Digital Ally, Inc. (NASDAQ: DGLY) (the “Company”) today announced
that its Board of Directors has unanimously approved a plan to
pursue a separation into two independent, publicly-traded companies
to optimize investment and capital allocation, accelerate growth,
and unlock shareholder value. Upon completion, the Company’s
stockholders will own equity in two focused and streamlined
businesses that are both leaders in their respective industries and
well-positioned for continued success:
- Digital Ally, Inc.
will continue to be a leading and innovative provider of video
solution technology for law enforcement agencies, commercial
fleets, and situational event security solutions. Digital Ally will
also continue to provide working capital and back-office services
to a variety of healthcare organizations throughout the country
through its revenue cycle management subsidiary.
For the year ending December 31, 2022, these
standalone businesses are expected to generate approximately
$16-$18 million in annual revenues. Digital Ally, as a stand-alone
entity, will be well-positioned to accelerate organic growth in its
large and attractive end markets, benefit from favorable secular
trends, and begin to apply discipline and focus throughout the
company to enhance profitability and continue to drive growth, new
product development and expansion.
As an independent company, Digital Ally, Inc.
will have greater strategic focus and operational flexibility,
while building on its recent momentum and emphasizing the
improvement of its profit margins and profitability. Additionally,
the company expects to benefit from dedicated resources and
management, with an attention to brand building, innovation, and
extended opportunities domestically as well as internationally. As
Digital Ally has continued to build its portfolio of subscriptions
and customers that are already in place, the company believes that
it can continue to maintain stable sales through its deferred
revenue model; however, there will be an equal expectation for
growth and expansion across several high-growth adjacent
markets.
Digital Ally, Inc. will now be led by Brody J.
Green, who will serve as the President effective January 1, 2023,
and Chief Executive Officer at the date of the spin-off. The
company intends to continue to be listed on the NASDAQ under its
current ticker symbol, “DGLY”.
- Kustom
Entertainment, Inc. will be a premier
multi-disciplinary entertainment company, anchored by a premier
ticketing technology business poised to achieve substantial scaling
opportunities, through its TicketSmarter, Inc. subsidiary, which
offers unique primary and secondary ticketing products to the
market. Additionally, Kustom Entertainment’s offerings will include
a distinctive event marketing and production company, with numerous
customization options for events, festivals, and concerts, through
its Kustom 440, Inc., subsidiary.
For the year ending December 31, 2022, these
standalone businesses are expected to achieve approximately $23-25
million in annual revenues. We believe that this business can
achieve above-average growth by exploiting its relationships in the
sporting and entertainment industries that are intended to support
its primary ticketing-related opportunities, along with the
expectation of the full deployment of the Kustom 440 brand and its
line of service offerings. Kustom Entertainment, Inc. will be able
to differentiate itself through its ability to provide event
services of all sizes, ranging from corporate events to multi-day
festivals. Furthermore, the ability to offer venue, ticketing,
marketing, and production capabilities will make this company a
unique and attractive option for many partners and investors.
With the planned separation, TicketSmarter is
expected to enhance its leadership position in the national
secondary ticketing marketplace, while also building a stronger
position in the primary ticketing market. Furthermore, as Kustom
440 was formed in mid-2022, the event marketing and production
business will be fully able to execute and produce the planned
events throughout 2023, as production and investments have already
begun.
Kustom Entertainment, Inc. will be led by
Stanton E. Ross, who will serve as the President and Chief
Executive Officer. Kustom Entertainment’s shares are expected to be
listed on a national exchange under a ticker symbol to be
determined and announced at a later date.
Compelling Rationale for a
SeparationThe Company’s Board of Directors and management
believe that the creation of two separate companies with distinct
product and service offerings will better position each company’s
business to deliver long-term growth and create value for
customers, investors and our associates, with each company
benefiting from:
- Deeper operational focus,
accountability and flexibility to meet customer requirements;
- Increased operating and financial
flexibility to pursue growth opportunities;
- Tailored capital allocation
strategies aligned with each company’s distinct business strategies
and industry specific dynamics;
- Enhanced ability to attract a
shareholder base aligned with each company's clear value
proposition; and,
- Enhanced ability to pursue
accretive M&A opportunities, with the benefit of an independent
equity currency reflective of the strength of each company.
Mr. Ross, the current President and Chief
Executive Officer stated: “This announcement marks a major
milestone in the evolution of Digital Ally and its subsidiaries.
Over the past 17 years, I have dedicated myself to delivering
consistent and differentiated execution, strengthening our business
through organic growth and value-creating acquisitions. Having
achieved the scale to operate as two market-leading, separate
companies, we believe this transaction will unlock substantial
value for our stockholders, as each company attracts an investor
base tailored to its respective financial and growth profile.”
“Importantly, after the separation, both
companies will retain the key aspects of Digital Ally’s strong
culture and management approach, providing a strong foundation for
both companies. I’m excited to unlock the connections and
opportunities I have within the entertainment and events industry,
which has always been a true passion of mine. Likewise, I am as
equally excited to see Brody Green take this new role with DGLY and
for the opportunities, discipline, and passion he will bring to our
growing legacy business.”
Transaction DetailsThe
separation is expected to occur through a tax-free distribution of
Kustom Entertainment, Inc. shares to Digital Ally Inc.’s
stockholders. Stockholders would receive shares in the spun-off
entity on a pro-rata basis relative to their Digital Ally holdings
at the record date for the spin-off.
The separation is expected to be completed
during the first half of 2023, subject to the satisfaction of
customary conditions and final approval of the separation by the
Company’s Board of Directors. Stockholder approval is not
required.
The Company will maintain its current capital
deployment policies until the separation is completed.
Additional details of the separation are
expected to be announced in the coming months and included in
future filings with the SEC, including Board and leadership teams
at both companies.
AdvisorsSullivan &
Worcester, LLP is serving as legal counsel and the Company has also
engaged a financial advisor for the transaction and will separately
seek an independent valuation of the businesses.
About Digital AllyDigital Ally,
Inc. (NASDAQ: DGLY) through its subsidiaries, is engaged in video
solution technology, human & animal health protection products,
healthcare revenue cycle management, ticket brokering and
marketing, event production and jet chartering. Digital Ally
continues to add organizations that demonstrate the common traits
of positive earnings, growth potential, innovation and
organizational synergies.
For additional news and information please
visit www.digitalallyinc.com or follow additional Digital
Ally Inc. social media channels here:
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Forward-Looking StatementThis
press release contains forward-looking statements within the
meaning of the federal securities laws. Forward-looking statements
include all statements that are not historical statements of fact
and those regarding our intent, belief, or expectations, including,
but not limited to: statements regarding Digital Ally’s and the
ultimate spin-off company’s (“SpinCo”) portfolio composition and
their relationship following the business separation; the
anticipated timing, structure, benefits, and tax treatment of the
spin-off; benefits and synergies of the spin-off; strategic and
competitive advantages of each of Digital Ally and SpinCo; future
financing plans and opportunities; and business strategies,
prospects and projected operating and financial results. In
addition, there is also no assurance that the spin-off will be
completed, that Digital Ally’s Board of Directors will continue to
pursue the spin-off (even if there are no impediments to
completion), that Digital Ally will be able to separate its
businesses or that the spin-off will be the most beneficial
alternative considered or will achieve the planned tax-free
treatment. We caution investors not to place undue reliance on any
such forward-looking statements.
Words such as “anticipate(s),” “expect(s),”
“intend(s),” “plan(s),” “believe(s),” “plan(s),” “may,” “will,”
“would,” “could,” “should,” “seek(s),” and similar expressions, or
the negative of these terms, are intended to identify such
forward-looking statements. These statements are based on
management’s current expectations and beliefs and are subject to a
number of risks and uncertainties that could lead to actual results
differing materially from those projected, forecasted or expected.
Although we believe that the assumptions underlying the
forward-looking statements are reasonable, we can give no assurance
that our expectations will be attained.
Risks and uncertainties that could cause actual
results to differ materially from our expectations include, but are
not limited to: changes in global economic conditions (including
inflationary pressures) and geopolitical risks, including
macroeconomic fluctuations that may harm our business, results of
operation and stock price; our ability to source components and raw
materials from suppliers, including disruptions and delays in our
supply chain or the supply chain of our vendors; demand for our
products, which is variable and subject to factors beyond our
control; governmental regulations and failure to comply with those
regulations; fluctuations in the prices of our components and raw
materials; loss of personnel or being able to hire and retain
additional personnel needed to sustain and grow our business as
planned; risks from environmental liabilities, costs, litigation
and violations that could adversely affect our financial condition,
results of operations, cash flows and reputation; risks associated
with conducting a substantial portion of our business outside the
U.S.; adverse impacts from intangible asset impairment charges;
potential product liability or warranty claims; being unable to
successfully develop and introduce new products, which would limit
our ability to grow and maintain our competitive position and
adversely affect our financial condition, results of operations and
cash flow; significant competition in our markets; additional tax
expenses or exposures that could affect our financial condition,
results of operations and cash flows; the ability and willingness
of Digital Ally and SpinCo to meet and/or perform their obligations
under any contractual arrangements that are entered into among the
parties in connection with the spin-off and any of their
obligations to indemnify, defend and hold the other party harmless
from and against various claims, litigation and liabilities; and
the ability to achieve some or all the benefits that we expect to
achieve from the spin-off.
Readers should carefully review Digital Ally’s
financial statements and the notes thereto, as well as the section
entitled “Risk Factors” in Item 1A of Digital Ally’s Annual Report
on Form 10-K for the year ended December 31, 2021 and the section
entitled “Risk Factors Related to the Holding Company Proposal” in
the Digital Ally’s Registration Statement and the other documents
Digital Ally and its subsidiaries file from time to time with the
SEC. Readers should also carefully review the “Risk Factors”
section of the registration statement relating to the business
separation, which is expected to be filed by SpinCo with the SEC.
These filings identify and address other important risks and
uncertainties that could cause actual events and results to differ
materially from those contained in the forward-looking
statements.
These forward-looking statements reflect
management’s judgment as of this date, and Digital Ally assumes no
(and disclaims any) obligation to revise or update them to reflect
future events or circumstances.
We make no representations or warranties as to
the accuracy of any projections, statements or information
contained in this document. It is understood and agreed that any
such projections, targets, statements and information are not to be
viewed as facts and are subject to significant business, financial,
economic, operating, competitive and other risks, uncertainties and
contingencies many of which are beyond our control. Furthermore,
there are no assurance can be given that any particular financial
projections ranges, or targets will be realized, that actual
results may differ from projected results and that such differences
may be material. While all financial projections, estimates and
targets are necessarily speculative, we believe that the
preparation of prospective financial information involves
increasingly higher levels of uncertainty the further out the
projection, estimate or target extends from the date of
preparation. The assumptions and estimates underlying the
projected, expected or target results are inherently uncertain and
are subject to a wide variety of significant business, economic and
competitive risks and uncertainties that could cause actual results
to differ materially from those contained in the financial
projections, estimates and targets. The inclusion of financial
projections, estimates and targets in this press release should not
be regarded as an indication that we or our representatives,
considered or consider the financial projections, estimates and
targets to be a reliable prediction of future events.
Contact Information:Stanton
Ross, CEOTom Heckman, CFODigital Ally,
Inc.913-814-7774info@digitalallyinc.com
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