Good day, and thank you for standing by. Welcome to the Wrap Technologies Inc First Quarter 2026 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a Q&A session. Webcast viewers can type questions in at any time via the webcast Q&A function. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Louis Springer. Please go ahead.
Thank you. Good afternoon, and welcome to Wrap Technologies First Quarter 2026 Earnings Conference Call. I am Louis Springer, Vice President of Finance. Joining me today is Scot Jason Cohen, Chief Executive Officer, and Jared Novick, President and Chief Operating Officer. We appreciate your time and continued interest in Wrap. Before we begin, I want to remind you that certain statements and assumptions in this conference call contain or are based upon forward-looking information that are being made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 2000 and the Federal Securities Regulations. Please review the forward-looking and cautionary statement section at the end of our first quarter 2026 earnings release for various factors that could cause actual results to differ materially from forward-looking statements made during our call today. Such forward-looking statements are subject to numerous assumptions, uncertainties, and known or unknown risks which could cause actual results to differ materially from those anticipated. These factors are more fully discussed in the company's filings with the Securities and Exchange Commission. The forward-looking statements included in this conference call are only made as of the date of this call, and the company is not obligated to publicly update or revise them. Statements made during this call do not constitute an offer to sell or a solicitation of any offer to buy any securities. Securities will be offered only by means of a registration statement and prospectus that can be found at www.sec.gov. Also, during today's call, we will discuss certain non-GAAP financial measures, which we believe can be useful in evaluating the company's financial performance. Descriptions of those non-GAAP financial measures that we use and reconciliations of those measures to our results as reported in accordance with GAAP are detailed in our earnings release. Unless otherwise stated, all reported results discussed in this call compare the first quarter ended 03/31/2026 with the first quarter ended 03/31/2025. The earnings release will be available on the financial info section of our website at ir.wrap.com. In addition, a replay of this earnings call will be posted on our website after the call. I will now hand it over to Scot.
Thank you, Louis. Good afternoon, everybody, and thanks for joining us today. When we spoke in March, we told you that for the first time, we had visibility into our pipeline and that we are targeting 100% revenue growth for 2026. In Q1, I can tell you that based on the information we have today, our conviction in that target has strengthened. The momentum we described coming out of the fourth quarter carried directly into the first quarter and has continued to build as we move into the second quarter. First quarter revenue grew 45% year over year. More importantly, product sales, the core measure of agency adoption with our technology, grew 186%. That growth was driven by increased domestic and international demand for the BolaWrap 150 line, including continual reorders from a very active installed base. We believe these numbers indicate two things. First, the pipeline we talked about in March is beginning to convert. Second, the agencies that have adopted BolaWrap are using it and expanding. Internationally, we are expanding our footprint. We have expanded our footprint in India, Panama, Brazil, Malta, and the U.K. Across the BolaWrap, WrapReality, our drone and counter-drone solutions, we are seeing the recurring side of this business start to take shape. Cassettes represented a growing component of product revenue in the quarter, consistent with the expanding base of BolaWrap devices in active field use. Subscription activity in WrapReality, WrapTactics, and WrapVision is beginning to build behind that. Recurring revenue is a slower compounding story than a single large product order, but it is a meaningful contributor to the quality of our revenue base over time, and it is growing steadily. On the innovation front, the early commercial traction we are seeing from the drone and counter-drone reinforces our view that nonlethal response integrated with autonomous platforms is a real and emerging market and one in which we believe we are well positioned. Jared is going to cover that in detail shortly. I am now going to turn it back over to Louis, who is going to walk you through the financial results, and Jared will cover our operational progress and R&D growth initiatives. I will come back to discuss our outlook and priorities for the balance of 2026. Thank you.
Thank you, Scot. The financial results in Q1 suggest that our strategy is beginning to translate into commercial traction. Total revenue for the first quarter was $1.1 million, an increase of 45% compared to the $800 thousand in the prior year period. We saw our bookings grow to $3.2 million over the same period. Product sales increased 186% to $900 thousand compared to $300 thousand in the prior year quarter, driven by increased domestic and international demand for the BolaWrap 150 product line. Cassettes and consumables represented a growing component of product revenue, consistent with the expanding base of BolaWrap devices in active field use. Technology-enabled services revenue was $200 thousand compared to $500 thousand in the prior year period. The year-over-year change reflects the growth in WrapVision and related software revenue, offset by the wind down of certain advisory and investigative services. We are focusing the technology-enabled services revenue line on higher margin and software-based offerings, including WrapTactics, WrapReality, and WrapVision Evidence Management subscriptions. Gross profit increased 16% to $700 thousand compared to $600 thousand in the prior year period. Gross margin was 62% compared to 78% in the prior year period. The decline in gross margin percentage reflects the growth in hardware product sales in Q1, which carry lower margin than software subscription and services. We currently expect gross margins to improve as technology-enabled services revenue grows as a proportion of total revenue throughout 2026, although there can be no assurances that this mix or shift will occur at the pace or magnitude we anticipate. Within selling, general, and administrative expense, share-based compensation was $2.4 million for the first quarter compared to $1.7 million in the prior year period. Cash-based SG&A was $3 million compared to $2.5 million in the prior year period, reflecting investment in sales and go-to-market expansion. Total operating expenses were $5.5 million compared to $4.5 million in the prior year period. Please note, as always, a reconciliation of GAAP to non-GAAP measures can be found in our earnings release, which is posted on our website. Cash used in operating activities improved 59% to $1.2 million compared to $3.1 million in the prior year period, reflecting higher revenue, discipline, cost management, and reduced cash burn even as we continue to invest in sales and go-to-market activities. We believe the first quarter results reflect a leaner, more focused business that is beginning to grow with the nonlethal response framework we laid out last quarter. I will now hand it over to Jared to cover our operational highlights and strategic initiatives.
Thank you, Louis. As we look beyond the headline financial results, the first quarter also provided early evidence that our go-to-market strategy is beginning to gain traction in areas we have prioritized for growth. Let me describe this in the following key areas. Nonlethal response at scale: we see agencies are increasingly interested in moving away from single-device purchase to agency-wide adoption. In the first quarter, we saw this validated as agencies began to make that transition. The integrated program approach of hardware, technology, training, and policy is what is resonating. Regarding federal and defense market entry, our strategy is supported by federal consultants and advisers that continue to position our portfolio for DoD, DHS, and other federal customers. We continue to focus on TAA-compliant products, made-in-America manufacturing efforts, and procurement infrastructure through Carahsoft as our master government aggregator, which gives us the foundation to compete for that work. For counter-UAS and our advancements there, our R&D investments into drone-to-drone and drone-to-person capabilities are showing traction. We have preorders for both drone and counter-drone systems, with recent orders across the U.K. and Europe, and follow-on DFRX orders from our partner in Panama. Our R&D expansion into net-based drone interdiction reflects that a market is moving from concept to procurement. International reorders and engagements across the U.K., Europe, India, Panama, and Malta during and after the quarter supported the view that demand for integrated nonlethal response solutions is broad-based and global. I will now hand it back to Scot to discuss our outlook for the balance of 2026.
Thanks, Jared. Putting all this together, we continue to target 100% growth for this year. What has changed is our visibility into our pipeline and our conviction. The contracts that we are currently pursuing for 2026 and 2027, if awarded, have the potential for a meaningful increase in the scale of this business. However, these opportunities do remain subject to competitive processes and government funding decisions and other factors outside of our control. But in summary, Q1 showed early evidence that our go-to-market strategy is beginning to convert into measurable commercial traction with revenue growth, stronger product sales, expanding bookings, and lower operating cash use. We are seeing customers move towards broader nonlethal response adoption, while early drone and counter-drone preorders suggest that our recent R&D investments may open additional markets beyond the core handheld BolaWrap platform. Our focus for the balance of 2026 is straightforward: continue converting pipeline, deepen agency-wide adoption, advance federal and international opportunities, and execute against our 100% revenue target for this year. To all you shareholders, thank you. Thank you for your continued support and confidence. All right, Louis. I am going to turn it over to you. I think we have got how many questions do we get today?
We had four questions come in.
All right. Let's hear them. So first question that came in: should shareholders view the current financing approach as a temporary bridge during the company's scaling phase, or as the capital structure model management expects to continue utilizing going forward? All right. I am going to take that one since I have been leading and driving a lot of the capital—all of the financing. So look, it is really straightforward. The more liquidity in our stock, the more options you have. To get institutional-quality investors, they are looking for fundamentals in this business. We finally have them. We finally have pipeline that we can show. We finally have a sales rep. We finally have fiscal discipline that is showing up in our numbers. And if we can continue to drive the top line like what is unfolding here, we will have a lot of different financial options. It has been a tough road. You guys know how much money I put into this company. I am participating in these rounds. It was not something I was anticipating doing, but I am standing up for this company. I am standing up for what we are building, and I am not stopping because we have got really important work in front of us. It is not easy taking in money for a company that has not been formed because we have not—it's been really tough. But if things continue, and I have never—the company's never given out guidance, but if we can execute on this, we will have, finally for the first time, some real financing options. I hope that answered your first question.
The first thing you need to do is put the fundamentals in place and put up numbers, which thankfully we are doing now with visibility, which will be unfolding throughout the year.
So as you are on that path, we get to engage with different types of funds and different types of brokers that actually have fundamental investors that are interested in a financial story with some big upside associated with it. That is the activity that we are getting ready for because finally, the company can stand. I used to be on the buy side. I was on the sell side. So I know this arena extremely well, and I know how much time can get wasted on the road, and I know what funds are looking to invest in. We are definitely investable. When you put the numbers together with the story that is unfolding here, I think we will have a lot better financial options going forward. The first sign is when we actually do it—when we actually put up a deal with some institutions that everybody can see. Those are bigger transactions, and you can see those funds will hopefully be active filers in small-cap companies with long-term positions. But I will say this: being real about our cap table, I am very proud of that cap table. There are still some extremely sticky shareholders. We pulled the shareholder base three and a half, maybe four years ago, and found that over one-third of our cap table were people associated with law enforcement. That made me very proud, and it is a really good indicator that the industry is buying into what this technology is about. If you look at our top holders, you can look at some of the small, but our top holders have been in place from the beginning. It has had very little change in that whole shift. I am thankful and grateful that people have been supporting us for years and have not stopped. Those financings that have taken place—the smaller financings, let's call them three to five—we could have taken in bigger money possibly, but it is hard to get real fundamental people involved, and you cannot go out to the street and keep talking about this because it puts pressure on the stock. You have to be very, very careful. So again, the thing that makes me proud is not only do we have a large amount of our cap table coming from people associated with law enforcement, but our top holders and most of our holders have not moved their positions. Some of them increased, but they have not moved. Particularly the people that have invested in the pipes, the three or four last deals that we have done, they are still in there—barely any of them have sold their positions. That is not easy to do. You need to have trust with that investor, and I think we have established that. But it is time. I think we all want a different class of investors in. We can access them if we keep doing exactly what we are on a path to do and start to access that kind of capital. If we can get through the second quarter and execute through this year, we will have plenty more financing options available to us. Next question, Louis.
Oh, yeah. There certainly is. Look, we have had plenty of C-suite turnover. I could tell you—and you can see evidence by today's call—we were ahead of time for the first time in a long time. Our systems are in place, and our controls are the best they have ever been. Big thanks out to Yulu and Brian and the rest of the team. They have done a great job to get us here and get us finally in a good place financially. But we are going to—I am going to be looking for a CFO that can help talk to capital markets, help tell our story, and get in front of investors. But in order to do that, you better have the numbers too because you will not even get the meeting. You will be wasting time. So I think we are coming up to that point. We are in the lookout. We have done interviews, and we will find the right candidate. But the good news is our financial infrastructure is the best it has ever been. Jared, do you have anything to add to that?
It is a priority of the company. Leadership matters. It is one of the key initiatives of the company to find top talent in these positions. Right. Okay, Louis. What else we got? Final question: how should shareholders interpret the 04/10/2020 trading session where trading volume dramatically exceeded historical norms without any repricing of the equity?
Great question. I am still scratching my head how that happened. I am going to leave it to algorithms. I think an algorithm must have gotten ahold of us and traded back and forth because I saw no big changes in the cap table subsequent to that event. If I had seen a large movement in the shares of any of the large shareholders, I could tell you where it was coming from, but there was not. I saw no movement in the cap table. So, unfortunately, it was a bit of a head fake. It was an exciting day. I did not know where it was coming from, but my best guess is an algorithm. All right.
That concludes our question-and-answer portion.
On behalf of Scot, Jared, and the entire Wrap team, thank you for your engagement and support. We look forward to updating you on our progress. This concludes Wrap Technologies First Quarter 2026 earnings conference call. Thank you.
This concludes today's conference call. Thank you for participating. You may now disconnect.