WRAP - NASDAQ

Good afternoon and welcome to the Wrap Technologies Third Quarter 2023 Earnings Conference Call. My name is [JD Mafasso] and I'm the Director and Strategy and Communications for Wrap Technologies. Joining me today is our Wrap Technologies, Chief Executive Officer, Kevin Mullins; and our Chief Financial Officer, Chris DeAlmeida. Following their prepared remarks, we will have a few questions submitted from shareholders. I would like to remind everyone that this call will be recorded and made available for replay via a link in the Investor Relations section of the company's website at ir.wrap.com. Additionally, the company asks that, all interested parties register on the investor relations website at ir.wrap.com to continue to receive alerts and stock information. As a reminder to listeners, certain statements made during the call today constitute forward-looking statements made pursuant to the Safe Harbor provisions of the Private Securities Litigation Act of 1995 as amended. Such forward-looking statements are subject to both known and unknown risks and uncertainties that could cause actual results to differ materially from such statements. These risks and uncertainties are described in our earnings release and more fully in our filings with the SEC. The forward-looking statements today are made as of the date of this call, and we do not undertake any obligation to update the forward-looking statements. Now, I would like to turn the call over to our CEO, Kevin Mullins.

Good afternoon, and thank you for joining us. It is an honor to shed light on Wrap's commendable strides and achievements throughout the third quarter of 2023. The past quarter stands as a testament of our relentless dedication to excellence and our pursuit of innovation. Our third quarter performance brims with milestones, not merely in financial terms, but as a clear indication of our expanding go global influence, significant demand from international avenues, particularly the African continent, coupled with a robust deployment order from the Northeast sector of the United States, sentiments are dominant market stature. In our ongoing endeavor to consistently elevate the standards, Wrap Reality continues to see significant demand, leading to the second consecutive quarter of record sales. This success stems from our content focus of our training platform, enrolling out new scenarios monthly, reinforcing the unparalleled caliber of our product ensemble. Furthermore, we are enthusiastically embarking on an officer, mental health and wellness initiative, which we will continue to develop over the coming months. We are also seeing good progress with sales for the recently acquired Intrensic platform in the third quarter. Early feedback shows the solution integrates well into our market and product set, which promises steady growth for us. With today's focus on clear transparency and strong responsibility, our improved products, meet the changing needs of today's market and transform Wrap as a complete solutions provider. Our achievements in Q3 highlight the strong plans we have, our dedication to being the best and the bright future we see ahead. As we move throughout this year, we are optimistic about our earnings in the coming months, thanks to great results from Wrap's products. This quarter shows how hard we work to grow our presence in the market. With strong demand, our Q3 sales are a testament to our reach, both locally and internationally. We have had another record sales period with Wrap Reality, and we are starting to see good success from our new Intrensic platform as well. We are heading into the last full quarter with hope and excitement. We have made some updates to our sales process to better meet our customer growing needs. Looking ahead, Wrap is set for strong growth. Our commitment to constant innovation and understanding the needs of international law enforcement positions us as a top choice for public safety tech worldwide. Our past success is just the beginning. In 2024 and the years that follow, we plan to expand our global reach, offer more products and strengthen our relationships with law enforcement groups. Everyone is sensing the positive direction of wrap. With our team's energy and strong financial position, we are ready to achieve even more. Our goal is clear, is to make real improvements in public safety. Thanks to our shareholders' trust and our team's hard work, we are preparing for great things ahead. Lastly, a massive thank you to everyone who has been with us on this journey: our partners, our stakeholders, and our dedicated team. Together, we're working towards a safer and more transparent future in public safety. I will now turn the call over to Chris for an in-depth expiration of our financial performance for this quarter. Chris?

Good afternoon, everyone. Thank you, Kevin. Our third quarter performance solidifies the strength and relevance of our offerings in the market. Both domestic and international sales have responded positively, positioning Wrap for consistent growth. During the third quarter, we had record quarterly revenue as a result of continued strong demand for our solutions, as we gained traction worldwide. In the Americas, our revenues were relatively in line with the prior year period. However, our international revenues showed strong improvement year-on-year, driven by a large order, which we announced. This is a reflection of the strong foundation we have built in these markets. For the third quarter, we had record gross profit both in terms of dollars and as a percent of revenue. Our gross profit for the third quarter increased by 139% from the prior year period, going from $910,000 to $2.18 million. Our efforts to increase production efficiency and manage costs for our BolaWrap 150 product have paid off. And this is clearly reflected in our gross margin of 60%. Operating expenses for the third quarter increased by 2% from the same period last year, mainly due to one-time items related to certain legal expenses, the financing that we completed, and the one-time costs associated with the Intrensic acquisition. If we exclude these one-time items, our operational expense for Q3 2023 decreased by 15%, reflecting our ongoing commitment to maintaining operational efficiency and financial discipline. Our net loss for the third quarter 2023 improved significantly from the second quarter and on a year-over-year basis. Excluding the one-time items I mentioned earlier, our net loss was just under $2 million which is a significant 50% improvement over the prior year period. Going forward, we will continue to maintain tight controls on cost, while we are focused on revenue growth. Looking at our balance sheet, it remains healthy and robust. As of September 30th 2023, we have cash and cash equivalents and short-term investments, totaling approximately $15 million compared to $19 million at the end of 2022. On the note of key performance indicators, I am pleased to share that the total number of trained law enforcement agencies has grown by 14% and certified officer and structures have increased by 14% from the prior year period. These are continuing promising indicators of our ability to expand our footprint and influence in the public safety market. In summary, our solid financials, ongoing operational enhancements, our recent acquisition and market growth sets us up for a promising end of 2023. With these strategies and our strong financial position, we are well-placed for future success and increasing shareholder value. For Q3 2023, Wrap set notable milestones with record revenues and an all-time high in gross profit. These accomplishment accomplishments reflect our company's resilience and adaptability amidst industry dynamics. Furthermore, our strategic efforts have been successful in improving the net loss position, a trend we would anticipate will persist. Looking ahead to Q4 and 2024, our recent achievements set a solid foundation. We are confident in sustaining this growth trajectory, capitalizing on our record financials, and further improving our overall financial performance. With the focus on innovation and market expansion, Wrap is poised for a robust performance underpinning our commitment to shareholder value creation. With that, I will turn the call back over to Kevin to discuss our outlook in more detail.

Thank you, Chris. As we conclude another pivotal quarter, I am proud to share that the dedication, resilience and strategic efforts of the entire Wrap Technologies team have been the driving force behind our continued success. We navigated the challenges and harnessed the opportunities, reinforcing our position in the market as we continue to earn the trust of our clientele. The outlook for our future has never been brighter, with a deep understanding of the industry we are experiencing strong demand for our solutions. This demand isn't just a testament of the quality of our products, but also a reflection of the evolving needs of a world where technology plays an increasingly pivotal role. Our vision for the future is clear: To continue to grow at a high trajectory, remain at the forefront of innovation and further solidify our market leadership. With the continued support of our stakeholders and the relentless efforts of our team, we are poised to achieve these goals and exceed expectations. I'll now turn the call back to JD to facilitate the Q&A and pre-selected questions we have received from investors.

Thank you, Kevin. The following questions were submitted from shareholders and interested parties. Kevin, with the record-breaking revenue this quarter, largely driven by international orders, particularly from the North African region, can you elaborate on what factors contributed to this success and whether it is sustainable in the long-term?

There are multiple factors contributing to our growing success. Speaking for BolaWrap, in both the domestic and the international market, there is a commonality. Agencies, law enforcement, political leaders, and all of society are looking for solutions to bridge communities, with those charged to protect them. Looking back at the pandemic, looking back at high profile negative situations, we have had civil unrest. We have had geopolitical events that have changed policy and perception. Everyone is looking for a solution to lower uses of force, be able to deescalate situations, how do we increase subject safety, mitigate liability and entry to officers, liability to the agency, to the municipality, and BolaWrap is really the answer that everyone is seeking. It is the outcome that everyone is seeking. And we see this in the U.S. and we see this in every country around the world. So demand is growing, and it's our job at Wrap Technologies to meet that demand. From the standpoint of our new body camera platform, we live in a video world now. It's a consensus of most of public safety that every agency will be required to wear a body camera in the next five years. At least that's the consensus within the U.S. market. Internationally, we're seeing many countries that have felt they cannot afford a body-worn camera solution, or the process is too complex, or the upload ability might not work within that geographic territory. We solve those issues. Our solution is infinitely scalable. It's openly integrated, and it's affordable for agencies allowing them to be able to move forward. With our VR training solution, studies show that VR learners are 4x faster. They're more comfortable, they retain at higher levels. With Wrap Reality, we've created new content at extraordinary levels. We're putting new scenarios out roughly every month, recent scenarios additions deal with the in-homed, with [indiscernible] identification, with command control, showing that we listen to our partner agencies and we provide enabled content at the fastest possible levels. So we're reaching out, we're meeting the demand of where our customers are. So, the original question, absolutely we are sustainably positioned to meet whatever the growth cycle is, and that's the excitement within Wrap Technologies right now.

Thank you, Kevin. Additionally, how has the integration of Wrap Intrensic impacted the company's operational efficiency and what tangible benefits can shareholders expect from this acquisition?

It's provided a major impact. The acquisition of Intrensic really solidifies Wrap Technologies as a solutions provider. Now, we have the ability to provide a suite of products packaged together so that we become a budgetary item for each agency. We have a non-lethal solution with BolaWrap. We have a world-class VR training solution with Wrap Reality, and now we have a body camera platform. Intrensic with our evidence on cloud solution, it's a cloud-based platform that allows us to be able to infinitely scale. It's digital evidence, its case management, it's incident management. So provides that for all of law enforcement. What's different about Intrensic is that we can do a mobile upload. We do video optimization. We're very open source in that an agency's using one platform with their computer-aided dispatch or their RMS, we integrate into those platforms. So we're not that proprietary where it allows an agency to be able to shift and to move. It also opens up many additional sales verticals and think about Intrensic with schools, with universities, with hospitals, with utility workers, those are just a few. Currently, we sell body-worn cameras into the cannabis industry for security and deliveries. We have our camera platform operating the mining industry. Yes, body cameras are becoming mandated in public safety, but there are so many other verticals and possibilities that allow us to be able to operate with that. And yes, all of these revenue solutions are reoccurring. So it's a reoccurring revenue model that we all want to see. And we sell solutions. We have the ability to expand Wrap Technologies as a solution provider, not just BolaWrap. BolaWrap is our core technology at this point where we're continuing to seek other revenue opportunities, and that's the advantage and certainly things that become opened up with the acquisition of Intrensic.

For Kevin as well, the company has forecasted positive growth for the fourth quarter and into 2024. What specific indicators should shareholders look for, that will signify that the company is on track to meet these projections?

Yes, I mentioned earlier, factors that are driving revenue growth. I feel very positive toward our domestic and the international demand now for our suite of products. Without expanding specifically, we are experiencing substantial pipeline growth for each of our product sets particularly on the international front as well as some high value targets domestically. So we've built a sales team and we continue to modify our sales operation to be able to expand and grow. Our model is a bit different now that we're operating with high value partners out there and aligning those with our inside team, with our outside team, with our customer success team. And so beginning to click on all cylinders and you see that and you see that building within our pipeline that combined with this demand for our product. When you think about markets worldwide, we're all looking for that solution, right? That outcome. And that's what we sell. We're selling that outcome with BolaWrap. We're all looking for a way to deescalate situations, again, to lower uses of force, to bridge a community back to law enforcement. And we do that by providing our technology. It's something that's very unique in the market. We truly don't have competition in that remote restraint business. It's just building the understanding in the market of what our technology is and then driving those opportunities. And that that's exactly what we're doing and that's what we're seeing that substantial pipeline growth, so very bullish about what our opportunities are. And there's a lot of excitement. Everyone can sense it and we're very much, I believe at a tipping point with Wrap Technologies.

This question is for Chris. Chris, considering the increase in SG&A expenses due to one-time items, what measures are being taken to ensure that operational costs remain in check without compromising strategic growth?

Absolutely. So, when we look at our, our cost structure overall, we've done quite a bit over the last few months, really since April, even before that, to reduce our overall cost footprint, reduce our OpEx going forward both on the R&D side, getting tighter from that perspective, but mainly on the SG&A side. So we'll continue to do that. We'll continue to hold cost down. We think there's ample opportunity for revenue growth at the cost structure. We're at in the third quarter -- in the second quarter, unfortunately, we had some changes in management, which has made some severance impacts in the third quarter, of course, we did the Intrensic acquisition, which is a wonderful acquisition. We did the preferred financing transaction. And some of those costs unfortunately just get expensed per GAAP in one period versus over the life of the contracts. So with that, that's why we had some increased costs. We expect that to not continue, that to go down dramatically. And really we'll keep tight controls and really monitor the growth and let revenue run a little bit before any costs happen. Not saying down the road in years, we won't see some increases as we add staff and really try to fulfill from a market perspective. But the main focus here is revenue and then just keeping cost under control.