Digital Ally, Inc. (DGLY) on Q1 2025 Results - Earnings Call Transcript
Stan Ross - CEO:
Tom Heckman - CFO:
Operator: Good morning, ladies and gentlemen, and welcome to the Digital Ally First Quarter Earnings and Corporate Update Conference Call. At this time, all lines are in listen-only mode. [Operator Instructions] Note that this call is being recorded on Wednesday, May 28, 2025. 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. 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 they 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, transpire, or prove, to be accurate. I would now like to turn the conference over to Mr. Stan Ross, CEO. Please go ahead.
Stan Ross : Thank you. Thanks, everybody, for joining us today. I also have Tom Heckman, the company's CFO, with me today. Tom shortly will go over a little bit of the recap of our first quarter numbers that we put out last week, but I thought it was just going to be a great time for finally, for us all to get on a call. It's been some time since we've been able to. The last couple of years have been a little bit of a challenge, would be an understatement to what Digital Ally has been through. But I think with the moves that have been made over the last six months, the numbers reflected, and we are getting into a scenario where hopefully, we've putting a lot of the things that were attempted and were unsuccessful in the past behind us. And we could look forward to the things that we have set out to achieve and rebuild the company to more of its glory days, not only with the video solutions sector of our company, but the custom entertainment side as well. I know we do still have on the books, our medical billing entity, which I think has been in print that we have had discussions about allowing it to be sold off. So that's still a possibility that we will entertain conversations on. So that we really focused on the core businesses and not have as many of the other issues that we've had out there. So anyway, we're really appreciative of everyone getting on here. We have quite a large audience today, which is really good, and we'll try to address all open items and maybe a real clear picture on where we believe we're able to be headed. And the accomplishments we should we've set our goals for '25 and beyond. So that being said, I'll turn it over to Tom.
Tom Heckman : Thank you, Stan, and good morning, everybody. I appreciate you joining us today. We did file our Form 10-Q for the first quarter on May 20th, and I really encourage everyone to take a good look at that. Many, many things changed and gladly for the better. And I'm going to hit the highlights in this presentation. But if you really want to see everything and go through the details, obviously, the 10-Q is a place to do that. Right off the bat, I'd like to acknowledge that we've received many calls and e-mails from interested investors in the last several weeks. And unfortunately, we just -- we do not answer all those and particularly the ones that are requesting public -- material non-public information. We just cannot piecemeal information like that out to individual shareholders without building a public forum like today. So we'll be talking about a lot of the information requests that have been coming in on shares and reverses and all that stuff. We'll talk through that today in a public form. As I look at the first quarter, it really looks to me like it was a watershed quarter for us. We're in -- we're moving on from the SPAC days, which consumed us for probably the last two years and really got us unfocused on the legacy business. That SPAC deal died in the third quarter last year in 2024. In the first quarter, we really got a chance to focus back on the legacy business and really, really make some improvements and changes. And I think the first quarter two really shows the progress we've made in that regard. So anyway, what I'm going to do on the P&L, I'm going to compare year-over-year numbers. The first quarter of 2025 ended March 31, versus the first quarter '24 ended March 31, 2024. At the top, the year-over-year revenues were down a little over $1 million, or 19%. But here's really the story on that. If you look at the video product sales, it was down significantly year-over-year. But at the same time, our backlog was over $2 million, our firm backlog. We had to get our supply chain back in order to give us products to be able to fulfill backlog. So there's $2 million of backlog that we're going to be able to work off in the second, third and probably even the fourth quarter of this year that would have really changed the complexion of the revenue figure. So the video product sales was down, but the service was up. So it was a good trend from that standpoint. If you look at the Entertainment segment, we refocused TicketSmarter, our ticketing solution business to shed some of the uneconomical sponsorships that we got involved in. So we really pared some non-gross margin providing, generating businesses, sponsorships, out of TicketSmarter. So the revenues were down, but the profits were up. And then obviously, Kustom 440, which is event production group in the Entertainment segment has not had any 2025 events yet. And the first one coming to Country Stampede, which I'm sure Stan will talk more about is June 26 to 29. So the second quarter is going to be impacted heavily by the first Kustom 440 event called the Country Stampede. So we think the second quarter revenue figures will turn around immensely and show a very good comparative year-over-year number and increase. Even though we dropped 19% of revenue, our gross margin dollars improved by $78,000, or 5%. So you can tell that the refocusing of the TicketSmarter business into economical and efficient sponsorships, as well as paring down some of the P&L, or some of the video segment overhead that hits us in cost of goods sold has come back. The overall gross margin percentage improved to 36% versus 28% last year. So we're going in the right direction on the gross margin dollars. If you look at the SG&A expenses, you'll notice that there was a very large decline across the board in all areas and all segments. In sheer dollar volume, last year's SG&A was a total of $3.6 million. This year, it was less than $1 million. So that's a $2.6 million pickup, or 72% improvement in our SG&A dollars. We focused on pretty much everything in the SG&A line items. We reduced head count across the board. We improved our facilities expense. We sold our building and moved into smaller quarters. And then just our general overhead items, we've really improved the efficiency of those. We believe that year-over-year, we cut out almost $7 million of SG&A costs, that's on an annualized basis. So you look at it, I mean, $7 million out of the SG&A line item is pretty impressive, and we're very happy with that. We believe we've been very successful in reducing our SG&A overhead. As a result of the improved SG&A expense, as well as the gross margin, our operating loss improved to almost $1 million, from the $3.6 million in the prior year. That's a 73% improvement year-over-year. So obviously, we're seeing some good results from that standpoint. If you walk down to the non-operating items, really, the factors that hit us there -- or not hit us, but provided non-operating income was influenced by the liquidity that came in on our $14 million public offering that we closed in February of 2025. As a result of that, we had funds and liquidity to make offers and to extinguish debt, or gain from the extinguishment of debt was $1.250 million during the first quarter of '25. The gain on the extinguishment of liabilities that accounts payable accrued expenses, what have you, was $2.2 million in the first quarter. And then our warrant derivative value gain was $2.5 million. And that's the change in the value of the warrant derivative liabilities, which is kind of a fictional accounting number, but it really recognizes the dilution from the offering that occurred. So from a net income standpoint, we had net income of $4.2 million in the first quarter of '25, or $1.41 per share, versus a $3.9 million loss in 2024, or $27.48 a share. So we had a turnaround of $8 million plus in the net income line. So we're very happy with that. And really, as I said before, I think it was a watershed moment in the first quarter, and hopefully, we can build on those results for the rest of the year. And I know Stan will be talking about some of the initiatives and the focus we're planning on for operations in the remainder of 2025. If you turn over to the balance sheet, our balance sheet really reflects the liquidity injection we got from the $14 million offering that closed in February at 2025. As we sit now at March 31, we had $3.8 million of cash on the balance sheet, versus $400,000 at the end of the year. I'm comparing the March 31, 2025 balance sheet to the 12 -- December 31, '24 balance sheet. So just in one quarter's time, three months' time, we went from $400,000 of cash to almost $4 million of cash on our balance sheet. Our working capital is now positive at $3.4 million, versus a deficit of $19.4 million at the end of the year at '24. That's an improvement of almost $23 million. So very much a turnaround in terms of the complexion of our balance sheet. Our liquidity now is probably better than it has been for several years, and we're looking to build on that strength. If you look at our accounts payable, we paid off $6.7 million of accounts payable during the quarter. We're now down to $4.8 million of accounts payable. Our overall debt level is down over $5.1 million, to $2.7 million at March 31. So obviously, we we've really -- we used the offering dollars to come in and fix our pay down, our debt, and pay down our payables, and really is resulting in a good working capital position. Our equity is now $11.6 million positive, versus $9 million negative at the end of 2024. That's an improvement of over $20 million. Now remember, we've only -- we only received $14 million in the offering. So there was another $6 million of improvement in the equity based on our operations from 2025. With the influx of liquidity over our balance sheet is now very strong. We believe it gives us a good financial backing to implement our operating plans for the rest of 2025 and beyond, and we really needed to get that done, and we were able to accomplish that in the first quarter. There's a couple of other items of interest that I want to go over in more detail. I know this was a subject of a discussion and questions from e-mail and telephone calls and such. We've made a lot of progress with the NASDAQ. The NASDAQ issued a noncompliance notice to us, several of them during the quarter. And we've met with them in April of 2025 and discussed our plans to regain compliance and they agreed to give us that time. The items of non-compliance were that we had a late filing of our Form 10-K for the year-end, as well as our 9/30 10-Q. Both of those were filed and now we're in compliance on that. We were below the $2.5 million equity threshold required for continued listing on the NASDAQ. We're obviously much better than that now. We're almost $12 million of positive equity. So we're certainly in compliance with that. The last item is the item that we're still working on. It's the $1 minimum bid price, which we have to show for 10 consecutive days -- 10 consecutive business days. So we're now above that with the reverses that we administered in the last several weeks. We're trading around $4.50 now. So we believe that, that non-compliance issue is also going to be taken care of, but we're what, 3 or 4 days into that 10-day period. So we've got to wait another seven or eight days -- trading days to show compliance to the NASDAQ. And hopefully, we can get clearance from them that we now are in compliance and will be continued with the listing on the NASDAQ exchange. Here's the split numbers that a lot of people have asked about. We affected two split, one on May 7, there was 1 share for every 20 outstanding. Now on May 23, we issued a second reverse for 1 for 100 shares. So it was very painful. Obviously, we understand and we recognize that, but it was necessary in order to regain compliance with the $1 bid price with NASDAQ. Had we not done that, we probably would not meet that requirement and be delisted and not on exchange. So it was to avoid a very bad outcome from that standpoint. As we sit today, our total common shares outstanding is 1,668,735 shares. Again, 1,668,735 shares. So if you do the math, our market capitalization is a little north of $7 million as we sit today. So obviously, we wish we didn't have to do a reverse split, but it was the only responsible thing to do in order to get back into compliance with the NASDAQ. So again, I appreciate everyone's pace during the quarter and waiting until the public disclosures we made today. And with that, I'll send it back to Stan.
Stan Ross : Thanks Tom. Yeah. Obviously, you've seen some pretty dramatic changes that have been made and the effect that's had on not only the balance sheet but the income statement. So real pleased with that. But also I'm very excited about what we've got ahead of us because as Tom mentioned, we had almost $2.2 million in back orders as when we did the raise. We're able to start to getting components in and fulfill those orders. We still have, Tom correct me if I'm wrong, but in excess of the $10 million in deferred revenue?
Tom Heckman: Yes. Yes.
Stan Ross : So that's still out there, which is the subscription model. So that's still very, very attractive and growing. So we're happy about that. We continue to look at and exploit some of the new products and patents that we have in our portfolio. And those products will being announced over the coming quarters as well. And from what we can see, from what the market is requesting, they ought to be very, very well received not only in the, let's call it, the law enforcement side of things, but also in the commercial markets. So video solutions side is really starting to be able to get a lot of momentum behind it again, and we have a lot of great hopes for it in moving forward. In regards to the Entertainment side, we're also very excited because we now have a real clear path on how to go ahead and develop custom entertainment, the side of it. And just to give you an example on how some of this works, for instance, I'll focus on Country Stampede because it's an event that's held annually, this is its 29th year. And over the last, let's say six years, they have not been able, and not been in a position, where at the event they were able to announce the following year's headliners. That's a big step. I mean, they went through two different moves from Manhattan, Kansas to Topkea Kansas and Bonner Springs Kansas. And that along with some other issues they just never had it laid out to where you can take advantage of it like they were in the past when they were in Manhattan. Very pleased to announce that going into this year's 2025, Country Stampede we have, just as of yesterday, secured our 2026 headliners, and I mean for all three days. So that is very exciting, very dramatic in regards to how that plays out also to your cash flow. The way it works, at least in the Country Stampede is while you're there, if you're participating in that particular festival and you like the headliners that you're seeing that are going to be performing the following year, you have the ability to renew your seats right then and there. Otherwise, if you elect not to, then they'll go on sale for the general public with the following couple of weeks. So this is going to be the first time since Digital Ally's owned Country Stampede that, that has got put in place. We also now have created a pretty good -- a lot of respect in the industry and to have other venues contacted us, wanting us to bring Kustom 440 in production to their sites. So while we anticipate only doing maybe eight different events here in 2025. That number is going to be multiples bigger in 2026 as we now have a little bit of a runway to work with. And so there should be some good growth that you can see from '25 to '26 along those lines, too. So you can tell, while there's a lot of excitement going forward, we regret the learning curve and some of the pain of the past, but that's not where our focus is. We're looking forward to accomplish some things and continuing to build on a lot of the legacy that we've originally established and how we can expand on that. And I think you'll see that in the coming quarters, and we will be doing more of these calls. You'll see myself and others out there participating in conferences that we have not been able to participate in while we were associated with the past, the SPAC and such. We just were somewhat -- our hands were sort of tied on what we can get out there and be talking about. But a lot of that is behind us, and we couldn't be more excited. There's a lot of companies out there that you can take a look at that if you want to try to get comps and understand a little bit about the business, whether it be Live Nation or Venue or then -- obviously, the law enforcement side, there's our video solutions side, there's still the axons in the world that are out there as well. So we're excited about the future. We've got a lot to still accomplish and we're ready to take on that task. And so with that being said, I want to thank you all again for attending today and look forward to you guys participating in the our second quarter call when we announce it. I will tell you one more thing before parting is that it is anticipated that next year, which would be the last weekend of June, we will be holding a shareholder conference back here in Kansas City. So therefore, when we have the shareholder meeting here in Kansas City, hopefully, everyone could stick around a few days and participate in the Country Stampede event, and sort of see firsthand what it looks like for a Kustom 440 production. So I wish you all the best. Thank you again for your time today. We look forward to talking soon. Thank you.
Operator: Thank you. And this concludes today's call. Thank you for participating. You may now disconnect.
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