VirTra (VTSI)

Robert Ferris Chairman & Chief Executive Officer
Marsha Fox Chief Accounting Officer
Jaeson Schmidt Lake Street Capital Markets
Richard Baldry ROTH Capital Partners
Call transcript
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Good afternoon. Welcome to VirTra's Fourth Quarter and Full Year 2020 Earnings Conference Call. My name is John 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 Chief Accounting Officer, Marsha Fox.

Following their remarks, we will open the call for questions from the 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, 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,

Robert Ferris

Thank joining Good our Officer, Full record federal also call spread shut down, we at the responded uncertainty the for year Chief our across we were and results schools least. did. as us and to with say businesses United that Quarter XXXX ago, in decline, XXXX one thank financial XXXX lives new closed begun healthy produce government, in been States today joined met Earnings you, Yet, you and COVID-XX rapid time pandemic. idea Fear states afternoon, just our our VirTra the and communities we and held the would local and Fourth skepticism dramatic I'm Fox. to and as When have could shifts markets that all experience Call. by daily Year VirTra's John. to earnings everyone, today Marcia had for Accounting

revenue was full $X.X positive We $X.X the $XX.X as year. our the during quarter, times. EBITDA company's fourth a earned $XX.X the we was in XXXX. in produced Despite XXXX. in headwinds in increased the It's financial many our ensured VirTra with against we by the increased XX grew $X.X you'd expect in and revenue of pandemic revenue income most why The tenacious for our the backlog our in million fourth successful XXth million at that business for net flourished normal finish, year fact, adjusted consecutive Even XXX% results to challenging quarter million growing incredibly and XXXX strong XXXX. produced to staff the in year many. a in million for for In odds, metrics, million natural December ask so history, which year XXXX a to

we law of enforcement to First, requirements serve military integral law enforcement personnel. which be improves military and the simulation a are improve need proved highly products that effective for training the and performance

save uniquely mission unusually great Second, to we are our effective to people have products. improve tech dedicated lives through high who and

and Lastly, quickly defund in trade thrived customer Despite company very not world, canceled in we Despite of midst all change and calls much impacted group. our constraints shows, year, number past travel VirTra regardless the circumstances operate to and structure, that persevered of organizational adapting challenges the nimble the sales core international XXXX. the within over posed to restrictions only it, of but budget installations fears police largest being the a a the flexible police with foreseen them. simulation of of like in company in

switching tools, to were lack rely on demo the web-based shows and generate we adapted prospective deployed by by sales clients, which leads current products to and traditionally our conferences, which our team trade to With timely of marketing new and team.

quarter whenever sales. parties. the sales, deemed job done alone, lift, in demos into year new the converting $X.X calls safe for we and COVID sales both our generated throughout and are performing fourth an staff bookings. them in-person As regional really restrictions They've million demos performing And excellent in

we the XXXX. However, the of ended continuing of beyond effectively with our note December had but XX year the growth. backlog good team that respective and coupled of revenue. backlog on converting the pavement and year accomplishment XXXX, for demonstrates the our a The went momentum the our has third the is portion to rare ability to that sales a combination our of end At for revenue into climbed convert in recognized which of of regions, XX, end revenues strong our above led we our end to million not top-line pound their that in only at backlog was quarter financial of high there primary strong years reason both consecutive the the $XX.X people

our given base While needs strategy then foothold reputation tactics that our of state our customer to expand fundamental we've and the to solutions adjust that our world, [ph] law the current and capitalize build and in of skills remains launch to as and leader within future markets. the of core force reputation unchanged. an some training marksmanship use serve the Innovate enforcement military our and on of industry had the

XXXX, for we IDIQ Mexico. our of Department We autism new through simulators our with in of for of from expanded enhanced awareness driving State training; the excelled training During contract our curriculum Republic content an deployment areas. each V-VICTA we of these the

the contract simulators FLETC, major additional of just relationship deployed result, follow-on Training Law Mexico, we there's and Protection which within Through to to technology XX is Border of from of Center industry-leading Enforcement now Federal VirTra's one to contains in or the improves that different training officers name million a be latest to and highest of war in on and we thousands the received interactive exposed September market. scenarios VirTra military federal total quality as long we each FLETC to programs for decision states is in products technology our received and $X.X content our year. their secured skills. potential order we XX help force with modernize marksmanship a last standing support a Air fighters' from ADMIRE have with orders the which Laboratory follow-on the use As year and client Research Customs contract. now with certified military a the We develop the In intended decision-making Force branching market with making program that specifically,

XXXX of challenge results business. encouraging, is these core demonstrates are face travel robust but to year, customer While we in did grow ability foreign our how to to very our the was internationally despite headwinds headwinds continue our our growing scale and enormous last restrictions extensive Selling markets. the an base in particularly XXXX due

VirTra year. well past the our us, changed As around as experiences world internal own changes this

with in front people us. have of our in increased in pipeline. personnel grown growing has meet to ensure along the to We've demand business we see our place opportunities the we Our the right

In in company's we fact our XXX time first for reached employees. history have the

or and the one-fifth As our to to ago the get ERP part with work process of manual to a we and invest to by the is with weren't new infrastructure prepare integrated today resource that system. various growing sometimes doing transition was long Not each in we other, size so planning it bridge could enterprise decided about gap. fully company our systems

to military board on virtual a staff better-handle as revenues, Saltz, expertise to live member growth, on a moved I'll we a longtime we ERP and our better-positioned it our for that are and However, robust for to Also, have the as became vacancy in term, of to passing but us market in team, time was XXXX to and challenging of board future VirTra. was of we've needed in sustained long proven one with for the having on and opportunities. short John who's Givens the [ph] military our in potential be discuss so whose remains Thus growth transitions in appointment, logistically connections already Mr. we're returns. term moment by that prepare The that John grown current it drivers business by filled capitalize early clear necessary for beneficial and those in difficult October went XXXX. a VirTra largest much the

business filled an held multiple pleased XXXX. very report transformation Her she'll She years She's our all our phases Officer, leadership been in of financial have doing over senior Chief since vacancy capacity to full XX CFO, Marsha experience from was board. happy strategies us I'm in operations, likely and be and the you'd in interim of we're Judy industries retired Henry team. Judy to to controls time. including accounting recall, Marsha our job her an various new that November taking brings joined As and on former by staying She reins positions in has process originally but the on of Fox. excellent Accounting own. our

the of and XXXX. over going to fourth I'm So Marsha an with the turn that results to to full call overview provide the quarter for year Marsha? introduction, financial

Marsha Fox

and first time Bob, everyone. afternoon, the good to be as of team. member It's pleasure the VirTra for a speaking Thank you a today you, to

Our QX in year. XX% for XXXX of $X.X quarter last $X.X we was recognized from fourth total revenue an was increase the This of million. million of revenue the

in our and revenue The extended revenue was in $XX.X curriculum For and the in XXXX. warranty $XX.X and an both increase accessories, full total X% of This result a in was XXXX. December reported revenues training ended of sales the was increase year XX, increase we XXXX, million simulators, million. subscriptions periods the from recurring in

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

of gross gross the and to $XX.X primarily revenue cost of from profit XX.X% combined or simulator XX.X% full both increase differences sales. type of total due increased $X.X the sold, type to and a For in in accessories services with year, of the our periods, quantity systems, million revenue. In the total of XX% decrease or variety profit in of million was

for reported QX Our $X.X XXXX XX% of year. the fourth million from $X.X a we last the operating of increase expense million was quarter in

expense year the The as as expense full year impairment recorded expense notes and The in XXXX, XX, Corp investment in Round, receivable. $XXX,XXX XXXX or bad as well million $XXX,XXX allowance That's the as a operating The million XX% three ended an impairment months notes $X.X on as well operating our expense of in the for Modern December investment for allowance was the receivable. from a as included $XX.X accounts same operating recorded increase to increased debt Eatertainment on due in a was the an results operating period which in year debt Eatertainment, $XXX,XXX accounts $XXX,XXX full ago. an for and to For bad

the Turning million, our in a now quarter XXXX XXX% fourth operations QX of for from year. operations of income increase profitability Income to $XXX,XXX from from was last measures. $X.X of

operations XXXX, a income of increase $X.X from was we For in year income operations million, the XXX% from the XXXX. $XXX,XXX full reported from

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

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

fourth increased the a in from EBITDA, XXX% adjusted $X.X quarter non-GAAP Our last in of million year. XXXX to financial measure QX $XXX,XXX

year EBITDA XXXX. $X.X XXX% the adjusted in For million XXXX, increased $X.X from million full our to

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

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

was $X.X finally compared $X.X million From balance at ago, our capital deposit in year XXXX. XX, at and in revenue XX, of at million million a XXXX, million, up to backlog XXXX. million XXXX. As XX, sheet. compared December XXXX, with cash in total And Accounts to $X.X a at working approximately capital million XX, which equivalents, XXXX. the $XX.X and in which cash, working XX% cash we up capital, the December XX, the recorded $XX.X September $XX.X XXXX XX, approximately million At year-end, ended of from in at December certificates $X.X combined year cash we from had receivable from and up our standpoint, equivalents working the to December December full unbilled million $X.X is we $X.X million to was

filed For now additional details of our reference today. was financial prepared form our remarks. earlier please That turn which back results, to concludes my it Bob. I'll XX-K,

Robert Ferris

Marsha. Thanks,

technology Round, Modern substantial investments of in As exchange Marsha in licensed write-off our mentioned, some we in had their revenue. whereby for our we of a part

of succeed, side take a year and of staff and chose from industries, have can impacted one-time the shareholder the entertainment it of begins for ownership last higher a as must the that the they was. these the If restaurant we open operating Modern prudent environment, the up. impact we a be which still on Modern Please most as the difficult it incredibly results As had both world Round know to have are on an our working caution. in large business and cash flow write-off the write-off, imagine, we strategy XXXX we you would We pandemic [ph] perspective, Had means has to remain generate Round so a upside it back enjoy uniquely a negative post-pandemic. Round. such in audited public can even Modern hopes history potential profitable been not hard that can in But to in VirTra's company, been error year.

piece -- are the and with the seen have strategy portfolio expertise large perform are provide decision competencies in law understand already to we're call, it's real we improve in military for the industry missing the that a that the can point Companies where as contract customize later with larger our we of need sensitive what disclose everything core training can military's seamlessly desperately they with key world we market military of the key we've IP ADMIRE we be a that On sales a that's a our demonstrates they for simulators skills already needed into we supplying needed training XXXX. details we evidence some further of critical training or effective relationship whether how believe do, to integrate piece enforcement. products' strategy by continue ability functionality puzzle contract will help for solutions, for and experts military's our lack: the to time, current the training, alongside Our last working because our at makers. our built well the to player we partner market. of our having but certified That expand programs. of us way nature leverage a an discussed effective work, appetite as the constrained in supplying and partner key one player on this can indeed, we with our a to to And to who progress to year. is better VirTra has more Due in to it on hope the most:

necessary; those those remain stay responsibility incredible training world will world tuned. whom please So, we force, help buy to things clear: quality the simulators serve. if the with needs for using when the of Two and train and endow who

on able long as that quality demonstrates to long Our perform past we're as execute as will continue for to year well. performance and exists strategy, our that training this as need VirTra

Our pace. will are a that growing we plus increased healthy at last indicate revenues year's backlog

open has we continues we'll balance plan remarks up stronger no and I'm we're continue currently Our sheet what the our the enforcement in and wrap beyond. provide to the tailwinds for your military my prepared as And than we to please cash up gotten instructions. that to with the and carry to experiencing, our that's other that, PPP both debt increase. Operator, XXXX going only questions. law do With exactly appropriate in call position and market loan


floor Jaeson, from the is Jaeson questions. Thank Street. Lake coming question Instructions] your for Schmidt is [Operator line you. Ladies first live. gentlemen, from now is your open and And

Jaeson Schmidt

strong could my Bob, guidance QX, taking for Early here looking continued specific first questions. XXXX. if Hey, just guys. last Thanks but at talk finish about saw in of the XXXX? months not three you you to the the on momentum year for order

Robert Ferris

for Thanks Jason. Hello, question. the

spurts. course, seeing can the come on of sales in are We continued order it front. But strength

with on sales happy are pipeline. We the deal Yes. the flow

Jaeson Schmidt

that's pressures? you're customers Okay, seeing push on if back budgetary or any And from curious just concerns potential helpful.

Robert Ferris

getting obviously an your budgets move. constrained to seeing client-specific That of industry But a either move a major right situation. or expanded We're is is industry much question now more know I very not budgets.

or for than in can. work and encountering do our we and can't. buy We're just they can't people was that lot client might with is me budget issue mechanics more of I I have simply that So, seeing sale how the your we work a know and on option close I how of product.' who helping how not a us There's more we making grant the to really them they My a subscription think them business removed that say, a way we improve to sure apply and that from navigating we're any side with them available programs 'Listen, unexpectedly in that. any

and process this company, to our Of lot convert sale, company to budget, for course, when a those can can a to have do try our them to improve a just room subscription. market. of or just purchase think have I conversations But that ensure we that occur do whether a but not be any we people in

Jaeson Schmidt

XX% from significant Okay, going back one and forward? and think should plus margin A this we pretty step jump Is up gross margin about last queue. sustainable? gross I'll How sequentially. into in type sort me figure of

Robert Ferris

situations some where vary around look if stay down usually there we're But that long things have up, XX% to Over try -- really to historically, trends comment some, is focused one that reliable push margins the at. gross the we and look in margin are had term you are Because years, of somewhat. margin right we on our margins pushed had on historical things, most but gross range. can we've

overall historical VirTra. look for I think at are investors margins well-advised to

Jaeson Schmidt

guys. thanks a lot, Okay,

Robert Ferris

much. Thank you so


question your from your line Richard, coming And live. is Richard from Instructions] next [Operator ROTH Baldry is Cap.

Richard Baldry

up Can you opening some to Thanks. play environment implementation, up it's unfolds? backlog be sort ease that do you states a as XXXX of about as to the expect seem into talk how And the beginning as bit? to

Robert Ferris

you for Yes, thank question. the

more still COVID-XX although We restrictions. on of is us revenue of vigilance on directly easing recognize to are a an when our there the staff. able seeing health we bit That restrictions, easing does being help maintain in

install staff feel our general, right having to be even people to deliver, if back. we But So dedicated eager and is a to equipment if wants trained we our in will eager unsafe, client very hold placed to us it's in get hands. and the

do of time saw bit we major So, a In we assumption see pretty ease easier a that like other COVID-XX trajectory heavy restrictions with major snap XXXX. on up that's revenue words, not a recognizing XXXX, restrictions, to what consistent. back a in do in

likely there definitely suspect. restrictions staff a revenue on mandates recognize being correlation less and and So between you is install travel would to as less equipment our able

Richard Baldry

in that now you any major discussion broad overall into training increasing talk way are any unfortunately that deployed? pipeline use can changes XXXX more impact level, maybe the of murders the opportunity of drive forces could And in do of from to argue try high productivity? cities from around see the force, from to good a perspective, or a Sort a you lot might of rates of which changes your in

Robert Ferris

is strong. are for will discern. training? me say really with discern to having groups have hard that Is because let caution headlines the it's very are more first, worried that It's that is why really right that that me tremendous. quality to B, pipeline I the it now. out not pipeline because -- hard I'm Well, high about happy you we

training public forming logical there's any a exactly could is a exact would for logical work is from right us our as of force is lot a police not well be in certain we're of that there why in all it consequences we they strong, to sense do time all that with are opportunities would outcome and scrutiny very shareholders. those that and make that could effective of pipeline That XXXX. opportunities the of the more training We've pressure that know is all got cut use want encounters and now. a our So negative loss high-end cause be. want the to pipeline for and avoid life. conclusion But out encounters, It during sure is and robust that VirTra

Richard Baldry

Last me. one for

digital to in about motions You doing maybe versus to virtual to and to marketing think talked more feel expected. develops? the think on like things kind how of Because end indeed adjusted consistent? environment could you Or doing virtual some sort that that to has in this a more normal get Are the adjust of talk longer better of sales. people lasted past have customers increasing Can if more waiting half than some lot person? your are of well your and becoming do you just those in-person back you Thanks. I of people XXXX be second also

Robert Ferris

question. great Sure,

just I trade -- actual personal shows I trade the really the a think that that same and opinion this very impacted. think but is are Ferris, an show. physical The trade nearly virtual Bob been as shows of not much have

COVID. do the I that They any to had and very that to buyers are VirTra's and our to differences. marketing digitally. of do many But then trade tremendous team go in out simulator really of fortunate digital out entirely which kind who a times. sales different process very check the differences enormous, leagues show in We check prior situation simulators hard an to to competitive are launching already is process and compare there new competing want So, have think physical were

to happen was focused the on there wish better of I and potential web. in was being not. visual luck be a we I were but a communication say So, We could I that. really pandemic, preparing for on involved lot just

our and sales phenomenal digitally job that materials regard. we very well-prepared team capabilities team so, And did marketing and were in with a online and

think our do I So, responded well. customers

continue area, The switch very, I was opinion, to and shows In think digital well was the like I digital. to COVID-XX will shows effectiveness think work so I a many as trying show; into did as and they well. of the a areas only doesn't were trade to by long physical to be just of event. they trade decimated very in-person that said it's are it shift really their unless domain trade expected my life, personal

Richard Baldry

last one too. Maybe one,

you a could overall If to in the feel of a to growth backlog, growth been plus of you closer XX% look like if revenue the that put feel out to at you some level inhibitors And forward? Or backlog. had shift that's to sustainable the that Do sort able there of some have even. sort growth in were side? XXXX obviously growth of there's there one-time events we Thanks. in sort

Robert Ferris

Yes. That's of talking of a the of lot really good what matter today. at heart we're question about a the

you basics a doing or past well, a don't the the I that have press growing in releases VirTra It might think a had multimillion-dollar big sense does it's just where XXXX and just the doing was $X.X blocking sale. the we XXXX really a in business. interesting big where that lot just really sale VirTra and million of tackling see give

a So that at important in pace. where think trained that let States and enormous we a enforcement we growth law now as would America, at just trained going that market, is in for there we being level pretty we lot number United to it's the should law company that There make beyond room to expand tremendous is continue mature alone be of there's are But other in just of become potential countries. not more a look this that still that solid and to right are the believe enforcement. at someone they people in grow the

the tapped as we military tapped like So, fully certainly, massive well. not police are and then is and others not that market that there market the we still have have

I out in the if it and double-digit the think would hard But to that's in expect be fully-deployed police company. not for of anyone So were case. much pretty growth very we military, then

Richard Baldry

on close to a tough a good All year. right. Congrats

Robert Ferris

much, Thank you very that. appreciate


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

Robert Ferris

Thank world's know really staff taking accomplish you, talented hard officer We products, our their simulation building XXX effective to safely. and professionals can fighter the to serve I country, training their that you time the and John. want home the appreciate so mission us. join work are today everyone that peace it at of make the war most

shareholders. for safe, are best higher at days We both firmly VirTra for believe our customers standards of perform I take at are Be God ahead best and our and care the our us. when we bless.


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

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