DGLY - Earnings call transcript Q1 2019

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Operator

This conference call may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, and Section 21E of the Securities Exchange Act of 1934. The words believe, expect, anticipate, intend, estimate, may, should, could, will, plan, future, continue and other expressions that are predictions or indicate future events and trends and that do not relate to historical matters identify forward-looking statements. These forward-looking statements are based largely on our expectations or forecast of future events, can be affected by inaccurate assumptions and are subject to various business risks and known and unknown uncertainties, a number of which are beyond our control. Therefore, actual results could differ materially from the forward-looking statements and contained in this document and readers are cautioned not to place undue reliance on such forward-looking statements. Digital Ally will undertake no obligations to publicly update or revise any forward-looking statements whether as a result of new information, future events or otherwise. factors adversely or flows impact needs. of differences to and variety could and revenues, wide could contribute cause such capital A profitability, cash can to be statements the will There fact accurate. assurance this in prove in document forward-looking or transpire no be contained that now the turn will over to I Mr. call of Stan Ross, CEO Digital Ally. ahead. go Please

Stanton Ross

patent address look everybody of on go us I think will but infringement today glad a Thanks me Tom spend the most trying We'll over with and have numbers at Heckman, that the our had shortly that XXXX particular has probably with people's for positioned a on that has be companies we settlement on early next for as remainder the entered quite agreement and Stephanie. into successful elaborate settlement Thanks going will a will - very with that for out what for a maybe issues, joining number of the one have agreement and this nice well the who the we I one negotiations here alleged nice play to us that us. mind that's Call. First future. bit time and year of to into into for of to very anticipate year Quarter was we we we nicely very -

to you to - Heckman, said, elaborate So introduce numbers. like Company's all our Tom being CFO but with allow on that the to and him I'd

Tom Heckman

on and SEC would for you that to Form investors. lot file know the the today. more I hopefully see you that going numbers. complete quarter us intend overshadowing of remind with in and refer a the do and I don't good out I discussion a meeting XX-Q quarter this I you through that want our Stan to want everyone. settlement and what's this go to of I did Thank morning appreciate in welcome thoughts with that do the a first document you is the But we WatchGuard I point today numbers of that few to line-by-line that the I really trends us. joining

revenue it. ever we and bottomed all, announced new the out are the of numbers since quarter on side not product. challenged, And have new revenue EVO, fortunately numbers, is gone it waiting And do late in up have that if going our that that will commercially. believe people this quarter. launch well, have of with for year, beta second third very the by product we're First the product been certainly launch we test we our Certainly

revenue we're moving seeing very composition And that service standpoint. recurring, a even sequential revenues based more we've on side, with to you It's So a as us. more QX both is revenue small, but very as we're we're important. the encouraging from for noticeable the will, is model well weathered starting happy over And to very on storm, see product XXXX and that XXXX if first year-over-year the is quarter side. revenue increase which importantly, which the revenue in

at look ago If XX% the of XX% in versus quarter service the you gross the a in it side, first on quarter. reached XXXX margins year

service continue a we've to to We rates believe growth very may us are very high renewal side to am date. want that's on we'll with year the that. to that already service happy that them our high, And do in nice So contracts. we revenue, that. margin in good, we're And with renewal encourage the cycle very maintain I they we today, and of our hopefully and obviously, experienced see very very important on continue and that because, seeing high dollars margin some uptick a those we're

there. customers talked announced The of number were that in the customers I previously good is other potential this our or platform It's results will thing test customers reliability enjoy features the about certainly a or the reporting of EVO at we a units, The out and that of beta EVO-HD. we've and features in that in model that new with. think we're - coming number

If at at composition you about - million the look the that. of year-over-year, you if we increase $X.X expenses, SG&A they did but look

a of year-over-year. whole development and over the maintained which levels compensation went is R&D obviously Stock-based up of the and EVO-HD prior that we costs all, and only about the still increased very new $XX,XXX only research year. First good $XX,XXX understand increase, non-cash increase platform, expenditures, $XXX,XXX a developed about

increased gone we've seeing a do base, with gone before stock it's settlement what's that of almost $XXX,XXX to down did this our based, that employees. terms to we based a a we about litigation in compensation graph of and is a are an legal about talk We in general haven't system number bit to comp from amounts administrative employee levels more on little you discussion. basis an so As fees went ongoing stock later in both The year-over-year little predominantly in that standpoint. will many that expected based our and the fees that that and raise a uptick

we're that the about If should obviously the rest excited launch of XXXX, improve at revenues. you EVO look

get Axon then fully awaiting quarter, our an up, again litigation WatchGuard and coming XXXX So were there. think now PGA be the continue. costs cycles And hopefully briefed renewal matter rates Axon/Taser We out fourth so is the have that continue it we we somewhat, that ongoing matter, judge. coming ongoing should improve will abate and the revenues not quarter we service we will and our judge the the renewal dispute third settled cost rulings in are I so in cost. will sometime and up settled to won't from started that second Litigation from certainly have just quarter

decline to will as start those well. So costs we believe that

be from that there control under much year-to-date remainder for standpoint. Although they think the are high the more I of year will

terms litigation. gain quarter look of you the a is quarter, we we One full income have bottom of second the $X record the in remaining BKI That now will and important what $X settlement. We the the that reduced is come and BKI. reduce WatchGuard the BKI. on effect will at to BKI Remember our quarter. settlement from second unknown obligation have that and owe their in we that in million with second litigation thing is at have to that the XX-Q by paid evaluation firm be that that The do million we did will that line. be the to in proceeds an what our factor for expect obligations agreement proceeds to will do hopefully a will Those If thing them. be through and evaluated what will obligation

that's something that looking to So exciting we're XXXX. forward in

Okay.

settlement. at WatchGuard Let's look bit a little the

there in document. the Now confidentiality understand provisions settlement that is

we cannot and just as much things as there's to. So share about we like talk

to We we go not from But equipment our we are can can another royalty able off We that pull if they for that's selling market to. are all going. very there happy to them not infringing with those WatchGuard license we that in discontinued where basically features need litigation point have not books - that with will the necessary. of forward. then after back year and three if that agreement on economics It's three then they with product negotiate settlement, it's hopefully years if

Our legal in kind template gives a to obviously industry. can we do of talked. others like also what expenses, just the us It we as with

would WatchGuard of basic the mind or that say for require in Axon now and have which premise we serve is come predominant but responding auto-activations auto-activation the bear numbers, ask the those will about I It is Now that of I a specific RFPs the as a is a auto-activation. we industry. patents that either to against both standard bids. don't have that out majority feature

the other in template detail, license. to So we not I we doing about that similar think with look that to use but approach settlement would industry would use at be, then and looked have them that do those in would those we WatchGuard the the at

able Axon. should here using the the We and exciting. patent monetize that's anyway template that to smaller So players other of be outside with the forward from one

this rulings situation them forward we're much the we with the is enhanced and market Now in that looking he our right area, judge's now. in of has obviously Axon believe to that now them leader front

turn I will detail about with our that I headed know probably want and back monetizing with to are guys you patents. more talk it settlement where we So Stan, the in to WatchGuard

Stanton Ross

you in million that Tom well, talking To what people the that I I the of talking It about how damages, to like, are am all the was are to in won. settlement. $X this that, lot was Axon big get yesterday $XXX others pay that a to in we looking that grow, been was here ones this and front And obviously, to that that as saying, talking litigation going got of we're And our before judge from we've interesting damages in calls amount WatchGuard about. regards million of you about, you Tom. we are excess the Thanks know that year, August last in continue thought those damages. Kansas. date them using And jury in of Yeah.

that we let Tom felt if there are any that one I involved the as to. go So, or of can valuations this these that all sort that we to hurt industry we after pursuant that way this would economics just said, form concerned. of the far us have will was we done template as at, many was talk players the regards would of in not shape And transaction, with know the have Axon's looking you

give they and the was met them the many out that what department to to and who these and was industry. little this you bidding how about out bit companies an on to are and yesterday just bid demands. can there talked mean with of meet I've So, RFPs deal there auto-activation with say a who that our could idea Company

XX are products additional so out there there. doing a They XX good are have their and that auto-activation, And - out in different companies to claim bids. there's that

to what need you're after concerns look, to if checklist obvious patents we and it's and reach enforce, we you So violating I to won't, say, come and of reservations out them. to our or want where or people have our able say, talk no be to

York, was came VIEVU. New called first sit VIEVU VIEVU that this had came One is of at the look are a to two us or is sign of we at it. of of So looking at fact, it parties sell body-camera in as and the looking just personnel a looked it Axon the patent there there a they and go our there. had from at the contract and our know, do But we you that along earlier ways. seen agreement company will and patent patent, said, the and it. to Again, had we'll your we fact agreement company the out bought them. is ones in We'd Miami, a distribution and all rather start that strong, that significance I agreement set the even risk with you think not they're a And out believe Matter you violating buy the want run and strength patent, the us you. product work licensing ahead Phoenix.

So number winning very and municipality very, some very very reputable; large there's very, successful a one, contracts.

and to particular feature let's work but our out It's player, any very doesn't equipment well to a us try WatchGuard, are design products current turn this and/or industry, enough that our do further. of well, this agreement respected good got recognize licensing you've not probably there. go that people, our going out just time again, to another out modify in need out give Now to they

especially I There will about people that be contacting. be the mean, deal WatchGuard's million they this to not table, want sure And, be seen, by. out coming companies I WatchGuard, going So for having there. will utilizing there, VIEVU out I'm jeopardize to they've with back. that that we sort Motorola's year capability LX Axon so some extending industry to auto-activation, visit But to have industry, week. that like the that are world. of if out them, does and/or are modification out And economics being is unsuccessful license these and we anything contacted start I'm able of to talk coming $X in are do immediately. that much interest. numerous X.X sure, not should Panasonic's is early together our to of there we template on, next will start And that And the after the then the they'll fly there, of larger the companies don't imagine we than meanwhile, all our the for with fee. what are we come would people the

very resolve we're we're that will about So good And being faith WatchGuard that and from excited this come in acknowledgement getting we're getting to resolution it matter. I recognizing that for recognition actually the in the did. applaud and we able to to the negotiating

placed about launch the the do very on we date this quarter the Tom So actually they've think and really-really of excited any potential orders beta good what already as and our second not several in the done. that in anticipate and do second Touching customers departments in product, And to that. we've late what we're EVO June XX. already say seeing we've But quarter. in been presentations significant we feedback is product, regards at impact I kind results seen after different of of good major new our have official and in products really launch doing it'll had because test have do I'll mentioned some

excited to the glad next a will that through and/or can't additional good be here licenses like revenues immediately we current as the for royalty revenues, see EVO about of and we So pursuing that launch level agreements the real wait month. we've gotten for product our through feel

ahead being So Q&A. I'll said and go for up the that floor with open any

Operator

Nathan [Operator the line first Capital. Instructions] question with from Your Aegis comes of Weinstein

Nathan Weinstein

How are doing? guys. Hi you

Stanton Ross

Good Nathan. morning. good Doing

Nathan Weinstein

Okay, great.

you to $X the So settlement said statement? million clear income just that run just about WatchGuard, just with questions and few would the one statement what here, through the be a firstly thinking income

Stanton Ross

settlement. gap Yeah. discussions SG&A I the come as it present as that how to exactly We're in our as in will and based in with credit of area litigation probably expense on through my auditors it. But a understand understanding on a

will $X a So it counter won't it million. of be but be expense revenue SG&A

pay the with is that the the $X,XXX,XXX on down quarter. to proceeds first for offset books Nathan the Now litigation of end though $X the agreement million That's roughly that the at will go BKI. the

on $X we'll occurring that million the things for more go and much in we more be and likely the like believes that dollars are going paying then that the evaluation will the against and in Axon and monetization. BKI dollars we'd of that So firm to settling unless that it's down others believe settlement, these industry me, assume more because and to that do pay settlement well

of is the have it effects what will the piece the on So unknown it evaluation obligation. of

Nathan Weinstein

Thanks Yeah. Okay. for explaining that.

I'm And want So litigation. actually you just get sure on want will questions to just actually to switch the product. I about gears. talk and more market

new on your to on typically the get guys XQ/XQ how are product? product bomb take at and do see as partners looking launch. goes then sales stocking kind like that you to an the was a firstly and EVO-HD it with of the up you channel does it channel new And speed out the So long initial to force like

Stanton Ross

laying we've I'm confident now. to ready for our ground EVO-HD up sales real the months the ground I and been team hit the running. So work is mean I for would several to that speed say

believe have upgrade pretty also a good that job be what to to not ready, about is our to the seen to that talk us to some some products. the past regards a is about, want of for like or have talk if you it's they the we other timeline indications, We we'd given at their to in certain if EVO in DVM-XXX of going already still where point the we they've are love we'd product, agencies done

hopefully said the you a delivery that some in that know runs see And EVO. impact So the production I quarter clearly again think into decent smooth, I what transition and very the smooth and quarter, should like the fourth is. schedule got third pretty we've know are I

Tom Heckman

XXXX when since with came Yeah. XXX XXX or we I HD or what to EVO-HD have I Nathan, is model. such we think new would module that as out a that as remember platform the introduced 'XX add really not

exciting for it. this was to advanced for customers exciting our to we platform us. it's and think going bring the features It our this salesmen. And it's that is for So exciting technology with holding new see is

Stanton Ross

Yeah.

I'll core had Washington the first which actually room them real show. our of they and State and public elaborate they its there thing we conducted in X were in it And either quickly vendors product put this. was they own their was guess different a I trade invited, small we again But actually the everybody Nathan on there's product It took On presentation EVO there. but that in. the And one or between Seattle, - basically had win. XX

could again I disruptive you our we yet actually to a the in who in and when cleared capabilities on out to, best tried this hear groundbreaking VuLink, This into what comes be commercial the industry. product the about good and to very hurdle it our understanding that a pride the new technologies, are I've were is what other with that on And going runs cameras. and auto-activation and So our see have, like saying get uniqueness to I've much clearly and devices. being system. unique has products innovative our seeing others with car body is of there. the ourselves think are EVO industry over But in always

would very, is the a and edge say unique or groundbreaking hit that's design to So market. I leading very it going

Nathan Weinstein

be to product reception for it folks a the this. have warm Thanks must Okay. beta nice like And explanation. a on

with watching - what you full the toward happens see to launch. be as we'll move So it

they're the potentially been services smart, watching products one to police switching to that guys for patent and your from have such infringing, that Have know in have they perhaps shown products greater interest shown going question volume have be which they more a what's any inbound call away that are for you Just patents? me. on. the departments We obviously

Stanton Ross

know And half So should and patent don't to They the don't that again, a infringe to the you on believe which patent, the going exist. Axon's invalidated read, can or were is they as and get times tried you unsuccessful. only because down. they it patents dozen swear more

been That judge have the they good regards got should it to they they've smarter issued and the that office have convince the say well. of beating with that office activation clearly patent about too mean them. is to a drinking WatchGuard patent being all to I but buying their have after in the made in for serving never rightful company. look still auto-activations. have cross that type point like competitor, And as you that a of patent, see they're years there, the respected, though their can't product bad owner that now industry WatchGuard's than even mean, attempts. may recognized Ally they now. they drums Digital that The been clearly, the respected they stands were said, and very really wake been these, a Kool about they was very line got going the so much they So Unfortunately, our very - fact that good Axon to I should and jury I and they're up Aid VIEVU

going seeing they ahead past and So you seeing to stronger that, the believing around. in go much that I Digital the said and auto-activation up bs this start throwing people start in you're Axon really do industry that surprised would is is or Ally than give that are and doesn't be a want less much have the look like we if wake

Nathan Weinstein

lot Thanks a guys.

Stanton Ross

Thank you.

Operator

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

Bryan Lubitz

guys. morning, Good

Stanton Ross

Good morning, Brian.

Bryan Lubitz

now, want cetera the or week and guys, companies just you in to mentioning to Couple gauge you to get advance terms of? you in of going knowing industry capitalize already settlement et different other Panasonic, XX guys of the be of by in you're guys I interest this something been industry Have WatchGuard right Motorola, now. up feel off this able to from with to the to is right away people things contacted

Stanton Ross

know level things. that the sick way had on it at you probably our get notice a Dyer from was Brian, - of conference. there. a we had guest they're cancel two the this, one I we couple was three that them Several last which speaker years they body I'm believe can what lot put And of ago, that notice tell as years them technology, of one, happened. we a Greg far there's on so about interest this. them they sure suppliers, violating conference not camera the already of a So in to But a the back And or was speakers month, up scenarios put

to Dyer Greg speakers as of up panel. get the asked there one the they So and

on we're about from little roads booth and to and, look, and stands Greg someone that's come presentation. little we And is watching think outcome there so They didn't back going what time, basically and and She he gave point She but lawsuit A in know Axon what real, let took to me, is to auto-activation I this have conference then up. the this all lawsuit, answered And about appropriate Greg's, audience just this he not for she person don't what got Panasonic you up girl a asked. I'll to against it. that's the see this what to point her sits all I down. talk. look, like they That is it was from our talk our asked because a elaborate high to said, all WatchGuard. if to address at the question. about, mean, be.

this many too this. not they're new a to of to I they that when - manufacturers lot So, going take call. know aware one. be that the news are them two on have of not And them is it been get already Two, not there notice, won't out suppliers don't put phone there's things, -

Bryan Lubitz

Alright.

over a $X market of bid or Panasonic, they has billion. there, billion; Motorola think these that, you and a Why of put Taser's product So market to Axon, out cap a you fray into $XX and it cetera? to under caps et for haven't that jumped got are if market will, the to really off is capital; both piggyback contracts

Stanton Ross

up you to white with it and judge a I perspective, is surfaced violating with black enough at mean, if out going you're WatchGuard, I play just and this coming out. this What's there look actually it are in at that's is has girl let's is damages. have a And happened. yet know not down and the and mean, said, typical, evidence hasn't be then to came play So Axon, the, you from to that regards happened looking against way. and it's that this is to going you say, to you're how the it well. patent litigation

you or into big, have big, agreement. pay they enter to do may Axon played That's to in may a on and let's licensing So end want to Taser, right and way. a big that's the and this go the ahead, whatever you thing how out. decided, They call. fight

I that others to You there you just Axon this don't at look risk responding. believe at But and know. there they're I'm and that is respond reward, and look out - are going be the don't like telling will

Bryan Lubitz

title, I just Can know other I other if one don't And thing, you Greg people his know say That's is. Well, who do. Dyer have. Okay. Stan, I please? all many

Stanton Ross

is I'm about Yeah, Law President Vice of Enforcement our that. division. sorry the Greg

Bryan Lubitz

All right.

that. Now things of in tie a couple to other with just

million lump and they payment private. licensing them, $X for as however, to settle agreement guys are sum you the a WatchGuard, So, your

using wouldn't of with terms face XX% really would you XX%. privy we numbers after Taser Taser, sign upon. to here, as are in with royalties, for Street well? against a the you they've agreement doing what infringed WatchGuard that retail When template. about won And aren't hurt deal we're what on they though in going of royalty say this We're talking So percentage guys keep even that a in attributing their sales as you off you

Stanton Ross

that subscription have blade the you a in difference hardware Without razor to regards designed not into companies fact actually the understand don't more the product. auto-activation have of have and of bit their in going the between their everything. a I type to they little WatchGuard the the that details, is company. They're into big mean, just They agreements there's package,

with So anticipate But if comfortable at, it's we looked different for have and X.X year we sold them, them to you able economics get figure at there. may were a the the look many selling, little $X million a and we're how we units how scenario contract. they many very

Bryan Lubitz

Are you their Okay. costs unit? to share able product what with - per actually

Stanton Ross

don't can … know. I They

Tom Heckman

Yeah…

Stanton Ross

costs, I I And of package. They've again, consider really you what a so throwing lot bunch a are stuffs, know the the of they like will us, Bryan. mean, hardware but don't that affect

Tom Heckman

Yeah. and this the three refile I or But will more workaround them. - is whatever. will in pull year can to don't And they off And for a product royalty negotiate a reiterate after Bryan, ever they the infringing years that we will logically a the if go then product new just the basically. three back or agreement we market have at we end of And agreement.

that for its a $X do If a you three-year contract. million year

Stanton Ross

we And just Yes, three this 'XX. having got they XXXX back this years. if way you this to one we will easy Taser - Brian, were get too till filed again, for design them. and I this, in it spike that's been well of we mean in over around challenged

filed on against filed and I I challenges we in we 'XX. in patent went think 'XX we them the once think authors, So

to it. done It's got not get be would even easily to it predicted people around there as do they sit have as able they was plenty time of to if to easy So may think.

Bryan Lubitz

sign with you. licensing With a got VIEVU said agreement guys that have being to you

that judge gotten have that plan already judge these WatchGuard summary being to agreements agreements Are to you this you hasn't is sure the something filed for sending I'm VIEVU, with but sending, something has a the yet? you. the You on sign agreement judgment plan WatchGuard licensing on he that

Stanton Ross

don't status what that. will know the I on be

completed, haven't XX:XX we deal next We WatchGuard steps. night. that really forward counsel it want would I We far to about talk was to papers had I and as been at it think our completed back going that say really, Monday the were honestly have a chance the with

so start our to getting And people, we Axon the do. of and there obviously a of that in know haven't judge are contacting sit lot regards talk we this again we in thoughts but counsel, had okay know time on their information front the don't what channel - to we

Bryan Lubitz

are or And of access you is deal patents they the speculated to competitor in buy past in worried Axon or your everyone just WatchGuard they by buy again a what your them out right. said VIEVU, they on bought WatchGuard is that Okay. to have Are would trying can't that, your because you use provision worried you do another Axon has whether to get product? then that acquired if you

Stanton Ross

can tell we to is you our with discontinue able I VIEVU Axon relationship VIEVU. were when that All bought

Bryan Lubitz

Okay.

my thinking us. attack to again that is try workaround they So you that anyway when would cut hands

workaround it's You and years is to yet. three said no been one a been get able

other but realistically the looking what future. This expect with you're alright, board to deal in of you across as sign the So, competitors at guys kind is this a template.

Stanton Ross

Yeah.

are be play Something along that realize in - have again going been I of plug still out to those for and sell type mean numbers. damages violated. after is those going that just as we there they

role to we then license there damages ongoing an be you can had it. to So will and call whatever

that very will the after to upsetting regards continue we players our that right million go Axon. industry and to away so have support against these we the plus And be we in touch economics $XXX ability identified will with diligent to not in getting

Bryan Lubitz

to a you And guys. Thank very profit, and much pretty strip SG&A Okay. Well the I if the And guys that's you're close have, congrats you on quarter going out the correct? all breaking margins up. much. I guess

Stanton Ross

Yes, Bryan. to going new is trends in great the on absolutely. side product impact The a service EVO we see are big think trends I revenue And some side, and have big, the outstanding. the

We happy. going I on extend the have got think service the lot on everybody the revenues commercial a make of will trend that will side that things

Bryan Lubitz

you congrats thank guys and again Well, Super. the quarter. on

Stanton Ross

Bryan. Thanks,

Operator

line from Donald private comes question [ph], next Your investor. of the D'filipo

Unidentified Analyst

Hello Ross. Mr.

know me conversations. previous You from

Stanton Ross

doing How today? you are

Unidentified Analyst

for number Axon it we're $XXX is front, conference that extent, XXXX X, April On but large is there call out but after to as looking and very right. there number. at well, have saying All as quoted not a WatchGuard the in we're that on million nothing big you going

of own a a are disappointed. little many for Digital quite who Ally Now while us bit

to the expected roughly Now that going into suggest awarded million a million be facial recognition or to on that approximately we was Digital settlement $XX that feature would built in $XX our engineers one-tenth a of your to With the cameras statements work assigned development settlement million I of Ally light to $XX feel database the award. any This court Axon a from due others it would or criminal to danger royalty depending alert of also police alert each of would the include be and feature. police It local, be any the Department requires jurisdiction. Homeland officer national auto-activation Security. state other the license, on and worth could database or payment possible

our Now fees? so, once granted have if has pay been court license, to much? this did And they legal how

Stanton Ross

play. Yeah. When fees you come litigation, involved legal in don't into patent the

office, with your far path. address that to as product But we're And beyond many you're in they the seeing cell hands-free recognition versus company. our far may connected recognition a they as EVO clearly talking wives probably artificial words other in that a intelligence not their be behind that it it's the have their it headed but when as safety by someone they're even artificial going clearly division it's face out platform such features of required that's belt, see they facial wearing and other that phone seeing new if that facial the the has, phone and the more that and to isn't maybe capable going have and that you're what one. where technology referring them there, on as the again that's unconnected, the processing other could power So commercial that to to

artificial web We're far into a have. So very of service utilize coming other active lot industry. regards at there's search active in Amazon's allow as also very cloud We're they that storage the would in features looking engines that us our to management, that's that. and to intelligence ways,

you our people. think $X X.X a years. side, you're a still this discuss to. want deal patents another of right, one years, for And million I we're to - lot that the did capital good if Again it. And we've technology So of have throwing again it's for are we I the think got kind I elaborating even at to are another XX

So for industry the come hope and to we monetize this to in all us is patent time value really very strong some for able to be that.

So thanks for your question appreciate it.

Operator

line Culbury question the next comes [ph], from investor. Mark The of

Unidentified Analyst

as and well. was Tom. last call Stan the Thanks conference there, Hi on I my time taking call, call. for

First a questions. - have of couple I

the alternatives WatchGuard mentioned being settlement to press that the with The first release one had you'd please Board you has initiated. elaborate that like on elaborate please? strategic the Can your that in on recently on you

Stanton Ross

Say sure. that will one more, make we

Unidentified Analyst

Yeah.

on like your in we've strategic that with in the press WatchGaurd that strategic Board you'd release the elaborate previous the You settlement recently? been We the all mentioned that on initiated conversations know has to from alternatives alternatives the initiatives… having that

Stanton Ross

Yeah, it. yeah, okay. our got strategic - I

people have we levels So, think of calls, they how still a both the actively latest, want still and say, these of WatchGuard, I cases of to sort shown play what to of outcome see have in been lot Axon that been have them out. the building I what wanting interest. And

more behalf If of of prepared monetizing and shareholders we're continued to there. the So someone, receptive, think forward, and to obviously, still listen. kicking opportunities. us our still strategic IP portfolio gives still entertaining the needs products. calls. We're different new call fielding our be focus I We're still of development we're than pushing a it's But also tires, on our

Unidentified Analyst

Okay.

Because go a been and or might year. been So they that at the all WatchGuard And there reverse settlement out a out guys and have you second public this IPO thought that to negotiation put then about buy this become become about been would brought with out where trying know WatchGuard public? Has settlement. thanks. and during looking we question have regarding the company WatchGuard ever earlier is, they

Stanton Ross

through for would best thought what be that and parties were both think all out reversal I there explored we options process, them.

So, I But, particular don't thinking explore were direction want going. to all get we into we any of about didn't the any did details options. - we that of

Unidentified Analyst

Okay. about the with that gone that seem that on XX-Q they filing. Digital most had case more Last not fought a confident one call currently conference they Axon's related into obviously bit to being any in to infringed detail patent be Ally, is recent be, earnings where They would have call little the [ph].

Now actually in the the that stance history the timelines around, apparently stance a that they fact were decided had is context said comply and and previously with and Axon's turn degree of WatchGuard guys. their XXX what Axon's would done that with settle have is they what with and to what you

to and sending So follow eventually, should but how they that they're will Axon, timelines. WatchGuard all saying I the fact to that given time out this whereas were ahead Axon's definitely decided does previously they an play tell, be alarm going go mean, obviously settle to has

Stanton Ross

agreement our you. therefore, with I that than mean, the the I know entered don't Again, to with not into agree how it's patents, violating - that risk an did I obviously answer other I it. run want don't agree with they I of you. understand to company us. acquired,

another very entered a respected licensing and company industry now has So have that in agreement. our into you

a having sure they be these you. a this discussions for people agree smart did well. the group, then And VIEVU licensing So with they've I'm but at that WatchGuard in mean, I them both as WatchGuard. they and competitor will internally I'm with too. I and companies, call the sure lot And are to and I said, of was respect have - obviously go right be on And agreement way these I got as our should that think industry. they're like - I their

Unidentified Analyst

or is like Alright. is. compared the to large is Motorola, analysts Ally's what And earlier, one either caps market matter Panasonic Axon think extremely I saying of was of Digital the for that

had in you way, is there with? buy so trying none so deal guys approached litigation you would guys they think that out to patent of they this that just to And I have

Stanton Ross

still I is they further knows occurred. road mean, Axon take. don't once kind obviously think this the to just what like And I they possibly. mean, just who down And may of the you know little a what want I see others, would they before said, stance - then - then

the surrounding our very will possibly So an obviously may technology well. be that look okay, they fact at saying, to now the entered a as into us take there's a that hard others second with agreement endorsement - again

Unidentified Analyst

last So question.

it's the haven't kind do it's Ally or from no still actually to able a should them be now a the be any royalties where the a concept to technology Digital an right? and be other whole that there I inseparable auto-activation auto-activation, this capability? most circumvention so the would the technology auto-activation? it give itself can patents you not why that's be actually pay as still done, of easy yet. have auto-activation right? mentioned So of departments requirement think this for, that is this of I were would if if Or get other police that But presented cannot to know And has that it they are guys and been brainer, infringements there requiring. able you've that But companies

Stanton Ross

the come well, mean, call I my just have and with, units real I off. hope running it true granted feature. time, don't I still does that - your it a I titles still - workarounds, you a but wildest but you life, answer. to good the alone I XXxX. the the them give mean all I let want time, that's on your it don't up fit unit things in life - of the know mean other them can do on turned All equipment battery turn not guess auto-activation all all I imagination better,

would that has just I else across that them know, anyone don't ran about anything I give So these features. similar

Unidentified Analyst

Okay.

or guys you for are up sale Lastly, not?

Stanton Ross

so guess we're We're I publicly always up held, for sale.

Unidentified Analyst

All right. Okay. again. Thanks

Stanton Ross

Thank you.

Operator

R Jerry Faulkner & comes with Your line Faulkner J next from the of Company. question

Jerry Faulkner

Thanks Stan.

Stanton Ross

Hey, Jerry.

Jerry Faulkner

you Can me okay? hear

Stanton Ross

you. Yes, we got

Jerry Faulkner

loaned the on ago be to for XXX% time the you some to available your money guess going that you that's it, pay question or to of I million mean, are that going for company on I are share Tom lawsuits? that payment paying? operations your some you, you're this Tom. to for it - those going $X for have they're is Question Okay. funds upfront - royalty with

Tom Heckman

generated Yes. do agreement The to go the down Very you suit settlements and by and what their to that Yeah. have question. are and royalties first. good is patents pay obligation that BKI

was end March the the XXst So of million. $X.XXX at obligation

$X So obviously, will BKI. million that to be be going

Jerry Faulkner

Okay, okay.

So I think quarter of in million would probably balance, suggest, your the some that sort months? looking we're capital the below raise the was could end at given at we cash that $X next guess few that a - first of I

Tom Heckman

lot surrounding Yeah. bulk Jerry, the this of has a again, been of burn the we - litigation.

WatchGuard. be the And it's much the - now to in - of things need have court to so where well. accomplished to witnesses, the Axon ready all the do go us completed we're we've regards majority to expert and all necessary - been with what pretty discovery And will we obviously at as we for get to

positive. right dramatically. Meanwhile, Bryan there that So earlier, mean, if out we to the as We're dropping equation. sit close numbers sort I you look those there see said at cash getting and flow of

So…

Stanton Ross

Yeah.

Jerry Faulkner

Yes.

appreciate that I on Well, development. Okay. it. Congratulations

Stanton Ross

Jerry. Thanks

Operator

from question Aderck the of Patrick next line Your comes stockholder. [ph],

Unidentified Analyst

morning. Good doing? How you

Stanton Ross

Good morning.

Unidentified Analyst

settlement spent on litigation How you Question million be will WatchGuard, much an do of on up idea this, WatchGuard? is made? that think also litigation with again the three And in a there. are years you costs do to have I going with the was incur litigation just after or $X.XX automatically the expenses have you

Stanton Ross

couple cannot in that that do they out was was in in cases if X.X don't and our out firm believe patents. it's way around infringing change release a detail utilize doing on to have on, something modify press WatchGuard, we we to I towards moving to how handles what be on both both products, front their basically and Axon. to figure it or And We stated, then, but it, they we that a forward towards implement take they the much us continue know law spent would much like things. have that - much it So utilize the spent how either of years

continue them it into what have willful, the would it be it, have clearly The the would open be understanding to to an about violating they to years. they again, know they did to go because this so. the be try would and So do was with of wide And past clearly if license the door the to shown would back if were that we so significance the courtroom continue patents, utilize, X.X triple damages it. they

and the agreement quite timeline. industry don't know a the that, an to would pipeline enough in agreement, I I licensing take. know a but it's don't risk So They've And, on products in far of nine overnight established that next we've already design year in as our like stuff a that that you hiccups. pipeline that for components don't been already few they this, there, that; approached I've work doesn't product to the six have and is a that also know

that So that's it's a more out of you can before have product really a launch. year you months there solid XX to

being rather on started do able today years if get a by X.X work they to So the even quickly, will around. go

Unidentified Analyst

guilt I admit see, of infringement. did any since but they not

that go have litigation again future? costs all the again over through the that and in So we to start means

Stanton Ross

have at violating happy any then the And, guess, any I'm But with just with start and enter would sit You we didn't all over, not say, And to I guilt. and this ahead guilt. if wouldn't here are they very anyways, And route. have not I but all point, into well, admitting we're right, agreement. it, they why a to go that licensing contract admit just fine him. and decided to we they went you're

Operator

the of comes question Your [ph] Caliber Sam from next Management. Schwartz line from

Unidentified Analyst

Hi. Good morning.

Stanton Ross

Sam. Good morning,

Unidentified Analyst

listened Hi. pull pleased couple financial overall and In personnel wondering, case. on appeals this settlement. Axon's your made you really having they part, many a I successful their talked to through and spite and of say. I'm analysts, am should I of defenses, the the

stories, and/or least occurred not wondering for EVO, out the Motorola's detail maybe media pursue story, and now that have said, Axon's get a significant to or financial is this you settlement are based the contacted maybe in then that like a reached a prospects of better at what looking analysts Barron's you Axon's meaningful of has or a have to if you, I'm kinds some damages explain you to So these going investigatory that and of who even some here, formulation sort potential to attention, and/or result. always will for significant on Why but to reached professionally settlement. out the

Tom Heckman

prepared to said industry bit then we calls So sure of get I what absolutely idea part we clearly the presenting comments. do intend at our of But much trying We of had plan just everything today of and up the of we first have make more better that. and for to and give those here it is everything I here appreciate Monday for night be our you it. coming like Micro aware you make the publicity we we will on financial a do sort story, can to got and And tell for then And an of the of LD we quarterly finalized to course like everything said little trying timeline community a at exploring occurred. June. us. aware out of can And all XX:XX

Stanton Ross

much used to that they I there litigation stay on their battle every litigation electrical weary, just on read would day, weapons XX-Ks section and are these is conducting so numbers. pretty they big in add Taser/Axon Qs. of their face

like are the they to or would. used good and they this So bad they are playing game

always and sure as always I've that the patent at suits stuff. that get certain that insurance in that it thing electrical there conducted these this They've their think them. what of successful the a kind the on a But faced been a infringed that made a they different for on they on through most those. same world weapons. suits in is involved against them. XX% the that plaintiff company part, degree a and Taser and that someway analysts is I'm all do I somehow like Look against animal side them for enforced other they of all to kind seen

analysts an the following investor the similar other litigation. people So from that and shoe this on think are to of standpoint. putting it's them not foot type is used I are so they this for their And

Unidentified Analyst

if suggests and reach strongly Goliath will story to write New out is news. won't audience willing find to you a an fake David York the still Times, do that you I so this be

Stanton Ross

will assure be it appreciate media. you the out and to I reaching I

Unidentified Analyst

if the analysts It settling needs at that balance greatly. says story put meaning for and you to initiative. offer this position behind you about even catches you this what's you an that their have you of look sheet and how and just big have not they take corporate And and all this to will are and/or and make can't said work. and your one reaches companies be guys refuse, out on, this why move than that's But let's - strengthen alright,

Now know as exhausting long, it's a that litigation experience tiring, this, have all I been painful, you is.

Stanton Ross

hear loud we you and clear. absolutely, We

Unidentified Analyst

got. Okay. That's I all

Stanton Ross

Thank you so much.

Unidentified Analyst

it with soon. Okay. Hope it. about Good read luck we

Stanton Ross

Okay.

Operator

comes line question of Your next from Goldberg Goldberg with Partners. the Will

Will Goldberg

Thanks call. guys. my taking for Hi, hear you Can me?

Stanton Ross

Will. you, We got

Will Goldberg

[indiscernible], asked these Okay. someone Two questions so questions apologies here. if my already. My

in get cut color they the that there what filed for provide they was clear seem able is they day miscommunication, weren't issue, WatchGuard The of the settling conversations. some a happening it guys when to there earlier first your is with week exactly some have pretty you million, touch this in lawyers, at to end was extension, there was were $X those

Stanton Ross

there. So thinking we know our talking were attorneys, I the to all City were and even folks what were don't in Kansas

don't were just done. we so started flying really and I know that that. that input - any have around on I late the I documents night So later

Will Goldberg

nothing Sunday agreement now changed Sunday, before But the or and say correct? fundamentally settlement between fundamental after I guess

Stanton Ross

we Correct. things only here's not go, in bit permanent release at we're Yeah. press and bullet get the the of I make and I where quotes the just each look anything, just us and other's it at said you and arguing mean black it there that little was one and the there say a points that. - white; look neither about leave one of last didn't

details we that, mean had basically was it so I say quite the there terms just that's was. had real would a - were So I it for the where development sort while. of we've changed deal

Will Goldberg

you. Thank Okay.

think found very you did had point Stan, WatchGaurd The second WatchGuard, call in conference it the number mentioned number optimistic you at for I last you the about and the question but call speaking was something said is, we give a you Axon after significant. one

since revenue seeking guys decided have were private for number. to something I'm assuming would But than the quickly want to you signaling set what maybe the call I I'm you would had that's guys are have to that would trial, that But we their ahead, gone at said moving months been exactly certainly So is things don't gone correct, you conclusion more you company, stream they way is. get understand exactly why so for you expect you in you looking of to know next that. certainly all, last can had rather a maybe that six off for what

$X to in million funds. should you're it the it's actually So way that going getting any it's of not meantime sounds the BKI, usable like and

the just the taking the court? was are right fact greatness to products what exactly So insight the now that of cut off us

Stanton Ross

Yeah.

back someone the table obviously negotiations, little again fact in technology least, about or alleged a someone got the to couple is the we've years walk until to life away here to it. it. continue again XX again years our situation a is of utilizing things understanding I'm that cut, says patent got have our clear these a of our infringed. A no belief deadline opinion we infringed, think in which is our I a of judge that like meet in X.X be everything I at cut clear of that at So anyways us has and think to it they longer we've But going

in believe that supported that is that Two, the of bogey against which one. that's we position and this plus the $XXX we we're have So economics fill Axon chasing. million

that it again - because - it it yet. had would a our technology what continued lot one put sides is to face. have our our and way going get competitors and a problem regards situation out things, two believe us would think been of have would have gave we probably in each think set we - I'm lot up to towards where been in as to using valuations So much utilizing into to to clearly this establishing the I the our confident regards had say tape down industry angrier sort other be the have tremendous would both fact and completed we the you back a to would longer Axon. go both because would ended of don't But that discovery pretty at supporting in continuing paints of of if the just information parties expense this I the not all and been you yet that and have path that

Will Goldberg

know that Okay. the now. settlement done I is

I given follow been in also come million up or I given get the just on what of discount more company there money [indiscernible] fact down degree companies. terms the one discount to that So point other just - can not was and sort per guess willing have trying of a rate to other that that their give $X.X meaning am I royalty whether were the get any you you to a them year. sense in that guess that a remind to as the is bank guys of or

just trying a get So sense of…. to I'm

Stanton Ross

can gave for they them which they feel But believe good it, be. sides, deal from anything that to - attorneys a the eyes in us abilities But Yeah. very very for their read everything was they've and to us on papers, hard of see very see, mean confident was fair City high really it's only. have very, good That had know everything of and it's way profile patent I and supposed obviously, that indication both and when interrupt. going me to this don't our I that to Axon. in regards else. had. A that that is and wins the if haven't Kansas is a in the deal. their nobody to do comment to this about to access And some lot they've you'll because mean, hurt I had a doesn't competence we And numbers all is lot it this we're attorneys' you

to we even would to discovery enough was on even you I was that. I could elaborate weren't if So, just where I into know, have able really allowed, if I be

Will Goldberg

assuming and go guys question BKI, go against final and what The to successful Okay. is money you. would are court Thank Axon. that is does litigation your change, that - to you

you're that of So greatest does that money you paying, that mean wins the the plus amount get is or to $X million you that what's million from that you a that of set $X go the the mentioned percentage litigation you're done. million? that $X regardless And whatever

Stanton Ross

capped we so yeah, we with I flat do a cap. BKI, a did So it. we didn't mean, percentage

overall the down it's and the already million towards go paid would number's actually, number this greater, it's on will so so a therefore, And not basis. it, $X of have if percentage we

Will Goldberg

great. Okay,

on the for Yeah. Okay. congratulations Thanks and time settlement.

Stanton Ross

you much. very Thank

Operator

And line the next [ph], James McGuire question of investor. comes your from

Unidentified Analyst

Hi, can you hear me?

Stanton Ross

We James. got you

Unidentified Analyst

Great. Thank you. are Axon pointed started get going WatchGuard? date quick, the you're with auto-activation what after questions, Real exploration and we've one that or presumably that the year,

Tom Heckman

Yeah.

patents those think almost years. XX run I

of we I So, the exact still me. good think would over behind years, a XX years well in I I have date But there's don't front probably good believe. them. got XX know, you

Unidentified Analyst

Thank That's fair. you. Great.

number confirm that, Can a you around that's of discuss. is Second license heard agreement. something question, can't I've or you royalty XX% thrown

Tom Heckman

is the thrown referring XX% Axon the agreement. that everyone's that And number that's the now… So out to in there

Unidentified Analyst

WatchGuard? that necessarily not to Is

Tom Heckman

percentage about a or royalties anything no those as have that along there's numbers WatchGuard, talked or been far on lines.

Stanton Ross

court there's little bit. agreement the clarify Axon If impact Let filed this, that no a damages. was with the terms me with determining in financial was of that

we agreement have the financial would at But be damages we that's Axon, the it. if be. be we with we our believe expert So believe had to no where to damages talking about

Tom Heckman

of roughly as of $XXX with in an we're, travel came of the million the that's are royalty ongoing the XX%. August at damages because And at Yeah, damages.

Unidentified Analyst

Axon that concept royalty, discussed role to But the that a guess So guess I so on confidentiality reasons. I of then, can in question the which WatchGuard percentage play leads a be follow up which is cannot one.

So and let's say, liability. XX% say it's or less the XX% whatever, their if modified well, to then can hey, WatchGuard Axon future than

precedence. So on based

Stanton Ross

Yeah.

regards well, and maybe the wondered does you that of have I the with very only So, knowledge can in able - as us. I were attorneys' privy it good get felt number asked pleased is it the We they didn't that's do so but have had impact for Tom, to in that I about this couldn't lot an talked back I to about that to our mean, you. envelope All not again, counsel only of that stuff was on about felt an it is just I'm if attorneys' see. we're access I very or same the - eyes to We something again a that on tell become very that or eyes it. just think page didn't even courtroom, -

Unidentified Analyst

with I it. line upon, there I'm for as a of the the question litigation Axon you a of the of develops? was you went just then credit, Tom, I'm - BKI any fulfill well concerned obligation onetime more million was wait kind the that position hope is loan cash like burn out bankrupt. kind and - rate and a think the guys Got revolving $X - being And my that sent agreement. to that last to or Is was

cash million And everyone done on so your you've really that really to because when of excited don't there's you a infuse BKI lot you something homework. got else $XX put with

there's it Do additional have this like now seems already it? over more million, go than longer get ability than financing, seems expected? $XX to expected, which litigation always it go you $X so And for. to you that to million spoken longer presumably should any need Should

Tom Heckman

to have mostly. litigation Yeah. additional obviously financing they very the make to look we us come occurred, you but sure this I'll with to before is if pleased wanted and for BKI us. ability did even tell And,

Stanton Ross

So I think we've got comment - I've earlier. made

there, purposes. a we that I for additional to would banker to So see think our we for capital them need go wouldn't if we've got friendly litigation

Unidentified Analyst

saying you're you saying what with of feel Axon, if I another pushed as not? you refusals, more or just lot a we need year to going course would hopefully say to comfortable let's them money, need because back to like have gets So this are

Stanton Ross

Yeah.

it's deal. just of look, type more participate I to a think have first a they of right

Unidentified Analyst

you. I right. all That's have. All Thank

Stanton Ross

Thank you.

Operator

questions queue. further in no are There the

Stanton Ross

results, And for And settlement all be in Fantastic. we pleased forward with couldn't joining not remainder I'm us more Thanks, talking to sooner. we'll if year. now. outcome the the days, And about you everybody, quarterly to today. here with sure WatchGuard. XXXX XX for the exciting be look us the Thank again, we an

Operator

Thank participating. you for

now You disconnect may

Digital Ally (DGLY) 15 May 192019 Q1 Earnings call transcript