Digital Ally (NASDAQ: DGLY) Service Revenues Up 31% YoY in Q1


Digital Ally (NASDAQ: DGLY), which develops, manufactures and markets advanced video surveillance products for law enforcement, homeland security and commercial applications, generated 31% growth of its service revenue in the first quarter.

Overall, the company’s total first quarter revenues increased to $2.6 million, up nearly 10% from the comparable year-ago period.

Recent Settlement Win

Digital Ally’s quarterly results have been impacted over the last two years by two significant patent infringement lawsuits, due to timing and amount of legal fees, involving Axon Enterprises (NASDAQ: AAXN) and WatchGuard.

Patent Law Book

In May, Digital Ally announced a settlement agreement with WatchGuard. Under the terms of the agreement, WatchGuard agreed to pay Digital Ally a one-time lump sum settlement of $6 million.

The company's litigation against Axon was dismissed in June, but the company intends to appeal the decision due to its belief that it was based on an incorrect and mistaken interpretation of the patent claims that Axon advanced in an attempt to avoid liability.

Importantly, the Court’s ruling did not find that DGLY’s ‘452 Patent was invalid. It also did not address any other issue, such as whether DGLY’s requested damages were appropriate, and it does not impact the Company’s ability to file additional lawsuits to hold other competitors accountable for patent infringement. The ruling solely related to a mistaken interpretation of the claims as they relate to Axon and was unrelated to the supplemental briefing DGLY recently filed on its damages claim and the WatchGuard settlement.

The Company is confident the appellate court will not be similarly confused and will reverse this decision.

"Axon misled this Court and convinced the judge to take an overly narrow view of our patent," stated DGLY CEO Stanton Ross. "We highly doubt the Court of Appeals for the Federal Circuit will be similarly misled. Our groundbreaking auto-activation patent portfolio has survived numerous challenges, and we intend to pursue every available legal avenue to hold Axon and other competitors accountable for using our patented technology. While we pursue our appeal, we will continue with our business strategy to roll out new and innovative products, such as our EVO-HD."

Strong Foundation with 93,500+ Units Sold Globally

Police Siren Lights

Digital Ally produces digital video imaging and storage products for the use in law enforcement, security and commercial applications. The Company has deployed its products in 30+ countries worldwide, and more than 8,000 law-enforcement officers in the United States use DGLY products. The company has extensive operations with 40+ international distributors and 20 domestic sales representatives.

The Company’s product lines consist of body-cameras, in-car video systems, and cloud-based or local server software. The company generates most of its revenue from law enforcement, which makes up 87% of the Company’s business operations and includes in-car video (88% of U.S. law-enforcement officers) and body-worn cameras (12% of U.S. law-enforcement officers). In addition, the Company sells its products to other security organizations and consumer and commercial fleet operators through direct sales domestically and third-party distributors internationally.

Police holding a body camera closup

While competition in the body-worn market continues to increase, Digital Ally’s patented VuLink® auto-activation technology provides the company an added advantage in the body-worn camera market with a potential opportunity to license their technology to big players in the body-cam market and generate royalty and license fees.

According to Market Research Future, major factors driving the growth for the body-worn camera is the increasing need for accountability and maintenance of a transparent approach during police conduct.

New Opportunities Beyond Law Enforcement

Kansas City-based zTrip, a provider of taxi and rideshare services in 18+ US cities, upgraded its first 450 vehicles with Digital Ally’s FleetVu Manager cloud-based monitoring system, in a deal announced in 2018.

FleetVu enables commercial operators to easily monitor their fleet of vehicles as well as driver performance.

a taxi close up with a blured out background of a row of Taxis

The cloud-based service adds powerful real-time options for zTrip and other commercial customers, including asset tracking and mapping, as well as customizable real-time alerts, such as collisions, geo fences and speeding.

Users can store and manage video, remotely update firmware and wireless configurations, all while using features such as mapping, reporting, and creating driver score cards.

A mobile application allows drivers to perform pre- and post-inspections of their vehicle and instantly sends alerts via SMS or email to fleet managers if there is a breakdown, maintenance request, or any issue with that vehicle. As a result, the system may be instrumental in reducing accident, fraud, and litigation risks for commercial fleet operators.

While the initial order under the deal covered 450 vehicles, zTrip currently manages a fleet of 5,000 vehicles across the US and is undergoing a near-term expansion to 30 US and 16 international cities.

Follow-on orders have already increased penetration to more than 1,000 zTrip vehicles.

Commenting on the relationship, zTrip CEO Bill George stated, “Digital Ally has been a good partner, and we're looking forward to a significant expansion of our long-term relationship. Our passengers and drivers can be assured that their safety is our number one priority and with the adoption of the FleetVu cloud-based manager we are taking substantial steps to demonstrate the same.”

Exclusive Partnership with NASCAR

Digital Ally signed a multiyear partnership with NASCAR in 2018.

NASCAR cars racing

As part of the deal, Digital Ally installed its camera technology in the Monster Energy NASCAR Cup Series garage last season.

“NASCAR takes seriously its role in providing a safe environment for its fans and competitors, and this partnership with Digital Ally is the next step in that commitment,” said Scott Miller, NASCAR Senior Vice President, Competition.

According to Digital Ally management, it expects “some very big things, revenue-wise, in the future from the partnership.”