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TMCNet:  Digital Ally Posts 2013 Operating Results [Professional Services Close - Up]

[April 01, 2014]

Digital Ally Posts 2013 Operating Results [Professional Services Close - Up]

(Professional Services Close - Up Via Acquire Media NewsEdge) Digital Ally, which develops, manufactures and markets video surveillance products for law enforcement, homeland security and commercial applications, announced its operating results for the quarter and year ended December 31, 2013.


In a release on March 27, the Company noted that FY2013 Highlights include: _Total revenue increased to approximately $17.8 million, compared with total revenue of approximately $17.6 million in the twelve months ended December 31, 2012.

_International revenue increased 12 percent to $1,159,183, compared with $1,031,066 in 2012.

_Revenue from commercial fleet customers increased to 7 percent of total revenue, versus 4 percent of total revenue in the previous year.

_Gross profit margin improved to 56.7 percent of total revenue vs. 53.8 percent in 2012.

_Selling, general and administrative expenses increased 11 percent from year-earlier levels.

_The Company reported an operating loss of ($2,250,442), compared with an operating loss of ($1,686,518) in 2012.

_A net loss of ($2,497,940), or ($1.17) per share, was posted in the year ended December 31, 2013, compared with a net loss of ($1,970,989), or ($0.97) per share in the previous year.

_On a non-GAAP basis, an adjusted net loss of ($877,052), or ($0.41) per share, in 2013 compared with a non-GAAP adjusted net loss of ($168,963), or ($0.08) per share, in the prior year.

_Initial production of the FirstVU HD and DVM-800 was completed, and the Company has been pleased with the acceptance of these new products by current and potential customers.

_Following the end of its fiscal year, the Company in March 2014 completed a $2.0 million financing through a senior convertible note offering.

Management Comments "Revenue during 2013 improved only slightly from prior-year levels, primarily due to the challenging economy and its impact upon the state, county and local government budgets that fund our law enforcement customers, along with the impact of the federal government budget sequester and temporary shutdown upon federal grants that partially fund law enforcement equipment purchases," stated Stanton E. Ross, Chief Executive Officer of Digital Ally, Inc. "However, we were pleased with the continued increase in orders from commercial fleet customers, which accounted for 7 percent of our 2013 revenue, compared with 4 percent of revenue in 2012." "Our strong commitment to research and the development of new products, while penalizing last year's 'bottom line', is beginning to bear fruit as higher-margin newer products, including the DVM- 800, FirstVU HD body camera, DVM-100, DVM-400, DVM-250 and DVM-250 Plus contributed 22 percent of total sales in 2013, versus 11 percent in 2012. We expect our sales mix to continue to transition from the DVM-500 Plus and DVM-750 to our newer products in 2014." "We believe the product line that we have developed over the past few years ranks among the most robust in our industry," continued Ross. "This should allow us to scale back R&D expenditures in the current year, while focusing upon realizing the sales potential of such exciting new products as the FirstVU HD body camera and the feature-rich DVM-800 in-car digital camera system. We are also seeing signs of an easing in restrictive law enforcement budgets in a number of states and are optimistic that a growing number of jurisdictions are planning to upgrade their aging vehicle fleets and related equipment in coming quarters. This may have been evident in the shipment of 15 individual orders in excess of $100,000 during 2013, versus the shipment of only 9 orders of such size in 2012. We are hopeful that this may signal the end of the five-year 'drought' that has characterized law enforcement budgets since the recession began in 2009." "Based upon the amount of business we are bidding on in foreign countries, the outlook for international sales, which rose 12 percent last year, also appears to be improving. Although the sales cycle for international orders is longer and more difficult to predict than our domestic business, we are quite pleased with the improved productivity of our revamped international sales organization." "In conclusion, we continue to believe Digital Ally is poised to expand its share of the law enforcement and commercial fleet digital video equipment markets in 2014 and future years. The current year should benefit from the growing popularity of 'body cameras' for evidence gathering by law enforcement officers and the outstanding performance of our FirstVU HD in field tests by hundreds of police departments and other law enforcement agencies. We expect that our new DVM-800 in-car video system will strengthen our competitive position when targeting police departments in large cities throughout the U.S. We believe our current cost structure is such that Digital Ally should benefit from greater manufacturing efficiencies, a lower overhead burden, and higher margins on new products when revenue improves," concluded Ross.

Full-Year Results For the twelve months ended December 31, 2013, the Company's total revenue increased 1 percent to approximately $17.8 million, compared with revenue of approximately $17.6 million in the year ended December 31, 2012. Revenue had increased 17 percent through June 30, 2013 when compared with the prior-year period. However, revenue was negatively affected during the second half of 2013 due to the challenging economy that continued to impact state, county and municipal budgets funding the Company's law enforcement customers, slower than anticipated launch of the FirstVU HD and DVM- 800, along with the effect of the federal government budget sequester and subsequent shutdown upon law enforcement and government customers directly. Also, the pending introduction of the DVM-800 in the fourth quarter of 2013 may have prompted some potential customers to delay placing orders for our older in-car video systems until the DVM-800 was available for shipment.

International revenue increased 12 percent to $1,159,183 in 2013, compared with $1,031,066 in 2012.

Gross profit improved 7 percent to $10,108,490 (56.7 percent of revenue) in the twelve months ended December 31, 2013, versus $9,481,987 (53.8 percent of revenue) in the previous year. The improvement in gross profit was primarily due to a reduction in cost of sales to 43.3 percent of revenue in 2013, compared with 46.2 percent in 2012. Management attributes the reduction in cost of sales to a migration of sales to newer products, which yield higher gross margins, and further emphasis upon contract manufacturers, including those located offshore. The Company's goal is to continue to reduce cost of sales as a percentage of revenue in 2014.

Selling, General and Administrative ("SG&A") expenses increased 11 percent to $12,358,932 in the year ended December 31, 2013, versus $11,168,505 in the previous year. Research and Development costs rose 45 percent, reflecting a number of development projects, including the FirstVU HD and DVM-800, which were underway during 2013. Selling, advertising and promotional expense rose 4 percent due to the Company increasing the size of its domestic sales force to improve geographical coverage, resulting in higher salaries and commissions. Stock-based compensation expense increased 35 percent, primarily due to the amortization of restricted stock granted to the Company's officers in January 2013, and to its directors in May 2013, with one-year vesting periods. This trend should reverse in early 2014 based on the projected amortization of currently outstanding stock options and restricted stock. The Company recorded a litigation charge of $208,316 during 2013 related to its ongoing litigation with Dragoneye Technologies. Increases in the above expense categories were partially offset by an 8 percent reduction in professional fees and expenses; a 3 percent decrease in executive, sales and administrative staff payroll; a 34 percent decline in litigation and related expenses; and a slight reduction in other expenses.

The Company reported a 33 percent increase in its operating loss, which totaled ($2,250,442) in the 2013, compared with an operating loss of ($1,686,518) in 2012.

Net interest and other expense declined 13 percent to $247,498 in the twelve months ended December 31, 2013, from $284,471 in the previous year.

The Company reported a 2013 net loss of ($2,497,940), or ($1.17) per share, compared with a prior-year net loss of ($1,970,989), or ($0.97) per share. No income tax provision or benefit was recorded in either 2013 or 2012. The Company expects to continue to maintain a full valuation allowance on its deferred tax assets, including net operating loss carry forwards, until it determines that it can sustain a level of profitability that demonstrates its ability to realize such assets.

All per share figures and the number of shares outstanding have been adjusted to reflect a 1-for-8 reverse stock split that was effective August 24, 2012.

On a non-GAAP basis, the Company reported an adjusted net loss (before, depreciation, amortization, interest expense, litigation- related expenses and stock-based compensation), a non-GAAP financial measure, of ($877,052), or ($0.41) per share, for the year ended December 31, 2013, versus an adjusted net loss of ($168,963), or ($0.08) per share, in the year ended December 31, 2012.

Fourth Quarter Results For the three months ended December 31, 2013, the Company's total revenue declined 24 percent to approximately $3.5 million, compared with revenue of approximately $4.6 million in the fourth quarter of 2012. Management attributes the revenue decline to a number of factors, including the lingering effects of the federal government sequester and shutdown upon many of the Company's law enforcement customers, the direct impact of the sequester and shutdown upon Digital Ally's Department of Defense and other federal government customers, a slower than anticipated launch of the FirstVU HD, the negative impact on some customers who received letters from one of the Company's competitors threatening patent infringement action (Digital Ally has since sued this competitor), and the possibility that some customers delayed orders for certain of our older in-car video systems in anticipation of the launch of the new DVM-800.

Gross profit decreased to $1,749,422 (49.9 percent of revenue) in the fourth quarter of 2013, versus $2,392,397 (51.6 percent of revenue) in the prior-year quarter. In addition to the impact of lower sales upon the absorption of manufacturing overhead, the Company incurred a substantial amount of initial production costs and inefficiencies related to the FirstVU HD during the final two quarters of 2013 that negatively impacted gross margins. Also certain unusable parts from older versions of the Company's legacy products were scrapped during the fourth quarter, further reducing gross margins. Management's long-term goal continues to target gross profit margins of approximately 60 percent of revenue. The achievement of such goal assumes that the Company will benefit from economies of scale as revenue increases, more efficient outsourcing of component production, more efficient purchasing practices, and higher gross margins on new products.

Selling, General and Administrative ("SG&A") expenses increased 18 percent to $3,323,380 in the three months ended December 31, 2013, versus $2,807,221 in the corresponding period of the previous year. The primary components of the increase in SG&A expenses included a 35 percent increase in R&D costs, primarily related to the launch of the FirstVU HD and the DVM-800, along with higher selling, advertising and promotional expenses, and a $183,383 increase in litigation expense that was primarily related to an adjustment in the litigation reserve related to the Dragoneye Technology lawsuit.

The Company reported an operating loss of ($1,573,958) for the quarter ended December 31, 2013, compared with an operating loss of ($414,824) in the quarter ended December 31, 2012.

Net interest and other expense declined 10 percent to $64,691 in the fourth quarter of 2013, from $72,275 in the three months ended December 31, 2012.

The Company reported a net loss of ($1,638,649), or ($0.74) per share, for the three months ended December 31, 2013, compared with a prior-year net loss of ($487,099), or ($0.24) per share. No income tax provision or benefit was recorded in the quarters ended December 31, 2013 or December 31, 2012.

All per share figures and the number of shares outstanding have been adjusted to reflect a 1-for-8 reverse stock split that was effective August 24, 2012.

Digital Ally develops, manufactures and markets technology products for law enforcement.

More Information: www.digitalallyinc.com ((Comments on this story may be sent to newsdesk@closeupmedia.com)) (c) 2014 ProQuest Information and Learning Company; All Rights Reserved.

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