Q4 2019 Earnings Call
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Good afternoon, welcome to our trust fourth quarter and full year 2019 earnings Conference call. My name is just what I will be your operator for today's call joining us for today's presentation are the company's chairman and CEO, Bob Paris, and CFO Judy Henry following there.
Remarks, we will open up the call for questions from <unk> institutional analysts and investors.
Before we begin the call I would like to provide virtuous safe Harbor statement, but includes cautions regarding forward looking statements made during this call.
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 risks and uncertainties that could cause actual results could differ materially from the statements made the company does not.
To take any obligation to update them as required by law.
Finally, I would like to remind everyone that this call will be made available for replay via a link in the Investor Relations section of the company's website at Www Dot Bertrand Dot com.
Now I'd like to turn the call or whatever trusts, chairman and CEO Mr., Bob ferrous Sir. Please proceed.
Thank you and good afternoon, everyone and thanks for joining us today after the market close we issued our financial results for the fourth quarter and for your 2019 in a press release, a copy of which is available in the Investor Relations section of our website.
I'd like to begin today by briefly describe and some of the macro events, which are affecting most industries.
For the past few months, we've all experienced dramatic shifts in our daily lives as coded 19 has spread across the globe.
Many must wonder the potential impact on per truck.
As far as the supply side, Berkshire supply chain is considerably insulated so far due to the fact that we've expanded and house production abilities in recent years and what we don't produce we can usually purchase for multiple suppliers.
Many of which for U.S. based.
As far as the demand side, we sell to government agencies that still must instruct trainees on effective firearm use.
Even during these stressful tolerance.
So much suggests that now more than ever the government must trained first responders affected we expect we sent simulation training can occur while maintaining social distancing guidelines.
More to the point, we have not yet had a single order canceled sense Colgate 19 made headlines however, the totality of the impacts to virtual from this virus or not fully understood. At this time, so we're proceeding cautiously.
We are doing our part and virtually to continue to serve that brave men and women who are working so hard to keep our nation state.
While still mitigating the effects of coal good 19 to ensure our people and our partners remain healthy.
I'll touch more on this topic in my closing remarks, but first let's look at the year in review.
When we last spoke in November I ended or call by discussing why we were optimistic we'd be able to conclude the full year 2019.
With overall positive results.
As you're all aware the third quarter of 2019 was one of the most successful quarters in our company's history.
We delivered near record topline revenues, we were net income positive by and large margin and we exited the quarter with the largest backlog in our company's history.
However, due to the slow start in the first half of 2019 from a financial perspective, we still have substantial brown to cover if we were to go into continues the trend. We established in 2008 have year over year revenue growth.
In the fourth quarter, our entire organization worked diligently to continue the momentum from the third quarter and to generate new business, while converting some of our record 11.3 million dollar backlog into revenue.
I'm very pleased to be able to report today. Thanks to the incredible work of the team of workshop, we were able to achieved that goal.
We've now delivered our 14th consecutive year of increasing revenues, while also investing time and money into future growth.
In the fourth quarter, we generated 5.9 million in revenue and adjusted EBITDA of 729000.
In general the positive results for the fourth quarter were driven by our team's ability to not only securing new contracts, but to scale our efforts to successfully deliver product in a timely manner.
This is perhaps best evidenced by the large 2.3 million dollar follow on order. We received in October from the Arizona Department of public safety.
As we've discussed in the past the timing of when products are ripe to the customer can have a material impact on a quarterly financial results.
And in many cases, the timing of deliveries is not one of the variables we have complete control over.
We saw the negative effects of timing a year ago when orders at the end of 2018 were delayed and therefore not recognized as revenues in Q4 that year.
However, what we can control is our ability to scale quickly and deliver quality product when customers ready.
That's essentially what happened at the end of this year.
Multiple orders in our backlog ready for receipt, including a substantial portion of the order from the Arizona Department of public safety, our team effectively scale their efforts to meet this demand and deliver product in a timely manner.
As a result, we ended the full year 2019 was 18.7 million in revenue.
And adjusted EBITDA of nearly 1.1 million.
Additionally, despite the revenue we recognized in Q4, we maintain a robust pipeline a business and entered 2020 with a 9.6 million dollar backlog.
Our financial success in the second half of the year, which drove improving results for the full year 2019 is in large part due to our ability to consistently execute against our strategic priorities.
In January 2019.
We used the start of our 26 year in business as an opportunity to not only reflect on how our company has a ball but to outline our objectives for the year.
We entered 2019 determined to strengthen and diversify our business by bolstering our technological capabilities and increasing our sales footprint and to work harder on meeting the needs of the military market.
Throughout the year, we've done just that in the fourth quarter was no exception.
In the fourth quarter, we launched new products and curriculum expanded our sales pipeline by securing new orders, one of which I've already mentioned and strengthen our competitive note to better position ourselves to meet the current and future demands of our respective markets.
During the International Association of Chiefs of Police conference or ice CP in October we unveiled the world's first for K 300 degrees simulator.
The higher resolution in these enhanced simulators finally, achieving nearly perfect match to the humanized, allowing even higher levels of realism and effectiveness throughout our product line.
The technological hurdles to achieve this or non trivial and we aren't surprised that competitors are struggling.
Two someday follow our lead.
Shortly after announcing our new ultra high definition simulators, we received our first order for there for them from the federal law enforcement training centers or let's see.
Let's see is the main training sites for the federal law enforcement and they're switching to virtual means they now join the U.S. marshals secret service and customs and border protection interesting virtusa as their supplier.
I believe this is the first time in our industry wouldn't one company Virtusa has become the standard for essentially every major federal law enforcement agencies.
It is an incredible honor and huge accomplishment for our company.
During IC P.. We also launched are driving simulators known as the virtual driving training simulator or di di T. S for the U.S. law enforcement market.
Earlier in the year, we'd seen initial success with di di Tee us in the international market as evidenced by the 1.9 million dollar order. We received three the department of state for the Republic of Mexico During Q1, and our second and third orders also through the department of State, which we announced during our second quarter Conference call.
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However, it was only in the fourth quarter that we brought this product to the domestic market.
From the initial conversations we've had with prospective customers. We have reason to believe that it will do well here and allow us to continue to expand our revenue streams.
In addition to the enhancements we made our product suite by adding new hardware products. We also introduced new training curriculum.
New technology can get people excited but at the end of the day, what our customers really want is effective training.
We're in the business of improving the training and law enforcement and military personnel to ensure they are as prepared as possible to respond to the wide range of potentially dangerous situations. They may face on a daily basis.
Overshot, possibly better than any other company in our market combines new technology with certified and effective professional training content.
For that reason, we're always working with our customers to design, new scenarios and better curriculum to meet their needs.
To that end during the fourth quarter, we released updated versions of our certified be Victor curriculum, which included courses on autism spectrum disorders special populations and emotionally disturbed persons among others.
While these specific updates are available to all the victory users it's worth noting that in many cases agencies also come to us with request for custom content.
This is expected to be true in the federal space or an agency may have a very specific location or scenario for which they need to train.
And we don't typically discuss the details of these orders publicly as the training scenarios themselves can be of a sense of nature, but it is worth noting that our ability to deliver industry, leading content is one of the main reasons. We remain ahead of our competition.
And in the fourth quarter 2019, it's certainly helped contribute to our business success.
In addition to the new products and curriculum, we launched in the fourth quarter. We also position our product portfolio to be better suited for the needs of the military.
At the end of October we announced that we had issued two new patents.
One related to Taser cartridge kits and the other related to drop in recoil conversion kits have real firearms.
While both of these patents are well suited to enhance our competitive note in the domestic law enforcement market.
We believe our drop in recoil kit conversion capabilities. They also improve our position in the military market.
The military wants Jaime realistic and highly flexible solutions for simulation training, our patents ensure versus the only company in the U.S. that can produce or sell.
Our specially designed kit that affordably converts alive firearm into a safe reliable trainee tool that can even simulate standard weapon functions and therefore increase realism.
It makes simulation training much more flexible as it allows trainees to train rural military weapons.
Paul and law enforcement weapons, while work yet to announce a large military contract, we're continuing to conduct demos with high profile decision makers and prove to them the potential better training at lower costs through Vertro.
We therefore remain confident but the enhancements we made in the fourth quarter when combined with the additional changes over the past year have us better position than ever to meet the needs of the military.
So overall the fourth quarter was extremely strong for Virtusa and I believe helped set the stage for solid started 2020.
But before I had any additional details on 2019 as a whole and our current thoughts on 2020, I'm going to turn the call over to Judy to walk you through our financial results for the fourth quarter and full year ended December 31 2019, Judy.
Thank you Bob and good afternoon, everyone.
Our total revenue for the fourth quarter 2019 was 5.9 million.
This was 133% increase from the 2.5 million of revenue we recognized in Q4 of 2018.
For the full year 2019, our total revenue increased 3% 18.7 million from 18.1 million in 2018.
The increase in recognized revenue for both the three months and full year ended December 31, 2019 resulted from increased in the number of simulators and accessories completed and delivered compared to the same period in 2018.
Our gross profit for the fourth quarter of 2019 increased 176% to 2.6 million or 44.8% of revenue from 957000 or 37.8% of revenue in the fourth quarter of 2018.
For the full year ended December 31, 2019, our gross profit decreased 12% to 9.7 million or 51.9% of total revenue.
11 million or 61.1% of total revenue in 2018.
In both periods the changes in gross profit.
It was primarily due to differences in the product mix and the very quantities of systems accessories and services sold.
Our net operating expense for the fourth quarter of 2019 decreased 19% to two point Threemillion from 2.8 million in Q4 2018.
For the full year 2019.
Our net operating expense decreased 6% to 9.5 million from 10 million in the same period a year ago.
The decreases in net operating expense for the fourth quarter and full year 2019 were both due to decreases in the following.
General and administrative costs stock option compensation and redemptions.
Special services and public company expense, which were all slightly offset by increases in salary and benefits sales and marketing and facility costs.
Additionally, during the year ended December 31, 2019, there was 120000 of allowance for bad debt on accounts and notes receivable and we recorded a 280000 dollar impairment loss as operating expense on the statement of operations.
For the year end Decemberthirty. One 2018, there was a 318000 allowance for bad debt on accounts and notes receivable and a 255000 impairment loss also recorded as operating expense.
Turning to our profitability measures.
Income from operations for the fourth quarter of 2019 was 356000 compared to a loss from operations of 1.9 million in Q4 of last year.
The full year 2019 income from operations was 262000 compared to income from operations of 1 million in 2018.
Both the allowance for bad debt on note receivable and the impairment expense again are recorded as operating expenses, reducing income from operations by these noncash GAAP reserves.
They totaled 380000, combined and 522000 for the years ended December 31, 2019, and 18, respectively.
Due to the items just mentioned we were near breakeven for the fourth quarter of 29 team within that loss of 66000 or one cents per diluted share.
This compares to a net loss of 1.3 million or 16 cents per diluted share in Q4 of last year.
For the full year ended December 31, 2019, our net loss totaled 75000, or one cents per diluted share compared to a net income of 818000 or 10 cents per diluted share comparable period a year ago.
Our adjusted EBITDA, a non-GAAP financial measure was 729000 in the fourth quarter of 2019 compared to an adjusted EBITDA loss of 246000 in Q4 last year.
Our adjusted EBITDA for the full year 2019 was 1.1 million compared to adjusted EBITDA of 1.9 million in 2018.
Turning to our bookings and backlog, we define bookings as a total of new fine contracts and purchase orders received in the given time period.
For the three month ended December 31, 2019, we received bookings totaling 4.2 million.
We define backlog as the accumulation of bookings from sign contracts and purchase orders that have not been started or uncompleted performance objectives and cannot be recognized as revenue until delivered in a future period.
Backlog also includes extended warranty agreements and step agreements that are deferred revenue recognized on a straight line basis over the life of each respective agreement.
At December 31, 2019, our backlog was 9.6 million.
And finally to our balance sheet.
At quarter end, we had approximately 3.3 million in cash and cash equivalents and certificates of deposit which was down 2.7 million from the end of the period Decemberthirty one 2018.
Accounts receivable and Unbilled revenue combined totaled approximately 5.9 million at quarter end compared to 2 million in the same quarter in 2018, an increase of 3.9 million.
From a working capital standpoint, we ended 2019 with 7.1 billion in working capital an increase of 300000 in working capital from the period ended December 31 2018.
For additional details of our financial results. Please reference our 10-K, which was filed earlier today.
That concludes my prepared remarks, I'll now turn it back to Bob.
Thanks Judy.
The fourth quarter was obviously strong finish to the year for Virtusa.
But we have much more to accomplish in 2020 and beyond.
We have weighed lot of the ground work required for our future growth.
Expanded into new categories introduced new and innovative products Atlantic's Union customers.
As part of building. This foundation, we expanded our recoil kid capability, both through internal development and by acquiring intellectual property.
And we continue this theme by launching a driving semi later in the U.S. market. After spending a great deal of time reviewing feedback from our initial deployments and leveraging our years of X experience with domestic law enforcement to ensure these products and corresponding training content fit their needs.
And we also launched the world's first for K 300 degrees simulators, which demonstrates that Berkshire. Once again is leading the industry into the future.
We've also continuously launched new scenarios and upgraded our certified be vector training curriculum. In Q1, we launched curriculum for high risk vehicle stops, which combines physical assets such as a vehicle with virtual scenario based training.
We then announced new curriculum for non escalation and de escalation and crisis intervention, which we developed in tandem with one of our strategic partners. This still are.
We also expanded the partnership we initiated in April of 2018 with for Science Institute to create new realistic training and education for law enforcement officers, which is backed by the science of human performance.
As a reminder, all of these scenarios not only increased the quality of our training platform, which I discussed earlier, but uniquely virtuous curriculum is actually certified and counts towards the mandatory training law enforcement officers are required to receive annually.
This combination of increasing compliance as well as improving the quality of training is one of them many reasons more and more agencies and departments are compelled to work with her trial.
With many of these products and enhancements Virtusa has become an even better fit for the military market.
You can imagine that when virtual creates a next generation drop in recoil conversion kit.
It works for firearm that might be used by both police and military.
When coupled with the relationships, we've been building with various demos and the help of our strategic consultant, we're cautiously optimistic that the military could leverage products and technology already refined by virtue of.
The combination of these enhancements has only increased our position as a market leader in high quality simulation training in our product categories and when coupled with the introduction of the step subscription program. Our sales team now has more weapons that they're just.
Goals all than ever before.
It's important to remember that step is still in its infancy, but it's already proven to useful tool for our sales teams.
One of the primary reasons, we introduced a subscription model was to remove upfront barriers of capital outlay to allow more agencies to sustain a long term training program for the perishable skills, there officers need for their own safety and that of the public.
And so far.
We've certainly seen evidence of that being the case.
It's clearly been a busy year on Mircera and I'm very proud of the work our team has accomplished to ensure our company is in its strongest position today.
And entering 2020 in a position of strength is expense really pertinent now when considering the level of uncertainty in the world today.
Currently we are approaching 2020 with caution more carefully monitoring effects co. Good 19 on virtual and the industry.
Obviously, there could be an impact on virtusa and our competitors as travel restrictions and social distancing may exist for an unspecified duration.
And it is possible that our industry could encountered delays of delivering or installing equipment due to co. Good 19 related logistical challenges.
However, virtusa is likely in a better positioned than many of our competitors.
We just modernized our website with much more automation and that timing couldn't have been better.
More to the point, we've never in our history has such a strong electronic marketing and sales infrastructure as we have right now when we need it most with restricted personal travel.
Further our strong balance sheet, no debt and cash reserves I mean, not only do we plan to survive coded 19, but Moreover, we might be in a position and make one or more acquisitions, if the right opportunities present themselves.
Our staff and stakeholders are central to our continuation and we currently have most all of our staff working from home in an effort to mitigate the impact of in 19.
But if there's anything we've learned over the past 26 years of being in business, it's how to operate a business responsibly and how to adapt to changing market conditions and sentiment.
Yes, it regardless of how things exactly unfold with cobot 19, what we do know is that the need for well trained law enforcement and military personnel is likely to only grow in importance and we intend to fulfill that need.
Please know our core mission, which is to improve and ultimately save lives by providing law enforcement military personnel with the world's most effective simulation training will remain intact.
First responders will always need a way to safely practice and prepare for the risks and uncertainties. They may face at any moment during their careers.
And we intend to continue to play our part to ensure there's prepared as possible by providing the world's best simulation training solutions.
And with that I'm going to wrap up my prepared remarks.
We're ready to open the call for your questions. Operator, please provide the appropriate instructions.
Thank you, ladies and gentlemen, if you have a question or comment it a star one on your telephone keypad at this time.
Using a speaker phone, we ask that while posing a question you pick up your handset to provide the best sound quality.
And I was star one for any questions or comments at this time.
Well I'm at first to Jason Smith at Lake Street.
Hey, guys. Thanks for taking my questions Bob It sounds like you really haven't seen a significant impact from Covidien 19, but just curious if you've seen the sales cycle get a long dated at all because of this issue or just the macro headlines in general.
Yeah as as of today, we have not seen sales cycle lengthening, but but it would be important to point out that our sales cycle range from.
Sometimes a couple hours, which has the rare events where.
Where agencies need this spend it or lose it.
At the end of fiscal cycle or it can be one to two years I'm sales cycle.
In this environment I think it actually insulate us virtual because our sales cycles are longer many times everything has been.
Has been set up to get a purchase done or get a subscription done and once all of that set up many times they don't want to derail that.
The machinery is in motion. So I think Thats, one reason that we have not seen.
A knee jerk reaction by someone calling us up in saying you know, what we're going to need to cancel and order I think thats from maybe rather specific to business to government companies like Virtusa.
Okay. That's helpful and it sounds like the step program traction has been progressing nicely. Just curious if you could quantify the number of customers signed up for that or just what percent of the engagements you currently seeing.
Look to the step program instead of an outright purchase.
We are keeping that information that we do have an item in our.
Financials that shows depreciation of the step hardware.
So I would refer you to that to kind of get.
Some idea of the activity there, but we're not a we're not breaking that out right now.
Understood and the last one and I'll pass it how are you guys thinking about opex and investment in the current macro environment.
I'm, sorry could you repeat that.
How are you guys thinking about operating expenses and investments in the current macro environment.
So we are approaching the future cautiously however.
With with our with our strong pipeline.
With that you would've seen currently no cancellations.
We are currently proceeding with maintaining our staff, making sure that our infrastructures are intact.
Continuing to do investments.
Where opportunities present themselves.
Believe the simulation training market is ripe with a lot of.
A lot of opportunity, particularly for an industry leader like Virtusa and so we are not slowing down and investing in that but we are being prudent overall with with how we approach shot investments and operating expenses.
Okay. Thanks, a lot guys.
Thank you.
With no other questions holding I'd like to turn the call back over to Mr. ferrous for his closing remarks.
Thank you.
It is my sincere hope that are extraordinary employees customers shareholders and partners all remain healthy and safe during the great challenges, we all face.
Please know that virtuous staff is as committed as ever to advance our business create the world's best simulators and support our customers who are often those running towards danger to protect our very lives.
We look forward to updating you on our next call. Thank you and God bless.
Thank you for joining us today for purchase fourth quarter and full year 2019 conference call you may now disconnect.
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