Digital Ally Q2 2024 Earnings Call Transcript

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August 19, 2024

There are 4 speakers on the call.

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 presentation, we will conduct a question and answer session. 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.

Operator

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 transfer or prove to be accurate.

Operator

I would now like to turn the conference over to Stan Russ, CEO. Please go ahead.

Speaker 1

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 Custom Entertainment with Cloverleaf Group. And so lots happened on that that we like to share with you and some timing issues concerning the 1st round of dividends and then the 2nd round of stock dividends as well.

Speaker 1

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.

Speaker 2

Thanks, Dan. Like you said, I'll just do a brief overview of the financials. But 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.

Speaker 2

So we'll get to that as soon as we can. So the current assets of the company at June 30, 2024 were 14,200,000 dollars down about 1.3 from year end. Similarly, with the total assets, it was at $43,300,000 compared to $47,000,000 on December 31. Total current liabilities bumped up to $27,600,000 A chunk of that is about a little less than $4,000,000 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 noncash liability, but nonetheless, liability on the books.

Speaker 2

Total liabilities is $40,300,000 Now you can see our contract liabilities sitting on the balance sheet. We're $3,100,000 as current portion and about $7,000,000 for long term. That's our deferred revenue for our 3 5 year contracts. So that's those are really going to find their way up to the find their way over to the P and L as those mature and come due. Total stockholders' equity at the end of Q2 was a little over $3,000,000 So that wraps up the balance sheet.

Speaker 2

Again, further details you'll find on the Q. And then for the P and L side, our total revenue for the quarter was $5,600,000 with a total gross profit of $242,000 We had an operating loss of 3,900,000 dollars with a net loss of $5,000,000 and then a net loss per share of $1.74 And then our current at the end of Q2, our current shares outstanding were $3,500,000 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 a little over $10,500,000 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.

Speaker 2

So this continues to grow and hit the P and 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.

Speaker 2

So I'll turn it back over

Speaker 1

to Stan. Good. Thanks, Brody. Yes, much a lot of the calls and emails, even text messages have been around the business combination agreement where Digital Ally is selling one of its subsidiaries, which is Custom Entertainment to Cloverleaf Capital. They are currently a NASDAQ company.

Speaker 1

I just looked up their stock, it's still trading nicely, $12.40 We've already done the record date for the 1st round of dividends. So there will be approximately almost 2,300,000 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 12, so last week.

Speaker 1

So that should be happening. What will also transpire is Digital Ally itself will then be receiving and holding on to almost 7,600,000 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.

Speaker 1

There'll be a new record date established and those will be sent out in about a 6 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 o'clock Eastern Time this coming Friday.

Speaker 1

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 will 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 'twenty two and then started going down this path and negotiating in about March of 'twenty three, actually entered into an agreement, I want to say it was in June of 'twenty three. So it's 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.

Speaker 1

And it makes it a little clearer to define Digital Ally and who they are by getting this in customer 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 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.

Speaker 1

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 custom entertainment. With that being said, we will touch real quickly on our festival. It was our 1st year that we acquired Country CMP. We were in a new location. We had a lineup that was very good and excited about the future that that country stampede holds.

Speaker 1

It's a 28 year old country festival, one of the largest and if not the largest in the state of Kansas and probably in 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 Custom Forwarding as part of the Custom Entertainment spin off. So with that being said, why don't we go ahead and open up the lines for Q and A, please?

Operator

Thank

Speaker 3

you.

Operator

Your first question comes from Rommel De Onisio from Aegis Capital. Please go ahead.

Speaker 3

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, but I thought you had 2.8 and there's 1.2 from the offering.

Speaker 3

What is my math off on that? I thought it would be more like 4.0 and I've seen 3.

Speaker 2

Yes. So it's 3.5 at quarter end because the prefunded warrants had yet to be exercised from the deal. So now it is up to I believe you're I think it's yes, a little less than 3.7 now. But at quarter end, it was 3.5 at quarter end. And then now let me just double check the face of you, but it shouldn't be.

Speaker 2

Yes. A little less than 3.9 at this point after all the warrants were exercised.

Speaker 3

Great. Perfect. Okay. And just more of a fundamental question. I wonder if you could just give us an update on the first few pro and some of these models that you've launched over the years.

Speaker 3

It sounds like that deferred revenue number is really growing. So can you just comment on the execution of that strategy that you've been laying out for the last few quarters and how that's all going? Thank you.

Speaker 2

Yes. We continue to push that first few pro out on all the docking stations there, the 8 bay and 24. It's kind of a I mean, it's we did a 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 1 than they use for 5 years. So it's worked well on our the sports teams.

Speaker 2

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 to these 3 or 5 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 yes, 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.

Operator

And there are no further questions at this time. I will turn the call back over to Stan Russ for closing remarks.

Speaker 1

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 Cloverleaf Capital also has 1 on Friday concerning the business combination agreement. And so we will keep you posted through both the press release and 8 ks 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.

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Key Takeaways

  • The company reported Q2 2024 revenue of $5.6 million with a gross profit of $242 000, an operating loss of $3.9 million and a net loss of $5 million (or $1.74 per share), while deferred revenue grew to over $10.5 million.
  • Digital Ally is selling its subsidiary, Custom Entertainment, to Cloverleaf Capital (NASDAQ: CLOV), with nearly 2.3 million Cloverleaf shares to be distributed to Digital Ally shareholders of record on August 12 (worth about $7.70 per share at closing prices).
  • Digital Ally will retain roughly 7.6 million Cloverleaf shares for a second stock dividend to be issued about six months after a new record date is set.
  • All required registrations are approved and both Digital Ally and Cloverleaf shareholders will vote on the transaction this Friday, with closing expected the following week once final steps are completed.
  • The inaugural Country Stampede festival under Custom Entertainment (acquired in 2024) was successful, and the company is securing lineups for 2025 and planning additional events post spin-off.
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Earnings Conference Call
Digital Ally Q2 2024
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