Q3 2023 Digital Ally Inc Earnings Call

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Good morning, ladies and gentlemen, and welcome to the digital Ally, Inc. Q3, 2023 operating results conference call.

At this time all lines are in listen only mode.

This conference call may contain forward looking statements within.

We may use words or other expressions that are predictions of or indicated future events and trends.

And that do not relate to historical matters.

Right.

Rather they represent forward looking statements.

These forward looking statements are based largely on the expectations or forecasts of future events.

It 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 forward looking statements expressed in this conference call.

Readers are cautioned not to place undue reliance on such forward looking statements.

We generally do not publicly update or revise any forward looking statements expressed in this conference call.

Whether as a result of new information future.

Events or otherwise.

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 now like to turn over the call to Stan Ross. Please go ahead.

Thank you thanks, everybody for joining us today.

I have ready grain the president with me today Brody also as many of you know it's been at.

<unk> is the CFO as well during this time of our transition that.

To where we're looking at the spinoff with custom entertainment and some of the parties will go in that direction and others will be staying with the legacy business, but.

What we're going to do today, but he's going to give you a little overview of the numbers and sort of some insight.

Some of the things that we've done to dramatically.

You reduce.

Some of the expenses that we've been telling you all that we've been working on for some time and that I think was clearly shown on the.

The reduction of.

Some of them that are out there and you can see that the ships getting right.

Right It again.

Real excited about that and then we're going to spend a little time I know that many of you want to get an update on where we're at on sort of the timing.

The spin off of the custom entertainment I will tell you.

There is we've just found out that there has been a little bit of technical difficulties.

With some of the software being loaded up in regards to this call.

Nothing to do with digital ally.

With this call. So we're going to do our best as we can to inform you as well as we can but we will not be able to have a Q&A session. At this time, so hopefully we do a good job of bringing.

Bringing up to speed in <unk>.

Given the highlights on the numbers.

Yes, Thanks, Dan.

Instead, it was a quarter with a lot of change and a lot of them.

A lot of improvements on the SG&A and spending.

Spending side that.

Turn it directly impacts our bottom line. So I will just flow through the face of the financials first and then kind of through some other higher level point.

Wed like to touch on and then turn it back over to Stan.

So I'll start with the balance sheet at September 32023, we had a total current assets at about $19 four.

Small decrease since December 20 December 'twenty two.

Total assets was $51 4 million.

On a similar decrease as compared to year end of 2022.

Our total liabilities at the end of the quarter were $24 1 million.

Total current liabilities, rather and then total liabilities about $32 5 million.

Also we had stockholders equity currently sitting at $18 9 million.

Quarter end for Q3.

On the P&L side revenues were north of $6 3 million.

Bit of a decrease for the same quarter of 2022, but part of that is part of our right sizing, particularly in the entertainment side with the ticketing.

Lessening our pay per click in marketing dollars can directly impact our revenues, but positively impact our bottom line.

Similarly, with cost of revenue Youll see a large decrease there that can really correlates with the decrease in revenue.

And then as we've been talking about our gross profit for Q3 of 'twenty three was north of $1 2 million.

Compared to the same period in 'twenty two it was less than 600000, so we've more than doubled our gross profit.

Quarter quarterly comparison from 'twenty two 'twenty three.

Similarly, our SG&A was down about 800000 to $6 4 million.

From the same quarter of 'twenty two.

And then one other item I'll call out so in the other income obviously, we got the warrant derivative liabilities, which is just a change in.

Liability for the warrants we have out there just due to some accounting nuances. So that was the change in fair value of north of eight or one 8 million.

You'll see a line of gain extinguishment of liabilities of about half a million dollars.

As part of the reduction in sponsorship and marketing expenses.

Push for over the past quarter.

And which we were able to rid ourselves of quite a few liabilities and contractual obligations.

During the quarter and moving into Q4, as well as well as terminating future contracts that we werent seeing the results out of that we wanted so.

It shows that $5 million benefit here, but.

Internally, we know about theres, several millions that where we're saving moving forward that might not necessarily be reflected on the income statement, but.

They they will come off in future years on the expense side.

So in short our net loss for the quarter was about $3 7 million.

Compared to $1 9 million.

In the same quarter of last year.

Comparatively the same quarter of 'twenty, two had a $3 $6 million gain on extinguishment of warrant derivative liabilities and $1. Two on change of fair value. So it was flipped about $4 6 million with a warrant derivative liabilities in 'twenty two.

Comparatively it's still very similar to and frankly, an improvement since 2022.

Quarter over quarter.

Our revenues were down from Q2, but Q2 had custom 40th concert that they put on in May.

More of those to come which will continue to improve revenue.

With gross profits.

Our.

Deferred revenue number as we always like to discuss I'd point out is approaching $10 million is at $9 9 million at September 30 of 'twenty three.

Up over $2 million from December 31 of 22, so it's just continuing to see that increase over time and obviously like we.

We always say it really brings our.

Yes, starting sales number each month of every quarter well above zero. So we'll just continue to recognize those contracts that are three to five years and just continuing to stack those up.

The same point of last year, our deferred revenue was less than $7 2 million. So.

At $2 $7 million increase from the same period last year, so thats over a 12 month span.

And we just that's only going to continue to grow and grow. So that's an exciting piece for us to have sitting on the balance sheet.

Part of our net loss this quarter was due to large inventory write offs as an expiring products and trying to scrap some older products that had been on.

In our warehouse for quite some time.

We had some R&D for some new products coming up and hopefully we will put those out in the market here in 2024, but obviously the R&D expenses are incurred now.

Obviously, there are several expenses related to this business combination with cloverleaf that we're pushing through and we'll have an update on that here shortly but.

There is several kind of one off pieces in these numbers this quarter and likely in 'twenty four or in Q4 as well as we work towards this transition into this transaction being completed.

And then from there I think we will that will really see an improvement on all sides.

Some subsequent events.

I'd like to touch on.

Appointed a new board of director Duke Dougherty.

We appointed in October 17th file an 8-K. So please reference that if you'd like more information on it.

We completed on October 26, the loan agreement in mortgage too.

Take out the convertible notes, we had outstanding of $3 million.

All of those and put a mortgage on our building here currently that was free and clear and paid for in cash several years ago.

So again this is all in the 10-Q and I encourage you guys to go into the queue and take a full look at all of this as well in greater detail and lastly, a brief update on the business combination with cloverleaf, but as for what's filed in October.

We have since received comments back.

From the SEC and we're working to provide responses to those as soon as we can.

We will have to throw in Q3 numbers as Q2 numbers or AD sales. So we'll get hopefully responses here as soon as possible back to the SEC move this forward.

And with that I'll turn it back over to Stan.

Let me touch on small yes, thanks Brody.

In regards to the numbers I mean I think.

The fact that the reoccurring differ.

Deferred revenue continues to grow its almost at 10 million says an awful lot of the ability and longevity of web.

No surprises there continues to.

It kicked off good cash flow for us as well and then you've got.

The new products that are really starting to get out their new budgets are coming up.

<unk> that have had long term contracts with other vendors are now getting to see.

The new.

Digital ally products.

He had been very well received at all the shows have been too and those are reflected in the reoccurring revenue or slash deferred revenue.

We're continuing to see in building upon subscription model.

Where the video side of things.

Anticipate seeing.

Going into the tail end of this year and obviously in 2024.

Some real nice improvements on the commercial lines.

We've been out there with the with the new product.

It's been well received a lot of <unk> have been going on so again I think the the legacy business is poised to real well to continue to.

Bringing in new customers and continue to retain their existing ones with the quality of the new products that we're bringing along.

Also Brody pointed out.

The revenues quarter over quarter, and again that was because of the concert that customers were 40 put on.

I think it generated almost $1 1 million.

Which was a real nice out of the box.

Small concert that we did.

Somewhat in our backyard here.

We do have anticipated additional.

Concerts that we would look to.

Do quite a few.

Obviously, not just one off quite a few in 2024, so while that may be more of an impact on the customer entertainment and then at that point in time to spin out.

That still should be looked at as a very positive because at the end of the day.

Upon the completion of this merger.

Youre going to all the digital ally shareholders will also be custom entertainment shareholders.

Excited for that to continue to move forward.

I know that many of you may know this but some of you may not just trying to give you an indication of timing on how how these things work, but regionally. The S. Four was filed the SEC had 30 days to get back to us.

They did comments Ben.

Addressed and now it's just a matter of plugging in the new.

I do want to say.

Third quarter numbers.

Because Q2 <unk>.

And there is so Q3 numbers, we get plugged in and then that will be filed with the SEC.

At that point in time, they have 10 days to.

Essentially respond.

And.

Hopefully.

At that point they come back with very few comments, if you have any.

And should be fairly.

Quick to respond there shouldn't be any financial issues by any means far as them. The numbers are just clarification that their role is really just to try to do the best we can to make sure that all investors have a real clear understanding.

Educate ideal of the investments that they may be making so it's more about making sure that all of the disclosures are in there and we have no problems with that with both companies being publicly held we've been doing that for some time.

So excited about.

Getting close to the finish line on the custom entertainment spin off.

Of course, I will be going with the customer entertainment.

I use it a little bit of my background.

Or is.

I guess, what I was raised.

Raised with very familiar with the markets and so that all be go on Duke will be joining me is one of our board members.

We were able to recently.

We have identified.

Our CFO that should be coming onboard for custom entertainment. So thats getting all the all the management people are getting put in place.

So it's it's closer than we think.

Especially with the holidays the way they are coming up.

This will fly by and we will.

Before we know it will be making the announcements and so what will happen on that to us at that point in time.

We will make sure that.

Obviously, everyone will know clover will be the one making the announcement they have they'll do a.

A quick shareholder.

Vote Slash hopefully approval to go ahead and finish.

What was started here. Meanwhile, we will continue to move forward on building custom entertainment, both the ticketing platform in the.

Production platform.

In the coming weeks coming months I think.

Youll see some announcements on that I really apologize.

We're unclear on why.

We can't bring up the the board and everything to to go into Q&A.

Not sure where the problem is but.

If there is some questions that come up or anything that we can answer.

That is already out there that you just need a little more clarification on <unk>.

Please reach out to <unk>.

We will do the best we can.

Help explain anything that may be out there that we haven't addressed.

Rudy you're getting final comments on anything or no I don't think so like I said earlier.

Encourage you guys to take a look at this 10-Q.

All the all the details you could want.

I would dig into there yet further questions and comments, obviously reach out to us.

<unk> is a great source too.

Really see where the company's at.

We're heading so.

Alright, well listen thanks, everybody for getting on again deepest apologies for not being able to get into the Q&A side of things but.

We will be back in touch I'm sure very soon and we will do it.

We'll keep you guys abreast of.

The timing of the.

Sure.

Ladies and gentlemen, this concludes today's conference call. Thank.

Thank you for participating you may now disconnect.