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VirTra (VTSI)

Participants
Bob Ferris Chairman, President and Chief Executive Officer
Marsha Foxx Vice President and Chief Accounting Officer
Jaeson Schmidt Lake Street Capital Market
Richard Baldry ROTH Capital
Allen Klee Maxim Group, LLC
Call transcript
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Operator

Good afternoon, and welcome to VirTra's Second Quarter 2021 Earnings Conference Call. My name is Jess and I'll 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 Foxx.

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

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

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

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

Bob Ferris

our six for XX, you, us closed After this financial And months XXXX. the afternoon. issued market results quarter second ended you Thank for operator. June and everyone joining the we thank today,

release, you profit. XX% highlighted delivered we strong from results in quarter, XX% increase in see total a As the second by in and increase can the our board across revenue gross

Our which training continued quarter-end. positive as adjusted VirTra's revenue. class profitable and for us to enabled continues $XX X% or income net quarter in also at EBITDA, deliver million Demand growth another backlog, reflected year-over-year totaling $X of to by our our of million, world XX% and total focus build the sequential solutions totaled on driving XX% a record

value that also QX effectiveness and in as team's the users consistent as our our performance demonstrates financial strong Our products and partners. provide end excellence, well VirTra's to operational

have despite COVID-XX continue of the drive ever-changing of assembled strategic we to proud scale. the limitations. business I'm execution continued results team who the very to at VirTra reflect key also Our perform exceptional initiatives

call of Marsha? of detail for through initiatives to to six financial into months within the over walk Foxx, QX and to go the you our XXXX. our turn I and progress about the Accounting operational Marcia Chief I'm first strategy, going Officer, growth context more our Before our performance

Marsha Foxx

you, speaking for It's XX, everyone. to pleasure a be six financial And Thank second XXXX. results months June Bob. the and today to you our to quarter good afternoon, review ended

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

the For of increased $X.X revenue total both million six million XXXX, the second months and delivered, the completed number in was of first months to increase first months six accessories periods same the to revenue XXXX. to the six $X.X revenue the XXXX simulators and an XXXX. and XX% in and total quarter for due in The therefore from compared increase of first recognized for of

for for margin gross $X.X improvement to to of the Our QX last from million XX% million QX last QX in XX% XXXX year. XX.X%, year. profit in compared XXXX $X.X increased Gross was quarter second an profit

gross of XX.X% months the the improvement six margin profit of For first Gross XX% increased the six favorable last profit XXXX for an mix from first year. to in due product profit six months of months six compared XXXX. accessories second for costs first improvement the the sold. gross gross both decreased and $X.X and for more million systems, margin XX.X%, in months to a first million XXXX, was of $X.X the services same to period and The was and the profit quarter XXXX of

compared for last was QX million $X.X second million $X.X year. the of expense to Our quarter in net operating XXXX

in the by decrease primarily of XXXX. license XXXX. due was operating first The XXXX, six in software to period, in For for an and $X.X million offset expense XXXX the six-month $X.X in for fees net QX write-down impairment of operating net six was months million to months the compared the increase first expense

our to profitability Turning measures.

to a $XXX,XXX compared the in operations in totaled last year. QX second of loss from income of Our quarter $XXX,XXX XXXX

an six-month diluted the to $X.XX compared of million $XXX,XXX per six improvement an to the compared a loss operating totaled XXXX. operating months was of $X.XX or loss share, for For $X.X quarter improvement in XXXX. the income of first second an of million, Net second $X.X the period, XXXX income $XXX,XXX of loss diluted net the of or per share quarter for

last diluted For a the basic a for to QX $XXX,XXX totaled the Adjusted share, of loss a $X.XX quarter metric, basic $X.X six-month of per of of million XXXX improvement EBITDA, a $XXX,XXX first the share loss XXXX. diluted period, $X.XX second net non-GAAP improvement or or million, loss from for compared of six income totaled net and year. per $X an in and months an

an For for six million, the first $X.X of $XXX,XXX first loss XXXX. adjusted a improvement of EBITDA of XXXX, totaled the six from months months of

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

we For period. in recognized extended be period straight line respective the a define each backlog yet until deferred purchase contracts the as $XX.X the that Furthermore, June signed a recognized on received agreement. from bookings accumulation or revenue XXXX, orders as warranty Backlog that agreements are six-month life revenue not totaling ending includes of cannot of started million. and and bookings XX, uncompleted are and also future we delivered step basis agreements over

X% from XXXX, backlog XX% XX and was which totaled year. prior last million, up QX the quarter As of from our $XX June

Finally to our balance sheet.

in June million $XX.X at a $XX.X we working XXXX. to equivalents of capital, the XX, from at of the had cash standpoint, an quarter. From million capital March prior $XX.X cash $X XX, we at end As unrestricted and had million compared million XXXX, working improvement of the end QX, of

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

Bob Ferris

to world world our In allowed for to of ability demand remains swell. the The success grow training continues our fill class while over facing And flexibility customer to many Marcia. Thanks, and systems, organization's various challenges. and demand team, have training mission our that to solutions base, attributes and VirTra's a years result to that XX class continue the critical. ways, build adaptability, is last us

continue to flexibility business serve trajectory VirTra we to critical and even growth are requires measured our greater adaptability forward, at While drive the foundation us a steps going for that to point as in scale. will take

through heard scale, me project Over talk our we about operational and You've in scale. meaningful scale calls, scale have certainly on made financial prior and these time, to that progress build we efforts organizational value more enable product our us our and, deliver greater shareholders to lines. lives end will effective training success goal efforts to ultimately, simulator improve and users truly and save on to

executing our raise. capital by in million successfully April, equity balance sheet an bolstered $XX In terms of financial scale, we

Now larger we with resources police more on to in have $XX accelerate our military capitalizing on million more the cash and than markets. by the both effectively opportunities of balance growth sheet, the

large As part built we is VirTra's are partners. pursue human training this to of in alongside a people and reflection part our gifted headlines. success has and of made the valued talented larger ongoing capital. industry most infrastructure it. of the people and VirTra it's An some larger is long in integral our worked before de-escalation opportunities, that our absorb important organization our

end officer, employees fact, to who one insights These believe veteran is the critical a in enforcement every of training, In law individuals training. retired users. VirTra provides to realistic three deliver need our fundamentally us effective understand value which for out their crucial with or

our has our need human capital scale and organization. lines expanded, As the so have to top the bottom of

spans across Our XXX Today, next expansion VirTra's increases talented products. our to staff remarkable in generation and training approximately departments extends and many organization our creating increases operations production dedicated from our realizing individuals to in content mission.

opportunities our team talented collectively in capitalize who have growth provide knowledge and know-how base our the We reach strongest to and company's with most pipeline. the us the history, and on in

controls. relates ERP QX, and the or our logistical we in upgrade resource systems, our processes, it to enterprise system our infrastructure, to began business significantly our As management internal improve of

not While the specifically, process on of the is scale future. efficiencies to forward significant increasing meet production updates system demand capabilities the on you of our out today, a only positioning fact ERP in and a further implementation but our and the and VirTra financial our growth involves ongoing operational may look continued higher building is in ahead. greater in years success More it improvements this major This is With organizational sharing to anticipated new in future. the the underway, the for scale. and with focus milestone surface, in I our an borne manufacturing not demand seem near

two and delivery US next order IDIQ Protection Customs and anticipate for indefinite Border quantity We we million IDIQ. Since US During just Border and the IDIQ five-year of the Protection from from over Homeland this be Security facilities. received years, video-based to could of products. its for and revenue Border Department their the second content generating simulators $X up indefinite proof the to or an for $XXX,XXX and Continuing quarter, continued have which for provided with contract single we assist the our is Customs five-year delivery efficacy value training under contract the September, one with Customs custom of Protection. training awardee

technology, unparalleled simulator necessity Along the international CBP the it and accessories and and including Protection their ensure no first have enforcement the arms systems, choice. small Customs agencies just solution that their surprise to innovative XXX our military and of Border proud globally is effective and As retention service many select US our is and and development of tools world's a patented customer in country, that continue and enforcement law one of VirTra and agencies VirTra. with deployed skills, to vital the domestic is to have and degree recoil the kits, curriculum. US agents be best-in-class to must and officers finest law

the right have traction. larger decision with partnerships continues that relationships existing gain Our to companies makers with military

business can eager approach from prospects, share systems mentioned as contracts. the the when we return simulation and servicemembers instances military sensitive call, last the about results VirTra's incidents, those the in speak have current we first Unfortunately, say are improvements believe to While for storm are we to VirTra's can, VirTra prohibited We details in training real of training to the words. instances. as which that of investment prepare to life as of continues of and on training than to we relationships, taken safely. training. but level, country nature disclosing high actions we remains put police are much we advanced disclosing market louder related best our due our be to one there I this provides military also and more programs improve prohibited and our including a specifics. At better are by protect Much from many home

unique state-of-the-art industry, simulation closely the a of fit development. the our form, real weapons markets. military fire, most qualification our photo the are are training much why support quarter suite, lineup quickly within simulator for courses and confident abundant kits that in capitalize in ability de-escalation full with summary, function realistic to second military conversion drop-in ballistics reason These weapon, courses extend strong our and across and the and to the opportunities was to custom recoil VirTra we marksmanship the product the scenarios the Our author effective ability moat now more contains matching In on in remain competitive capabilities scenarios, board.

grow we As it been better to has is our and today. ahead, never scale look than business positioned

our that and is effective are for training lives sales the accelerating, Our expanding, pipeline saves need and skills increasing. enhances is

track Operator, we're call the growth operational executing, appropriate that, up year, going measures Our XXXX please the in with beyond. deliver first instructions. the and accelerated my to of financial we'll half and on profitable and in operational prepared And for I'm remarks up success provide questions. wrap open with to coupled has your us and the

Operator

[Operator Instructions]. Jaeson with first We'll go Lake Schmidt Street. to

Jaeson Schmidt

seen we regarding start you year-end? the of about quarter. I continued guidance, this could how seeing. the the on some Congrats here seasonality fiscal you've order you to so of you the want provide I think QX, far with have especially I'm government's curious dynamics just just patterns momentum. with momentum should about don't know but in that if Bob, been sort talk

Bob Ferris

orders we and the very for is recognized with allowed that. is Still turn having to when have. on i.e. will into pipeline limitations. actually pleased COVID-XX some robust into orders, quite It but a turn pipeline revenue, sales to judge We're But install. then that there when are and exactly deliver us we difficult

keeping been departments. fine. some challenges police equipment, thereby local agencies government the of technology be to installing of still times them their facing Their as seem achieve like pleased revenue. going to we're orders. on safe. But able change. officers of now, able the and and But of overall, So, budgets it we've They public training being can seems recognize executing on goal can place adding are the seem course, at to to idea right their that that on But, be state help the

but So, overall, very closely. we're we that pleased, monitor

Jaeson Schmidt

budgets, Just what comments those on their regarding expand customers on wondering following up if could your budgets. on you're from you hearing

think have COVID these it do I and the that different some concern was the there initiatives you a going Defund be was forthcoming then heavy in dynamics, lot damage focus some some movement, crime, rising of pretty now budgets, certainly funding whether but to now. federal Police of are and budgets to

the So, hearing you're curious, commentary customers. just from

Bob Ferris

actually have our the clear. sales head say for and try is product to if issue. product in at what sales, we we team no to spend then and And have to most of other the training some ranges. time demonstrate want. compare product look all for you're efficiency to and to It at see decision our the provide versus product, I would budget them the that possible, out able head alternatives options, to they when able have winning area customers be becomes I try training the what if do to the us who then client, that important that's our out And biggest thing actually our

that's so, convincing biggest is that And the issue is, they them training. need probably

us then they sets their has the of key for and ripple sort are if do training they're you their in if need some who it. that is actually you a I then all, need think to if for train, use today, be simulator, And huge organization policing. is entire course to they And has already as important realize the that product, think one their the holding it's to they choice, of high throughout a do if a First the because as the a it which police of very to of lot convinced going mediocre of for choose which organization. we it a and out particularly they you usually thing them is, encourage to VirTra, do of lot a product, purchase. train. second standard, try agencies higher America them. right It's themselves If this if them I believe level okay, you always purchases, And effect a buy to approach tone

most So, would to is a important they money. aspect that make say police yes, they I sure where of VirTra budgeting decision the is their that that makes time spend take on the good

Jaeson Schmidt

one last the jump me, the queue. Just and I'll for back in

COVID seeing constraints friction But from the can't install supply specifically the are you source? side, any side. mentioned creating any maybe some from you You components

Bob Ferris

makes a that constantly we due constraints. About product In component and words, us say that, missing as months felt ago, other ship have constrained, adding not can nine today, but been not components those to been inventory a get began that might extra of that we from of served stopping unable sense. we've out we're But some will that. is us well, we I work aggressively monitoring run to could dangerous to that continue from in something that that already are that future, monitoring able feel and be the be we items those us if ship. we along Asia of stocking to that proactive is in did proactive and lines actually to for being

Operator

question Baldry from Rich We'll take our next ROTH Capital. at

Richard Baldry

inventory derisk for your is to component would Could much over-doubling shortage revenues? sort higher to run that whether how the And much from of talk on of current, how about concerns? that building beginning be maybe much rate Maybe year of support question. last to last you the build

Bob Ferris

scaling from is standpoint, most a just business. the the due that of think dollar I of to

that we So, in small. other chip-related words, money be while components Asian components, put or of the some into derisking relatively value dollar would

Richard Baldry

anything guess? Can coming like saw the Is is from seasonality that half also about year? not resurgent was year? about last world, you of Really strong challenges year third this feel in or there the half? first a COVID you're out inhibitors of half there there XX%, overall pretty second some that's from you very about your replicable talk where a comparing Is in the duplicable perspective, we in growth sort unusual that I of macro COVID? quarter seeing second this still implementation Do anything the

Bob Ferris

a That's COVID-XX predict. one of impact how is the to difficult We're exactly not going sure to rest XXXX.

domestically, the are issues. problematic. seeing delayed have international other still is caused front, installs COVID-XX But We by can limitations or COVID-XX COVID-XX due even on postponed related still to we or particularly

was – would into mainly I XXXX, with a seen think more issue in it's is an COVID-XX. we much – issues. are installation and COVID-XX XXXX, in say XXXX various very so travel And I that expanded

it they issue. issue because a So might be might or it a supplier had be a issue COVID-XX travel

supplier go supply interruption. so, now to have And we or a alternate to an work around

now what COVID-XX was say, XXXX its of target on some I complete the that's moratorium that complicated and numbers heavy And impact. heavy it of a not nuanced. bit that we travel you a somewhat, just XXXX, like a in So, And a while. really for sure. little XXXX almost issues, And In handed less one. moving handed. just very would more are on to but say a It's posted. saw like it's I'd that that XXXX, minimize impact should that more was

Richard Baldry

don't you but guide, know curious. sort of I

strong, half first and meaningful bookings between time? even that. they higher from long-term should bookings very – drives of term between half. so a quarter, Because first there bookings taking between up half the really just are those, longer growth What second growth over growth? has not separation your reported sort full year-over-year, first the your than XX% Is Your good number been were the while but difference the converge

how second trying understand of sort I'm that to of XXXX, strength. up to should think just we half, So, booking a even against about backdrop

Bob Ferris

bookings a in aspect because is goes a of for which VirTra for a The publicized part little years. complicated recurring us bit get our out revenue component revenue sometimes there's of that

of the customers spread where have for of Sometimes, five guidelines for at will years. we to time purchase. revenue years out that have we buy example, to specific the very then warranty, follow And

recurring then, component recurring not VirTra And does a out there's revenue So, that revenue independent. break component.

because is So, the backlog three a is warranties in and And bookings it there not is it straight recognized into receive complicated of that record is convergence revenue. in line. just that, But we the bit it. that future. some a out is not are that to are IDIQ, years put What not set an included into in straight, if get does included

order, is number So, that an We to order of would we X put million has I receive saying days, into revenue. products the bookings number example, days never direct deliver $X XX our IDIQ. these vehicle that up those recognized us within a want in that backlog. with become I that saying to then, that then would XX And And want we when that that IDIQ then, over them of that government a have $X becomes million spend from in then delivered direct of to and years. part

answer question? that your did So,

Richard Baldry

high, deferred because be growth total spiked that And were tied guess, Yeah, it build record bookings two combined. bigger is model, dramatic pretty my kind looks that, growth was must your in a sequentially, the company. the quarters second of did. revenues. the it last a year your I to quarter I of it's on deferred like, sequential new The last almost the than than for number assume that any better revenue for to

up had to a ago. You'd year say

bit going the talk of can look versus of should numbers? a sort any about magnitude record revenue forward maybe prior that and bookings you how So, little the deferred

Marsha Foxx

model. minutes where revenue was number asked a becomes true like customers few number difficult revenue we you longer-term going deferred to through ago, our a very difficult Our it's number deferred when question it based the really going revenue, just similar is forward, saying Bob have certain will order. It's a backlog and quarter, actually I to flow on into deferred to that fluctuate and revenue last purchase model. figures exactly believe a warranties a the

Bob Ferris

the all recognize, no a If it with three-year – so enough have to and those to warranty, is bit got in at it's We've now that someone The three-year us order. of to those three – decent that It's amount backlog, so little simulator obviously, buys warranty way order. quarter it's for we fulfill going during ask it – accumulated be warranty cannot money that if a credited an don't that permission, we is true a buys it problem of actual matter so only can't that and would every they a do many until back they've budget a that year go quarter. become and already because they and quarter. to then that we all while we obviously, do where recognize are we that starting of into obligations are warranty once, a

is thing a and the can one for with which quarterly What to monthly, you or XX-month pay VirTra says we in keep do span. the subscription started in revenue model a year you subscription recurring it's So, program mind pure only the program.

you I'll one So, a maybe year program. a step three-year now might with say, a three-year purchase just well, imagine, did do before somebody warranty can

impact shifted actually deferred revenue is into would have we a is But there shift out. wonderful customer customer customer a right actually and which pure of that the being now To revenue that that then to currently wonderful. which out So, might segregate actually of that step VirTra. recurring income the don't customer part

like warranty. they can do fewer then So, And could then, that's warranty who people do. five that. But a fluctuations or customers wait, a then with And on simulators. And to they later simulator get old, they with order. certain they are have order a in. where some another come still simply of maybe three simulators and just also, order year year who'd There do the we the

what with sense. years that of makes between there's what number And sequences order, of with warranty, so, customer what some comes if in time

Operator

from is from And Klee with institutional our analysts Allen Group. question Maxim final VirTra's

Allen Klee

about that's how of step is more you talk little as a Could it offering? And maybe like changing much the how your mix.

is if relatively, meaningful? you think as sell? you just that growing So, of it percent a And everything it's

Bob Ferris

question, step. He right? Great brought up

subscription our taken to in the the ago, we years market have model we offer that we it. market over two So, really And to then, to have folks we that continue and launched absolutely or who some and warranty some with to purchase we to a who some want five want like four purchase and were to talking straight year up three we just or want have include their purchase. have

we training door. come the So, the to and the level see to of delighted to and as of continue of bring all all are Marsha in try I door large police above military. we the numbers in see highest to in those the and and

we're very to continues our valuable delighted it's a The be for program that working. step tool salespeople. So,

nothing compliments so, but it. heard on And we've

In not I stop as program aware today, their have fact, am of service. that had single step we a

on and started a other words, revenue program, started dropped renewed, client of our has it who recurring a stayed So, version of off. has step has every system XXX% in one not

So, pleased track relatively with we're very our small business. a of record. still is part It that

the half So, we the do we're subscription orders educating market of those there's there's for see orders in that. of orders. in fewer. still – amounts We're sometimes not larger of at a process and sometimes the But point where are coming

tend market sales slower government So, our to agencies cycles. be with generally

process, a of market that really some time. tell take should takes the time. more most then it's That that's they you of step other this, just program, parts that sales kind And to should the is does great. and So, to it happy for they tell for customers people, takes market hey, other a the do do step the while the effective but really people become

our all delighted revenue it we're having to components to independently. line, At makes is with grow. potentially, the previous now of that, our And of sense. revenue we separated of we're because that how good some much will not point, change But we recurring out in piece it's our at our compare we a of subscription we that doing hard out that. very way recurring see quarters So, separated The have model. time, this Very bottom course, we're to business when report do cognizant moment financials. consider

Some doing it be comparisons. prefer so to have point one that But a out. the keep to there not may of separating one change, value shareholders separating they can out any when warrants

Allen Klee

going in spend about plans a remarks, than and reasonable know that so My don't you give good time talked scale the And a to at about of imply rate amount this growth that your question would only been talking means I your and but might expense of higher you important. system other operating it you it's be guidance, run be that at? people to ERP is, rate your company forward kind are prepared the how rate

Bob Ferris

the infrastructure we know like But conservative We mind, You some we physical machines some that a software to on that. or beyond situations, keep certain and or might for yes, we're on our we need equipment and conservative the management money equipment spend teams, capital that potential but, requires of might have want there there's company point, things generally the licenses. in potential a products our just we're of for that And sort But, is demand sort physical some exceed might foundry the a of not CapEx. are to yes, group. billion that be ahead at that. that, dollar

Operator

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

Bob Ferris

of the today. part VirTra's Thank being you. really you We everyone journey. appreciate us Thank for join to time taking

who effective Take our with and every and team the to through serves your in care. our continued warfighter VirTra God support honored lives safe. And and improving Be officer training at someday simulation to allies. by are reach trusting your realize bless. mission every investment We of highly and America police and saving

Operator

today's and second XXXX gentlemen, thank VirTra's conference you for Ladies quarter joining call.

now You disconnect. may