Digital Ally Inc (DGLY) 2021 Q3 法說會逐字稿

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This conference call contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, relating to Digital Ally's future business expectations and projections and financial condition and results of operations.

These forward-looking statements involve certain risks and uncertainties. Digital Ally has listed some of the important factors that could cause actual results to differ materially from those discussed in such forward-looking statements, which are referred to as cautionary statements in its earnings press release, which can be viewed on the company's website. All subsequent written and oral forward-looking statements attributable to the company, or persons acting on its behalf, are expressly qualified in their entirety by such cautionary statements.

I would now like to turn the call over to our speaker today, Stan Ross. You may begin.

Thank you very much, and thanks everybody for joining us. This is going to be quite an exciting call. We're very excited to be able to go over and recap the third quarter numbers with you. Tom Heckman, our CFO, is here to do that.

We also want to have the opportunity to, I guess, really for the first time to elaborate a little bit on the acquisitions that we've made to date, including give you some insight on valuations associated with those acquisitions. And then also give you some insight in regards to how we see the remainder of this year playing out, along with 2022 in regards to new products, acquisitions and stuff that we have along the lines.

And then what I'm going to close with is we haven't done in some time, but because of the clarity I think of where we're at and what we have to offer, we'll give you guidance on what we believe how our fourth quarter will come in and then also guidance on 2022 at -- right before we close up to go into the Q&A. So a couple of exciting things to cover today.

But let me -- let's get started with the third quarter numbers with Tom Heckman.

Thank you, Stan and welcome, everyone. I appreciate you joining us today. We will be filing our 10-Q shortly, so please review the 10-Q for a more complete discussion of what happened during the quarter. We did do a press release this morning and showing our third quarter financials, which really is the first quarter that everyone can see the results of our new strategy of acquisitions and not just relying on our core business of the Video segment and Shield segment.

So just as a recap, when COVID hit, it really, really had a damaging impact, especially on our commercial video segment. The cruise lines shut down, taxi cabs pretty much shut down, so on and so forth, so from that and through the Board and Stan's leadership, we decided to go out and embark on an acquisition strategy to diversify somewhat away from our core business. Not that we're not going to focus on the core business, but we wanted to grow the company by accretive acquisitions. And we did finalize 3 acquisitions here year-to-date that we'd like to go over a little further.

Our overall goal through these acquisitions is we look for companies that can benefit from our corporate infrastructure, our access to capital, and our synergies and leadership. And as we get deeper into the acquisitions that we've done, I'm hopeful that you'll see the type of synergies and the infrastructure and capital access, how that's going to impact positively the acquisitions that we did, as well as our consolidated company after the acquisition.

If you look at the acquisitions, it was really the 2 different areas. First was the healthcare division, and that is really a medical billing service, where they bill doctor services, hospital services, and really just professional services. It's a roll-up strategy. It's a very steady business. There's -- it's a very fragmented business out in the marketplace right now. And in fact, we're seeing over 6,000 individual companies out there and no companies with over 5% of the total business. So it is an area that we believe is ripe for consolidation and doing a roll-up strategy.

We did 2 acquisitions. One closed on June 30, so it was in the last quarter in terms of balance sheet, but we had no revenue impact or operating impact in the second quarter. We had all 3 months in the third quarter. And then we did complete a larger healthcare medical billing acquisition on September 1, so we only had one month of operations from that and that was 3x the size of the first one. So we were successful in doing 2 acquisitions there.

The second area is a much bigger company and a much bigger acquisition. It's TicketSmarter.com. And for those of you that don't know who TicketSmarter.com is, we hope you soon will, number one, but it's an online event ticket place -- ticket marketplace. They use a website to distribute, sell tickets, they do sponsorships with conferences, bowl games, NFL teams, NBA teams, so on and so forth, and create a marketplace with their tickets.

As you might expect, COVID damaged that business terribly in 2020 and then shortly into 2021. We've been talking with TicketSmarter for some time and looked at it and really liked what we saw. That business has done $15 million to $20 million annually in revenues in the past, but with COVID, the business was obviously damaged seriously. And they really were in need of working capital, a little bit of infrastructure in that. So we were able to complete that acquisition.

We -- from a revenue standpoint, you'll notice how much of an impact these acquisitions have had, especially TicketSmarter. If you look at TicketSmarter, TicketSmarter was our largest segment and it was only one month of activity in the third quarter. But yet, it produced more revenues than any of our other segments, including the traditional video segment. It produced $2.1 million of revenue in one month's time, so you can kind of see the run rate that TicketSmarter is going at.

Let's look at overall revenues. Overall revenues year-over-year for the third quarter increased $1 million or 29%. Product sales, however, were down $1.6 million. But if you look at prior-year, product sales included about a $1.1 million ThermoVu sale in it that really did not -- it was kind of a one-time event. So if you take that out, it was still about $0.5 million decline in product sales.

We are seeing a movement from upfront hardware sales to a subscription model, so you would expect product sales to go down and service revenues to go up. And if you look at service revenues for the quarter, it was $2.7 million in the quarter, that's a 421% increase year-over-year. So obviously, we've seen an increase in service sales.

Now, 7% of that was the video subscriptions, about a $50,000 year-over-year increase. The largest piece again was TicketSmarter, because we count all the TicketSmarter revenue as service revenue. It was $2.1 million for the quarter alone. And it was -- again it was only one month of activity, so we're very high on that.

The healthcare division produced $560,000 worth of revenue for the quarter. Again, the first acquisition was in place for 3 months. It was a smaller of the 2. The second one was only in place for one month. We closed on that September 1. So really if you look into it, our revenues are running pretty steady at a $4 million annual run rate just in these 2 acquisitions. And we do have probably at least one more acquisition that will close by the end of the year and then several more we're looking at closing pending due diligence early in 2022.

So our roll-up strategy in the healthcare business -- our healthcare division is really working and there are opportunities there. And quite frankly, we're trying to buy those companies of approximately 1x annual revenue, which is when you're generating the margins, they are that really accrete -- is accretive to the company as a total.

If you look at gross margins, historically, our gross margin goal has been much higher than we achieved in this quarter, but what you're seeing is the impact of the acquisitions, both TicketSmarter and Nobility. We had a 30% overall gross margin in 2021 third quarter versus 34% in prior year. Our TicketSmarter margins run around 30% or did in the quarter. We believe that those will improve as we get further and further away from the COVID impact and we're able to create some synergies with some of our activities at the corporate level.

The Nobility margins are around 35%. We expect some substantial improvement in the Nobility margins -- Nobility is our healthcare division -- because we have yet to consolidate the billing services into our platform and our people. So that's the really running on the old format and platform, and, given time, we'll get that integrated into our platform, the Nobility platform, and hopefully improve significantly that margin. So with that all going on, we believe that our overall gross margin will improve from 30% gross margin in Q3 as we continue to integrate these acquisitions.

SG&A expense overall a $1.9 million increase, which is 63% year-over-year. Again, the acquisitions alone represented over $800,000 of that increase. Promotions and advertising increased roughly $650,000. Part of that is TicketSmarter is very dependent on digital media marketing, because they are a website. So obviously there is an impact on the promotions and advertising because of the business model that TicketSmarter has. But from a corporate standpoint, our affiliations with NASCAR, IndyCar, NFL and other teams and NBA and such, we're looking at leveraging those into the TicketSmarter platform and hopefully in the near future, we'll have some pretty, pretty great announcements based on how we're leveraging those activities.

Another cost that went up significantly was insurance costs, up almost $200,000 year-over-year. The insurance marketplace has really, really been difficult for us, as a small public company, to the impact that we're actually looking at developing our own captive insurance company, to control and contain those costs, so we may have some announcements on that in the near future as well.

Below the operating line items, and we've talked about this in the past, we had $11.6 million worth of gain from the change in fair market value of the warrant derivatives. Again, I usually discard the impact of the fair market value -- the warrant derivatives, because they are non-cash charges and gains and they're very unpredictable. This quarter was $11.6 million of gain. Next quarter, it could be $11.6 million of loss. I mean, it just moves with the market. I don't give it much credence, but that did have a huge impact on our bottom line.

Net income wise, we made $8 million for the quarter or $0.16 per share. If you look at our balance sheet, we remain very strong. Cash balance is over $41 million, positive working capital over $35 million. Our net equity is over $56 million. So our balance sheet is a strength of ours, and it provides us with a great platform to continue the acquisition strategy that we've already implemented.

I'd like to end with a little bit of a discussion about our special meeting with shareholders that we're going to hold on December 13. We have issued a proxy regarding that. We're proposing an increase in authorized shares from 100 million to 300 million. I know that seems like a huge increase, but the reason we're doing that is because you have to pass those sort of changes with the majority of all shares outstanding, not just shares voted at the meeting.

If you look back at the results of our Annual Meeting, an overwhelming majority passed that increase in authorized, but it was not a majority of all shares outstanding. So we're going back to shareholders to try and get a majority of all shares outstanding, which is -- the difficulty is compounded, because some of the larger brokers do not vote, NOBOs, we call them Non-Objecting Beneficial Owners. So each one of the individual shareholders in their broker base has to vote their own shares and that includes Charles Schwab, TD Ameritrade. Some of the larger brokerages are that way and it really makes it difficult on getting the numbers of shares voted the way we need to.

So, the reason we need and want this increase is many of the acquisitions that we have done in the past and are looking at doing in the future, the owners or the sellers in those cases are requesting or wanting at least a portion of the consideration paid in the form of common stock. So we want to have the ability to issue those shares to complete acquisitions as we see fit.

Now going from 100 million to 300 million is a large jump. We just don't want to have to do this every 2 or 3 years, because it is a costly process and it's taken a lot of management time and a lot of professional time to get -- to hopefully get this passed. So we hope everyone on the line today will look at their shares and the proxy and hopefully vote along with management and the Board's recommendation to approve the increase in authorized shares.

So with that, I'll turn it back to Stan.

Great. Thanks a lot, Tom. And again, we're very excited about the acquisitions that we made. And I think one of the things that I want to touch on is that when we do look at opportunities that are out there, we're looking at, number one, is how this acquisition, we can sit there and enhance it. And I mean, by enhancement through our contacts, our relationships, whether that be with law enforcement or situational security or some of our partnerships that we've had over the years. And we're starting to see that rather quickly in regards to TicketSmarter for sure and we know that we will get there as well with Nobility on the healthcare.

We've been very successful in selling our ThermoVus and some of our other products into very nice hospitals and clinics throughout the country. And those are acquisitions or those are opportunities that Nobility, we could make the introduction, and they possibly could be able to do the billing for them, whether they just go ahead and outright do it and handle the fee side of it. Or maybe they already have someone that they can defer them to and it may be a potential acquisition for Nobility.

So we look at those type of things, like TicketSmarter, obviously. We've talked about NASCAR, we've talked about Indy, we've talked about the situational security we do for NFL teams. Again, we have some of the highest level of capability of introducing them and hopefully because of our relationships, getting them a business of either clearly being involved in the secondary market, but maybe even being into the primary. And that would continue to enhance their numbers, which we believe we're seeing and I'll elaborate on that when I give guidance here in a little bit.

But at the end of the day, also we want to look and make sure we're accretive to our shareholders that these acquisitions make a lot of sense. And so you have to sit there and look at, okay, well, how do I compare with what's going on from private sector to public sector and who is out there, and is this really just hidden in the Digital Ally law enforcement side of the equations. And so what I'm trying to do today is to point out just a couple. And then if you do your homework, you can find out that there are medical billing companies out there that are in the public space.

And one, in particular, is a Nasdaq company when I'm talking about the medical billing, they go by R1 RCM Inc. They're a Nasdaq. Their ticker symbol is RCM. They basically are out there trading at a 5x revenue number or almost a 30x EBITDA number. And so when Tom had mentioned earlier that the market is so fragmented and you can go out there and we have been successful in picking up acquisitions at 1x revenue, when the traditional market right now is trading, call it, at 5, that's very accretive in value that we're bringing to the shareholders.

So very excited about continuing to do that and look for those opportunities and continue to consolidate that with the 6,000 different agencies that are out there. So there's a lot of small ones that are -- that we're able to get out there and get in touch with.

So we're excited about that and we felt great about the acquisitions we've made to date and clearly there is underlying value that's there. And hopefully when the Nobility and our medical billing side increases at getting to a goal of $30 million, $50 million run rate a year, obviously would become very attractive for the much larger entities that are out there trading at market caps in excess of $7 billion. So we'd be receptive to visiting. That's on the medical billing side.

You take TicketSmarter. There is a lot of names out there that you're probably familiar with, but some of you may not be familiar with that are publicly held. We've done our homework on that and looked at what's out there, what's publicly held, and again where are they trading at in regards to a revenue and an EBITDA number. And again TicketSmarter, they have the ability to, I think at a full price acquisition, we're probably going to come in at around $15 million roughly.

That being said, it's still a number that's very consistent with possibly a 1x revenue number that they were at a run rate. Well, the public market has got, on an average, and again this is an average number as we did our valuations, is over 6. So again very accretive, it should have been very accretive the day we announced it, because I gave the Street notice that we anticipated that in 2022 that they would do an excess of $25 million. And I will touch on that a little bit more here when we get into the guidance.

So if you look at that and the valuation that TicketSmarter alone brings and where I get back to is the value added that we can bring into it with the fact that we do have relationships with NASCAR, NASCAR Tracks and NASCAR, just a lot of synergies in all our partnerships that we can introduce these guys to and we have. And it's starting to show benefits right away. So do a little homework, realize that these acquisitions that we're making, we're going into them with a lot of knowledge of value that's accretive to our shareholders and trying to expand on that.

All this being said, that's touching on those 2 big acquisitions. Now, let's talk about the core business, we clearly have -- are prepared and are seeing the -- we announced that we've got a new body camera that we're coming out with. So the market has been very receptive to that. We look for that to have a very good impact in the law enforcement market and the situational security and other areas related to where body cameras would be of value in 2022. The fact that we now can offer a subscription model is very convenient and handy for a lot of agencies. So we continue to be excited about where we're headed in our core business with our body camera technology.

Our EVO product, you've seen numerous press release, where our -- that's our in-car video system, has been very successful and very well received in law enforcement as well. We will be launching a commercial version of that yet in 2022. And again a lot of tremendous features that will now let any type of fleet that's out there really be able to have some very, very strong technology to sit there and monitor their driver behavior, the vehicles, keeping -- tracking of where people are at.

That commercial division, again, we anticipate to be launching in the second quarter. So the demand, as Tom had mentioned on our subscription model, continues to grow. We're very excited that we've seen such wonderful growth in 2020 to 2021 and do anticipate that to continue in 2022.

Couple of other things. Obviously, with COVID shutting down so many events, our situational security side of things, like we do now currently for the Chiefs and we've got stuff at Met-Life Stadium, where our body cameras are being utilized, a lot of that had slowed up because of COVID. And now with the events starting and you do have incidences that occur, whether it'd be a concert or whatever, the importance of security at all these venues that everyone is so hungry to start attending has been escalated.

We've got to set there, have strong security, crowd control and having the capability, having body cameras into play is definitely a request that we're seeing in big demand. So our situational security looks very strong. We see similar situations with our international market just now really starting to expand and open up. So we're excited about what the outlook looks like for 2022 and the remainder of this year.

So one of the things I did say at the very beginning here, we'd be interested and we think it's important to give some guidance, instead of just waking up with numbers that clearly we exceeded what the Street was anticipating. But the fourth quarter looks very good. We see the growth that we're seeing in TicketSmarter. We continue to now get full enhancement on some acquisitions that medical billing side of our industry has had and we know where law is coming in as well.

So we anticipate that for the fourth quarter that we will exceed $9 million in revenue. That's a very big number for us. I'd have to go back to some of the beginning days to think of a revenue number that was higher than the $9 million. If so, it was maybe 1 quarter in our early beginning days. But we do anticipate that we should be able to eclipse $9 million in the fourth quarter, which would get us coming in, in excess of $18.5 million for 2021. Again, just refreshing everyone's memory, in 2020, we finished a revenue of right at $10.5 million, so a great increase of in excess of $8 million since we've been able to come out of COVID and start implementing some of our acquisition comments.

Now, for 2022, again we've said it there, we've looked at it. We've got a very strong understanding of TicketSmarter. We know -- have a pretty good sense where law is going to come in and our medical billing. What I'm not including in, in this guidance number is our capability of maybe making some additional acquisitions. We're not putting a real heavy burden on our Shield division, which is our PPE products that we have and we're developing and creating the Shield brand.

But for 2022, we anticipate that we will have revenues in excess of $50 million. Again $50 million, we're talking about almost 5-fold of what we did in 2020. So obviously, you can see where my enthusiasm and excitement is where this is coming in. We're excited about using our contacts that expand the acquisitions that we've already made. And we still have a very, very solid foothold in our relationship with law enforcement and situation with security. So the video side of our business continues to look very strong as well.

With all this being said, I will open up the floor for Q&A.

(Operator Instructions) Rommel Dionisio from Aegis Capital.

Congratulations on the quarter. It sounds like you guys, a lot of exciting things going on. I wanted to ask so many are chatting about this or talking about this supply chain challenges with regards to components and shipping. Could you maybe walk us through the impact that that might have had quarterly?

I realize there's a lot of moving parts and it's probably had more to do with your core business than anything else, but could you just maybe talk us through the margin impact, and maybe the outlook going forward for that? And to the extent, also just on top of that, that you can maybe pass through some price increases to your customers there.

Yes, I'll let Tom handle a little bit up, but I will just make one comment. But one of the things that we did early on when we were fortunate to have some additional capital come into the company, we did look at our long lead items and some of the more crucial items and went ahead and bought in rather large quantities for a couple of reasons.

One, the discounts that we could get associated with that and just knowing that because of the lead time, we needed to make sure and be in a position that if there did become a supply issue, we wouldn't be facing it. But it is truly out there and the pricing and such that some of our PPE products were seeing and being affected.

Yes, from a shipping time and shipping cost, it's just been very, very difficult. Just getting cargo on a ship has been difficult and the pricing of the shipping has been very difficult as well. So -- but I think one of our bigger challenges is people. We've taken a couple of initiatives to increase salaries, do a little more stock compensation for people to retain them, but it's very, very difficult on the labor market.

And we're seeing direct results of that, especially in our Video segment on the sales side, where we're challenged with getting the number of salesmen and the quality of salesmen out there that we really would like to have. So we're getting difficulties in both sides, labor and the cost of shipping and the supply chain itself.

Okay. And just to clarify, in the guidance, and Stan, that was very, very helpful for us, for you to do that for us. Looking at $50 million in excess, I think, you said for next year, is that all from -- that would just be the company with what you've acquired so far and what you've announced? Or does that assume additional acquisitions, I just wanted to clarify that?

No. And I'll give you a little more insight on it a little bit. I mean, I think the medical billing company, I mean, just what they really got for us a run rate right now, right -- and I'm talking about right now, and a couple of acquisitions that they've already got some letters of intent on, it's probably going to come in somewhere between $8 million and $10 million, okay. And so then if you look at TicketSmarter and how they're performing, and again, so excited about the opportunities to introduce them to a lot of our partners that we already have out there, such as the NASCAR that I mentioned numerous times.

But I'd be surprised if they will come in around $30 million. And so you look at our new products and you look at the run rate and you don't try to get too crazy, because you know that our subscription model obviously is a lot better, lot different revenue looking when you're deferring the costs over 5 years or 3 to 5 years, so you don't try to ramp that up just dramatically. But again, there is no reason it's not going to do $10 million to $15 million.

And so I'm not putting any burden on the Shield, I'm not putting any new burdens on us, happen to go out there and create new acquisitions. So I know what you're -- I believe I know where you were going on the question, but that's pretty much what we see as a run rate right now, let alone if we can be successful in finding more opportunities.

Congratulations, again, guys.

Thank you.

Bryan Lubitz from Aegis Capital.

Nice quarter. And it looks like we're going to have some wind in our sail moving forward. In terms of the $50 million in guidance, and, Stan, you just elaborated. Now, these companies that you're acquiring, are you looking for, you know, basic synergies where you're going to leverage a Rolodex and it's going to grow from the $50 million and you anticipate year-over-year just consistent growth? Or is this the run rate you just kind of expect and as you acquire more companies, that will add to the bottom line?

You hit it on the head, Bryan. I mean, the very, very first thing I look at -- obviously, we don't want to catch a falling knife. We're not looking to get too involved in startups and stuff like that. We're looking for companies that are Rolodex, our relationship with all our partners and the -- let's say, the distribution channel that we have and doors that we can open. That is number one.

If we can sit there much like TicketSmarter or the medical billing, and know that if they could just get introduced to this party and get a little more business here and there and maybe even expand on instead of the secondary market more than the primary market because of the relationships, that is absolutely number one on the box. There's got to be the need for the Rolodex and our infrastructure.

Number two is where the capital comes into play. We can find companies out there that are still trying to recover from COVID and maybe the -- what was it, the PPP money helped them and maybe there's some other monies out there that's helped them stay afloat. But to really get healthy and get back into the game, it's going to take time, although their numbers have turned around much like TicketSmarter's did.

I mean, there, we could see they were turning the corner. So instead of them taking a couple of years to get healthy, we can help them heal them up overnight and not without a -- not a lot of capital needed to do that, but what gives them the real jumpstart and hit a leg up on those that are happening to recover slowly.

So those, number one and two. And then really there is a lot of entities out there, where if you really look at our, I guess, again infrastructure that we have on the corporate level, whether it'd be some assistance in engineering, some assistance in web design, assistance in HR, I mean, insurance, all the above. I mean, there's things like that that we bring to the table that can be very accommodating as well. And so those are the 3 things that we really want to see. And then we also are checking the boxes to make sure that we're doing things that we believe are very accretive to our shareholders.

Okay. Now, with all that being said, you guys, your core business for a very long time has been the body camera. And I know you guys just released the EVO II, which does look exciting. I've seen all the features on it. The service revenue that you generate from that as you mentioned is spread out over time with the subscription program great margins. Are you guys shifting your business model where that's not going to be your core business? I mean, because $30 million from the ticket sales alone is going to do more revenue than I've seen you guys do in 5 or 6 years with just the cameras.

Yes, I mean, Bryan, I think our all-time high when we were just in the in-car system, and I don't even know that we had that body cameras way back when, was $33 million, that was all-time high in annual sales. So we're obviously looking at shattering it in 2022. We will not lose focus on our core business. The only difference is that we got to look at it a little differently. Instead of the core business being law enforcement, it's more video solutions. So we continue to expand our footprint, because the law enforcement sector is only 18,000 agencies.

And you may notice, I mean, the 800-pound gorilla in the industry has now started getting into, dabbling into the commercial side of business as well. Because you go sell an in-car system to an agency that has a 5-year warranty or is on a 5-year subscription or the same thing with a body camera, you know that they're pretty much out of the market for you for at least 5 years, unless they want to upgrade or get another car or additional personnel.

So you've got to sit there and expand into the different markets like we have with the -- in the taxi cabs and other fleets and other areas where this type of technology comes in. So while we will always have a good position in law enforcement, we've got to look at ourselves as a video solutions company, because we are going to get into a lot of other areas that are just extensions of what we started 10 years ago or better in law enforcement. We're not abandoning it.

I'm not saying that you are, I'm just -- I'm curious. Now, when you get ticket sales, you get these acquisitions. Is your goal to not only introduce them to the NASCAR and Met-Life and Kansas City partnerships, but is your goal to get there -- for example, doesn't the ticket company manage over 200 college stadiums? Is the goal to get the Shield product and hopefully the body cameras on the people that work at those stadiums? Is that where you see the synergy?

Absolutely, yes, you're dead on. You're dead on. I mean, they -- so there are certain areas where his infrastructure has, or a distribution channel, however you want to say it, has some very good contacts, because, I mean, he's renegotiated some very good deals at the very highest level of those institutions. And so again, he can make that introduction for our video solutions division, our Shield division and hopefully again we expand on the Digital Ally family of companies/products. and I'm already seeing it.

I mean, there is a couple of incidents right now where we went and talked to them and they understand all this services and products and capabilities that we have, meaning Digital Ally. And they don't -- they all of a sudden look at us differently than a secondary ticket company far as when he's going in there. So yes, the web, the networking that -- on these acquisitions are very, very important to us.

Okay. Last question, I think this is more for Tom. I'm not sure, Tom, if you covered where you guys sit currently in terms of your cash position?

Yes. Bryan, we're over $41 million in cash. So we got plenty of cash sitting on the balance sheet. We've got $35 million in positive working capital and $56 million in net equity. So our balance sheet is very, very strong right now and it gives us a great platform to go out and do more acquisitions. And that's why it's so important that we do get these -- this increase in authorized shares approved by the shareholders.

Got it. And Bryan again, that's why I sort of wanted to point out and really emphasize on the acquisitions that we made, well, it's going to take some analysts and some people that really see what's going on to get behind it. We're going to get there, but these are very accretive acquisitions that we've made and there are comparisons out there that you -- on the Street that you can look at.

And if you sit there and did value a medical billing company, as I mentioned, compared to other publicly held companies and you did TicketSmarter the same way as some other privately held companies and then law and everything else, we're as frustrated with the stock price as anybody, because there is a lot of underlying value there.

Well, it's clear you guys are undervalued. And I'll say it to you again, I've said it probably on the last 4 or 5 calls. I know, corona has kind of put a crimp and you come in to hang out with me in New York, but we got to get you guys out here. You got to get on a road show, California, wherever, because a quarter like this, and no one knows, we've got to get that word out there. We need more analysts. We need more support, because $50 million, if you guys get to that next year, when you get to that next year, I've been with you guys for 10 years on and off, and I've never seen you do a number like that. So I'm real excited for you guys as well.

Well, appreciate it, Bryan, and look at your calendar after Thanksgiving. I'll be there.

And Tom, get something for that cough back there. It looks like you're going through the same thing we are up here, all right?

Yes.

All right, guys. Listen, Happy Thanksgiving to you. I look forward to speaking to you soon.

Sounds good. Same to you, Bryan.

Patrick McGrady from Stonefish Capital.

Tom, I wanted to see, I may have missed it, but can you just break down the growth in the net margins for the 3 business lines?

Well, at the gross margin line, we're looking at about 30% in the traditional business as gross margin. Roughly the same in TicketSmarter business, 30%, and 35% in Nobility. Now, Nobility that's prior to any integration in synergies, because our partner at Nobility, gosh, they employ about 500 people, billing specialists that are going to be leveraged into that platform. So we're looking for much improvement on the Nobility side, as well as TicketSmarter and hopefully the traditional video segment.

And then one follow-up question, now that you guys have acquired these 2 or started these 2 new businesses, it seems like you're generating some good net income. You got a lot of cash on hand. I know that you're proposing to do an increase in shares or share sales potentially in the future. But can you talk a little bit more about using organic cash flow and cash on hand for these acquisitions?

Yes, this is Stan and I'm sure Tom will chime in as well. I mean, absolutely. I mean, right now, we think that we're quite undervalued and would prefer to look at opportunities and utilize the cash. What happens though, you do have, and like a lot of our acquisitions, we're really not looking to acquire something that we've got to backfill with personnel. And so those that are wanting to stay recognize the difference of being privately held versus publicly held, and maybe also recognize the upside value associated with it. So they are requesting stock.

And so what we want to do is make sure, like Tom said, it's very expensive to do those procedures, especially with you've really got to reach out and try to grab that guy that has 1,000 shares, and say, hey, can you vote your shares, please, and hopefully you'll support the Board and management in how you vote. But to get the amount of numbers that we have to is expensive. So we want to go ahead and do it one time and be in a position that when we do find more TicketSmarters and medical billing companies that we can make sure and do some of these accretive obviously, but we also can have some very happy and committed employees that are coming along with that entity.

Yes, and I'll just echo what Stan said. in a lot of these acquisition, the owners and the upper level management want -- they see the synergies and the incentive of joining the Digital Ally companies. And with that, they want common stock. They want, as part of the consideration that they're being paid for the acquisition, as well as some restricted stock based on cash flows in the future and operating results. So we just need to have that quiver -- or that arrow in our quiver, to be able to use when and as needed. We're not going to just give away stock.

I hope that that's not coming through here. I realize we are asking for a large increase 100 million to 300 million. But again, the reason we're doing that is it's so darn expensive and it's such a drag and focus of management right now that could be spent better on operations and that. And we're having to do a lot of outreaches to potential shareholders to talk to them about voting and all that stuff. So that's more of the reason. We're going to be judicious in giving out those shares. But I think by doing so, it's going to attract better management. It's going to attract better acquisitions for the company that it will be accretive to the current shareholders.

Yes, that's very helpful. I appreciate that explanation. And then Nobility and TicketSmarter, are you guys -- obviously, great deals for you guys, good price points it seems like in terms of getting in. Are you still seeing those types of opportunities in the marketplace? I know I think you probably hit it at a good time when you made those acquisitions. Are you still seeing opportunities? And the RCM business seems to -- seem like there's a lot of growth there in the future here.

Yes, so, I guess, the easier one is the medical billing side, because it is so fragmented, it is. I mean, there is a lot of mom and pops out there that being part of a bigger organization helps them too, because they can go into different clinics and hospitals and now say, we're a size of 600 employees, not 30 or something along those lines. So it helps their core business too. So we're seeing quite a bit of those opportunities that are out there. The key is just to make sure and do your due diligence and make sure the contracts are good and long-term on that front.

And the TicketSmarter, while we're excited about the potential of maybe there's some other entities out there along those ways, what I'm excited about is just the relationships and how well these relationships that -- and introductions that we've made, how receptive they have been to entertain TicketSmarter as maybe not just a secondary partnership, but actually step in as the primary, which again is a bigger, bigger margins, bigger numbers, bigger all the above. So I'm really been focusing on getting them in front of those opportunities, but meanwhile, I have my eyes open for what else may be out there.

Yes, there are some complementary businesses to TicketSmarter that we have been in touch with. And it's complementary, not competitors of TicketSmarter. Really, what we're seeing is customers don't want more vendors. They want fewer vendors and the more services we can provide around that in a one-stop shop, the better. So there is a number of laterals that we could go with with TicketSmarter and Nobility for that matter, that's available for us and we're looking at very, very seriously.

Yes, well said. Because it is, like I said, the one entity, it's a professional club. And when they realize what all we can do, everything from stepping in with our electrostatic sprayers, utilizing our HOCL Shield products to situational security and outfitting their security people on game day with body cameras along with helping them with the ticket sales, I mean, or a concert. I mean, we offer quite a bit so far. And like Tom said, there's some other complementary opportunities that were out there that we've been in talks with that we think will continue to enhance the company.

Perfect. That's great. A lot of exciting growth. I appreciate you guys answering my questions and congratulations again on the quarter and on the acquisitions.

Terry, we're going to go ahead and take one more call. We've got -- we'll take one more and then we'll go ahead and wrap this up.

Rommel Dionisio from Aegis Capital.

I'll make it a quick one. So, as I look at the TicketSmarter business, I just want to ask does it -- do you just feel it helps for that company to be part of a publicly traded, larger, financially stable, obviously significant cash reserve company in that segment of the business?

Do you get the sense that that -- I see that they have links with ESPN and some of these other really high profile. Do you just get the sense that just being part of you guys, a bigger company with all this credibility in the marketplace and obviously your other businesses brings credibility and enables them to help win business faster than they maybe otherwise would have won as a stand-alone?

Yes. Well, absolutely. I mean, I'm glad you brought that up, because Jeff Goodman's his name . He is the CEO of TicketSmarter. He's still the TicketSmarter CEO, and he has reflected that to me that because of now the association with Digital Ally and some of the other things that we have to offer and the financial strength has greatly enhanced his ability to win business, so you're dead on. That was a great question. It has clearly assisted in what he is capable of doing.

Thank you, all. Listen, thanks everybody for joining us today. Sorry, we had to delay it a couple of days. As Tom mentioned, we'll get that 10-Q filed right away. And then also really encourage you to, if you would, reach out to your brokers, whoever you need to submit your votes. Hopefully, you will follow the Board and management's decision on how we're going. And again we're just very excited about the future. So have a wonderful Thanksgiving. Happy holidays. And be watching us closely, we're excited about finishing this year strong and having a wonderful 2022. Thank you all.

Ladies and gentlemen, this concludes today's conference call. Thank you, everyone, for participating. You may now disconnect.