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

[Presentation] Good afternoon, everyone. Welcome to the WRAP Technologies webcast today. Obviously, starting there with our late -- most recent live WRAP that was aired in Beaufort, South Carolina. Obviously, it's great for us to see more and more. We've had dozens and dozens of these field uses. And when we get the coverage and can share that with not only you, but with the law enforcement community, it really shows where the rubber meets the road on the BolaWrap. We even had another one this morning in San Mateo, California. So continuing to get uses, continuing to get positive feedback, which is going just fantastic for us so far. So we're really excited about that. And again, we're going to be talking today specifically about WRAP Reality. We're super excited about this. We kind of had teased it on earlier this summer and our partner joint working together with the National Tactical Officers Association, and it's something that fits just like a glove into what we're doing. If you remember, we really focus on our training of our products, and it comes through when you see the use in the field like was covered there in Beaufort, the other ones that we've had. So we're working very closely with law enforcement instructors. We have master instructors. We have instructors. We have over 1,100 instructors around the country and WRAP Reality that we're going to talk about just fits perfectly into this space, and that's what we're really excited about. And today's announcement of the acquisition of NSENA Virtual Reality Training Group. I'm going to bring in the founder and CEO of NSENA, Ethan Moeller. And in true WRAP fashion, even we've got you right on the road traveling already so that you can be broken in early. So welcome, Ethan, we're excited to be working together.

Thank you, Tom. NSENA's team is thrilled to be part of the Wrap family. NSENA's mission has been to transform law enforcement training to virtual reality, and we're excited to continue that mission with WRAP.

Yes. And we're super excited about it. I think some of the things, the benefits, which we're going to get into here in a little bit are just so exciting because it's a fully immersive training. It's not just for the BolaWrap, it's for everything. It's about deescalation. With all the events going on over the summer, it's obviously a hot topic. It's working with the law enforcement and trying to enhance and further provide better training. So with the deescalation and full immersion, I think it's the perfect time for this technology, and it's going to fit into like a glove like we're already doing with the BolaWrap and with the law enforcement instructor. So we're already talking to the same channels, the same customers, and I think this is going to be just a great opportunity to really enhance that. And we're going to kind of jump right into it, Ethan. We're going to play kind of a video that shows some of the 47 different scenarios, right? Because it's about not only de escalation, it's about all the tools available to them, whether it's a taser, pepper spray, even the firearm. We're covering the full gamut of use of force in this training. And so we're going to play this real quick, and then we'll come back and kind of talk about what we're showing everybody on how this works. [Presentation]

So Ethan, can you kind of talk about -- because there was some control panel there at the bottom of the screen and kind of what we were seeing when we went through that?

Yes, absolutely. So you have the trainee, and the trainee -- there's an instructor. And so what you're seeing is the instructor screen. And the instructor can take the scenario in different directions, depending on how this trainee is reacting to it. So they can take it towards a more aggressive stance with the virtual characters and maybe at least to use of force or they can take it towards a situation that the training can deescalate. And so many police departments right now are looking for that essential deescalation training, and the instructor can take these scenarios in all different directions. So it really gives them the flexibility to train different skill sets.

And again, I think we saw in that video, there was a number of different situations, some were inside, some were outside. We're going to show a video here in a minute that's going to really show the flexibility that virtual reality has. And because the virtual reality, you put on the goggles, it's really full immersion. And you talk a lot about deescalation. But this is really everything that the police officers encounter from like you've talked before about going into jail, so it's really a comprehensive training and program.

Absolutely. It trains the -- those aspects that the officer might encounter every day, like the traffic stock. But it also trains on the really uncommon events, such as a school shoot and an active shooter situation. So the trainees can get the whole gamut of what they might face.

Got it. So what I want to do real quick now. And Ethan, how long we're going to show this quick comparison? We had a body cam use out of Virginia, Minnesota that we've shown before. How long did it take your team, it was a matter of hours, if not just a day or so, to put together the reality training that's very similar to it? How quick was that done?

Absolutely. It was just a matter of days that we were able to take what actually happened and turn it into a scenario that trainees can then go into and train on.

Right. So real quick, I'm going to walk everyone through this. So what you're going to see in the beginning is the actual body cam, and there's 2 different cameras, a body cam as well as a in-car camera of this scenario. [Presentation]

So there, we have the dashcam, we had the body cam with some scenarios. So now we're able to recreate that very quickly in virtual reality. So look at it like from this officer's perspective, then we can also show it from a bird's eye view. We're recording all of this, by the way, but we can show many different perspectives, even from the suspect view. So now we can move this around. You can be in the scenario. And then when we record it, it's fully immersive. So much like reviewing that athletes do. We can have the officers come back and work with the instructors to view it again. From different angles, you can move around within this scenario. And again, if you're watching this, it's comparing to what we saw in the Virginia real-world where the BolaWrap was deployed, and you see the officer then approach. So like on the left side, you see the real scenario. On the right, the virtual creation of it. So very, very quickly, we can adapt to the training. We can bring it and make it fully immersive. And Ethan, I think that's one of the biggest aspects to this is how quickly we can respond and how realistic we can respond with that training.

Yes. Absolutely. That's a critical aspect is when an event, certainly, whether it's small or in fact gains international attention needs to be turned into a scenario that then officers can go and train on, we can do that within a few days. And what you didn't see in that scenario is again that instructor screen. It allows them to actually take it in different directions. So it's not always the same outcome. The virtual character can become more aggressive or less. So again, it gives the instructor a maximum flexibility. And in terms of the replay, the training actually stays with the headset on and is in that 3-dimensional environment and can walk around as that replay unfolds. And they can see how they handle it, they can look at it from any perspective they want.

Yes. And that makes it really immersive because it becomes a real learning tool that you go back in and see exactly what happened and that you can really learn from it, just like professional athletes do all the time in video review. So for everyone that's watching, too, if there -- if you have questions, there's a Q&A tab at the bottom, go ahead and type them in there. We'll try and answer some of those that we won't -- if we can't get to all of them, we'll answer you afterwards. But one of the questions that did just come in is for a small agency with a VR system of around 18 officers, how much would this cost? And right now, Ethan, you and I have talked, we're going to be switching this over to a subscription model where it's a per officer per month so that we cannot have a big burden of expense upfront and have ongoing maintenance and things. And we haven't set that pricing yet, but we're really focused on making sure for the small agencies, which is really the bulk of the agencies in the United States that this is affordable and that they can be continually updated and current on the training.

Yes. I agree. I feel like small agencies have been left out of being able to access simulators. And I think that's such a key aspect of what we want to do is make it available to them so that every agency has the opportunity to train on simulators. The important aspect of simulation is it allows the trainees to make the mistakes there rather than on the streets, which is why simulators play such a significant role in training.

Yes. And I know, Ethan, you and I have talked to before as well as we've gone through this process that while it's going to be new to law enforcement, law enforcement's done simulator training, which is really 2D, it's very limiting. But that's what's out there today, and this is new technology that's going to be not restrained by hardware and allowed growth. But comparing to other consumer markets, we talked in our press release that this is a huge global market for virtual reality training. And the reason is the impact it's having on people that are using it. What have you heard in that aspect for the other consumer markets using this training?

Sure. Virtual training is the wave of the future. It's really -- you can already see that content that has been in other mediums. And virtual reality is fundamentally a new communication medium, a new way to communicate, learn and train. And you're going to see a lot of content in the other mediums migrate into virtual reality. And just from the people I know in the area, in the space, tens of millions of dollars are rolling into this now, even just within the last few months. It's just going to be a huge opportunity.

And I also believe that the virtual reality, I mean this is as real as it gets, it's all your senses, it's fully immersive. And we talked about some of the statistics on the learning numbers for companies that are using this to train their personnel and the difference that it's making that we expect to have that same impact within the law enforcement community.

Yes. Some of the large hardware manufacturers have started to do studies on this. And you see with major corporations like Johnson & Johnson or Hilton, they have an incredible increase in retention and other aspects of training by using virtual reality versus using their old methods, whether that was videos or aspects like that. So we're already seeing big corporations really take advantage of this, and they're seeing the benefits.

And compared to the other technologies like simulators that are out there that they have to go get actors, they have to go record it. It takes them a long time, there's a lot of cost to do that. With virtual reality, we can react much quicker and respond much quicker, just like we did in that demonstration for the Virginia, Minnesota use that your team was able to duplicate that training environment in a matter of days to be able to get that out to customers. So that's something we're really going to focus on. And this acquisition and this partnership now working with our team, you already have it being used out there with some law enforcement agencies. But we're just at the doorstep of bringing this technology to law enforcement, but it's going to help with the BolaWrap. It's going to help because we're training not only BolaWrap, we're training on deescalation and all the tools. So it's going to really be a great advantage and an opportunity to help both of us really get and advance this law enforcement market with this kind of a technology.

Yes, I feel like the older simulators really focus on when you were going to weapon, not so much if. And we really see virtual reality as not only a new technology, but also giving us a new starting place so that we can develop a much wider scope of scenarios to train, certainly on deescalation as well as use of force, but on a whole range of skill sets that officers need. So it's not only a new technology, but it's an opportunity to expand the skill sets that we can train officers on.

And as I mentioned, you already have customers using this. It's been out there for extended period of time. So we're getting a lot of great feedback now. That as we roll into development on the broader technologies, it's not just domestic, it's international. We're going to be using our current distribution network for expansion. Our current customers, our current channels in addition to everything that NSENA had been doing. So it's really going to allow us to, again, work very complementary to get this technology out there and make a difference. And there's never been in the history, more pressure on law enforcement for change, right? And about that deescalation or the reform, and learning is going to be essential to that. We were talking about it repeatedly. So the BolaWrap is 1 tool. But now as we come in with this immersive training, they're going to work together. It's a similar path for us, which is why this is going to be such a great opportunity for us to advance our technology, the training and the answer that needs the community. And Ethan, and you've seen that already where you've already had it implemented.

That's right. We have a number of major metropolitan apartments that are using this now, and including one that we're also working with a major university on a study. So we're excited to see how that turns out. Some people think that virtual reality is really about practicing the mechanical skills. We actually think it's great, really it's the strength is with the communication skills, which again lends itself to deescalation.

And virtual reality training brings critical thinking to the training. And because you've recorded it and can go back in and watch it from different scenarios, you get different perspective, which is always a great way to learn.

Absolutely. And we actually have some departments that want to bring the community in, along with the police department and have them both be able to see the different perspectives that certain scenarios can bring out. So police departments see this as much broader than just, again, a shoot, don't shoot situation. They see a lot of needs.

And Ethan, this virtual reality while it's been talked about for a while, it's relatively new coming into law enforcement. Why do you think it's not more commonplace at this point in time based on your experience of having been at this for several years already?

Sure. Well, modern VR, which is what I think we should call it, really turned on like a light switch in 2016. Before 2016, virtual reality was very expensive, and the quality was very questionable. After 2016, it reversed. The pricing dropped by 90% and the quality rose to the point where you almost universally have great experiences. So it's a relatively modern VR. It's a relatively new technology. And I think you're now beginning to see everybody start to take it up and become excited about it.

And I know as we did our comparisons with you as well and looked at the other companies that are out there, you've got one of the largest libraries of content already with 47 different scenarios. And one thing we always talked about, we didn't want people to get used to saying, "Oh, this is scenario C, so I know what I need to do." There's a lot of branches within each scenario that you built in through that control panel that can move around, correct?

Absolutely. So we have a lot of branching. We have a lot of dialogue, too. So you can actually hold conversations with the virtual characters. And as you were saying before, Tom, if you want to change something, you don't have to go and get the actors again, get a location, get all the props. You can actually just take things in and out of the environment and replace them, whether that's virtual characters that you want to increase, maybe you want to increase the number of character, increase ethnicity or change the gender. You can change it very easily with virtual reality, which is another huge benefit.

And a couple of questions for you there, Ethan. How much -- what's the minimum space required for the virtual reality training? And how much controlled is the instructor or through that control panel -- how much control do they have over the avatar of the suspect?

Sure. Great questions. First, 10 by 10 feet is basically the minimum, but it can go up to 30 by 30 feet. So you really can have a lot of room if you have the physical space. The instructor has a huge amount of control over the virtual characters. They can control the dialogue. They can control the actions. And in general, they can control the path that the scenario takes, again, maybe towards a more aggressive stance or towards more compliance, which allows you to test and train different skills for each officer.

Yes. One of the other questions we filed our 8-K for the investors out there. This was some cash that's spread out over the next 12 months, and it's also some stock associated with the employees that have joined the company. That's detailed in our 8-K. And again, because WRAP has been in a position to have a very strong financial balance sheet, we were able to get this done and put cash and investment aside that we're going to be able to really advance this technology quickly because our goal is going to be to get this out there and get people used to it. I talk a lot that government and law enforcement is government. They don't always change quickly. So we really want to get this technology out there. I think another point, Ethan, is that this is really hardware agnostic, that it's like some of the simulators that are really tied to hardware. And as that gets outdated, it's hard to support it, where this doesn't have those restrictions that we can adapt to it very quickly as those things change.

Absolutely. Great point. And we have relationships with some of the big hardware manufacturers. So for instance, right now, we have early access to a new headset that's really going to be amazing, and that's from one of the largest technology companies in the world. So it's agnostic. And I think those relationships are going to allow us to continue to keep on the cutting-edge of what's available and to provide that to police departments.

Yes. And again, the question around that acquisition is detailed in our 8-K. The company WRAP has over $45 million in cash reserves. It's an incredibly strong balance sheet. One of the questions was in -- you've been investing wisely. To me, this is absolutely one of those spaces that we're going to be very strategic. And Ethan and I and the team are going to work together to deploy that cash to go after this market aggressively, but very smartly. And that's, I think, one of the things that we're really excited about to work with Ethan's team. And it's -- we've got a lot of runway ahead of us. We're in our -- I had somebody ask me earlier, what inning are we in, in the baseball game, and I think we're just arriving at the stadium. So there's a long way to go with this and really had a huge opportunity. Again, it's not just domestic, it's international. And Ethan, in your current system, what typically is the number of officers, this was a question, that can train? And do they necessarily have to be in the same space right now?

Great questions. So we can accommodate up to 6. It's focused on either an individual or 2 officers training together because that's the most common configuration. In terms of where they have to be geographically, one could be in New York and the other could be in Arizona. And they can train as if they're right next to each other in the same environment and see each other in all their movements. So distance training is completely possible. So you can have the instructor in one place, one training in another place and one training in a third place. And where this comes in is -- so for example, for the federal government, you can see applications there, but also for, say, state police that may have a training center, but then have barracks dispersed around the state. So it's another great capability.

And obviously, here's another question because I know people have experienced this before, Ethan. Is there a time delay when you're encountering the scenarios between what's going on and you're seeing some of the reactions?

Well, one of the benefits, and I think maybe they're asking about potentially lag is, again, when I talk about modern virtual reality, it used to be that, for instance, when you turn your head, things would be a little slow, and it just killed the experience, and it basically was a showstopper. That doesn't exist anymore. The technology makes it seamless. So it's just a terrific technology whose time has come.

And there's a few other questions, we're not going to be able to get to all of them right now, but we wanted to do this introduction. We're super excited about this space. One of the questions I wanted to address is somebody wanted to view on government contracts and revenue impact. And again, as I said at the beginning, I think this is a fantastic fit for both of us, quite frankly. And now with Ethan and his team with WRAP, we're already talking to the users because they're the instructors. We train. This is not only going to be a BolaWrap training, it's going to be end-to-end training. It's going to help enhance the WRAP reality sales. It's going to help them enhance the BolaWrap sales because we are working with all the different hardware platforms that are out there. And then as we become a subscription model, we're -- I think you hit it right on the nail -- on the head earlier, Ethan, the small agencies have been completely, I think, neglected this price. The simulators or other scenarios has been out of reach, and we're going to make sure we're going after those markets and really bring world-class training through working with organizations like the National Tactical Officers Association and enhance those scenarios we already have and just keep getting better and better. So it's a fit for us, for both of us. We're super excited to have your team join us. You're going to be hearing a lot more about us in the new year as we get this designed and rolled out. There's information on our website. Ethan, I'd like to -- I know you're on the road, we got you down the road right out of the gate. Appreciate you taking the time to jump in with us and talk with our investors. We'll be coming out with more information right after the new year. And everybody, again, I appreciate your time. We're going to end with a quick video that's going to show a lot of the media coverage we've had around a lot of our field uses, including the one we started with, which was in Beaufort, and then some of the other ones. And then after that, will be the slate up there to contact Paul Manley, our VP of Investor Relations. And again, as we get more information, we'll get that out to you, but this is a very exciting step for us. We talked about the intelligent deployment of cash from the company and investing in areas that are going to make a difference. We believe this is going to have a huge impact for WRAP Technologies going forward and especially with the WRAP Reality and the BolaWrap. We have wrap.com. We're going to be -- we've changed our symbol W-R-A-P. So we're really going to focus on building that brand of WRAP and bringing out public safety, and we're super excited about this. So thank you, everyone, for your time. Ethan, we appreciate it. Travel safe, and we'll talk to everyone real soon. [Presentation]