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VirTra (VTSI)

Participants
Bob Ferris CEO
Judy Henry CFO
Jaeson Schmidt Lake Street Capital Markets
Allen Klee Maxim Group
William Gibson ROTH Capital Partners
Call transcript
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Operator

Good afternoon. Welcome to VirTra’s First Quarter 2019 Earnings Conference Call. My name is Omar and I will be your operator for today’s call.

Joining us for today’s presentation are the Company’s Chairman and CEO, Bob Ferris; and CFO, Judy Henry.

Following their remarks, we will open up the call for questions from the VirTra's institutional analyst and investors.

call, that like statements includes this the Safe provide made begin call. Statement Harbor cautions we I to would VirTra’s during Before regarding forward-looking

any about financial presentation, or markets, subject statements which information, may to this future, make products discuss the them made. forward-looking During a differ materially or services management otherwise to required cause actual The does number company results expectations of update are the about risks and uncertainties or obligation Company’s and not law. by undertake the as could statements projections, to that and from

Finally, replay I to via that Company’s Relations’ everyone for in will link the this Investor the call would like a section available www.virtra.com. be at made of remind website

to Chairman turn to Sir, like Bob Ferris. over call and proceed. Mr. would VirTra’s please the I CEO, Now,

Bob Ferris

Thank us afternoon Investor of our quarter of joining website. a press marked thank today. we QX Relations’ our you results release, in After XXXX for you. for issued everyone point in the closed, development. first is available important company's the a financial market Good our section and in which an the copy

As in implementing initiatives business. share penetrate a markets in March, has growing diversify simultaneously diligently last our while new working technological our I like by to type which products. We're new and expand we’re expand bolstering need this our market market on to doing the our outlined to call for capabilities VirTra law military enforcement

the established as to experts and enforcement. adapt. is continue uniquely remain for hi-tech save de-escalation through But leading of to and you effective we've in industry to at experts, know, ourselves over improve and training evolve most leading our it's and industry the simulation law VirTra critical As mission to the products lives years

With business. grow Our on solutions and increase and finding profitably new substantial goal to positive witnessed which constantly rewards in our impact us our to implementing business will trace customers that quarter impact upon come. ways and have we're creative company's the in years first innovation to positive our improving initiatives XXXX dedicated new to growth greatest believe strategic on mind, the we the

you're of each contribution I'm believe be invested products, expect meaningful passing with in our will be they to and business accretive sure results grow new new that scenarios new development start aware strategies the but of some sure, sales numbers. As and these generate day, our immediately will To we initiatives for over we’ve will account already we not to a on time.

to market experience to for ramp not fully and by due effort would programs. seeing That than some our being program. to it as in be fluctuations staff we tremendous VirTra better already work said, financials expected us these to success surprising example, the For acceptance, up with we're STEP continue

line in top improvements historical our So noticeable to XX% the unique numbers. increased results making gross that XX%, profit mind initiatives were encouraged and witnessed is financial increased large the margin in were that our which compared with with while and When in prior sequential to still numbers. the we to see such of despite in QX that QX implemented along we changes, lower come challenges year-over-year, the we our with more gross line quarter, increased XX%

perhaps balance which $X cash most cash, strong to our well our to for a deliver and business and million our million remain equivalents Additionally, XXXX. continued in increased sheet ability $X.X strong about bodes backlog with to our encouraging, And CDs.

made large significant quarter. revenues international was by our last the encouraged up this that customer order an we portion made domestic a In quarter we’re metric improvement sales. that we in year, of the a first Another that quarter delivered from of

comparison in quarter substantial of increase QX If domestic this $X.X domestic million. of By believe year, our revenue We a increased is order, this XXXX for nearly to roughly international the million. by you in XX% first revenue significant this $X.X few exclude our were reasons.

products simulation U.S. the educated and and continues better mature First, see become it marketplace demonstrates in importance we continued the on demand training. the to for effectiveness as increase our of

mentioned more continued more can the thanks officers realize be training more in qualified advances we simulation cost training to many the technological effective alternatives. key than that are agencies As beginning our simulation and call, effective QX is highly producing to instances, in and and far most to

We who in team is of more in employees sales investments and credibly also demonstrates domestic paying sector capitalizing this business the part sales improving our our of effective sales becoming off. our team currently trends. that Second, increase clearly are serve we've team XX as the have marketing these macro made at on and

So team to our And for I'm the It products The of so need far that is VirTra deal. proud is close XXXX. of sale. in take our the touch work points establish a reality has is an several complex eventually an agency simulator the and a apparent. done can inherently confidence

Finally, program traction is out gate. the right the STEP gaining of

and training. and recent are improve purchase to to Subscription decision skills access the changes to STEP use perishable a both tools they made and the stands thereby sustain Training inherently reminder, to of professionals which STEP making subscribe Partnership related services in-field major to mandated and gain strategy. we worst agencies sales As and our allows Equipment for products and need and sales to

aware contracts, quarter-to-quarter. to be of all our the size revenues some unpredictable you're large of from can due As

products, who's standard had our opportunity we types goal training demo anyone effective are As for the simulation to our products. for an of

delayed ultimately notice. more for Once there are or is decision can made, an and one be that difficult simulators. moment's that frequently can external factors cause or orders allocate to it However be agency to consuming at a still for capital expedited time

opposite when the delays. or International. ramp-up may Sometimes to want budgetary as orders meet possible get as a held in training soon customer up as simulator requirements in customs Other a shipping quickly delivered times order as or possible

can certainty be recognized. the potential therefore these will customer. traditional revenue of to entry allows the barrier difficult less and these upfront for has eliminate less model. delivered STEP factors many our lowers That from make variables, when with of to and deployments will to All to it when say be than be quicker it complicated capital far sell and It the simulators

STEP. would seen sales we traditional it sales seen our medium program with uncertainty a traction encouraged We’re and in attract believe rather driver this is the detract very seems and of time when offer far prior it purchases model. in from the take be market traditional a so we customers. we subscription but revenue we is tandem. STEP models program becomes to decision we've before significantly will new, while meaningful introduced major both far by sell not affect that spoke in as it hardware some how mind pleased still continue and the to say to future, it to experts the launching There our so with so still may test that new It Keep subscription STEP validate have revenue. line it the I'm traditional to item

However, customers specifics prove since to walk to Afterwards, more made now into we've be STEP on I for we And Henry to XXXX. ultimately our of I'll as its the our through and beginning the more will revenue recurring component us year, our I'd and as talk dive Judy? before are financial outlook over for business. to both about to quarter. of like incredibly the operational progress valuable adding our the call our back jump the turn results confident CFO, well to our progress that Judy

Judy Henry

and Bob afternoon you, good Thank everyone.

quarter lower was and Turning to partially our total total to accessory reoccurring year-over-year financial million XXXX quarter the offset sales which other decrease revenues. increases the extended $X.X $X.X first and to revenue in warranty first decreased the million XXXX. our increased simulator of due quarter by XX% results, in The of and in in in revenue million were X% prior from from $X.X

first quantity gross revenue or XXXX. profit increased systems, quarter year-over-year in and of in total to $X.X of million of Our primarily the mix quarter XX.X% differences or decrease from of total to services The in XX% sold. XX.X% quarter in million due the and product profit revenue in gross total $X.X prior and of the million, revenue was accessories XX% the of from XX% XXXX $X decreased first

decreased decreased X% research and of operating the bad first quarter and labor $X.X to development net for XXXX. costs expense quarter The in the quarter expense, and due reduced $X.X services, expense decrease in was selling, in first XXXX to million administrative operating expense XX% million net from of company Our from benefits, public prior debt. $X.X the professional and general for million

loss loss in of $XXX,XXX of for of to our the first XXXX. the quarter quarter and in prior profitability a to from Loss first of compared the operations million $X.X a quarter measures. $XXX,XXX XXXX was Turning

We of compared or tax first benefit quarter XXXX net loss $XX,XXX and net diluted for of $X.XX diluted an $X.XX quarter loss totaled a to XXXX. first share negative of recognized or the prior $XX,XXX first of $XXX,XXX $XXX,XXX in of in million the or in share. the $X.XX quarter Our negative income diluted net XXXX. share $X.X the quarter loss of per first of negative a to This per quarter compares in the XXXX per

the Our compared XXXX. $XX,XXX XXXX the first quarter loss to a in $XXX,XXX measure in of loss, adjusted adjusted of EBITDA EBITDA totaled an non-GAAP financial first of quarter

delivered consists our in for $X quarter-end, for goods periods. backlog backlog Turning to of to increased services be subsequent backlog, our Backlog includes deferred our products, contracts to and and services revenues. At sign bookings million.

a year, standpoint, our first under first Directors January approximately our $X working of we of $X.X equivalents $X stock XXXX million authorized the repurchase balance with Turning sheet. cash the million. of of From program and we ended compared this million. And certificates in amount and finally from in XXXX. capital of had million in $X.X At Board quarter million the increased quarter-end, working to the to cash capital deposits $X.X quarter totaling to

of to year it purchased stock common since mid-November the XXX,XXX remarks. aggregate approximately That $XXX,XXX. stock the concludes back now of to my prepared have of beginning of turn repurchase since bringing common We I'll the XXXX Bob. amount

Bob Ferris

that pleased report the set our VirTra’s products industry. for to to of the and bar I'm Judy. service continues the quality Thanks

you're at that when closely However each watching to initiative. are emulate and often level, competitors try

and or difficult of to either are our copy. recent much progress partnerships impossible Fortunately, directly

valuable Therefore currently insights competition gaining and development. very our updates However under we're detailed quiet competitive in keep strategy initiatives preventing working forced typically initiatives. to constantly balance for purposes, about our to we’re company providing from with

at prudence So providing time. while behind to issues work demands about detail extremely hard refrain from program and scenes, this that we new remain much the we too

strategy and However initiatives new our turn say mature. I the the cautiously back reason to let's we focus enforcement about more diversifying our in enhancing year remain the that our to updates. the we and and presence begin are There components outlined January With suite are resources of on remainder can't sales markets. mind, seeing to good QX two and major we technology footprint optimistic of that law our have to to excited our expand in military in

portfolio stone. patent kill acquired saw we the potential the Tiberius two one With Technology to with from birds we

for simulate one firearms life while or spend and when trainee deal to to most, the we lead threatening time with matters demand, they is the growing weapon at at duress firearms components their less remarks, impactful my simulation stake. additional macro enforcement to are witnessing to a for in this to best under expanded difficult lead at and the now realistic business products. briefly ample In If when can simulation ability simulating well. Unrealistic a effective do of and market fail training critical I does Accurately our military. environment are training. is issues Our so patent most and in it changing opening to operation training. negative training the weapons law of the not both cornerstone with simulation, mechanical is ability our lives how may reload And discussed as protection worst

competitive educated, design the new of continues demand capital by this of product product, the our Near details to ones the $X.X disclose our position market with that more diversify in currently end to as products outlined meet and only for not a anticipation seen QX, well. the about with addition to the been changes, of Department new recent previously we As decision we aspects simulator In are moving product growing needs. traditional driving products both we've into the increase I these to become but of the million market driving by to we’ve investing these announced to due a State our Republic validated line resources to for business simulator our was new of line extensive Mexico. of our contract not a

our to streams but not expand another diversifies simulation into We’re that revenue our could have excited product capabilities line vehicles. only

we this Vehicle in Training updates new the show Traditional is our continues designed potentially Labor more specifically develop. High-Risk Stop. to have it intensive certified to dangerous. or High-Risk called year Vehicle program in simulate specific as which will HRVS can to to We training either for be not introduced February, resource mention In later, methods curriculum

our and training effective like in methods. more last more we other is of Our to solutions latest addition to a cost of which most safer, current effective HRVS year. This curriculum quarter launched alternative curriculum the V-VICTA the third provides

and program while for reminder, has to a enables the first law from program individual training agencies to and accepted continues reviews break and so can departmental this been far do out teach, products I enforcement positive test this sustain report sales requirements As customers. train, well that receive we not

services, management of team new adding new our President in Program addition Handel. strengthen a In also products Vice Management, Steve we by season and

Steve the for here reminder, development market and are why to-date. having been key and is technology program but Conducted scale. most be Steve previous Weapon at developing directly released or Perhaps CEW $X.X that our recently only a which The of designed takeaway a space relates a relevant most the Axon’s VirTra products for led years estimated history Axon. has TASER has work experience Energy to not companions, to XX in relevant of As effective X our TASER CEW’s Steve weapon his his to management used been large total brings to has addition addressable are great in credential to our on billion. that at passion the that team.

industry we He’s core team show board have from factors to improve company has the receive on to shareholder products reasons we’re the that possible. and run to by primary culture we QX, and and up products is way the appreciation difficult been employees, nicely. continue of ratings balance are onboard. came in drive intangible addition great to doesn't to this long great value in intended to and among our pleased to related an been Personnel exceptional the our settled we're a Steve focused most the business, the a that we in he him changes directly of remain in customers both. believe and here team same, confident a he or That those best I'm our the improving the manner leading was one mission report already sheet As of the efficient or continue much on to fast on that quantify. service notes customer happy employees with saving on remains to the to and hi-tech lives providing most implement effective, track

to these VirTra fruition, updating changes about time it for we these reflects open recent look remain positive at all of please of of appropriate the endeavors we're Operator, all benefits while and exciting to is future take All that come this fully your the an with may soon. time for This instructions. to forward you the ready to call the questions. that, And optimistic we business provide mindset.

Operator

Street you. this Instructions] Jaeson At your first question. question-and-answer session. Lake we'll Thank conducting proceed time, be from Please Our Markets. with question a comes Capital Schmidt, {Operator

Jaeson Schmidt

if Bob, questions. your your my for is impacting guys, length timeframe I backdrop. the to with Hey taking sales start that with thanks just macro cycle the of customers? Curious engagement or want impacting

Bob Ferris

you What speaking backdrop to? are aspect of macro the

Jaeson Schmidt

your is war trade macro tensions if sales that if concerned getting has at Just cycle are customers the all? elongated and softening overall that the

Bob Ferris

VirTra trade comes tension. be China so have to one today, don't sold When is standoff rhetoric, seeing far the and training trade to firearm tariff impact not we're not heard it could export from both impacted. goods and I as of our side we're not morning the of goods fortunate which domestic sold that. affecting and House simulators situation sales, international of we that for checked seen supplier our concerning this directly is also cost cost an Well, I the on war the our of on

this So least at major seen from at least the any do business what we we not have at point, in tension with impact VirTra China.

Jaeson Schmidt

interpret transition that STEP STEP that's to normal program? that we comments helpful. indication new hasn't customers should as most are looking of product And the customers your excitement impacted Okay, from from be to an customers from less and program sales the may the current really

Bob Ferris

STEP STEP either that and same The for renewals are that the on we fair. essentially type they're -- I caveat put of also may and that options, of but renewals would clients customers up having that's there think VirTra them we STEP offering warranty the warranty offer prefer contract that's either warranty internally coming I contracts are would only be be sense. that renewals VirTra make interchangeable or but contracts revenue fairly instead

Jaeson Schmidt

And looking of given know sales you expect does That you you significantly Okay. after but I add need to these opportunities opportunities? sense. at employees go you headcount to number outlined XX different have make the all just to to have. Do OpEx, new finally,

Bob Ferris

Keep It possible add implications some would we that we opportunity programs. is a is while military multiple headcounts sales difficult situation to various that might have on be is exactly that mind a might different that have working in that in too the to predict. to

the up United personnel mention do swing staff having and an in States So didn't products have where able able since might depending situations pretty item that's you certain arrangements our that think demonstrations. about need throughout I get important to staff We of infield and to huge multiple may still show on the sales be people without actually be we're front market. sales I not up. scattered specialized a sales we in

over that only little really ago also and year a that started began in that so earnest. that program when we And

So We increase we sales, elongated you're much the our longer ago sales did available, the sales that it. so not big something sell have program some our somewhat you and but impacts cycles also when did intentional and two of increase in process so. like subscription because staff ability we can't years like to sales did that sales was more having a

Jaeson Schmidt

lot. a thanks Okay,

Bob Ferris

Thank you.

Operator

question. [Operator Allen Maxim from Instructions] your proceed Klee, comes with Our next Please Group. question

Allen Klee

now, on think revenues just Yes, sense financial guidance but for I that investors hi. they if they you if you earnings what I know know might don't of be XXXX, based than XXXX very on you and higher you you would you. or you if helpful be had provide in it if qualitative for Thank provide think some thought if color that. what were that any can

Bob Ferris

Our stronger be certainly as bottom XXXX. and and the would top well would be XXXX goal that line in that is stronger goal our line

Allen Klee

Okay, us then for very good And and backlog announced about bookings we you. you give which some Can how of recognized much of very That's thank the next XXXX? numbers. within helpful. sense or you might quarter that think should how were that get

Judy Henry

think contracts a quarter-to-quarter around in of take contracts on based and work. move lot customer's can again different substantially ability delivery. have the the And we I those schedule to

I good it's but can think break it on see very recognized of XXXX basis. them hard down a to quarter-by-quarter we in majority

Allen Klee

in you about you know add could there. opportunities a you about, XXXX? portfolio in else talk military about Okay. should which of opportunity Anything And you how mentioned help then I can patent think and the little you've talked calls penetrating military the few a ago,

Bob Ferris

is that revenue like be that military opportunity. what recognized wise. there solid So I big wise question look and The a think timing does would

think products VirTra military and that of track fuzzy, things behind having demand them. very, the where developed already products of do a you some I with those uniquely that's So situation having record very a have get for

it's bit that's it's I us Unfortunately, too identify good think it a XXXX, I is might But combination. too think early for hit, revenue is XXXX. to it really a early. when

don't the we -- So great visibility sorry on win. there's not

Allen Klee

on you think about much how terms the State you pipeline And there? program Department Okay. and in how of an the could us update is then available still sales give

Bob Ferris

that remain you're Yes, is intact. I IDIQ continuing, their State, levels program think Department funding so appear through to the of referring to

amount approximately believe head. least far that the of million that as $XX that already the is have off we million. on top As at used million I my they know, total $XX $XX of

to driving, And for opportunities. so simulator IDIQ. being simulating compete we carefully continue that that monitor to on important capabilities do think adding, We us new very is very in able

Allen Klee

take to impact June, My you XX% that into your know believe sold? up just understand, the if have you cost in to mentioned go from go starting tariff on goods question does will that last is but I by of you situation also the that didn't were Great. tariffs impacted an account that

Bob Ferris

history We’re not in that XXX% occur years. we haven't XX sure on since situation of this operational our had

we XXX% from won't on I give parts you that do happening a in But impacted we data would not can't overly optimistic it. we're that precise the not area that So we based past. on that be that exactly get answer, as say generally by that is I is China that that an the have

Allen Klee

Great, you much. okay. so Thank

Operator

Capital Instructions] Partners. William Gibson, line ROTH comes Our from your question. with William, now your [Operator live. proceed question Please is next

William Gibson

me, and base excuse the quarter? they quarter mute. all the or a from was surprised fourth drop by technology, was additional up good more the the did first here for year, on I Bob, operating is expenses sequential I spending the in go little hiring like given the on

Judy Henry

as for to that different the profit the Bill, end of getting of audit when lot that. year in QX, year-end sharing potential the happened things accounts we're in things happened such the like adjustments at year for

of year starts and audit. pretty then kind good and loaded adjusts out get But all year-end those QX true-ups for the based So tends initiatives. expenses back as on a at baseline QX to throughout

William Gibson

is that? there step backlog, sense. on Okay, any then that makes And the in

Judy Henry

is. GAAP applicable. XXX course under just definitely those there rules recognition started. all new And of revenue of are getting It's Yes, the

the will be over the revenue considered amortized of it So life deferred contract.

William Gibson

Thank you.

Bob Ferris

to strongly in as more feel, feel very overall very helpful conversion, the that it our meaningful. do especially very, revenue do we But that becomes we recurring future valuation be will

William Gibson

you. Thank

Bob Ferris

Bill. Thanks

Operator

the time, over Mr. now to this closing back remarks. session. I'd our turn like his Ferris this for to concludes At call question-and-answer

Bob Ferris

Thank you.

point display their safety Week. our serve like moment first the risk to a that employees, like I'd we XXXX mounted we time have a our accomplish. close, come and on believe a bless. and ahead much look very to you therefore we certainly out best extraordinary our serve from gratitude updating customers, us take this product and This those, shareholders week call. partners. able women our is National who and not men be at I at in still are so would to safe. and thanks are Thank Before VirTra of and Police brave next to based who to a commitment way forward true long own be we and us. our communities days head put since I exciting has honor and to is here It's without ensure to you to to our the VirTra support extend God

Operator

joining for today conference first Thank XXXX call. quarter you VirTra’s for us

disconnect. You now may