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VirTra (VTSI)

Participants
Bob Ferris Chief Executive Officer
Judy Henry Chief Financial Officer
Jaeson Schmidt Lake Street
Allen Klee National Securities
Richard Baldry Roth Capital
Call transcript
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Operator

Ladies and gentlemen, good afternoon and welcome to VirTra's First Quarter 2020 Earnings Conference Call. My name is Jim, and I will be your operator for today's session.

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 as well as investors.

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

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

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

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

Bob Ferris

extreme if out VirTra of our affected vendors and all an the community the us who I for and by has never hurts, and issued your and afternoon, on States. social I shelter-in-place personally founded been healthy view country and sympathies ones When time customers, occurred one us quite at and today. employees this hope within XXXX. our our their you across is employees, this of and for sincerely in The routines orders March and Good you Almost loved deepest seen we impact hurt. and team; adversely VirTra our just since had shareholders was safe the COVID-XX. this XXrd, has daily and We distancing businesses as to part are timescale everyone, has challenging United we on level know anyone been everyone go joining last thank held call many, on all uprooted. professionally.

measures from continued we have format, continued succeed future to future which contracts any performance, have and but of and pandemic, essential for are assistance been for prudent we home. all staff a whereby modified government for Therefore, We into fewer government all taken of recognize working importance in including VirTra business operate intended the we VirTra's our applying with not to only to an stakeholders. surviving almost require Due the secure this ensuring businesses all our are exceptional due CARES is during as million with forgiven to plan been willing our this pleased of the loan under note about so during this our levels Henry, CFO, the time. am corporate the our that notified that Act to Please for to was Judy who this to fully loan increase that maintain employees comply has work report time. ultimately law our just $X.XX XXX than employment stability application will uncertain I VirTra approved. be we have

our the military was last about call, XXXX. arisen the a first leader evidenced complications quarter COVID-XX ability were our report essential have first and that of to the discussing During optimistic deal the personnel that in progress, may financial that as quarter from by and operational despite the results through we pleased and of pandemic. our good we continue case indeed a I'm our expanding our reputation why continue enforcement needs time training, law to supporting as of simulation spent

note $X.X carry our and of year. and years, expansive of As the you'll product strong as adaptability hard a potential start were this a in the momentum quarters the million recall, advanced of work on line we the to a and Thanks this most of business we prior high history. our pipeline ended opportunities, to many team, and new into always, XXXX able with company's backlog,

the a March XXXX, XX, to ended million. global $X.X actually During year-over-year pandemic, despite the quarter onset revenues our we increased first of X%

if it's state were worth the financial our on to impressive considerably encouraging, was world, given While of for current especially results be the track COVID-XX. first more growth in the that first noting quarter the quarter not

most delivered three news unfortunate pushed the negatively since up our for short-term these we simply installed were these They several suddenly year, The shifted news none quarter -- orders in and first backlog. demand months to is have the impacted states orders They to across is business delays in XXXX been financial expected the of top-line. be Unfortunately, also progressing increasing had into first depressed delayed of impacted into that the our set were extremely these country, The and ramping the that results. several They beyond. meet of shelter-in-place lost. the in So were orders margins subsequent our this the most good that many in we've well. March. was of of as quarters. norm became And or our

in As of changes budgets. today, seen to due orders our canceled we haven't

this than a you single quarter. suggested is have the as not are but those Although we followed horizon of a have our aware, evaluating over who story shift ideal, longer business always time

Improved with a sales company in the forced by of despite reduced million and marketing efforts, the helped exit quarter plus backlog record product COVID-XX. our our our finest $XX.X lineup activity history

still these installations, coming expectations fully in the based months travel we are endure but expect also recognize longer We a of that over This witness coming delays. will the majority is on than and expected year. prepared to increase to revenues an

March, and there Europe, In the distributor devices. worth through PROs order are far particular received drop-in two kits at Of highlighting. V-ST The in is and simulators, $X.X first accessories, secured in valued are we including year, Threat-Fire is contracts we including recoil for so multiple million. new our order which a this that

quality market. contract value already the dollar value law particular on domestic us. material, highest VirTra Although as the is is carries In circles, training most strategic this simulation for known enforcement

primary service being partnered highest distributor we level consistently and our are customer are selective. regarded reasons and among products to and showing our rated our completed grow. the are at with by highly The known continue is very customers the for us Surveys that

a help within our great established they work stamp is should improve spent VirTra suppliers with of and products us. choosing territory. approval go In years vetting to our that decision brand before with fact, Their several to us

$X to among presence through over only so order far European the and leverage we law but million enforcement are our will have that in hopeful expand grow. this distributor, military this communities opportunities to We channel

It's product driving and agencies simulators. us encouraging accessories. recoil police to are material contract quantity delivered This quarter kits the contract delivery/indefinite to simulators new of our highly throughout for of be Department Mexico. criss-crosses newest million for marksmanship driving as for State IDIQ $X.X a from see the well also in follow-on state received we or product end, Republic such drop-in line, The use-of-force correction set to products and Mexico. Subsequent simulators, simulators, our facilities the as including a indefinite lines, numerous order

this we year As launched a a reminder, just ago. product

XX The driving which order of of similar through first latest to was the was March last we for State received Republic It Department Mexico. the one. simulators of year in this for

see come All than installed. speaks back state-of-the-art VirTra's for first I of these anything louder customer delivered successfully more driving might have To our and since been simulator say.

travel but case Clearly stalled is April However, perhaps what's responders we supply we continue and COVID-XX. last our significant our faced recognize for for contract Even saves and training this the order restrictions, that first expect was and continues current VirTra. demonstrate we about supplying the been at and own in in in to industries. it ability many had deliver contract therefore COVID-XX, lives awarded despite which for why essential and hopefully rampant call fully validates to needs fair, To most a why optimistic and uncertainty believe the simulation XXXX. both This be this and this expressed in this with hasn't with early saves demand the robust revenues time to challenges was are optimism the macro we install a demand money contract when regardless continue is environment. helps our we about of

to the I'll first going to few for this walk the to over theme results financial add moments, a the in first you Judy? through turn I'm call to quarter. Judy but

Judy Henry

you, and afternoon, Thank good everyone. Bob,

revenue number Our and period three revenue we was was March same XXXX XXXX. the in an X% compared first resulted of the XXXX the ended the accessories completed the of increase increase simulators $X.X in recognized increase a XXXX. from in for total of delivered for of million million. and months $X.X QX from in revenue The recognized to quarter XX, This

Our first the quarter of the of revenue, was of XXXX to to XX.X% and million revenue gross quarter and accessories change systems, XXXX. varying sales first of and cost quantity for compared the gross or The in $X.X XX% services of increased in the $X.X product mix, primarily profit of million sold. due was or profit

travel and selling, decreased administrative Our decreases first million in services. the XXXX. was net due costs quarter reduced X% QX net to expense operating to million expense operating and of benefits, The of $X.X labor, for for general from in XXXX professional $X.X

a to of $XXX,XXX of for our the Loss loss profitability last measures. QX first was in compared a operations to operations from quarter Turning year. from of $XXX,XXX XXXX

first the $XXX,XXX of For of $XXX,XXX diluted year. last compares diluted loss or $X.XX totaled $X.XX net in quarter of loss share. or share This QX net to per per XXXX

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

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

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

XX, at XXXX. from $XX.X up March million December million, XXXX, our of is was XX, As which backlog $X.X

cash, from Finally million Accounts balance revenue approximately XXXX. which $X.X period and at million end totaled was end, $X.X equivalents quarter end, At December $X.X $X.X combined December million certificates the in XXXX. we approximately up had compared XX, deposit, from to million of quarter and at receivable XX, to sheet. of our the cash unbilled

with at healthy capital, uncertainty in believe compared VirTra take opted and first million our From a further that we capital exists the measures $X.X strong given working position. But December XXXX. balance capital XX, to working world, in to XXXX in to $X.X ended Financially, in we we million precautionary strengthen the sheet. the a remains standpoint, quarter currently working

Wells It details through or loan for the On The PPP our notice million yesterday. Fargo loan. The is to available Subsequent May were we Act. end, under we CARES promissory PPP approved our are received XX-Q. quarter's Xth, for Program been the better in for that the to PPP the we've Protection position of proceeds of to Paycheck place, $X.X PPP received applied intention loans. payroll permitted to a we for and a funds in emerge and VirTra apply position other current forgiveness this the the and of With in costs expenses funding in terms storm weather strength. use with fund is the these to believe accordance in additional note

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

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

Bob Ferris

Thanks, past seen over prepared to ahead the we've Judy. of capitalize been been doubt have hit on staff we're to And no many that of industries months, increasing the pandemic. R&D incredibly Because opportunities and ensure hard demand us. by increasing adding there's the few we've efforts the

We the are improved need, be and imperative conservative aware with now especially liquidity. of to cash fully

we've effective is as In budgets as and done what ensure reallocated many instances, personnel they're to possible.

travel budget employees. flexible marketing. to from have we've funds digital highly We're and repurposed and some a our to example, trade group adaptive show fortunate of For

work actually are better on helps staff the so accordance demand. cross-trained of can with whatever is changing in portions which us most they fact, scale needed, In

to the staff, However, means to macro the fortifying mentioned. additional and of landscape Judy our pursue we sheet made need our talented nature trained much uncertain as the of preserve our decision prudent so just given balance and

of the we to With deteriorate. and continue have should the enforcement secured disposal customers to assured staff subsequent we the economic supplying knowing quarter’s and to care the means additional our training can conditions and rest at necessary financing our ensure law we VirTra end, personnel take military

at occurred March, a the in world still some great a sales. other end decline there's deal we've in But like than unknowns the delays ones course, customer the today. see that of to yet of Of

seem Some turn to revenue delays recognition, doesn't orders longer have will market which be deliver and diminished. but taking the install, demand in the to in

material stay-at-home mentioned us. April fact, I a progress as sales contracts new for norm know But for from XXXX. through IDIQ were an more after continuing obviously incredibly even we me, the Republic month land In perspective, productive we Mexico. the through We'll became like of to was contract

For to the we time pursuit continuing push long-term in being, of are ahead objectives. our

with of ones. to individuals our by communicate position enforcement V-VICTA more new products current help and make to and developing effectively law solutions needs We suit We're market. the autism. enhance continue to military working to with the add And we progress curriculum products our to to and to refining training continue suite positively interact better still

teams enforcement solutions. not market, During increasing appear for military the for for stay-at-home the its law substantially our order progress on success showed product the actually to our by market. the training have development to tenacity new military altered does Similar appetite

make in called At to good look this share work to normal. and world to here return all have change certainty previously coming say with to some news continue we progress the We one quarters. hopefully and we stage, policies will the no can what like as we'll what

of and government bright. all to most fortunate the events, that on We're of approximately well-being based regardless, But the of customer stable seemed of us. future is and XX% our recent essential base VirTra’s

of there's already relatively allocated have cash insolvent. Many or with encountering year. flow risk such, customers moment for budgets the challenges As departments at becoming the little

so behavior was not spending So, materially far. diminished

behavior possible later course, to we it Of adjust. is quickly carefully that year in change XXXX this plan and or could customer monitor and

Should than position we've challenging, mind our remain a to currently We've that added arise. ensure precautionary have navigating the bear take just VirTra a We is since We And conditions should in to care prosperity of emerged recession in cash. times of remarkably keeping from during normal $X.X how it to of company taken year. million a last a or balance extremely challenging resources we that business take should the sheet longer with environments. to than is an strengthened stable to measures need last of we the to of we clean our history stronger have balance history people and cash place the current run end the the We scarcity. economic return projections our in We've it. and have entered and successfully sheet. long know economic clean effectively important conservatively

Properly So, remain emerge overall have to be unusual weather is position. everyone's possible. current and to law to and interest, in confident during periods ensure enforcement trained tension. our our here especially simulation responders in of storm access We ability training we intend strong critical personnel to the the military best in a first

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

Operator

Henry, Ms. your remarks and Ferris Instructions]. you Mr. today. for thank [Operator

today from Schmidt line question Jaeson Street. the ahead, comes Jaeson. at Lake first go Our of Please

Jaeson Schmidt

Hey, guys. Thanks for taking my questions.

much of Just kind curious was if out revenue into you pushed QX could QX? and quantify QX how of

Bob Ferris

as that. exceeded quantified not We've general number, But it a $X million.

Jaeson Schmidt

helpful. And order expand could traction the curious of the some you specifically of about in the here some the with in on but of Bob, May? That's April, April, I you just order first IDIQ seeing then, saw talk mentioned know that patterns then you now Okay. part that if and in you're and

Bob Ferris

order patterns. that is shift easing We've some on the for orders exactly in delivery the in that if will be the modifications was to Jaeson. future Like side the a that unknown we have not seen customers. to or approaches conservative going Thanks up from and linear how stay-at-home additional if I the noticed there's Yes. work question, mentioned,

lot so have a I though be customers with -- obviously are will spectrum the But and hard aggressive could reputation having previous after years some others the be than think order us We even a enhanced a and more an mix cautious think side, actually year all we that more in of of this and I years, that customers really aggressive air product will larger decades, year bit combination couple of on a doing travel. had want more are more is right work there previous had now. we've think But having of now conservative. a bit in be this a installation, where right I benefiting

our our a time updates made of digital stay-at-home choice I website this So, lot of a a during think result and capabilities has marketing of better it's orders. us

Jaeson Schmidt

today. back the like seeing a given from in customers from for me seeing are sounds from and you're the future, But constrained it any last potential will the pricing And not pushback It into you I jump standpoint? queue. budgets

Bob Ferris

Not different in than any seen the we've Thanks, past. Jaeson.

I sometimes do have are people price We So, encounter cost to department explain always selected potential you may that you has the that very training get we for -- that weakest that pay the many our lowest is simulation to the can an in sensitive. have certainly to we provider effective best lowest what a situations life being and great a to that. the work think counterproductive. actually position are hard where we explain and be provider, in be win times training death area potential argument and in not We and cost can over the

training that of So money subscription -- also and those of to also STEP the and have amount can they have a program, training. small upfront, amount just for put the have period access world's money want quality over -- who do XX-month we so large pay the a we to arrangement don't best

So, great and COVID-XX situation. we of year and constriction even about training potential pay of some more have our with that we budgetary relevant ago concerns lot refined we're that hands that program STEP a into I and constraints extremely we've options that and that that more people's program seeing COVID dividends introduced think is to with a the budget the those for that have really to world pleased get the

Operator

Thank you.

Securities. line Our next of from Allen National question the at Klee come will

Allen Klee

you your into provide military thinking to how Could the strategy market? break you're an update about on

Bob Ferris

Thank for asking on question. that call Thanks being and the you, Allen.

the military meets So, needs. our right strategy having really the on is that product focused

that pre-existing of in and some people. And we products to the front making then sure so, get our in being some adjustments right is cases

right in with right focus done get have military and is have in big law that of becoming a eventually make we and a more ours, military to the eventually to in been really we continue front VirTra the VirTra units on that's using enforcement. up standard of plan product And people. so like And more end the headway and

Allen Klee

where you that the kind you. European on a got terms what provide And the spoke focus about then little them Thank and -- color a distributor is that of have? you in of more they you Can opportunity win. they're

Bob Ferris

Sure.

Europe the areas know is old focus that's that haven’t -- the a stale. technology I think VirTra, don't only VirTra of European technology. on or really penetrating XX in groups that simulation is market So XX, And with even heard and there's years

staff like And group as so has us and are times the a very that would reputable that is able not to to culture in interview many international that not be that get the in there, areas distributor having agent and own particularly sales a the able we contacts into helpful. with foreign the our distributor to having Europe we Europe speak over assist VirTra is language, accustomed don't in realm, into

very the and an and was We show beginning. place installation it great the able we Mexico, which was a first actually it get got happy That's was product how then to successful it's an into market and in to started. order quite So way Reminds It started strong our excellent there to bit of see and was a and initial that. the me that. were order. our right -- demonstrate be get away doing extremely international at enough distributor to

the one to first those of or forward -- that the footprint increase looking to but don't incredibly in our of over in and hoping people similar. we've the time Europe But things see the in year we're same train countries. really it been in it lucrative results to that training. it train Europe and able and something group those it's level grows the that can it's We're can be month U.S. you the first So the at other of doing

Allen Klee

a affect XXXX? you. in Can is and think Thank range of could to you the factors kind about kind the about margin in good there talk run that the where that quarter of, gross

Bob Ferris

Yes.

level. in of we couple on of one level to The being the goods a had Allen, increased -- So one biggest coming. the staffing sold We margin. factors is for cost our factors prepare we the sales of staffing gross that pipeline that saw

created hoping sold so customers. ended cost as was had we And when quarter And we so, of higher even able orders sure a looked able goods previous because there we in installations, install as keep make Act to as of and actually up our internal be weren't bit we’d that the cost that ended of cost we included to going quarter, COVID-XX do staffing more lower to own not margin sold be for payroll if at we staff year, to creating a first and for intended in much that in up than quarter that would hit and but for combination. were deciding our to gross wanted need being item employed ship CARES of it a go first and and the fulfill piece, that goods which we

that and able coming area the back numbers not will then that's production was a can the margin, Going a in the right for XX%, as that gross historic staff potentially situation being and our in of is to future, various the margin on forward, depending part keep gross a more that up gross about as that know, just numbers. that. that believe we fluctuate. We factors. to can impacted able course average be fully COVID-XX. we work a ways, we've temporary speak potentially can margin range gross to able and We weeks involved and been less to in into of gross our your to around the margin to maintain are lot either to hopefully on second XX% getting factors you But far in utilize quarter definitely, can that people question, we first speak and months. be due installation margin of the as does hopeful that of thing remain We staffing XX% reported, And or and to

Allen Klee

driver my to your expanding and as you've Thank new you help your kind you understand opportunities? opportunity offerings, we're question lot of with simulation of is terms more you do different more you. and scenarios. is, have clients expanded now us in lot -- clients then sales, think so a existing Can a that, or in targeting the And last of new

Bob Ferris

question. That's a great

and properly, So can say to as it success we've current -- having previous Customs U.S. have Border like releases bought growing customers from of from federal buy our to just keeping We've both. Obviously, Protection, I'd answer Marshals. Secret that but and Service, had follow-on continue groups see have had really VirTra. -- from you from not VirTra a orders who in then press lot federal wonderful of to clients with orders

which the of recent is customer. Training they've Center, Enforcement Law the been FLETC, a One most and is Federal great

opportunity with lot right, already simulation when same use or they of happy opportunity training a and decide, you system, within. driving and have are a hey, they there’s is would to growth client And the firearm is driving a they there So, there stay want you're your that and judgmental and simulation. in to force vendor, of with -- want your already they add add then

also should the has not VirTra However, penetrated FBI. I underscore,

Spain at, to Marines the to U.S. not list extent have install on. penetrated extent. There's and Britain and bases or we countries Army certain that a large France large have don't the the and large goes We a U.S.

would has succeeded special have Even though that have there though grow different attracted to room still successfully of for I to several VirTra opportunities -- years grow. would while most for a to not we’re believe our enormous military room in out people groups we think that on many the been multiple used still I international in in currently, I the forces military So, and say products countries side market. lot XX years, them have at. there's there's

process front securing not to no So, any in and of we're products actually that we -- would a the that nowhere projects. we of a whole But superior that they've upside we there's way we have and think their products the something proving offer. getting people succeeded the and some the products of fit and on of past. used right lot we're have in working a products of That’s on our But be the markets there's of in the have ensuring offering definitely lot opportunity saturated that we needs. in

Operator

instructions]. [Operator

we'll from Baldry at Roth Richard hear Next Capital.

Richard Baldry

open record With curious, like that? level, have how the you look to that and a a little backlog much up travel catch out I talk up you sort what can by sort timing about am bandwidth of bit, restrictions at How short once would sort the there are would clear a of play constraints could in bandwidth necessity? of or that spread of time period much you

Bob Ferris

you, Richard, for question. Thank that

of on install and should raring customer are So, the silver to installers, lining silver increased from to start we systems had us. for go what earlier sold allow to I ready that's the had cost we for that mentioned staff goods how the is that the lining is,

distancing, still are okay and with are we we we will drive a clear. need I installs, to it, and doing location If we can we some. place still Now that to, have okay client if social if can the be is some if it, it's do a with it's proper

We we some feel quickly when normal, things done time, effectively. get it's we actually to like during installations have has able this back you're and bandwidth we go staff -- are have our doing right, be we good But and still only installs ample believe some start customer. -- band to even for to pretty our safety to it once for

Richard Baldry

the of virtual closing it’s about go can from And little is and sales sales changing, manner a any that into the feedback any assume a early now I in you funnel? how the of stage talk you inside deep the cycle funnel? could And you bit which sort front challenges digital funnel feel toward marketing,

Bob Ferris

And some and questions the us that -- working we've up right, a you're encountered -- I I for had COVID-XX before. quite progressing marketing digital don't there is have sales nobody strategy real like frankly, these of answer hoped. know pipeline our set unlike that think anything well, as the because is we knows sales seems to we do challenge is is longer some that our this It just cycle. we world we

the back of So, we're of funnel. are the monitoring we the monitoring front funnel, the

looking to to have highly -- for of they reserve encourage a personal things and equipment has yourself, judgment in type digital to shows If actually likes good, the until but our this scenarios customer a the between really more shine marketing they So far the training but in should opinion. is it's way, and it do personal normal, time example let's by where say we go want to a the clear VirTra anyone interested training, we VirTra’s XXX in where really do training experience to this great company little do differences we experience start say have able which demonstrations, do decided world. the because back for check-the-box Don't scenarios, demonstration. that's trust system, do bit

So, there close to hands back that our our when allowed help and is rate. on to get our that facility to go will if normal things a equipment, chance are people travel to

mentioned, very many thought Service, that in are solution. reassuring Secret Protection, our FLETC, best lot and right back those fact of agencies these And we now regards our Customs wind the I leaders of they've and -- is VirTra reputation. but U.S. agencies Marshals, the think lot A for some Border I some momentum and all that selected are have a really because looking of other

and because really against help market. than showing us we world of really, a of enjoy the maybe many more difference. features directly leader head-to-head we're there's the our product and So, that this products. in might others. competing But It us helps part times And competing

Operator

Sir, remarks Ferris, our have. may at I closing have we back And no from signals turn to for you audience. any that will or additional you time further it Mr. this

Bob Ferris

much right. you. All and Thank you so thank

more Before who updating point the to product that we meantime, to own benefit and of I'd the all. thanks and brave like pushing the our at call. be it's in circumstances it are I'd their to incredible care safe, are end day God close, who look Police communities to our to create safety have at In It's women to ensure and out U.S. take the bless. every an help the important those especially is a effective privilege serves forward the forward given what always this that day, sincere simulation us safe. We year. It's National extend career men Week to to risk like our even and And us. keeps on a you growing and never us serve training next satisfied putting

Operator

Ladies and gentlemen, teleconference for you this today's we participation. does thank and all do your conclude

now the day. may rest lines your well. hope enjoy that we You you of disconnect your Be and