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 current settlement with WatchGuard bodes well for another patent infringement suit filed by Digital Ally in 2016. Last May, Axon lost its final appeal at the U.S. Patent & Trademark Office, and the Federal court indicated a ruling on claim construction was imminent.

The alleged patent-infringement by Axon is similar to a patent infringement by Phazzer Electronic for its willful infringement of Axon's patent and trademark rights concerning its sale of the PhaZZer Enforcer CEW (conducted electrical weapon) and probe cartridges.

As that case unfolded, a federal judge in Florida found that Phazzer had engaged in a pattern of bad-faith behavior and ruled in favor of Axon. Based on the information found on Axon’s 10Q, on April 4, 2018, the court entered a judgment against Phazzer in an amount exceeding $7.8 million, which included an award to the Company of compensatory and triple damages for willful infringement and an award of reasonable attorney’s fees and costs.

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.

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. Company generates most of its revenue from law enforcement, which makes up 87% of the Company’s business operations, which 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.”