Full Year 2023 Digital Ally Inc Earnings Call

Good morning, ladies and gentlemen, and welcome to the digital ally Inc. 2023.

Earnings results Conference call.

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I'd like to remind everyone that this conference call is recorded on April 2nd 'twenty 'twenty four I would now like to call.

I would now like to turn the conference over to Stan Ross. Please go ahead.

Thanks, Julie and thanks, everybody for joining us today I have Brody green with us the company's president and Barry will end up going over the numbers in a little.

In more detail.

Touch on a little bit of them some of the highlights for the year and then also open up the floor after while for Q&A, but.

First of all again would like to thank everybody does.

There's a lot of employees for their hard effort this year.

It was a tough year for us in the economy.

Different hurdles that we had to overcome that.

We were able to do so we continue to.

Move forward and develop the custom entertainment.

Arm of <unk>.

Digital ally and continuing to move forward with the <unk>.

Anticipated merger with Clover.

Hopefully here in the near future with this.

10-K being filed.

Numbers being fresh.

We'll be able to submit that to the group and hopefully there'll be able to then move quickly ahead.

Do a follow up filing on the gas for looking for the FCC's.

Final approval so that.

The merger it can happen and we can move forward on that so.

I'm very pleased that we continue to.

<unk>.

Tried to do our best and have.

Been able to secure and continue to.

Maintain the the ratio that the digital ally shareholders will be getting the end customer entertainment.

On the spin off hopefully that.

It's true.

As we move forward and get close to the <unk>.

Actual execution date of the merger so right now it's a four to one.

Clover, so CLO ESR ticker symbol.

So anyways allowed us been accomplished.

A lot has been accomplished.

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Subsequent events that we could touch on including a couple acquisitions that had been done on the customer entertainment and a development of a new ticketing platform that will enhance the additional.

Efforts that ticket smarter has already succeeded to half. So it was all could talk in here for a little bit let Barry jump in on the numbers and then we'll get back to open this up for Q&A.

Yes, Thanks, Dan.

As Dan said I'm, just going to run through a brief overview of the numbers for the year, obviously I'm sure a lot of you have been on the quarterly calls as well. So this will be fairly similar to those as far as what we're going to touch on and I would encourage all of you too.

Take a dive into the full 10-K to get a full scope in full detail of our annual numbers.

We'd like to see greater detail. So just to start off on the balance sheet I'll run through it really quick we had cash and cash equivalents at year end of about 680000.

With.

Are sitting at about $1 6 million other receivables at three one with our inventories down to three eight for the year, which is part of our goal during the year was to get our kind of right size, our inventory across all segments.

Which includes the shield division and kind of our divestment from PPE in that sense as Covid has resigned to quite a bit.

Along with right sizing the video solutions side, the old stale inventory, we have there and kind of cleaning that up along with ticket smarter as reduction in their ticket purchases. So those weren't yielding the greatest profits and more focusing on the service side.

And as far as that segment goes we also have prepaid expenses sitting at about $6 four bringing our total current assets.

15, six at year end.

With other total assets, including PPE at $7 3 million, some goodwill and other intangibles at $16 five so that $16 five about $12 million of that goodwill.

On amortized intangibles with four five of that being other intangibles, mostly related to the take a smarter acquisition from September of 'twenty one.

Their assets are spent $6 six bringing our total assets at year end to $47 million.

We're down in liabilities, we have AP is 10, seven other accrued expenses of $3 3 million.

Either lease obligations of 300000 with contract liabilities of $2 9 million all of this brings our current liabilities to $22 5 million and then we have other long term liabilities, including the mortgage on our building, which was a piece of that we pulled out during 2003.

It brings our total liabilities to $35 6 million, which has our total equity at 11 4 million at year end stock.

Stock Wise, we still are just sitting at like stands at 2.8 million shares outstanding.

Keeping that.

That distribution ratio the same since we first announced this acquisition, which is very important to us as far as what we wanted to do for our shareholders.

Just to touch on a few highlights on the balance sheet. Our deferred revenue is now sitting at $10 3 million at year end.

From just under $8 million at year end, 'twenty, two but up from $4 3 million at year end 'twenty one so.

Really that has grown by over 200% since 22, so over two years, it's grown from about four 3% to 10 three so we're excited to see that continue to grow sales of our subscription model is paying off and.

We're almost to where I think we're in year three of that so one or two more years until we have a full full.

Full runway with versa.

One time sales without a full recognition of five years at a time quarter over quarter.

As we approach one mature subscriptions.

You touched on inventories.

And that's how we're right sizing those so that's that's the reason for that decrease.

That was all our intent for the year.

On the income statement wise of our total revenue for the year was $28 2 million with our cost of revenue being $22 5 million. So we had gross profit of $5 8 million, which was a dramatic improvement from 2022, where our gross profits were only $2 3 million on even higher revenues. So.

Our goal to right size, our profit margins and focus on focus on profitability.

Our margins paid off this year in 'twenty, three you'll see our SG&A.

We continue to do in our R&D, that's mostly on the video solution side. So it was $2 6 million as we innovate several new products that we're excited to get to market hopefully latter half of this year of 24.

And that was some.

Other products, we think we were able to launch throughout 'twenty, three and then SG&A, we're sorry to selling and advertising that.

<unk> was down by about $2 2 million to $7. One for 23 is another part of US trying to rein some things in our focus on working towards profitability, particularly in the.

Taking smarter segment I believe for this expense.

General administrative that's also down about $2 $2 million year over year, bringing our total SG&A to $28 million.

But just about $4 million since 'twenty two.

There is some other income items youll see on our P&L a few of them are pretty substantial.

$3 $1 million interest expense related to convertible note we did throughout the year.

We wrote off a legal.

Part of the legal settlement, we're dealing with the one of the lawsuits were in for the gloves with Coca Cola.

It was about a $1 $1 million write off along with loss on conversion of convertible debt of $1 one related to the convert.

So that's just a few of the high level items throughout that other income section.

Just to give you some context of what those pertain to.

Similarly the.

Shareholders' equity like we touched on relatively unchanged from year over year, and we had $2 seven 2 million shares outstanding that 12 to 20 or <unk> 22, and we're at $2 eight at 12 23, so really a minimal change in stock shares.

Standing at year end.

Again, we want to highlight the gross profit improvements that was a big piece for the year.

That was really part of our mango along with right sizing inventory and just working on bringing down the SG&A. So.

Obviously, there's still more work to do and all of those all of those line items, but it was nice to see progress.

And if can improvements in gross profit the video side went from a $1 $2 million of that loss gross loss last year to a $1 $3 million gross profit this year.

Similar similar on the entertainment side only a 300000 dollar gross profit in 'twenty two.

$1 $7 million gross profit here in 'twenty three.

Is the bulk of those were greatly improving their margins year over year.

And again throughout the 10-K Youll see the segment data and there are probably two or three times, particularly in the footnote.

So if you guys want to further breakout of the revenues gross profit operating income and whatnot of these particular segments I would encourage you to take a dive into those footnotes throughout the 10-K.

And as Dan mentioned quite a busy beginning of 2024 as we had a lot of subsequent events.

Here in the first three months of 'twenty four.

One thing I do want to touch on just two.

Okay, because I'm sure it'll come up in Q&A. So we did get a notice of failure to satisfy continued listing rule from NASDAQ on March 14th.

That was due to a board member revenue step down during Q1. So we have until January 30, sorry, we have until the end of the year or our next annual meeting to get that resolved and our plan is to.

Can you get that resolved here shortly.

Annual meeting this summer.

It'll it'll pretty.

Pretty much be resolved with the split.

Successful transaction with Clover.

The board will be shifting at that point anyway. So we'll look to get that resolved here.

Shortly in the next few months.

And then as Dan touched on as well the business combination with Clover as far as the S. Four goes it's still moving forward.

We filed another S. Four eight I believe back in February.

We plan to file our next one here shortly in our comments, we're very minimal on the last round. So hopefully this hopefully this is the final version we have submitted to the SEC and we will get the thumbs up and be able to go effective.

Here in the next four to five weeks.

Sam I'll turn it back over to you. Thanks, Brian.

Yes.

This has been a long long <unk>.

Germany in regards to.

This acquisition with Clover in regards to the custom entertainment and spinning that out.

But as you can tell and again like you said please take an in depth look at the 10-K, because theres a tremendous amount of improvements have been made in so many different.

Areas on behalf of digital ally and so there's a lot of a lot of.

Good things, that's going to be here with the legacy business even after the.

The merger is completed.

Brody and his team on the video solution side.

Mobility healthcare.

I think you have a lot of things.

Right side.

And then we're going to continue to make those improvements.

On the custom entertainment.

I was excited about having the opportunity and couldn't have done it without the.

Yes.

The assistance of the principles that country Stampede, but that acquisition just so that you that may not be aware.

Stampede, it's been around for roughly 28 years, its the largest country Festival, maybe festival in definitely in the state of Kansas, if not throughout the Midwest.

And it's in its heyday would have over 150000.

People.

Visiting the event.

On a given weekend and so usually it was maybe a four day or even a three day event so for us to be able to acquire that have such a legacy.

Festival, that's now part of.

The family of digital ally and custom entertainment.

Is really the blue.

<unk> for US we also have cut your roots, which.

We look to be announcing its 2024 and possibly later in the year the 2020.

Five campaign on its festival.

We do have our sites.

A couple of other opportunities that.

We look to expand on so that.

Customer entertainment has multiple festivals that it has underneath it is about two different ticketing platform underneath this belt.

And really have the capability of doing a lot of this in house, meaning everything from the production side to the ticketing side to the marketing side.

And then EBIT have a big say in everything from the merchandising the food and beverage parking.

To try to really maximize the value.

That we and the custom entertainment team can bring to the table. So very pleased with that acquisition very excited.

Excited about just the newly launched custom tickets I think youll start to see some noise out of it.

And the continued growth that we've got laid out not only just through here in the Midwest, but we'd look to expand.

Our into different markets.

The coming years for sure if not later into 2024, so real excited I do think that we're close on.

Given the revised S. Four submitted down because the numbers are fresh.

Like Rodney said hopefully this is the last go around because they were just minimal.

Amount of questions that the FCC had concerning the transactions so.

Julie Let's go ahead and open up the <unk>.

Lines for Q&A. Please.

Thank you ladies and gentlemen did you have a question. Please press the star followed by the one on your Touchtone phone.

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Your first question comes from from now.

Steel from Hs capital. Please go ahead.

Hi, good morning, Thanks for taking my question.

Could you walk us through kind of the calendar here over the next few months as we start to get into the spring season relatively soon for the with regards to the tickets smarter business.

You can have a full lineup of private proprietary events and maybe you can just give us a little color on sort of what's coming over the next year.

Few months and quarters, there could be a real catalyst for that business. Thank you.

Yeah take a smarter absolutely has a pretty solid lineup in regards to.

Not only the secondary market, but also the primary market, where they are the key ticketing platform for a lot of different.

Universities colleges different.

Minor League ballparks.

Throughout the country.

And so their focus has been sort of partnering up and aligning themselves.

With those type of opportunities in regards to be in the primary.

Like I said and let alone all the business that they have on their secondary.

Many of you may be aware, they have almost 2 million visitors a month.

Come to their site, so well established been around well known well trusted.

<unk> delivered a really good product at a good price. So they are teed up for again a nice.

2024 and 2025.

Especially since they were able to lighten themselves from some of the burden that they had on the big media spends that they entered into in late 2021.

Majority of those will all be.

<unk> I believe.

The second quarter here is the last of some of the trailing media.

Relationships, we got into that did not deliver and hurting some numbers dramatically, but that seems to be getting.

Or by the wayside and.

Definitely not making that mistake again on custom entertainment side with the customer tickets that platform.

You'll see quite a bit of growth coming yet, but it's going to take it a little different approach and I think.

The best way to explain this.

Many of you know that we've done video work for NASCAR, and Andy and others and if you sit there and you look at the Roger Penske is named ratings of the World and Ray halls.

They have more than one car rates I mean, they don't want to have a scenario where.

By chance.

Their strategy on changing tires or fuel and driving styles and everything else.

Just one cars in there and if theres, a mistake or an accident.

Iraq, then they're out of the race and not have a chance to win so.

Also having two different platforms we.

We will definitely take a little different approach on how we go about securing and drawing traffic to our site I don't want to go into a lot of that openly but we definitely have numerous relationships that we're being able to cultivate and not only get involved with.

Primary ticketing.

But also be enabled the fact that we're going to be hopefully right at eight.

Eight different.

Concerts, yet this year that we would be obviously have the capability of being the primary.

So we'd get.

The associated fees with that just to give you rough numbers lets just say.

Easy math, let's just say $10 million is generated from conscious sales will typically.

Fees associated with that will be anywhere from 10% to 20%. So that's just.

Essentially just on the low side a million Bucks that could go to the bottom line because you have the capability of doing the ticketing in house now that 2025 side of things.

We will be quite a bit more dramatic.

As both both Brody and I are able to really focus on.

Our core.

Businesses and what I mean by that is Brody will really have.

And b, if the concentrate where it won't be so much.

Working in ensuring the capital needs.

That we both.

Strapped with right now because it's a lot of expansion if you can only imagine.

The costs associated with doing.

The advanced the concerts the costs associated with.

The video solution as far as the the prepay of of the equipment as they enter into a subscription model. So it is capital intense that the returns get there.

You just got to keep your head down and you'll get there so.

2025, clearly.

We will be on our own but we will have made.

We did the merger hopefully with Clover.

It is well capitalized so.

<unk> into a pretty nice.

Situation, there, but the capital that it has in house Brody will be obviously well rewarded.

Digital ally of the digital ally shareholders.

On the completion of this transaction because of the valuations that we're getting.

So very optimistic about finishing the year off strong and really.

Looking forward to what kind of <unk>.

Both both of US given the kind of growth that we're going to be able to have in 2025, because again brody's team has done an amazing job. Please take a look at the numbers and see how they would improve the <unk>.

Most profits and gotten inventory down in overall margins are just really improve so.

Teed up for some really good stuff I hope I addressed it I will tell you I can't be more excited to be.

Able to focus a little bit on something that I've been around the majority of my life for the music and entertainment business because of my father's legacy in the business, but also I'm excited about.

Digital ally.

Video solutions for the legacy business because proteus.

In a unique spot as well with his background in law enforcement and the people he's surrounded himself with so.

Feeling really good about our position right now thanks for the question.

None: Yes, thanks for the color.

Ladies and gentlemen, as a reminder, J do you have a question. Please press the star followed by the one.

Your next question comes from Bryan Lubitz from Equitable advisers. Please go ahead.

Good morning, gentlemen.

Good morning, Brian.

Brody you had alluded earlier to the S. Four filing that we made and had said that you expect to have a I guess a resolution or an answer back from the SEC within the next three to four weeks can you just run us down in terms of what that processes.

Brody: What we are waiting to actually.

I guess give them to get that final approval.

Yeah. So our numbers from Q3 went to scale back in February 15th So and that was our latest S. Four filing that we put out there.

Beginning of February.

So the SEC still respond to the S foray with their comments, noting the numbers were sales that we had to wait until we got the 10-K out the door to then update the S. Four with our fully full 23 numbers.

Along with responses to their I think it was only 7% or eight comments for remaining at that point in time. So now it's just dropping into the new numbers flowing it through cleaning up the S. Four because now we can pull out 'twenty. One so it's more so just the cleanup and updating numbers for both the <unk> 10-K, and our 10-K and the standard.

Alone custom numbers.

Then throw in the S. Four.

And the responses to their seven questions. The SEC had.

Brody: So that's one.

And the next week or two weeks.

S foray out the door submitted back to the SEC and then we will have until May 15th is the next analyst day. So hopefully.

Higher to that we get the thumbs up and the effect of the ability to go effective from the SEC.

Okay. So may 15th is when these numbers will go stale as what you just said.

Correct. Because then we will have filed our Q1 numbers.

Okay. So now when you guys do I guess, a plug and play and give them the updated numbers how long should the investors do we have a timeline how long we should expect before the SEC comes back to you guys and would that be something that you guys.

Youll make public to us.

Well.

If I can.

Can speak on the timing from the SEC I would love to but your guess is as good as ours.

None: Hope it's quick considering that's only seven more questions, but you were talking about the SEC as well so.

<unk>.

I don't know if we have a good answer for that.

Optimistic, but cautiously optimistic optimistic as well.

And as far as what will make public at that time. That's also a good question that we'll probably be more so at clover has discretion rather than our own Bryan This is Stan.

We will get this thing filed and submitted just as quick as possible obviously all of us.

On both sides, I mean, not only clover, but the digital ally.

All parties want this thing to move forward as quick as possible. So it will get submitted quickly the questions that we're asking for a little bit of clarification are not extremely difficult at all.

What they were requesting and so that information is fairly available at our fingertips as well. So all of that gets submitted hopefully because our examiner and who we're working with is now being involved with us on this with this process for some time.

Has a very clear understanding of what's going on so hopefully it will move quickly and just for a little clarification on the numbers. If you want to still I mean, that's just the standard.

Your number is only good for so long in the eyes of the SEC and so we are already we will be putting our heads down and making sure that we are working on Q1.

Q so that as soon as.

God forbid they come back with more questions or whatever this thing isn't done by by that May date.

We will quickly be able to have a Q1 completed and filed so we can again plug and play and get this thing behind us, but we're optimistic on this time around like you said it was a very few numbers.

This answers are at our fingertips. So all of that stuff is getting ready to be.

Submitted right away, yes, Brian keep an eye on.

So cielo, we keep an eye on their SEC filings because it's all there so youll see our S. Four and whatnot, because we filed publicly we don't.

File them confidentially.

So keep an eye on that as well.

Super One last question I have for you guys.

As shareholders still expecting.

For shares of Chloe for everyone.

Yes.

Essentially the ratio as of this moment.

Yes. So that is we've worked really really hard to try to.

Secure that and maintain that for the <unk> shareholders, but currently that's the ratio.

Okay.

And if I remember correctly, we're going to have 20%.

Released right away can you just speak to the language of what will happen with the last 80% will there be an additional.

Record date, and how <unk>, how is the mechanism going to work for the shareholders for that.

Yes. So you are at 20% will be immediately distribute distributed so that'll be a record date here pretty much after the consummation of the transaction.

And then it'll be a six month holding period for the remaining 80%.

And.

Since it's over four months because of the six months was pretty much required in what Clover wanted it and I think might've been necessary if im not sure.

So we have to be a second record date centers at that six month, Mark So there will be a set.

Record date for the remaining 80% of the shares that are being held within digital ally, Yes, Brian This is Dan.

Keep in mind.

The value that that Clover has right now for us.

Fritz shareholders and when this transaction is completed by only 20% essentially go on to the digital ally shareholders right away.

None: Im not going to be a strong run on the bank because it's a small number in comparison to.

Everything being out there that also gives customer entertainment now post split.

Six month runway to really establish yourself build a name for itself and continue to have value in that stock. They are eventually going to all the digital ally shareholders. So.

I like the mechanism because.

For the customer entertainment side of things I'm going to have and Youre already starting to see noise I'm starting to make.

This noise on purpose.

Our custom entertainment has because.

When this is completed the customer entertainment current shareholders and obviously the digital ally shareholders that are now getting to understand a little bit more about what customer entertainment is all about and we're creating.

I think it will hold a lot of value, which translates to value for the <unk> shareholders.

Okay.

Super Thank you very much guys.

Thanks, Brian.

Alright, well listen thank you everybody for their time today.

Really appreciate it.

In a moment.

Okay.

Ed repeatedly let's take a look there's been some amazing improvements on a tremendous amount of fronts.

Half of.

Digital ally.

<unk>.

And we couldnt be more excited about the future that we have in front of us. So thank you all have a wonderful rest of your day.

We'll be talking to you on the Q1 call if not sooner.

Now.

Ladies and gentlemen, this concludes your conference call for today, we thank you for joining and you may now disconnect your lines. Thank you.

Okay.

None: [music].