Q2 2020 VirTra Inc Earnings Call

Good afternoon, and welcome to have our trust second quarter 2020 earnings Conference call. My name is Josh and I will be our operator for today's call joining us for today's presentation or the company's chairman and CEO, Bob terrorists and CFO Judy Henry.

Following their remarks, we will open the call for questions from Brightroll institutional analysts and investors.

Before we begin the call I would like to provide virtuous safe Harbor statement that 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 feature 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 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 <unk> Dot com.

Now I'd like to turn the call or whatever trusts, chairman and CEO Mr., Bob Steris. Sir. Please proceed.

Thank you operator, and good afternoon, everyone and thank you for joining us today for virtuous second quarter 2020 earnings call.

I'm also joined today by Judy Henry our CFO, who will join me in answering your questions. After our prepared remarks.

I'd also like to remind you that shortly after the earnings call. We will have the virtual annual general meeting with another chance for questions and answers, but first I am excited report our progress.

The second quarter of 2020 presented Berkshire with an unusual operating environment, just say the least.

There was no one but to macro level events that impacted our company in our industry. This quarter that are worth addressing today.

The first is the continued impact of Cobot 19, which started at the tail end of Q1 and continuing to be a major influence during Q2.

Discuss those impacts at length in a moment.

I guess, there's a series of polarizing events ignited by the death of George Floyd in Minneapolis.

Concentrated our country's attention on the law enforcement community.

More than any other time in our history. There has been a very specific focus on how officers interact with those their sworn to protect and how they decided and to what extent force should be used in a situation.

These are extremely complex questions I touched at the very nature of what we saw officers do.

In our society police officers access to enforce the wall and to protect the individual liberty's of citizens from domestic threats.

To do so they are uniquely endowed with the authority to use force should the need arises.

As a knee jerk reaction some if suggested the de funding of police agencies.

Fortunately cooler heads have prevailed and mini see the logic that to improve policing involves investing in the improvement of the training of the police and that's where books are concerned.

[laughter] deciding if when and to what extent forces necessary is an incredible responsibility we bestowed upon them.

And such tremendous responsibility requires tremendous preparation practice and training.

We had virtually I don't have all the answers.

Well, what we do you have is a pretty good line of products that is part of the solution.

In fact, nearly every major federal law enforcement agency has selected purchase for their solution for stimulating a wide variety of situations and we continue to receive follow on orders to support their training needs.

However, far too many police agencies in the U.S. and abroad, either use no simulation training or using older an inferior product to the detriment of the trainees and the public.

We provide the best simulation training available than crude the efficacy of both law enforcement and military personnel the need for our solutions has arguably never been greater given how topical virtusa is to these national discussions Virtusa has been on or do we see the increase regional and National news coverage.

In fact medium mentions of Virtusa has increased approximately 50% from the same time last year.

There have been segments highlighting forward thinking departments that have installed our simulators and who clearly understand the value we provide.

Oh, that's how you translates into saving both dollars and saving lives in the long right.

We rolled out a new website and a record number of new digital marketing materials. This year to better educate the thousands of police agencies about purchases uniquely effective products.

However, it's important to be realistic about the current environment.

Clearly the events of the pass a few months could create opportunities for us to help a larger number departments and improve their training and the relationships with their respective communities.

Although our new sales have increased substantially in 2020.

And pushed up our backlog to record levels, there's no guarantee that media attention or marketing enhancements will translate directly into sales in the short term.

So while we believe there are a macro events generating momentum for Berkshire, which may help drive additional sales others have certainly complicated our installation process.

You see if we must away the delivery of our equipment to customer we must also delay recognizing the revenue.

During our last call you mentioned that we had not yet seen a material decline in our sales as a result of covered 19.

He major theme of a last call was that demand in the market remain incredibly strong.

But revenue had been impacted as orders were taking longer to deliver and install.

And since come in 19 continues to be a major machine in the United States that theme persisted throughout the second quarter this year as well.

As far as we know today, we have not lost any business from coded 19.

However, our ability to install products has been impacted.

Therefore, our ability to recognize revenue has been affected.

Because of how strong the demand for our system says did even before the events in Minneapolis, We had expected our second quarter financial results to be extremely strong.

However, because of continued complications with installations, which we started to see towards the end of Q1, we ended up with modest revenues in Q2.

Our second quarter revenues were 2.8 million, a small decrease from last quarter and from a year ago period, but our backlog increased to a record $14.3 million.

Our six months financial results, which Judy will discuss in a moment. We're also we're almost identical to the first six months of last year, except that our backlog at June 30, 2020 was $4.2 million greater than it was at the same point in 2019.

These two metrics our revenue in our backlog underscore the theme in the second quarter robust sales for virtual products, coupled with a challenging installation environment due to the pandemic.

For all the second quarter, we were restricted on where we could traveling with whom we could install we're still only able to travel on a case by case basis.

As many of you know our home state of Arizona remains in phase one and as a result, several other states are either not accepting our personnel or requiring them to corn team.

Recent trends in Arizona are encouraging and our operations teams are working incredibly hard to install products wherever possible, while prioritizing staff and customer safety.

But so installations remain impacted we have actually accelerated our sales volume as compared to last year without Tobin 19 headwinds.

That's just one example, during the second quarter, we received a new idea I Q or indefinite delivery indefinite quantity contract and the department of state for the public in Mexico as a testament to the tenacity of our operations team, even with a pandemic restrictions, we fully expect to deliver an install this order and therefore recognized.

Those revenues in Twentytwenty.

Because of this momentum we remain confident that our prospects for the second half of the year.

I'll add to this theme in a few moments, but first I'm going to turn the call over to Judy to walk you through the financial results for the second quarter Judy.

Thank you Bob and good afternoon, everyone.

Our total revenue for the second quarter 2020 was 2.8 million.

This was a 9% decrease from 3.1 million of revenue we recognized in quarter two of last year.

For the six months ended June 30, 2020, or total revenue was 6.1 million consistent with the 6.1 million. We recorded in the first six months of last year.

The decrease in revenues for the three months ending June 30 was the result of a reduction in the number of simulators and accessories delivered and installed compared to the same period in 2019, especially due to the Cobiz 19 travel restrictions.

Our gross profit for the second quarter of 2020 increased 4% to one point sixmillion or 57% of revenue from 1.5 million or 49.6% of revenue in the second quarter of 29 team.

The increase in gross profit was primarily due to reduced warranty costs.

For the first six months of the year, our gross profit decreased 4% to 3.2 million or 51.9% of total revenue.

3.3 million or 64.3% of total revenue.

The decrease in gross profit was primarily due to differences in our product mix and the quantity of systems accessories and services sold.

Our operating expense for the second quarter of 2020 was two point Fourmillion consistent with 2.4 million, we reported in Q2 of last year.

Because the first six months of 2020 or operating expense decreased 3% to 4.5 million.

4.7 million in the same period a year ago.

The decrease in operating expense for the three months ending June 30, 2020 was due to reduced selling general and administrative costs for travel trade shows and professional service again, a result of coded 19 restrictions.

Turning to our profitability measures.

Loss from operations for the second quarter of 2020 was 822000 compared to a loss from operations of 883000 in Q2 last year.

For the first six months of 2020 loss from operations was 1.3 million consistent to a loss of operations of 1.3 million in the first six months of 2019.

Our net loss for the second quarter of 2020 totaled 601000 or eight cents per diluted share. This compares to a net loss of 634000 or eight cents per diluted share in Q2 last year.

For the six months ended June 30 2020.

Our net loss totaled 991000.

Or 13 cents per diluted share compared to a net loss of 947000 or 12 cents per diluted share in the comparable period a year ago.

Our adjusted EBITDA loss non-GAAP financial measure improved to 579000 in the second quarter of 2020 compared to adjusted EBITDA loss of 675000 in Q2 last year.

For the first six months of 2020.

Our adjusted EBITDA loss was 978000 compared to adjusted EBITDA loss of 1 million in the first six months of 29 team.

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

For the three months ended June Thirtyth 2020, we received bookings totaling 5.9 million.

We just saying backlog is the accumulation of bookings from signing contracts in purchase orders that are not started or uncompleted performance objectives and cannot be recognized in revenue as a <unk> until delivered in the 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.

As of June 30, 2020.

Backlog was 14.3 million, which is up from the 10.1 million, we reported a year ago and up from 11 point Threemillion at March 31 2020.

Finally to our balance sheet.

At quarter end, we had approximately 4 million in cash and cash equivalents and certificates of deposit.

Which was up from 3.3 million from the ended the period ended December 31 2019.

Accounts receivable and Unbilled revenue combined to total approximately 4.8 million at quarter end compared to 5.9 million at December 31, 20 think team.

On May 820, 20, Richard received a promissory note in the amount of a 1 million 320714 under the Paycheck protection program or P. P. P established as part of the current divided virus aid relief and economic security at.

Cares Act.

Under the terms of the P.P.P. loan up to the entire mounted principal and accrued interest maybe for given to the extent P.P.P. loan proceeds are used for qualifying expenses as described in the cares Act.

The company intends to use its entire PPP note amount for designated qualifying expenses and to apply for forgiveness in accordance with the P.P. loan terms, but no assurance can be given that the company will obtain forgiveness of the P.P.P. note in whole or in part.

From a working capital standpoint, we ended the second quarter 2020 was 6.9 million in working capital.

Compared to 7.2 million in working capital at December 31, 2019.

For additional details of our financial results.

Please reference our 10-Q, which was filed earlier today.

That concludes my prepared remarks, well now turn it back to Bob.

Thanks Judy.

As we shift our attention to the rest of 2020, the strength of our land and sales and pipeline is encouraging.

Well the vast majority of the national discussions around law enforcement training and specifically increased de escalation training are very positive for Virtusa and the nation. The very extreme idea of de funding. The police hasn't made <unk> has made headlines.

As of today, we have not lost a sale due to de funding.

As a reminder, mini departments already had budgets allocated for the year. So it's unlikely that we will see any major changes in the near term.

The real question is what will budgets looked like towards the end of this year and into 2021.

From what we've seen departments are evaluating how they can most effectively allocate their funds as they've done in previous years.

But bear in mind. These decisions are frequently being made in the spirit of allocating funding towards resources that make police more effective not less resources that help ensure officers and those who may or slowdown to protect stay safe.

For those reasons there have been reports that some of the largest cities in the country of actually increased their budgets this year.

It was recently reported that San Diego Houston in Phoenix have all increased or police budgets.

Whether or not that increase becomes the norm remains to be seen.

We can tend that money spent on virtuous certified simulation training for critical decision, making is money well spent but ultimately the 18000 or so law enforcement agencies in the U.S. must decide for themselves.

Well most apartments appear to still be in the evaluation phase. It. It's certainly possible that some cities may become more budget constraint.

Should that occur we're fortunate that we already have a viable alternative in place with step purchase subscription training and partnership program.

The program recently entered its second year and so far every customer who started in the program has elected to renew achieved in a 100% renewal rate.

This program is ideal for those customers, who want to low payment to essentially rent stimulation equipment and it is desirable for our shareholders as it increases our recurring revenue while growing our market share.

[noise] because it just subscription base that shifts the payment from a capital expense to an operating expense.

No based on what we've seen so far we believe the majority of agencies, who are interested in purchase training are continuing to buy our systems outright.

However step it does work for some agencies and it is comforting to know that should budgets become more constrained we already have a mutually beneficial hedge in place that allows us to seamlessly continue pursuing our critical mission of effective simulation training for the greatest number of trainees.

Recent events have clearly brought to life that virtuous trainee technology is indispensable for law enforcement.

And while we are continuing to push to ensure that law enforcement personnel have the best decision, making marksmanship and use it for screening available. The fact remains at these needs extend directly to the military market as well.

So well over a year now we've been positioning virtually a better suit the needs of the military market.

In February of last year, we made an important enhancements to our drop in recoil kit.

In fact, we believe that in any head to head comparison, a virtuous drop in recoil kit form fit and function clearly favors purchase products.

Much of our advantage comes from patented and patent pending technologies, including some desirable capabilities available only to virtual when we acquired the patent portfolio from type your is technologies.

And just over a year ago.

And in last July we engage jail O'connell in associates to help advise us and broker relationships with military leaders and decision makers.

Those investments among others have been gaining traction and they are beginning to bear fruit.

There is tangible progress here, but given the sensitivity of some of these developments, we're not yet in a position to discuss anything in detail.

However, we didn't want to share that there has been progress with the military market, particularly over the last quarter and the pipeline has never been stronger than it is today.

I hope we have some updates to share in the coming quarters. So please stay tuned.

As we look to the second half of the year, we remain optimistic about our ability to continue expanding our reputation as a leader in simulation training for law enforcement and to leverage that expertise to provide the military market more effective than more reliable and more affordable products as they strive for the same.

Despite some of the temporary complications we faced with a ripple effects of coded 19.

Now, perhaps more than ever it's apparent that properly trained first responders are worth the time and effort.

First is extremely fortunate to lead the world with the most realistic simulation products from hardware to software to having the worlds only certified training curriculum.

It all positions virtual its unique we supply with the world is looking for.

Thanks to our decades dedication to quality training and our teams willingness to work even harder during the pandemic, we're better positioned for success than at any other time.

For the most part we're doing installs and assuming the U.S. does not shut down again, we're expecting a strong second half of the year.

And with that I'm going to wrap up my prepared remarks, I believe we're ready to open the call for your questions. Operator, please provide the appropriate instructions.

Thank you, ladies and gentlemen, if you would like to ask a question or make a comment to the star one on your telephone keypad at this time.

Using a speaker phone, we ask that while posing your question you pick up your hands tied to provide the best sound quality again at a star one for any questions or comments.

Our first question will come from Jason Smith at Lake Street. Please proceed.

Hi, guys. Thanks for taking my questions. Bob I know you talked about some of the civil unrest and how your products kind of fit into the trading mosaic I'm just curious if with everything going on if you've actually seen an increase in interest coming your way.

Yeah. Thank you for the question we have seen an increase its it is a longer sales cycle. Then then a very short term sales.

Blips so even if there is a general focus on better training for decision, making and use a force or or even if agencies realize that that one bad decision can result in writing and has a potentially law.

Long term negative impact in is worth aperture to avoid even if that's true.

We're not <unk>, obviously, an impulse buy and and the sales increase if it does occur or can occur over a period of time. So yes, we've seen an increase in inquiries. We hope that that will result in an increase in sales and we've also seen now a little a little bit of an increase in sales.

Overall for second quarter 20.

2020, as compared to a year ago. So there there are some metrics that are indicating that we have a bit of an increase in sales I can be to that could be temporary.

Our focus is to make that a long term trend of have increased sales.

Okay. That's helpful and I know you have the step program.

Have you seen any push back from customers on pricing just given the macro.

You.

I would say given the macro there there is in <unk> and many agencies, there's likely a focus on getting the best training I I do think there's a bit a danger for departments that that by training simulators.

For life and death decision, making there's so much on the line right now that going and getting enough or a a cheap simulator I'm a kind of check the box simulator that does the bare minimums and there's no comparison done there's no.

There's no kind of kicked the tires, there's no as eslami subject matter expert being involved in selecting the product and making sure that theres actually a little training value I do think that there's a lot more risk for that and then it version of that so.

I I do believe that the market does reward effective products and even if the effective product my cost a little more money and of course, there are exceptions to the rule. There are those that might be looking for the the least amount of money to spend to say that they have simulation training, whether it's effective or not.

But I think that the macro level. If anything has has pushed a lot of agencies, who might have inclined not direction and may have pushed them away from that from that attitude.

Okay perfect. Thanks, guys.

Thank you.

Well move next to Richard Baldry at Roth Capital. Please proceed.

Thanks sort of curious if restrictions are using.

What would be the bottleneck to sort of clearing are pulling down that backlog short rapidly as it really gated by your own resources, because the backlogs grown so much or is it more on the customer side again, assuming that.

No we don't re close up everything.

Sorry, I'm curious what got us.

Yeah.

So.

Great question or not it's a combination there is a potential that some clients or even as states states start to reopen and move through their phases. There is a chance that some of our customers will have their own internal policy and might delay.

Allowing for installation or travel there is a obviously we don't have a an infinite number of installers are there is a physical limitation on our insights on our installation capacity operations team does a great job a scheduling that and we have been higher.

I mean, some to try to make sure we have adequate staff to avoid a bottleneck in that area. So it.

Obviously, if if there's a tremendous number of customers who want delivery all at the same time. A then there there does naturally occur a bottleneck weve, though in the past been able to work with clients and we do have a lot of staff that are cross trained so sometimes we're able to use.

Staff member who.

You said, you installations, but hasn't for awhile, but they still have all the skills to do so and possibly they would help out I'm assuming that there okay with travel we definitely want to safety is a priority for our installation teams, but but yes. There is a potential that there could be.

I'm a bit of bottleneck, we don't think that will be a horrible situation. We think that it would just mean that possibly some revenue would move off too on one quarter further than it would have otherwise then but we have our operations team has been anticipating this and.

<unk> has been watching this the phase transitions around the nation and so we have been staffing on two levels you allow us to unwind the backlog as quickly as possible, but also not to overstaff a virtuous how to has had a very proud tradition that we have not had.

Mass lay off so we try to it'd be very careful with when we add staff. We're looking at that staff to not be a let go on a moment's notice and we've we've been very fortunate to be able to plan around that sometimes that means we stuff works a little harder than Weve added staff have to work through the weekends.

And and work longer hours.

But the upside has been that we have not had a large we've not had a large lay off that virtusa and in many many years now so.

But yes, we do think there is a potential for some bottleneck depending on the if everything starts to we'd be open at the same timing and we have clients who are eager to have the equipment at the same time, but we do have a quite quite a bit of infrastructure in place to accommodate a quite a bit of.

Installs and if there is service trips unaided.

<unk> and I should we look at Q twos, opex as sort of a good near term level, given sort of the balance between uncertainties out there and the a bit but the ability to sort of offset some of the spending with the P. P. P.

Loan and then maybe another way I think all spending above more above the line, though you know assuming some of the backlog started to clear out and the revenues popped a bit.

How much of the Cogs side is more fixed versus variable actually get an idea about modeling what an upside quarter would would look like as you clear some of that backlog.

[noise] <unk> core.

Richard we're gonna see very similar fixed cost and I believe the vast majority is a variable will remain in the same.

Level, we do see.

Some uptick in pretty heavy uptick actually in our trade shows sales and marketing events in Q3, but then that will of course be dependent.

And opening in reopening of the various sites some of them are moving them to virtual some of them are coming up with other opportunities than way to continue with them. So I'm a little bit of an unknown in that.

Position, but I would anticipate there to be mostly upside in the opex in terms of.

Staying pretty pretty consistent overall.

Okay and then.

Now if we made her own assumptions it possibly municipal budgets could be a little bit tight given the revenue side of the table.

If there is a big sort of shift into more of the step model you talk about the availability to sort of finance that because you'd you'd be talking on having to take on the value of a lot of though the hardware installations and then amortize over time, I'm, sorry, your ability or flexibility to address that if it actually emerge.

[noise] [noise].

So we do have quite a bit of flexibility in that area. Obviously, we have we have cast reserves and that's but in a situation. Like you described where there were there was a considerable increase and in step a couple of things to keep in mind. One is is that we run.

Choir 12 month commitment for steps. So you can imagine that weve worked a lot of the numbers internally and we're comfortable with the 12 month commitment.

Might that might well correspond to sort of our internal capital expense to get that equipment out if we as far as this materials. That's not you know obviously, including.

Amortizing software and contacts and and and a lot of other costs that have gone into it into developing the product in the first place.

This the the second thing is we've had we've had groups with tremendous resources approach us and say if you ever need funding for your step program, we would like to be near the top of your list to compete for that business.

So we we do have oh plenty of depth on being able to to go and financing was needed to go in it and and obtain it at attractive rates. So we have we feel that even if step became wildly successful in a short period of time.

That the financial side wouldn't be the issue we might a bottleneck on production. If it was a if it was a tremendous increase in a short period of time and we've both in the past when we've had a tremendous increase in production we used to absorb that very well based on.

On an assay for success and being a bit clever on how we how we integrate our products together.

So, but yes, we do feel like there should not be an issue where a step become so successful that at their becomes a financial by end of anytime.

[noise] things last from me I'd be high enough to assist our off topic, but I'm curious how long it takes to turn what I'm I haven't describe it like custom content. So if someone wanted.

I think very specific like to address a near term issue like looting rioting that made it wasn't in your training simulators.

How quickly can you react.

You'd be proud to Pritchard. Thanks now.

No no no problem I I love that question because it allows me a chance to explain a little more one of our most innovative products. So our arc our quickest method for creating scenarios is actually a method that also is photo realistic meaning.

But that there's a <unk>, there's there's some folks that try to take a short cut and some of this technology and they try to use a C.G.I. computer generated images. So it's a it's just computer generated humans, which don't remote properly they don't quite look and feel real and and people often it's just.

Try them is as kind of a zombie or or a solus human and they're they're there they can't get over the fact of how <unk> of how the human does not look normal the author is interesting in that it. It attempts to solve the problem of how do you get the highest level of train.

And the most realistic people natural looking people photo realistic people at high definition level, but the level of the human aside how do you get that and how do you do it incredibly fast and incredibly affordable normally you don't get all of those normally if you do very high quality it costs a lot of money. It takes a lot of time.

But it's interesting V author by being very clever and how it puts together the scenario using green screen technology using high definition video using a library. That's now built up we are able to very quickly produce high quality content using that case.

Ability of Green screen, so and we have the ability to use pen around mix that are as simple as using smartphones use a smartphone get a panoramic background.

And then we can drop in a training assets and those can be done in a matter of ours. There is more time involved in adding the logic behind them. So that they respond properly right. If if they if so if a police officer was too to shoot a taser at them or if a shot or if they heard.

To shot fired or we want proper reactions for it for those situations, but that can be done.

Incredibly quickly as compared to more traditional methods, which would involve animation and computer generated images and threed models, and and a very difficult system to try to get.

The people to look.

Right to where officers can actually try to de escalate the situation and read the emotions of the person and see if they're going to be in a life or death situation and be able to read the human emotions and so by using actors and using our V author system, which is unique to virtually virtusa.

And then it'd be author years, many years ago and has refine that product we are able to more quickly respond and with new scenarios and new components for training that can be almost like lay goes that can be.

Views and then subject matter experts make sure that what is being presented is is appropriate training to the policies of the agency or the agencies themselves will have their subject matter experts review it to make sure. It's it's can grew it with their policies otherwise you know there can be modifications.

Made so it's a very flexible system and it is.

In fact, it so fast we at one trade show, we took a picture of the entry way of the trade show back in the days when we had physical trade shows we don't they don't have so many today, but we we took a picture of the entry way of the trade show and the first today. The first morning of the first day, we had eight.

We had a training scenario running of of a situation of terrorists attacking the trade show and first responders, having a response and we have that scenario as people walked in the first say the trade show and everyone knew we.

We must have been able to create that scenario quickly because we are using the actual assets, where we created the scenario using the actual front the entry way of the trade show.

No I don't believe any companies ever HM has ever done that.

It's a sense that moment I think versus the only company that was it actually able to create a photo realistic scenario.

Of an event occurring at the trade show at the start of the trade show.

Hi, Thanks, and congrats on the backlog build its a pretty impressive and given the conditions out there. Thanks a lot.

Thank you very much appreciate the questions.

Well go next to Allen Klee, and National Security Cart.

Good afternoon, the gross margins that you had in this quarter were higher than we'd expected and in your earnings release you.

<unk> said the factor behind this was lower warranty costs.

Could you.

Talk about why you think that is and if there's any reason why that might be sustainable.

Yeah.

Thanks, Alex it's sort of question. So I believe last year, we had some substantial international installations.

In in countries out that had higher costs and so that that is the reason we had lower margins a year ago and this year. We did not have the headwinds above that situation. So that's really what happened I would build recommend that when it comes to gross margins looking on it on.

At an annual level.

As is is a better way to go up we will have some quarterly quarter fluctuation. So oh, we do tend to overall to be around 60% gross margins in our if you look back through our quarters in history, but we do need things working right to achieve that.

And there are chances that Ah Ah based on other factors, we could go after a large contract with lower margins for example, or I'm told that it could restrict our our sales such that our our cost of goods sold overhead takes a bigger bite of our of our overall costs.

So I mean of our overall gross margin and so we end up having a quarter.

Based somewhat based uncoated or like the situation L. anywhere last year, we had extra costs within international order and so and this year, we didnt have those costs. So but overall, we we <unk>, we try to stay around the 60% gross margin on.

Over more of an annual level.

Thank you. My last question is if you could remind us of the the major buckets of of the money that.

The.

Police budgets have and to what extent there might be any additional federal money being allocated if at all.

Sure.

Yeah, there's so in that the the buckets for for police are often capital expense or operation expense and then they also all have the ability to go get grass. There's a few other buckets like we've had some groups that have purchase.

And that of purchase our simulator using a charity that is dedicated that is dedicated to advancing police issues and so they actually had money donated and they use that money.

To buy or simulator, but federal grants and other grants are sometimes use there's also a forfeiture money of simulation.

Mint is one of the few items that is allowed to be purchase using an asset forfeiture, so with when the police or apprehend a a criminal or they are able to track down the assets and then those can be used for simulation equipment. So those are some of the vet.

Areas buckets that are available, there's probably more than that but I'm just off the top of my head. It was there some that we've seen used to buy stimulation equipment in the past.

Okay. Thanks, so much.

Thank you.

At this time that concludes our question and answer session I don't like to turn the call back over to Mr. ferrous for his closing remark.

Thank you. We appreciate you all taking the time to join US today, I hope you're able to assess the excitement that optimism I have I firmly believe the best days for Virtusa are ahead of us and enabled by our extraordinary staff customers shareholders vendors.

Thank you all.

As a reminder, our 2020 annual meeting of stockholders, which is being held virtually is about to begin at 230, P.M. local time, which is 530 PM eastern time.

For those of you able to join we look forward to continuing the conversation with you shortly.

For everyone else, we look forward to updating you on our next call in the meantime be safe take care and Douglas.

Thank you for joining us today for purchase second quarter 2020 Conference call you may now disconnect.

Oh.

Oh.