Benzinga | Jun 7, 2021 05:20AM EDT

Digital Ally Forms New Business Unit to Pursue Healthcare Market Opportunities

Digital Ally, Inc. (NASDAQ:DGLY) today announced the formation of Digital Ally Healthcare, Inc. ('Digital Healthcare') to pursue opportunities in the healthcare industry. This business initiative is part of the Company's strategic plan to diversify its product and service offerings to address larger target markets that have significant growth prospects. Digital Healthcare's goal is to create recurring sources of revenue, expand its profit margins, achieve sustainable positive cash flow and fuel future growth.On June 4, 2021 Digital Healthcare, a wholly-owned subsidiary of the Company, entered into a venture with Nobility LLC, an eight-year old revenue cycle management ('RCM') company servicing the medical industry. Digital Healthcare is capitalizing the venture with $13.5 million to support the venture's business strategy to make acquisitions of RCM companies. Digital Healthcare owns 51% of the venture that entitles it to 51% of the distributable cash as defined in the venture's operating agreement plus a cumulative preferred return of 10% per annum on its invested capital. Nobility will receive a management fee and 49% of the distributable cash, subordinated to Digital Healthcare's preferred return.The venture currently has two target acquisitions (the 'Targets') under letters of intent and is negotiating for the purchase of another RCM portfolio. The total revenue run rate of these acquisitions is approximately $5.0 million annually with significant profit margins expected after the venture implements cost reductions and economies of scale. The total purchase price of the Targets are approximately $5.0 million with cash at closing expected to average 75% of the purchase prices and the balances generally paid over several years subject to achievement of certain milestones. The closings are expected to occur over the next several months and are subject to final due diligence and negotiation of definitive agreements.'Healthcare represents approximately $3.5 trillion or 18% of the US economy annually', said Stan Ross, CEO of Digital Ally. 'Last year we added the Shield Health Protection Products line to address parts of the health and wellness market. The Shield line includes Shield Cleansers, a highly effective, yet safe, disinfectant and sanitizer for use against SARS-CoV-2, a non-contact thermometer/controlled-entry device, an electrostatic sprayer for fast and efficient disinfecting of large areas, and a variety of personal protective equipment including face masks, gloves and sanitizer wipes.''Digital Healthcare's venture with Nobility is a further expansion into the healthcare market. The venture's acquisition targets include the approximate 6,000 medical billing companies in the United States, most of which are relatively small and closely-held private concerns. Each year a portion of these company owners sell because they want to retire or exit the business for other pursuits. The RCM market is quite fragmented with the largest companies having less than an estimated 5% of the total market. We saw the opportunity to form the venture with Nobility, provide the capital to make acquisitions and pursue the RCM company roll-up strategy at a faster pace. We have a long association with one of the founders of Nobility and thus have had insight into its operations and track record in providing superior RCM and practice management services, as well as its ability to execute a profitable roll-up strategy,' Ross concluded.Upon completion of the acquisitions the venture will process and submit the medical reimbursement claims of its physician clients to commercial health insurance companies and Medicare/Medicaid for the services the physicians have rendered to their patients so they can receive payments. The venture will receive a percentage of the cash collected for its fees. The RCM agreements with physician clients generally renew automatically on an annual basis.Nobility will manage the venture with certain administrative assistance from Nobility Healthcare. Nobility has a deep and experienced management team with many years of combined medical billing experience. It is based in Scottsdale Arizona with an overseas office and staff. Nobility has a proven track record of being able to purchase RCM companies at favorable prices and terms, cut costs and improve client performance levels and profit margins while retaining the client portfolios acquired. Because these are service-based businesses, the largest cost is labor. Nobility has developed the infrastructure and management expertise to cut these costs while providing superior service levels through its management team and staff. Nobility operates an overseas office and staff that provides back-office claims processing, submission and follow-up services which will support the venture's operations. Its overseas labor and office costs are generally much lower when compared to higher cost United States-based staffing and facility costs. We intend to retain United States-based staff members of the acquired RCM companies who have key client facing relationships to provide seamless services and improve client retention levels.