Wrap Technologies, Inc. ($WRAP)

Good day, and thank you for standing by. Welcome to the Wrap Technologies Inc. First Quarter 2026 Earnings Conference Call. [Operator Instructions]. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker for today, Louis Springer. Please go ahead.

Thank you. Good afternoon, and welcome to Wrap Technologies' First Quarter 2026 Earnings Conference Call. I'm Lou Stringer, Vice President of Finance. Joining me today is Scot Cohen, Chief Executive Officer; and Jared Novick, President and Chief Operating Officer. We appreciate your time and continued interest in RA. Before we begin, I want to remind you that certain statements and assumptions in this conference call contain or are based upon forward-looking information that are being made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and the federal securities regulations. Please review the forward-looking and cautionary statements section at the end of our first quarter 2026 earnings release for various factors that could cause actual results to differ materially from forward-looking statements made during our call today. Such forward-looking statements are subject to numerous assumptions, uncertainties and known or unknown risks, which could 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 a 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. Also, during today's call, we will discuss certain non-GAAP financial measures, which we believe can be useful in evaluating the company's financial performance. Descriptions of those non-GAAP financial measures that we use and reconciliations of those measures to our results as reported in accordance with GAAP are detailed in our earnings release. Unless otherwise stated, all reported results discussed in this call to the first quarter ended March 31, 2026, with the first quarter ended March 31, 2025. The earnings release will be available on the financial info section of our website at ir.wrap.com. In addition, a replay of this earnings call will be posted on our website after the call. I will now hand it over to Scot.

Thank you, Lou. Good afternoon, everybody, and thanks for joining us today. When we spoke in March, we told you that for the first time, we had visibility into our pipeline. And that we are targeting 100% revenue growth for '26. One quarter in, I can tell you that based on the information we have today, our conviction in that target has strengthened. The momentum we described coming out of the fourth quarter carried directly into the first quarter and has continued to build as we move into the second quarter. First quarter revenue grew 45% year-over-year. More importantly, product sales, the core measure of agency adoption with our technology grew 186%. That growth was driven by increased domestic and international demand for the BolaWrap 150 line. including continued reorders from a very active installed base. We believe these numbers indicate two things. First, the pipeline we talked about in March is beginning to convert. And second, the agencies that adopted BolaWrap are using it and expanding. Internationally, we're expanding our footprint. We've expanded our footprint in India, Panama, Brazil, Malta and the U.K. across the BolaWrap, wrap reality, our drone and counterdrane solutions. We are seeing the recurring side of this business start to take shape. Cassettes represented a growing number -- a growing component of product revenue in the quarter, consistent with the expanding base of BolaWrap devices in active field use. Subscription activity and wrap reality, what tactics and Wrap vision is beginning to build behind that. Recurring revenue is a slower compounding story than our single large -- than a single large product order, but it's a meaningful contributor to the quality of our revenue base over time, and it is growing steadily. On the innovation front, the early commercial traction we are seeing from the drone and counter drone reinforces our view that nonlethal response integrated with autonomous platforms is a real and emerging market. And one, in which we believe we're well positioned for. Jared is going to cover that in detail shortly. I'm now going to turn it back over to Lou, who's going to walk you through the financial results, and Jared will cover our operational progress and R&D growth initiatives. I'll come back to discuss our outlook and priorities for the balance of '26. Thank you.

Thank you, Scot. The financial results in Q1 suggests that our strategy is beginning to translate into commercial traction. Total revenue for the first quarter was $1.1 million, an increase of 45% compared to the $0.8 million in the prior year period. We saw our bookings grow to $3.2 million over the same period. Product sales increased 186% to $0.9 million compared to $0.3 million in the prior year quarter, driven by increased domestic and international demand for the BolaWrap 150 product line. Cassettes and consumables represented a growing component of product revenue, consistent with the expanding base of over devices in active field use. Technology-enabled Services revenue was $0.2 million compared to $0.5 million in the prior year period. The year-over-year change reflects the growth in AP vision and related software revenue, offset by the wind down of certain advisory and investigative services. We are focusing technology-enabled services revenue line on high-margin subscription and software-based offers. Including Wrap tactics, what reality and Wrapvision Evidence Management subscriptions. Gross profit increased 16% to $0.7 million compared to $0.6 million in the prior year period. Gross margin was 62% compared to 78% in the prior year period. The decline in gross margin percentage reflects the growth in hardware product sales in Q1, which carry lower margin than software subscription and managed services. We currently expect gross margins to improve as technology used services revenue grows as a proportion of total revenue throughout 2026. Although there can be no assurances that is mix or shift will occur at the patient magnitude we anticipate. Within selling, general and administrative expense, share-based compensation was $2.4 million for the first quarter compared to $1.7 million in the prior year period. Cash-based SG&A was $3 million compared to $2.5 million in the prior year period, reflecting investment in sales and go-to-market expansion. Total operating expenses were $5.5 million compared to $4.5 million in the prior year period. Please note, as always, a reconciliation of GAAP to non-GAAP measures can be found in our earnings release, which is posted on our website. Cash used in operating activities improved 59% to $1.2 million compared to $3.1 million in the prior year period, reflecting higher revenue disciplined cost management and reduced cash burn even as we continue to invest in sales and go-to-market activities. We believe the first quarter results reflect a leaner, more focused business that is beginning to grow with the nonlegal response framework we laid out last quarter. I'll now hand it over to Jared to cover our operational highlights and strategic initiatives.

Thank you, Lou. As we look beyond the headline financial results, the first quarter also provided early evidence that our go-to-market strategy is beginning to gain traction in areas we have prioritized for growth. Let me describe this in the following key areas. Now lead the response at scale. We see agencies are increasingly interested and moving away from single device purchase to agency-wide adoption. In the first quarter, we saw this validated as agencies began to make that transition. The integrated program approach of hardware technology, training and policy is what is resonating. When it comes to federal and defense market entry, our strategy is supported by federal consultants and advisers that continue to position our portfolio for DoD, DHS and other federal customers. We continue to focus on TAA-compliant products made in American manufacturing efforts and procurement infrastructure through Carasoft as our master government aggregator, gave us foundation to compete for that work. When it comes to counter UAS and our advancements there, our R&D investments into drone to drone and drone to person capabilities are showing traction. We have preorders for both drone and counter drone systems, with recent orders across the U.K. and Europe and follow-on DFRx orders from our partner in Panama, and our R&D expansion into net base drone introduction reflect that a market is moving from concept to procurement. International reorders and engagements across the U.K., Europe, India and Panama and Malta during and after quarter support a view that demand for integrated anolyte response solutions is broad-based and global. I'll now hand it back to Scot to discuss our outlook for the balance of 2026.

Thanks, Jared. Putting all this together, we continue to target 100% growth for this year. What has changed in our visibility, our pipeline, in our conviction. The contracts that we're currently pursuing for '26 and '27, if awarded, have the potential for a meaningful increase in the scale of this business. However, these opportunities do remain subject to competitive processes and government funding decisions and other factors outside of our control. But in summary, for Q1, showed early evidence that our go-to-market strategy is beginning to convert into measurable commercial traction with revenue growth, stronger product sales and expanding bookings and lower operating cash use. We are seeing customers move towards broader nonlethal response adoption. While early drone and counter drone preorders suggest that our recent R&D investments may open additional markets beyond the core handheld boat platform. Our focus for the balance of '26 is straightforward. Continued converting pipeline deepened agency-wide adoption, advanced federal and international opportunities and execute against our 100% revenue target for this year. To all of you shareholders, thank you. Thank you for your continued support and confidence. All right, Lou, I'm going to turn it over to you. I think we've got -- how many questions do we get today?

We had 4 questions.

All right. Let's hear it.

So first question that came in. Should shareholders view the current financing approach as particularly bridge during the company's scaling phase? Or as the capital structure model management expects to continue utilizing going forward?

All right. I'm going to take that one since I've been leading and driving a lot of the capital out of the financing. So look, it's really straightforward. The more liquidity in our stock, the more options you have. and to get institutional quality investors, they're looking for fundamentals in this business. finally have that. We finally have a pipeline that we can show. We finally have a sales rep. We finally have fiscal discipline that's showing up in our numbers. And if we can continue to drive the top line, like what's unfolding here, there's going to be a lot of different financial options for us. It has been a tough. You guys know how much money I put into this company, I participated in all these rounds. It wasn't something I was anticipating doing, but I am standing up for this company. I'm standing up for what we're building. And I'm not stopping because we've got really important work in front of us. It's not easy taking in money for a company that hasn't been formed because we haven't. It's been really tough. But if things continue, and I've never -- the company has never given out guidance, but if we can execute on this, we will have finally for the first time some real financing options. I hope that answered your first question. Second?

The second is, what specific indicators should shareholders watch for evidence of the company reducing its long-term reliance on higher diluted financing structures.

The first thing you need to do is put the fundamentals in place and put up numbers, which thankfully we're doing now with visibility, which we'll be talking about the whole -- this will be unfolding throughout the year. So I -- I assure on that path, we get to engage with different types of funds, different types of brokers that actually have fundamental investors that are interested in a financial story with some big upside associated with it. So that -- those are -- that's activity that we are getting ready for because finally, the company could stand. I used to be on the buy side, I was on the sell side. So I know this arena extremely well. And I know how much time can get wasted on the road. And I know what funds are looking to invest in. And we're definitely investable. When you put the numbers together with the story that's unfolding here, I think we're going to have a lot of financial -- a lot better financial options going forward. So you could -- in the first sign is when we actually do it. When we actually put up a deal that with some institutions that everybody can see. And it's -- those are bigger transactions. And you can see those funds will hopefully be active filers and small-cap companies with long-term positions. But I will say this, being real about our cap table, I'm very proud of that captive. There are -- there are still -- we have some extremely sticky shareholders. We pulled the shareholder base 3.5 years ago, maybe 4 years ago and found that over 1/3 of our cap table were people associated with law enforcement. That is -- that made me very proud, and that's a really good indicator. The industry is buying in on what this technology is about. So -- and if you look at our top holders, you can look at some of the small, but our top holders have been in place for from the beginning. It's had very little change in that whole shop. So I am thankful and grateful that people have been supporting us for years and haven't stopped. Those financings that have taken place those smaller financing, let's call them 3 to 5 we could have taken in bigger money possibly, but hard to get real fundamental people involved and you can't go out to the street and you're talking about this because it puts pressure on the stock. You have to be very, very careful. So again, the thing that makes me proud, not only do we have a big -- a large amount of our cap table is coming from people that are associated with law enforcement. But our top holders -- and most of our holders haven't moved their positions, some of them increase, but they haven't moved. So and particularly the people that have invested in those -- the pipes, the 3 or 4 last deals that we've done, they're still in there in size. Barely any of them have sold their positions. So -- that is not easy to do. You need to have trust with that investor. And I think we've established that -- but it is time, I think we all want a different class of investors, and we can access them if we keep doing exactly where we are on a path to start to access that kind of capital. If we can get through the second quarter and execute through this year, we will have plenty more financing options available to us. Next question.

Next question is Investors have seen extended periods where the CEO simultaneously held multiple executive and financial reporting functions. Is there a plan to search for CFO?

Yes, there certainly is. Look, we've had plenty of C-suite turnover. I can tell you with -- and you could see evidenced by today's call we were ahead of time for the first time in a long time. Our systems are in place and our controls are the best they've ever been. So big thanks out to you Lou and Brian and the rest of the team. They've done a great job to get us here and get us finally in a good place financially. But -- we are -- I am going to be looking for a CFO that can help talk to capital markets, help tell our story and get in front of investors. But in order to do that, you better have the numbers to -- because you won't even get the meeting, it will be waste in time. So I think we're coming up to that point. We are in the lockup, look out. We've done interviews, and we will find the right candidate. But the good news is our financial infrastructure is the best it's ever been. Jared, do you have anything to add to that?

It's a prior to the company. People matter. It's a leadership. So it is one of the key initiatives of the company to find top talent in these positions.

Right. Okay, Lou. What else we got?

Final question. How should shareholders interpret the April 10, 2026 trading session, where trading volume dramatically exceeded historical norms without any repricing of the equity.

Great question. I still scratch my head how that happens. I'm going to leave it to algorithms. I think at algo, must have gotten a hold of us and traded back and forth because I saw no big changes in the cap table subsequent to that event. So if I saw a large movement in the -- any of the large shareholders, I could tell you that I was from, but it wasn't. I saw there's no movement in the cap table. So unfortunately, there was a bit of a head fake. It was an exciting day. I didn't know where it was coming from, but my best guess is an algorithm.

All right. That concludes our question-and-answer portion. On behalf of Scot, Jared and the entire Wrap team, thank you for your engagement and support. We look forward to updating you on our progress, and this concludes Wrap Technologies' First Quarter 2026 Earnings Conference Call. Thank you.

This concludes today's conference call. Thank you for participating. You may now disconnect.