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

Good afternoon, and welcome to the first of what we hope as many WRAP investor webinars. My name is Christopher DeAlmeida. I'm the CFO here at WRAP. And joining me today is TJ Kennedy, our CEO. On today's discussion, we're going to explore how WRAP can lead to safer policing and reductions in use of force. Also, we're going to review a recent body cam footage that we released yesterday, and we'll take some questions. With regard to questions, we're going to focus today on the topics we discuss on this discussion, and we'll leave any financial results or financial outlook to our upcoming earnings release. To submit a question, you can use the Q&A tab at the bottom of your Zoom screen, and we'll be able to read it from there. With that, let's get started.

TJ, I'd like to open the discussion with a question for you. How does BolaWrap differ for different options for police officers, de-escalation and avoiding that use of force and how does that lead to safer outcomes?

Great question, Chris. And this is something that we've been just very laser-focused on since creating our strategic road map back in Q3 of last year. And as part of that effort, we really sat down and tried to figure out where does BolaWrap fit best into the uses of force that happen in law enforcement each and every day. One of the things that we looked at was we looked at where is use of force at today, what kinds of tools are being utilized and where do we compare or put ourselves in relation to those tools. And we've been putting this into our investor deck as part of our normal demo and training that we do each and every day for police departments as we go out today. But I think it's really important to talk through with each of you and make sure you understand where we fit in this, and it's becoming a bigger issue each day as people want to understand what are the options for use of force, what tools should be on an officer's belt and what would drive safer outcomes, which is really the heart and soul of where we are as Wrap Technologies. And our innovative team has spent a lot of time putting together the best technology. And we have 2 main products today. We have WRAP Reality, and we have BolaWrap. And like you'll see on this force factor slide, you can see that WRAP Reality is one of those tools that can be used all the way from verbal commands on the far left, all the way to the far right through pain compliance and use of force options that lead up to even lethal force. On the side of BolaWrap, we fit into a slightly smaller area, but an interesting element. And I just kind of want to talk through today policing calls and where do we fit into that? And if we look at the far-left side of the screen, we'll see that police officer present here on call. And so if a police officer is responding to a call 911 in the U.S., other 3 number digits in other parts of the world. The officer or officers arriving will create that presence in uniform with a patrol car. When that happens, a lot of events or illegal activities that are happening usually cease and the event can be handled. Also as part of that interaction, police officers use verbal commands. And they leverage verbal commands to get an illegal act to stop. They leverage verbal commands to end an assault or other situation. And in some cases, they will have to move to higher levels of use of force. One of the most common things that occurs, especially when it comes time to move towards handcuffs, so we're arresting somebody or bringing them into protective custody is verbal commands and when those verbal commands break down. And this is the area that we believe every officer in the U.S. and around the world should have the option of moving immediately to a BolaWrap device as something they need to consider at that moment and leverage if it's appropriate. Well, we take a step back and look at this. I'm going to kind of pause there for a moment. And I want to look at the normal other long-term less lethal tools that have been out there before BolaWrap came to exist. And they all kind of fit into the far-right side of this page. It's not built to scale because it was hard to get all of those options into the 2% of the time they happen. And if you look at the top of the police factor slide, we see this kind of green 28% of police calls on social affairs that happen in that area from using force all the way up to lethal force. And if we look at the far-right side of the page, and the average police department out there in the United States, and we referenced the Garner and Maxwell study shows that about 2% of the calls that law enforcement go on every day have some form of these use of force less lethal tools at play. They are all tools that leverage causing pain, sometimes inflicting pain or injury to help gain compliance to get an arrest and to end the situation. These tools include things like pepper spray. They include things like other forms of tear gas. It could be impact weapons like a stick or a PR-24 or a collapsible baton. It includes launches launchers and having 40-millimeter bullet and things of that nature, bean bags are a common tool that is out there try to control situation without going to lethal force. And then there's also electrical weapons or what is often a TASER option and then firearms and this could be handguns, shotguns and rifles. All of those tools in the average U.S. department don't get used any more often than 2% of the calls that they go on. They're often the ones you might see on the news because of the outcomes where there could be a fatal outcome or there could be a serious injury or even an officer could be injured as part of that interaction, and all those things are often quite newsworthy. The point that I want to kind of raise is there's the other 98% of police calls. That other 98% of police calls are the area in green on this force factor slide is actually where BolaWrap should be starting to be utilized. And it's really a pretty large portion of the calls that officers go on, on a daily basis where an arrest or protective custody incident may happen. One of the things that we hear from law enforcement every day, and I spent the whole day today with many, many departments in a training class that we were holding. And they all talk about the fact that more and more calls involve mental health, use of drugs, use of alcohol. And every one of these can alter the state of individuals that they come in contact with. And when this happens, there is oftentimes an arrest that is required due to, let's say, domestic assault call or a drug driver or a DUI arrest or other things that occur. But there's even times where arrest is not needed, but somebody is being taken on a mental health hold because they're in an emotional crisis and they need to be transported to a hospital. In every one of those situations, it's a need for that law enforcement officer to be able to safely take them into custody and ideally deescalate that situation. At BolaWrap, we believe that our remote restraint tool is one of the only tools in this space and that can be used to safely bring someone into either protect a custody or to be arrested, to be able to move them to either a facility like a jail or to a hospital depending upon that particular situation. Going back once again to the overall force factor diagram here on the left side, the real key when we train officers today is we've really changed our training from a year ago, and our training very much focuses on when verbal commands break down and they're not working and you're moving towards an arrest or a custodial arrest to be able to protect that person and others, you need to consider the use of BolaWrap immediately at that point. There are many things in law enforcement where time can be your friend and distance can be your friend. But when it comes time to take them into protective custody, we actually look at the BolaWrap Remote Restraint tool as a de-escalation tool. We see it as something that will end the interaction in a positive way and bring people safely into custody. The part that is very much changed in our training and changed in our interactions with law enforcement is that we want them considering the use of this BolaWrap tool immediately after verbal commands breakdown. A good example of this is many, many calls for service involve somebody who walks or runs away from law enforcement. They often do this without displaying a weapon or a violent behavior, but they often need to be taken into custody either because they are being arrested or they're going through a mental, emotional event that is causing them the need to be seen for greater help. And as part of that, they need to be taken safely into custody before they hurt themselves or others. Because of that, we need to have a tool for between where verbal commands breakdown and that very high use of force pain compliance and 2% of the calls comes into play. And you can see on this force factors slide that, that is a pretty large swath prior to handcuffs and even after handcuffs are trying to be leveraged where that use of force, that use of causing injury or pain compliance as part of that is definitely a much higher risk to both the police officer and to the subject. The other thing that we're really proud of with BolaWrap is we believe we're reducing the number of injuries to officers. We believe that officers in this area where after verbal commands break down, but we're trying to take somebody else in the custody, that they are reducing injuries to themselves and to the subject. So it's super positive for law enforcement, it's also positive for the subjects that are involved. For those of you who go to our website, wrap.com, you can see we have numerous videos out there. It's not all the videos we have. It's just a subset. But many of those, you will even see a family member thank the office after the use of BolaWrap because it is such a successful conclusion to the event or incident that's happening. So with that said, we wanted to kind of talk through this force factor slide. Hopefully, that discussion here today has been helpful. I guess the simplest way to think about it is we believe that when verbal commands breakdown and you're moving into an arrest, that BolaWrap should always be considered, does not always need to be utilized, but it has to be a tool in your toolbox for when that person is going to run, they're going to fight. They're going to walk away, they may kick, they may spit, they may present themselves with other issues that make the situation become very dangerous and you want to prevent that, and BolaWrap can do that and immediately make the scene much safer.

Thank you, TJ. So a question for you. I mean, earlier today, President Biden said that he wants to revive talks about overhauling police. And we know from prior events and history, George Floyd, Breonna Taylor, that after massive events like this, it leads to change in policing. In those cases, it was no chokehold, reducing no-knock warrants. So if we look back over the last little bit, there's been several events, multiple states over the last few months, how do you feel that there's going to be changes coming out of this for the future? And how does the WRAP kind of fit into those changes?

Well, I can only go off of our discussions with departments that use BolaWrap today and the many departments and especially even in just the last few weeks that have come to us. And we're seeing a change. We're seeing that they're ready to immediately move forward with BolaWrap that they need to have an option for when verbal command fail or somebody walks, or runs away from the police. That is not a high use of force in most departments. It's not a use of force at all. And because of that, BolaWrap is that tool for that space. And I do agree. I think that just like we've seen over the last couple of years, there have been seismic shifts in my time. We ended a lot of car chases by calling them off because it was not safe and putting different rules in place. And oftentimes, that happens because of the amount of cost of lawsuits and impacted departments and cities and communities that can't afford to be insured. And we're seeing that same thing happen with use of force. And I think BolaWrap is part of that answer.

Awesome. Well, thanks, TJ. So now we're going to review a recent bodycam video from Columbia, Missouri. And TJ, do you want to kind of open it up and describe what's going on here?

Sure. This is a video we recently released that shows the terrific work of 2 officers in Columbia, Missouri. And in this particular instance, they get a call for an individual who -- they had a 911 call from a store where there were some issues going on and then actually the subject with a ski mask on, was cold out as well, but was going up on to people's porches, people were concerned about that. And allegedly, they weren't sure what he was there to do. The first arriving officer not only identified the situation but identified that he needed help. He needed to be actually transported probably to a hospital. He was going through a mental health crisis and that he could do this safely and he waited for backup to get there. You'll see in this video that the officer is very calm. He's compassionate. He's trying to help this individual. There's more video that even goes longer. The reality is this individual was not complying to verbal commands, exactly what we just talked about in the force-factor slide. He actually had verbalized to the officer that he wanted the officer to kill him. These are very difficult calls for officers, and they often do end up with an individual that ends up being killed by law enforcement, and that is a very difficult situation for that law enforcement officer to deal with at that moment and even for the rest of their life. And so in this particular case, you'll see there is a very different outcome because of the great work of these officers, and we also believe that it's very positive that they were able to use a BolaWrap 150 tool to safely apprehend him. A couple of things you'll see in this is that the officer talks about avoiding fighting with the individual. And individual is a strong man. You could see where this fight would get very physical and possibly injure the officers as well as the individual. And that would not have been the best potential outcome. You'll also see that when the BolaWrap is used on this individual, he immediately comes into compliance. He said actually the word okay to the officers, and they are able to handcuff him within seconds. And it is a very effective ending of what is a very critical call that could have ended in an individual being killed because he was asking to be killed by the officer. Very difficult situation. Officers worry about going to these calls each and every day. And I think that this is a really amazing outcome due to the training and the equipment of these officers with the right tools and because of their great passion. I'm proud of both of these officers and the work they do in the Columbia, Missouri police department. And we could go and play the video now, we could talk a little more afterwards. [Presentation]

As you saw in that video, the professionalism of these officers is amazing, very much maintaining control and composure during a very difficult situation that could have ended in a lethal outcome, very much coordinating and communicating well with each other and with the subject, treating him with respect and ending the situation very safely and being able to get him the help that he needs. I'm proud of these officers. It's exactly why BolaWrap was invented. BolaWrap was invented to drive safer outcomes. It was invented to drive remote restraint where we can avoid the fight. The officer actually talks about, "I want to avoid fighting with him." At the end of the day, we want to reduce or eliminate inquiry from that interaction with law enforcement. And I would imagine, most of you would feel exactly the same way. Because of this, I truly believe that every single officer in the world should have a BolaWrap on their person. They should have it on their gun belt or their vest or in a drop-down holster, I believe that every officer should have the opportunity between when verbal commands fail, and they need to escalate to other tools that are less lethal and much higher use of force that they have the option to leverage the BolaWrap [indiscernible] on calls. And I think it's something that's going to be utilized extremely often. One of the things because of this earlier intervention where BolaWrap fits in, I believe that the BolaWrap will be utilized 10x more than other devices like a TASER or a lot of bean bag around or other things that are in the higher use of force and less lethal options for police departments. Those tools are all accepted just like BolaWrap as a key tool, but I believe that BolaWrap has earned its place on officers belts and that it is a key option that every law enforcement agency in the world can leverage and that key decision makers, mayor, city councils, city managers, county managers, others need to give this option to each and every officer to be able to leverage and that each officer should be issued a BolaWrap to be able to de-escalate these situations and resolve them safely. At the end of the day, we need to drive safer outcomes.

Awesome. Thanks, TJ. So now we'll kind of turn over and do some Q&A and some questions that have been submitted. One thing, I just want to remind everybody, we're going to steer away from financial results at this time about Q -- '22 or 2023. We'll save that for our upcoming earnings call in early March. So kind of the first question here, with all the events going on nationally, Memphis, California, otherwise, have departments agencies been responding with increased outreach for WRAP solutions? Can you kind of put some color around that?

Sure. There's no doubt that there's been increased outreach, increased questions, and even increased positive responses. One of the things that we often get asked is to come out and do a demo and let departments see it up close and personal. And we're seeing lots of those requests. We're seeing a lot of those requests in even bigger and bigger departments. So I think that's good. And in addition to that, we're seeing some departments that are calling and saying, we want BolaWrap, like we're going to move to BolaWrap, but we also want that demo, we need to figure out policy and what are the steps we need to go through for procurement to make that happen, but they definitely have been reactive.

Great. Good to hear. So does WRAP have the manufacturing capacity to meet the increased demand in the light of kind of the recent events?

That is a great question. We actually worked with our manufacturing team here. We do build the BolaWrap in the U.S. We build it in Arizona in the office we're in right now. And we have the ability to greatly increase our ability to produce devices with the existing equipment we have and resources we have, we could easily grow to 4 or 5x the volume this year of last year. And that's without even having a significant shift through other days of the week, so to speak to the schedule. So we're ready to ramp up and now we're prepared for that and making sure from a supply chain perspective that we'll be ready and prepared to take on that increased demand.

Next question, can you speak on the virtual reality and the agreement we entered into with Lumeto this past November. After Memphis, it appears that training should be more emphasized, how are we progressing with the VR and what's kind of the next steps there?

Yes. So we have an amazing virtual reality platform today. I would put WRAP's virtual reality training platform known as WRAP Reality up against any other competition. We've had shoot-outs and procurement against all the other players, major players in the space that we are in, those and -- so we don't win everyone, but we certainly have won against all the key competition because of our capabilities. So today, without even the Lumeto acquisition, we have a great WRAP Reality virtual reality solution. The reason for the Lumeto acquisition was also giving us an ability to have a full cloud solution in addition to our on-premise solution. Our existing system today is an on-premise solution that is often in police academies or at police station, that's often in a dedicated room or a training room where that occurs. It's used by a number of academies, including some large departments. And I think it performs very, very well at responding to incidents focusing on scenarios around de-escalation. We have 38 law enforcement scenarios and 25 correction scenarios. I would put that up against all the competition scenarios at many, many different branches that can train on everything from mental health calls, calls that do not involve any weapons at all, and even calls that go all the way up to involve most of the nonlethal tools and lethal tools such as handguns, rifle shot guns, et cetera. And so we have a lot of capability, I think, a very robust capability today. Being able to provide that in the cloud is going to give us a more flexible platform, which we need in more departments. It's going to allow us to reach down to what is a lot of key customers of us on the BolaWrap side, which are a lot of small and medium departments, and it didn't go to the large departments. And having that ability to cover the whole gamut with 2 options, a cloud based solution as well as an on-premise solution means we'll have a greater ability in a larger addressable market that we can sell to.

Awesome. Okay. So I don't know, we're still in talking about -- without talking about financials and things of that nature, is any major contracts we can talk about that we've recently signed or that are impacting the business overall.

Yes. I can't make any new announcements today, but I will say that we've had a number of very strong announcements in Q4 and leading up until now that we've already publicly announced, a good example is we've got some departments like Montgomery County, Texas, which started at full deployment. This is a very large Sheriff's Department, it's north of the Houston area. One of the things that I think you're going to see more and more of is where we're starting agencies at full deployment. If we look at early days of WRAP, a lot of our department started with 5, 10, 20 devices. And I think we've moved past an evaluate phase for most departments. We are moving right into deployment. I can tell you from the conversation I'm having with Houston department, we often very much focused on what we call full deployment, which is deployment of all of the uniformed officers in the field, often referred to as control. It may not be 100% of the agency, but it's 100% of the officers that respond to 911 calls, carry handcuffs and guns on belt every single day, and that they're going to be equipped with BolaWrap. And even if somebody can't afford it right away because they haven't budgeted for it in the budget year, we have the discussion about how do we get to full deployment? And can we do that in 3 months, 6 months, 12 months, it's not a discussion of we're going to try 10 of these and see what happens. And there's a good reason for that is there needs to be policy. If we look at other less lethal tools, they've typically been tools like pepper spray, like batons, like TASERs or electrical weapons, and it took years for them to get a policy in place and to make that a part of their normal training. Well, it's the same thing for BolaWrap except we're accelerating that process because it's such an important tool that fits a different space in the daily use of force of police officers, and we actually think it will be used much more often. The departments that we've seen that are most successful drive quickly to full deployment or started full deployment. We also see that they make it a part of their everyday training. So if they're doing training on drunk drivers and DUIs arrests, or they're doing training on domestic assaults and the arrests or warrant service, they need to make that BolaWrap training part of that regular ongoing in service because it's a tool they're going to utilize quite often.

So to that point, a couple of years ago, WRAP had a big contract with Indonesia. Any updates on where that's at right now?

We do have an Indonesia deployment today, and we're continuing to talk to them about future deployment as well as a number of other international countries. We announced international deals in the Middle East as well and in South America recently. We have lots of international interest and more interest in the [indiscernible] as well as new country.

Okay. I think this is a great question, and you, a former police officer, this is kind of getting in your head a little bit, but you're in the moment in the field, what's the decision and what happens for an officer that's arriving on a scene when they decide to make the decision of BolaWrap or TASER or fire arm or anything of that nature, what's that critical moment? How do you think through that? And how do you make that decision?

Well, that is a great question. I think it's one of the most difficult decisions we deal with every day, and it has to be a key part of your training. As an officer myself, we all want to say we live up to the moment. But you live up to your training. How you train and how you're going to operate back in the field. And I think that you need to train for the kind of individual events you're going to go across every day. And you're going to come across what we see on television every day today as officers that deal with people who are under the influence of drug, under the influence of alcohol, maybe going through a mental crisis, need to be arrested or put in a protective custody. And we want to use the least amount of force possible to do that safely while still protecting innocent people around the individual as well as the individual themselves. And that means you have to take some risk at times, but you need to do that safely. You need to use tools that can make that situation better. And I just think that's why I'm such a big believer in BolaWrap. I would not want to go out on the street today as a police officer and not have BolaWrap on my belt. I would feel that I was missing a key tool and I've talked to many officers today that told me that exact thing.

So question for you kind of follow on this. This is maybe the tougher question of the day. We look at all the recent events that have happened across the U.S., could BolaWrap change the outcome of some of those or not?

Yes. I mean it's always hard. I don't have most of the facts or even the police reports on many of these incidents that we've talked about in the recent weeks and months. And some of that, I'm sure, will come out in the future. I'm sure there is data. We don't know. So I'm not going to criticize specific events or things out there. But I do think -- I'm going to say it maybe a different way. If you're not using BolaWrap, you're using force. And I think if you think about that, if you don't have the tool or the option to use BolaWrap in those situations where verbal commands have failed, you need to get into an arrest. You're going to have to elevate to a higher use of force or a use of force at all. Many departments don't make BolaWrap an actual categorical use of force. It's an incident report because it's below that. Part of that is actually to encourage its use versus the other use of force tools, and I just think that if you don't have BolaWrap as an option, you're going to have to go to those other use of force options, which often are more dangerous for many different people. There are tools that are important. I think there are tools that should be utilized by law enforcement, but I think that BolaWrap should be an option that's utilized first.

Awesome. All right. One last question here real quick. We -- as a company, we've been broadcasting a lot more of a welcome to the family post on social media and the little mugs and all the new agencies that are coming on. But for our investors, if you think about that, that's a lot of smaller agencies. So are we seeing smaller agencies grow at a faster rate than larger, let's say, LAPD or something of that nature? Is that kind of the growth we'd expect to see domestically versus the international market?

Yes. I've been involved with law enforcement, public safety and technology, most of my life at different levels in different ways, both from the police officer side as well as from the business side. And there is no doubt that larger agencies typically have longer procurement cycles, take longer to make decisions and implement policy. That's not necessarily a bad thing, but we can't snap our fingers and change that. There's also a much smaller number of them. So when people say, "hey, we're seeing a lot of small and medium-sized agencies sign up to BolaWrap." One, their procurement is faster. Two, it's very straightforward, a chief or city manager, if somebody makes a decision along with law enforcement, then we're going to go do this. It can happen in days. It can literally be implemented very quickly. But we've also had an example with Maries County, we got that contract in Q4. And near the end, we literally shipped the equipment out, 2 days after the equipment arrived, we showed up and did the master instructor or the instructor training for the department who then started rolling it out. And so it doesn't need to take very long, even for very large agencies to embrace BolaWrap and move very quickly, but they have to have procurement and people assigned a policy. One of the things having worked with big departments, and I've worked with some of the largest in the U.S. and in other international countries as well, is you need to assign resources if you're a bigger department. A smaller department can work on policy with the chief and key decision makers. But if you're a department of 500 to 1,000 to 2,000 officers, this is a full-time assignment often for somebody to take on the BolaWrap program, just like it was to take on a TASER program, and some of those programs, obviously, are still going to continue that are existing today. So you need a different person to take this on. And so I've seen some chiefs even recently with some what we call the major cities, the Major City Chiefs Association, which will be out next week in Washington, D.C. and the Major County Sheriffs Association, which is actually meeting in D.C. this week, and we have people there. These are the large sheriff's departments and the large police departments. That larger department size, they typically need to assign a resource that this is going to be part of their implementation, making it a part of training. There are uniform committees to get things on to the belt. They just take longer. But I think the interest we're seeing from larger cities and departments in the U.S. is growing and then most of the international departments we work with are also quite large. At the same point, we're proud of every department. We can't forget in the U.S. that the average police department size is closer to 25 officers. So when people say you see a lot of those, that is the average size in America, there's nothing wrong with that. And their life and death situations are also just as critical to them as larger departments who may have 10,000 officers or more. And so I think they're different. But when you see the numbers, yes, I mean the majority of police departments in the U.S. are very small. There's a few less that are obviously medium-sized. And there's very few that are large. I think the total number of members of the Major City Chiefs Association from Canada and the U.S. is about 79 agencies. It's a pretty small number compared to the 18,000-plus U.S. police departments. So we're proud of everybody that joins the WRAP family and gets to leverage BolaWrap and WRAP Reality or both. And we have departments that are doing all 3 of those.

Okay. Awesome. Sounds good. Well, I think we're about out of time for this time. Again, thank you, everyone, for joining us. We're going to do these in the future. So we'll have more of these as we go forward and be able to talk about different aspects of WRAP and how WRAP is saving lives. If you have any other questions, please feel free to reach out to us. The e-mail address will be here up shortly. With that, thank you, TJ for taking the time. And I would like to say that's a wrap. Talk to you all later.