Wrap Technologies, Inc. (NASDAQ:WRAP) Q2 2023 Earnings Call Transcript

Wrap Technologies, Inc. (NASDAQ:WRAP) Q2 2023 Earnings Call Transcript August 9, 2023

Operator: Good afternoon and welcome to Wrap Technologies Second Quarter 2023 Earnings Conference Call. My name is Nima Parikh and I’m the Chief Marketing Officer at Wrap. 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’d like to turn the call over to our CEO, Kevin Mullins.

Kevin Mullins: Good day, everyone, and welcome to our second quarter 2023 earnings call. I appreciate your time and interest in our company and I’m pleased to present our second quarter results, as well as some key strategic developments that are paving the way for an exciting and rewarding future for Wrap Technologies. First, I am thrilled to share a momentous milestone in our journey of continuous innovation and growth. The acquisition of Intrensic, LLC, a leading player in cloud-based evidence management and body worn camera technology. This transformative endeavor, backed by investment of $500,000 in cash and 1.25 million shares of Wrap common stock, marks a pivotal addition to our solutions portfolio. By seamlessly integrating Intrensic into our fold, we solidify our position as a dynamic and comprehensive provider of public safety solutions worldwide.

This transformative and strategic move unlocks a horizon of boundless growth opportunities, and reinforces our unwavering commitment to driving safer outcomes and empowering law enforcement and communities as we move forward together. Through this landmark acquisition, we not only elevate our service to existing customers, but also expand to a broader clientele seeking cutting-edge, all-encompassing solutions. Intrensic brings to the table a state-of-the-art, cloud based digital evidence management system and body-worn cameras, which perfectly aligns with our strategic vision to fortify and diversify our offerings in the law enforcement and security market. With this acquisition, Wrap reaffirms its commitment to empowering law enforcement worldwide with a comprehensive suite of solutions as the demands of modern policing continue to evolve.

A relentless drive to be a prominent authority in this domain will be bolstered by integrating Intrensic’s capabilities with our own, paving the way for a more cohesive, integrated and sophisticated technology ecosystem. By welcoming Intrensic into our family, Wrap takes a significant step towards becoming the preferred one-stop shop for law enforcement and security in their technology needs. Our expanding portfolio will encompass fully integrated, end-to-end, advanced technology options, making us the indispensable ally for public safety agencies striving to stay ahead in an increasingly complex world. As we move forward, our united strengths will propel Wrap’s ability to drive impactful change for our global customer base and new partners seeking comprehensive advanced technology solutions.

Going forward, Wrap will offer three complementary, but distinct solutions in our portfolio. Body worn cameras and Evidence on Cloud; Wrap Reality, our virtual reality training platform; and our exclusive patented BolaWrap remote restraint device. We look forward to continuing to apply our no-harm approach to public safety, driving safer outcomes, and empowering law enforcement and communities around the world to move together. Now turning to our results, our second quarter 2023 has been a period of restructuring, setting the stage for our future success. Even as our overall results align with last year’s due to the timing of large international orders in 2023, we are delighted to announce record sales of our virtual reality training platform, Wrap Reality, which is witnessing a significant surge in customer demand.

As we progress into the second half of the year, we’re optimistic and thrilled about our growth trajectory. We recently expanded our sales team to cater to the increasing demand for our solutions in both the domestic and international markets. We see immense potential in the international market and are focusing our efforts to tap into these opportunities. I would also like to extend a warm welcome to our new board members whose expertise and insights will significantly contribute to our growth. Our cornerstone solution, BolaWrap, continues to resonate with a growing number of law enforcement agencies worldwide. We see a robust growth in BolaWrap sales for both existing and new departments, and we are in advanced talks for large international orders which underline its global appeal.

As I mentioned earlier, our Wrap Reality platform has already outperformed last year’s sales in just six months. We anticipate a rapidly increase in the number of unique scenarios to enhance officer decision-making skills in high-stress situations. And now we are folding in the Intrensic platform and expect to leverage our global sales force to rapidly expand Intrensic’s body camera and Evidence on Cloud solutions worldwide. We’ve taken major strides this year in setting new performance benchmarks and cost disciplines. We remain committed to fortifying our current operations and investing in the future. With a clear vision and relentless drive, we are poised to unlock the full potential of Wrap. As I mentioned on the last call, we have started to reap the rewards of our long-term investments to marketing, training, and research and development.

Wrap has established a robust brand, increased market share of its innovative solutions, and forged relationships with numerous law enforcement agencies worldwide. We are hastening the pace at which we close new sales from our expanding pipeline and increasing adoption rates across our existing customer base. Having established a well-defined and targeted strategy that aligned with our priorities, we adopted a multifaceted approach that entails enhancing collaboration between our inside and outside sales teams, optimizing our sales territories, and streamlining our operating model to improve efficiency and scalability. By implementing this leaner operating model, we will be able to quickly expand our operation when large orders materialize later in the year.

With these measures in place, we are confident that we can stimulate growth and attain our 2023 targets. As previously mentioned, I’ve outlined three main priorities as we head into the rest of the year. They are two. One, accelerate the rate at which we close deals; two, expand deployment with existing customers; and three, reduce our non-essential operating expenses. I’m happy to say that we are well underway with this program and we are already seeing the fruits of our labor. Now, I’d like to hand the call over to Chris to discuss our financial results for the quarter. Chris.

Chris DeAlmeida: Good afternoon, everyone, and thank you Kevin for providing a comprehensive overview of our business and strategic developments. I’m now going to present our second quarter financial results and give you an insight into our outlook for the second half of 2023 and beyond. Despite the timing of certain large international orders, which we now expect to close in the second half of 2023, we were still able to achieve revenues of $1.2 million this quarter, a figure consistent with the same period in the prior year, driven by continued strong domestic sales. This revenue stability is a testament to our robust business model and solutions appeal, even as we’re in the process of executing major strategic changes. In the Americas, our revenues saw a 7% increase from the prior year period, moving up to $1.2 million from $1.1 million.

Our international revenues held steady year-on-year, a reflection of the strong foundation we have built in these markets. Our gross profit for the second quarter increased by 46% from the prior year period, going from $457,000 to $667,000. Our efforts to increase production efficiency and manage our costs for our BolaWrap 150 have paid off, and this is clearly reflected in our healthy gross margin of 56%. Operating expenses did increase by 10% from the same period a year ago, mainly due to one-time costs related to the organizational changes we made in April. However, if we exclude these one-time items, our operational expenses for Q2, 2023 would have decreased by 17%, reflecting our ongoing commitment to maintain operational efficiency and financial discipline.

Unfortunately, our net loss for Q2 2023 did increase slightly due to these one-time costs. Excluding the one-time items, our net loss would have been $3.7 million, which is a significant 23% improvement on the prior year period. Looking at our balance sheet, it remains healthy and robust. As of June 30, 2023, we had cash, cash equivalents, and short-term investments totaling $18.2 million, compared to $19.3 million at the end of 2022. This includes part of the initial proceeds from the $10 million Preferred Stock and Warrant Offering, which we’re still in the process of closing at the end of June. On the note of key performance indicators, I’m pleased to share that the total number of trained law enforcement agencies have grown by 18%, and certified officer instructors have increased by 16% from the prior year period.

These are promising indicators of our ability to continue to expand our footprint and our influence in the public safety market. In conclusion, our financial health and continued operational improvements combined with our strategic acquisition we just announced and market expansion, give us confidence and a stronger performance for the second half of 2023. We believe that these strategic initiatives, along with our robust balance sheet, position us well for future success and long-term shareholder value creation. In summary, our Q2, 2023 performance, despite appearing flat year-on-year, demonstrated resilience and ongoing operational improvements amidst strategic organizational changes. We’ve increased our gross profit by 46%, while continuing to manage costs effectively, resulting in an impressive 56% gross profit margin.

Even as one-time expenses impacted our operational expenses and net loss, our performance improved significantly when adjusted for these costs. With an increased number of trained law enforcement agencies and certified officer instructors, our market influence is on the rise. Our robust balance sheet, including our strong cash position, is complemented by a promising revenue potential for the pending international orders, setting us up well for a positive second half of 2023. All of these elements reinforce our confidence in Wrap Technology’s future success, and creation of long-term shareholder value. With that, I’d like to turn the call back over to Kevin to discuss our outlook for Wrap.

Kevin Mullins : Thanks, Chris. As we look to the future, I’m thrilled and inspired by the myriad of exciting opportunities ahead. Wrap Technologies is at a very transformative juncture in our journey, poised to soar to new heights and chart a path of unparalleled growth and success. Our flagship solution, BolaWrap, is well positioned to gain further global traction. With Wrap Reality, we are revolutionizing the training experience of law enforcement agencies, bringing them to a new paradigm in immersive and perpetual learning. The addition of Intrensic, with its body-worn cameras and cloud-based digital evidence services, integrated with Evidence on Cloud to streamline and transform how evidence is managed, perfectly complements our portfolio.

With these combined capabilities in our comprehensive and integrated suite of offerings, combined with our expanded team and robust balance sheet, we are prepared to seize the significant market opportunities that are before us. I’m extremely bullish about our growth and prospects as we aim to be the preeminent technology partner for public safety agencies worldwide, providing them with innovative, effective solutions that drive safer outcomes for safer communities. In conclusion, our performance for the first half of the year, coupled with the positive outlook for the second half, has given us confidence in a bright future for Wrap Technologies. Our fortified product line and our dedicated team position us well for success. Thank you for your continued belief and vision.

We are excited to continue this journey and look forward to driving further growth, delivering strong performance, and creating shareholder value in the coming quarters. The future for Wrap Technologies is indeed promising. I now turn the call back over to Nima to facilitate the Q&A and pre-selected questions we received from investors.

A – Nima Parikh: Thank you, Kevin. The following questions were submitted from shareholders and interested parties. Kevin, how does the second half of 2023 look compared to the first half of 2023?

Q&A Session

Kevin Mullins: Thank you, Nima. The outlook for the second half of 2023 is shaping up to be quite promising, when compared to the first half. Firstly, as we mentioned earlier, the unpredictable nature of international borders means that while the first half may have been subdued, we are seeing a robust pipeline for the second half. Advanced discussions with potential international clients, coupled with a clearer regulatory landscape in some regions, provide us with a positive outlook for the second half of 2023. On the operational front, efficiencies gained from our continuous improvement initiatives in the first half of 2023, are expected to yield positive results in terms of operational costs and the speed of delivery in the second half of 2023.

We also anticipate higher margins, which are due to a more favorable product mix and strategic initiatives. It’s also worth noting that historically, certain markets we serve see a very seasonal uptick in demand in the latter part of the year, and we expect this to hold true in 2023 as well, and this adds to our optimism. I’ll just say in summary, while the first half of 2023 presented its own set of challenges, it also provided us with many opportunities to re-find what our strategies were, enhance our offerings, prepare for really a stronger half of 2023. So we’re very enthusiastic about the months ahead and we are committed to delivering value to our shareholders and all of our partners.

Nima Parikh: Thank you, Kevin. This next question I’m going to direct to Chris. Why Intrensic and why now?

Chris DeAlmeida: Thanks, Nima. There’s several different reasons for why Intrensic, why now, and why does it make sense? One of our decisions to acquire Intrensic is rooted in the alignment of our respective core competencies. Wrap has always been on the forefront of innovation and safety and security. Intrensic brings to the table some more advanced digital evidence management solutions, which when combined with our other products, offers a more comprehensive and integrated solution to our clients. Also, with Intrensic under the Wrap umbrella, we anticipate not only expanding our customer base, but also deepening our relationships with existing clients by offering enhanced value through the combined bundled solutions. This is a move that helps position us for new revenue streams and fortifies kind of our longstanding relationships in current markets.

So to kind of just to sum it up, with the question, why Intrensic, why now? It’s strategic. It’s a strategic move that holistically serves our market, harnesses current opportunities, and kind of sets the stage for the future of Wrap Technologies to remain as an industry leader in an increasingly digital world. We’re excited about this acquisition and we are confident that we’ll drive significant value for our stake.

Nima Parikh : Thanks, Chris. And then finally, how does Intrensic help 2023?

Kevin Mullins: Certainly the integration of Intrensic into our portfolio has some very specific implications for performance. We listened to the agencies that we work with. We listened to our shareholders. We listened to our partners saying, the value, like what’s the accretive value. And when you look at what Intrensic brings, and not just a product suite, but also a wealth of expertise, knowledge, these relationships, offerings will immediately enhance our overall value proposition. It’s a day one plugin. It allows us to be able to tap into additional revenue streams, marginal improvements. It’s expected to add a significant contribution to our accretive earnings, reinforcing our financial health and setting us on a path of increased profitability in 2023.

Intrensic also gives us multiple expansion opportunities. There are established relationships there. There is market presence, open doors to new markets and new customer segments. It furthermore complements the nature of our products. It means we can offer bundled and integrated solutions, creating opportunities for upsell and cross-selling, reoccurring revenue models built into this. This positions Wrap Technologies favorably to be able to broaden their footprint, both geographically and across different sectors within the industry. There’s also a technology synergy. It’s a very fast evolving tech landscape, especially in public safety. Staying ahead not only requires innovation, but also integration. And that’s something that is unique, but Intrensic too is being able to integrate into other solutions in the market, such as CAD and RMS.

When you look at comparing this whole suite of products into what our solutions are now, it really enhances our user experience. It drives operational efficiencies and it allows us to really to cater to the more sophisticated needs of our customer base. This alignment is really pivotal for our growth and strategy in 2023 and then in beyond. So I’ll just say finally, Intrensic doesn’t just add to our 2023 portfolio, it amplifies it. By integrating those capabilities, we’re better equipped to navigate what is a very evolving public safety landscape, both domestically and internationally. We can capitalize on these emerging opportunities. We can deliver enhanced value to our stakeholders. The acquisition in essence is a testament to our commitment to growth, to innovation, and excellence at Wrap.

Nima Parikh : Thank you both, Kevin and Chris. That concludes our Q&A portion of the call. Thank you for joining us today for Wrap Technologies Second Quarter 2023 Earnings Conference Call. If you have any questions, please reach out to us via our website at ir.wrap.com. You may now disconnect.