Digital Ally, Inc.

Good morning, ladies and gentlemen, and welcome to the Digital Allies First Quarter Earnings and Corporate Update Conference Call. At this time, all lines are in listen-only mode. If at any time during this call you require immediate assistance, please press star zero for the operator. Note that this call is being recorded on Wednesday, May 28, 2025. 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. We may use words and other expressions that are predictions of or indicate future events and trends and that do not relate to historical matters. Rather, they represent forward-looking statements. These forward-looking statements are based largely on our expectations or forecasts 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 expressed in this conference call, and readers are cautioned not to place undue reliance on such forward-looking statements. We generally do not publicly update or revise any forward-looking statements expressed in this conference call, whether as a result of new information, future events, or otherwise. There can be no assurance that forward-looking statements contained in this document will, in fact, transpire or prove to be accurate. I would now like to turn the conference over to Mr. Stan Roth, CEO. Please go ahead.

Thank you. Thanks, everybody, for joining us today. I also have Tom Hickman, the company's CFO, with me today. Tom shortly will go over a little bit of the recap of first quarter numbers that we put out last week, but thought it was going to be a great time for, finally, for us all to get on a call. It's been some time since we've been able to. You know, the last couple of years have been a little bit of a challenge, would be an understatement to what Digital Ally has been through. But I think with the moves that have been made over the last six months, the numbers reflected, and we're getting into a scenario where probably we've done a lot of A lot of the things that were attempted and were unsuccessful in the past behind us, and we can look forward to the things that we have set out to achieve and rebuild, you know, the company to its more of its glory days, not only with, you know, the video solutions sector of our company, but the customer entertainment side as well. I know we do still have on the books a medical billing entity, which I think has been in print that, you know, we have had discussions about allowing it to be sold off. So, that's still a possibility that we will entertain conversations on. So, you're really focused on, you know, the core businesses and not have as many of the other issues that we've had out there. Anyways, we're really appreciative of everyone getting on here. We have quite a large audience today, which is really good, and we'll try to address all open items and give you a real quick picture of where we believe we're able to be heading and the accomplishments we should be setting our goals for for 25 and beyond. So, that being said, I'll turn it over to Tom. Thank you, Stan, and good morning, everybody. I appreciate you joining us today. We did file our Form 10-Q for the first quarter on May 20th, and I really encourage everyone to take a good look at that. Many, many things changed, and gladly for the better. And I'm going to hit the highlights in this presentation, but if you really want to see everything and go through the details, obviously, the 10-Q is the place to do that. right off the bat i'd like to acknowledge that we've received many calls and emails from uh interested investors uh in the last several weeks and and unfortunately we just uh uh we cannot answer all those and particularly the ones that are requesting not public material not public information and we just cannot piecemeal information like that out to individual shareholders without holding a public forum like today. So we'll be talking about a lot of these information requests that have been coming in on shares and reverses and all that stuff. We'll talk through that today in a public forum. As I look at the first quarter, it really looks to me like it was a watershed quarter for us. We're moving on from the SPAC days, which consumed it for about the last two years and really got us unfocused on the legacy business. The SPAC deal died in the third quarter last year in 2024, and the first quarter is the first quarter we really got a chance to focus back on the legacy business and really, really make some improvements and changes. I think the first quarter, too, really shows the progress we've made in that regard. So anyway, what I'm going to do on the P&L, I'm going to compare year-over-year numbers. First quarter of 2025 ended March 31st versus the first quarter of 24 ended March 31st, 2024. At the top, the year-over-year revenues were down a little over a million bucks to 19%. But here's really the story on that. If you look at the video product sales, It was down significantly year over year, but at the same time, our backlog was over $2 million, our fund backlog. We had to get our supply chain back in order to give us product to be able to fulfill backlog. So, there's $2 million of backlog that we're going to be able to work off in the second, third, and probably even the fourth quarter of this year. That would have really changed the complexion of the revenue figure. So, the video product sales was down. The service was up. So, it was a big trend from that standpoint. If you look at the entertainment segment, we focused Ticket Smarter, our ticketing solution business, to shed some of the uneconomical that he got involved in. So, we really paired the non-growth margin providing, generating businesses, sponsorships out of ticket smarter. So, the revenues were down, but the profits were up. And then, obviously, Custom 440, which is our event production group in the entertainment segment, has not had any 2025 events yet. And the first one coming, the Country Stampede, which I'm sure Stan will talk more about, So, the second quarter is going to be impacted heavily by the first custom 440 event called the Country Stampede. So, we think the second quarter revenue figures will turn around immensely and show a very good comparative year-over-year number and increase. Even though we dropped 19% of revenue, our gross margin dollars improved by 78,000 to 5%. So, you can tell that, you know, the refocusing of the ticket-sponsored business into economical and efficient sponsorships, as well as tearing down some of the P&L or some of the video segments overhead that hits us in cost of goods sold has come back. The overall gross margin percentage improved 36% versus 28% last year. So, we're going in the right direction on the gross margin dollars. If you look at the SG&A expenses, you'll notice that there was a very large decline across the board in all areas and all segments. In sheer dollar value, last year's SG&A was a total of $3.6 million. This year, it was less than a million dollars. So, you know, that's a $2.6 million pickup or 72% improvement in our SG&A dollars. You know, we focused on pretty much everything in the SG&A line items. We reduced headcount across the board. We improved our facilities expense. We sold our building and moved into smaller quarters. And then just our general overhead items, we really improved the efficiency of those. We believe that year over year we cut out almost $7 million in SG&A costs. That's on an annualized basis. So you look at it, I mean, $7 million out of the SG&A line-up is pretty impressive, and we're very happy with that. We believe we've been very successful in reducing our SG&A overhead. As a result of the increase, as well as the gross margin, our operating loss improved to almost $1 million from the $3.6 million in the prior year. That's a 73% improvement year over year, so obviously we're seeing some good results from that standpoint. If you walk down to the non-operating items, really the factors that hit us there, or not hit us, but provided, non-offering income was influenced by the liquidity that came in on our $14 million public offering that we closed in February of 2025. As a result of that, we had funds and the liquidity to make offers and to extinguish debt or gain from extinguishing debt was $1,250,000 during the first quarter of 2025. The gain on the extinguishment of liability that counts payable accrued expenses, what have you, was 2.2 million in the first quarter. And then our warrant derivative value gain was 2.5 million. And that's the change in the value of the warrant derivative liability, which is kind of a fictional accounting number, but it really recognizes the solution from the offering that occurred. So from a net income standpoint, we had net income of $4.2 million in the first quarter of 25, or $1.41 per share. For instance, a $3.9 million loss in 2024 out of our $27.48 share. So we had a turnaround of $8 million plus in the net income line. So we're very happy with that. Really, as I said before, I think it was a watershed moment in the first quarter, and hopefully we can build on those results for the rest of the year. I know Stan will be talking about some of the initiatives and the focus we're planning on for operations in the remainder of 2025. If you turn over to the balance sheet, our balance sheet really reflects the liquidity injection we got from the $14 million offering that closed in February of 2025. As we sit now at March 31st, we have $3.8 million of cash on the balance sheet versus $400,000 at the end of the year. I'm comparing the March 31st, 2025 balance sheet to the December 31st, 2024 balance sheet. So just in one quarter's time, three months' time, we went from $400,000 of cash to $3.4 million of cash. on the balance sheet. Our working capital is now positive at $3.4 million versus a deficit of $19.4 million at the end of the year at 24. That's an improvement of almost $23 million, so very much a turnaround in terms of the complexion of our balance sheet. Our liquidity now is probably better than it has been for several years, and we're looking to build on that strength. If you look at our accounts payable, we paid off $6.7 million of accounts payable during the quarter. We're now down to $4.8 million of accounts payable. Our overall debt level is down over $5.1 million to $2.7 million at March 31st. So, obviously, we really – we used the offering dollars to come in and fix our – really is resulting in a good working capital position. Our equity is now $11.6 million positive versus $9 million negative at the end of 2024. That's an improvement of over $20 million. Now, remember, we only received $14 million in the offering, so there was another $6 million of improvement in the equity based on our operations from it. With the influx, the liquidity over our balance sheet is now very strong. We believe it gives us a good financial backing to implement our operating plans for the rest of 2025 and beyond, and we really needed to get that done, and we were able to accomplish that in the first quarter. There's a couple of other items of interest that I want to go over in more detail. from emails and telephone calls and such. We've made a lot of progress with the NASDAQ. The NASDAQ issued a non-compliance notice to us several of them during the quarter, and we met with them in April of 2025 and discussed our plans to regain compliance, and they agreed to give us that time. The items of non-compliance were that we had a late filing of our Form 10-K from the year end, as well as our 930-10-Q. Both of those were filed, and now we're in compliance on there. We had a two point, we were below the $2.5 million equity threshold required for continued listing on the NASDAQ. We're obviously much better than that now. We're almost at 12 million of positive equity, so we're certainly in compliance with that. The last item is the item that we're still working on. It's the $1 minimum bid price, which we have to show for 10 consecutive days, 10 consecutive business days. So, we've now done that with the reverses that we administered in the last several weeks. We're trading around $4.50 now, so we believe that that, That non-compliance issue is also going to be taken care of, but we're into that 10-day period, so we've got to wait another seven or eight days, trading days, to show compliance to the MAS Act, and hopefully we can get clearance from them that we now are in compliance and will be continued with the listing on the MAS Act change. Here's the split numbers that a lot of people have asked about. We affected two splits. One on May 7th was one share for every 20 outstanding. Then on May 23rd, we issued a second reverse for one for 100 shares. So it was very painful. Obviously, we understand and we recognize that it was necessary in order to regain compliance with the $1 bid price. That was NASDAQ. Had we not done that, we probably would not meet that requirement and be delisted in the model exchange. So, it was to avoid a very bad outcome from that standpoint. As we said today, our total common share outstanding is 1,668,735 shares. Again, 1,668,735 shares. So, if you do the math, our market capitalization is a little north of $7 million as we say today. So, obviously, you know, we wish we didn't have to do the reverse split, but it was the only responsible thing to do in order to get back into compliance with the NASDAQ. So, again, I appreciate everyone's patience during the quarter and waiting until the public disclosures be made today. And with that, I'll send it back to Stan.

Yeah.

Thanks, Tom. Yeah, you know, obviously, you've seen some pretty dramatic changes that have been made and the effect that's had on, you know, not only the balance sheet, but the income statement. So, we're real pleased with that, but also very excited about what we've got ahead of us because, as Tom mentioned, you know, we had almost $3.2 million in back orders, and when we did the raise, we were able to start the, getting the components in and fulfill those orders. We still have some, correct me if I'm wrong, but in excess of the 10 million in deferred revenues. And so, that's still out there, which is, you know, the subscription models. That's still very, very, you know, attractive and growing. So, we're happy about that. We continue to look at and explore some of the new products and patents that we have. in our portfolio, and those products will be being announced over the, you know, coming quarters as well. And from what we can see, from what the market is requesting, they will be very, very well received, not only in the, what's called the law enforcement side of things, but also in the commercial markets. So, the ecosystem side is really, starting to be able to get a lot of momentum behind it again. And we have a lot of great hopes for it in moving forward. In regards to the entertainment side, we're also very excited because we now have a real clear path on how to go ahead and develop customer entertainment on the side of this. And just to give you an example on how some of this works, for instance, I'll focus on Country Stampede because it This is an event that's held annually. This is its 29th year, and over the last, let's say, six years, they have not been able and not been in the position where at the event, they were able to announce the following year's headliners. That's a big, big step. I mean, they went through two different moves from Manhattan, Kansas, to Topeka, Kansas, and the Farmer Springs, Kansas. And that, along with some other issues, they just never had it laid out to where you could take advantage of it like they were in the past when they were in Manhattan. I'm very pleased to announce that going into this year's 2025 company stampede, we have, just as of yesterday, secured our 2026 headliners, and I mean for all three days. very exciting, very dramatic in regards to how it plays out also through your cash flow. The way it works, you know, at least with companies to compete is while you're there, if you're participating in that particular festival and you like the headliners that you see and that are going to be performing the following year, you have the ability to renew your seats right then and there. um if you like not to then they'll go on sale to the general public you know the following couple of weeks so this is going to be the first time at least since um the allies owned country stampede that that has got put in place we also now have created a pretty good um a lot of respect in the industry um and have other venues contacted us wanting us to and production to those sites. So, while we anticipate only doing maybe eight different events here in 2025, that number is going to be multiples bigger in 2026 as we now have a little bit of runway to work with. And so, there should be some good growth that you can see from 2025 to 2026 along those lines too. you can tell why there's a lot of excitement going forward um we regret you know the money current and some of the pain of the past but that's not um where our focus is we're looking forward to accomplishing some things and continuing to build on on a lot of them it's the legacy that we originally established and how we can expand on that and i think um you'll see that in the coming quarters and we will be doing more of these calls you'll see myself and others out there participating in conferences that we've not been able to participate in while we were associated with you know the past was fast and such we just were somewhat um you know our hands are sort of tied and we can get out there and be talking about but A lot of that is behind us, and we couldn't be more excited. There's a lot of companies out there that you can take a look at that, if you want to kind of get comps and understand a little bit about the business, whether it be Live Nation or Venu, or then obviously, you know, the law enforcement side, there's a video solution side. You know, there's still the axons in the world that are out there as well. So we're excited about the future. We've got a lot to... still accomplish and we're ready to take on that task and so with that being said i want to thank you all again for attending today and uh look forward to um you guys participating in the uh uh you know second quarter um call and when we announce it i will tell you one more thing before a party is that it is anticipated that next year which will be the last weekend of june uh we will be holding a shareholder conference back here in Kansas City. So, therefore, when we have the shareholder meeting here in Kansas City, hopefully everyone can stick around a few days and participate in the Company Stampede event and sort of see firsthand what it looks like for a Company 440 production. So, I wish you all the best. Thank you again for your time today. We look forward to talking soon. Thank you.

Thank you and this concludes today's call. Thank you for participating. You may now disconnect.