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VirTra (VTSI)

Participants
Bob Ferris Chief Executive Officer and Chairman
Judy Henry Chief Financial Officer
Jason Smith Lake Street
Call transcript
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Operator

Good afternoon. Welcome to VirTra's Fourth Quarter and Full Year 2019 Earnings Conference Call. My name is Jess, 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 VirTra’s institutional analysts 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 that website section everyone replay the will in company's this Relations Investor call would like link of for made www.virtra.com. available the remind at

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

Bob Ferris

and today. us in a financial and Relations Thank of press in for everyone, issued After section the for a the afternoon, full the you website. thanks our is closed, our available fourth of quarter which we XXXX results and joining Investor good year copy market release,

I’d are like most today to some affecting industries. macro events, briefly of describing the begin which by

few COVID-XX must impact in dramatic all we’ve daily lives Globe. our VirTra. on as past experienced wonder the has For the months, across potential spread shifts Many the

years based. the the from which are we far what purchase to expanded many insulated that of fact considerably can in and due as we supply far we’ve recent As production side, suppliers, VirTra’s is supply U.S. don’t so chain multiple usually in-house produce abilities

trainees agencies on stressful government sell even times. instruct the effective must during far demand use, as As we still these to side, fire arm that

to especially can ever headlines. that responders the now single point, must not simulation had since have More social a more made order occur training would since government yet COVID-XX distancing first the guidelines. cancelled the maintaining suggest we Some than train while effectively,

at understood not we proceeding from of this cautiously. this are virus totality fully of VirTra impacts the the time, However, are so

and doing of are safe continue so We our to at men our hard COVID-XX women who VirTra effects the brave mitigating healthy. nation ensure remain to are to and working people the our part partners our while still to serve keep

on in year-end touch When spoke overall but positive in we conclude were optimistic; first able at I’ll I call why to XXXX year topic closing look the my this let’s by we remarks, review. November, more ended be our we’ll the full discussing last results. with

our As third one XXXX history. aware, you the company’s the of quarter was quarters successful of all in are most

revenues, and largest positive near our were delivered the record in company’s quarter large income line we by net margin, the top We we history. exited backlog with

to slow of still the we in XXXX the going established XXXX, if have the in a we financial continue cover were to start due to substantial growth. we from trend perspective, year-over-year of first revenue to ground However, half

in In of the We’ve of that and able generate from their million momentum pleased time also $XX.X the to backlog our third record work some we in of fourth converting our the very the to quarter, achieve team our were entire future money to but today, report incredible growth. the and able while investing business now continue while organization year new thanks consecutive revenue. be worked to quarter I’m to goal. revenues increasing to VirTra, of fourteenth delivered diligently

from we of million Department in contracts, deliver efforts secure the received but we to Safety. results by scale to to our October quarter, the by new in timely our $X.X follow-on positive general, best adjusted and manner. a EBITDA product This perhaps of evidenced successfully Arizona is order In of million were fourth Public only generated $XXX,XXX. In in large not team’s the driven quarter fourth the the ability revenue $X.X

timing orders deliveries the results. when the were not a timing past, QX a of As and as the variables of end in we in the one timing quarterly material And our arrive have that of the discussed financial cases, can in complete of to is control impact many products over. the have recognized of at on delayed customer We effects therefore negative not saw XXXX revenues ago year the in year. of we’ve

in portion backlog in However, product end deliver the that’s order team and at of our Safety, the demand what when of quickly multiple ability we and efforts happened from timely meet and this Public scaled ready to are this product substantial can for year. receipt, control our scale manner. the of and what ready including is Arizona our essentially quality There’s customers effectively a a deliver Department their orders

million we As million. in $XX.X nearly and full-year revenue $X.X the result, of EBITDA ended with XXXX adjusted a

Additionally, business revenue QX, entered million despite we we the maintain a pipeline and robust recognized a in with XXXX backlog. of $X.X

part second of in for is Our our large the improving the year, the against due half execute consistently ability our strategic financial to XXXX, success to in which full year priorities. drove results

harder we XXXX, quarter done XXth diversify and of fourth the start business the and We sales used reflect evolved, Throughout year. opportunity exception. XXXX, to just determined entered company how outline not-only to no market. our and as by was we’ve our capabilities year for January that In on but in the year, of the strengthen on our bolstering has meeting the our the foot business print to to military increasing technological our an work our and needs objectives

to ourselves by demands our future new products one respected pipeline which better strengthen orders, markets. curriculum, fourth and in we sales quarter, meet the In I’ve position and competitive of expanded to current mentioned, already our of securing the new launched our mode

we nearly of higher Chiefs human effectiveness world’s The or simulators higher unveiled the XXX-degree of Police XK realism allowing of finally and product simulator. Association International line. throughout first IACP in eye the enhanced perfect in Conference the these to During resolution match October, levels our even achieving

struggling they competitors hurdles definition to to someday for ultra them we that Centers switching follow Customs order their to VirTra trusting Training in site Boarder non-trivial or technological VirTra supplier. from is the Enforcement simulators, the and the first Protection are announcing received and and Law as our and high after are main Shortly Marshalls surprised The our Federal Federal means now Law we achieve Service Enforcement lead. U.S. our new their FLETC. this join Secret FLETC training aren’t for

I huge believe this company. one for honor time is standard industry our law major It Federal enforcement agency. in when for company is the has incredible our first the and accomplishment an become essentially VirTra every

launched the IACP, virtual the driving as or driving simulator simulators, Law Enforcement we During U.S. for Market. also known VDTS our training

the million orders order we initial evidenced through by QX which $X.X we’d year, for conference the VDTS our international the of in the the as Earlier of seen success market through call. of Department we second Republic state third during also quarter received State, during department announced our and and Mexico and with second the

was to will quarter believe this reason and initial us brought product that had well do customers allow domestic we’ve expand in we conversations only it to to fourth that have From we market. streams. the revenue the the we here to However, with perspective our continue

new suit In also made adding our hardware product training on curriculum. we addition the we new to products enhancements introduced by

training. day, the is can technology end effective get excited, our of people New really customers what the at but want

of as a and the they training the basis. ensure on of possible wide in respond range dangerous to the may personal potentially to enforcement of as business to they face law We’re situations improving prepared daily military are

other possibly professional technology VirTra, our with market better than certify combines effective content. in company any and new training

To their certified and For needs. curriculum of which and new design that included that we’re spectrum we end, fourth special versions curriculum, quarter, our others. our V-VICTA emotionally scenarios working reason, to courses better released with autism always among disorders, persons, meet on the customers during to populations, disturbed updated

it’s specific scenario training agency a of noting for which nature]. a themselves space as also to be We come don’t This can true that the scenarios the of in are all us V-VICTA location may where an especially they updates specific or many request to agencies worth for in to train. the these is details typically need federal custom users, [sense orders While publicly very available discuss of with content. cases these have

main fourth XXXX, And is our success. business worth deliver ability noting, of content of industry contribute of our it we certainly our helped the ahead competition. is the reasons one to It in quarter to leading remain

curriculum In two cartridge of the fire the launched for and better be recoil military. to the needs fourth portfolio new and One to kits drop-in product announced to our real addition issued kits At TASER we products related in suited of of we other we positioned October, quarter, to new patents. had arms. conversion end we the related also the that

position our realistic drop competitive the both also ensure flexible market, simulation the weapon of trainee, therefore mode specially designed highly well-suited kit we solutions was functions simulate live conversion that that may improve even realism. safe can capabilities highly these the standard enhance to military patents in market. enforcement fire military our converts law kit training arm domestic our can our While for VirTra a recoil in affordably patents or believe U.S. and are The and in the a company into is produce reliable sell only tool increase that our in

with as their flexible and to train weapons, trainees law allowed enforcement more weapons. much it real training simulation military made It [indiscernible]

through potential high contract, lower them conduct to better VirTra. military prove we’re the makers with decision yet to While announce at and profile continuing demos large cost a we’re to training

fourth the the when confident needs than We with to the of quarter the changes meet year the we the in ever combined us military. made past therefore that have additional better positioned remain enhancements of

a of our any XXXX, believe as on whole was full So, helped to XXXX, quarter overall walk Judy strong quarter I turn ended Judy? over and VirTra XXXX fourth the going the a December I financial year start I’m for for but solid and XX, set additional fourth to to details call before our results on stage extremely and add XXXX. the for you thoughts to through current the

Judy Henry

and Bob you, good afternoon everyone. Thank

quarter XXX% XXXX. for million. revenue of was $X.X revenue fourth Our of a increase QX in of was recognized XXXX the total from million we $X.X This the

increase revenue million for to full XXXX, compared three in and from same months XXXX. both For X% period increase XXXX. increased number and the delivered $XX.X the full recognized to the $XX.X XXXX ended accessories revenue completed our resulted from in December year million stimulators year total XX, and The of in in the

of XX.X% from $X.X or of of quarter gross XXXX Our revenue the XX.X% for quarter profit to or fourth in $XXX,XXX of revenue XXXX. XXX% increased million fourth the

gross and product to $X.X primarily the accessories, For of periods, changes gross varied and in total XX sold. of to from in XXXX. the XX, December XX% was profit total differences year services decreased XX.X% the in or both systems, XX.X% revenue mix million of or XXXX, the ended full due In our quantities million profit revenue

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

net from For our the XX to in expense X% ago. for The due the following. company million cost, in operating by offset both fourth decreases same to sales in XXXX full all increases year and X.X were XXXX, marketing, year million expense operating quarter the full were General net year and salary benefits, stock decreases option facility redemptions, a slightly administrative compensation costs. decreased expense, and professional in and which services, and of period public the and

Additionally, and XXXX statement year debt on we XX, was there the operating and receivable recorded December notes of expense of as during XXX,XXX a for on accounts impairment XXX,XXX loss allowance the ended operations. bad

as XXX,XXX For impairment bad debt XXXX and accounts there was expenses. a loss XXX,XXX allowance December a recorded receivable for the notes on end also XX, and operating year

Turning operations of a of profitability loss fourth XXX,XXX, from XXXX from income million to to year. X.X was compared our operations QX of last for in the quarter measures,

by GAAP of Both income XXX,XXX X operations expense For XXXX, operating was bad reducing from reserves. the impairment recorded the as for are million net expenses non-cash XXXX. debt from the from income operations operations to on compared in and year full again allowance income receivable these

to net quarter combined diluted total per XXXX for XXXX items $X.XX for $X.XX mentioned, They share a the of XX,XXX net we December and a of the the years Due XX, and per of loss diluted million QX or with compares XXX,XXX of were last This X.X year. loss ended fourth just respectively. share. or to breakeven XXXX in XXX,XXX near

a per full ago. of diluted the $X.XX ended share comparable to or period XX, compared XXXX, income year December our per a net diluted loss For net or share, $X.XX XXX,XXX year totaled XX,XXX

last fourth Our adjusted the compared EBITDA of in an quarter XXX,XXX loss was QX non-GAAP to EBITDA in XXXX of and adjusted measure financial XXX,XXX year.

Our XXXX million, full million adjusted to EBITDA of X.X year compared the EBITDA adjusted in for X.X was XXXX.

in contracts and orders received given the of bookings our bookings to backlog, Turning time the period. define we as new total and purchase signed

XXXX, objectives XX, and the revenue signed cannot as future have the We contracts bookings purchase December uncompleted performance received three totaling of that started orders the period. backlog For or ended in we until recognized be define months bookings as not been X.X from million. delivered and accumulation

Backlog agreements XX, also a X.X XXXX, life revenue includes that At December million. of extended lives warranty straight-line agreements basis on recognized over deferred our agreement. and each was backlog are the step respective

December in XXXX. the unbilled at And million of end million down quarter cash finally, sheet, which had XX, and increase deposits, at XXXX, totaled X.X quarter X.X to million end period in compared million of the receivable combined revenue Accounts quarter balance of equivalents we from million. and same to $X.X end, approximately was our and cash X the in an X.X approximately certificates

increase an ended XX, working capital a of million XXXX standpoint, capital X.X in period the XXX,XXX capital, working working XXXX. we ended December From from with in

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

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

Bob Ferris

Thanks but year finish more XXXX accomplish have quarter obviously much fourth and to VirTra, The in to for Judy. strong a was beyond. we the

We and products, innovative of have laid customers. and new a landed expanded ground our the future We growth. required introduced into for categories, new work new key lot

this capability kit expanded building intellectual from an both recoil foundation, acquiring our of by internal development part As we property. and

which And we the experience our we demonstrates simulator market great their these after time deal again world's also VirTra training U.S. industry feedback a ensure of by into XK that leading simulators, is products of leveraging launching initial needs, our corresponding domestic and the continued this and first once to XXX-degree driving years content enforcement the future. from the with launched deployments and and spending theme law reviewing in fit

our we virtual with then developed QX, for vehicle Vistelar. of We as assets our In curriculum which new non-escalation We certified physical and high-risk strategic announced crisis will training. upgraded de-escalation also training curriculum V-VICTA in continuously with launched curriculum. for tandem vehicle such which launch we and partners new combines scenarios and scenario-based stops, a a intervention one

We also realistic to human is performance. create officers, XXXX April science of enforcement science backed by training expanded law the in institutes the partnership for initiated we four with and education which of new

to the I enforcement not counts training increased annually. quality is all which officers a are these As of VirTra’s our scenarios but earlier, certified reminder, towards and curriculum actually only law of discussed training uniquely mandatory platform, required receive the

one improving an many VirTra. products agencies quality compliance, the more of departments reasons and enhancements the to more work better military as combination market. This increasing compelled become has well and and With as is are fit for of training of even the these with many VirTra of

could You can police works the military cautiously with kit by building help that conversion firearm VirTra that already used the drop-in military with leverage demos be of various it by recoil our when and and both the we’ve next-generation creates refined imagine might technology coupled when relationships we’re a VirTra. consulting, and been that strategic for products optimistic

high with position team remember as sales introduction increased only has already still enhancements ever the our STEP at their our tool proving in coupled same the these subscription quality for the disposal And more than infancy, our weapons product market training before. but program, that staff to our now it’s is categories. of sales when combination It’s simulation The of in leader teams. its has important useful and

of remove to capital a upfront perishable sustain to that the primary program need reasons safety their model more training officers outlay public. agencies allow to skills own we barriers the introduced subscription the their for was of for a One of and long-term

far, so case. that being we’ve certainly of evidence the And seen

work its of position level our strongest accomplished company is position strength the of in our at entering VirTra, It’s level and especially of to now I'm a and has XXXX in team the in of world clearly very year been is proud when date today. the pertinent ensure and a busy uncertainty considering

VirTra encounter challenges. as of it an social related restrictions delivering Currently, logistical unspecified distancing and of And impact industry may for approaching and due be on XXXX our we’re is monitoring duration. there delays travel possible on industry. with exist carefully to could competitors and or the effects that could the Obviously equipment COVID-XX an and our caution installing COVID-XX VirTra

However, than our that needed our in modernized position a history We many likely travel. timing and restricted VirTra as never more been we’ve we to strong sales infrastructure most the personal competitors. the couldn't website in and have have with our automation better. now point, More just with a is when better had such much marketing electronic of right we

to balance position we and in more moreover survive the Further, no one we strong presents our sheet, be or cash do not themselves. to but a acquisitions, make mean might if opportunity debt reserves COVID-XX, plan right only

and COVID-XX, staff currently central being home and our have market operate most of from of our to past the an how to business responsibly there’s mitigate are learned staff impacts years stakeholders the anything how adapt business, and changing continuation if and in to to effort of but we’ve sentiment. working we conditions a Our to it’s in all over XX

of intact. exactly Yet need we we that how law is Please and things enforcement regardless [indiscernible], simulation do personnel fulfill law intend save improve the world's and at well-trained with likely core grow only in know lives most enforcement the and know COVID-XX to to military need. unfold by to is mission, military that personnel providing which training ultimately for what our will remain is effective

simulation the to First their training any need uncertainties solutions. to as at part we our practice possible is play way may during will world's by moment intend continue and to a providing ensure prepared face always safely risks best to that prepare for responders the and they And carriers.

the up I questions. for we’re appropriate And provide my instructions. the believe remarks Operator, your to ready open to call and with wrap that, prepared please I’m going

Operator

Smith Instructions] first Jason Street. We will Lake at [Operator to move you. Thank

Jason Smith

my Hi, COVID-XX, sounds get at guys. or Thanks impact Bob, significant elongated for all you like seen headlines just seen sales you’ve the in really but this being just questions. general? haven't cycle it if issue of from curious a the macro because

Bob Ferris

important point the sometimes is that need As think up a I lengthening, in get where have seen or cycle set been out cycle VirTra fiscal done once today, be it one at it motion. lose environment, this two which purchase because a agencies be many sales can they many to not sales or up, done couple the is rare the spend events our hours, subscription to we want it missionary would of In from cycle. cycle to and of of everything a it sales that, end to but cycles long to that it has or sales or times, actually insulates years set times are a all our that’s derail range get don't

that’s you we reason and So, one by I order. calling to have what not saying, think know we up us knee-jerk a that someone and cancel an need seen reaction

specific be that VirTra. business I government think may rather to like to companies

Jason Smith

That’s traction or that could been purchase? customers it look helpful. STEP signed has the of program of Okay. if what for just nicely, step you of instead progressing to just sounds up the number seeing outright quantify an you’re program the engagements the curious And currently like percent

Bob Ferris

war do in we're STEP of some there, financials not have giving are kind hardware, of right an get of information, idea that shows the to in that out I activity to refer that our that now. you depreciation breaking but the would We so we item

Jason Smith

will it. macro and the [indiscernible] pass How investment you thinking guys one last are current I the And Understood. environment? in about

Bob Ferris

I'm could you repeat that? sorry,

Jason Smith

macro in operating you and thinking guys about current are investments How environment? the expenses

Bob Ferris

however strong we currently we’re future our approaching cautiously, So, seeing cancellations. with pipeline no are the

opportunities are with our that do making to and investments infrastructures themselves. proceeding currently are were present sure staff, continuing intact We maintaining our

are and market the slowing how not of and particularly VirTra with operating with believe is expenses. so overall right investing for we and we opportunity, an simulation prudent we in a like but I approached training industry investments leader lot are down that, being

Jason Smith

lot a Okay. guys. Thanks

Bob Ferris

Thank you.

Operator

to I back questions other over for holding, the Ferris Mr. turn no remarks. closing like With would to his call

Bob Ferris

you our those Thank business, [create] customers partners and note our challenges and committed you the danger are that often advance to on that safe is our look employees, we towards Thank extraordinary all protect support running world's customers, remain my Please best the shareholders, great to updating is forward It We healthy very and God you. face. lives. VirTra call. our all who as as sincere next simulators, and to bless. hope our ever during staff

Operator

you for us fourth for conference joining Thank quarter full year and XXXX today VirTra’s call.

You may now disconnect.