Q4 2020 VirTra Inc Earnings Call
Okay.
And so good afternoon, welcome to veterans and fourth quarter and full year 2020 earnings Conference call. My name is John and I will be your operator for today's call joining us for today's presentation are the company's chairman and CEO, Bob Ferris and Chief Accounting Officer Marcia for Fox.
Following their remarks, we will open the call for questions from the virtuous institutional analyst and investors before we begin the call and I would like to provide <unk> safe Harbor statement that includes cautions regarding forward looking statements made during this call. During this presentation management may discuss financial projections information or XP.
Patients 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 would like to remind everyone that this call will be made available for replay via a link and the Investor Relations section of the company's website at Www Dot Dot com.
Now I would like to turn the call over to <unk>, Chairman and CEO, Mr. Bob Ferris Sir Please proceed.
Thank you John.
Afternoon, everyone and thank you for joining us today for <unk> fourth quarter, and full year, 2020 earnings call.
I'm also joined today by our new Chief Accounting Officer, and Marcia Fox.
When we held our 2019 earnings call one year ago, we had all just begun experienced dramatic shifts in our daily lives as COVID-19 spread across the United States and our federal government States and local communities responded to the pandemic.
Fear and uncertainty were ramp it and at that time as markets decline schools closed and business is shut down the idea that virtual could produce record financial results and 2020 would have been that with healthy skepticism disabled east.
Yes, we did.
In fact by many metrics 2020, what's the most successful financial year, and our company's history, which you would expect for a growing business during normal times.
Despite pandemic headwinds and against the odds are tenacious staff grew revenue for the 15th consecutive year.
The $6 6 million and revenue, we produced and the fourth quarter of 2020 ensured a strong finish as we produced $19 1 million and revenue for the full year 2020.
We earned $1 5 million and net income and our adjusted EBITDA decreased to 161%.
Two two point I'm, sorry increased 161% to $2 8.002 million 20.
Even with the positive results and the fourth quarter, our backlog increased to $14 6 million and December at December 31, and 2020.
It's natural to ask why virtual flourished and year that was incredibly challenging for so many.
First we serve a need that proved to be integral to law enforcement and military requirements are highly effective stimulation products improve the training, which improves the performance of law enforcement military personnel.
Second.
And we have great people, who are unusually dedicated to our mission to save and improve lives through uniquely effective high tech products.
Lastly, regardless of being the largest police stimulation company and the world. We very much operate like a nimble company with a flexible organizational structure quickly adapting to changing circumstances and flourishing in the midst of them.
Despite the number of challenges posed over the past year canceled trade shows and travel restrictions that impacted installations and international sales cost to defund, the police and fears of budget constraints within our core customer group. Despite a holiday merchant not only persevered, but thrived and 2020.
With a lack of trade shows and conferences, which we traditionally rely on to generate leads and demo new products to current and prospective clients. Our sales team adapted by switching to web based tools, which were timely deployed by our marketing team.
As COVID-19 restrictions lift our regional sales staff are performing and person sales calls and demos whenever deemed safe for both parties.
They've really done an excellent job throughout the year, performing demos and converting them into sales and and the fourth quarter alone, we generated $5 5 million and new bookings however, the.
The primary reason for the strong financial and of the year was that our team went above and beyond and converting a good portion of the $14 $4 million backlog, we had at the end of the third quarter and a revenue.
The combination of our sales people continuing to pound the pavement and their respective regions.
Coupled with our ability to effectively convert our backlog and our recognized revenues has led to the rare accomplishment of 15 years of consecutive top line growth.
At December 31, and 2020, our backlog and our revenue both climbed which demonstrates that we not only ended the year on a high note, but that there is strong momentum for 2021.
While we've had to adjust some of our tactics given the state of the world.
Our fundamental strategy remains unchanged and.
<unk> and launch solutions that serve the current and future needs of our core customer base to build our reputation as an industry leader and marksmanship skills and use of force training and then capitalize on that reputation to expand our foothold within the law enforcement and the military markets.
During 2020, we excelled and each of these areas, we enhanced our V victa training curriculum with content for autism awareness training and we expanded our deployment of our new driving simulators through and IQ contract from the department of state for the Republic of Mexico.
As a result, we now have a total of 77 simulators deployed and 10 different states within Mexico just to name one contract.
We received follow on orders from customs and border protection, which is a longstanding purchase client and we received and a major follow on order from the federal law enforcement training center or Flexi and September of last year.
Through our relationship with Flex C. There's now the potential for thousands of additional federal officers to be exposed to purchase industry, leading products each year as we help modernize their programs with the latest technology with certified use of force and decision, making training and with interactive content that contains the highest quality.
Ranch and scenarios on the market.
And the military market, specifically, we secured a $1 $9 million contract.
To support the Air Force Research Laboratory admire program, which is intended to develop technology that improves our military warfighters decision, making and marksmanship skills.
While our 2020 results are very encouraging we did face headwinds last year.
Clearly and the foreign markets.
Selling and internationally in 2020 wasn't enormous challenge due to extensive travel restrictions.
But our ability to contain the growth. Despite these headwinds demonstrates how robust our core customer bases and the growing scale of our business.
As the world changed around us for two experienced its own internal changes as well this past year.
Our business has grown along with the opportunities in front of us.
We've increased our personnel to ensure we have the right people in place to meet the growing demand, we see and our pipeline.
In fact for the first time and our company's history, we have reached 100 employees.
As part of the growing process, we decided to invest and our infrastructure and prepare to transition to a new ERP or enterprise resource planning system.
Not so long ago, our company was about one fifth the size. It is today and we could get by with various systems that weren't fully integrated with each other sometimes doing manual work to bridge the gap.
However, as we've grown and staff and revenues it became clear that we needed to better handle our current business and prepare for future growth and so we move to a robust ERP that went live in early 2021.
Such transitions are logistically challenging and the short term, but necessary for sustained long term returns.
Also it was a difficult time for us in October of 2020, with the passing of Mitch salts, a longtime virtual keyboard number.
His vacancy on our board was filled by John Gibbons appointment, whose expertise and connections and the military market have already proven and be beneficial to virtual.
The military as I'll discuss in a moment remains one of the largest potential growth drivers for <unk> and.
And by having John on our team.
That much better positioned to capitalize on those opportunities.
As you likely recall, our former CFO Judy Henry retired and November of 2020 per vacancy was filled by our new Chief Accounting officer.
Harsha Fox.
Marcia originally joined us in and in an interim.
Some capacity, but I am pleased to report that she'll be staying on full time.
She brings over 20 years of experience and financial operations business transformation strategies, and all phases of the accounting process and controls to our team.
She has held multiple senior leadership positions in various industries, including our own.
She has been doing an excellent job since taking the range from Judy and we're very happy to have her on board.
So with that introduction I'm going to turn the call over to Marcia to provide an overview of the financial results for the fourth quarter and full year 2020 Marcia.
Thank you Bob and good afternoon, everyone.
Pleasure to be speaking to you today for the first time as a member of our true team.
Our total revenue for the fourth quarter of 2020 was $6 6 million.
And this was an 11% increase from the $5 9 million of revenue we recognized in Q4 of last year.
For the full year ended December 31, 2020, our total revenue was $19 1 million.
This was a 2% increase from the $18 7 million we reported in 2019.
The increase in revenues in both periods was the result of an increase and sales and subscriptions of simulators accessory curriculum and training and recurring extended warranty revenue and 2020.
Our gross profit for the fourth quarter of 2020 increased 80 per cash to $4 8 million or 72, 5% of revenue.
From $2 6 million or <unk> 44, 8% of revenue and the fourth quarter of 2019.
For the full year, our gross profit increased 23% to $11 9 million for 62, 3% of total revenue.
From $9 7 million or 51 nine percentage of total revenue.
And both periods the increase in gross profit was primarily due to differences and the quantity and type of stimulator system.
Of accessories and variety of services.
Combined with a decrease and the cost of sales.
Our operating expense for the fourth quarter of 2020 was $3 4 million or.
A 15% increase from the $2 3 million, we reported and Q4 of last year.
For the full year, 2020, our operating expenses increased 13% to $10 7 million from $9 5 million and the same period a year ago.
The increase in operating expenses for the three months ended December 31, 2020 was due to a $434000 impairment and the investment in that to entertainment Corp, or modern round.
It was recorded as an operating expense as well as a 307000 dollar allowance.
For bad debt on accounts and notes receivable.
The full year results included an $840000 impairment and the investment of that's either attainment recorded as non operating expense as well as the 346000 dollar allowance for bad debt on accounts and notes receivable.
Turning now to our profitability measures.
Income from operations for the fourth quarter of 2020 was $1 $3 million.
276% increase from income from operations of 356000, and Q4 of last year.
For the full year 2020 income from operations was $1 2 million a 367% increase from the income from operations of $262000. We reported in 2019.
Our net income for the fourth quarter of 'twenty, and 'twenty totaled $1 6 million or 21 cents per diluted share.
This compares to the net loss of $66000 or one penny per diluted share and Q4 of last year.
For the full year ended December 31, 2020, our net income totaled one $5 million.
<unk> 19 cents per diluted share compared to a net loss of $75000 or one penny per diluted share in 2019.
Our adjusted EBITDA, a non-GAAP financial measure increased 119% to $2 $2 million and the fourth quarter of 2020 from $729000 and Q4 last year.
For the full year, 2020, our adjusted EBITDA increased 161 per cent to two $8 million from $1 1.002 million 19.
Turning to our bookings and backlog.
We define bookings as the total of newly signed contracts and purchase orders received and that time period.
For the three months ended December 31, 2020, we received bookings totaling $5 5 million.
We define backlog and the accumulation of bookings from signed contracts and purchase orders that are not started or are uncompleted performance objectives.
And cannot be recognized as revenue until delivered and 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.
As of December 31, 2020, our backlog was $14 $6 million, which is up 52% from the $9 6 million, we reported a year ago and up from the $14 4 million at September 32020.
And finally to our balance sheet.
At December 31, 2020.
We had approximately $6 $8 million and cash and cash equivalents, which was up from the $3 3 million and cash cash equivalents and certificates of deposits at December 31 2019.
Accounts receivable and Unbilled revenue combined to total approximately $6 8 million eight year and compared to $5 9 million at December 31, 2019.
From a working capital standpoint, we ended the full year, 2020 with $10 3 million and working capital compared to $7 2 million and working capital at December 31, 2019 for.
For additional details of our financial results. Please reference our form 10-K, which was filed earlier today.
That concludes my prepared remarks, I'll now turn it back to Bob.
Thanks, Marsha is Marcia mentioned, we had a substantial write off and our investment and modern round whereby we licensed some of our technology and exchange for <unk> and exchange for part of their revenue.
As you can imagine the pandemic has had a negative impact on both the entertainment and restaurant industries, which means that uniquely impacted the business strategy of modern round last year.
Please know that we remain a large shareholder and modern ground staff are working incredibly hard to succeed so that they can enjoy the potential upside post pandemic.
But as unaudited public company, we must be prudent and err on the side of caution.
We chose to take a one time write off of our ownership and modern round.
Had it not been for the write off 2020 would have been the most profitable year.
<unk> history and from a cash flow perspective, it still was.
If we can generate these results and such a difficult operating environment, we have even higher hopes as the world begins to open back up.
Our core competencies are desperately needed and we understand where they are needed most.
Effective certified training for.
And alongside experts, having training that can improve skills and the real world that's.
And that's the key of everything we do.
Whether it's a fine point of knee training for the military market for simulators for law enforcement.
And our last call we discussed how the admire contract demonstrates the military is appetite for our solutions as well as our ability to customize our products functionality to Sim seamlessly integrate with the military's training programs.
Companies partner with us because we are a key piece to the puzzle that they lack.
We can leverage our industry expertise and IP portfolio to partnering with a larger player who has already built a relationship with key decision makers.
<unk> sales strategy, our supply and a critical missing piece to hope for a large player better perform on a contract is one that we believe will continue to be and effective way for Berkshire to expand further into the military market.
And indeed, we've already seen evidence of it and 2021.
Due to the sensitive nature of some for current work were constrained and what we can disclose at this time, but we hope to provide more details on our strategy and our progress later in the year. So please stay tuned.
Two things remain clear.
The world needs quality training for those whom we and Dow with incredible responsibility of using force if and when necessary.
And the World will buy simulators to help train those who serve.
Our performance this past year demonstrates that as long as that need for quality training exists and as long as we're able to execute on our strategy virtual will continue to perform well.
Our increased backlog plus last year's revenues would indicate that we're growing at a healthy pace.
Our balance sheet has only gotten stronger as we continue to carry no debt other than our PPP loan and our cash position continues to increase.
And with the tailwind and both the law enforcement and military market that we're currently experiencing that's exactly what we plan to do and 2021 and beyond.
With that I'm going to wrap up my prepared remarks, and we'll open the call up for your questions. Operator, please provide the appropriate instructions.
Thank you ladies and gentlemen, the floor is now opened for questions. If you have any questions or comments. Please press star one on your Touchtone phone at this time.
<unk> Star two and we're moving from the Q should your question be answered and lastly, while posing your question. Please pickup your handset if listening on speakerphone and to provide optimum sound quality.
Please hold while we poll for questions.
And your first question is coming from Jason Schmidt from Lee Street, Jason Your line is live.
Hey, guys. Thanks for taking my questions early strong finish to 2020, Bob not looking for specific guidance on Q1, but could you just talk about if the order momentum you saw it that day last year continued here in the first three months of 2021.
Hello, Jason.
Thanks, and thanks for the question.
Sure.
We are seeing continued strength on the sales order front.
But it can of course come in and and.
And spurts so.
But we are happy with debt deal flow on the sales pipeline yes.
Yes.
Okay. That's helpful and just curious if youre seeing any concerns or pushback from customers on potential budgetary pressures.
That obviously is very much a.
Client specific situations.
But I know your question is getting more and at.
More of a and industry move we're not seeing a major industry move right now either to expanded budgets are constrained budgets.
So I think our issue is more just and the mechanics of how we close the sale and how we work with with our client and making sure that they know that they have a subscription option available to them and navigating with them.
Grant programs that might apply or helping them in any way, we can and theres a lot more for us to work on how do we improve that side of the business. Then then we're really encountering people, who say listen I simply can't my budget was removed from the unexpectedly and I can't buy your product, we're not we're not seeing.
And.
That of course, those conversations can and do occur not just for our company, but any company and this market, but I think we have a lot of we have a lot of room to just improve our process to to try to ensure that when people do you have a budget, we can convert them to a sale whether that be a purchase for subscription.
Okay and the <unk>.
Last one from me and I'll jump back into queue, a pretty significant step up and gross margin sequentially. How should we think about gross margin going forward is this sort of 70% plus type figure sustainable.
Aye.
And.
Over the years are our comment on gross margin is really focused on historical long term trends are one of the most reliable thing is to look at because we have we have had margins push up we've had margins pushed down some but if you look historically, we're usually right around 60%.
<unk> gross margin and and we.
We try to stay in that range, but things are there are situations, where that can vary somewhat but I.
I think and investors are.
Are well advised to look at it overall historical margins for virtual.
Okay.
Thanks, a lot guys.
Thank you so much.
Once again, if there are any remaining questions or comments and to keep so now by pressing star one on your Touchtone phone.
And your next question is coming from Richard Baldry from Roth cap Richard Your line is live.
Thanks could you talk about the implementation and sort of environment is it beginning to ease up as some states seem to be opening up a bit what where and how do you expect that to play into the backlog out of 2021 unfolds.
Yes. Thank you for the question.
We are seeing a bit more easing on on COVID-19 restrictions.
That does directly help us and being able to recognize revenue.
And when there is an easing of restrictions, although we still maintain vigilance on the health of our staff. So even if a client wants us to deliver if we feel it's unsafe we will hold back but in general our staff is eager to install and eager to get people train and and very dedicated.
And to having our equipment.
And be placed and the right hand so.
We do see a bit easier time of recognizing revenue in 2021 with a major assumption that COVID-19 restrictions do ease up.
On a trajectory that's pretty consistent in other words not a major.
Snapback to two heavy restrictions like what what we saw in 2020. So there is a correlation definitely between.
Less travel restrictions and less mandates on on our staff being able to install equipment and recognize revenue as you would likely suspect.
And can you talk maybe from a broad perspective, any changes and trigger opportunity pipeline from price.
The unfortunately, increasing rates of murders and major cities are a lot of discussion around the use of force, which you could argue and a good way to try and drive more training into the forces that are deployed.
Sort of from a high level do you see any changes overall.
And that might impact 2021 productivity.
Well first let me say that I'm I'm really happy with the pipeline that we have right now.
It's tremendous.
I will caution you that it's hard for me to really discern out why that pipeline is strong is it because more groups or worried about having high quality training.
And b because of the headlines are not that that.
And it's very hard to discern.
So we're not exactly sure the exact cause that could be it is logical that with more pressure from the public.
<unk>.
A certain outcome, all the time and police and counters and.
Scrutiny of any and all use of force and counters. There is a logical conclusion that they would want high and training and effective training to avoid negative consequences.
And loss of life debt when it all makes sense, but.
And that could very well be why our pipeline is robust as it is right now so.
And we we do know that our our pipeline is strong and theres a lot of opportunities that.
And are forming and 2021 that and.
And we've got we've got work cut out for us to turn those opportunities for virtual shareholders.
Maybe last one for me would be like you've had some you know tucked in the past about increasing your digital marketing and sort of adjust to the environment and do a more virtual sales.
Can we and talking about how well you think youre and customers have also adjusted to doing things more virtual versus in person.
But has lasted longer than I think a lot of people expected as are some of those motions becoming more consistent.
Or do you feel like there is some people are just kind of waiting to get back to normal in person and that maybe second half of 'twenty, one could be better for that.
And be developed now thanks.
Sure Great question.
Think that and this is very much for personal opinion of Bob Ferris, but.
I think that the the trade shows have really been impacted.
That has really been impacted the virtual tradeshows are just not nearly the same.
As an actual physical trade show so I do think that debt any any buyers who really wanted to go to a physical trade show and checkout.
<unk> simulator, and then check out competitively competing simulators and compare the differences which are enormous tremendous.
Tremendous differences it's there.
And they are there and different leagues, many times, but but that kind of situation is very hard to do digitally we were very fortunate.
Two have had our marketing team are ready and the process of launching and entirely new digital sales process. Prior to Covid. So we just there was.
Really a lot of luck involved and that I wish I wish I could say I was preparing for a potential pandemic, but we were not we just happen to be focused on on visual of communication and being better on the web and and so we were very well prepared digitally with online materials and capabilities.
And our sales team and marketing team did.
A phenomenal job in that regard so.
And we do I do think our customers responded well I think day. So many areas of their life day, we're expected to switch into a digital domain and they did they did that very very well the only area like I said is because I think trade show and the effectiveness of trade shows was really decimated by the COVID-19, and and we.
Continue to be as long as as in person trade shows are trying to shift to digital I, just don't do that debt.
And that in my personal opinion, and it just doesn't work well and less its a physical event. So.
Maybe one last one too.
If you look at sort of the revenue plus growth and backlog the overall growth could feel closer to a 20% level.
Yeah, I had been able to ship out of that backlog it.
Do you feel like that's a sustainable growth forward and there is obviously some growth inhibitors 2020, even.
Or were there some one time events in there that we have to sort of put to the side.
Yeah.
And you know that.
And so really good question at the heart of a lot of the matter of what we're talking about today.
I think it's interesting that you don't see a lot of Big press releases and in 2020, where virtual had like we have in the past, where we might have a $4 $6 million sale or big multimillion dollar sale and so it does give it does give a sense of that.
2020 was really virtual just doing.
And just just doing the basics really well just doing the blocking and tackling and and just growing the business. So.
That does that would make someone and think that there is a potential for this company to continue at a solid growth pace.
But you know as as we mature and the market is going to become more important that we look at where we expand beyond just law enforcement and.
And we still believe there is tremendous room to grow in law enforcement.
There are a lot of people right now that are not being trained at the level that they should be trained.
And that number is pretty enormous and just the United States of America, let alone and other countries. So the police market that we have not tapped is still massive and then there are certainly like the military market and others that we are we have not fully tapped as well so.
I think if we were fully pretty much fully deployed and police and and and military then it would be very hard for for anyone to expect double digit growth out of the company, but that's not the case.
Alright, congrats on a good close to a tough year.
Very much appreciate that.
Okay.
At this time and this concludes our question and answer session I would now like to turn the call back over to Mr. Ferris for his closing remarks.
Thank you John.
We really appreciate everyone, taking the time today to join us.
I want you to know that our staff.
100 talented professionals are hard at work building the world's most effective simulation training products. So that the war fighter and the peace officer conserve their country accomplish their mission and make it home safely.
We are at our best when we perform at higher standards for both our customers and our shareholders.
I firmly believe the best days for virtual are ahead of us.
Be safe take care and God bless.
Thank you for joining us today for <unk> fourth quarter and full year 2020 conference call you may now disconnect.
Okay.