WRAP TECHNOLOGIES, INC. Q4 FY2022 earnings call

• 2022 was a milestone year with transformation, including senior leadership change, transition to next-gen safer policing tech, cloud VR acquisition, and progress on strategic road map.
• In 2022, BolaWrap device sales increased 179% YOY, gross profit up 133% in Q4 2022 and 88% full year. SG&A expenses decreased 19% full year due to cost controls.
• New go-to-market strategy showed traction, with increased cassettes sold per device, shift from pilots to agency-wide full deployment, and large orders in Americas and EMEA.
• Launched a 10% use of force reduction guarantee for new fully deployed agencies. Plan to attend over 60 industry events in 2023.
• Kevin Mullins discussed expanding sales team, evolving BolaWrap 150 accessory sales (charging for training services), increased cassettes per device (now 12 per device per officer), and Wrap Reality acquisition for enhanced VR training.

In Q4 2022, net revenues were $3.6 million, a 50% increase year-over-year. Full year net revenues increased 5% to $8.1 million. Gross profit in Q4 2022 improved significantly to a record $1.7 million (46% of net revenue), with a year-over-year increase of over 140%. For the full year, gross profit was $3.7 million (46% of net revenue), up 88% year-over-year. SG&A expense in Q4 2022 was $4.4 million, up 9%, but full year SG&A decreased 19% to $16.4 million. R&D expenses decreased in Q4 and full year, with Q4 R&D down $1 million (54%) to $870,000 and full year R&D down $1.1 million (18%) to $5.1 million.

• Expect Q1 2023 revenue to sequentially decline from Q4 2022, but top line to improve sequentially and YOY in subsequent quarters, leading to high double-digit annual growth.
• Reiterate expectation to achieve adjusted breakeven cash flow positive by end of 2023 and profitability by end of 2024.
• Gross margin expected to remain around 50% in 2023, improving to 60% in Q4 2023.

No specific risks discussed in detail in the transcript. Forward-looking statements note risks in SEC filings, but none explicitly detailed in the call.

Q: Congrats on the strong results. Could you discuss what gives confidence in the 2023 outlook and visibility on future orders?

A: TJ Kennedy stated confidence comes from better pipeline visibility, proactive outreach to existing customers for internal expansion and full deployment, increased insight into new sales from events like IACP conference, and more visibility into larger agency pipelines.

Q: Could you break out device or launcher sales versus cartridge sales in the quarter?

A: Christopher DeAlmeida and TJ Kennedy mentioned they don't have that breakout published currently but noted significant device sales growth and progress in 2022 that should bear fruit in 2023 and beyond.

Q: Any updates on the LAPD trial?

A: TJ Kennedy said the LAPD trial in Hollywood and Central divisions is continuing, expected to last approximately another 6 months, with a midyear update expected.

Q: How have efforts to increase recurring revenue been progressing?

A: Kevin Mullins said they're building a recurring model by increasing cassettes per device (from 6 to 12), adding extended warranties, growing training opportunities, changing Wrap Reality to a SaaS subscription model, and bundling service packages to build predictability and scalability.

Q: Can you remind us about the upgrades from BolaWrap 100 to BolaWrap 150 and speak to R&D priorities going forward?

A: TJ Kennedy listed upgrades like being 20% lighter/smaller, IP63 rating, metal injection molded anchor system, laser array with 7 lasers, and longer battery life. R&D priorities continue with investing in new devices and technologies to support safer outcomes, filing patents, and expecting new products in the future.

Q: In light of recent national tragedies, have you seen a shift in discussions with law enforcement officials about BolaWrap?

A: TJ Kennedy said there's a significant shift where agencies already know about BolaWrap, desire it, and know it works. There's more focus on full deployment and integrating BolaWrap into use of force policies, with requests for Wrap Reality and duty to intervene technology for training.