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VirTra (VTSI)

Participants
Bob Ferris Chief Executive Officer
Judy Henry Chief Financial Officer
Jaeson Schmidt Lake Street Capital Markets
Joshua Diamond Maxim Group
William Gibson ROTH Capital Partners
Call transcript
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Operator

Good afternoon. And welcome to VirTra’s Second Quarter 2019 Earnings Conference Call. My name is Tom 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 the 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, via I to a on website section everyone replay the that in Company’s this Relations’ Investor call would like link of be there www.virtra.com. will the remind at

to and the VirTra’s please like to you Mr. Sir, Ferris. turn CEO, Bob [Technical begin. over Chairman Difficulty] proceed. And may Ferries, call Now, I Mr. would

Bob Ferris

issued us in the for Sorry the release, Relations’ market about thank a available in of and this a we our of section you Investor financial everyone press technical copy Good which After today. quarter afternoon XXXX our is results the joining difficulties. closed, website. second for

you of goal VirTra business followed just end imperative simulation effective quickly such to recent shootings all. our who story The horrific at providing the save it know safety underscore and of and how best both our grow lives threats and decisively most and have is improve is by those very As for the the training to possible.

of services not year, which new a exists. the our initiatives to in idea military diversifying effectively of business. we potentially save to will also respond the and But profitable deescalate expanding can ability our to is our changes life-threatening lives improve level and a VirTra market. ultimately better include strategic believe and At And These propel more core stable further a revenue and for this business as VirTra the number technological presence consistent we the capabilities, our products end-users will personnel to of The situations. be only that streams. next create and more bolstering start implemented that help training appropriately why expanding

quarter these progress changes, we substantial which operational the quarters we structural years. business made second next our have our of several positive material and impacts many believe implementing XXXX, of will over In customers and the on and

we for computerized more are seem fact, to technology to by open and their engineers, In encouraged many improving while solutions ever available more needs. of our training customers

previous positive in quarters, between common traditional, our This of model quarters fluctuations sales the only upon an lumpiness option. inherent a results expanded recently As is new and we've it subscription witness have with utilized result in since hardware XXXX we financial both stated and that negative. is

our quality unmatched have staff, strong XX of the we've products leading to sales Thanks and achieved currently of years and excellent a market our revenue pipeline. growth

added assets driving products, simulators. working we these they by new our It the Technologies is acquiring have patented that reason to innovative and and are control from the that improve. offering our weapon within Our product things by many team, among variables are Tiberius expanded our we simulated capabilities our introducing are key constantly drive,

our product have completed sales It demos we record staff that year. is is to that the team. of this reason continue shows the and strengthen It reason trade we of marketing the a and number

customer, the to at variable products impact revenue equation, timing deliveries a the of we which recognition. major comes have recognition we when delivered the customers they to have Because which revenues on delivery control. is When product is product can again has the when physically only discretion choose a the major unfortunately recognize schedule our customer of to revenue there ordered. the of However, a it little is over

It place common for that to the order. is delay and delivery of order rather VirTra with an then customers

our it's of VirTra these constructed the large proper all the We've surges worth customers seen the the proven in customers in the quarter swing capable request has of instances which customers' That in as said, room short of after noting customer even simulators equipment once at delivery new their large have seen the specific a can securing busy case yet was Occasionally, notice. to the not because have funding also years, XXXX. for instances, In will preferences delivery the time both schedule. staff directions. delays second but demand we on date handling simulator. of work amount Over purchase requires because then they being within delay

speaking our proprietary Generally assembly perform manufacturing and in-house. for products, we

scale able and meet therefore to are uniquely customers. the manufacturing our quickly capability our timing to requests We of needs

Our and of one $X.X XXXX. in efforts this a year. second We from our It quarter $X.X a last customers. plus large reason were various federal one accessories revenue flexibility that over quarter little revenues in consisting a we made recognized and of of primary ago XX of the and when scaling report order and simulators we tested orders normal portion quarter from year received substantial is order record a the up million in the our a million

of also large deliver customer. this it infrastructure to delivery is is product, have is the expedited deliver large benefits VirTra best for from and know-how result second orders this delivering to witness when our In customers to we by personnel, a a that stark not addition is year on of I'd experienced stress for and customer. to In technical that expedited when contracts generated the lack delays year. of the ago, it it we contrast the mainly demonstrated quarter a order manufacturing rather the recognized like and to requested several in necessary we due capacity the the monetary business, lower the revenue

of our we the despite year-over-year good of large unfortunate financial swing is witness substantial deployments. with this with performance combined on multiple remain sales resulted our The delays news product the year of new when in by ago timing customers compared healthy. Unfortunately, order that a a installs the products customer have quarter basis. requested

approximately to backlog our $XX.X which pleased for to a increased record report I'm is fact, In VirTra. million,

In Department. including Orange expanded addition, Santa wins California Inglewood departments as and the Probation police with County Southern Ana, Anaheim in presence recent our well we as contract

can You about these the the details of read orders release. in press corresponding

what solutions best would in here comes is safety result that solution companies the thoroughly and a high However, to themselves field public our I best is were VirTra. was public of focus and curriculum, for demo of for found simulators fidelity a like the service. to training vetted direct the highlight excellent when for safety and the will on solution. top the the to These often alternative realistic agencies content, customer wins our training determine reputation These certified officers agencies it

As that the we able dominates displace competitor a result, part were brand of country. the now VirTra to a this is and

beneficial our there need from is to a to for by is sales of other provide do success the areas repeat the the purchases, equipment performance. recognize volatility hope demand and is into business. revenue nation and in health equipment recurring Our to more the overall the for often that future around in we are marketplace the other in both moving we Also encouraged countries. mitigate Though insight

subscription-based market about we introduce program six For the training only enforcement to the these months known industry's STEP ago. reasons, law as

total basis than our outright. VirTra's VirTra's certified required our purchase concept enables program, products, unique agencies thereby training addressable rather simulation a a can the STEP industry-leading on access being the increasing is agencies to subscription The larger utilize number with that of model subscription equipment to market.

prior to we report Now some a pleased a so reality with agencies. great spent secured developing to is launch. this its STEP new But we the of that have that far you time a whenever innovation consulting in uncertainty. military and multiple both deal contracts experts police release from there's always I'm program market, in

at been metrics be customers have these to new response purchase the will been very releasing report likely customers positive. of to reviews even outright. procure I many perhaps have can our that they We are more and initial not encouraging, unable who been simulators required contracts industry-leading this time. with any them would have from And detailed

please our our that for long strongly workshop offering, diversified However, opportunity in a in subscription substantial profitable that for mind We and and program less predictable, the increasing through market. run. business a believe is more to make bear revenue still is new a recurring more there by STEP the volatile

We will updates closely. more continue this program of they as monitor the to to forward developments And providing materialize. look

Judy? more the progress Henry quarter. to further Now into the our on Afterwards, turn to walk more before for the made updates. over I'd progress results I'll financial of of year, us beginning to like the we've talk and provide our through to Judy I our the back CFO, about dive call since jump operational specifics

Judy Henry

everyone. and Bob you, Thank good afternoon,

was Our from total last of quarter million. of $X.X the year. revenue of a was decrease QX the for $X.X we XX% revenue XXXX million second recognized in This

For in ended six accessories the reduction simulators total XXXX. compared the million XXXX XX, period and number result six ending from months XX, $XX first $X.X to last and in in our million months six revenues three same year. for the decreased of June revenue the the a was decrease the of completed XX% of months delivered XXXX, and June in The to

the $X.X ordered other the revenues valued June the XXXX that million from For million accessory large three recognized federal and months customer revenues. addition $X.X originally ending to the in included six at all and XX, simulator was

Our revenue for of $X.X quarter of XXXX or gross decreased XX% from second the profit million of quarter the of XX% million to in second or XX.X% $X.X revenue XXXX.

million to services of decrease total the total both year, quantity first systems, periods, due $X.X accessories of $X six In of gross differences was our profit in XX.X% XX% decreased the the or XX.X% months the revenue or in revenue. mix primarily the product gross For and to from profit sold. and of million

$X.X expense the year. XXXX last QX million operating $X.X million net of of quarter XX% from to Our for decreased in second

decrease XXXX, labor, operating $X.X XX% our was professional for public due services a For decreased six year expense both and for expense to from the expenses, and periods cost to operating million million months The the net first benefits, reduced administrative in expense. period company ago. same general $X.X in selling, of

of operations of Turning measures. from last the Loss from QX second to in to was quarter income for million year. our $X profitability XXXX $XXX,XX operations compared of

of months $X.X first of first the in million loss XXXX, For XXXX. million the from $X.X six income operations from of compared months was to operations six

quarter Our $X.X negative to XXXX or million of net loss the QX net totals in share diluted of per share. year. This diluted second $X.XX $X.XX compares or $XXX,XXX of income for per last

As and recognized XXXX. of months adjustments, of of an of in the income we $XXX,XXX tax a QX first total other for tax tax six $XXX,XXX deferred benefit a benefit net the result loss in

million $X or XXXX, six negative per a in or the June period our $X.XX months diluted $XXX,XXX ended share per $X.XX totaled comparable ago. to For year loss share, diluted the XX, net compared

adjusted $X.X non-GAAP adjusted Our loss, a was second measure quarter EBITDA last compared EBITDA a in million financial positive of in year. of XXXX QX to the $XXX,XXX

first XXXX. the positive of our million $XXX,XXX EBITDA months adjusted six months in six the of For a loss adjusted first $X.X of EBITDA to XXXX, compared was

bookings define our and of purchase the signed a orders newly to We received period. Turning backlog. and contracts as bookings defined total within

We XX, months life the agreement. the June we bookings until includes and million. and revenue bookings agreements uncompleted the agreements backlog as defined backlog in of ended also also remain recognized STEP started accumulation delivered cannot For quarter. a received on or be that are revenue deferred basis respective XXXX, recognized and signed Backlog of contracts future purchase orders not a are warranty three over straight-line totaling from that each extended as $X.X

of XX, XXXX, our was backlog $XX.X As June million.

million certificates sheet. was down From the $X.X we of deposit, And decrease from XXst, we finally of our in the quarter of approximately cash end working million the the $X.X period to a the At working cash end, quarter and prior million working end with a $X.X capital quarter. second $X.X in XXXX. which December at million at capital, and equivalents in had standpoint, ended balance capital ended XXXX from of

results, please financial our was XX-Q filed which our of today. details additional earlier reference For

to back my That I'll now remarks. it concludes Bob. turn prepared

Bob Ferris

Thanks Judy.

we in for to the market. military outline of key the XXXX One footprint expand our objectives was

Since private we the uniquely to part to within and services, new qualified make he's both have business in in participated consultant and independently. have engaged assisting otherwise several market. the order As navigate business to assist VirTra us channels, new gaining we the explore military in which regarded helpful us background of In colonel O'Connell. a at retired initiative, Joe attended incredibly been military and better sector product development this challenging that him us Joe's demonstrations navigate engage for market, spoken would been highly with conferences officials. help military we

highly the team. we're field. a expert in to a the of a him And respected member He's as have proud and great resource VirTra

will are that And we We materializes. this progress fruit. optimistic our it to and market Joe's assistance in as combination products updates our of continue bear leading the provide on will market

this introduction As technological of part our product part goal to to our our of in driving streams. March of and we year, customer base, simulators made initiatives our we the strengthen to added to of recoil expand kits, business expansion our enhancements to our suit. revenue driving as simulators capabilities add our to Similar

we with from Though police our new our competency. this and opened simulation as driving We current designed as a well training safe a may Effective simulators, which By in law business. selling doors revenue, to the view firearms to for simulators, natural these new with to practice cross a customers. simulators departure complement driving environment skills. we and created seem have like absorb is introducing reliable provide new simulators core enforcement as instances to

As in we know of you initial Mexico. million $X.X Department the the driving already simulators the for order from first State Republic received of for an quarter,

report that the are and state-of-the-art now these are driving simulators I'm pleased reviews. very receiving of installed being positive to first

in We we which But have delivery, orders simulators in yet of contract this scheduled a the or XXXX. third and today. These IDIQ just announcing quantity for fall with are we we had release. that place issued not our order press indefinite the new to second also have month, for indefinite Department State. orders last we driving under are received complete And

simulators foreign of State be US orders, to the be As are will and assistance Pakistan to with delivered the support prior to Department expected donated of programs. in

simulators driving ordered is ordered newly valued that at contracts. two newly approximately the The are $XXX,XXX two

to until But already to orders seeking client given Of new high become material agencies component existing driving positive cause feel ultimately It delivered. of the VirTra training, by customers. results to a not reflected encouraged program's potential optimism the this revenues. believe did we is course, liked, will in financially we take we the value the market, believe STEP, our to our our there's finish there have and quarter be good to second way add great of backlog, for not market. seen the entering Though time company's new of we as now our reason to largest year pipeline, simulators financial have marketing sales the and and the reviews the record will are our we've and quality demand base we product and our season busiest in these Similar with in activities strong a lines seen our scale history. are fully would

the the provide we're your with for open call that appropriate ready Operator, instructions. And to please questions.

Operator

[Operator Instructions]

first question Our Schmidt Jaeson Lake from Street. with

JaesonSchmidt

for Thanks taking questions. Hey, guys. my

and program? could comment has potentially customers feedback reception Just how the And for you new if from current curious on customer STEP been customers. both

BobFerris

Yes. Jaeson the Thanks for question.

to and VirTra them. products for finding scheduled actually from contract a is go completed getting that hearing getting are interest for delivery the product that to easier it feedback we've customers So been in

So in equipment. like equipment are through some avoiding it and purchase easier obtain seems customers instances, to it get finding by our approvals

generally, customers. hearing as main certain for So we're feedback that

they a to set that But that gives to that VirTra ability Now want purchase obtain received are equipment to in maintain who interest some equipment process sometimes gone one an STEP grant customers outright. already outright or customers customers there VirTra are to are just expeditious and sell Because already wanted subscription And we the finding some through we're both that program that way do purchase. have them reason purchase. product. the for money up finding to was had for

JaesonSchmidt

orders the driving additional on for the congrats simulators. And helpful. that's Okay,

you early why market and in wondering seeing on why comment that you're competitors the in your you're could Just if again success of some winning some space?

BobFerris

Yes.

our realm having I any that technology technology graphics I recent think think the the software innovation. the company that And is it's very to space, on space because that of It's XD years. in the space. in VirTra that these from development have for leverage the out and systems a market latest other most there's capabilities. many potential We're this to some for been this of there's latest helpful in able in in

gone sometimes far. on But feel are that competitive we haven't also product. time. for And full product think right it it's the into at the having We are what that right encouraged so of I features that technological certainly we're disclosure do the success by the

Operator

with Group. next Klee our Allen take We'll Maxim question from

JoshuaDiamond

Judy. are This Good. Josh a actually Diamond of How Allen Group. and calling Hi guys? Maxim Bob at on you is behalf

guys revenue I first the it with to and could of is I your little of by customers, wondering and that was gross when know kind ask a year? wanted your explain XX% could recognized guys fell because bit you fell margin if where the it So I to expected of why but you about you largely go end

JudyHenry

Thanks for the type it being Obviously, we variety a The A what the of of has great systems, and and Josh. to state that various do with systems, contract mix products. it under. accessories the of type of federal commercial. have question, between purchased the is the and lot

really so of just combination factors. to relates it the those And

had including of several the and the quarter little into this then had lower margin contracts went margin. bit Fortunately, the more some lower a that that products a little competitive out came that bit things play

JoshuaDiamond

of do make installing the follow help or customers any it, rooms is any them? constructing of for to up have a it around Got your to easier great. And of or to expedite to you product installing it guys programs your kind that kind process partnerships

BobFerris

We is be installing involved do construction any that early for right key one and room fact with in in in assist in contact We area. the have to customer. and the now Yes. aspects don't VirTra plans of

in want really help that with required involved contracting that is with. has general do get can't that law the of kind we bonding that's we don't one So that to and to and really area

are actually area installs but actually willing needs for to a do customer variety coordinate with sometimes the out that working, of is to try early. get customers customer and postpone areas And works other on that we in to reasons. not expedite times, and we or the then to So in other equipment time the delivery

JoshuaDiamond

year this recent Great. end tell to increase guys fruition backlog, your most to see moment? or year And next do the that of of it's come at is expect with hard to at you the in or

JudyHenry

we of year forecast expect When that. we we majority in factor have about say customer this to it a an there's the Well, course, unknown the with schedule. come of always but

And so that's the at should But sure. see think for over that's XXXX slow this we going or always to more. point, caveat and into we XX%

Operator

We'll ROTH with William go Gibson next to Partners. Capital

WilliamGibson

or a you how order is the question, backlog the of and housekeeping it Judy. in treated? cash a put future When flow that First contract STEP the is over bookings whole life

JudyHenry

certain recognize the components subscription-based remainder contract There is -- shipping. Bill are And then life recognized the of we installation of well is such get over straight certain contract, that the There simple question. right amortization. and for are the the for a that thanks away line to as the

WilliamGibson

the so in total backlog? that And is

JudyHenry

Yes. It is.

JudyHenry

Okay, thank you.

JudyHenry

revenues. And include the all backlog didn't the deferred

JudyHenry

contracts the mentioned that coming effort Okay. have military shot And to Are Bob this you up the a you year grow at? there business.

BobFerris

So the thanks question. for

occur. will get where be is are in We remainder we're military in visibility product some stone mix. not contracts that on though of the what space opportunities XXXX. current carefully may the are on occurring We based areas for our the think that set to It and the what area. there are do very more starting Certainly, contracts monitoring military

for that's win. to one after release on potential specific I point we, is now So can we that and that eyes various say to contracts, there bid that we're going do and one but right have we're contract is not our going

on shift we've giving to of are in newer be at a what and than paradigm fighter own over evolving There to large looking opportunities be that are are training as the or centralized in sometimes are market. we're the for companies. their would that in both lot do be the Marines doing looking ways seems opportunities We past. that two seen certainly activity equipment be And of in to having short looking of now potential going their right out at need you seems a variety But things Army are simulation changing seeing And they're innovative, information war supply the different a years training groups years in market that military rather and past than point specifics to have do to that training shipping a shift. both is they them it That's training actually weekly market. XX facility. military of than sort more actually at new seem the really. to focused In and that paradigm paradigm

encouraged And that And that a for sure well in what on and be We're process in trying helping make opportunity be based to so we can work that consultant might doing what is certainly the may the us this products VirTra present seeing. in military new VirTra work. position some the we're there with well wanting. fit is

of End Q&A

Operator

turn remarks. At this I'd there any Mr. call further to questions. are to like you for the no over closing back time, Ferris,

Bob Ferris

to from today call This the at exciting you us time commitment forward bless. and be on today. best And would and extraordinary thanks partners. for ahead we support are I a to certainly God the very believe Thank not where listening shareholders updating VirTra Thank very and employees, very we our call. our look our is customers, everyone of you days and next are much. we you without and

Operator

gentlemen, call. and ladies XXXX joining you, second us for for today conference quarter VirTra Thank

You may disconnect. now