VirTra Q3 2024 Earnings Call Transcript

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Provided by Quartr
November 12, 2024

There are 3 speakers on the call.

Operator

Good afternoon, and welcome to VirTra's Third Quarter 2024 Earnings Conference Call. My name is Matt, and I'll be your operator for today's call. Joining us for today's presentation are the company's CEO, John Givens and CFO, Alana Boudreaux. Following their remarks, we will open the call for questions. Before we begin the call, I'd like to provide VirTra's Safe Harbor statement that includes cautions regarding forward looking statements made during this call.

Operator

During this presentation, management may discuss financial projections, information or expectation about the company's products and services or markets or otherwise make statements about the future, which are forward looking and subject to a number of risks and uncertainties that could cause actual results to differ materially from the statements made. The company does not undertake any obligation to update them as required by law. Finally, I'd like to remind everyone that this call will be made available for replay via a link in the Investor Relations section on the company's website at www.veerture.com. Now, I'd like to turn the call over to Virtu's CEO, Mr. John Givens.

Operator

Thank you. You may begin.

Speaker 1

Thank you, Matt, and thank you everyone for joining us this afternoon. After the markets closed today, we issued a press release that provided our financial results for Q3 ending September 30, 2024, along with highlighted business accomplishments. I'll start by reviewing our Q3 performance, including a discussion about the progress in our bookings growth and our VXR platform introduction. I'll also provide updates on strategic advancements in core markets and early stage growth markets where we are seeing promising progress. Afterwards, I'll hand it over to Elena for a detailed financial review, then I'll provide some closing remarks before moving to the Q and A.

Speaker 1

In the Q3, we made positive strides towards accelerating our sales momentum. Our revenues came in at $7,500,000 up 23% from Q2 of 2020 4 and in line with the $7,600,000 in Q3 of 2023. Importantly, Q3 bookings increased to $8,900,000 up 51% from the $5,900,000 in Q2 of 2024 and up 22% from the $7,300,000 in Q3 of 2023. The performance reflects the early impact of our sales enhancement initiatives in the second half of twenty twenty three and marks a solid recovery from earlier in the year. This bookings revenue growth confirms the substantial run rate ahead indicates we're only beginning to unlock our full potential.

Speaker 1

The rebound in Q3 bookings is also an encouraging sign of continued performance gains in Q4 and into 2025. Despite the top line pressures, we've maintained a robust gross margin profile, demonstrating the resilience and efficiencies of our operating model. In Q3, our gross margins improved to 73% from 71% in Q3 of 2023, demonstrating the effectiveness of our operational efficiencies and our focus on lowering the cost of sales as we scale. As we anticipate sales accelerations in the coming quarters, we are well positioned for GAAP profitability growth as well. The stability of our margin structure combined with strengthened sales momentum sets us up for a promising trajectory.

Speaker 1

Looking more closely at our sales initiatives, we anticipate further growth in bookings as we continue to expand our international reseller network. This expansion allows us to build localized partnerships globally, enabling us to address a range of agency needs and respond swiftly to market demands. We have been focusing on and seeing success in Canada, South America and Europe. Domestically, we're continuing to assist customers in securing federal grants to fund training systems. Our approach allows us to facilitate the acquisition of our systems for agencies that may not otherwise have the budget and it complements our sales enhancement efforts by making our solution more accessible.

Speaker 1

As a reminder, this grant fund process also moderately lengthens the sales cycle. Now turning to the VXR. The rollout of our VXR platform is another key element to making our system more accessible as it offers agencies flexible training options that meet a range of budgetary needs. While initial deliveries are taking slightly longer than originally expected due to the finalizing the terms and conditions with our hardware provider, I'm happy to share that we are now accepting customer orders and preparations are underway for the initial customer deliveries. Early reception for the VXR systems have been highly encouraging.

Speaker 1

We recently showcased the VXR at IACP in Boston where it generated strong interest from current and potential customers. Beyond law enforcement, VXR is also opening doors to adjacent markets such as healthcare, education and event large scale event management where there is growing demand for immersive training. We are still in the early phases of this product rollout and we are implementing customer needs to make sure it is adaptable to a variety of use cases. Furthermore, we're laying the groundwork for VXR content to eventually be compatible across different headsets, making our solution even more accessible and adaptable to a broader range of clients. This adaptability combined with the unique immersive experience VXR provides is a key differentiator for us.

Speaker 1

We're confident that VXR will become a cornerstone of our growth strategy in the years ahead, equipping agencies and other sectors with cutting edge tools for de escalation training, while broadening VirTra's reach and solidifying VirTra as a leader in virtual training solutions. High quality training content continues to be an important competitive advantage for us as we continue to invest in developing new training scenarios that address real world challenges. This quarter, we've added several scenarios focusing on high stress situation, including crisis intervention, conflict resolution and crowd control skills increasing relevant across a variety of sectors. As demand rises for this type of scenario based training, our library of content is expanding to meet the evolving needs of both our core law enforcement markets and new sectors that rely on de escalation and soft skills training. In the military space, we're making steady progress and expanding our engagement, particularly through our ongoing work with the U.

Speaker 1

S. Army and other Department of Defense channels. Our integration with systems like Virtual Battle Space enhance our ability to deliver holistic, mission critical solutions that apply to military use cases. As a brief update on the U. S.

Speaker 1

Army's IVAS program, we remain on track with this partnership and are in the final stages of system validation. It's worth reminding everyone that these military opportunities are large in scale, often involving large one time contract awards with long and intricate sales processes. We're seeing increasing activities from military sectors as new requests for proposals and market research requests begin to flow through. We continue to advance and align our technology with military training priorities and work towards capturing more military market share. In an effort with the in line with these efforts, I'm also excited to share that we recently welcomed 2 distinguished leaders to our Board of Directors, retired US Army Lieutenant General Maria R.

Speaker 1

Gervais and Executive Director Mike Ayers of the Georgia Peace Officers Standards and Training Council. Both bring deep experience and insight into military and law enforcement training respectively. Lieutenant General Gervais led transformative initiatives in modernizing virtual training environments for the Army with insight from key programs like IVAS, which closely align with our military focused initiatives. Mike Ayers' extensive law enforcement training background aligns well with our mission to support officer preparedness through scenario based training. Their addition strengthen our governance framework as 4 of our 5 board members are now independent.

Speaker 1

As I discussed in previous calls, our operational infrastructure is now better equipped than ever to support increased demands and we are continuing to improve. Over the past 2 years, we've implemented significant improvements to our production process, including the establishment of a first class manufacturing facility and the integration of a new ERP system. These advancements allow us to effectively manage complex large scale projects and ensure that we can meet growing demand with high quality products. Additionally, our investment in automation within our machine shop, including systems that run through the night and over the weekends, has increased productivity while maintaining high quality. This operational readiness positions us to scale confidently as we convert our sales pipeline into tangible results.

Speaker 1

Looking ahead, we are closely watching macroeconomic factors that could affect our customers' funding. December's budget discussions will be pivotal as the continuing resolution currently funding federal programs is set to expire on December 20. We anticipate that these discussions will bring greater clarity around federal allocations and funding priorities, particularly as the government adjusts post election. While this may mean a slight delay in the distribution of funds, our strengthened pipeline, operational efficiencies and cash flow position gives us the flexibility to navigate any fluctuations. This also positions us to capitalize on new funding when it becomes available.

Speaker 1

Before turning back over to Alana, I'll give you the rundown of how our end markets performed in Q3. In Q3, our government revenue decreased to $6,900,000 from $7,300,000 in the prior period prior year period. This difference reflects the prior 3 quarters booking impact from federal funding delays and time needed to rebuild our sales team. Internationally, our revenue was $400,000 an increase from $200,000 in 2023. Our international pipeline continues to expand and we expect the closing rate to continue increasing over the next several quarters as budgets are approved.

Speaker 1

I'll now turn the call over to Alana to discuss our financial results in further detail. Alana?

Speaker 2

Thank you, John, and good afternoon, everyone. Now let's review our unaudited financial results for the Q3 ended September 30, 2024. Total revenue was $7,500,000 slightly down from the $7,600,000 in the prior year period. This modest decline is primarily due to lower bookings in the prior 3 quarters largely stemming from funding delays and extended decision making cycles among our government customers. Total revenue for the 1st 9 months of 2024 was $21,700,000 compared to $27,900,000 in the prior year period.

Speaker 2

Gross profit for the quarter was $5,500,000 representing a 73% gross margin, an increase from the 71% in the prior year period. This improvement reflects operational efficiencies and a favorable mix of high margin service and step contracts, which entail limited cost of sales. Gross profit was $16,500,000 for the 1st 9 months of 2024, representing a 76% gross margin compared to $18,300,000 or 65% gross margin in the prior year period. These improvements were driven by lower cost of sales, which were in part due to a reclassification of labor related to our development projects. This expense will be reflected in the income statement when we have corresponding matching revenue.

Speaker 2

Additionally, for the 9 month period, staff and services made up 30% of total revenue, which have a lower cost of goods associated. Net operating expense for the quarter was $4,700,000 marking a 28% increase year over year. This increase is tied to strategic investments in sales and marketing as well as hiring to support our ongoing growth initiatives. Additionally, we made enhancements to our IT infrastructure to ensure compliance with current and future contract requirements. Net operating expense for the 1st 9 months of 2024 was $13,200,000 compared to $11,200,000 The increase is a result of those strategic investments in hiring and IT expenses previously mentioned.

Speaker 2

Operating income was $800,000 compared to $1,700,000 in the Q3 of 2023. Operating income was $3,300,000 for the 1st 9 months of 2024 compared to $7,100,000 in the prior year period. Net income was $600,000 or $0.05 per diluted share based on 11,200,000 weighted average diluted shares outstanding compared to net income of 1 $600,000 or $0.15 per diluted share based on $10,900,000 weighted average diluted shares outstanding in the prior year period. Net income was $3,000,000 for the 1st 9 months of 2024 compared to $5,600,000 in the prior year period. Adjusted EBITDA, a non GAAP metric, was $1,100,000 for the 3rd quarter compared to $2,900,000 in the prior year period.

Speaker 2

Adjusted EBITDA was $4,700,000 for the 1st 9 months of 2024 compared to $9,400,000 in the prior year period. As of September 30, 2024, we had unrestricted cash and cash equivalents of 19 point $7,000,000 compared to $18,400,000 at June 30, 2024 and $18,900,000 at September 31, 2023. Our positive cash flow and recent adjustments to our contract terms have fortified our working capital, which was $36,000,000 as of September 30. This allows us to respond quickly to new opportunities and strategically invest in areas that will drive growth. Now turning to our bookings and backlog.

Speaker 2

We define bookings as the total of newly signed contracts and purchase orders received in a defined period. For the Q3 of 2024, we received bookings totaling $8,900,000 bringing bookings total for the 9 month period to 17 point $7,000,000 Looking at our backlog, which we define as the accumulation of bookings from signed contracts and purchase orders that are not yet started or incomplete and cannot be recognized as revenue until delivered in a future period. As of September 30, 2024, our backlog totaled $15,200,000 This breakout of backlog includes $7,000,000 in capital, dollars 6,200,000 in service and warranties and $2,000,000 in stock contracts. Additionally, our renewable stock contracts, which extend over multiple years, represents an additional $5,800,000 in revenue. For additional details of our financial results, please reference our 10 Q, which was filed earlier today.

Speaker 2

And that concludes my prepared remarks, and I'll turn the call back over to John for his closing remarks.

Speaker 1

Thank you, Lana. As we look ahead, it's clear that we still have work to do to be where we want to be. That said, our strategic initiatives and operational improvements are setting us up well for continued progress in 2025. We are focused on driving meaningful improvements in our marketing and sales functions in the coming months, which we expect to help grow our pipeline. These efforts alongside an introduction of our VXR platform and continued progress towards penetrating military channels gives us confidence in our ability to execute our goals for the remainder of 2024 and into the early months of 2025.

Speaker 1

We recognize that while temporary funding dynamics may introduce some timing variability, our current backlog and sales pipeline, along with our focus on innovation, it positions us to convert our opportunities as funding becomes available. We're especially well prepared to respond as both grant funding and federal contracts become more certain over the coming months. To include, despite near term fluctuations, we are dedicated and more equipped than ever to lead the virtual training industry with innovation, adaptable solutions that meet the complex needs of our customers. We appreciate your continued support and interest and we look forward to updating you on our progress in the coming quarters. And with that, we'll open the call up for questions.

Speaker 1

Operator, please provide the appropriate instructions.

Operator

Great. Thank you. We'll now be conducting a question and answer session. As no further questions, I'd like to turn the floor back to management for any closing comments.

Speaker 1

Thank you. Brooks' dedication to our customers and their life saving mission remains as strong as ever. The passion, hard work and expertise of our team are the cornerstone of our success and our ability to provide thought leadership to our customers will continue to keep us atop the industry. I'd like to thank our shareholders for their continued support and confidence as we continue driving meaningful impact in communities around the world. Wishing everyone a safe, healthy and positive close to 2024 and we look forward to a successful year together in 2025.

Speaker 1

Operator?

Operator

This concludes today's teleconference. You may disconnect your lines at this time. Thank you again for your participation.

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Earnings Conference Call
VirTra Q3 2024
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