Wrap Technologies, Inc. (WRAP) Earnings Call Transcript & Summary

Joining us next is an innovator of modern policing solutions. The company's BolaWrap on 100 product, is a patented handheld restraint device that discharges an 8-foot bola style Kevlar tether to entangle an individual at a range of 10 to 25-feet. It's my pleasure to introduce Wrap Technologies.

Good morning. Welcome to Wrap Technologies' webcast. My name is Tom Smith. I'll be walking through the PowerPoint slides today. We're going to be shooting for about 20 minutes. And we've got about 15 slides to go through. And then if you answer -- in the Q&A, we'll try and make sure we get to those as we go through this process. So law enforcement and use of force is obviously a hot topic in the United States and worldwide. Quite frankly, right now, the options that officers carry today other than verbal commands all require some type of pain compliance to end to situation, whether it's a baton, whether it's pepper spray, whether it's bean background, whether it's a taser. They require some type of pain to end that confrontation. And I've spent my career doing this. I started Taser way back in 1993 with my brother, and I joined this company about 1.5 years ago because Wrap Technologies -- BolaWrap, which you'll learn about today, is the only technology that does not rely on pain compliance to end of situation. Because all these tools -- pretty much officers around the world are all carrying these types of tools. And even when they have these tools available, it doesn't always end in a great outcome and tragically and somebody still being shot or seriously injured. And that's one of the issues that we're facing. So what I'm going to do, I'm going to play you a quick video that's going to walk through, it's kind of 3 parts. The first part of the video is showing you some of these different scenarios that law enforcement face every day where people are in a crisis and need help. The middle part of the video, we're going to slow down the BolaWrap to allow you to see exactly how it works and how it deploys the tether to wrap around the individual. And the third part of the video is going to show you how the product works and a lot of the demonstrations for some people walking, some people running and some people standing still. So it's going to give you a good overview of how the technology works. So I'll play that video now, and then we'll talk about the BolaWrap right after. [Presentation]

So this is the BolaWrap device. As you can see, it's about the size of your cell phone, a little bit larger, but it is specifically not designed like a firearm, so we don't escalate these use of force situations. It's very, very simple to operate. It has a safety switch. When you take it off of safe, the device turns on a green line laser, so you know right where you're aiming, and it also starts to vibrate. So you know that it's on. Then you grab the charging handles to pull that back until it makes a click sound and then the device is ready to deploy. And once you put it on your target, you press the activation button, that deploys the tether out of the cartridge and wraps around the subject. And then the cartridge is a single use, and you -- in the lower right there, use the cartridge release lever to pop the cartridge out and dispose of it and put a new cartridge in. So the BolaWrap that you see here, used multiple times. It is a mechanical system. The only batteries are in the -- to run the line laser and then the cartridge, which is pictured here, is the razor blade in this model. So the tether gets deployed out. We do use a half charge 380, much like the starter pistol to deploy the tether. It's an 8-foot tether that goes out a distance of 10 to 25 feet to wrap around the subject. We have 4 fish hooks on the end of each of the anchors that wrap around the subject and attached to the clothing to restrain the individual to give them that window of opportunity to end that confrontation before it escalates to a higher level of force. One of the great things that we're getting to is frontline officers sending us pictures wearing it either on their belt with our Kevlar holster, also on a Mali strap. You'll see a chief of police on the right there with it in his pocket. Using one of our belt clips and up in the left there of the LAPD, showing it to the community members that they're using this and that it's available on the streets today that it is out in the field. We're in used over 210 agencies around the United States, the largest being so far, the Los Angeles Police Department or LAPD. They've trained 1,100 officers and they have over 200 devices out on the street. They're about halfway through their field trial. They'll be wrapping that up in early February of next year. And so far, they've had great feedback from the officers and their uses so far. And here's a list. I know it's difficult to read, but these are a list of the agencies around the country that are using this. So it is being used in the field. It's not just a prototype, but obviously, we're getting great feedback from the officers so far. And it's very positive, the response that we're receiving. And also we shipped to 29 countries so far, and that's pretty impressive for a small company that right out of the gate in a little over a year of first shipping our technology. We have 29 countries already using this. And we've had reorders from multiple of these countries. So I'm going to show you a quick video that's going to walk through some of the actual field uses. These are agencies that have had their own media around the field uses of the technology, and then we'll get into the numbers a little bit on the company. [Presentation]

So let's talk about what the market opportunity is here. In the United States, we have 18,000 agencies that represent roughly 900,000 sworn police officers, which is a great market. But when you add the international market, it's 12x the size of the United States. And then as you look at future technologies that we come out with and you bring in military, you bring in private security, ultimately, bring in consumers, it's an enormous addressable market. A market from 2016 that was over $6 billion, growing to nearly $12 billion, so almost doubling. So we're addressing a huge market opportunity here and a huge growth opportunity over the next several years with this technology. The request, we've have over 2,600 requests here domestically, and we used to have 30 or 40 requests a day. Now we're getting -- or excuse me, a week. Now we're getting 40 to 50 requests a day. So we've had tremendous increase in the interest and over 750 requests from around the globe. So we've already shipped to 29 countries, but we continue to get increased internationally as well as domestically. In the United States, we have 11 distributors, actually just signed our 12th distributor that we're going to be using to cover the U.S. And we have -- that's added over 100 people on the ground out there to continue doing demonstrations and to work with the agencies as they want to acquire and purchase this equipment and test this equipment. And it's over 800 officers. We're trained as of our last update. And I can tell you from my days at Taser, it took us almost 15 years to really get established and garner this space, and that was with even the Taser being invented before my brother and I started the company. This is being compressed much, much quicker and much faster. And we already had talked a little bit about the international with 20 distributors covering 39 -- 30 countries and already shipping product to 29 different countries. The sales cycle can vary. So -- because 80% roughly of the agencies in the U.S. are less than 100 men, those small agencies move much quicker. I call them our bread and butter because they can respond. Some of them even show up in the 1 of our demonstrations with purchase orders now because they've seen the LAPDs or these other large agencies doing their trials and their tests. But from a demonstration, they then have to go through a training. They have to get a policy written. They usually will do, especially the bigger agencies, some kind of a field test. And then my push is to go to a full deployment. And again, in the U.S., it's a broad breadth of people that we have to talk to. Internationally, that changes quite a bit. For example, the Indonesian police, it's all under 1 department, so there's really 2 customers who are either talking to the Minister of Interior or Minister of Defense. So the orders are much larger, the opportunities are much larger and they can -- they're kind of the bluebird because it's a lot harder to figure out when they're going to come in and when they're going to be impactful to us. You will see those show up on our balance sheet as deposits against future orders or what we call backlog. Domestically, we ship against purchase orders. So there's typically not much of a backlog domestically, but internationally, with export licensing, import licensing, roll out training and do the numbers. Sometimes you'll see those numbers show up in our backlog when we are having to carry it out over several quarters or even up to a year on some of our delivery processes. In our manufacturing, we invested heavily early on to make sure that we had the right manufacturing capabilities to grow and expand. And our 11,000 square foot facility here in Tempe, Arizona, is going to allow us to do that. Almost all of our product and our raw materials are sourced domestically. There's only 1 that comes internationally, and that's our laser module. And you can see here without a huge capital investment, we can respond very, very quickly to grow the company as these orders do come in and the ramp comes up, which we expect to be happening over the next 12 to 24 months with the response that's going on in the United States today. So corporately, where we're at today, over 23,000 shareholders. We obviously have huge interest domestically and internationally. We're being used on the streets. Our officers are getting trained. We're seeing more and more field deployments, just found out about another one here in Arizona yesterday. Distributors are getting quotes daily for both domestic and international. And we have a fantastic social media presence, and this is great television. So a lot of times, you'll hear where this referred to as the Spiderman or Batman tool. So we do get a lot of coverage and a lot of recognition in the space. We have over 36 million shares. One of the biggest things I want to point out on this slide really is our cash balance. We're over $35 million in the bank, an extremely strong balance sheet with no debt. So that means we have the powder ready to be able to respond very, very quickly to any changes in the business to meet demand or to respond again quickly as the market dictates that. So we're very excited and very happy about where we stand, and it's really nice to have a strong balance sheet behind us being able to allow us to respond to a market very quickly should we need to do that. So some final thoughts here. We obviously think this is the right product at the right time. It's safer for officers because it gives officers that stand of distance of 10 to 25-feet. It's also so safer for the subjects because it doesn't rely on pain compliance. We want to be very clear. This is not the magic bullet. It is not the tool for every situation, but we absolutely believe it's the best tool for a lot of situations that officers encounter every day when somebody is in crisis. And that's why this law enforcement community is looking for this device, looking for this technology to have it available to them. And obviously, we believe it's a huge market opportunity for us as we look to the future, both domestically and internationally. On this slide, Paul Manley is our VP of Investor Relations, who's cell phones on there. So please call in constantly and very late. His e-mail is also on there, so you can reach out to them and set up. We are doing a lot of webcast and web information for people that is going very well. So it's -- we've all had to pivot the business to be able to adapt to this type of a medium to do these presentations. And obviously, we're very excited about the opportunities in front of us and how we're going to be responding to those opportunities. So I'm going to try and address some of the questions that have come in so far.

One of the first ones is what about the price point in margins? So a lot of chiefs asked that question. So I give them a couple of responses to that. Number one, kind of a back of the envelope number is the device roughly is $1,000 to $1,200 per officer, and that would include the device, number of cartridges for training and field deployment as well as the holster. So 10 man agency, you're talking about $10,000 to $12,000 to equip all of your officers and put them out there in the field. To be specific, the BolaWrap device itself is $924.95, and the cartridges are $29.95. And to give you kind of a reference point, that pricing is almost identical to the way we launched the Taser X26 back in 2003. So that was -- it's -- those devices have become much, much more expensive. And again, the margins that we're shooting for is better than a 50% margin. Obviously, we have some work to do on that, but certainly in the cartridges, and I believe we'll be able to get there in the in the not-so-distant future. The BolaWrap itself is pretty close, if not already at that margin, but we are shooting internally and for our shareholders to have a 50% margin. So when will you realistically reach cash flow positive? That's a great question. It's probably within the next couple of years because we're going to continue to invest in the business, continue to invest in our opportunities. And as our ramp grows and our demand grows, we're well positioned with a strong balance sheet to be able to do that and take advantage of these opportunities. But we are certainly at the point right now where we're growing. And again, if I go back and look at my days of Taser, it took us a long time, many years to get to that point. I think we have the opportunity to do that quicker here than we've done so before. One of the final questions I'm seeing right now, actually, I guess there's a few more, is when we anticipate being EBITDA breakeven? I think I just talked about that and the gross margins I just talked about. So obviously, these are some things that we're focused on as well as an organization to make sure that we're properly investing our cash for you to grow this business. One of another questions talked about how difficult is it for the person being wrapped to unbind himself or herself? It's a great question. We get that from the chiefs a lot and the response is that it's -- they're not in a spectator sport, right? So they don't just deploy, whether it's this device or any other device, you don't just deploy it and then stand there and watch. They have to get actively engaged so because we're not putting electricity or pain into the body, usually, they get confused by what's going on. But if you give them a couple of minutes and some time they're going to get out of this, but it's going to give that officer that window of opportunity to end that situation. Before it escalates and goes to a higher level of force, and we cover that very extensively in our training because they are going to have to be responding and getting that person into custody so they can get them some help and that's something that we focus on a lot when we're talking to people. Next question is the annual cartridge usage per unit in the field. It's still hard to say at this point because we're getting very skewed data from the number of trainings that we have and the number of cartridges that are being ordered. I'll use the example that in Q2, we announced the order of over 21,000 cartridges just from Indonesia. So clearly, the numbers are being skewed, and we'll probably start to report that next year when it levels out a little bit. If I look at my history from Taser, those rate shows run anywhere between 5 and 15 cartridges per device, depending on the demand for what the training is. And obviously, that will continue to increase as the number of officers have the device and the units are trained or the officers are trained in how to use the unit. So right now, we recommend for a trainer and instructor that they use somewhere between 7 and 14 cartridges, depending on the number of drills they want to run. And users typically have a minimum of 2 cartridges when they deploy. This is the line level officer, and then they come back and have to train annually with 2 cartridges. So we'll start to really track that information for you in terms of the ratio and the number of units that are out there in the field. Next question, will this unit be available for public sale? Right now, because it is classified as a firearm, we're under what the National Firearms Act calls any other weapon, which is a very restrictive category. And we could sell to consumers today, but it would literally take 12 to 15 months for that sale to occur that you would have to buy the device, then apply with the local firearm dealer and then wait that 12 to 15 months to get approval to take it. But we are working, obviously, on future generations of this technology, not just for law enforcement, but for private securities, schools. And eventually to consumers. So we are going to address that market in the future. And then the last question here is talking about -- more about the aspects of distributing to schools and universities. And a lot of those schools and universities have their own police officers or they're called school resource officers that are sworn individuals from their local police. And some of those universities, such as the Harvard gets their power from the local surrounding communities police force. So they are treated more like a private security and the transfer process is a little bit longer, but we still can get it done. But we are getting a lot of interest from schools and from universities and being able to address that to get this product and the technology for them so that they can have this available on campus. So we talk about -- the next question says from press reports recently, we hear a lot of uses for restraining against those with mental health issues. Can this device be used on individuals under existing officers commands? Absolutely. So anybody that's in a crisis is this -- where this device can be used and it can be used very early on. In fact, some agencies are even discussing that this is not even considered use of force. Because we're not using pain compliance, which obviously, that would increase the number of uses out there. So when you look at kind of that use of force continuum and there's a study on our website, if you go to wraptechnologies.com, there's a study from the United Kingdom, that shows the risk of using this relates to other use of force is even lower than handcuffs. And the reason for that is it's allowing that officer to keep that distance of 10-plus feet from the subject because distance is equal to safety, so that's why this tool is being used in such an early stage and in early intervention. Another study out of the U.K., they track every use of force. And to give you a quick number, 428,000 times they use use of force and 401,000 of those, they use restraints. That's the category we're in. We're in remote restraint. So obviously, a very large market. If you compare that to Taser use, they only used it 28,000 times, and even 85% of those, they didn't deploy it. So there's a huge market opportunity for us in a huge broad market. Last question says -- or another question says, I know many police departments do not report usage or deployment, so how can we track these -- how often they use it and successfully did they use it? We're working with those agencies today to try and get that information. But as you said, a lot of times, they are not tracking this information. So it's a little bit more difficult for us. But most of the time because of our conversations with these people, we do get the information from them because we're kind of constant communication. That's how we find out about most of these uses and hopefully, the agencies will start to report that. And then as we go overseas, those agencies will track it a lot better than we do here domestically. So last question, what percentage of the market for the Wrap that we currently serve? It's a very, very small percentage. Again, only 200 agencies out of 18,000 currently have it. And we have a long growth opportunity ahead of us. I'm very excited about the future and where we're going. And it's something that we're focused on, and I've had the opportunity to do this once before at Taser. And extremely excited to have an opportunity to do it a second time here with the BolaWrap. And we have enormous, 99%, market opportunity ahead of us, especially once you roll in that it was international markets, which are 12x the size of the U.S. So very exciting times for us. I really appreciate your time. I think we ran over by a couple of minutes here, but we're going to go ahead and end this. And please reach out to Paul Manley, all hours of the day, we'll get you set up on connecting with us and having further conversations about us. And you'll be continuing to see us in the media quite a bit. We're really ramping that up as well. So I'd like to thank everybody for your time and enjoy your conference. Thank you.

Yes. Thank you, sir. This is the moderator. That was a wonderful presentation. And we have reached the point where we do have to close everything down. So thank you, again for a fantastic presentation and to the audience. Thank you for participating, and you all may now disconnect.