Wrap Technologies Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
August 9, 2023

Key Takeaways

  • The acquisition of Intrinsic LLC for $500,000 in cash and 1.25 million shares integrates leading cloud-based evidence management and body-worn camera technology into RAPP’s portfolio.
  • Q2 revenue of $1.2 million was up 7% in the Americas but overall flat year-over-year due to the timing of large international orders shifting to H2 2023.
  • Gross profit rose 46% year-over-year to $667,000, yielding a 56% margin from increased production efficiency on the BolaWrap 150.
  • Record sales of the RAPReality virtual reality training platform and an expanded sales team reflect a significant surge in customer demand.
  • A $18.2 million cash position in cash, equivalents, and short-term investments provides a strong foundation for strategic growth and operations.
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Earnings Conference Call
Wrap Technologies Q2 2023
00:00 / 00:00

There are 3 speakers on the call.

Operator

Relations section of the company's website at ir.raf.com. Additionally, the company asks that all interested parties register on the Investor Relations website at ir.rasc.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 City 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'd like to turn the call over to our CEO, Kevin Mullins.

Speaker 1

Good day, everyone, And welcome to our Q2 2023 earnings call. I appreciate your time and interest in our company, and I'm pleased to present our 2nd quarter results as well as some key strategic developments that are paving the way for an exciting and rewarding future for RAPP Technologies. First, I am thrilled to share a momentous milestone in our journey of continuous innovation and growth. The acquisition of Intrinsic 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 1,250,000 shares of RackCom and stock Marks a pivotal addition to our solutions portfolio.

Speaker 1

By seamlessly integrating Intrinsic 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. Intrinsic 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, RAP reaffirms its commitment to empowering law enforcement worldwide with a comprehensive suite of solutions.

Speaker 1

As the demands of modern policing continue to evolve. Our relentless drive to be a prominent authority in this domain will be bolstered by integrating Intrinsic's capabilities with our own, paving the way for a more cohesive, integrated and sophisticated technology ecosystem. By welcoming Intrinsic into our family, WRAP takes a significant step towards becoming the preferred one stop shop for law enforcement and security and 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 RAP's ability to drive impactful change for our global customer base and new partners seeking comprehensive advanced technology solutions.

Speaker 1

Going forward, RAP will offer 3 complementary but distinct solutions in our portfolio: body worn cameras and evidence on cloud wrapreality, our virtual reality training platform and their 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 Q2 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, rapreality, which is witnessing a significant surge in customer demand.

Speaker 1

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 like 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, FolarWrap, continues to resonate with a growing number of law enforcement agencies worldwide.

Speaker 1

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 RAC reality platform has already outperformed last year's sales in just 6 months. We anticipate a rapid increase in the number of unique scenarios to enhance officer decision making skills in high stress situations. And now we are holding in the Intrinsic platform and expect to leverage our global sales force to rapidly expand Intrinsic's body camera and evidence on cloud solutions worldwide.

Speaker 1

We've taken major strides this continue to invest in new performance benchmarks and cost disciplines. We remain committed to fortifying our current operations in investing in the future with a clear vision and relentless drive, we are poised to unlock the full potential of RAV. As I mentioned on the last call, we have started to reap the rewards of our long term investments in 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 for Meryton expanding pipeline And increasing adoption rates across our existing customer base.

Speaker 1

Having established a well defined and targeted strategy that aligns with our priorities, we have 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 have outlined 3 main priorities as we head into the rest of the year. They are to: 1, Accelerate the rate at which we close deals 2, expand deployment with existing customers and 3, reduce our non essential operating expenses.

Speaker 1

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?

Speaker 2

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 2nd quarter financial results and give you an insight into our outlook for the second half of twenty twenty three and beyond. Despite the timing of certain large international orders, which we now expect to close in the second half of twenty twenty three, we were still able to achieve revenues of $1,200,000 this quarter, 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 revenue saw a 7% increase from the prior year period, moving up to $1,200,000 from 1,100,000 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 2nd 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 BOLARAB 150 have paid off, and this is clearly reflected in our healthy gross margin of 56%.

Speaker 2

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%, reflect 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 $3,700,000 which is a significant 23% improvement on the prior year period. Looking at our balance sheet, it remains healthy and robust.

Speaker 2

As of June 30, 2023, we have cash, cash equivalents and short term investments totaling $18,200,000 compared to $19,300,000 at the end of 2022. This includes part of the initial proceeds from the $10,000,000 preferred stock and warrant offering, which was still in the process of closing at the end of June. On the note of key performance indicators, I'm pleased to share that 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 in a stronger performance for the second half of twenty twenty three.

Speaker 2

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 to address strategic organizational changes. We've increased our gross profit by 46% while continuing to manage cost 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.

Speaker 2

Our robust balance sheet including our strong cash position is complemented by promising revenue potential for the pending international orders, setting us up well for a positive second half of twenty twenty three. All of these elements reinforce our confidence in RAP Technologies, 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 RAC.

Speaker 1

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 can chart a path of unparalleled growth and success. Our flagship solution, VolarAP, is well positioned to gain further global traction. With RapReality, we are revolutionizing the training experience of law enforcement agencies, bringing them to a new paradigm in immersive and perpetual learning.

Speaker 1

The addition of Intrinsic 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 and our comprehensive and the 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, provide 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 RAP Technologies. Our fortified product line and our dedicated team position us well for success.

Speaker 1

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 create shareholder value in the coming quarters. The future for RAP Technologies is indeed promising. I now turn the call back over to Neema to facilitate the Q and A and pre selected questions we received from investors.

Operator

Thank you, Kevin. The following questions were submitted from shareholders and interested parties. Kevin, how does the second half of twenty twenty three look compared to the first half of twenty twenty three?

Speaker 1

Thank you, Neema. The outlook for the second half of twenty twenty three is shaping up to be quite promising when compared to the first half. Firstly, as we mentioned earlier, the unpredictable nature of international orders 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 twenty twenty three. On the operational front, efficiencies gained from our continuous improvement initiatives in the first half of twenty twenty three are expected to yield positive results in terms of operational costs and the speed of delivery in the second half of twenty twenty three.

Speaker 1

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 20 And this adds to our optimism. I'm just saying summary, while the first half of twenty twenty three presented its own set of challenges, It also provided us with many opportunities to refine what our strategies were, enhance our offerings, prepare for really a strong 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.

Operator

Thank you, Kevin. This next question I'm going to direct to Chris. Why intrinsic and why now?

Speaker 2

Thanks, Taneema. There are several different reasons for why intrinsic, why now and why does it make sense. One of our decisions to acquire Intrinsic is rooted in the alignment of our respective core competencies. RAP has always been on the forefront of innovation in safety and security. Intrinsic brings to the table some more advanced digital evidence management solutions, which when combined with our other products offer some more comprehensive and integrated solution to our clients.

Speaker 2

Also with Intrinsic 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 long standing relationships in current markets. So kind of just to sum it up with the question why intrinsic 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 RAP Technologies to remain as an industry leader in an increasingly digital world. We're excited about this acquisition and we are confident that will drive significant value for our state.

Operator

Thanks, Chris. And finally, how does Intrinsic help 2023?

Speaker 1

Certainly, the integration of Intrinsic 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, this The value, like what's the accretive value. And when you look at what Intrinsic 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 1 plug in, allows us to be able to tap into additional revenue streams, marginal improvements.

Speaker 1

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. Intrinsic also gives us multiple expansion opportunities. There are established relationships there, there is market presence to 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 be able to broaden our footprint, both geographically and across different sectors within the industry.

Speaker 1

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 Intrinsic2 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.

Speaker 1

Drive 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 beyond. So I'll just say finally, it's intrinsic Doesn't just add to our 2023 portfolio, it amplifies it. By integrating those capabilities, we're better 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.

Speaker 1

The acquisition in essence is a testament to our commitment to growth, to innovation and excellence at RAP.

Operator

Thank you both, Kevin and Chris. That concludes our Q and A portion of the call. Thank you for joining us today for RAP Technologies' 2nd quarter 2023 earnings conference call. If you have any questions, please reach out to us via our website at ir.rapp.com. You may now disconnect.

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