Wrap Technologies, Inc. Common Stock 2026 Q2 Earnings Call

Thank you. Good afternoon, and welcome to Wrap Technologies' second quarter 2026 earnings conference call. I'm Lou Springer, vice president of finance. Joining me today is Scot 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 and are being made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and the federal securities regulations. Please review the forward-looking and cautionary statements section at the end of our second 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 an offer to buy any securities. Securities will be offered only by means of a registration statement and prospectus, which 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 these 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 will compare the second quarter ended June 30, 2026, to the second quarter ended June 30, 2025. The earnings release will be available on the financial information section of our website at ir.wrap.com. In addition, a replay of this earnings call will be posted to our website after the call. I will now hand it over to Scot.

Thanks, Lou, and thank you, everybody, for joining the call today. We're coming off our best quarter in years. Revenue doubled quarter-over-quarter, and we doubled compared to the second quarter of last year. Operations continue to become more efficient. We're expanding sales. We productize our training. We're growing our BolaWrap programs. And we have doubled our product offerings. Today, we serve federal, state, and local private sector customers. The big difference now is the money is flowing from the states, local, and federal level, and we're following that money. There are funded requirements which we now have capabilities to service for the first time in a long time. We transformed Wrap from a single-product company into a portfolio of solutions with a strong emphasis on scalable training delivered through our learning management system, and we've accomplished all this at a fraction of the expense of the past.

That's not the real story. Three recent developments have put us in a truly unique position that we intend to capitalize on. The first is the ATF determination issued in early July that BolaWrap is not classified as a firearm or a weapon. For years, that uncertainty limited our ability to pursue the private security market, a market significantly larger than the domestic law enforcement business. One company I spoke to last week employs more security guards than there are police officers in this entire country. In the past 30 days, we've had dozens of conversations with potential customers in this market, and we've already received our first grant-funded training order. This opportunity is significant, and the time to pursue it is right now.

Security guards face many of the same challenges as our law enforcement officers do, but with one major difference: most of them are unarmed, and they receive very little training. The average police officer receives roughly 800 hours of training before receiving their badge. By comparison, security guards receive fewer than 50 hours at best. The problem is access to the training, and it's the budget. BolaWrap now has a solution these professionals can actually carry, and our LMS allows us to deliver consistent, scalable training wherever they operate. Even more encouraging is the insurance companies that are interested in supporting its adoption, and we're going to get more into that when Jared presents. Dozens of conversations with private sector organizations giving us clear direction, and we're going for this market aggressively. The second development is the return of DOJ grant funding.

We've identified 11 active programs that can fund the BolaWrap, can fund our body cameras, that are funding de-escalation training and virtual training. Most of our customers are small, mid-size departments where grant funding is essential to purchasing equipment, providing effective training. The funding window has reopened, and we're positioned to help customers take advantage of it. The third development is the Frenel opportunity. We've been watching this technology for years, and I'll spare you the long story, but when we received a call telling us that the tech was finally operational, we dug in. We saw it detect a wide range of threats, including drones that couldn't be tracked by some of the most advanced thermal systems. Its polarization layer identified both material characteristics and heat signatures. One screen was blue sky and the other screen was a clear threat. That conclusion was obvious to us.

Frenel could see what other systems could not. This technology has critical applications for our cities, our borders, and our national defense. More importantly, it gives Wrap a structural advantage that competitors simply cannot copy, replicate, or acquire. Wrap now holds an exclusive U.S. and NATO right to TPiCore by Frenel, a physics-based polarimetric sensing technology detects, identifies, and classifies objects based on the materials and shapes. It is one of the few technologies capable of addressing RF silent and camouflaged targets in dense urban GPS denied, cluttered, and RF contested environments. In plain English, it can distinguish a drone from a bird under conditions where conventional systems struggle. No jamming, no spoofing, no countermeasures. Together, these three developments open new markets across private security, law enforcement, and national defense. This is a significant opportunity for Wrap and for all of us. With that, Lou, it's back to you.

Thank you, Scot. Second quarter 2026 financial highlights are as follows. Total revenue increased 103% to $2.1 million compared to $1 million in the prior year period. Gross profits increased 217% to $1.5 million compared to $0.5 million in the prior year period, and gross margin expanded to approximately 75% compared to approximately 48% in the prior year period. Our loss from operations improved 21% to $2.3 million compared to a loss of $2.9 million in the prior year period. Net loss improved 39% to a loss of $2.3 million compared to a loss of $3.7 million in the prior year period. The prior year period quarter included a $0.9 million non-cash loss from the change in fair value of warrant liabilities that did not recur. Cash and cash equivalents were $4.8 million at June 30, 2026, compared to $3.5 million at December 31, 2025.

Lastly, total liabilities were reduced to $2 million at June 30, 2026, from $3.9 million at December 31, 2025, reflecting the termination of the company's former office lease. Now I'll hand it over to Jared.

Thanks, Lou. I'm about to describe a company that's changing. New markets, bigger markets, a new revenue model, and a new platform. Let me tell you that story in five parts. First, the environment around this company changed this year, twice. Both were outside of Wrap. The first came from the Supreme Court in 2025. Barnes v. Felix rejected the narrow reading on the use of force. It's a Supreme Court decision. The question of what an officer faced in the final seconds changed. The whole encounter now matters. What happened before it, what officers knew, and how the situation developed. That matters to us because our thesis has always been about creating another option earlier, before an encounter reaches its most dangerous point. The second came in June. ATF classified the BolaWrap 150 as an instrument of restraint and a rescue tool.

Under the federal statutes defining firearms and weapons, the BolaWrap 150 is neither. You put those side by side. The constitutional lens has widened to what they call the totality of circumstances. The totality of the encounter now matters. The federal government has determined that our tool, built to create an option earlier, is no longer a weapon. Not only is it not a firearm, it is not a weapon. We did not manufacture the constitutional change. We did not control the federal classification. But we built the technology that now sits at the intersection of both. That is a structural advantage. It does not exist with this clarity until just a few short months ago when all this came into fruition.

It is a big one. The second part is what we are selling. What we sell is changing. A BolaWrap in a holster is not a capability. It becomes a capability when an officer recognizes the moment, deploys it correctly under stress, and still has that proficiency months later. We all know proficiency decays. A one-day certification class does not reliably survive a year on the street. So we did something about it. The real product is not the device. We are selling readiness. WrapTactics is how we deliver it. We launched earlier this year, and as of this month, the core content library is complete. Here is what that changes.