WRAP TECHNOLOGIES, INC. Q1 FY2023 earnings call

• In April, Wrap implemented organizational changes to align cost structure and prioritize sales, welcoming new board members Bruce Bernstein and Marc Savas. - Key priorities include accelerating deal closures, expanding deployments with existing customers, and reducing non-essential operating expenses. The sales force was realigned, and a data-driven approach to industry conferences was adopted. - Customer success teams are focused on monetizing penetrated areas, and the brand ambassador program was restructured to be performance-based. Additionally, Wrap Reality development was outsourced to reduce costs and focus on sales.

In the first quarter of 2023, Wrap Technologies generated revenue of $711,000, a decrease from the prior year period's $1.6 million. Americas revenue decreased 40% to $710,000 from $1.2 million in the prior year, while international revenue dropped to $1,000 from $410,000. Gross profit for Q1 2023 was $350,000 with a 50% gross margin, compared to $670,000 and 42% gross margin in the prior year. SG&A expense for Q1 2023 decreased to $1 million from $4.6 million in the prior year. R&D expense in Q1 decreased about $430,000 to $1.1 million from $1.5 million. Net loss for Q1 2023 improved to a loss of $4 million from $5.4 million in the prior year.

• Wrap has suspended guidance as it reassesses the 2023 fiscal outlook. It anticipates further decreases in operating expenses in the latter half of the year, with a minimum quarterly reduction of $1.5 million. However, Q2 will incur one-time extra expenses due to severance and legal fees from recent organizational changes. The company will provide updated guidance soon after completing the reassessment.

• Potential delays in international orders could impact revenue. - Market conditions and government budget cycles may affect sales timing. - There is uncertainty in achieving expected growth targets despite ongoing cost containment efforts.

Q: How has the introduction of the reduction in force guarantee been received thus far? And are you seeing additional sales traction?

A: Kevin Mullins responded that the reduction in force guarantee has been well-received, with agencies looking to reduce use of force, and they are observing sales traction as agencies take up the program.

Q: When do you plan to complete your reassessment and reissue guidance?

A: Chris DeAlmeida stated there is no specific timeline yet but the company is reassessing and will provide an update soon once the reassessment is completed.

Q: Can you provide more details about how the just-in-time production model will work?

A: Chris DeAlmeida explained the just-in-time production model focuses on producing goods when needed to optimize efficiency, maintain lean inventory, reduce holding costs, and improve cash flow while having sufficient inventory to meet customer demands.

Q: Is the outsourcing of Wrap Reality a permanent plan?

A: Kevin Mullins said the outsourcing of Wrap Reality is a permanent plan, allowing expansion with highly trained teams to create content efficiently, especially for international market localization.

Q: Can you provide more information on any new products or features that you plan to launch in the coming quarters?

A: Kevin Mullins mentioned they are looking to consider new solutions and ancillary products to expand the customer base and build on economies of scale, with a priority in the next couple of months to identify such opportunities.