DGLY - Earnings call transcript Q3 2017

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Operator

Good morning and welcome to the Digital Ally third quarter 2017 operating results conference call. All participants will be in a listen-only mode. [Operator Instructions]. After today's presentation, there will be an opportunity to ask questions. Statements made on today's call will include forward-looking statements including statements regarding our expectations, beliefs, intentions or strategies regarding the future including statements around projected spending. forward-looking the subject Act Private such Harbor the of that by provided Securities intend statements to be Safe XXXX. We Litigation Reform and Incorporated. statements regarding forward-looking information based current The is Digital information Ally on expectations on These estimates only risks future are speak to and and of uncertainties are guarantees and that which are predict. the not difficult as made, performance they of statements date involve and assumptions actual that results call All differ forward-looking are today's could statements cause and risks on our that subject uncertainties to materially. are to made These discussed Tuesday our Form releases evening SEC Factors. press and with our Risk under filed risks in in are we the caption in issued greater XX-Q the detail

You over Inc. and www.digitalallyinc.com. Inc. now CEO I find our would Please Ally, and that to on of to ahead. Digital being filings website Please the turn Digital Stan recorded. may like at of Ally, go Ross, conference our this this Tom SEC note event CFO Heckman, is

Stan Ross

Thanks everybody. morning Good for us today. joining

also update well that numbers. how with give I as saying elaborate for let turn the an rulings. we will talk anticipated cover. to some VieVU, that's which and me am we touching start about. the going Digital few third these while coming we significance events And explore on bit I things division the guys entered our that were last the that for the with quarter to I times a the big point signed quite very will active hear far talked, time front that you in be have And do This But Safariland it would have that a we of now recent announcing the occurred, as supply to will we that of we expect am here supply very, touch we about handle patent, to these with I over areas partner when between that is on you received we have opportunities that beginning next is guys. so anticipate with occurred our ruling be into to the are out of and strategic a the stuff which front about on some excited I to the after on him us and can our do retained on are that we agreement that Tom, has that camp be We he as agreement and XXX we confident large. of will at off to going would that. little the us timing and since as on reasoning patent ROTH understand probably Capital that Also, time I we news came to like where see. elaborate litigation the would on patent to year-end the a so and talk, lot timing very one of a Partners just Ally VieVU. to very most are agreement be They numbers, the with up such an we excited then

also value and as the They as that well also of York of contract. patents ones the the in were were Patent and stated got Office. upheld a the even City that publicly technology. valued VieVU we awarded our recognize may the New recognize, fact, they respected You matter and Therefore,

a them with at and package, on VuLink to but only have opportunity they we them device. I up We would looking to have we can excited the reason body this in-car agreement supply not and an organization the as contribute is into so And this a quality be other our also got it worldwide. a VieVU entered they are of instead is, quality with about just that company. side look They someone we is to for activation got do great an the auto that So product, complete have as if not opportunities the from see opportunity perspective, able system. us partnering camera of

be So it's going to exciting.

We from that will of press need each looking couple to at the have the that in XX,XXX the of have units quarter exclusivity release to are They is approximately do try order year. we fourth acquiring already the maintain they mentioned us here to they next to out very roughly expect the as received what first be years. over will XXX units get and in

largest could announced anybody we our So of have that law That and every the year. we before real supply our revenue us said, International for the some generate opportunities. – Association virtually and good IACP, being that's it conference clearly Chiefs right additional that It's the Police really say for big enforcement shows agreement it. of up Conference let’s and everybody

COBAN. wanted device demonstrate their we by. prior and in side their have an and COBAN the said, same they active by So to to other in in could booth and sure but our areas. it walking acquired familiar were and That of company buses being real so made that's school announced law make recently that things, competitors to as they actually the very the at there of deal time, one have was of completed not was acquisition that our customers a called

walking of this there, get trying sort was whole by into our what involved purchase the people wondering also So way Capital at to way particular on of our all VieVU, technologies going work they ROTH have some COBAN their more in seems going of sector. from ownership were some some go a buzz Partners. complete Well, some are and And there. a other represented include may the get how was that details but out to interest, getting did to IACP around or us anything won't company. of no this of everything started the discussions with is in IACP, to going the there us on patents companies COBAN receiving was of lot a just with that of wondering stand from between of lot be to phone on. back and I the and the And I are calls and into and

So it really spectrum calls a covered that broad of was, you know, opportunities.

the And I and of very for am CEO I Capital. out spoke how know COBAN, with so them the he the COBAN. situation I ROTH they highly familiar former know and of represented worked them. CEO,

felt necessary and to of -- were So them. actually I told go it on going was to Directors disclosed I that retain visited was ahead and with we this what happening. our them, Board

the November we while late October, supply retained the and Capital So on COBAN agreement -- ahead ROTH X. was in done went

companies it's what were think were so level the of probably that a early process, lot than really acquisition because And in whole not interest are in lot so COBAN, of other out and elaborate they real we it sparked that there it, there won't maybe successful more this I in was getting that a involved. a on still of the have

out of right. call have develop said, came about. will how and be a and/or something that's a will sending we along press are to we as do things being guess sharing, all release I it lines. have probably All or they definitely worthy That So those

the After because not Office us obviously got we outcome very XXX a little touch Office, of where was a talk in would let's of the felt the they did get to litigation chance ability a Patent the they them invalidity to tell from positive one panel not events. even timing proving requirements courts get the back of the with the like patent. and them the of now, Patent the allow outcome. the ruling in have about the to front successful So of was and And

now feel of violated patents they that started the or for least So were start they of being a court at reaped The them. and go in said, called We they time so which from and parties particular by them that the to a in the that TASER, of we on forward in. damages case, we this obviously lifted contacted our benefits litigation we and lot set up stay proving violating Axon could have courts. lobbying moving be both as

so sitting, occurred. a call XX XX pages should it's days other's submit that XX then And not. a judge was in gave filings. but judge. to the just and for long the October we since the lifted pages optimistic each to sure think a XX said, hear days are know and XX the why actually be we XX, should regards days The where and there us are does to why any in that After been days that been ruling time, was it and day seems stay of filed people, on lot regards in and XX it stay. With over of something So we like little to that I both submit are it's that being rebuttal hopeful I front that, to they and

our previous get stay the in to our litigation from addresses that to until they lifted, stay XXX just able because still patents, damages ahead it's come only still of the believe patent. the way, the XXX on And that's out the our go doesn't the wait the we if we TASER be from mentioned portion of and XXX. XX% the pull as of call, XXX patent, intention focused have litigation try the that Now will may panel to but and

will, as X soon. to chance Right to the hopeful oral reply, XX timing, briefing November panel. are be it then XX, to on reply response us already is December to for that's we we opposition arguments In then will our their as to is regards a and respond that well set coming a TASER for Patent our occur. response and is occurs that Office XXX the fairly February as far and supposed up we to by the the So get due submit which submitted now, that to

like that about. that about, other XXX They do a SX. nothing their public. we with running a they received WatchGuard. $XXX them lawsuit patent. we have Anyways, patents. that looks not all are has Now again, go of patent that one familiar million quality am just numbers to been that is patent. the for It And patent to the rate. XXX patent out with have They $XX are violated one say, that's been two company. those at million to an that's I of said, going in run they nice There against It talking being to is the other WatchGuard, plan filed just XXX there have our the has clearly And you that named the that on are we is

lawsuit. So both XXX the and XXX, the we particular patent XXX named the that have in

oppose where anticipate happening to or throwing it me out. to or just going other trying are all. oral XXX words, like before the they they going the we to at with it going of to have are are got a is that In be enough in going to you XXX are that now get therefore that to be able to not. patent where shot it to turn Again, X, arguments not December they our the by is events to let whether call be not listen So or say, to front right are opportunity are you to like overturning out the this, tell be next panel evidence going and we going we have is lot XXX hearing have we panel to an the of

be timing any So press of indications as a you release. on have we to on third Tom, the getting of am as those as there and of on have we then some for will going Q&A. do events, the soon quarter will results going we some we let touch what I and

Tom Heckman

us hitting think the everyone. quarter would discussing full I and the a third welcome year-to-date I you this discussion. and remind appropriate morning. to events some ahead here some did I it to and will discuss. us the Stan through and like in events that highlights occurred of the is to be Form that issues and yesterday go full we you to Thank I XX-Q discussion of or you look Sure. appreciate for encourage of be that would you major file third the that quarter of evening and our a I

of quarter third was no for a it. doubt quarter difficult First I all, the about guess us,

these that substantial one issues. that halt really the has going we third already four is and which the that by resolving the the overshadowed high on the of really quarter, patent was one it and think am I litigation in The but XXXX bit in AMR are that is or the my affected issues about each These more more I matters second benefits Stan third the and but contract affected and fourth litigation and opinion in a these, my shipments quarter. company not the quarter. incurring. potentially will only detail really the four quarter even not the to where first of legal dictate has little discussed cost that comments occurred towards issues,

the go is that major successful a we on has results. our Third contributor it's our of And with talk then free basis. VuLink to strategy plan as think and XXXX fourth disruption do how will how giveaway of a as one-year that market I quarter want to quarter to that the with patent, that about created their our of how be on that and well campaign. are Axon we because operating our dealing the to forward impact fourth, I monetization

let's first AMR the more So deeply of all, contract. look at

X,XXX which well pay which tracking on in asset hardware not monthly As labor, X,XXX component ATUs, monitoring the connected. about a awarded was The two might deployment that be years this revenue We at you contract or contracts of January did time, and one were was XXXX. that law XXXX ambulances, largest year-to-date a them sales in involved units FleetVu revenue AMR certainly that. our as largest in other approximately in as into those units which service time, by aware, deployment would over a was that $X fleet as The those three-year total that. a contract at it At of the the in primarily But be contract history. of larger revenues. than large have was after contract And total we contract commercial history. $X.X our XXX approximately cost, vehicles about that over basis million is I upfront monthly installation did little get commercial and of million installed a contract covered far revenue. in by at The include that that least June. were and our service revenues, was We But a we is three that included is the minimum. ambulances service fully well as full which of were the

our ATUs were supplier. available not the us from Some to

So we to back had those. order

charged to So time. caused June units, ATU an of no those catastrophic hold AMRs manslaughter had one driver, of Florida, was our immigration a accident not, for an ambulances It piece the was caused in accident the the doubt it. accident Jupiter, that. about as alien systems a on drunk man as involving that by of did one of an most previously there and Unfortunately well. with Eyewitnesses, and XXX vehicular illegal get in early installed one reported that that was we you, in at

any we various contract incidences cause over, related product. clearly, not Unfortunately, ARM $X.X million the accident portions contract recorded our had years. almost the for in to So or AMR six ambulances was or although way of have we of the the the in

damage did There to something to we did camera guessing and it, it if if for we not record and the we Our the suspect accident. the why whatever for a you was incident, reason that that it. was told catastrophic would It with not be only not. had complete unit you reason do know

in it that they three was a through incident incidents, and so. in time anyway shipments paramedics it to or FEMA and early accident we June and many the that was although looked I this that that event. recorded AMR And mean or the that videos point, so about few wanted contract catastrophic time, that halted Two previously died if very more. recall understandably hurricanes understand and AMR at had So without and at we you come contract. two had at

undistracted time city that KKR. their then for during of Vegas have also in know sold the were group They And happened and Vegas period. AMR parent what that. they AMR service was a we to So thirdly contract the by Las including with all Las

a So there events. of lot was a lot of other distraction,

recently, that a able ours. there frankly, finally with from until I been And parties for coming the two, involve at between quite fact the lot the last it's for to has has were Then very POs. some frank of dialogue, and been QX, them event but fluid or fluid. situation. was a a We again to a lot we maybe stated of and attempts court case resolved there engage So dialogue our wasn't and time. very that a a attorneys and week stated concerns. in of situation resolution enforce we we the to lot obviously open have In discussion reasons, late with probably quite their discussion, they had

where I between am resolution the and the then how able a quarter the start the and think first again least the the headed partially then late go deliveries we situation upon to reasonable of to are now restart contract, hopeful based open the or we and then, here obviously quarter can the maybe I extent that quarter things fourth PO. towards at in in contract even under second be

hopeful that happens. am So I

that, it's have contract, doesn't point, We at that We near all resolved third and by that that. But in the happening so. $X things in revenue expectations although of last million a what's the all going through very go dialogue encouraged The get this I had roughly long positive in if or mean a dialogue But XXXX. we been agreed. almost a got is to there am we and to obviously that delivered to parties way least of at up will get term. go that papered on halt week

contract the the So in $X.X revenue million, $X.X contract million halting that alone, in our shortfall of was from that neighborhood.

landed And had it big So our revenues. revenues. impact big in a a on factor significant squarely and the that on underrun a obviously impact third was was it on quarter our

that Now, get able affected of we us the weren't will in ATUs also because service to tell the place. piece this we you

did service a off service because year-over-year, our contract. revenue we get AMR of the even primarily revenues So little bit declined not the

third very get big that in thing think it The are quarter. So the sometime we a expenses that very in a quarter. in on that resolution us path on we quarter restart effect high and to the But did have on started or the patent. are fourth legal the hopeful fourth

I of job of slowing legal at reiterate the that the damages patent great in IPRs the that is Unfortunately least at. think down, are elevated expenses Stan did mid-XXXX. or least the I But until the at will we I all where earlier involved Axon/TASER or will near-term litigation. bulk continue at levels. the won describing see a even XXX we don't for the on which

piece we Office, in this, which this the in the is at think view I controlling instance. won the validity least of So Patent

to good if confident get I court able very very Axon am stay will litigation, So the outcome the forward from have are a that. lift and that we to we on move move and the very,

around a XXX established Office and that. there patent mean of the now doesn't the two legal be there appeals of that and by then. Now has But been by the is ways lot validity between no Patent large, and won't maneuvering and

them sued willful we treble for which infringement, damages. carries So have

So own that you regard. damages your can up in add

offer. Axon, one-year that's free to by on disruption go caused the Let's the

came was you trial, out of body U.S. their It market. as law evidence.com this enforcement well you If significant to appealing if on Obviously, year with Axon system. aware, the that domestic aren't sales. as had their earlier free domestic will, a U.S. one-year our impact cameras a guys

camera body quarter XX% FirstVu in revenues the XXXX Our of in sales sales from total of to dropped of total third XX% XXXX.

on that patent. our attribute the I that, VuLink going well some of as in market as to about primarily So misinformation

as ton on third don't as financials at the we They of products in a such I a obviously but basis. give because Axon, area. well this a So camera the guys of take sheet other as quarterly you money body as to have quarter their away hope well in a lost R&D balance primarily look efforts

Axon go the forward Our to disruption. strategy combat

as got First of of law good network as does daily the all, we international we TASER. better or Quite frankly, have market. a compete even maybe in distributor internationally

will have in able are to be and up very, internationally us agencies get to front that. able good wins and be combat we international of there some We to out and confident distributors feel got very law we they some able get that

body utilizing are cameras lateral also markets. in We

ship that's It's as position and side the have think have and because example is to ambulance private we such medical is going also do market security the natural really cruise Axon that in not we into lines the the natural a that dominant in the for not market. I strong Also a products discussed for already to mind. we a in well. us security medical we developed are us go are focus a with and very market of private prime a on because of

able and auto we prosecute product activation. way, In patent. our are fully patents will increasing to this, are is is the will perverse And they the that standpoint territory. Axon that promise our of be is from doing doing upgrade that now damages they our that squarely to Thirdly, when is the giveaway a monetize

giving of matter. way, when product perverse higher away the in results in in we So this damages and the and hopefully a jury they if in front it are get

monetize the that big distribution we contract, embodied from that's next really inquire of require technology our this continue And thing, moves discussed do standard detail technology. our contract to activation is VieVU now. VuLink patent. The VuLink Okay. and patent VuLink not in from Stan in or exclusive agencies standpoint. RFPs secondly, That's I before. need the we to is But law coming the will think There auto prosecute industry the that The the litigation. in one out few product patent activation auto very

market. the for standard it's So

patent pretty for to we And source to both an that because gain hopeful do because VuLink revenue to infringement forward standard licenses us the hopefully, potentially as that the able and to or comes between On hopeful list that industry entities calendar And right we That is after Axon those additional is damage large much litigation predict on do a sales others selling core and continue which the both in XXXX. and and then can awards fully court on it is monetize patent from XXXX actually the grant and infringement obviously, is damage And status perpetrated infringement then us thing for prosecute to So are in obviously to streams subject. the the here. XXXX. will resolved year auto our activation. is for even being us litigation, XXXX. can and direct go feature enormous timelines in afterwards we units That's can are the a difficult very a basis WatchGuard situation from that We we WatchGuard, sales willful there head of of Axon a is injunctions of court and substantial then of others have is very, now. activities be and with substantial. fertile certainly best and the minimum indirect maintain happens awards revenue believe channel, have the But market here, again here acts through for the The of now very, exclusive us distribution be their VuLink. VieVU we very a the distribution the required for us. XX,XXX well units

very that some monetize very huge patent have important and which we and to stream obviously monetize after to this work is want from fully to tools the revenue patent potentially we big that. intend in VuLink just VuLink that. the to So I emphasize with

Okay.

the we on have major quarter move our proper business do about current of So well tend But to manner. talked we XXXX will as our to have still XXXX. effects business and in we issues understand, revenues. that a as In regard, just forward the fourth

not you $X that's we quarter. if revenues contract XXXX. XXXX, of quarter. new with not certainly were in AMR source revenues the million fourth but We in a roughly XXX can significant quarter that's agreement to are again revenue. get in the for revenue distribution breakeven if we as at patents for level the We increase forward, third the restarted, well stream if our the units looking from the in have right a fourth future, at us as Obviously delivering look VieVU, VuLink The

bit So an have will is have in units in minimum basis. substantial the the that on quarter, little a go of we will on fourth forward XX,XXX XXXX impact impact a but revenues a

the markets as mean We of ATUs, units. software focus to on asset and monitoring our FleetVu commercial by growing revenues the I cloud-based continue that software, component monitoring also service well our tracking the in the as

pressure. under been have margins gross Our

our revenues it's plan We more us. have and think in the revenues think and issues quarters. now, I is had hard to production gyrate and when the move ups product in We past. downs rates headcount between those our are behind and What's hitting around us

our more to manufacturing we So point parties. work move to to what at third this and is of are do trying more out

So from can our workforce minimize that standpoint. we

component, impact, cloud-based It we since will gross increases it will have developed as down be already but big zero, certainly never the of VuVault.com. can FleetVu to will that to able that our margins move the to more involved more be on manufacturing were efficient if favorable third parties. impact gross to improve whether Again our it get a we software be able we some certainly service We or have revenue margins. the

future. at will margins high revenues the service in the So be

with earlier session five or we we QX here, are matters impact it So to we aspects. four will hope on XXXX. All-in-all, but QX gross favorable my that in that able successfully believe us today that very a margin deal the helps with if was into we very have on difficult talked and those about

this to back turn Stan. will over I So

Stan Ross

Yes. Thanks Tom.

re-qualify have Some for probably of heavier I that manufacturers move able the that even of done, far about Midwest. as to talked want to the on them, being the we some but things of some to touch the of manufacturing here in some as the that lifting are we things

probably at reduction right of XXXX. looking expense for are million $X.X of SG&A We about a

help will improvement be a that So should forward as and the that far XXXX dramatic us going as there.

let's go and this for open up ahead right, Q&A. all So

Operator

[Operator Instructions].

question comes Kinstlinger first Your from of the line with Brian Maxim.

Brian Kinstlinger

given of Great. business, the question, cash your potentially first at funds. more Thanks. that cost of addressed raising the announced you end is, press release My you where but side

that couple next about flow be cash generating the and low, So of balance quite don't is assume maybe I just quarters? cash you talk as your will in

Stan Ross

about ROTH talking Partners? you are to Capital talking Brian, regards in about release in the press

Brian Kinstlinger

at -- think I that end of one And was even sure. one the for Yes. the

think I the release, last said at end night's have maybe something of press may similar. you even

I of are am little those curious, financing and time? same operations? two a money alternatives the bit the So just at of burn plans Why

Stan Ross

Got you.

we in numerous again, parties assisting get to been in approached and other in to that capital, assist with wanted needed So litigation maybe as capital involved have have by matters. such that's

wait and So with the just to we and have options what again do we think right and what And keep ROTH now, do comes trying continuing can is will to we explore. doing what and back improve they what at to business. look are see we blinders underlying on to that

Brian Kinstlinger

you recurring And on April I you when move impact in in Then a in essentially think you they already wouldn't mentioned of big free, to giving the the announced, little were Axon's cameras law have first Stan, because subscription. enforcement. moving lieu also, I away bit from had away it a think X-year it body talked, past was sales were

made the from in is you So would quarter’s mentioned, a can of as at and a touch what's disappointment on having that body maybe you quarter as changed this thought? maybe you what originally percentage guys more than revenues XQ, were impact take and first think a look it's cameras an let’s impacts? So second you have

Tom Heckman

Well, the XX%. down year-over-year percentage from of went revenue XX%, to

lost giveaway, So we almost they again, But mix market. law and one-year since enforcement the half U.S. year-over-year, revenue decline domestic been that's the this announced a if market, steady will. of you it's overall free

the la do international especially market industry. industries, specific or cameras, body the We are ship and we that focusing more tailoring domestic cruise uses the commercial on our given can other law back a office for of the

got our that in We other FirstVu. have the products also mix utilizes specific several for uses

primary domestic sales, more the the we are domestic marketing. from FirstVu sales, commercial source away So into as camera body U.S. for market moving our and

Stan Ross

with pilots give there example, and what different and to we great that, for vehicles AMR size. Yes. and clearly locations start you are market mentioned into paramedics us is stuff doing last in-car contract, like but as projects Brian, know the like an the incidences the we for other larger on are And or AMR going have they so a great needs well. some obviously call, going I that a you comparable when think was do of systems, was we see in are unique there as on outside potential while

I that real commercial have So and do as believe shot our the division stated surpassing in see in we has do law enforcement a past, of XXXX.

Brian Kinstlinger

is So of U.S. XX% body of of just sales to cameras? be cameras? revenue, total is body the clear, Or that sales that

Stan Ross

revenues. total our of XX% That's

Brian Kinstlinger

cameras. body Total

quarter and this first that was what number year? the the quarter in second So of

Tom Heckman

but that been have of done in decline a they’ve me, steady don't since I specifically that. front it's

Brian Kinstlinger

necessarily it start? Did mean off view, my I curious. happening I am a year-over-year start already But first point. was or that's to Is a low in the is April quarter

Stan Ross

meat of could industry Well, and again go continued some stay it there Ally's to competitors tie the to to back you there Digital our allow I state and was any stand you out to it because to oh, isn't that, going up, doesn't go announced, it know, patent it. to when the think have out

really think campaign. part so, alone it, we of seeing And that's their when I let started

little start year quarter late in it bit of or last this So year. first – a did the

Brian Kinstlinger

each device, word twice. Okay. the $XXX for assume I mean, mentioned huge paying But I even you the Can the if device? price comment per that's next you is million VieVU on $X year.

maybe am just trying price that devices? is might be what So for I way $XXX too to understand XX,XXX this low. contribution tag But

Stan Ross

that We to let are that state me retail they out them. $XXX, Obviously, at it okay. greatly discounted this So way. buying, the that we quantities

Brian Kinstlinger

then agreement? of the you exclusive through in how VieVU others. take licensing an has patents work us thought given to could monetizing But it would to if exclusive VieVU, process mentioned And an you giving that potentially Okay. the

Stan Ross

of far are at it New number. I York got an side at that looking agreement that at mean if look the number, you it contract, be that So XX,XXX is we again enforcement large. exclusive they the if could just okay. law that they really the fact are but we And device pertains auto of a camera. the on to units associated likely, becomes as maybe big XX,XXX number, are most top very it's got in-car have and you what to they going And an to saying, things, we well, body when a with they activation every cameras. XX% one to those pretty systems if be XX%, units good okay, right just with able that as body it's get were looking of fact associated XX,XXX is, start there are of And our

Tom Heckman

Yes.

VieVU not does Just an as a it system. matter sits as background, offer today in-car

hopeful is offering systems. to packages out come with quite often, And My $X Safariland but cameras their body that know that VieVU body and offering. them that them that RFPs understand as in-car is, are with owned billion. you for VuLink our couple package are is natural we both is So the people systems camera, that they understanding a of with with a in-car include our lot not who they huge. that fact are by and I Safariland And

Stan Ross

understanding. times Two-and-a-half is TASER size my

Tom Heckman

have They selling military organization. presence they international an in have worldwide heavy Yes. a and

at sales managerially systems in enforcement an need of company law organization, only not compete enormous obviously but allure They and looking also part commercial. worldwide well-backed of VieVU. the an really that's They in-car then package have being a military Safariland. and are very and financially contracts So to for

us fit sense. that a it So a we lot for thought made of natural was

Brian Kinstlinger

Okay. the and have what talk see that COBAN is, paid can Last question for you we -- price revenue they I about got so is the valuation annual their

Stan Ross

that Yes. out of would to number. give get not tried. They sorry. Brian. tried them. I that But yes, me I

Brian Kinstlinger

Thanks. Okay.

Stan Ross

Thank you Brian.

Operator

from WestPark the comes Capital. line with of Faruk Ishfaque question next Your

Ishfaque Faruk

Stan Tom. and morning Good Hi.

Stan Ross

Ish. Good morning

Ishfaque Faruk

Okay.

mentioned of contract it of a it to are the percentage is price unit sales? the a In terms based bit going on per with going in you VieVU, the What in based be gave terms per on and of little color. economics Or unit? the price previous to a you Is contract needs? of be quarter

Stan Ross

upon They units. units. to acquire based It's have XX,XXX clearly

Ishfaque Faruk

you greatly that you And discounting are mentioned that.

is discount like your XX%, retail -- current to it XX% So XX%, price? the Or what's

Stan Ross

single in Yes. it well. you little have recover money. to needed time, all it on greatly same I and at sure to With as to in go. room single they we little $XXX. so a unit, wiggle discount that it that their we can a body be hear put sale position we retail a said, in mix, And themselves can cameras At the a make really the normally sell

really you point. at can I this all that's So tell

Ishfaque Faruk

Okay. have which are Well, advisor, in do with direction you leading towards? conversations sense your guys terms M&A preliminary your of you for a

Stan Ross

do looked We the let's what the things what's front, couple timings knowing potential could that be not. going contacted process, think I COBAN. did the parties them are they timing, get a are the and people me, at moving. I sparking occurring getting with that litigation that I on then shared the on What really is that say, of were Since is, because started in there with familiar to to things and of mirrored part these regards and which and had that interest already

time this X. them has its So done said, it course. been retained of I I back we for only is November what out point until have there at it try to Like enough run to stay

So -- almost, a looking at? week. are what a over it Just about has week we

us. forwarded So I we the are that directly, me anyway, they weekly all ones and have going have an I update sure ROTH what almost to what's and on am contact have will out on asking of

Ishfaque Faruk

sense on you conclusive? near been Do for view stretched it some your litigation? What's a could has current your more term get getting has been on where it you year have right? something almost like your Because Okay. running, now,

Stan Ross

And mean, Office correct. came this I got in mean, March back the in I I our in Yes. favor. put year. place stay of think and Patent ruled last the

got paperwork. have both courts. front back submitted our obviously in of We the We

a because much am the and And XX that said, of anticipating you you we then are rebuttal. I I give us close courts so got They now, days pages didn't get pages timeline. they and XX XX real for and have days XX know

are so rather that was turn a And requesting of quick that us. they

forward for as they at happening would and what's that I quickly. to be to So and move we this are expedited going and to rather requested hope is it look that rule

won't said, We on the XXX. the of consider will that. the already have we We hey, even out pull XXX damages

for so to evaluate makes XXX And simpler lot clear patent. and a courts it just the it the

mean today. I would and just I rather XX been yes, happen days it's quickly. I something don't So it could know. But hope

Ishfaque Faruk

Okay.

as in be, still AMR In yet. you But again? terms I you are of contract QX, so running the guys that not contract, to up that are revenue for know generating guys contract and will start think like of you going do

Tom Heckman

that the there you the enforce been to is really But fluid that situation that is go has this we so a court PO's week very up Tom. until ago, are I about will Well, I to expected this outstanding. constructive between and or can restart a would tell have to XX we this of we lot amicably dialogue the days dialogue, in that last seven in me the of portion the to a resolved a a parties encourage quarter. that least of and can lot at get fourth contract that

it at to said, they what of can their takes and we that dialogue very being forward. move that is provide parties ambulances understand two encouraging agree and have yet and thing the the recent certainly answer Or we least get affirmative don't Now importance in very going. encouraging. is the dialogue the but video We that

system collision of like one the seven-year relationship over have we or caught six-year incidences and and perfectly. said, our side, major just relationship videos a a X.X million of week had a with as that was I with Just we recorded there ambulances AMR last

know, the recorded not unfortunate it of out larger for in incident. the what the the what don't they you it's have know cause or So unit real to are We was what reason happened looking think that But I at Jupiter, picture. Florida.

get admit real resolution. picture a We And as that are willing looking at the parties to larger well. can

Stan Ross

particular bit here obviously know crash. this Tom was we black with delay that incident little speculating a a be is relationship. a for not it the moving but right unit great are hurricanes, Stan there going hitting airplane and violent what It's could acquisition, they an had But like to that is there a probably on their look lot the dialogue to have We fluid but And try box very We a again. with that said, continue of real parts now. relationship. Yes.

Ishfaque Faruk

All right. guys. you Thank

Stan Ross

you. Thank

Operator

Your next line question of comes from Patrick McEvoy. the

Patrick McEvoy

Yes. Hello.

Stan Ross

Hi Patrick.

Patrick McEvoy

are you doing today? How Hi.

Stan Ross

good. real Doing

Yourself?

Patrick McEvoy

two just on I utility was heard ever questions. a bad. And I anything going them? guys about have stuff. though not quick if from there resolution with to in a was what you the don't Yes, know One while I is, as

Stan Ross

Utility, the litigation?

Patrick McEvoy

Right.

Stan Ross

just I other day, can I the talk I if have something the seen about don't know timing.

Tom Heckman

Yes.

court have and federal XXXX. the appeal January on We oral arguments from judge district in is ruling appealed the sometime that that

soon in So want calendar hearing, appeal the may but I coming say the that the or year hearing may XXth, very, very not to right. be But is XXXX.

Patrick McEvoy

Okay.

process. ongoing So is it an still

Stan Ross

Correct.

Tom Heckman

Yes.

Patrick McEvoy

Right.

mentions Orleans question ago mentions a announced other and fleet just Worth Louisiana and the My release that press like and systems in-car finally Okay. installing is, Fort video week they New Axon are release. their have the and any --? well guys the as this think is in-car technology that you in signal press major going guys to stuff on Axon's specifically effect you Do are that

Stan Ross

frustrated. so are exactly we This why is

We got We technology. a patent. have a own

waiting Office We a in now it. And I over have new been utilizing all is it, technology. to, try until TASER to just to numerous behind up the stand to just we walk times us. ability And are wake guess, defending hate courts, say this patent and going are and patented to be majority challenged WatchGuard allow got successful in Patent address been we the this, of The and on that's have courts our and the designs us them. going to I are the

meanwhile enough it that business up in So they drummed the bad. their hands slapped, then hurt have too they doesn't hope get

has another most got So because a these years, be video, five and go years. going are we the of sure if someone have like forward already hate that of to of job masterful explaining five them will the make they contracts, worth going five will occurred are but and say probably do to that, damages to damages that years

just not term it's short So damages.

be will for pushing number. big we So a

Patrick McEvoy

before Does say made that you could that the the from you contract an maybe that to litigation? they revenue get winning were that ongoing have that push mean

Stan Ross

Exactly.

absolutely. So

Tom Heckman

the question they can award. Yes. are generally damages in of We be whatever I know willful Patrick, think are has infringing answered. and if trebled willfully trebled infringement, that found, actual been already that's the

degree So been yes, when and acts. that got And we And set. in defend powerless are the to favor. the and allow I mean Nth But our patent we court that it's to unfortunate believe our to happens, the court the have think this I we will until occur. that has soon course act

Patrick McEvoy

Right.

Okay. Thank you.

Stan Ross

Thank you.

Operator

Your next from question comes the of line Ira Thomas.

Ira Thomas

Hello.

Stan Ross

Hi Ira.

Ira Thomas

and this It's a I am whatever time was only antagonist, the told hey, voicing that was $XX listened and is of you am have hey, the took from trying and since was How this we sales the but my to second even other row, you when to everyone You patents. three missed only am a, to as host money I an moving recorder. We it's same an told long years nice superfluous, their and thing it's of my let's calls, my one I doing? experience I base $XX the the to up I and want at a the on aside said an it $XX. I investor. ever extra, I they of hey, you, question I to to said like I think is, in probably is patents. though everyone, you sure obviously, you tried I is ago, missed this get I But company may like ago like I Hi. our three-plus know, to calls, not the our last I it's time, in. this. stock And litigator buying years time sound buying a stock in I thing, predictions. started thing, tape XXth But a quarter are listening

best this heard about And company always worry has Let's rises itself and as the having touted top cream the always product. to sales.

tell the sell sell reason products never to this for they go, this to theirs. are our the the the product. it every are buy got go I not. like to best, XX have And product, the doing got with I I other away buying somebody they have understood got shouldn't understand why someone nonexistent people able last It I whether how confusion, Ally other the hear you other about and product, to buying our companies or best patent quarter should because I if understood that So there I why from worry have product. ability I this friends, have listened just don't stop almost. they again the are is there about we is. for and not XX, stock, that that's years? can that patent. am three stop can haven't been never for confusion the sell claiming to we affecting to taken but is straight the Again, continued also years out what Digital the salesman and best else's three are our certainly from claiming just Axon TASER company, They talking there patent because What's that have have them for what like and I a worry just the if sales fact quarters the

Stan Ross

is, as of There have regards in and the bid on officers or to those earlier you that along address on, situation police with it's know that TASER sense. ways it or is very, lines just we very Yes. contributions that. documented a of make well payroll into a to got couple One their amount doesn't things

are have sales loved chief the did But loved the back Why it, would everyone just say, and know? reps our We it. the get chief come contract. frustrated, situations TASER the got Don't they loved had it, they where they contact? said

can the decide forward you also where then with TASER from show and are it. sudden had there I lot were We that it. say, your homework of looking is absolutely above people on another see to out there angle, a municipalities out and into a you are contracts the want or how local And they there of and moving have own I complaints been I of up of some that awarded. go and we felt to can all from there didn't that departments fairness by do other,

point going of so it where bid a is $XXX,XXX and that just there, they in at example and the that doesn't is right a make we the any that are give sense. TASER we But you some mix. of an at items over little throwing had of things $X.X from are bit other And particular comes into on a doing not I million TASER capable this

for this the You look strategy up, some they things and other in buying their of worked that to, signed people trying gets day know numbers. are are enough slapped the they their TASERs their and They that of throwing again end get their at at hand barely cartridges that them. business hoping the

as where So very five-year The feel the so are one very, to very a we quality it. we still in product warranty with high as very leaders industry solid product, we the confident to provide a have quality product. product. in on of are be our got of we got We have the confident specs far the

it it the, some to with the of some things some just of financial sense call went strong but some arming, just don't won't department. these of I of has don't all make any the they why be So know, to routes I at

Operator

of Your Lubitz Aegis Capital. next question comes line from of Bryan the

Bryan Lubitz

Good morning guys.

Stan Ross

Good morning Bryan.

Bryan Lubitz

that In body contract Safariland, for is the regards for cameras? you guys to had ever the largest XX,XXX body cameras have

Stan Ross

for for is the this It viewing. largest is Well, certainly viewing. the

Tom Heckman

Yes. for Certainly viewing, for sure.

Bryan Lubitz

Okay.

what you an it discounted gave it but It's for you VuLink, at we the is say system, me free, give you away retail dash, the is what not when like obviously So retail entire the idea in-car heavily. body the you like for of cameras, works? the it guys Can TASER $XXX, the doing.

Stan Ross

it know, you bit set and can anywhere it a pack camera, in-car the are their body can depending that or system But product. XXX the But get complete as if with need. on nice would depend to that we smaller a system quantities, as will system could would a a each It come the like you have in-car $X,XXX from, around on with. $X,XXX. they which see they DVM VuLink we in also quantities, and little everything quantities can went in, they high all large, So down

Bryan Lubitz

guys So you are when at together, between margins? gross typically and And $X,XXX $XXXX. that XX%? Are XX%? have you package what your you Do

Stan Ross

we A package would that, XX%. hit like

Bryan Lubitz

XX%.

And then heavily obviously Okay. that's before discounting it.

going their moving array if is, and guys you they have am I Safariland part yet where you with signed could forward. a guys in confident something have that up sell, other that contract, this don't that you So exclusive to that's feel potential have be

Stan Ross

of Yes, a if over told to and behind not call, his try the I absolutely. had guys run of it and work lot walk and and TASER VieVU, our our is to great on doing. They I looked these don't they to ever this ago there patent have one know are risk VuLink a And attorney WatchGuard about with. I principles over it all wife technology. they year a approached that mean into at the it us decided strength or it. said VuLink and therefore they felt you like And inquiring but been have a

Bryan Lubitz

Okay.

know based be press be units in XX,XXX year, contract? to Do do it that that to regards is that's also increase? that something in per down that your is first year? in states they we what put each increasing will now a Or already been So how the going Is upon the that release year.

Tom Heckman

what know It's increase We a amount. Yes. the is. dollar

Bryan Lubitz

does of increase units, terms of or take amount just amount we dollar the In that home? the

Tom Heckman

Dollar we amount home. take

Bryan Lubitz

Okay.

case, you on free? invalidated, body that This to had giving they right, from that these sold stating release Now out you first from press of make that that infringing obviously $XXX with about in if a have are point, cameras guys your litigation worth TASER. the they million day they it regards on put I working they am have patents been revenue the

Stan Ross

over but Tom they business. $XXX the million claim booked in than potential studied numbers to I more have

Bryan Lubitz

even Maybe more.

Stan Ross

Yes.

Bryan Lubitz

Okay.

Tom Heckman

and in, this that we Bryan IPR year, after our XXXX. patent challenge thing all remember think out came that filed was it Later issued against And patent. I got that an started they was,

or the it it then. all be we would be back tried to So to then they invalidate infringing him wouldn't we time sued anything. because just that were they they from It back that knew willfully

of figure total cost $XXX the that they the is I their of was, And quarter. more the it, the $XXX which total maybe is yes. am contract, last that bookings, in So they sure million the length now. million and cost, call that think, are hardware I it's charging service

Stan Ross

before damages, the at And they think look when the look encompasses on package. they they look of I all at a I call at way this the that said

as whole million So or package million looked and part far gets $X was in activation that at other the words, damages. if $X that to auto of potential they won it, a as was that upgrade that part of that then

Bryan Lubitz

Well, okay.

time. Maxim calls know have they for get been I upset said, little be as a being a that I WestPark and I long I on was you the these guys didn't That So got. upset $XXX know the and because may in said, and ROTH to the your am XX%. let's million the in $XXX say asking them I trying and electronic space et for average being revenue deal royalty damages, cetera., contract million, help know is

say even for is, XX%. call it go more let's it just conservative and Let's what

they sound that guys damages before million, damages. $XX it of You treble right? before of were Does to way TASERs are potential damages terms that compute way roughly at looking treble if in

Tom Heckman

would ran the be industry, XX%. in easily high can You there as say as numbers and that it your And sit I correctly.

Bryan Lubitz

Okay.

Tom Heckman

is the number all board. over So the

Bryan Lubitz

the I cut off But to from I get you. on don't step sure want to want don't I that operator. also make

four of it roughly So those numbers, you market cap it basis. times where be, your very are whatever a well, is on conservative

Now, did when WatchGuard revenues, IPO. in they And expected? I released an just than right that a they filed assuming am had more lot we in revenue for their

Stan Ross

built company. little have a quite They Yes.

$XX year was think books, I I showed this rate are it million right last said, somewhere a at around year, $XXX their they of $XX So run to on you like think they And maybe million. million. on

they or So talking back adding about again, And are That's there. may that's ongoing not what just revenue. you to showing go have as there start showing up they what services. booked in

Bryan Lubitz

at treble for the times just looking doesn't And before are $XXX million what damages you everyone damages? is, correct? Over treble that damage Stan, So know three what? in it's damage amount,

Stan Ross

number, It's a big Bryan.

Bryan Lubitz

right. All

in that number you potential I for have of my tracking that are buyout knocking? you Taking think are So strategic a exploring come minimum in whatever for question. mind many to lot a contacting do that you that or have bunch this said they being that COBAN thinking on are outbid, guys million and coming $XXX for about? would you, them the Obviously, Will or you of if bidding they and for you looking last if were number that potentially your that get deal were opportunities. what they in account would money you were look way, companies guys, more, at be you guys are however Digital drop or handful them a of a didn't into

Stan Ross

Yes.

just We haven't discussed. early. It's too

everyone's ROTH from haven't anything along on discussed thinking We what haven't lines any gotten yet. yet feedback and those

Bryan Lubitz

has Yes. week. been It's a only

Stan Ross

Obviously.

Bryan Lubitz

results All works luck and we ROTH eagerly you Well, with the good I out hope awaiting everything will listen, guys. right. to be

Stan Ross

Thanks Bryan.

Bryan Lubitz

Thank you.

Operator

queue. will for turn presenters back are currently remarks. closing no I call over further in questions There to the

Stan Ross

your very we unless have time going taking next call thanks settlement excited to a this something. major about what's again, XXX place probably it, are and we again But we for next, everybody watching. days our would be reschedule Well, just let's obviously keep material call before morning the develops, over of

you continue let everyone as soon to will again, there be sure we And status we we working things, out all. know. learn make As very and will of for hard

thank you. So

Operator

conclude participation. thank Again, This you your for today's call.

You may now disconnect.

Digital Ally (DGLY) 15 Nov 172017 Q3 Earnings call transcript