Earnings call transcript: Wrap Technologies Q4 2024 sees improved margins

Wrap Technologies Inc. (WRAP) announced its Q4 2024 earnings, showcasing a significant improvement in margins and a reduction in net losses. The company reported a revenue of $4.5 million for 2024, marking a 27% decrease from the previous year. Cost-cutting measures led to a notable improvement in operating and net losses. According to InvestingPro data, the company’s stock has experienced significant volatility, with a -11.21% return over the past week. The stock experienced a 2.34% increase in aftermarket trading, closing at $1.75.

Key Takeaways

• Wrap Technologies reduced its net losses by 81%, from $30.2 million to $5.9 million.
• The company’s cost of revenue decreased by 37%, contributing to a 7 percentage point improvement in margins.
• The stock price increased by 2.34% in aftermarket trading following the earnings release.
• The company is focusing on international market expansion and federal government contracts.

Company Performance

Wrap Technologies demonstrated substantial progress in reducing its financial losses and improving operational efficiency. Despite a 27% drop in revenue compared to 2023, the company managed to decrease its cost of revenue significantly. This led to a margin improvement from 47% to 54%, highlighting the company’s focus on cost management and operational restructuring. InvestingPro analysis indicates a WEAK overall financial health score of 1.15, suggesting continued challenges ahead. For deeper insights into WRAP’s financial health metrics and more exclusive ProTips, consider exploring InvestingPro’s comprehensive research report.

Financial Highlights

• Revenue: $4.5 million, down 27% from $6.1 million in 2023.
• Cost of Revenue: Reduced 37% from $3.2 million to $2 million.
• Operating Losses: Improved from 18.75% to 15.6%.
• Net Losses: Reduced from $30.2 million to $5.9 million, an 81% improvement.

Market Reaction

Wrap Technologies’ stock experienced a positive reaction in the aftermarket session, rising by 2.34% to $1.75. This movement came after a 10% decline in the regular trading session, where the stock closed at $1.9. The market’s positive response in the aftermarket reflects investor confidence in the company’s cost-cutting measures and strategic initiatives.

Outlook & Guidance

While Wrap Technologies did not provide specific numerical guidance, the company is focusing on international market expansion and securing federal government contracts. Additionally, the company aims to integrate proven technologies from the defense and intelligence sectors into its product offerings. Based on InvestingPro’s Fair Value analysis, the stock appears to be trading near its Fair Value, with additional metrics and valuation insights available through InvestingPro’s comprehensive research report, which covers over 1,400 US stocks.

Executive Commentary

CEO Scott Cohen expressed optimism about the company’s future, stating, "You won’t recognize this company in twelve months." He emphasized the company’s strategic direction and its potential to become a leader in public safety solutions. President and COO Jared Novick highlighted the importance of a federal strategy, noting, "Any strategy that does not include a federal strategy is incomplete."

Risks and Challenges

• Market Saturation: The company faces challenges in expanding its market share amid increasing competition.
• Supply Chain Issues: Potential disruptions could impact manufacturing and delivery timelines.
• Macroeconomic Pressures: Economic downturns could affect government and international contracts.
• Regulatory Changes: Changes in law enforcement policies could impact demand for Wrap’s products.

Q&A

During the earnings call, analysts inquired about the company’s international expansion plans, particularly in Chile, where there is significant interest. Executives also discussed leveraging EXIM Bank funding to accelerate international opportunities and the establishment of a Washington DC office to enhance federal business pathways.

Full transcript - Wrap Technologies Inc (WRAP) Q4 2024:

Lou, Moderator/Call Operator, RAP Technologies: Hello. Thank you for joining RAP’s Fourth Quarter and Full Year twenty twenty four Earnings Call. On the call today is CEO and Chairman, Scott Cohen and President and COO, Jared Novick. Good afternoon, everyone. At this time, I want to remind you that certain statements and assumptions in this conference call contain or are based upon forward looking information and are being made pursuant to the safe harbor provisions of the Federal Securities Regulations.

Such forward looking statements are subject to numerous assumptions, uncertainties, and known or unknown risks, which could cause actual results to differ materially from those anticipated. These factors are more fully discussed in the Company’s filings with the Securities and Exchange Commission. The forward looking statements included in this conference call are only made as of the date of this call and the company is not obligated to publicly update or revise them. Statements made during this call do not constitute an offer to sell or solicitation of any offer to buy any securities. Securities will be offered only by means of a registration statement and prospectus which can be found at www.sec.gov.

Unless otherwise stated, all reported results discussed in this call compare to compare the fourth quarter and full year ended 12/31/2024 with the fourth quarter and full year ended 12/31/2023. I will now hand it over to Scott Cohen.

Scott Cohen, CEO and Chairman, RAP Technologies: Thank you, Lou. Twenty twenty four was a transformational year for us. As many of you know, while we believed our business has always had great promise, we historically incurred consistent losses due to limited revenue and high operational expenses. To address this situation, when we came on and managed the business, we implemented a full corporate restructuring, knowing that that could cause a short term cost to revenue and performance. However, last year’s financial performance is not why we’re all here.

We’re here to discuss our recent financial improvements and be part of a company that we believe is poised to become a leader in public safety globally. And we stand by that decision. We believe we’re in a place to build the business we always thought existed within wrap. The restructuring is now over. The business required a big step back in order to move forward.

To achieve this, we aggressively slowed our burn and brought our monthly expenses to approximately $600,000 on a cash annualized basis. We believe that that discipline gave us breathing room and time to rebuild and think the right way. Why did we go forward? Because after an intense deep dive into the BOL RAP program to talking to our customers across the country, we believe that the BOL RAP is an entry point enabling us to expand and emerge with an integrated end to end competitive offering. And just about thirty days ago, we put our money where our mouth is.

Our confidence in that decision is reflected by the actions of our leadership team. In our most recent financing activity, Purchases by entities affiliated with insiders of this company increased managers’ beneficial ownership by over 50%, sending a clear message: We’re just not talking about alignment with shareholders. We’re proving it. In 2024, revenue was $4,500,000 down 27% from $6,100,000 in 2023. Cost of revenue decreased 37% from $3,200,000 in ’23 to $2,000,000 in ’24, million dollars with margins increasing seven points from 47% over 54%.

Operating losses improved 17% from 18.75% in 23% to 15.6% in ’24. Net losses improved 81% from $30,200,000 in 2023 to $5,900,000 in 2024. I’m now going to hand it over to Jared, our CEO and President.

Jared Novick, President and COO, RAP Technologies: Thanks, Scott. Along with the transformation, we’re planning to level set and return to business fundamentals. I’m gonna talk about three areas, our product, our market, and our people. First, the product. We know our product works.

We believe it’s differentiated and it’s an offering that it’s making its way in officers’ belts and into their vehicles. When we sat down with our top customers and especially the customers that were fully supported by us, we saw data showing that the BolaWrap is used more frequently than any other device on their belt. Customers consistently highlight the value of having a distraction tool they can deploy early before situations escalate to physical force. And as a result, officer injuries are reduced. The second part is the market.

The demand for a solution is growing and is expanding further with the addition of new services. Across The US and globally, the use of force policies are becoming increasingly restrictive. The opportunities for officers to rely on these traditional tools like tasers or batons are diminishing. This creates a clear gap in the use of force continuum. Without alternatives like ours, officers are forced to go hands on and injuries are rising.

We believe the market has validated the need for a de escalation tool and along with that, a robust training program to fully support it. In our conversations with customers, they’re asking us to become, an end to end service provider and provide integrated solutions. They’re asking us to go bigger. They’re asking about our body cameras, virtual reality offerings, and additional services. As we step back and look at the market, we agree.

It’s time for a true competitor offering end to end services for public safety and law enforcement. Internationally, we have numerous late stage opportunities in our pipeline spanning various deal sizes. Many of these opportunities are the result of prior years’ efforts in developing relationships and launching pilot programs, and they are expected to now bear fruit. To help accelerate our global growth, we started relationships to leverage US government resources such as the United States Export and Import Bank and the Department of Defense’s Office of Strategic Capital. We plan to be part of these efforts, which look to export made in The USA, offerings like the Waller App, while aligning with federal initiatives to counter China’s influence in emerging markets.

Now finally, and most importantly, our people. Of course, any real transformation starts with people to bring our differentiated product to this growing and validated market. So we invested in talent and we will continue to do so. Almost every single leadership position at RAP has been revitalized with individuals who we believe bring unmatched operational experience, entrepreneurial spirit, and an unwavering commitment to our mission. The team we’ve assembled has a global network.

A network we believe has an exceptional reputation in the law enforcement community and it took them decades to build it. These aren’t just hires, they’re accelerators. We believe this team will dramatically expedite our current and future business. The recent acquisition of W1 Global and the hiring of two members from their immediate network came after several months of close collaboration in their advisory capacity. Even within a short time, the tremendous value of the WN team became clear.

Their leadership team and extended network are expected to bring immediate connectivity, trust, and credibility within the law enforcement community, both in The United States and internationally. And as a result, we believe the acquisition has already led to significant domestic and global sales opportunities. We now have enhanced access to senior leadership across global law enforcement. And we’re actively building a domestic and international sales strategy centered on this powerful network. In just a moment on the pedigree of our recent additions, their backgrounds span the public sector across organizations like the DEA, FBI, Department of Defense, NASA, DARPA, Air Force Research Labs, JSOC, Delta Units and intelligence agencies.

And in the private sector, they’re coming from leading companies in cybersecurity, aerospace, counterintelligence, physical threat assessments, anti money laundering, and transactional crime. We believe this unique blend of public and private sector expertise now have housed within RAP Technologies positions us to bring talent, insight, and unminched capabilities to both law enforcement and the broader public safety markets. We believe our team now opens doors to critical elements of the U. S. Federal government responsible for providing monetary and training support to law enforcement agencies in countries of strategic importance to The United States.

The ability to unlock U. S. Government backed loans and grants is expected to greatly enhance our global offerings and expand our reach. I’ll now hand it back over to Scott.

Scott Cohen, CEO and Chairman, RAP Technologies: Thanks, Sharon. We’re building a performance driven culture, which we believe will drive significant growth to fulfill our vision to become a leading public safety company around the world. It’s gonna take some time. It’s gonna be lumpy, but you won’t recognize this company in twelve months. We’re committed to creating lasting partnerships based on continuous value, value that will be felt not only by officers but also by the communities they serve.

We believe the complex challenges in public safety can’t be solved with just technology alone. While technological advancements have had an unprecedented positive impact, the human element, how societies choose to is how societies choose to police themselves, remains the driving force behind policy and best practices. We believe we have the team, the talent, and the strategy to win and win big. Our money’s right on the line alongside yours. This is baseline for what we believe will be a historic run-in the public safety space.

We all will make an impact together.

Lou, Moderator/Call Operator, RAP Technologies: That concludes our prepared remarks and we will now open up the call for Q and A. The first question is what guidance can you provide for the rest of the year?

Jared Novick, President and COO, RAP Technologies: You wanna take the Scott?

Scott Cohen, CEO and Chairman, RAP Technologies: I’ll take that one. Yeah. Thankfully, this this company has never given out guidance. But let me share with you where we’re getting our confidence. We’re seeing massive shifts in policy right now throughout the country, and we’re seeing that not just here, but we’re seeing it through our client base globally.

These policies are making it harder and harder to use the devices on the belt today. We’re talking about tasers, batons, pepper spray, and guns. And as Jared said in his comments, this is resorting in officers going hands on. Cops are getting hurt. Injuries are up, and it’s costing cities and our country it’s costing this country over well over a billion dollars a year, and it’s gotta stop.

These policies are driving, more and more interest, and this is what’s giving us confidence. The other piece that we have that we can talk about is our inventory that we are positioned to sell. We feel good about that. And the international piece, I just want to speak to this because a lot of people that we get asked this question, where’s the international business? Where’s the international business?

The international business is there. I don’t think there’s been one opportunity that’s been dropped. I could tell you that these pilots take a while. Most of these pilots, I would say at least a dozen of them, started probably two years ago, and now we’re just starting to see activity that is encouraging. So when we talk about guidance, we’re not going to give it here.

But I could tell you that you could see with our investment that we made, it’s given we’re starting to see things that I have not witnessed in this business since inception. Lou, is there another question?

Lou, Moderator/Call Operator, RAP Technologies: Yes. The next question is, what is the latest on R and D new products and what is the future for research and development at RAT?

Scott Cohen, CEO and Chairman, RAP Technologies: Wanna take that?

Jared Novick, President and COO, RAP Technologies: Yeah. I can take that. So look, we have finished good inventory about $25,000,000 worth of MSRP ready to go to the market. That’s given us a pause to say, are there product improvements we can make to the bowl wrap And are there other areas of value that we could bring to customers? And the answer is yes, of course.

So we are looking at advancements into a BolaWrap next gen product. We believe that we can offer more broad services. I personally come from a, you know, Department of Defense and intelligence community background. I’m familiar with a lot of these technologies that have been in play in the public safety space for over a decade, decades in some cases. And it’s my observation that a lot of these technologies are right to be transitioned to law enforcement in US public safety.

And so the future of this company is a one part providing and focusing in an undistracted way, a Bola wrap device. But there is an ecosystem of other complementary devices that are also useful to the company. And so what we’re gonna first do, like any company should do, is that ideas are easy, but making them a reality becomes hard. And what we’re gonna do is staff that with the right people. And we’ve already made those decisions in bringing those people internal to the company to staff the research and development.

These people come from, as I mentioned in my earlier piece, NASA, DARPA, Department of Defense, where technologies have been proven at the pointy edge of the spear with special military units, and those who practice, you know, US Department of Justice initiatives through DEA and FBI. And the combination of their expertise that has been amassed over decades of their own respective careers. Plus, the technologies they know that are proven to work gives us unique insight to make our R and D efforts not proof of concepts, but more of an integration play. And what we plan to do is take a wider array of technologies, integrate them into our company, and complement them with superior customer success. And we think the combination of technology that’s been proven in an integrated way plus customer service will bring a differentiated offering to our to our customer base.

So R and D is a one part advancements to our flagship product, BOLARAP. It’s also an integration play of proven technologies, some where it makes sense to do in house, but others with, partnering with the right technology partners and delivering that comprehensively to our customer.

Lou, Moderator/Call Operator, RAP Technologies: Great. The next question is, what is the story on Chilly? What is the update and what is the latest? I’ll

Scott Cohen, CEO and Chairman, RAP Technologies: take that one. We’re talking about Chile on a daily basis here. So there’s lots of there’s it’s very active, in how we’re gonna support that rollout that they’re anticipating. Look, we saw, just like when you saw, we all saw the public information about their budget, when they included bolt wrap in their ’25 budget. We saw it at the exact same time.

So we don’t have specifics, specific rollout plans. We’re just being told and told and told that this is gonna that we should anticipate this or checking on our supplies and inventory. And we’re expecting, we’re not counting on it, but we expect after a three year, one hell of an effort by our team to get Chile where it is right now. It’s taken time. But we think we should see some of the the the some of that we should see a good result this year.

We picked up a nice order from them last year, but what we’re expecting is much bigger this year. They’re asking and spending a lot of time talking to us about training. How are we going to support a rollout to their national police? It’s a big undertaking. And quite frankly, it’s taken a lot of thought and a lot of teamwork and a lot of discussion about the training and the rollout of this.

So, timing is very difficult for us to predict, but we’re waiting. So we can’t call out. We’re not gonna call out when that’s gonna happen, but I am hopeful, we’re all hopeful, that we see a nice part of that this year.

Lou, Moderator/Call Operator, RAP Technologies: The next question, why do international deals take so long? Let me speak to that. Mhmm.

Scott Cohen, CEO and Chairman, RAP Technologies: This is twofold. I just mentioned that some of these pilots take time. We’re rolling out a new product into public safety. It hasn’t there’s been really no new rollout on the belt since since Taser. Right?

And that was thirty years ago. So this is not easy. It takes time. I’m seeing these these pilots continue to press in advance. Lots the discussions to me are feeling much more fluent and much now that we’re, on the front end of them.

I feel like we’re getting closer and closer. But the new piece that we just introduced was, the funding by Ex I’m Bank, that funding option. We’re going to our client base and per and and, and presenting this funding option along with a couple other programs that are existing within our government. And, the reception has been, very positive. In fact, it’s not for every country because there’s plenty of countries that have their own funding sources.

But, we’ve been offering this to the distributors. The reaction’s been phenomenal. And they are telling us, and this is just new to us, being presenting this option, they’re telling us that it’s gonna absolutely make a difference in getting some of these deals over the line. So I feel like, our connectivity with this EXIM program and other programs that we’re discovering, with our current government and the positioning, there’s a there’s a real way for us to really help our our our distributors and our customers, support them in ways that we’ve just simply weren’t able to do in the past. And I believe that is going to accelerate, our flow of international business.

Lou, Moderator/Call Operator, RAP Technologies: The next question is, where are you in the move to Virginia?

Jared Novick, President and COO, RAP Technologies: Yeah. I’ll take that. So we announced at the end of last year that we’re moving out of, Arizona to Southwest Virginia. That move is already underway. Much of the actual equipment has been moved out of state and is now in place, on an assembly line ready to go in Virginia.

The full move will be complete, in the middle of q two. It’s right around the corner. I think a follow on action to that question is when will manufacturing resume. And what we’re gonna do is we’re gonna get the manufacturing line up and running again with low volume but high quality throughput to make sure that the move is fully complete. It’s not just to move the people.

It’s not just about moving equipment. It’s making sure the capability has fully transitioned. And so as an insurance policy to that process, we always had a very robust documented process on assembly to preserve the institutional knowledge that the company had in making bola wraps and cassettes. And those were also most recently documented in a very detailed video process that also helps us in onboarding process for future assembly workers. So the move is one part in physical time in space.

The other part is preserving the knowledge and proving that it’s been successful. For me, that means I’m gonna pay close attention to preserving the high quality products that law enforcement deserves, and that will be fully complete expected in the middle of q two. The

Lou, Moderator/Call Operator, RAP Technologies: next question is, why the W1 global acquisition?

Scott Cohen, CEO and Chairman, RAP Technologies: I’ll take the front end of that. It starts with people. Not only has this group at W1 been connected for most of their careers, but the network that they that they that they developed over those those decades of work together is very relevant. And I can just tell you that before we made this acquisition, we channel checked and we actually tested it some of our biggest opportunities around the globe. And there’s not one of those opportunities where W1 doesn’t have a contact either coming out of the embassy or coming out of their, and coming out of the space that they used to serve.

So with that kind of connectivity, it gives us new perspective, a new touchpoint. And at the end of the day, it is about relationships and trust. And that that is that that is what W1 is about. Not only do they have a robust profitable business, but they also have established trust and access that we just never had access to. So putting that combining that with with with with what we’re doing overseas and actually what we’re doing with this with our current administration, I think is very powerful.

And we’re already seeing, impact on opportunities, and it’s just been, call it, 45 post the acquisition or so. So it’s already reflecting on our pipeline. It’s given me great confidence that this is gonna be a thriving new new relationship, and we’re gonna open up doors that we would never be able to open in the past. It’s exciting, it’s an accelerator, and it’s now.

Lou, Moderator/Call Operator, RAP Technologies: Great. Are there any future acquisition plans?

Jared Novick, President and COO, RAP Technologies: Yeah. I’ll I’ll take that. Look, largely, you grow either organically or inorganically. And so the answer is yes. There are future acquisition plans.

And when we look at acquisitions, you know, the framework I look to like to look at is either gonna acquire for, for the team, for people, for technology, or to expand your addressable market or TAM. So team, tech, and TAM. And so when we’re gonna do this is that we must grow, we must bring revenue, we must increase value. We will be focused on doing that organically with the capabilities we have in house, but we will also be looking at the best attractive acquisitions that don’t hurt us in a dilutive sense that bring in team or tech or expand or addressable market. And a good representation of that was a recent W1 acquisition.

We got world class, personnel now in the company and it brings us more clarity to go to market with the BolaWrap program that has simultaneously also expanded our addressable market by adopting and integrating their existing business lines. So we’ll see a bump to additional services from that acquisition as well.

Lou, Moderator/Call Operator, RAP Technologies: We have time for one more question. What are you doing in DC?

Scott Cohen, CEO and Chairman, RAP Technologies: A lot. I’ll take the front end of it. Yeah. We, we’re establishing an office as you as we put out, in a press release. Multiple partnerships on the way in DC.

We’re pressing federally, with language. We’re pressing on a state, a state to state basis. It’s quite a bit of lobbying work. It’s an activity that we have, we never had. And we, then there are opportunities on border, there’s opportunities in prisons, there’s opportunities at schools.

Part of the problem here is there’s just endless ways for us to play, and we need to do that through partnerships. We can’t do that all on our own. It’s just too much, too big of a body of work. So we believe that getting super connected in DC, pressing it and, and putting resources to, two programs there are really gonna set us up for a number of federal opportunities right now that we see. Jared, you have some, I’m sure you have some thoughts on.

Jared Novick, President and COO, RAP Technologies: Yeah, I think any strategy that does not include a federal strategy is incomplete. So we have to open our doors to federal business. So we’re gonna be moving into DC. Part of that move to Virginia was to align with the state in its close proximity to other research elements within the federal space in the DC Beltway Metro Area. And what we’re gonna do is organize our company to be open for federal business.

So that means doing all the requisite groundwork in establishing the paperwork and process and different accreditations that required to accept federal funding. It’s an interesting time in the federal government as we all know. There’s a lot of emphasis being put on optimization and efficiency, and that aligns nicely to our core offering. You know, we believe that there’s a lot of bloat in public safety, that a lot of these technologies exist today, many of which exist in government and other areas. We’re gonna bring awareness to that on the capability side.

We’re gonna also understand where the current requirements are that address critical national security and public safety gaps. And we’re gonna look for the contracts that move that government money under the right contract vehicle with the right requirement and be there to service it. We can sometimes take that directly. We’ll also look at other ways and channels that are established in doing government business like key partners in that area. We’re gonna build as many paths to yes in this company to bring in federal government work.

Lou, Moderator/Call Operator, RAP Technologies: That concludes our fourth quarter and full year twenty twenty four earnings call. Thank you for joining. If you have any additional questions, you can submit them to irrap.com.

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