Digital Ally (NASDAQ: DGLY): Growing Opportunities Outside Law Enforcement

Digital Ally (NASDAQ: DGLY), which develops, manufactures and markets advanced video surveillance products for law enforcement, homeland security and commercial applications, is pursuing several new market channels that do not involve its traditional law enforcement and private security customers, including partner affiliations with NASCAR, KMC Brands, and the Kansas City Chiefs.

Police Siren Lights

Digital Ally signed a multiyear partnership with NASCAR in 2018.

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.

NASCAR cars racing

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

Global Leader in Body-Cam Technology

Follow-On Orders for FleetVu Cloud-Based Monitoring Platform

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.

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.

DGLY FleetVu cloud base service

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.

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

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.”

Growing Opportunities in Farming

In August of this year, Digital Ally announced a new partnership with Desoto, Kansas-based KMC Brands.

The two companies have agreed to a five-year exploratory venture to develop a validation program that ensures that all of the industrial hemp grown and processed by America’s Hemp Academy is certified and traceable from start to finish.

Working together, the companies are launching a program that can validate and document the entire process of hemp farming, processing and distribution. Digital Ally’s technology will make it possible for KMC Brands to track the hemp production process from the farmer who plants the seed, to the processor that makes the oils and by-products to the retailer or distribution channel.

rows of hemp

Digital Ally’s technology will enable end consumers to know exactly where their hemp-based product was grown and be able to trace the production process.

Whether it is a consumable, a textile or health and wellness product, the companies will produce a traceable video to validate its authenticity and they believe this will assist the growth of the hemp farming industry in the state of Kansas.

On a broader scale, the application of Digital’s technology could be a watershed moment for U.S. farmers and related industries because the documentation process allows for a quality control and validation guarantee like nothing currently available on the market.

Interview with CEO Stan Ross

Award-Winning Technology

Digital Ally was the 2019 Golden Eagle Award winner at the National Sports Safety and Security Conference & Exhibition, in New Orleans, Louisiana. The award recognizes outstanding security projects executed in sporting venues.

Digital Ally won the prestigious industry award for the deployment of its patented FirstVu HD body-worn camera technology at MetLife Stadium in East Rutherford, New Jersey.

One of DGLY body worn camera

FirstVu technology captures clear video evidence of interactions between staff and patrons and has generated very positive feedback from security officers at the stadium who feel an extra layer of protection from potential false accusations and aggressive patrons.

An example of the effectiveness and efficiency of the cameras was highlighted in the Company’s case study submitted to the award committee.

In an incident where a MetLife Stadium patron claimed a security officer used unjust language while interacting with them, the camera’s recording clearly showed this had not occurred, and the patron was forced to recant the accusation. Without the camera, this would have been another he said/she said situation that could have discredited MetLife security and left it open to liability.

“Stadiums and entertainment venues are seeking out our video solutions to create a better overall experience for their fans and customers. Our technology deployment at MetLife Stadium in 2018 was designed to meet the security team’s goal of improving accountability and transparency for security, reducing civil liability, and having a tool to help de-escalate volatile situations,” commented Stan Ross, CEO of Digital Ally.

DGLY DVM-250 Plus Video Event Recorder

“As we have seen in other installations with law enforcement and corporate clients, our technology is able to meet these important goals, and it does so in an easy-to-use manner that requires minimal training while offering instantaneous offloading of video at the end of the events. Our complete video solution provides onsite professional support, including deployment of units, maintenance, and video management,” continued Ross.

Digital Ally has also entered into a multi-year agreement with the Kansas City Chiefs to provide the Chiefs’ security personnel with the same technology used at MetLife Stadium.

With two major stadiums under contract, this new business line could prove highly fruitful in the years ahead.

Recent Settlement Win

Patent Law Book

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 (now owned by Motorola).

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.

While the WatchGuard settlement demonstrates Digital Ally is the rightful owner of “autoactivation” technology, the US District Court accepted what the company believes to be a mischaracterization of its claims in the Axon litigation in June.

Immediately following the verdict, Digital Ally announced its intent to appeal this decision.

The Court’s analysis in its confidential order turned on what the Company believes is an incorrect and mistaken interpretation of the patent claims that Axon advanced in an attempt to avoid liability.

Construing patent claims is an often-difficult process the Court must conduct before the question of infringement may be presented to the jury. Axon advanced a theory that invited the Court to commit reversible error by misinterpreting the patent claims in an effort to distinguish its own products. Unfortunately, the Court accepted Axon’s view and dismissed the lawsuit on this basis.

Importantly, the Court’s ruling did not find that Digital Ally’s ‘452 Patent was invalid. It also did not address any other issue, such as whether Digital Ally’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 Digital Ally recently filed on its damages claim and the WatchGuard settlement. Those issues are separate and the judge’s ruling on summary judgment had nothing to do with Digital Ally’s damages request.

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

In the case against Axon, Digital Ally is seeking royalty damages of more than $68 million for infringement between February 2016 and August 2018, according to pretrial order. The company maintains Axon continues to violate its patents since August 2018, which means the amount will adjusted for supplemental damages as the case moves on in appeal.

Strong Foundation with 93,500+ Units Sold Globally

Digital Ally has deployed its products in 30+ countries worldwide, and the company has extensive operations with 40+ international distributors and 20 domestic sales representatives.

With nearly 100,000 units in operation globally, and an increasing drive toward accountability in a variety of markets, Digital Ally, with its track record of success across multiple verticals, is in an ideal position for continued growth.