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VirTra (VTSI)

Participants
Bob Ferris Chairman & Co-CEO
John Givens Co-CEO
Marsha Foxx Chief Accounting Officer
Richard Baldry ROTH Capital
Jaeson Schmidt Lake Street.
Allen Klee Maxim Group
Call transcript
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Operator

Good afternoon. Welcome to VirTra's Fourth Quarter and Full Year 2021 Earnings Conference Call. My name is Vikram and I will be your operator for today's call.

Joining us for today's presentation are the company's Chairman and Co-CEO, Bob Ferris; Co-CEO, John Givens 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, about like forward-looking that during call. the safe provide statements begin this statement harbor includes we I to would VirTra's made Before cautions regarding

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

would would remind via Sir, will a I like call the now website section VirTra's that replay be the in this company's Investor Relations to and Ferris. turn Finally, call Bob like to Co-CEO, to Mr. link of please over for I made Chairman www.virtra.com. available proceed. the everyone at

Bob Ferris

Thank issued with provided you afternoon. full thank accomplishments. market this And for along results December the closed year everyone press business us joining the ended a XX, you for operator, audited financial Vikram. XXXX today, highlighted release we After our that

also We XX-K SEC discretion. the which available our for your at with is review today filed

commercial high as was we a grew generated strong for million at international our discussed remained in call, [ph] while on and from the a XXXX markets, government XX% contributor. revenue market we As on many conference to healthy year a $XX.X record March year successful our We very level VirTra fronts. the core both prior growth

XXth our military segment, represents an VirTra. business. for a revenue top income profitable GAAP This a We It consecutive also sales commercial net In line of any both at on growth, and accomplishment includes EBITDA year growth demonstrate future believe our year will we for remain which prior through also largely us situate prime is the a adjusted rare build track contract We well a capabilities military win. a $X.X record customers. the million, revenue grew XXX% business strategic as this military result with from of to as strategic basis. contractor, and contract

this development to And in downward contract believe particular, customer order long to initial the very prove VirTra and this interests solutions fourth be our product could of for to is capabilities unique we military an future XXXX. where in quarter and able beachhead important contract Nonetheless, we contract much since desired required extensive best in most expertise this and contracts, However, in now revenue for was features and military margins work. contributed this the term been to pressure develop through by testing on have of deliver recognized. the

from shortly. operating sell from our as saw million, Co-CEO military you almost Going our new increase a normal international margin that as limited we more benefited forward, Givens, and revenue internationally tenfold $X.X greatly ability our the XXXX. return the the we in we track believe considering will to record earn line of we more hear provide, market profile Internationally, with when especially to an to significantly expect is a who during value John to in business COVID conditions, our

returned the we segment operations, generate to With having largely to healthy continue world our more to growth. expect international normal

our we this last to able as from million modestly if to more and million recognize $XX.X that the how large year category we equipment we have was which year in exceeded than fewer from simulators, to prior is Keep backlog declined of were revenue. revenue government would $XX.X due installations well. mind sufficiently Our shipments install in

generate step We growth also continued equipment, to from our program. subscription or strong training partnership

purchase. and sales In the easier that future. but on provides from almost our we in this agencies are XXXX, budget outright for margin step revenue revenue an recurring the also VirTra As solution, constrained step XXX% total perhaps interested continue an a higher reminder, recurring to for program growing X% of ramp provides for driving focus the revenue valuable internally was $X on year. million, And prior representing in

growth to the XXXX, strategic in strengthen XXXX. we took strong addition liquidity sheet balance In see and common with opportunity We our sheet significant with continued VirTra, potential scaling having balance of an a also our our to justify $XX customers larger opportunities adequate issuance as stock in operations. believe is working strong key to competing revenue demand we April for million contract the more with and especially

once be in we part our in our move the track of a greater art we we year. headquarters. more Recall leased our to new used As of ability larger complete centralized us facility XXXX us to an plan sublease the Arizona two this began give December will in out. site by our portion to which full of providing the the of operational of both we than currently plans, VirTra’s move in end a and this remain Chandler building and also expansion We acquire state industrial on of efficiencies facilities, footprint, to move

sales, for sold the history leading than look to in U.S. brought far have will John was VirTra advanced about to of facility and working I simulation training started the I announced military capable and CO-CEO had operational, which the we as is in the and to in headquarters the be board over market XXX% tremendously the once should excited who $XXX make He talents a industry, his now some forward we BEA most has ever early more honored has John with will of are Bohemia capabilities recently our was We $X simulation to Simulations, Interactive May. market. attract division and I our in industry turn in John? will our the successful customers VirTra. VirTra, him founder Systems CO-CEO this and largest of successful think Givens, he the at XXXX to joined in before. am as November to it million. call

John Givens

all Bob. opportunity bit as most of I on company. to founded Simulations and widely and you, speaking call is one my myself Thank see a pleasure today. president I this for led Since most I helpful simulation military XXXX conference background be it'd in throughout recently all allied thought I to called of of of first the of and VirTra, the It's the you a CO-CEO products Interactive provide or with to be of forces. U.S. deployed become BISim, which it company Bohemia a the branches was

company add I our line on products familiar and lives the providing another's respect defend services this and to VirTra value and country. we grew dedication their put Bob one with building protect to While company who to and for and mutual became products, those

U.S. a military a business with professionals working I'm veteran Army As myself, law about. and passionate enforcement is

involved we would role, But more markets, I to full BISim, VirTra, with commitment my very amazing BEA board eagerly serious I in sale the opportunity opportunity this took Bob I successful that given BISim when and began the leadership having Systems was in company such with on a to the earlier I today. million to a $XXX have in retired, time strategic provide referrals Ultimately, with background. the exit when to seat year, and with to presented had culminating saw my is increase about a conversations my a structure my committed So which business get appropriate. advice XXXX largely company. military have obviously Co-CEO VirTra, itself easily very time and that especially structure while an could

that a market much forward, I fit, historically the focus Going VirTra of fully see focus on an to product penetrated market where on I for VirTra, the under butter great training law time and stronger given bread exploiting need and plan my solutions, military enforcement. massive has markets overall its for

Orlando area, military penetration, investment simulation which is in I been the Another for market. Florida of the has reason under under believe, epicenter

the ground given ourselves a business. to quarters, plan Over win Orlando, this access position military better in on presence build us to meaningful coming to the boots we more out

segment, While enforcement now the to market began from to Accounting relationships my likewise, to and be determined can opportunity challenging VirTra. but going over in certainly BISim. I I'm call now military leveraging the world share capabilities financial great to Much and Foxx success believe humble at market the Officer I'm the experience, Marsha with to we Chief roots, military time and turn can VirTra’s Bohemia, have increase my has updates. into, like a and with share succeed done to a VirTra dominant law market break class it provide be

Marsha Foxx

audited Thank results financial be you XX, you, fourth our quarter the a ended John. for pleasure It's And to December good afternoon, and year today review full speaking XXXX. to everyone. to

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

simulators, extended $XX.Xmillion revenue. from from million curriculum XX% increase revenue For sales, step the XXXX, The sales in $XX.X warranty revenue total increase increased XXXX. training and of of and recurring resulted to accessories, in

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

was increase The was variety simulator decrease lower For the specific differences for Gross sold, XX.X%, XXXX, margin for profit profit gross was of the XXXX. a XXXX. type a which XXXX profit with with decreased margin in accessories of sales. an $XX.X military lower due services profile, in from cost to of of and in $XX.X million combined million profit than primarily and to contract quantity in type XX.X% gross systems,

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

loss, expense on The in was allowance $XX.X net to to was debt primarily receivable and notes accounts impairment $XX one-time due for million, a recorded compared XXXX. a $XXX,XXX million and XXXX, operating For XXXX. $XXX,XXX in decrease both bad

profitability Turning our measures. to

quarter of XXXX, to fourth operating in the recorded an For in $XXX,XXX of of $X.X quarter the income compared we operating loss million fourth XXXX.

our was $X.X net diluted compared $X.X of million XXXX. of quarter in for a $X.X income an million For decrease diluted totaled per $X.XX per from quarter fourth to fourth or million, Net XXXX. the XXXX share, $XX,XXX, of the XXXX, compared to improvement or income share for income operations $X.XX

diluted of $XXX,XXX a $X.X net for EBITDA compared an quarter $X.XX million in in or net million basic non-GAAP Adjusted quarter compared to the or XXXX. $X.X metric and of basic XXXX. share, XXXX, million and $X.X $X.XX loss income EBITDA for share positive fourth of fourth adjusted income or improvement was per XXXX to For the totaled per diluted of

million, the loan in impacted lower the totaled the note, onetime gross change For XXXX, the a adjusted time one official million event of decrease XXXX. of in our PPP $X.X significantly forgiveness on $X.X and from adjusted impairment TEC was a EBITDA The profit. EBITDA by

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

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

we which end As our XXXX million, of compared as XX.X% of up December prior quarter. the And million and $XX.X working capital cash of in a at December unrestricted we QX. to working $XX.X a equivalents increase the of XXXX. at this million had quarter, $XX.X cash balance million to slight XX finally the and prior from from December XX XXXX, end X.X% from the of quarter, our standpoint, the capital $XX.X From fourth had end totaled at $XX.X million XX backlog sheet, of was

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

Bob Ferris

few audit Thanks, minutes to and ERP our I now would implementation. Marsha. a spend discuss like to

need work business XXXX. and we've past, systems in scalability a of better several three our new on-going the company filing behind the will we full which we consolidate are happy operational December were that XX, our began to system the discussed and the audit And years. over and ended for point implementation Case There growth completion expect the systems. course given we optimization work continual common in our with is independent have for the improvements, XXXX. the year As more wide over still be independent efficiencies, to much ERP is of past of XX-K today us. But provide ERP implementing initial with of successful the us

March the the laid XX. XX-Q remains December as we XX XX, to NASDAQ, As to quarter XXXX expect and we XXXX, our XX-K to full file our on file first expectations for quarter plan out for XX-Q first we by for both ended which XXXX the year XX, the our today ended August August

XXXX Additionally, we XX XXXX, our by period August expect extension within second ended for the allowed SEC. to XX seven quarter XX-Q is on June file the day which the

maintain these work to filings, reports this be hard and up on to will the listing. to take reporting financial our a for VirTra our we with moment and back like With push to of NASDAQ footing through our solid financial I caught would dedication their get thank us with practices. employees

We disappointed And results reporting timely forward. we in to delay committed to we shareholders. that going are our had a are on financial our reporting time

which in quarter. the were XXXX, the of fourth topic to our particularly on margins, Now in below levels historic

The and XX.X% XX.X%, norms. As for fourth Marsha full margins gross were both of the the was below it quarter was XXXX profit historic margin mentioned, lower mainly our XXXX for year strategically negatively this for impacting pursuit in short while forward. believe the will by well going contract, the caused business military military of we situate certain us future important margins term, a

to applicability and was new way that that direct opportunities. military product have future of VirTra is to while akin R&D, paid to revenue, offerings this able earn developing Another to think will contract

deserve. With a a in will more and value developed, now personally I significantly believe more with we is earn John ensuring generate be line we purchase to experience we And believe the market of profile driver value military the the the in expertise provide. great expect we that products margin

globe the sure of I'm most types The now, impacting aware immune. second and been all around not which is companies has you VirTra are as reason by of is inflation,

We higher negatively all margins. have travel and gross have costs, material seen labor our of which impact

much possible. We of are as actively impacts these working as to offset mitigate or

first in expect to we in results on the adjust inflationary strategic margins to XXXX to to resume reporting forward to pleased the and the our we filing able of to completed military financials relative continue we optimize ahead, to have business XXXX. XXXX half be was Looking largely are to remaining our contract to up And levels, conclude weeks. to look improve To seeing. as coming communicating impacts XXXX we our and catch announcing shareholders gross been in for the our our

winning John see shifts these the mirror, our we shifting put to expertise, larger business its assets for leadership, volumes the look focus we for VirTra preparing focusing operationally view shareholders. and opportunities military of excellence, from volumes business. forward of track leading As delays in to rear His immense as business be industry we the operational Givens to larger will great and for on VirTra

please equivalents pipeline Our the And Operator, up XXXX. million with going to remarks your sales capitalize cash financial questions. remains and to up provide we and strong wrap in are we'll position our appropriate prepared $XX.X that, on robust opportunities instructions. at of with of call a the my I'm end open and the for

Operator

with ahead. of Capital. first ROTH instructions] a line Please you. question Baldry Richard [Operator We from Thank have go

Richard Baldry

seven in XXXX. now down We're months Thanks.

an continued a grow? hiring maybe Thanks. versus put earnings on to indicator that look give commentary like Do if have year there year-to-date, versus how revenue of on anything continues qualitatively. maybe you're you at not, eye Or quantitatively, been business as if to been Has So can perspective? feel operations from up how XXXX our I'm XXXX, now sort or to you any curious ago?

Bob Ferris

from still information at on getting Yes, review. until appreciate really for I we that still, are the auditor. all auditor back comment that together can't And point, we that the we're this question. But numbers have we we're the

don't on will phone that the still we're tell news it updates it's again, giving we now year. good be time this for be and complete. much have yes, her and from is working until So But

Richard Baldry

thanks. Okay,

Operator

you. Thank

the We have Street. line Schmidt with of next go question Lake Jaeson for Please ahead.

Jaeson Schmidt

going potentially Hey, really of perception that the my going being if kind towards gating John, simulators you business. simulators is maybe just the for the Orlando, go factors technology of questions. Or to guys, lagging market? you under investment the of that in areas mentioned taking from think in are think the you thanks really if military that a to military one investment in bucket? and But investment in standpoint marketing improving curious

John Givens

that for call. thanks Yes,

for of So the epicenter I've that branches. all there why is reason the have is decades. for multiple been you in military, presence the have the Orlando And the market to acquisition planet

it's So the visibility.

be come the So we office, our up there where they'll simulation to placing Orlando, able some has, recently actually of the VirTra get opened it simulators so and as that those buying industry doesn't is anything and have. what an comes that we'll in all be it but products, technology their our today, officers industry that's to office, hands everybody into acquisition and at environment is the on has the look of review much actually

the enforcement. what So for is the items product. benefited market what's has been together group that untapped call And just put an might that type really going have is quality I technology and this only from this of that law drive it's to innovative the this

Jaeson Schmidt

that's And could standpoint. comment a for obviously, challenging headwinds there most, year? if Okay, chain out seems this you're on mean, for you sort supply but that I'm I then guys any it from of the like helpful. significant environment just creating you curious is seeing what remains

John Givens

the some issues there's install think allow the be us and ship and you would put customer in overstocking. say words, to cater scheduling I, install the on but able I issue we're the times and And, not it's that of timing COVID that question. be a to monitoring areas, when will is customer to they're combination equipment. and as ready so I the somewhat related customer simulator ready their to chain of, again, supply supply a and do that the what together and and might can recognize a that so XXXX. did says the appreciate Yes, a that train as and scheduling VirTra hurt the In far always other is know, customer to going revenue and them in they've we constant

err we hot need take given the our when have the while been to ability has to is strike the of it's sure to side and to, sales us, the order, able supply iron to So who always make be it attitude. approach to to simulators those

that the And area. our to our this that in we quite certain prior levels the to stock that space. beyond team ever by far, increased headaches market And of impressed so far been our of we in created. stocked have our chain, we've I'm items supply anything really flow keep COVID products going able

fulfill so need we we're we it And steady products have and been have mentioned that's products. those with far improvements. of able sure making right so to to And when But making the to comes supply this shelf, been a improve call. internally. orders. headway areas There's And, have on the already in we

of So a far, we've it's done that, great constant. job a but

that. to constantly have about vigilant be We

this So issues we have right seen not those Vigilance subside now. is point. required at on-going

Jaeson Schmidt

And me, concerns kind right, are customers releasing curious from standpoint, decisions environment know, etcetera? the macro given the you're last to But are decisions just a it. overall customer purchasing fears you I'll delaying XXXX be just back seeing the going then and of one these just on jump got pushing in recessionary the I queue. to from here Okay, results shortly.

John Givens

this we time. not at seeing in are changes are We

Jaeson Schmidt

Thanks lot, guys. it. got Okay, a

John Givens

the for Thank questions. you

Operator

Thank you.

with the ahead. line Klee for question Please next Allen Group. have of Maxim We go

Allen Klee

much implementing and XXX,XXX quantify sequentially. can see say one because quarter, system? and time you Good did changing you to was over kind related around, of G&A account we anything for the ERP you afternoon, would else, can And, jump the costs how auditing the more of

that would maybe it Thank time. to you. potentially be is if know helpful one of So some

John Givens

do question. you, that Yes, ways your own for question. answered many I in thanks think

in There impact. involved right. quite bit and mentioned a time So quarter that that, time yes, one quite bit you're And of was those of that numbers. in one in there's so in think we that we a

Allen Klee

guess. continues maybe then reasonable guess, I and probably of that. like would but the two, down that or assumption, Seems for And after next that type comes quarter I a

John Givens

We're But we time see we're, year of quarter at. a some last did, because we now pretty are think we're as items that they that where unique fourth it onetime recurring. were on Right seeing don't that working at as one we it that not still those time. them Not quarter did numbers. was absorb

was profile. forces So of outlier, unique. bit pretty that potentially unique I behind contract margin a of We, it yes, do consider the we just think a with fourth because an military it quarter that lower

we were So would about unique. that that that those is, on-going, some that There's a think much do impact. be things smaller but discussed inflationary of we do magnitude overall pressure, is really

Allen Klee

it Okay, worked can then the and can military that the you is were then expand potentially? on? you there business you that? that you and there anything awarded that that us military anything can And for about Is explain anything how contract tell about

John Givens

to the one Yes, that so that. on we have signed details on related NDA

very limits we that. on major on speak So to have what we can

future because further VirTra and was as too I thing is the to than the other much and are we say And work getting positioning that that we careful military get that do to detail came we have believe. think out landscape do that. of we valuable we competitive detail into us work. also of to the can't really valuable capabilities feel We be think the well. that customers, best that But effort can good for into

we definitely hope the I to have now, we what in we to that's of speak limits honor to but but have can removed agreements, confidential those have right So, information. and as on considered detail. someday, limits

Allen Klee

how market a prior in that that opportunity? point, doing about you an which, spoken with Canada, update the I pretty how is attractive. at be thought haven't which Any time on Okay, had some could you at opportunity on call, had or

John Givens

first have we only that decided standing done we the in could a ways. it we Canada, was one from I have that would lot was company that the across Canada. announcement offer they been and We press that it of they think, to standing Canada. one Canada they essentially VirTra also it. unique order not offer every that in in right non-military right, have virtual you're received there you won critical then so which we that But believe competition that winner a But But that that of we and opportunity, did it. has that announced an agency won they we criss-crosses, offer related and and did, various to single are Yes, awarded standing one the one, release

So all correction of related, law prison, related, under even are that's all their enforcement groups various that security agreement. that, their their

we that. So think that. that And team there's is a really our for good future diligently on working

Allen Klee

last to I didn't get for And great. tell My this Could what to depreciation on it rates decent that math you amortization do CapEx the That's is me run going are yet. question, reasonable and the those and think forward? quarter? the was

Marsha Foxx

you purchase new last August new of property year. the headquarters for we Well, our did recall, if in

was So And But reports, well. quarter expense of and all our that for change. additional include the as included our depreciation does step expense year fourth XXX,XXX was our on that the the assets building. depreciation

John Givens

revenue the subscription, subscription program. the That's recurring

Marsha Foxx

So about a there was ---sorry.

Allen Klee

Go ahead. ahead. No, Go go ahead, sorry.

Marsha Foxx

represent does increase $XXX,XXX about over That prior year. the a

Allen Klee

it. Okay, you much. great. Appreciate so Thank

John Givens

Thanks Allen.

Operator

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

Bob Ferris

ever Thank building dedicated us we the time know world's everyone products. the to building today. than and We shareholder more value you. taking most appreciate effective simulation to are really Please training before join

the law of care believe community, the days safely. and safe, take can firmly their best it serve God and Be us. for warfighter home make VirTra accomplish and their I officer their are mission bless. that ahead country, So the

Operator

VirTra’s call. full conference sir. you thank XXXX Ladies for and gentlemen, quarter and Thank joining much, today very fourth you year for us

your… disconnect You may now