Digital Ally, Inc. (NASDAQ:DGLY) Q2 2024 Earnings Call Transcript

Digital Ally, Inc. (NASDAQ:DGLY) Q2 2024 Earnings Call Transcript August 19, 2024

Operator: Good morning, ladies and gentlemen, and welcome to the Digital Ally Second Quarter Earnings Conference Call. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. [Operator Instructions] This call is being recorded on August 19, 2024. This conference call may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. We may use words and other expressions that are predictions of or indicate future events and trends and that do not relate to historical matters rather to represent forward-looking statements. These forward-looking statements are based largely on our expectations or forecast of future events, 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 the forward-looking statements expressed in this conference call, and 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 forward-looking statements contained in this document will in fact transpire or prove to be accurate. I would now like to turn the conference over to Stan Ross, CEO. Please go ahead.

Stan Ross: Thank you. Thanks everybody for joining us today. With me is Brody Green, the company’s President. He’ll do a high-level overview of our numbers, and then, we’ll start getting into answering a lot of the emails and text messages we’ve had over the last several weeks concerning the status of the merger of Kustom Entertainment with Clover Leaf Group. And so, lots happened on that that we’d like to share with you and some timing issues concerning the first round of dividends and then the second round of stock dividends as well. And maybe give you just some insight on associated value that this entails in regards to Digital Ally and its shareholders. So, with that being said, I will pass the call over to Brody.

Brody Green: Thanks, Stan. Like you said, I’ll just do a brief overview of the financials. Greater detail will be in the Form 10-Q up on the SEC’s website. Feel free to take a deep dive in there just for further details. I think the more pressing conversation is going to be regarding the business combination. So, we’ll get to that as soon as we can. So, the current assets of the company at June 30, 2024, were $14.2 million, down about $1.3 million from year-end. Similarly with total assets, that was at $43.3 million compared to $47 million on December 31. Total current liabilities bumped up to $27.6 million. A chunk of that is about — a little less than $4 million attributable to the warrant derivative liabilities, which is just the Black-Scholes value of the warrants, some from earlier transactions and some from the June 25 transaction as well.

It’s a non-cash liability, but nonetheless, liability on the books. Total liabilities is $40.3 million. Now you can see our contract liabilities sitting on the balance sheet, where $3.1 million is current portion and about $7 million for long term. That’s our deferred revenue for our three- and five-year contracts. So that’s — those are really going to find their way up to the P&L as those mature and come due. Total stockholders’ equity at the end of Q2 was a little over $3 million. So that wraps up the balance sheet. Again, further details you’ll find on the Q. And then, for the P&L side, our total revenue for the quarter was $5.6 million, with a total gross profit of $242,000. We had an operating loss of $3.9 million, with a net loss of $5 million and then a net loss per share of $1.74.

And then, our current — at the end of Q2, our current shares outstanding were 3.5 million. And I think that’s really a summary. One good thing to call out is our deferred revenue continues to grow. I think it’s up to — it’s a little over $10.5 million at this point, I believe. So again, continuing to grow quarter-over-quarter and it will continue to be recognized in the quarter in which it’s renewed. So, this continues to grow and hit the P&L just every year moving forward. And as that balance increases, that’s pretty much the goal of what we’re trying to do with the subscription model. So, it continues to work. And I know we had a few big events this quarter on the Entertainment side as well with them having their festival at the end of June.

And I’ll let Stan touch on that along with a few other items. So, I’ll turn it back over to Stan.

Stan Ross: Good. Thanks, Brody. Yeah, much — a lot of the calls and, as I said, emails even text messages have been around the business combination agreement where Digital Ally is selling one of its subsidiaries, which is Kustom Entertainment to Clover Leaf Capital. They are currently a NASDAQ company. I just looked up their stock, it’s still trading nicely, $12.40. We’ve already done the record date for the first round of dividends. So, there will be approximately almost 2.3 million shares of Clover that will be sent out to the Digital Ally shareholders. That’s the equivalent — just using today’s price, let’s just say after the merger is completed and the price, let’s say, stays where it’s at, that’d be almost a $7.70 stock dividend that those shareholders of record will be getting.

And the shareholders of record were those that were shareholders at the end of business on August 12th, so last week. So, that should be happening. What will also transpire is Digital Ally itself will then be receiving and holding on to almost 7.6 million shares. And so, you can do the back of the envelope math on that, it’s an astronomical number and a lot of value that comes into Digital Ally, especially if the stock holds strong where it’s at. And eventually the goal is to go ahead and dividend out those shares as well. There will be a new record date established and those will be sent out in about six month period of time as well. So, now the timing, those who’ve been following closely know that Clover got their SEC approval of the registration.

So, it’s active. They are now having their shareholder vote to complete this transaction. I want to say it’s at 10:00 o’clock Eastern Time this coming Friday. Once that is completed and we continue to move forward on cross the T’s and dot and I’s and making sure all the things that have been agreed upon in the business combination agreement are there. Then, we’ll move forward the following week into completing that transaction. So, while this has been a very, very, very long haul, as you recall, we sort of announced this project back in December of ’22 and then started going down this path and negotiating in about March of ’23. Actually entered into an agreement, I want to say it was in June of ’23. So, just been a long, long road, but I’m excited about the prospects and the value that it brings into Digital Ally and for its shareholders and the opportunity for clarity on the companies as well.

So, it puts a situation where one of the ticketing platform and the festival platform is now out there on its own. So, you essentially have now video solutions and the medical billing company that are part of Digital Ally and it makes it a little clearer to define Digital Ally and who they are by getting Kustom Entertainment moved out. So, excited about that, excited for the value. I’m sure that both companies will be reporting the outcome of the votes. We’ll probably — it’s not always good to be doing news releases on a Friday, but the importance of this clearly will have us running something as soon as we know what the outcome of that vote was. And at that point in time, I’m sure we’ll be trying to establish a closing date that we will try to include in that release as well.

So, been a long time coming, excited to cheer for, again, like I said all the Digital Ally shareholders, Digital Ally and also the new Kustom Entertainment. With that being said, we will touch real quickly on our festival. It was our first year that we acquired Country Stampede. We were in a new location. We had a lineup that was very good and we’re excited about the future that Country Stampede holds. It’s a 28-year-old country festival, one of the largest and — if not the largest in the state of Kansas and probably throughout the Midwest. We look to up our game a little bit next year. We’ve already got offers in to a new lineup for 2025 and looking at multiple festivals that we’ll be doing under the Kustom 440 as part of the Kustom Entertainment spin-off.

So, with that being said, why don’t we go ahead and open up the lines for Q&A please?

Q&A Session

Operator: Thank you. [Operator Instructions] Your first question comes from Rommel Dionisio from Aegis Capital. Please go ahead.

Rommel Dionisio: Good morning. Just — thanks for taking my question. The first is just a housekeeping question. Could you guys just clarify, please, shares outstanding? It’s showing 3.5 million, but I thought you had 2.8 million and there’s 1.2 million from the offering. Where’s my math off on that? I thought it would be more like 4.0 million and I see 3.5 million only. Thanks.

Stan Ross: Yeah. So, it’s 3.5 million at quarter-end, because the prefunded warrants had yet to be exercised from the deal. So, now it is up to, I don’t know, I believe you’re — I think it’s — yeah, it’s a little less than 3.7 million now. But at quarter-end, it was — what was the number? It was 3.5 million at quarter-end. And then now let me just double check the face of…

Rommel Dionisio: Thank you.

Stan Ross: But it shouldn’t be — yeah, it’s a little less than 3.9 million at this point after all the warrants were exercised.

Rommel Dionisio: Great. Perfect. Thanks. Okay. And just more of a fundamental question, I wonder if you could just give us an update on the FirstVu Pro and some of these models that you’ve launched over the years. Sounds like the deferred revenue number is really growing. So, please comment on the execution of that strategy that you’ve been laying out the last few quarters and how that’s all going? Thank you.

Stan Ross: Yeah. We continue to push that FirstVu Pro out and all the docking stations there, the 8-bay in ’24. It’s kind of a — I mean, it’s — we did the subscription model more for financing purposes instead of a massive CapEx for these municipalities, cities and especially the commercial side, too. It kind of — it gives them time to — it’s more of an annual fee rather than a massive undertaking in year one then they use for five years. So, it’s worked well on our — the sports teams. They’ve enjoyed the subscription model as well as the Royal Caribbean cruise lines and several other colleges and whatnot outside of just law enforcement as well that they sign up for these three- or five-year contracts in which they can pay off cash flow rather than off of big CapEx spends throughout the — they don’t have to make a massive investment.

So, yeah, we’re happy with that balance continuing to grow, and we hope for it to just continue to compile and then obviously be recurring revenue for us year-over-year, not just from a financial reporting standpoint, but also from a cash flow standpoint.

Rommel Dionisio: Great. Thanks very much.

Stan Ross: Thank you, Rammel.

Operator: [Operator Instructions] And there are no further questions at this time. I will turn the call back over to Stan Ross for closing remarks.

Stan Ross: Well, again, thanks everybody for jumping on real quick. And also, want to again point out that both Digital Ally currently has a shareholder vote coming up here this Friday and Clover Leaf Capital also has one on Friday concerning the business combination agreement. And so, we will keep you posted through both the press release and 8-K as soon as we have the outcome of those numbers. So, thanks everybody. Have a great week and we’ll talk soon.

Operator: Ladies and gentlemen, this concludes your conference call for today. You may now disconnect. Thank you.