Digital Ally Q3 2023 Earnings Call Transcript

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November 15, 2023

There are 3 speakers on the call.

Operator

Morning, ladies and gentlemen, and welcome to Digital Ally Inc. Q3 2023 Operating Results Conference Call. At this time, all lines are in listen only mode. Following the presentation, we will conduct a question and answer session. 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.

Operator

We may use words or other expressions that are predictions of or indicated future events and trends and that do not relate to historical matters. Rather, they represent forward looking statements. These forward looking statements are based largely on the expectation or forecast of the 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 forward looking statements expressed in this conference call. The readers are cautioned not to place undue reliance on such forward looking statements.

Operator

We generally do not publicly update or revise any forward looking statements expressed in this conference call, whether as a result

Speaker 1

of new

Operator

information, future events or otherwise. There can be no assurance that the forward looking statements contained in this I would now like to remind everyone that this call is being recorded on November 15, 2023. I would now like to turn over the call to Stan Ross. Please go ahead.

Speaker 2

Thank you. Thanks, everybody, for joining us today. I have Brody Green, the President, with me today. Brody also, as many of you know, has been acting as the CFO as well during this time of our transition that To where we're looking at the spin off with Custom Entertainment. And some of the parties will be going that direction, others will be staying with the legacy business.

Speaker 2

But What we're going to do today, Brody is going to give you a little overview of the numbers and sort of some insight to some of the things that we've done to Dramatically reduce some of the expenses that we've been telling you all that we've been working on for some time, and that I think was clearly shown on the The reduction of some of them that are out there, and you've seen that the ship's getting right at again. And so we're excited about that. Then we're going to spend a little time. I know that many of you want to get an update on where we're at on sort of the timing, the spin off The custom entertainment. I will tell you, there's we just found out that there's been a little bit of technical difficulties With some of the software being loaded up in regards to this call, nothing to do with Digital Ally with this call.

Speaker 2

So we're going to do our best that we can to inform you as well as we can, but we will

Speaker 1

not be able to have a

Speaker 2

Q and A session at this time. So hopefully, we do a good job of bringing you up to speed and anticipating what those Questions may have been and can address them for you. So, Brody, I'll let you give them the highlights on the numbers. Yes. Thanks, Dan.

Speaker 2

I'm pretty excited this quarter with a lot

Speaker 1

of change and a lot of improvement on the SG and A and Spending side, that in turn directly impacts our bottom line. So I'll just flow through the face of the financials first And then kind of through some other higher level points we'd like to touch on and then turn it back over to Stan. So I'll start with the balance sheet. At September 30, 2023, we had our total current assets at about $19,400,000 a small decrease since December December 22, total assets was $51,400,000 a similar decrease as compared to year end 2022.

Speaker 2

Our total liabilities at the end of the quarter were $24,100,000

Speaker 1

with total current liabilities rather and then total liabilities About $32,500,000 So we have a stockholders' equity currently sitting at $18,900,000 at

Speaker 2

Quarter end for Q3. On the

Speaker 1

P and L side, revenues were north of $6,300,000 a bit of a decrease For the same quarter of 2022, but part of that is part of our rightsizing, particularly in the entertainment side with the ticketing, Lessening our pay per click and marketing dollars can directly impact our revenues, but positively impact our bottom line. Similarly, with cost of revenue, you'll see a large decrease there that really correlates with the decrease in revenue. And then as we've been talking about our gross profit for Q3 of 'twenty three was north of 1,200,000 Compared to the same period in 'twenty two, it was less than $600,000 So we've more than doubled our gross profit Quarterly comparison from 'twenty two to 'twenty three. Similarly, our SG and A was down about $800,000 to 6,400,000 So it's from the same quarter of 'twenty two. And then one

Speaker 2

other item we'll call out.

Speaker 1

So then the other income, obviously, we have the

Speaker 2

warrant derivative liabilities, which is just a

Speaker 1

change in Liability for our the warrants we have out there just due to some accounting nuances. So that was the change in the value North of $8,000,000 or $1,800,000 So you'll see a line of gain of exchange rate of liabilities of about $500,000 That is part of the reduction in sponsorship and marketing expenses we've pushed for over the past quarter, in which we were able to get rid of ourselves of the pricing liabilities and contractual obligations During the quarter and moving into Q4 as well, as well as terminating future contracts that we weren't seeing the results out of that we wanted. So It shows a $500,000 benefit here, but I think internally we know about there's several millions that we're saving Moving forward, that might not necessarily be reflected on the income statement, but they will come off in future years on the expense side. So in short, our net loss for the quarter was about $3,700,000 compared to 1,900,000 And in the same quarter of last year, comparatively, the same quarter of 'twenty two had a $3,600,000 gain of Extinguishment of warrant derivative liabilities and $1,200,000 on change of fair value. So it was flushed about $4,600,000 worth of warrant derivative liabilities in 'twenty two.

Speaker 1

So comparatively, it's still very similar and frankly an improvement since 2022. Quarter over quarter, our revenues were down from Q2, but Q2 had the custom 440 Concert that they put on in May. More of those to come, which will continue to improve revenue along with gross profits. Our deferred revenue number, as we always like to discuss and point out, is Approaching $10,000,000 it's at $9,900,000 at September 30, 'twenty three. That's up over $2,000,000 from December 31, 'twenty two.

Speaker 1

So we'll continue to see that increase over time. And obviously, like we always say, it really brings our Yes. Starting sales number each month and every quarter well above 0. So we'll just continue to recognize those contracts that are 3 5 years And just continuing to stack those up. At the same point of last year, our deferred revenue was less than $7,200,000 So Really a $2,700,000 increase from the same period last year.

Speaker 1

So that's over a 12 month span. And we just that's only going to continue to grow and grow. So it's an exciting Piece for us to have sitting on the balance sheet.

Speaker 2

Part of our net loss this quarter Was

Speaker 1

due to large inventory write offs of an expiring products and trying to scrap some older products that have been on in our warehouse for quite some time.

Speaker 2

We had some R and D for

Speaker 1

some new products coming up and hopefully we'll put those out in the market here in 2024, but obviously the R and D expenses are incurred now. Obviously, there's several expenses related to this business combination with Cloverleaf that we're pushing through, and we'll have an update on that here shortly. But There's several kind of one off pieces in these numbers this quarter and likely in 2024 as well or in Q4 as well as we work towards this transition and this transaction being completed. And then from there, I think we'll really see an improvement On all sides. Some subsequent events that I'd like to touch on, we appointed a new Board of Director, Duke Dougherty.

Speaker 1

We appointed them October 17, filed an 8 ks. So please reference that if you'd like more information on it. We completed on October 26, the loan agreement in mortgage to take out the convertible notes we had outstanding of $3,000,000 So we resolved those and put a mortgage on our building here currently that was free and clear and paid for in cash several years ago. So again, this is all in the 10Q, and I encourage you guys to go into the queue and take a full look at all of this as well in greater detail. And lastly, a brief update on the business combination with Cloverleaf.

Speaker 1

The S-four was filed in October. We've since received comments back From the SEC, and we're working to provide responses to those as soon as we can. We'll have to throw in Q3 numbers as Q2 numbers are asked to sell, so we'll get hopefully responses here as soon as possible back to the SEC to move this forward. And with that, I'll turn it back over to Stan, and let him start on this one.

Speaker 2

Yes. Thanks, Brady. So as you can tell, in regards to the numbers, I mean, I think The fact that the reoccurring or the deferred revenue continues to grow is almost at $10,000,000 says an awful lot The ability and longevity of what the legacy businesses are continuing to build. Medical billing is continuing to Plug right along. No surprises there.

Speaker 2

It continues to kick off good cash flow for us as well. And then you've got the new products that are really starting to get out there, new budgets are coming up, companies that have had long term contracts The other vendors are now getting to see the new Digital Ally products and Again, been very well received at all the shows we've been through, and those are reflected in the reoccurring revenordeferredrevenue That we're continuing to see and building upon subscription model for the video side of things. We do anticipate going into the tail end of this year and obviously in 2024, Some real nice improvements on the commercial lines. We've been out there with the new product. It's been Well received a lot of T and E's been going on.

Speaker 2

So again, I think the legacy business is poised real well to continue to We're bringing in new customers and continuing to retain their existing ones with the quality of the new products that we're bringing along. Also, as Gordie pointed out, the revenues quarter over quarter, and again, that was because of The concert that Custom 440 put on, I think it generated almost $1,100,000 which was really nice out of the box Small concert that we did somewhat in our backyard here. We do have anticipated Additional concerts that we look to do quite a few of, obviously, not just one offs, quite a few In 2024. So while that may be more of an impact on the custom entertainment and then at that point in time the spin out, That still should be looked at as a very positive because at the end of the day, Upon the completion of this merger, you're going to all the Digital Ally shareholders will also be Custom Entertainment shareholders. So excited for that to continue to move forward.

Speaker 2

I know that many of you may know this, but some of you may not. Just trying to give you an indication of timing on how these things work. But legally, the S-four was filed. The SEC had 30 days to get back to us. They did.

Speaker 2

Comments have been addressed. And now it's just a matter of plugging in the new, What I want to say, 3rd quarter numbers, because Q2 has failed in their eyes. So Q3 numbers will get plugged in and then that will be filed with the SEC. At that point in time, they have 10 days to essentially respond. And hopefully, at that point, they come back with very few comments, if any, and should be fairly Quick to respond.

Speaker 2

There shouldn't be any financial issues by any means as far as the numbers. It's just clarification. Their role is really just to try to do the best we can to make sure that all investors have a real clear understanding, Ideal, the investments that they may be making. So it's more about making sure that all the disclosures are in there. And we have no problems with that with both companies being publicly held.

Speaker 2

We've been doing that for some time. So excited about Getting close to the finish line on the Custom Entertainment spin off. Of course, I will be going with Custom Entertainment, I'll use a little bit of my background as far as, I guess, what I was raised with, very familiar with the markets. And so that I'll be going. Duke will be joining me as one of our Board members.

Speaker 2

We were able to Recently, we have identified a CFO that should be coming on board For custom entertainment. So that's getting all the management people are getting put in place. So it's closer than we think, especially with the holidays, the way they're coming up. This will fly by and we'll Before we know it, we'll be making the announcement. And so what will happen on that too is, at that point in time, we'll make sure that Obviously, everyone will know, Clover will be the one making the announcement.

Speaker 2

They'll do a quick shareholder Votehopefully approval to go ahead and finish what was started here. Meanwhile, We will continue to move forward on building custom entertainment, both the ticketing platform and the production platform In the coming weeks, coming months, and I think you'll see some announcements on that. I really apologize. We're unclear on why we can't bring up the Board and everything to go into a Q and A. So Not sure where the problem is.

Speaker 2

But if there is some questions that come up or Anything that we can answer that is already out there that you just need a little more clarification on, please reach out to Brody and or I, And we'll do the best we can to help explain anything that may be out there that we haven't addressed. Randy, you got any comments on anything? No, I don't think so. Like I said earlier, I would encourage you guys to take a look at this 10 Q. It has all

Speaker 1

the details you could want. So I would dig in there. If you have further questions, then Tom would definitely reach out to us. But I think 10Q is a great source to really see where the company is at and where we're heading. So with that, I'm good.

Speaker 2

All right. Listen, thanks everybody for getting on. Again, Deepa's apologies for not being able to get into Q and A side of things. But We will be back in touch, I'm sure, very soon, and we'll do a we'll keep you guys abreast of the timing of The merger with Clover and Custom Entertainment. Thank you.

Operator

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.

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Key Takeaways

  • During Q3 the company cut SG&A expenses by $800K and more than doubled gross profit year-over-year to $1.2 million.
  • Deferred revenue climbed to $9.9 million—up from $7.2 million a year ago—underscoring a growing multi-year recurring revenue backlog.
  • The quarter’s net loss was $3.7 million versus $1.9 million in Q3 2022, driven by rightsizing, inventory write-offs and warrant liability changes.
  • The S-4 for the Cloverleaf business combination has been filed and Custom Entertainment’s spin-off is advancing, with SEC comments pending and Q3 figures to be updated.
  • Balance sheet moves include eliminating $3 million of convertible notes via a mortgage on the headquarters, appointing a new board member and CFO for Custom Entertainment, and ending Q3 with $18.9 million in stockholders’ equity.
AI Generated. May Contain Errors.
Earnings Conference Call
Digital Ally Q3 2023
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