WRAP - NASDAQ

Hello. Thank you for joining Wrap's Fourth Quarter and Full Year 2024 Earnings Call. On the call today is CEO and Chairman, Scot Cohen; and President and COO, Jared Novick. Good afternoon, everyone. At this time, I want to remind you that certain statements and assumptions in this conference call contain or are based upon forward-looking information and are being made pursuant to the safe harbor provisions of the federal securities regulations. Such forward-looking statements are subject to numerous assumptions, uncertainties and known or unknown risks, which could cause actual results to differ materially from those anticipated. These factors are more fully discussed in the company's filings with the Securities and Exchange Commission. The forward-looking statements included in this conference call are only made as of the date of this call, and the company is not obligated to publicly update or revise them. Statements made during this call do not constitute an offer to sell or solicitation of any offer to buy any securities. Securities will be offered only by means of a registration statement and prospectus, which can be found at www.sec.gov. Unless otherwise stated, all reported results discussed in this call compare the fourth quarter and full year ended December 31, 2024, with the fourth quarter and full year ended December 31, 2023. I will now hand it over to Scot Cohen.

Thank you, Lou. 2024 was a transformational year for us. As many of you know, while we believed our business has always had great promise, we historically incurred consistent losses due to limited revenue and high operational expenses. To address this situation, when we came on to manage the business, we implemented a full corporate restructuring, knowing that, that could cause a short-term cost to revenue and performance. However, last year's financial performance is not why we're all here. We're here to discuss our recent financial improvements and be part of a company that we believe is poised to become a leader in public safety globally. And we stand by that decision. We believe we're in a place to build the business we always thought existed within Wrap. The restructuring is now over. The business required a big step back in order to move forward. To achieve this, we aggressively slowed our burn and brought our monthly expenses to approximately $600,000 on a cash annualized basis. We believe that, that discipline gave us breathing room and time to rebuild and think the right way. Why do we go forward? Because after an intense deep dive into the BolaWrap and talking to our customers across the country, we believe that the BolaWrap is an entry point, enabling us to expand and emerge with an integrated end-to-end competitive offering. And just about 30 days ago, we put our money where our mouth is. Our confidence in that decision is reflected by the actions of our leadership team. In our most recent financing activity, purchases by entities affiliated with insiders of this company increased management's beneficial ownership by over 50%, sending a clear message, we're just not talking about alignment with shareholders, we're proving it. In 2024, revenue was $4.5 million, down 27% from $6.1 million in '23. Cost of revenue decreased 37% from $3.2 million in '23 to $2 million in '24, with margins increasing 7 points from 47% to over 54%. Operating losses improved 17% from $18.75 million in '23 to $15.6 million in '24. Net losses improved 81% from $30.2 million in '23 to $5.9 million in '24. I'm now going to hand it over to Jared, our CEO and President.

Thanks, Scot. Along with the transformation, we are planning to level set and return to business fundamentals. I'm going to talk about 3 areas: Our product, our market and our people. First, the product. We know our product works. We believe it's differentiated and it's an offering that is making its way into officers' belts and into their vehicles. When we sat down with our top customers and especially the customers that were fully supported by us, we saw data showing that the BolaWrap is used more frequently than any other device on their belt. Customers consistently highlight the value of having a distraction tool they can deploy early before situations escalate to physical force. And as a result, officer injuries are reduced. The second part is the market. The demand for our solution is growing and is expanding further with the addition of new services. Across the U.S. and globally, the use of force policies are becoming increasingly restrictive. The opportunities for officers to rely on these traditional tools like TASERs or batons are diminishing. This creates a clear gap in the use of force continuum. Without alternatives like ours, officers are forced to go hands-on and injuries are rising. We believe the market has validated the need for a deescalation tool and along with that, a robust training program to fully support it. In our conversations with customers, they are asking us to become an end-to-end service provider and provide integrated solutions. They're asking us to go bigger. They're asking about our body cameras, virtual reality offerings and additional services. As we step back and look at the market, we agree. It's time for a true competitor offering end-to-end services for public safety and law enforcement. Internationally, we have numerous late-stage opportunities in our pipeline, spanning various deal sizes. Many of these opportunities are the result of prior years' efforts in developing relationships and launching pilot programs, and they are expected to now bear fruit. To help accelerate our global growth, we started relationships to leverage U.S. government resources such as the United States Export and Import Bank and the Department of Defense's Office of Strategic Capital. We plan to be part of these efforts, which look to export Made in the U.S.A. offerings like the BolaWrap while aligning with federal initiatives to counter China's influence in emerging markets. Now finally, and most importantly, our people. Of course, any real transformation starts with people to bring our differentiated product to this growing and validated market. So we invested in talent, and we will continue to do so. Almost every single leadership position at Wrap has been revitalized with individuals who we believe bring unmatched operational experience, entrepreneurial spirit and an unwavering commitment to our mission. The team we've assembled has a global network, a network we believe has an exceptional reputation in the law enforcement community, and it took them decades to build it. These aren't just hires, they're accelerators. We believe this team will dramatically expedite our current and future business. The recent acquisition of W1 Global and the hiring of 2 members from their immediate network came after several months of close collaboration in their advisory capacity. Even within a short time, the tremendous value of the W1 team became clear. Their leadership team and extended network are expected to bring immediate connectivity, trust and credibility within the law enforcement community, both in the United States and internationally. And as a result, we believe the acquisition has already led to significant domestic and global sales opportunities. We now have enhanced access to senior leadership across global law enforcement, and we're actively building a domestic and international sales strategy centered on this powerful network. And just a moment on the pedigree of our recent additions. Their background span the public sector across organizations like the DEA, FBI, Department of Defense, NASA, DARPA, Air Force Research Labs, JSOC, DELTA units and intelligence agencies. And in the private sector, they are coming from leading companies in cybersecurity, aerospace, counterintelligence, physical threat assessments, anti-money laundering and transactional crime. We believe this unique blend of public and private sector expertise now housed within Wrap Technologies positions us to bring talent, insight and unmatched capabilities to both the law enforcement and the broader public safety markets. We believe our team now opens doors to critical elements of the U.S. federal government responsible for providing monetary and training support to law enforcement agencies in countries of strategic importance to the United States. The ability to unlock U.S. government-backed loans and grants is expected to greatly enhance our global offerings and expand our reach. I'll now hand it back over to Scot.

Thanks, Jared. We're building a performance-driven culture, which we believe will drive significant growth to fulfill our vision to become a leading public safety company around the world. It's going to take some time. It's going to be lumpy, but you won't recognize this company in 12 months. We're committed to creating lasting partnerships based on continuous value, value that will be felt not only by officers, but also by the communities they serve. We believe the complex challenges in public safety can't be solved with just technology alone. While technological advancements have had an unprecedented positive impact, the human element, how societies choose to police themselves, remains the driving force behind policy and best practices. We believe we have the team, the talent and the strategy to win and win big. Our money is right on the line alongside yours. This is baseline for what we believe will be a historic run in the public safety space. We all will make an impact together.

That concludes our prepared remarks, and we will now open up the call for Q&A.

The first question is, what guidance can you provide for the rest of the year?

You want to take this, Scot?

I'll take that one, yeah. Thankfully, this company has never given out guidance, but let me share with you where we're getting our confidence. We're seeing massive shifts in policy right now throughout the country, and we're seeing that not just here, but we're seeing it through our client base globally. These policies are making it harder and harder to use the devices on the belt today. We're talking about TASERs, batons, pepper spray and guns. And as Jared said in his comments, this is resorting in officers going hands-on, cops are getting hurt, injuries are up, and it's costing cities in our country. It's costing this country well over $1 billion a year, and it's got to stop. These policies are driving more and more interest, and this is what's giving us confidence. The other piece that we have that we can talk about is our inventory that we are positioned to sell. We feel good about that. And the international piece, I just want to speak to this because a lot of people -- we get asked this question, where is the international business, where is the international business? The international business is there. I don't think there's been one opportunity that's been dropped. I can tell you that these pilots take a while. Most of these pilots, I would say, at least a dozen of them started probably 2 years ago. And now we're just starting to see activity that is encouraging. So when we talk about guidance, we're not going to give it here, but I can tell you that you could see with our investment that we made, we're starting to see things that I have not witnessed in this business since inception. Lou, is there another question?

Yes. The next question is, what is the latest on R&D, new products? And what is the future for research and development at Wrap?

Do you want to take that?

Yes, I can take that. So look, we have finished good inventory, about $25 million worth of MSRP ready to the market. That's given us a pause to say, are there product improvements we can make to the BolaWrap? And are there other areas of value that we can bring to customers? And the answer is yes, of course. So we are looking at advancements into a BolaWrap next-gen product. We believe that we can offer more broad services. I personally come from a Department of Defense and intelligence community background. I'm familiar with a lot of these technologies that have been in play in the public safety space for over a decade, decades in some cases. And it's my observation that a lot of these technologies are ripe to be transitioned to law enforcement in U.S. public safety. And so the future of this company is one part providing and focusing in an undistracted way a BolaWrap device. But there is an ecosystem of other complementary devices that are also useful to the company. And so what we're going to first do, like any company should do, is that ideas are easy, but making them a reality becomes hard. And what we're going to do is staff that with the right people. And we've already made those decisions in bringing those people internal to the company to staff the research and development. These people come from, as I mentioned in my earlier piece, NASA, DARPA, Department of Defense, where technologies have been proven at the pointy edge of the spear with special military units and those who practice U.S. Department of Justice initiatives through DEA and FBI and the combination of their expertise that has been amassed over decades of their own respective careers. Plus, the technologies they know that are proven to work gives us unique insight to make our R&D efforts not proof of concepts, but more of an integration play. And what we plan to do is take a wider array of technologies, integrate them into our company and complement them with superior customer success. And we think the combination of technology that's been proven in an integrated way plus customer service will bring a differentiated offering to our customer base. So R&D is on one part, advancements to our flagship product BolaWrap, it's also an integration play of proven technologies, some where it makes sense to do in-house, but others with partnering with the right technology partners and delivering that comprehensively to our customer.

Great. The next question is, what is the story on Chile? What is the update? And what is the latest?

I'll take that one. We're talking about Chile on a daily basis here. So there's lots of -- it's very active in how we're going to support that rollout that they're anticipating. Look, we saw -- just like when you saw, we all saw the public information about their budget when they included BolaWrap in their '25 budget. We saw it at the exact same time. So we don't have specifics, specific rollout plans. We're just being told and told and told that this is going to -- that we should anticipate this. They're checking on our supplies and inventory. And we're expecting -- we're not counting on it, but we expect after a 3-year one hell of an effort by our team to get Chile where it is right now, it's taken time. But we think we should see a good result this year. We picked up a nice order from them last year. But what we're expecting is much bigger this year. They're asking and spending a lot of time talking about training. How are we going to support a rollout to their national police? It's a big undertaking. And quite frankly, it's taken a lot of thought and a lot of teamwork and a lot of discussion about the training and the rollout of this. So timing is very difficult for us to predict, but we're waiting. So we can't call out. We're not going to call out when that's going to happen, but I am hopeful, we're all hopeful that we see a nice part of that this year.

The next question, why do international deals take so long?

Let me speak to that. This is twofold. I just mentioned that some of these pilots take time. We're rolling out a new product into public safety. It hasn't -- there's been really no new rollout on the belt since TASER, right? And that was 30 years ago. So this is not easy. It takes time. I'm seeing these pilots continue to press in advance. Lots -- the discussions to me are feeling much more fluent and now that we're on the front end of them, I feel like we're getting closer and closer. But the new piece that we just introduced was the funding by EXIM Bank, that funding option. We're going to our client base and presenting this funding option, along with a couple of other programs that are existing within our government, and the reception has been very positive. In fact, it's not for every country because there's plenty of countries that have their own funding sources. But we've been offering this to the distributors. The reaction has been phenomenal. And they are telling us, and this is just new to us of being presenting this option. They're telling us that it's going to absolutely make a difference in getting some of these deals over the line. So I feel like our connectivity with this EXIM program and other programs that we're discovering with our current government and the positioning, there's a real way for us to really help our distributors and our customers, support them in ways that we just simply weren't able to do in the past. And I believe that is going to accelerate our flow of international business.

The next question is, where are you in the move to Virginia?

Yes, I'll take that. So we announced at the end of last year that we're moving out of Arizona to Southwest Virginia. That move is already underway. Much of the actual equipment has been moved out of state and is now in place on an assembly line ready to go in Virginia. The full move will be complete in the middle of Q2. It's right around the corner. I think a follow-on action to that question is when will manufacturing resume. And what we're going to do is we're going to get the manufacturing line up and running again with low volume but high-quality throughput to make sure that, that move is fully complete. It's not just to move the people. It's not just about moving equipment. It's making sure the capability is fully transitioned. And so as an insurance policy to that process, we always had a very robust documented process on assembly to preserve the institutional knowledge that the company had in making BolaWraps and cassettes. And those are also most recently documented in a very detailed video process that also helps us an onboarding process for future assembly workers. So the move is one part in physical time in space. The other part is preserving the knowledge and proving that it's been successful. For me, that means I want to pay close attention to preserving the high-quality products that law enforcement deserves, and that will be fully complete expected in the middle of Q2.

The next question is why the W1 Global acquisition?

I'll take the front end of that. It starts with people. Not only has this group of W1 been connected for most of their careers, but the network that they developed over those decades of work together is very relevant. And I can just tell you that before we made this acquisition, we channel checked and we actually tested some of our biggest opportunities around the globe. And there's not one of those opportunities where W1 doesn't have a contact either coming out of the embassy and coming out of the space that they used to serve. So with that kind of connectivity, it gives us new perspective, a new touch point. And at the end of the day, it is about relationships and trust. And that is what W1 is about. Not only do they have a robust, profitable business, but they also have established trust and access that we just never had access to. So putting that, combining that with what we're doing overseas and actually what we're doing with our current administration, I think, is very powerful, and we're already seeing impact on opportunities, and it's just been, call it, 45 days post the acquisition or so. So it's already reflecting in our pipeline. It's given me great confidence that this is going to be a thriving new relationship, and we're going to open up doors that we would never be able to open in the past. It's exciting. It's an accelerator, and it's now.

Great. Are there any future acquisition plans?

I'll take that. Look, largely, you grow either organically or inorganically. And so the answer is yes, there are future acquisition plans. And when we look at acquisitions, the framework I like to look at is either you're going to acquire for the team, for people, for technology or to expand your addressable market or TAM. So team, tech and TAM. And so when we're going to do this is that we must grow, we must bring revenue, we must increase value. We will be focused on doing that organically with the capabilities we have in-house, but we will also be looking at the best attractive acquisitions that don't hurt us in a dilutive sense, that bring in team or tech or expand our addressable market. And a good representation of that was the recent W1 acquisition. We got world-class personnel now in the company, and it brings us more clarity to go to market with the BolaWrap program, that it simultaneously also expanded our addressable market by adopting and integrating their existing business lines. So we'll see a bump to additional services from that acquisition as well.

We have time for one more question. What are you doing in D.C.?

A lot. I'll take the front end of it. We're establishing an office as we put out in a press release. Multiple partnerships on the way in D.C. We're pressing federally with language. We're pressing on a state-to-state basis. It's quite a bit of lobbying work. It's connectivity that we never had. And there are opportunities on border. There's opportunities in prisons. There's opportunities in schools. Part of the problem here is there's just endless ways for us to play, and we need to do that through partnerships. We can't do that all on our own. It's just too big of a body of work. So we believe that getting super connected in D.C., pressing it and putting resources to programs there are really going to set us up for a number of federal opportunities right now that we see. Jared, do you have something -- I'm sure you have some thoughts on.

Yes. I think any strategy that does not include a federal strategy is incomplete. So we have to open our doors to federal business. So we're going to be moving into D.C. Part of that move to Virginia was to align with the state and its close proximity to other research elements within the federal space.in the D.C. Beltway metro area. And what we're going to do is organize our company to be open for federal business. So that means doing all the requisite groundwork in establishing the paperwork and process and different accreditations that required to accept federal funding. It's an interesting time in the federal government, as we all know. There's a lot of emphasis being put on optimization and efficiency, and that aligns nicely to our core offering. We believe that there's a lot of bloat in public safety that a lot of these technologies exist today, many of which exist in government and other areas. We're going to bring awareness to that on the capability side. We're going to also understand where the current requirements are that address critical national security and public safety gaps. And we're going to look for the contracts that move that government money under the right contract vehicle with the right requirement and be there to service it. We can sometimes take that directly. We'll also look at other ways and channels that are established in doing government business like key partners in that area. We're going to build as many paths to yes in this company to bring in federal government work.