VirTra (VTSI) 16 Nov 212021 Q3 Earnings call transcript

Good afternoon. Welcome to VirTra's Third Quarter 2021 Earnings Conference Call. My name is Holly and I will be the 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 up the call for questions from VirTra's institutional analysts and investors.

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

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

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

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

Holly, afternoon. this our quarter Thank XX, ended joining you we After results September the thank and for you, for issued closed the third today, months financial everyone us and nine market XXXX.

represented end over million, seeing backlog of at was up at which the quarter of million, a VirTra's XX% training in light the a another pace backlog In parallel, record third in COVID quarter the last tunnel. quarter record prior $XX are record The quarter's culminating of $XX.X bookings revenue delivered figure. sequential increase with we of solutions. XX% ended new world-class the end We sales and record-setting of

in in mentioned, international have I related COVID-XX created limitations previously markets closing As to protocols deals. certain difficulties

sign of Anyone tried equipment trained certainly hope can our then lifting are important out our testament of Our head-to-head to a how recent We competitors some sales demonstrations of and to the wins COVID to pipeline our is come. on restrictions. equipment attest who to process. sales things the our a are has international this and

in-person to beginning imagine you are can we excited trade So see shows how resume. to

at ITSEC, some their be with be put our trade training industry. impressed a in More two show products the our today large Florida. we outperformed to in have of in team latest from weeks continue will which peers Orlando simulation VirTra, exceptional fact, demonstrating In I broadly, at together we

We have there gold training many become more still effective a so we've for provides. even the so standard that for in and top need as simulation training VirTra mentality are that growth realize agencies, many only of

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

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

This quarter third the a recognized QX from the for year. X% needs. to was from $X.X revenue mix of resulted total our delivery schedules million. revenue we $X.X sales decrease accommodate the Our was The in XXXX and in customers' of of revenues decrease million product last of

XX% increased to months million completed was due XXXX of in of the for increase of first months increase for first accessories the the and $XX.X number revenues nine of delivered. nine revenue The and to first $XX.X nine total in months the from For an XXXX, million simulators XXXX.

million year. which $X.X in profit XX.X% was quarter for QX year. QX, the QX for third margin profit of lower decreased than last from in $X.X gross Gross million last XXXX the Our XX% to was XX.X% XXXX

due months for XXXX. was for first in grow. XX.X% in the our an to decrease Gross months in margin The increase profit of period the of profit the first was inventory scale period increased profit operations, months nine the of from gross was as million $X.X XX% nine year. the XXXX first the nine last gross to for $X.X XX.X% reserve for margin XXXX nine-month the For same million than which of quarter lower and

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

was period, company-wide For first of for the fees, million compared primarily consulting was nine-month The invested the net included company in $X.X the the operating time to million system XXXX transition by due XXXX and by software expense in XXXX. months to $X.X to write-down impairment which staff. decrease nine a offset ERP

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

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

$X.XX a last per our net to first XXXX. third diluted XXXX from a a to of totaled the It totaled basic $XXX,XXX $X.X improvement to per an quarter XXXX months metric $X.XX and note, periods is nine-month diluted a in non-recurring net year. For the or $XXX,XXX, of nine-month $X.XX loss for for on company's $X.X QX the of loans. in period, Adjusted gain share benefited PPP compared and that share $X.X third the income nine or loss basic non-GAAP of compared forgiveness quarter per million million of and important EBITDA, million both

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

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

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

balance year. our XXth, As finally And September million, quarter from which of QX XX% was totaled to XX% $XX.X up XXXX, sheet. last from the our prior and backlog

As XXth, unrestricted cash to a capital end $XX.X equivalents end million QX. the the June QX, decrease at of of had XXXX, $XX.X slight a had standpoint, September of $XX.X at we XXXX. the in working from capital, of and at million From million end of compared we $XX.X working million cash

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

Marsha. Thanks

has attracting wins As you can imagine, which we translated buyers, for contract with our progress in into are encouraged us.

systems initial to have and about than talked of award somewhat and and internationally, and Customs US a service devices, we covers was this for content. Department The threat due million liked accessories, a our Protection expand In which US are order challenges. to XK for the the long-term from accessories award the systems, the Homeland million $X.X The technology, has of Security the fire about new past, of potential was One of pace these we of we wins flip-in COVID-related simulator kits, recent Border in would purchase slower training and progressed a with have IDIQ. business plans excited $XX.X multiyear recoil warranty current five-year award. at

these to quarter are our second announced see earnings we we as in contract since some volume two starting call. However, markets wins large

for simulators, was from world. new recoil accessories. and first and a a $X.XX in use-of-force client continues Middle million in was the order weapon first client deployments kits, this VirTra's to the broaden The win our country East This around

What country agency's from the win large kits, out is $X.X international contract was a respondents only important order is that in Our was standards that in needs. enforcement training highlight million many the suit simulators, VirTra accessories. this required their applicant recoil of weapon other to the RFP, law to this other for use-of-force met high Europe to award and

lock and is included would when stimulate kits proposals. is to making area be the their demonstration agency be in was critical financial required the back, VirTra, to to drop-in withdrew training fine an to Once all This wasting we're of fact, trainee time. cover unequaled. able product company the as, and the added, In other out requirements a negative government's The that any could the ammunition. a fine show companies such the face proposal recoil where also avoid bolt capabilities to a

We are the business in continued almost international $XXX,XXX revenue generated international the translate quarter to third we with success just internationally and our see representing of revenue pleased it well, XXXX to the beginning. is all financials, twice as for hope

disclosing be longer-term remain Near-term On existing to the work. and ultimate material more contracts side we potential the times, of execution regarding within we things, than larger of details visibility status orders the be this the as that We actions challenging the revenue gaining much believe louder the to have segment, speak the this put first of partner can and at certain believe decision-makers. from and is right military approach is continue words. of of companies we and relationships given results about timing and established optimistic with their with traction. prohibited business in VirTra military we

we much disclosing in when can, prohibited As as can, specifics. we you say from instances are we know, we which but as are there

results be We long we growth for and opportunities runway with see of to the are encouraged continue achieving a VirTra.

headquarters Arizona, quarter, will will building is provides excited capacity, which which out. an the in currently on facility, than industrial The two we property to new and the be growth centralized us are a move our us these facilities, with greater acquisition which both opportunities close to Now we which leased why we plan will require Chandler our of larger XXXX. operational more in once sublease larger efficiencies give during of

new excited advanced in are headquarters with think most in capabilities we current training We facilities. unique possible be industry not will our which really facility, our this simulation the about

of scale was XX.X% to to on margins. year-over-year It note, to take inventory our the we reserve, were decrease to required Gross decreased a a to of basis on Now is our that XX.X%. from that margins most as of topic important grows. the operations attributed

quarters. us believe mind, products our of to profile, quarter third innovative gross Keep margins we offering effective uniquely on future is historical market. be margin So and not in indicative the may all based

and sharing when on projects right I to We will underway now solve easy will well customer to I source have to us problems. several project awards be protection duplicate. able. They we each position that will forward think not justify information more am patent look could sole confidential receive

have with capital. in a We to quarter $XX.X and strong cash sheet ending million balance of continue $XX.X million working the

and public best industry practices have we is on shelf believe file. to both in company, a As the good corporate governance it effective an

and and So the management investor selling VirTra of shares I SX has earlier capital one projects, coming want year shares have will be contracts, of shareholders The our us larger clear the markets. innovative our of shareholder steward compete access take. strengthening Chandler scale building, our long-term every shareholders. staff. no our the to a our keep of the to that more allowed the as acquire of been very And of Please immediate in days, VirTra, current we company. I our that both we to operations note benefit for the while reward plans renew believe our we to buying I at center capital interest Arizona sheet grow daily we this aggressively back action good largest on initiate balance of strive

training We while being the to to to and world's shareholders as simulation is to hand-in-hand. customers. so grow most effective exceptional have provide go is two healthy returns our deliver that to other goals the our One financially

your with accomplish please to open we'll left I'm provide past very report these strong to that but prepared pleased instructions. progress remarks much this going and And have made of questions. wrap call my with up the quarter. I'm both we goals for Operator, We appropriate the up to

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

guys. questions for the with supply and my chain. progress. start congrats want taking continued Thanks Hey, the I to just on

supply feel Just meet going tightness? standpoint? more able you a of forward curious, And component to if you're seeing about sort shortages demand importantly, any being how potential or any from

occasional once supply some chain material. while a in Thanks, We do Jaeson. challenges raw Yes. and cost items have mainly some

So to there. are far even and those been we've do to supply on-time customers out expect so manner product challenges we in the to able an current be to with deliver through our that work able

the finding you're Okay. space you then at of competitors see over international similar here just seeing market, most are that to entrants against That's domestic there? the in the And you're or are helpful. going looking that up market, you the there are ones new in

international the a competition on No we lot have of not scene. new seen

And on actually proposing and a expect So abilities normally a are that same to abilities. to be will we that project had client the facing unique they the actually up. where point, show when required some the thing, end financial is at so a the to liked claimed were had which situation. our rescinded we did that unique they they we competitors showing experience fines able companies who up unique we but their do be the an interesting ones proposal company Again,

no, really a to I for the international think long So I lifting able as people. of get on continues. matter COVID-XX-related front it's us side that the restrictions in us And international right on front encouraging is travel of the think very being as

your margin a QX last gross the Bob, sort then expect one back margin queue. in decent just that of commentary back QX? you Understanding based that And gross on here charge impacted snap it. me pretty in Got we the of Okay. jump for I'll sort should and took in

great tell prefer to a goal changes larger but is can I with maintain and the question. I do mix some We that quarter-to-quarter. our margins, go product that, to margins. you healthy with That's things have that can to say do

are market may to -- innovative margins. are you're there many -- many look margin so, company in say, and really difficult would able you is over something fluctuates. products the I that many, so long do situations so quarters at shrink, that solving might look years, and all that I a are grow higher that you if with, has us you to margins think as had over And to we've then have strong replicate if and/or important as where if or those had many, again, problems. us And at protected have products our

So, fluctuation on could some quarter-to-quarter we path, on plan to there our stay margins. be that but

a lot. sense. That makes Thanks Okay.

Thank you.

Allen, line coming Allen live. Group. [Operator is Klee your Instructions] next question Your from is with Maxim

what The you more potentially about, that little Yes. capacity? Thank new how your you're the could building, you. Good afternoon. ability get, and expect to efficiencies that to -- headquarters a talk you benefits related to

Sure.

we're do that but allow and certain will some for as just also building building. capacity, to especially building to the development we improvements in in is for content keep in other existing area the that mind that So taking an production areas, such we purchased have increase kit in to But, over that we do plan tenant perform and and our in research the capacity, certain our that an impact recoil and capabilities of capacity, creation. abilities

our to it's that of the a brand expect we're maxing there enable power, lot which in a And in new effect we're reasons. our the at. limits we ripple not And space, limited and but because we operations, facilities our so, and of things and there's two -- centralization facility of competitive that from two going somewhat what facilities we then close announced be being out now for so, in certain have right facility, planning were getting addition, to there. allows capabilities garnered And by of are efficiencies of our new in there's that staff to lot the new

So...

question other start what is, my get are of catalysts And in you expanding you military think kind would the Okay. say to the that the you could there? market,

Yeah.

is undisclosed and then now but there. not supplying recognized it already different to programs done to right militaries. broken grow through on and them then a being also was the catalyst who backlog are the more for One are do use work existing area. the working a supplier fortunately the military, getting agreement have mainly our for so over software over out, to has years, ADMIRE release with ultimately been revenue. have our specifically through to lot being a customizing been traction so we to do currently for we've what press financials in expanding our being we funnel of included that we content military in and that has it that That's that So, primes traction done and that with contracts We starting expect companies they is announced last The time. couple -- military VirTra of that and have we was customizing larger

So well-known we US are important enormous we investment are established for internationally for products years over a for the on compiled technologies military the side both lot constantly think that's very definitely and of a do military point from military us but conduit in working years because and have where we the police. also our an opportunities, in that now best-in-class have to and best-in-class

coming will that one fruition. opportunities produce do we the come catalyst, them have not and military the do there's forward quarters expect we unique specific that having that although to some and we're in we side looking fruit think on So, that years to very

you. Thank

Thanks, Allen.

ROTH Your live. is from next is coming question with line Capital. Rich Baldry Rich, your

Thanks.

solidly the as up at run line a likely it maybe new at? the quarter. unusual that there more curious, of half rate there – think this Looking forecasting I'm be we sort is R&D you in of what revert stepped levels? makes anything to it in pretty first to should Was

we lot a – did So – we and the already to I that the have actually have private lots rights the that. about full that what R&D mentioned relates work where of that rights rights which done, work the government paying to it and have obviously, is ultimately work of builds on still to at ADMIRE we've on we we expense us contract, do yes and to just so actually that

that various do lot a and But So here interesting up staff time think as I that competitive the do is we always show thing has things VirTra expense. – to that. we with don't pure to be that about

But capabilities some lot – we and already believe – technologies opportunities money expect are And capability. a some would build we – always us, a generation spent are that we next we've there. again time. to we've the and looking would certain money sole that spend for more of investing have that product the we're source of sense that that and unique to future competitive So to that make in lot a of for

do So that. we in invest

ready sensitive new we announced about on and means hire we're But not doing other imagine a just and developers. when and and disclose to that, that's lot information can by technologies having of -- don't very to that capabilities, obviously. come going don't it's can always be until so released more yes, projects that's You talking It be new too.

Okay. because be build When increased chain of your higher we up quarters, capacity how much new a might revenue think of a last level new headquarters, supply you you'll it bookings, over level to look the issues? into inventory that that the couple rate that because of move at more that run facility? safety number have there And to new of when stocks or a is pretty is goes about is your likely way in the greater to support

that for Thanks question. Yes.

do maintaining having and with buffer that of to some that customers is part plague that inventory chain safety the companies So, chain currently we issues or out issues still there. that that We the supply such that is stock, feel as so supply to can has too. supply lot with we that are there especially a even ours have with products added, adequate may inventory confident mentioned of

are talk capacity are the with the little up have XXXX capacity, Okay. or And to late you that beyond, growing? bookings then, right the your a and think to with and heading you rising there plans backlog about Do how level into bit comfortable they step that you have of you meaningfully? the can any sales

strong that our of in would that. able excited police were I and be we in-person of past be have key was we to performance area in had were in-person a quarter. to business We at sales. lookout seem that we talent and monitoring lot very not we trade midst so, America on a difficulties the really I the and show do always an of And reevaluating carefully. That's encouraged addition underway trade shows a largest for that of the and where last been will suspect that. got for we was That show new that for at that arena had and monitor canceled the minute preparations very a trade of IACP the Sure. lot was really and of with this some canceled

in-person our sales a working was new with constant orders Despite demos was that big sales fact coming a we very to hard are that, reps So That those disappointment. a get really the have in. we and able setbacks still record-breaking were regional on to encouraging. basis

jumps big are if that's So, sales it's up always the time our and justified, was so. don't constantly we that. swing there's willing staff. we -- to but staff to something to been would that plans We've it I in sales we when -- past don't talent we then do at monitoring. But we to do improve available we grow room have the expenditures this in large for a and necessary do and in we have felt continue

we Or if had the one hire salesperson. opening, we a Sometimes do because we might we talent. two, right just found even

So...

come have of win me. logos? you orders new bookings Has or constraints to about that side terms as The your the that on Is the existing think more -- sort client And improving you expected going way ease? forward? down? versus for how customer sort of COVID view last the would of new been it breadth you you talk -- in could about the And how

question? sorry. that I'm Can you repeat

or up while, of of client wins just in sort dealing of sort like the make you in that you've that kind your now bookings some the of are for a by strength been largely win that's a driven worst of expansions existing with with curious been might clients restrictions do for easing? COVID are the that hard I'm new new again client coming it feel

see in possible. house. the to of get think that limitations roaring best helps do love decisions us made by a the think being possible I I'll snap hope been would mentality we ways. there's played attention that just hard do I of maybe police that But in possible to bit COVID-XX bit I for some Oh is and out is experienced international offers still do traction because public VirTra very a as to training a to we're officers, that want want that's for and I pay -- more that, a bit that? that sales but we to as public what that's we although combination, I of Who starting more is be there's use-of-force up to much I in opened the so hamstrung levels I my don't back that a media it's there. to have on predict think continue the where think And mediocrity I past. training service prior VirTra. maybe see side funded that's that has to so back it international could to be signs also COVID-XX. -- would beyond it very, program. the we

need programs industry out there. check I'd matter record training, largest should the the a much some with in worry training, with. box vetted certified who some the subject death go the of with I being most of That's of some track Okay best go respected agencies go in the the best wrongful with adequately officers experts by then we I and and that's don't a trained need. rather and home what about not lawsuit. leader and the to

to we contributing depressed and direct so new But And we COVID-XX international sales not COVID-type we're seems no, sales the that in with do see to being maybe the think. VirTra. correlated for a correlation seeing fact increase except that that's

last one. one Maybe

up same year-to-date revenue is are at is performance. about Your for all your XXXX which XX% backlog But time. really good of a higher the revenues than obviously now total

about work the the backlog your gates really further factor model? on it recognition that which in revenue What of ability that the decider is and talk down maybe So accelerate to what would recognition. obviously any

Great Yes. question.

that warranties warranties actually something multiyear useful also gives talk it to provide that to about that that also are opportunity really any that So an company -- particularly about and recurring that investors those is me that highly question a VirTra. and and includes includes to many VirTra attractive is backlog warranties revenue stream like

some of we do not work will no So that backlog, down. what matter

Now -- where of warranty. But that It's there's a was X-year that's it. their bought it's in not not that -- three-year it. a and includes they convinced -- portion somebody fairly that that or were that warranty us a they backlog so from added VirTra small certainly bought so portion there's things of solution XX% and

revenue so, that backlog is new we And we're up. warranty. meanwhile And that away include can't three-or-four-year getting recognize right in the sits until three that then years contracts a

grow the there. tendency to So has backlog a

eight weeks. that you?" client. Some to going install have in ones products is Does time locked. of "Okay. that work for with will be when just installed Other are organizing with a this them, and them. more the -- to coordinating do we're for with

have of good that to we've at amount It sometimes is generally getting delay. for contract a like whatnot good that far on speaking, and the track revenue. recognized size depending that the fairly of client. much products a quarter-to-quarter getting at time. a our on involves process take that pushed that. into little longer it supply into a our we in But that record sometimes reasonable involves speaking, finalize contract, and so backlog, over specifications complicated can And But meets and But to recognized process the as and a the as generally we And recognized it's in involves a revenue pull It been are times. things approvals able specification how complicated basis. chain

So...

the Thanks Great. quarter. and on congrats

you. Thank

I are any more to like over the to floor would There no closing Bob, in queue. back comments. questions for turn

On of really in participating today. We the appreciate event. Wednesday this you. taking us to Thank week, ROTH virtual be we'll the join everyone time

those analysts who investors and I look For are soon. speaking you attending, with forward to

ahead and work building inventing prayers, country, officer right world's As best make the Please I us. their of to special Thank war be service way effective Take fallen the the you all who effort the thoughts it And missing, keep preserve safely. care. their our for VirTra products, most I believe, firmly we and training at days can we make a that harm's potentially ask and know God our safe. mission weekend simulation accomplish veterans. hard Be volunteer and to those the this fighter in way to now bless. home life. past peace the are are that know, you. we and serve honored so the in of of

joining Thank Third you XXXX us VirTra's Quarter for Conference Call. for

now may You disconnect.