Q1 2021 VirTra Inc Earnings Call
Good afternoon, and welcome to <unk> first quarter 2021 earnings Conference call. My name is Matthew and I'll be your operator for today's call joining us for today's presentation of the company's chairman and CEO, Bob Ferris and Chief Accounting Officer, Marcia Fox following their remarks, we will open up the call for questions from virtuous institutional analysts and investors.
Before we begin the call I would like to provide virtual safe Harbor statements that concludes cautions regarding forward looking statements made during this call.
During the 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.
I would like to remind everyone that this call will be made available for replay via a link at the Investor Relations section of the company's website at Www Dot virtual dot com.
Now I would like to turn the call over to purchase chairman and CEO, Mr. Bob Ferris Sir. Please proceed.
Thank you.
Afternoon, everyone and thank you for joining us today for <unk> first quarter 2021 earnings call.
We entered this year with strong momentum after completing a very successful 2020.
Today, I'm very pleased to announce that last year's momentum continued into and through the first quarter of 2021.
During the first quarter, we generated $4 4 million in revenue net income of 655000, which translates to earnings per share of <unk>.
And positive adjusted EBITDA of 751000.
While each of these metrics is a substantial improvement from the first quarter of last year, we're particularly encouraged by our ability to beat last year's results.
And grow our revenues, 33% year over year, while our backlog grew 42% year over year to a record $16 1 million.
We also exited the quarter with $5 million in cash and cash equivalents.
After successfully executing an $18 million capital raise following our last call our cash position has improved to $23 7 million.
Demand for our solutions is reach reaching a fever pitch and our ability to fulfill that demand and to continue to grow has never been more critical.
However, before we dig into where were headed let's review where we've been.
The success of the first quarter kept predominantly be attributed to our increased sales, which improve our ability to ship and install simulators. Despite COVID-19 limitations.
Purchased success is a direct reflection of two fundamental attributes of our company.
First our people and partners.
<unk> has worked alongside some of the most talented people in our industry long before the escalation training made the headlines.
We fundamentally believe and effective training and we have a unique ability to deliver value to our end users and our shareholders.
Second our high Tech solutions improved marksmanship and decision making skills.
<unk> improves the performance of law enforcement and military personnel.
We've all seen the headlines about how the decisions made by law enforcement officers can can unfortunately and in negative outcomes.
Everyone knows that the subject of when and how law enforcement officers can or should use force is top of mind.
Which is why it frequently surprises people to hear that some agencies are okay with mediocre training or no training at all.
In this climate, it's easy to see the inexcusable need for better training.
However, actually implementing quality training is a different story.
And despite all of the advantages <unk> can offer to a department from improving and officers ability to make decisions under duress to meeting certified training requirements. There are still thousands of agencies not currently taken advantage of purchase best in class solutions.
And with our very affordable subscription model our products are now within the budget of nearly every single agency in our country.
Something is seriously broken at our society, if a police officer has authorized to use deadly force, but its not trained sufficiently for such monumental responsibility.
However.
That may be changing.
If simulation training wherever to become a legally required part of becoming a law enforcement officer, maintaining your status as one or requirement for reviewing the actions of one it could completely change our industry.
It also just makes sense.
While such a large change may be many years into the future. We have some evidence of the tight starting to shift in that direction.
Recently, our home state of Arizona mandated that before person becomes a member of a civilian board that reviews. The actions of peace officers in our state that person must complete several requirements.
And one of them is 20 hours of simulated event to law enforcement training.
This kind of legislation is certainly a step in the right direction.
And something that could bode well for virtually in the future given that we have pioneered certified training curriculum.
And our customers enjoy patented products that are unmatched in the realism and effectiveness.
In addition, enhanced demand and improvements in our sales and marketing processes.
So more sales and more profit and.
And with that comes the need to expand and to upgrade our internal systems to be more appropriate for a company of our size.
Less than two months ago, we passed the 100 employee Mark for the first time.
Today, we have 103 employees or expansion extends across many departments from increases in our operations and production staff to increases in staff, creating a remarkable training content in next generation products.
And with each passing day, we are investing more and more into our future success in areas beyond just R&D.
In addition to enhancing our staff during the first quarter. We also completed upgrading our enterprise resource management software system that touches nearly all of our internal processes.
Now typically these backend improvements arent worth were not worth highlighting however, this demonstrates that we are preparing our company to scale to an ever larger size and doing so demand at a major overhaul of our logistical systems.
Today much of this transitional work is now behind us, which means our attention is now focused on growth.
During our last call I discussed some of the details of our sales strategy as it pertains to the military market.
As a reminder, we often find success by leveraging our industry, leading and patented products by partnering with larger players who are already ingrained with decision makers.
Due to the competitiveness of our industry and the sensitive nature of many of our client relationships. We are often prohibited from disclosing details related to current contracts as well as perspective growth areas.
We understand that the lack of large numbers of press releases can be frustrating for some investors who are eager to learn more details about where we're virtually is growing and how.
However, our mentality at <unk> is to put the business in the customer first is especially when releasing too much information too early can endanger a material opportunities.
We also believe actions speak louder than words.
We say as much as we can when we can but there are instances in which we are prohibited from disclosing details.
Unfortunately, this is one of those instances.
But I can confirm that we've made very real progress in the military market. In fact, the fruits of that labor has started to show up in our backlog in a material way.
As long as the need for quality training exists and as long as we're able to execute on our strategy. We believe that our success could well continue it might even accelerate.
We know the headlines of our day shine a spotlight on the need for quality training and the tragic results when proper training is not prioritized.
But it has also been reflected in our improving financial results as well.
To provide more insight into that performance.
Now I'll turn the call over to Marcia to provide an overview of the financial results for the first quarter 2021.
Marcia.
Thank you Bob and good afternoon, everyone.
A pleasure to be speaking to you today to review our financial results for the first quarter ended March 31 2021.
Our total revenue for the first quarter of 2021 was $4 4 million. This was a 33% increase from the $3 3 million of revenue we recognized in Q1 of last year.
The increase in revenues was the result of an increase in the number of simulators and accessories completed and delivered and therefore revenue recognized.
<unk> to the same period in 2020.
Our gross profit for the first quarter of 2021 increased 61% to $2 $6 million or 57, 8% of revenue.
From $1 6 million or 47, 8% of revenue in the first quarter of 2020.
The increase in gross profit was primarily due to decreased costs as well as differences in the product mix of systems accessories and services sold.
Our operating expense for the first quarter of 2021 was $2 million.
A 5% decrease from the $2 1 million, we reported in Q1 of last year.
The decrease in operating expense for the three months ended March 31, 2021 was mainly due to reduced selling and traveling expenses.
Really upset by an increase in professional services expense.
Turning to our profitability measures.
Income from operations for the first quarter of 2021 improved to $564000 from a loss of operations of 512000 in Q1 of last year.
Our net income for the first quarter of 2021 totaled $655000 or <unk> <unk> per diluted share.
This compares to a net loss of $389000 or a loss of five cents per diluted share in Q1 of last year.
Our adjusted EBITDA and non-GAAP financial measure increased net positive $751000 in the first quarter of 2021 from a loss of 326000 in Q1 last year.
Turning to our bookings and backlog.
We define bookings as the total of newly signed contracts and purchase orders received in a time period from.
The three months ended March 31, 2021, we received bookings totaling $7 4 million.
We define backlog as the accumulation of bookings from signed contracts and purchase orders that are not started or are uncompleted and cash.
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.
As of March 31, 2021, our backlog was $16 $1 million, which is up 42% from the 11 3 million, we reported a year ago and up from $14 6 million at December 31 2020.
Finally to our balance sheet.
At March 31, 2021, we had approximately $5 million in cash and cash equivalents, which compares to $6 8 million in cash and cash equivalents at December 31 2020.
Accounts receivable and Unbilled revenue combined to total approximately $8 9 million at the end of first quarter compared to $6 8 million at December 31 2020.
Subsequent to the quarters end, we completed a public offering in which we raised gross proceeds of $18 million for.
<unk> 3 million to 3 million shares of our common stock.
As a result today our company has approximately 23 $7 million in cash and cash equivalents and approximately 10 8 million shares outstanding.
From a working capital standpoint, we ended the first quarter of 2021 with $10 $8 million in working capital compared to the $10 3 million in working capital at December 31, 2020.
For additional details of our financial results. Please reference our 10-Q, which was filed earlier today.
That concludes my prepared remarks, I'll now turn it back to Bob.
Thank you Marcia.
Hallmark of virtuous since going public in 2001 is that we are extremely diligent in how we decided to deploy capital and try to be extremely effective when we do so.
We avoid cash burn and work hard to allocate capital to the areas of our business that will yield the highest ROI.
Moving on investment the best positioned for the long term the best products for our clients.
Best returns for our investors.
By doing that.
We've been able to organically grow for 15 consecutive years with nearly every year showing solid margins and profit.
But theres no doubt that we must be ready to take advantage of unique market opportunities.
Over the course of our history, we have occasionally found ourselves capital constrained and we had to adjust our plans. According to our means sometimes that meant missing out on various growth opportunities.
Also as we've succeeded.
We've captured larger and larger contracts with ever increasing capital requirements.
Just one example from larger contracts, which we're currently in talks for as a potential follow on order from the U S customs and border protection or CBP.
<unk> has a long standing virtual client and one who has re ordered from us on multiple occasions.
Last Friday, they posted a solicitation for us to supply them with new products through a new.
Indefinite delivery indefinite quantity or <unk> contract vehicle to <unk>.
Clarify we have not yet won this business.
However, if we do win it it could be worth up to $24.
$24 5 million of new business spread out over a five year period.
We will keep investors appraised of how this progresses, but it clearly show strong interest from one of the largest law enforcement agencies in the world and they are not alone.
This helps underscore the need for our growing and successful company to be positioned to aggressively take advantage of opportunities to help ensure that growth continues.
So at the end of March when we saw the market respond to our annual results.
Drastically raising the value of the business and an opportunity to add cash to our balance sheet Rose we took it as Marcia just mentioned, we raised a total of $18 million in gross proceeds for 3 million shares of our common stock.
That means that today, our company has approximately $23 7 million in cash.
At a high level. The purpose of these funds is to aid virtue and capitalizing on the various large opportunities in front of us and to accelerate our growth.
While our products went over customer after customer when we compete head to head against the competitor, we certainly don't want to lose business due to concerns over our ability to fulfill much larger orders in a timely manner.
We also understand that government agencies in prime contractor seek out well capitalized firms for the larger sized contracts.
So while our track record of coming through for customers spans nearly three decades.
Market need for our simulators, our training curriculum, our recoil kits and our solutions have also grown much larger in size.
With our bolstered balance sheet, we can increase our production capabilities, which should eliminate those potential concerns and provide prospects with the peace of mind that we will meet their needs.
We believe this capital may help secure larger sales into the future as well with the amount of demand we've seen from both the law enforcement community in the military we intend to expand our production capabilities to fulfill larger orders faster.
In fact as I speak to you today, our company is adding a second shift in our production department to help keep up with market demand for our products.
In my opening remarks, I also discussed how virtual has expanded.
The proceeds from this raise will be used in our expansion efforts as we invest in our products and the staff and infrastructure to take <unk> to the next level.
Please stay tuned for further updates on this front.
Yeah.
With our enhanced balance sheet <unk> has never been in a better position than it is to day to grow.
While we always evaluate the business through long term loans with $4 4 million in revenue in the first quarter and $16 1 million in backlog.
It appears that we are on track for another strong year.
In fact based on our current cash market position and the prospects in front of US. We believe there are paths to substantially grow the business in the next few years.
Of course that is not guaranteed but we are cautiously optimistic that it is achievable based on what we know today.
Specifically for our company there were a tailwind in both the law enforcement and military markets.
The country appears to be opening back up which may help accelerate our sales and we're extremely well positioned to compete.
On the surface, we supply high Tech solutions, but at our core we deliver effective certified training that improves skills and save lives in the real world.
The need for this seems to extend further with each passing day and we believe virtuous future remains incredibly bright.
And 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 open for questions. If you have any questions or comments. Please press star one on your phone at this time, we do ask the low posing your question. Please pickup your handset if you're listening on speaker phone to provide optimum sound quality.
Once again, if you have any questions or comments. Please press star one on your phone. Please hold while we poll for questions.
And our first question is coming from Richard Baldry from Roth Capital. Please proceed.
Maybe from a very high level could you talk about what you believe you know sort of a ballpark growth rate could be or maybe on a level b level for a year I mean, you've got bookings up 48% year over year, your backlogs up 42% organic growth 33, its either a lot.
Higher numbers than we've seen for a while so I'm just sort of curious how you feel about organic growth in the near term versus where it's been over maybe the last year or two.
Thank you for that question.
So we're.
We're very excited with the growth prospects for 2021, the one challenge that we have is on one hand, we have.
We've seen a steady increase in.
In law enforcement various agency purchases that are on the smaller side in the six digit range, whereas on the other hand, we often get multimillion seven seven digits.
Or higher that come once in a while and we're seeing both of those in 2021 potentially but the exact timing of those is extremely difficult to predict so we have noticed that as we've grown as a company year over year in our.
Our revenue and our customer base has grown we are we are seeing a little bit more of a stable increase in growth rate, but you are right. This is a rather large acceleration of our growth rate.
I do think if you look back through the company during the last 15 years, we have had on average per.
Solid growth rate.
And the double digit range and so while it is very difficult for us to commit to an aggressive growth rate as a guarantee especially with the global pandemic still still in existence.
There is a definite argument to be made that we're positioned well for.
A double digit growth rate during 2021, especially after this first quarter.
<unk> has been posted so.
It's just unfortunately.
It's obviously impossible to exactly predict or refined.
Such a an estimate but first quarter is great. If we if that's an indication of the rest of 2021 that would be fantastic and it's certainly within the realm of possibility but.
There's also the potential for headwinds based on the pandemic or other factors that may be out of our control.
Maybe following up on that could you talk a little bit about.
How are your implementation challenges are sort of working now it feels like things are opening up with mask restrictions coming off so.
Do you feel like some of that backlog will be worked down this year, it's been building pretty steadily.
And whether that's first half second half.
And how about any change to the ability to maybe do some in person marketing.
Yes. Thanks, Thanks for that question so are.
Internationally.
<unk> talked for in person marketing.
We're hoping to see that EPS.
There is.
An increase in the ability for us to do it in person marketing within the United States, but that is somewhat low Cal specific. So we are we are encouraged that our 2021 might be.
A year in which we have more ability to install and deliver equipment. Then 2020, where we were where we had quarters that were very hampered by the COVID-19 pandemic.
Got it.
Maybe last from me and I'll turn it over but how do you feel about the funding environment given theres been a lot of money actually pushed at municipalities.
Actually saw their revenues I think would be much better than they worried about and maybe also with a sort of a backdrop of the return of earmarks do you feel like you know.
Any of your potential customers are well positioned to use that incremental funding mechanism on.
On top of traditional ones.
Sure.
So we remain we remain convinced that our sales team and our customers having the option to do a subscription model in our space is valuable and useful and has generated recurring revenue at Berkshire that we would not otherwise have.
US too and has gotten great training devices into the hands of trainees who need them. So we're pleased those were two of the main objectives of that program and it seems to be hitting in fact.
I am pleased to report that of every customer who has done our subscription model not one has loved it.
Now.
Eventually that's one of those things that seems.
Like it's impossible to keep that up forever.
It's amazing that we've not had somebody sometimes you have staff change sometimes they have a change in their training policy, sometimes they switched to buying a system, but so far every single.
Client that we've had that started on a subscription model has stayed on the subscription model. So and has renewed everything everyone is renewed so far so.
We're very encouraged by that.
We do think that our challenge is really making sure that the agencies out there that are using mediocre simulators or no simulators at all.
Have an on ramp to getting quality training from virtual that's our main focus we still think that's where we need to improve.
More than any other area once in a while I believe our client.
Does have a funding challenge.
But I I.
I do agree with your assessment that.
That there is considerable funding out there, it's really coming down to does the client.
Really see the value of high quality training.
For their department and they are willing to use some of their resources towards that end and put time and effort into training at the level.
That should be trained at when youre dealing with lethal force decisions and the responsibilities that that entails.
Maybe one last one from me if I could.
But first quarter is up 33% that's actually on a tough compare because a year ago. You grew almost 10% before COVID-19 made a tough Q2 sequentially last year revenues were down is there a way to think about what you think of as normal seasonality from Q1 to Q2, with let's say COVID-19 doesn't get worse or better.
Or it just stays or whatever it is so sort of what would a normal sequential progression feel like.
After what was a pretty strong start to the year.
Yes.
That's.
Good question.
Generally first quarter has been challenging for us and you're right last first quarter, we were happy to see the increase.
But.
Second quarter is one of those that can definitely be influenced by theater national side and by larger federal and the timing of that many times that gets into into sometimes it gets into Congress and the federal budget cycles. So.
Sadly, we don't have great visibility to give you.
Our ratio for second quarter, but you are correct, our generally our first quarters.
Are often on the on the smaller side.
With the seasonality that we do sometimes experience as I noted before some of that seasonality dissipate a bit with a scaled up company and we've been scaling up now for many years and start we're starting to see some of that.
But there is still generally a.
A bit more challenge in first quarter.
Great Congrats on the strong start to the year.
Thank you so much.
Thank you once again, ladies and gentlemen, if you have any questions or comments. Please press star one on your phone at this time.
Your next question is coming from Jason Smith from Lake Street.
Please proceed.
Hey, guys. Thanks for taking my questions Bob It sounds like you're seeing some really nice momentum on the law enforcement side, just curious if that's coming mainly from new customers or are these existing customers upgrading or replacing their systems.
I'm, sorry, I didn't quite catch all of that could you repeat the question.
Yeah, just curious on the law enforcement momentum that you're seeing if that's really being driven by new customers or existing customers, who are upgrading or replacing their current systems.
Okay.
Yes, thank you for that question.
A combination of both.
We've been fortunate that we've been maintaining our customers.
That on the free side, but there is.
There is.
There is also the new customers coming in through our sales and marketing efforts.
It is a combination, but we've been very fortunate to.
A key aspect of any business is being able to keep your current customers happy while still pursuing new opportunities in and having other customers gravitate to your solution and we.
It's a combination of both of those but.
But yes, we're we're very mindful of maintaining the customers. We have we do have.
Competition, that's trying to convince our current customers to go elsewhere and so there's a constant.
Battle, there, but we've been very fortunate to keep the ones the customers I've mentioned in previous calls.
So virtual customers, it's a real testament to the the decades of investment that we've put into this market.
Okay. That's helpful and are you seeing any supply constraints or any friction on obtaining any components.
From time to time, there are supply constraints, we've been able to find alternatives. Many of the unique products that we sell our products that we make in house from components that we tried to make sure are readily available and have alternatives. So.
So far so good with that that we have been able to continue to to ship, but we are mindful of some of the computer supply issues, but fortunately, we've been able to keep the supply flowing so at this point.
We are we are able to continue to supply customers in.
We do we do sometimes order a bit more inventory.
And so having a stronger balance sheet gives us more opportunity there to bolster our inventories when we do see concerns on certain components, but.
We are.
So far we've been in good position for that but that.
That is part of our our operations have put a bit more effort into that during the last six months, but.
So far so good on that level.
Yeah.
Okay.
Then just last one from me and I'll jump back into queue can you just update us on the step program and if you're seeing any traction there or if that is no longer a big focus.
Sure Jason Yeah.
We still see.
Step as a very valuable option for customers and our sales team.
And we've been impressed with the traction we've gotten with it.
So we do see that continuing.
Into the future.
And we've been fortunate that.
Since the very first step contract that was February of 2019, we have not every single.
Step customer has renewed their their agreement, which is which is wonderful news for us and and a real Testament to our operations team and our sales team to to have that kind of success.
Okay. Appreciate all the color thanks, a lot guys.
Thank you.
Thank you at this time. This concludes our question and answer session I'd now like to turn the call back over to Mr. Ferris for his closing remarks.
Thank you we really appreciate everyone, taking the time to join us today.
Two days ago, our country celebrated armed forces day, and I'd like to take a moment to pay special tribute to the men and women, who currently serve or have served in the armed forces of our country.
This year celebration is particularly special as virtuous innovative products have never made more progress in helping our servicemen and women train with more realism than ever before.
Doesn't investor choose a company with a bright financial future or a company that helps solve some of the most tragic headlines.
I would say is it too much to ask for both.
Our vision is to remain the leader with the world's most effective simulation training products. So that the war fighter and the peace officer can serve their country accomplish their mission and make it home safely.
I hope you can detect our determination to supply evermore trainees with superior tools to give them every possible advantage far into the future as for me every day I feel plus beyond measure I firmly believe the best days for virtual are ahead of us.
Thank you for being part of <unk> story, we are honored by your support be safe take care and God bless.
Thank you for joining us today on <unk> first quarter 2021 conference call you may now disconnect.
Because.