Digital Ally Announces Second-Quarter Operating Results
Thursday, August 13, 2020 | Comments

Video surveillance provider Digital Ally announced its second-quarter 2020 operating results.

Total revenues decreased in the second quarter 2020 to $1,732,192 from $2,546,983 in the comparable 2019 period. The primary reason for the overall revenue decrease is a decline of $892,143 in 2020 product revenues, offset by an increase in service and other revenue of $77,352, from 2019 levels.

Product sales continue to face challenges for the company’s in-car and body-worn systems because of the effects of the COVID-19 pandemic, and competitors’ actions of releasing new products with advanced features and maintaining their product price cuts.

In response, Digital Ally launched a program to migrate current and new customers, and in particular commercial customers, from a hardware sale to a service fee model. Therefore, the company expects a reduction in law enforcement and commercial hardware sales (principally EVO-HD, DVM-800, DVM-250’s and FirstVU’s) as it converts these customers to a service model under which it provides the hardware as part of a recurring monthly service fee.

The COVID-19 pandemic delayed the shipment of orders in the second quarter 2020 as police forces and governments reacted to its impact. In general, the company’s salesmen were unable to travel and meet with potential customers as they normally do to demonstrate hardware, to promote integrated solutions and close hardware sales.

Specifically, the company was unable to ship the initial purchase orders under a substantial contract awarded by the Director of Strategic Procurement of a country for the expected deployment of body cameras to its entire national police force. The contract was expected to include up to 5,000 body cameras with the company’s web-based software infrastructure service over a three-year period. Contract deliveries were suspended pending the government’s decision to freeze the planned deployment until such time as the pandemic is contained within its population.

The initial purchase order was expected to ship during the first quarter 2020 with follow-on orders for the second quarter 2020 and would have made a substantial impact to product revenues for the second quarter of 2020. At this point, the company is unable to forecast if and when this major project will be restarted or how it may be modified as a result of the pandemic. Upon completion, the original contract would have been the largest body camera deployment in the company’s history and the largest contract for recurring service revenues for its web-based software related to the body cameras.

Overall gross margin percentage declined to 23% in the second quarter 2020 compared to 37% in the 2019 period. The deterioration is attributable to the manufacturing inefficiencies and unfavorable overhead variances caused by the pandemic. The company also experienced significant disruptions in the second quarter 2020 as the company moved its office, manufacturing and warehouse facility to a newer and smaller location.

Selling, general and administrative expenses were $2.5 million and negative $1.61 million for the second quarter 2020 and 2019, respectively, an increase of $4.15 million (257%). The significant increase was attributable to the patent litigation settlement of $6 million that company received in the second quarter of 2019. Exclusive of the patent litigation settlement, overall selling, general and administrative expenses would have decreased by $1.84 million (42%) in the second quarter 2020 compared to the 2019 period. The significant decrease was the result of sales and support staff headcount reductions and reduced overall travel in response to the impact of the COVID-19 pandemic during the second quarter 2020.

The company recently added two new lines of branded products: the ThermoVu which is a line of self-contained temperature monitoring systems that provides alerts and controls facility access when an individual’s temperature exceeds a preset threshold and Shield disinfectants and cleansers which are for use against viruses and bacteria.

The company began offering such products beginning late in the second quarter 2020. The company is ramping up its supply chain for both of these new product lines, which are manufactured by third-parties. These branded products are being offered to first responder customers including police, fire and paramedics. Commercial customers such as schools, cruise lines, taxi cab and para transit may also be good candidates for the products.

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