Transcript
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. 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.
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 put a lot of the things that were attempted and were unsuccessful in the past behind us. And we can 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 focus 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.
Thank you, Stan, and good morning, everyone. I appreciate you all joining us today. We filed our Form 10-Q for the first quarter on May 20th, and I encourage everyone to review it closely as it contains many positive changes. I will highlight some key points in this presentation, but for detailed information, the 10-Q is the best resource. First off, I've noticed an increase in inquiries from interested investors over the past few weeks. Unfortunately, we cannot respond to all of them, especially those requesting non-public information. We cannot provide piecemeal information to individual shareholders without setting up a public forum like this one. Today, we will address many of the questions that have been coming in about shares and reverses. Looking at the first quarter, it feels like a significant turning point for us as we move on from the SPAC era, which has distracted us from our core business over the past two years. That SPAC deal fell through in the third quarter of 2024. In the first quarter, we were able to refocus on our legacy business and implement several improvements, and I believe the progress is clear. For the profit and loss statements, I will compare the first quarter of 2025, ending March 31, with the first quarter of 2024, also ending March 31. Top-line revenues were down a little over $1 million, or 19%. However, the story is more nuanced. Although video product sales decreased year-over-year, we have a firm backlog of over $2 million. We need to get our supply chain back on track to fulfill this backlog, which we anticipate will help shift our revenue figures positively in the coming quarters. While video product sales fell, service revenues increased, reflecting a positive trend. Regarding the Entertainment segment, we have shifted our focus for TicketSmarter, our ticketing solution, to eliminate some unprofitable sponsorships, which has positively affected our profit margins, even though revenues decreased. The event production group, Kustom 440, has not held any events in 2025 yet, with the first being the Country Stampede from June 26 to 29, which will greatly influence our second quarter revenues. Despite the 19% drop in revenue, our gross margin dollars improved by $78,000, or 5%. This improvement is thanks to our strategic refocusing of TicketSmarter towards more profitable sponsorships and reducing some overhead costs in the video segment. As a result, our overall gross margin percentage increased to 36% from 28% last year. SG&A expenses also saw a significant decline across all areas. Last year's SG&A was $3.6 million, while this year it dropped to under $1 million, a savings of $2.6 million or a 72% reduction. We managed to cut costs across multiple SG&A line items, including headcount reduction and moving to smaller facilities, enhancing overall efficiency. Overall, we believe we have reduced SG&A costs by nearly $7 million on an annualized basis, which is a remarkable achievement. As a result of our improved SG&A and gross margin expenses, our operating loss decreased to nearly $1 million from $3.6 million the prior year, marking a 73% improvement year-over-year. Moving to non-operating items, we experienced non-operating income due to the liquidity from our $14 million public offering, which closed in February 2025. This allowed us to extinguish debt, yielding $1.25 million during the first quarter and a gain on the extinguishment of liabilities totaling $2.2 million. Additionally, our warrant derivative increased by $2.5 million, reflecting a fictional increase from dilution due to the recent offering. Thus, our net income was $4.2 million in the first quarter of 2025, or $1.41 per share, compared to a loss of $3.9 million in 2024, or a loss of $27.48 per share. This represents an impressive turnaround exceeding $8 million in the net income line. As mentioned earlier, I believe the first quarter marked a pivotal moment, and we hope to build upon this momentum for the remainder of the year. Stan will discuss various initiatives and operational focuses planned for the rest of 2025. Turning to our balance sheet, it clearly reflects the liquidity boost from the $14 million offering that closed in February 2025. As of March 31, we had $3.8 million in cash compared to $400,000 at the end of last year. In just three months, we improved our cash position significantly. Our working capital is now positive at $3.4 million, compared to a deficit of $19.4 million at the end of 2024—a nearly $23 million improvement. This is a significant turnaround, improving our liquidity, which is better than it has been in years. We paid down $6.7 million in accounts payable, bringing our total accounts payable down to $4.8 million, and overall debt has decreased by over $5.1 million, to $2.7 million at March 31. We strategically used the offering proceeds to improve our payables and debt situation, leading to a strong working capital position. Our equity now stands at $11.6 million positive, an improvement of over $20 million from a negative $9 million at the end of 2024—all with just the $14 million offering. The remaining $6 million of improvement in equity stems from our 2025 operations. With increased liquidity, our balance sheet is robust, providing a solid financial base to support our operational plans moving forward. Additionally, we have made progress with NASDAQ after receiving several noncompliance notices. We met with NASDAQ in April 2025 to discuss our plans for regaining compliance, and we received time to do so. We filed our late Form 10-K and 10-Q for 9/30, getting back into compliance. We surpassed the $2.5 million equity threshold required for NASDAQ, with almost $12 million in positive equity now. The final compliance issue involves maintaining a $1 minimum bid price for at least 10 consecutive business days. We've recently reversed shares and are currently trading around $4.50, so we anticipate resolving this non-compliance issue as we monitor our progress over the next few trading days. Many have asked about our recent reverse splits; on May 7, we executed a 1-for-20 split and on May 23, a second reverse of 1-for-100 shares. It was a necessary step to ensure compliance with the $1 bid price and avoid delisting from NASDAQ. Currently, we have 1,668,735 total common shares outstanding, which brings our market capitalization to just over $7 million. While we wish we hadn't needed to implement a reverse split, it was crucial to comply with NASDAQ's requirements. Thank you for your patience during this quarter, and I'll hand it back to Stan.
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 when we did the raise. We're able to start to get components in and fulfill those orders. We still have, Tom correct me if I'm wrong, but in excess of $10 million in deferred revenue?
Yes. Yes.
The subscription model remains very attractive and continues to grow, which we are pleased about. We are also exploring new products and patents in our portfolio, which we plan to announce over the next few quarters. From our observations, there is significant market demand for these products, particularly in law enforcement and commercial markets. Our video solutions are gaining momentum, and we are optimistic about their future potential. On the entertainment front, we are excited to have established a clear strategy for developing custom entertainment offerings. For example, Country Stampede is an annual event that is celebrating its 29th year, and for the first time in recent years, we have secured the headliners for 2026 during this year's event. This development is significant and will positively impact our cash flow. Attendees at the festival will be able to renew their seats there, creating a strong opportunity for ticket sales. Since Digital Ally acquired Country Stampede, this is a new initiative for us. We are also gaining respect in the industry, leading other venues to express interest in bringing Kustom 440 to their events. While we expect to manage around eight events in 2025, we anticipate that number will significantly increase in 2026. There is considerable excitement about moving forward, although we acknowledge past challenges. Our focus is on achieving our goals and building on our legacy, which you will see in the coming quarters as we engage more in conferences and calls. We are now free to communicate more openly than we could during our past association with the SPAC. The future looks bright, and we have much to accomplish. Thank you all for joining us today, and we look forward to your participation in our second quarter call. I also want to mention that we plan to host a shareholder conference in Kansas City next June, and we hope attendees will also experience the Country Stampede. Thank you again for your time, and we look forward to speaking soon.
Thank you. And this concludes today's call. Thank you for participating. You may now disconnect.