VirTra Q4 2024 Earnings Call Transcript

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March 27, 2025

There are 5 speakers on the call.

Operator

Good afternoon, and welcome to VirTra's Fourth Quarter and Full Year twenty twenty four Earnings Call. My name is Diego, and I will 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 would 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 expectations 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.virtra.com. Now, I'd like to turn the call over to VirTra's CEO, Mr. John Givens.

Operator

Thank you, and you may proceed, sir.

Speaker 1

Thank you, Diego, and thank you, everyone, for joining us this afternoon. After the market closed today, we issued a press release that provided our financial results for the fourth quarter and full year ended 12/31/2024, along with highlighted business accomplishments. VirTra provides immersive training solutions for law enforcement military agencies, helping personnel develop critical decision making skills in high pressure situations. Our technology advances officer safety, response times and mission readiness making our solution an essential part of effective modern training programs. 2024 was a challenging year due to persistent funding delays at the federal level.

Speaker 1

After starting 2024 under a continuing resolution, which limited new contract awards, we focused on adapting to these constraints while positioning Virtua for long term growth. Despite the challenges, we still made meaningful progress. We delivered sequential bookings growth in every quarter, expanded our backlog and deepened our engagement with government and military customers. In contrast to our strong performance in 2023, which was driven by clearing a substantial backlog, this past year required us to be more flexible and proactive in navigating a constrained funding environment. Throughout the year, we strengthened our sales pipeline, secured international contracts and maintained a strong financial position to support long term growth.

Speaker 1

Importantly, we closed the year with a $22,000,000 backlog. So while the funding environments remain somewhat fluid and unpredictable, we are well positioned for revenue conversion as market conditions stabilize. Our sales pipeline continues to grow, supported by our ability to help law enforcement agencies navigate the grant process and secure funding. While federal grant disbursement delays have impacted near term water conversion timing, these funds remain available and we are actively working to ensure that our agencies can access them. In the past several months, I have personally met with over 25 policymakers, Department of Justice officials and leaders in the federal grant offices to advocate for clearer, more structured funding processes that prioritize modern training programs.

Speaker 1

These discussions remain ongoing and we are encouraged by the traction that we're gaining in Washington D. C. At the federal level, we continue to strengthen our longstanding partnership with Customs and Border Protection, the Secret Service and the Federal Law Enforcement Training Center, key customers that rely on our solutions to meet their evolving training needs. Internationally, we secured contracts that government and law enforcement agencies in Europe and Latin America. Our training solutions are now operating in 44 countries with much more room for Virtru to expand into security training programs around the world.

Speaker 1

Additionally, we recorded our first VXR platform sale in Canada signaling early adoption of our extended reality training technology. The rollout of the VXR platform remains a strategic priority and a key part of our long term growth strategy. Early customer reception has been strong with positive feedback at the SHOT Show and IACP and with the initial delivery underway. Looking ahead, we are working to enhance hardware compatibility, ensure that the platform remains adaptable across different XR headsets. The system provides agencies with flexible training options that meet a range of budgetary needs.

Speaker 1

VirTra is committed to leveraging extended reality technologies for delivering our certified training courses As we firmly believe, XRRT provides unparalleled immersive learning experience, tactical accuracy, significantly enhances training of effectiveness and positions us to meet evolving customer requirements and industry standards. One of VirTra's greatest competitive strengths is our unmatched library of high quality immersive training content. In Q4, we significantly expanded our scenario catalog introducing dynamically trained tailoring specifically for hospital security teams across both our innovative VXR and traditional screen based platforms. We are also leveraging AI efficiencies to significantly accelerate content production. By automating parts of our video editing and scenario development processes, we have cut our production times from days to minutes allowing us to scale content output faster than ever before.

Speaker 1

Our content expansion strategically reinforces VirTra's leadership in immersive training so that our customers receive the most realistic, adaptable and forward looking training experience available. In the military sector, we continue to expand our engagement particularly through our work with the U. S. Army and other Department of Defense channels. Our final development phase for the U.

Speaker 1

S. Army's Integrated Visual Augmentation System or IVAS program was completed forty two days ahead of schedule. Due to our product strong performance, the Army finalized testing early and canceled the remaining soldier assessments, satisfied that the product was ready for production. The transition of IVAS to Anduril, a prominent defense technology leader with a proven history in Department of Defense contracting, marks a significant and favorable milestone for both the program and for VirTra. We are currently conducting reliability testing on recall kits as part of the final prototyping phase and maintain confidence in our sustained participation, strategically positioning us for effective support with the forthcoming production stage initiatives.

Speaker 1

As we continue scaling, our operational infrastructure is more robust than ever. Over the past two years, we have made significant improvements in our manufacturing capabilities including establishing a state of the art production facility, implementing a new ERP system to streamline operations and investing in automation within our machine shop allowing for round the clock production while improving quality. These investments positions us to handle large scale contracts effectively ensuring that we can meet growing demand while maintaining our operational flexibility. As we look ahead, we are closely monitoring macroeconomic factors, particularly those that impact government funding cycles. Federal budget negotiations and evolving department adjusted grant structures remain key areas of focus.

Speaker 1

While these factors create some near term variability, we believe our strong backlog and disciplined approach to executing our position puts us well and market conditions evolve. VirTra is laser focused on accelerating sales growth through a disciplined strategic approach that directly aligns with shareholder value. Specifically, we're implementing initiatives designed to enhance our sales performance, including expanding our high performance sales force by strategically recruiting top talent with proven industry success and ensuring we have the right team to drive sustained growth optimizing sales efficiency through refined lead generation, streamlining pipeline management and targeted outreach efforts to maximize revenue opportunities and shorten our sales cycles and increasing our market presence by leveraging strategic partnerships and targeted marketing campaigns to deepen penetration within both law enforcement and military sectors. We remain committed to executing these actions decisively, confident they will deliver measurable results and enhance return for our shareholders. With that, I'll turn the call over to Atlanta for the detailed financial review.

Speaker 1

Alana?

Speaker 2

Thank you, John, and good afternoon, everyone. Let's now review our audited financial results for the fourth quarter and full year ended 12/31/2024. Our total revenue for fourth quarter was $5,400,000 compared to $10,900,000 in the prior year period. This decrease reflects the impact of federal budget delays and grant distribution pauses, which slowed contract execution and order conversion. Despite these challenges, bookings for the fourth quarter grew to $12,200,000 a 37% sequential increase from Q3 twenty twenty four.

Speaker 2

However, many of these orders came late in the quarter, limiting our ability to fulfill and recognize revenue within this period. As a reminder, bookings are defined as the total of newly signed contracts and purchase orders received in a defined period. Our bookings for the full year 2024 totaled $29,600,000 While total bookings declined year over year by $4,200,000 it is important to note that excluding our 2023 design and prototype contracts, bookings for all capital service and step contracts actually increased 24% or $5,800,000 For the full year 2024, revenue was $26,400,000 compared to $38,800,000 in 2023. This reflects the softened bookings environment early in the year largely due to the federal government's continuing resolution, which delayed funding decisions and contract approvals. However, our ability to consistently grow bookings each quarter demonstrates a strong recovery in demand and sales execution.

Speaker 2

Additionally, we did have to record a $750,000 revenue adjustment related to a international sale from 2021, which reduced reported 2024 revenue and increased our 2023 revenue. Breaking revenue down by market, our government revenue for the year ended 2024 was $22,900,000 compared to $31,000,000 in the prior year period, reflecting the funding environment's impact on law enforcement agency purchases. International revenue for the year was $3,100,000 compared to $6,500,000 in the prior year period. And while our revenues in this category were lower than in 2023, the bookings number in international market have increased by 68%, mostly supported by strong traction in Latin America and Europe, where we secured major contracts in Q4. Our gross profit for the fourth quarter was $3,700,000 or 69% of total revenue compared to $9,200,000 or 84% in the prior year period.

Speaker 2

The decline primarily reflects the lower revenue. For the full year 2024, gross profit totaled $19,400,000 or 74% of total revenue compared to $27,400,000 or 71% in 2023. The improvement in full year gross margin reflects a shift in product mix and operational efficiencies through the Q4 so the Q4 decline highlights the impact of lower sales volume on fixed costs. Net operating expense for the fourth quarter was $4,200,000 a 13% increase from $3,700,000 in the prior year period. This increase was driven by investments in high level personnel to support long term growth, expanded sales and marketing efforts to reinforce our pipeline and enhancement to IT infrastructure and compliance measures to support current and future contracts.

Speaker 2

For the full year 2024, our net operating expense was $17,400,000 compared to $17,000,000 in 2023, reflecting targeted investments in growth initiatives while maintaining cost disciplines. Our operating loss for the fourth quarter was $500,000 compared to operating income of $1,700,000 in the prior year period. And then for the full year 2024, operating income was $2,000,000 compared to $10,400,000 in 2023, reflecting lower revenues and increased operating expenses. Net loss for the fourth quarter was $900,000 or negative $0.08 per diluted share compared to net income of $3,500,000 or positive $0.32 per diluted share in the fourth quarter of twenty twenty three. Included in this loss was a one time payment for $275,000 from a lease settlement related to a legacy facility contract, which contributed to that loss.

Speaker 2

For the full year 2024, net income was $1,400,000 or $0.12 per diluted share compared to $9,200,000 or $0.85 per diluted share in 2023. For the full year twenty twenty four, adjusted EBITDA was $2,900,000 compared to $12,400,000 in 2023. As of 12/31/2024, cash and cash equivalents were $18,000,000 compared to $18,800,000 in December of twenty twenty three, positioning us well to navigate market conditions while continuing to invest strategically. Looking at our backlog, which we define as the accumulations 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 12/31/2024, our backlog totaled $22,000,000 This breakout of backlog includes $10,600,000 in capital, $6,600,000 in service and warranties and $4,800,000 in stock contracts.

Speaker 2

Additionally, our renewable stock contracts, which extend over multiple years, represent a potential additional $5,300,000 in revenue. For additional details or financial results, please reference our 10 K. That concludes my prepared remarks. And now I'll turn the call back over to John. John?

Speaker 1

Thank you, Atlanta. As we move through 2025, we remain focused on executing our strategy, strengthening our customer relationships and improving our sales and operational efficiencies. We federal and military agencies. While the funding environment remains unpredictable in the near term, the long term need for advanced training solutions continues to grow and we are well positioned to support our customers as they secure funding. Our focus remains on converting backlog into revenue, scaling our content library and ensuring Virtru remains the industry leader in immersive training.

Speaker 1

I look forward to updating you on our first quarter's progress in a few short weeks. Operator, we can now open the call for some questions.

Operator

Thank you. And our first question will come from Jason Schmidt with Lake Street Capital Markets. Please state your question.

Speaker 3

Hey, guys. Thanks for taking my questions. Obviously, the current funding environment is pretty challenging out there. John, just given your history and background, curious about how long you think sort of the softness is going to last?

Speaker 1

Yes. No crystal ball here, but we've been through these cycles before. And my read on it is that right now, first you had an election, right? So there was some uncertainty. Part of our bookings at the end of the year were people knew that the new administration was coming in.

Speaker 1

So they wanted to get everything out as quick as they can because they didn't know if they would lose the funding. So we got a nice bump from that. But what ended up happening now is that they frozen all distribution of funding through grants and other federal programs. And I think once they get through all of their review of all the agencies, not only do I think that we'll return back to where we were prior in the funding environment, but I think it will be even more succinct for Virtua and those that train law enforcement and the military. Because one of the things and the reason why I was advocating in DC is we were seeing some of these contracts, so again these grants, they had they didn't have good enough guardrails around them, meaning that the requirements were very slim.

Speaker 1

So anybody could go in and grab money as long as they had the word police on it or law enforcement. So I think now those dollars that were set aside for curriculum and training devices like what VirTra does, we'll see more of those dollars being accounted for in the proper areas and distributed appropriately. So I think that you'll probably see another quarter or two of this wave of doing these assessments. And I would say maybe a couple more quarters and then it'll start to stabilize and then we'll see significant growth and distribution of those funds.

Speaker 3

Got you. That's really helpful. And then what initiatives are you guys undertaking to sort of weather this uncertainty? I know you highlighted in the prepared remarks that you've met with a number of kind of policy leaders and government leaders and are gaining traction in D. C.

Speaker 3

Can you just expand and provide some additional color on sort of that traction you're seeing?

Speaker 1

Sure. So our sales team are out there knocking the doors and turning over every rock and trying to help everybody. We realized that so many of these departments are relied on federal funding or matching funding. And so these are guys that are beat cops that are doing four different jobs and then they're going to be the grant writers. And then when it finally gets up there, you've got these departments that are already short staffed that are now evaluating this plethora of grants.

Speaker 1

And so internally what we've done is and I've spoken about this before, we've created a grant program where we're when we're out with the customers and we find that they need this assistance, we try to guide them to the proper grant that would match their needs and to the people like PoliceONE that actually write grants for them. And then in the meantime, as we looked at the grants and the verbiage, we found that those grants, like I said on the previous question is, we saw that there wasn't enough guardrail. So I met 27 legislators in the House and Senate over the course of the last month and went directly to the grant, the folks that actually administer these grants, trying to help them understand what we're doing. And then we have someone internal that went to a Senate subcommittee hearing and tried to give some color around what's needed out there. So as a legislation and these grants are now created, they're created with the proper view and the proper information that will meet those needs of our customer base.

Speaker 3

Got you. And then just the last one for me and I'll jump back into queue. Just want to kind of dig in a little bit more on the IVAS opportunity. And just to clarify, the handoff from Microsoft to Anthro, you don't expect that to have any impact? And I guess more importantly, you think it's a net positive for you guys?

Speaker 1

Yes. A little education on this is all public information, but Microsoft had decided to disperse their mixed reality division and focus on AI and their Azure systems. And so what they've done is they call it, it's termed novation. So they've novated the contract and basically given it to, we don't know the deal, but they've given that contract to Andrew. Andrew is a long time contract and the people that are there have dealt with government contracts for many years.

Speaker 1

Microsoft operated under what we would call a commercial electronics model and that's not the proper model when you're managing government contracts. So we see the net positive in the things that we have dealt with on trying to manage the contract where Andro will know how that all works. That's net positive there. The other net positive is that knowing how the contracts work and the team that I have that have worked in that environment for a long time, we they already know that our product is very stable. And as I mentioned, the government actually canceled their soldier assessments because the first four days of a three week testing phase, they found that our product was in their words was operating flawlessly.

Speaker 1

So now all we're doing is reliability testing. So some of the employees that were at Microsoft are now working over at Anduril guiding, but the Anduril involvement is huge for us. The government knows them, the government trusts them and the government knows they'll manage that. And then you also have Androl and their lead have been in the VR market headset XR market as part of their genesis for creating that company. So it's moving it we I see it personally and the company as incredibly positive for us moving forward.

Speaker 3

That's really helpful. Thanks a lot.

Speaker 1

No problem. Thank you, Jason.

Operator

Your next question comes from Richard Baldry with ROTH Capital Partners. Please state your question.

Speaker 4

Thanks. Just to make sure I'm clear on this. When something goes into bookings, does that mean it has a funding source? When trying to figure out is if we look forward, how much that $22,000,000 in bookings should be recognized in $2,025,000,000 dollars or it could potentially still be contingent on budgets moving forward?

Speaker 2

John, I can answer that.

Speaker 1

Yes, please.

Speaker 2

If we record it as a booking, it means we have the funding's been there. I won't record or report to you guys anything in a booking that I think has a chance of losing funding. So all of that is we expect majority of it to become revenue in 2025. There are some that it may go out to '26 or '27 because they're service contracts or step contracts, etcetera. But yes, if it's a booking, it will be our revenue.

Speaker 4

Got it. And could you you talked about bookings were up sequentially throughout the year. Can you remind us if there's any seasonality we should be thinking about as you head into Q1? You're pretty late in the quarter. Maybe could you talk about how bookings have trended so far in Q1?

Speaker 4

So we've got an idea of again how to model forward?

Speaker 1

Lenny, you want to yes. Yes, I don't want to give any forward statements, but the environment is pretty much it hasn't stopped. We had the continuing resolution right at the beginning of the year, which was solved and we kind of went through that. Spending was held back from folks. It's been the exact same environment as we started '24 and ended '24.

Speaker 1

So that's why my statement of I think we'll get back to normal in two quarters. It might extend into three, but that's why we're taking all these additional steps. Did that answer your question, Richard?

Speaker 4

Yes, sort of. If we look normal is a hard thing, right? Because we look back at last year, Q1 was fairly soft on bookings, the year before it was higher than that. If there was any way to gauge because the bookings number in Q4 was pretty good. So I'm trying to figure out like what's the normal environment than what we've seen in the last six months or do we smooth out the full twenty four year?

Speaker 1

I would yes, what is normal? That was a good question. So Q1 has what hasn't been typical as you stated, but Q1 was always a little soft. However, we did have quite a few bookings in Q4 that we couldn't convert as we stated. So with our production capability and getting units out, our Q1 is is a little very hard to answer that Richard without giving you a forward statement.

Speaker 1

I would say that Q1 as you look over the course averaging the last probably the last six years except for 2023.

Speaker 4

Got it. And then just for modeling purposes, the $750,000 sort of move from $24,000 to $23,000 I kind of understand, I think why that happened, but we don't have a quarterly breakdown. What quarter does that revenue reverse from '24? And I guess it goes into Q4 of twenty twenty three from what I can see.

Speaker 2

Yes, it would have reversed revenue that hit in Q1. So when we file the Qs for the rest of the year, the year over year will reflect that in Q1.

Speaker 4

Got it. And then the last for me would be VXR is is obviously pretty new, but you've had the first sale you said in Canada. Can you talk about what you're starting to think about in terms of average revenues per unit or any range low to high and sort of the market opportunity you see near term, long term for that, so we have an idea of what that could help drive incremental growth? Thanks.

Speaker 1

Yes. What was I'm sorry, I didn't catch the first part of that question, Richard.

Speaker 4

Yes. It's to do with VXR. So you had your first sale in Canada. So someone put up a price point, hit it and said that's acceptable. So I'm sort of wondering what you think about price points on that.

Speaker 4

Whether maybe that's not a single point range, low to high and what sort of the market opportunity unit volumes you could see first year, second year, how do we think about what that can do for incremental growth?

Speaker 1

Yes. So from a when you talk about price points in that, the price point was said is number one, we didn't have an offering in that range. So we're leaving money on the table for the smaller agencies. Competitively, if you look out there, they range anywhere from $35,000 to $100,000 So it was quite a range of what was offered. But with that and what a lot of the agencies want is they want weapons in there and they want to be able to do the use of force on those systems.

Speaker 1

And so when they've been looking at headsets around and some of these our competitors have actually gone out of business recently is because the technology isn't there quite yet to introduce the weapons with because it introduces negative training. So from looking at the sites because you're not looking at the Rio One and you're not with your partner, But there are some great opportunities there for the VXR because we have the most certified training courses that are out there by IAtelist. So the first one was to get those out there and that's what we're seeing. And now there's other ways that the customers are starting to use it. There are other the price point we feel is appropriate with the market and then given that all of the certified training courses are also included with the headset as well.

Speaker 1

So when you combine the two, it's quite a value and with the software, it's just a rinse and repeat. So headsets would remain not just for us, but for the industry. Microsoft getting out of it with the HoloLens and then the compression in that space becomes a challenge for those that are in the market to deliver training on the headsets because they do vary. And that's the navigation that we've been working on recently. But we do see an adoption.

Speaker 1

I think it's a matter of what is a headset good for and what does it reduce my cost and how does it increase my readiness with the agencies. And so there's a little more education that comes with it than expected. But we do see the outcome. I would say in the next two to four years or two to five years, I think that the platform with the screen based platform, there'll always be a need for that. But I think you'll see a lot more of the revenue and a lot more of the purchases moving towards the headsets because you can reach deeper into the smaller police departments and budget conscious and budget constrained agencies that are out there.

Speaker 1

And that's basically our target market because that's pretty much untapped.

Speaker 4

And actually last for me, will VXR have a step capability as well or because of the price point, do you think that's not necessary?

Speaker 1

No, that's funny. We kicked that around a long time and the problem is those systems aren't built they're not ruggedized or anything like that. So to do it in a step program, you're spreading a very small amount of cost across the three areas. So most of our steps on our systems are above that price point at $50,000 or above. So this kind of gets that market.

Speaker 1

It was more about the price point was more about hitting the lower markets, but also the agencies that don't have a space. I forgot to mention that in the first part. So some don't have the space to put one of our other simulators there. So now there won't be any step with it. I don't think there's an advantage there for us at all for the customer.

Speaker 1

Thanks.

Speaker 4

Great. Thank you.

Speaker 1

Thank you.

Operator

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

Speaker 1

As you've seen and heard, VirTra is dedicated to our customers and their life saving mission remains as strong as ever. I'd like to thank our employees for their hard work and our shareholders for their continued support and confidence as we continue driving meaningful and impactful simulations to our communities around the world. Operator?

Operator

Thank you for joining us today for Avertra's fourth quarter and full year twenty twenty four conference call. You may now disconnect.

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