional questions feel free to give us shoot us an email or call and we'll try to get back to you and answer those.
That we can that we can answer.
Meanwhile.
I could tell you on a personal front, how excited I am to see the direction and the improvement in <unk> and.
And just the excitement for all of the digital ally opportunities that are ahead of us and so.
Hopefully that.
Turns in and monetize for you all so thank you everyone have a wonderful day.
We'll talk to you all soon.
Thank you ladies and gentlemen. This concludes your conference. Please disconnect your lines.