Wrap Technologies, Inc. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. Unaudited figures below are in millions of dollars unless stated otherwise. Wrap develops public-safety products and training services, principally the BolaWrap remote restraint device and Wrap Reality virtual-reality training.
Financial performance
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $1.165 | $1.934 | $2.764 | $3.476 |
| Gross profit (loss) | $0.457 | $(0.060) | $1.124 | $0.545 |
| Gross margin | 39% | 39% excluding prior-year restructuring charge | 41% | 37% excluding prior-year restructuring charge |
| Operating expenses | $5.240 | $7.741 | $11.341 | $13.784 |
| Operating loss | $(4.783) | $(7.801) | $(10.217) | $(13.239) |
| Net loss | $(4.785) | $(7.799) | $(10.217) | $(13.228) |
| Loss per share, basic and diluted | $(0.12) | $(0.20) | $(0.25) | $(0.35) |
| Cash used in operating activities | Not stated by quarter | Not stated by quarter | $(6.207) | $(10.254) |
- Q2 revenue fell 40% year over year, as product sales decreased 48% to $0.969 million; other revenue increased to $0.196 million. Six-month revenue declined 20%.
- Management attributed weakness particularly to delayed international orders during the BolaWrap 100-to-150 transition. Domestic six-month revenue grew 30%, while international revenue fell to $0.5 million from $1.7 million.
- Operating expenses fell 32% in Q2 and 18% for the first half. SG&A savings more than offset higher research and development spending.
- Q2 operating loss improved by $3.018 million year over year; first-half operating loss improved by $3.022 million. The prior-year comparisons included a $0.747 million inventory restructuring charge related to winding down BolaWrap 100 production.
Financial position and liquidity
- At June 30, 2022, cash and cash equivalents were $3.643 million and short-term investments were $24.862 million, or $28.505 million combined. Management said these resources were sufficient for at least 12 months.
- Working capital was approximately $30.1 million, based on current assets of $32.643 million and current liabilities of $2.558 million. Total liabilities were $2.972 million; the filing reports no borrowings, but includes operating lease liabilities of $0.350 million.
- Cash and cash equivalents declined $1.294 million from year-end 2021. Operating activities used $6.207 million; investing activities provided $4.838 million, principally reflecting net maturities of short-term investments; financing activities provided $0.075 million.
- Stockholders’ equity was $32.867 million, down from $41.264 million at December 31, 2021, largely reflecting the first-half net loss.
Outlook, commentary and risks
- Management expected 2022 revenue to exceed 2021, citing domestic growth and anticipated international orders, while cautioning that orders are lumpy and there is no assurance they will close. This is management’s expectation, not formal quantified guidance.
- Management targeted cash-flow break-even by the end of 2023 and potential profitability by the end of 2024, assuming sales growth and continued cost control. It also expected improved BolaWrap 150 margins and lower promotional discounts after Q3 2022.
- The strategic roadmap includes repeatable domestic sales, international BolaWrap 150 growth, broader agency deployment, paid training services, and a SaaS model for Wrap Reality. New CEO TJ Kennedy and President Kevin Mullins were appointed in April 2022; the former CFO retired in July.
- Near-term risks include supply shortages, longer lead times and higher component costs; COVID-related restrictions and operational disruption; geopolitical and macroeconomic uncertainty; dependence on government and distributor orders; and possible effects of social unrest on agency funding or product perception. Management said supply-chain challenges were expected to continue through 2022.
- Backlog was only $72,000 at June 30, expected to be delivered within 12 months; orders may be changed, rescheduled or canceled. Deferred revenue was $344,000, including $221,000 for VR training and $123,000 for extended warranties and services.
- The company had approximately $3.2 million of future component-delivery and service commitments, generally modifiable or reschedulable, and a 4% royalty obligation on qualifying licensed-product sales, subject to a $1.0 million aggregate cap or expiration in September 2026.
- Three shareholder derivative actions were dismissed without prejudice in May 2022. The company reported no litigation liability provision at quarter-end, but warned that unfavorable outcomes in future legal matters could materially affect results.
Most important facts for investors to verify
- Whether anticipated international orders materialize and whether revenue recovers after the BolaWrap 150 transition; compare actual results with management’s 2022 revenue expectation.
- Whether sales growth and cost reductions support the stated cash-flow break-even and profitability targets, given continued operating losses and first-half operating cash use of $6.207 million.
- Gross-margin development, promotional discount levels, product costs, and the persistence of supply-chain constraints.
- Cash, short-term investments, and cash burn in subsequent filings, including any need for external financing.
- Potential dilution: 6,458,823 shares underlying outstanding options and restricted stock units were excluded from diluted loss per share as antidilutive; 40,992,161 common shares were outstanding at June 30, 2022.
- Customer and distributor concentration: one distributor represented 25% of first-half revenue, and four customers represented 65% of Q2 revenue.