Wrap Technologies Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
November 9, 2023

There are 2 speakers on the call.

Operator

Available for replay via a link in the Investor Relations section of the company's website at ir.wraps.com. Additionally, the company asked 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.

Operator

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. Kevin?

Speaker 1

Good afternoon and thank you for joining us. It is an honor to shed light on RAP's commendable strides and achievements throughout the Q3 of 2023. The past quarter stands as a testament of our relentless dedication to excellence in our pursuit of innovation. Our Q3 performance brings us milestones, not merely in financial terms, but as a clear indication of our expanding 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 our dominant market stature.

Speaker 1

In our ongoing endeavor to consistently elevate the standards, WrapReality continues to see significant demand, leading to the 2nd consecutive quarter of record sales. This success stems from our content focus of our training platform and rolling 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're also seeing good progress with sales for the recently acquired Intrinsic platform in the 3rd quarter. Early feedback shows the solution integrates well into our market and product set, which promises steady growth for us.

Speaker 1

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 a bright future we see ahead. As we move throughout this year, we're optimistic about our earnings in the coming months, thanks to great results from RASP products. This quarter shows how hard we've worked to grow our presence in the market. With strong demand, our Q3 sales are a testament to our reach, both locally and internationally.

Speaker 1

We've had another record sales period with WrapReality and we're starting to see good success from our new Intrinsic platform as well. We're heading into the last full quarter with hope and excitement. We made some updates to our sales process to better meet our customers' growing needs. Looking ahead, RAP 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.

Speaker 1

Our pilot success is just 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 RAP. With our team's energy and strong financial position, we're ready to achieve even more. Our goal is clear.

Speaker 1

Is to make real improvements in public safety. Thanks to our shareholders' trust and our team's hard work, We're preparing for great things ahead. Lastly, a massive thank you to everyone who's 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'll now turn the call over to Chris for an in-depth exploration of our financial performance for this quarter.

Speaker 1

Chris? Good afternoon, everyone. Thank you, Kevin. Our Q3 performance solidifies the strength and relevance of our offerings in the market. Both domestic and international sales have responded positively, positioning RAP for consistent growth.

Speaker 1

During the Q3, we had record quarterly revenue as a result of continued strong demand for our solutions as we gain 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 Q3, we had record gross profit both in terms of dollars and as a percent of revenue.

Speaker 1

Our gross profit for the 3rd quarter increased by 139% from the prior year period, going from $910,000 to $2,180,000 Our efforts to increase production efficiency and manage costs for our BOLARAP 150 product have paid off and this is clearly reflected in our gross margin of 60%. Operating expenses for the 3rd 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 intrinsic 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 Q3 of 2023 improved significantly from the Q2 and on a year over year basis. Excluding the one time items I mentioned earlier, Our net loss was just under $2,000,000 which is a significant 50% improvement over the prior year period.

Speaker 1

Going forward, we will continue to maintain tight controls on costs, while we focus on revenue growth. Looking at our balance sheet, it remains healthy and robust. As of September 30, 2023, we had cash and cash equivalents and short term investments totaling approximately $15,000,000 compared to $19,000,000 at the end of 2022. On the note of key performance indicators, I'm pleased to share that the total number of Trained law enforcement agencies have grown by 14% and certified officer instructors have increased by 14% from the prior year period. These are continued promising indicators of our ability to expand our footprint and influence in the public safety market.

Speaker 1

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're 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 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 anticipate will persist.

Speaker 1

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 a focus on innovation and market expansion, wrap is poised for a robust performance underpinning our commitment shareholder value creation. With that, I'll turn the call back over to Kevin to discuss our outlook in more detail. Thank you, Chris.

Speaker 1

As we conclude another favorable quarter, I'm proud to share that the dedication, resilience and strategic efforts of the entire RAP Technologies team have been the driving force behind our continued success. We navigated the challenges and harnessed the opportunity, 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 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.

Speaker 1

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 J. D. To facilitate the Q and A and pre selected questions we have received from investors.

Operator

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?

Speaker 1

There are multiple factors contributing to our growing success. Speaking for Vollramp, in both the domestic For markets, there is a commonality. Agency, 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've had civil unrest, we've had geopolitical events that have changed policy and perception. Everyone's looking for a solution to lower use of the 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 bola wrap is really the answer that everyone is seeking.

Speaker 1

It's 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.

Speaker 1

From the standpoint of our new body camera platform, we live in a video world now. It's the consensus of most of public safety that Every agency will be required to wear a body camera in the next 5 years. I think that's the Consensus within the U. S. Market.

Speaker 1

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 4 times faster. They're more comfortable.

Speaker 1

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 unhomed, With opioid 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.

Speaker 1

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 RAP Technologies right now.

Operator

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

Speaker 1

It's provided a major impact. The acquisition of Intrinsic 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 RackReality and now we have a body camera platform.

Speaker 1

Intrinsic 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, it's case management, it's incident management. So private for all of law enforcement. What's different about Intrinsic is that we can do a mobile upload. We do video optimization.

Speaker 1

We're very open source and that agencies using One platform with their computer aided dispatch and their RMS, we integrate in those platforms. So we're not That proprietary where you it allows an agency to be able to shift and to move. It also opens up many additional sales verticals. And think about intrinsic with schools, with universities, with hospitals, with utility workers, those are just a few. Currently, we sell a lot more cameras into the cannabis industry for security and delivery.

Speaker 1

We have our camera platform, For security and delivery, we have our camera platform operating in the mining industry. Yes, Biocamers are becoming mandated in public safety, but there are so many other verticals and possibilities that allow us to be able to operate this fast. 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.

Speaker 1

We have the ability to expand wrap technologies as a solution provider, not just PolarWrap. PolarWrap is our core technology at this point, but we're continuing to seek other revenue opportunities and that's the advantage and certainly things have become opened up with the acquisition of Intrinsic.

Operator

Thank you, Kevin. For Kevin as well, the company has forecasted positive growth for the Q4 and into 2024. What specific indicators should shareholders look for that would signify that the company is on track to meet these projections?

Speaker 1

I mentioned earlier, the factors that are driving revenue growth. I feel very positive toward our domestic and the international demand now through our suite of products. Without expanding specifically, We are experiencing substantial pipeline growth for each of our product sets, in particular 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 operations 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.

Speaker 1

And so beginning to click on all cylinders and you see that and you see that building within our pipeline. That combined with It's demand for our products. When you think about markets worldwide, we're all looking for that solution, right, that And that's what we sell. We're selling that outcome with BOLARATH. 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.

Speaker 1

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's exactly what we're doing and that's why we're seeing that substantial pipeline growth. So very bullish about what our opportunities are and There's a lot of excitement.

Speaker 1

Everyone can sense us and we're very much I believe at a tipping point with WRAP Technology.

Operator

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

Speaker 1

Yes, absolutely. So when we look at our cost structure overall, we've done quite a bit over the last a few months, really since April even before that to reduce our overall cost footprint, reduce our OpEx going forward, both on the R and D side, getting tighter from that perspective, but mainly on the SG and A side. So we'll continue to do that. We'll continue to hold Cost down, we think there is ample opportunity for revenue growth with the cost structure we're at. In the 3rd quarter In Q2, unfortunately, we had changes in management, which made some severance impact in the Q3.

Speaker 1

Of course, we did the Intrinsic acquisition, which is a wonderful acquisition. We did the preferred financing transaction. And some of those costs unfortunately just get expense per GAAP in one period versus over the life of 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 will keep tight controls and really monitor the growth and let revenue run a little bit before any costs happen.

Speaker 1

Not saying down the road in years, we won't see some increases as we add staff and really try to Phil, for a market perspective, but the main focus here is revenue and then just keeping costs under control.

Operator

Thank you, Chris. That concludes our Q and A portion of the call. Thank you for joining us today for RAP Technology's Q3 2023 earnings conference call. If you have any additional questions, Please reach out to us via our website atir.wrap.com. You may now disconnect.

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Key Takeaways

  • Wrap reported record Q3 revenue and achieved the second consecutive quarter of record sales for its WrapReality VR training platform.
  • Gross profit rose 139% year-over-year to $2.18 million—yielding a 60% gross margin—as the company enhanced production efficiency and managed costs.
  • International revenues grew substantially on large orders from North Africa and the U.S. Northeast, highlighting Wrap’s expanding global market presence.
  • Integration of the Intrinsic platform added a scalable body-camera and cloud evidence solution, creating new recurring revenue streams beyond BolaWrap.
  • Adjusted net loss improved by 50% year-over-year to just under $2 million, while operating expenses (excluding one-time items) fell 15%, positioning Wrap for continued profitability.
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Earnings Conference Call
Wrap Technologies Q3 2023
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