Q4 2021 VirTra Inc Earnings Call
Good afternoon, and welcome to the virtuous business update call. My name is Molly 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 Marsha Fox following their remarks, we will open the call for questions from the virtuous institutional analyst and investors before we begin the call.
I would like to provide virtual safe Harbor statement that includes cautions regarding forward looking statements made during this call.
This presentation management may discuss financial projections information or expectations about the company's products and services or markets or otherwise make statements about the future, which are forward looking and subject to a number of risks and uncertainties that could cause actual results to differ materially from the statements made the company does not undertake any obligation to update them as required.
By law.
Finally, I 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 over to virtually chairman and CEO , Mr. Bob Ferris Sir. Please proceed.
Thank you sure Molly and thank you everyone for joining us. This afternoon. After the market closed today, we issued a press release that provided a business update highlighting some of our recent accomplishments and providing selected financial disclosures. We can provide at this time.
Our results for 2021 demonstrate another highly successful year for virtual with record orders as we continue to grow our market leading position in law enforcement and military with World class training solutions.
Orders for 2021 grew 37% year over year to a record $32 7 million.
And we are particularly proud of these results as they came despite COVID-19 related restrictions that limited our ability to participate in trade shows and visit prospective customers.
Over the last several months, we've had a number of noteworthy business wins I want to highlight for you.
Internationally in early January we received two sizable orders in two different countries totaling $2 7 million for multiple simulators.
Real consequence devices recoil kits and other tools, along with installation and training courses.
These are both follow on orders from countries, where we have already established sales.
With the repeat business, demonstrating the value add and customer loyalty that our products and services and gender.
In North America, we were very excited to announce in December that we were awarded a standing offer from the government of Canada to supply marksmanship and judgmental use of force simulation technology to their main police force the Royal Canadian amount of police or our CMP.
And all other law enforcement related agencies, such as their border protection and correction facilities just to name a few.
This standing offer allows the government of Canada to repeatedly purchase our products and services at Prearrange prices from Virginia as part of our country wide effort to standardized purchase C from one simulation training company.
That is most important to note about this is the standing offer it expands our market share expands those who will benefit from purchase industry, leading products and does so without needing to individually compete for each order from each agency.
In fact, we are already seen evidence of business not possible without this award.
With our first order that we announced in February .
In our market a win like Canada is possible only once every decade, or so and our sales team and product lineup outperforms all others in our market when it matters most.
Before I go into more detail about our operational initiatives and progress within the context of our growth strategy.
Going to turn the call over to our Chief Accounting Officer, Marsha Fox to provide a financial update and discuss the process of our independent audit Marsha.
Thank you Bob and good afternoon, everyone. It's a pleasure to be speaking to you today.
Since the independent audit of our financial statements has not yet been completed we will not at this time be reviewing our full financial results for the fourth quarter and full year ended December 31, 2021 plan to release them as soon as they are available as we continue to work with our auditor.
To complete the audit and file our 10-K.
As Bob mentioned during 2021 we received orders totaling $32 $7 million or 37% increase from 2020 of $23 8 million.
No that orders may not directly correlate to reported revenue over the same period due to differences in physical delivery of our products order structure and other related items.
But we feel this metric is important in showing the strong growth our business continues to achieve.
Well, we have not finalized our balance sheet as of December 31, 2021, we can report that we have estimated cash and cash equivalents of $19 $7 million as of December 31st 2021, keeping us in a healthy financial position.
I would now like to cover the status of our audit and 10-K filing.
As disclosed in our press release, we have filed a form 12 P 25, with the U S Securities and Exchange Commission to disclose our inability to file the annual report on Form 10-K for the year ended December 31st 2021 by the due date of March 31.
2022, and we are also not expect it to do so within the 15 day extension period allowed by the farm.
We would characterize this delay as growing pains of a smaller but growing company that is strengthening its infrastructure to catch up with the success of its business.
As we have grown significantly over the past several years with continuous new sales records our back office infrastructure has been increasingly strained.
Last year, we reached a point, where it made sense to implement a new company wide enterprise resource planning or ERP system. This ERP system is consolidating three independent systems and we are excited about the future improvements in our operating efficiency.
But this has taken time to integrate even with hiring and ERP consulting firm a year ago to help us and to accelerate the process.
Compounding these growing pains with a global pandemic with COVID-19 that put additional pressure on our integration work supply chain and staff through remote work and other challenges.
It has been difficult at times to manage these various initiatives, while still delivering for our growing customers simultaneously with COVID-19 related restrictions and integrating the largest back office overhaul, we have implemented in our customers in our company's history.
None of these delays are indicative of a lack of effort and Bob and I continue to be impressed with our staff's incredible work ethic and commitment towards successfully completing our audit in the near future.
That concludes my prepared remarks.
Now I'll turn it back to Bob.
Thanks, Marsha and thank you for your incredible work on the audit.
To build on Marshall's last point, we believe these are growing pains of a company that has an incredibly bright future ahead, and we will certainly keep investors apprised of our progress, although I want to reiterate my belief that virtue.
From a business owner's perspective is and perhaps the strongest position in its history.
Our confidence in the value proposition of virtue is growing, especially as the world witnesses the critical need of police officers and warfighters to be trained at the highest levels possible.
The tragic war in Ukraine.
Highlights the importance of our industry, leading training technology, and we are profoundly humbled that Ukraine selected purchase products for their training needs long before the work began.
Our thoughts and prayers go out to the war fighters, and Ukraine, who must call upon their training and skills to fight and survive each and every day.
As COVID-19 related travel restrictions start to subside, we can get back to our normal tradeshow schedule and expand visiting prospective customers with onsite demonstrations.
Birch egg cells in these environments as we can better prove the efficacy of our world class products and services when experienced firsthand.
I'm really excited to be able to get back in front of our current and prospective customers to show off our differentiated recoil kit technology simulation and training capabilities just to name a few.
Over our history, we have spent considerably more time and capital than anyone else and select product categories to develop technology content and software that is remarkably superior to competitors offerings.
I believe these harder and advantages are being validated as we are seeing some evidence of our compassion of our competition spending less money and time on items that directly compete with our established products.
Now shifting specifically to the military market, where I know we've been limited on the details we are allowed to share.
I will remind everyone first that our current and past financial results have not yet fully benefited from our work in the military market, representing we think significant upside potential.
We continue to believe our technology has applicability in the various military programs and we see potential opportunities for business in the military market for purchase over the coming quarters and years.
However, near term visibility into material revenue can be challenging given the status of certain contracts and the ultimate timing of their needs versus approach continues to be to put our customers and business first and we believe actions and results speak louder than words.
As you know, we say as much as we can when we can but there are instances in which we are prohibited from disclosing specifics.
On the topic of supply chain and inflation.
Like essentially any company globally continues to be negatively impacted by these factors are.
Our teams are working diligently to meet the delivery needs of our customers, which remains of the utmost importance to us and I've been pleased with their success mitigating these challenges and coming through for our customers.
We have authorized the expansion of stocking far more components than normal tells mitigate potential future supply chain challenges.
We have not been immune to inflation on certain materials, which will impact us in a similar fashion that is impacting most all companies.
We are working with our suppliers and even the design of our products to both reduce our risks with supply chain as well as to contain inflation impacts.
Given our highly differentiated and proprietary products and service offerings as well as our leadership position for our core products, we hope to see above average average results overtime for our shareholders.
Internally, we are ahead of schedule with moving some departments over to our new headquarters located in Chandler, Arizona, which we acquired late in 2021.
Tenant improvements are moving forward and we remain on track to fully move in during 2022.
Recall that this property will provide us with a larger and more centralized facility, which will give us greater operational efficiencies and the two currently leased facilities both of which we plan to sublease at once we move out.
We are excited about the capabilities, we will have once the state of the art facility is operational.
As we think it will be the most advanced simulation training headquarters in our industry in the world when fully operational.
To conclude I remain highly confident in the outlook for <unk> as we have strong operating momentum having recorded our highest annual orders in company history.
While repeating 2020 one's growth on a percentage basis may be challenging we are confident in our sales pipeline in 2022 and aspire to have another year of solid growth.
We also remain in a strong financial position with $19 $7 million of cash and equivalents, giving us confidence in being able to deliver for our customers and not allow capitalization to be a constraint on our growth opportunities.
Myself, the board and employees of virtual remain committed to maximizing shareholder value and capitalizing on our growth opportunities all the while providing the world's most effective simulation training for those who risk their lives each and every day.
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 and at this time, we will be conducting a question and answer session.
If he would like to ask a question. Please press star one on your telephone keypad.
Confirmation tone will indicate your line is in the question queue you.
You May press star two if he would like to remove your question from the queue.
Participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys, one moment, please while we poll for questions.
Now our first question will come from the line of Jason Smith with Lake Street Capital. Please proceed with your question.
Hey, guys. Thanks for taking my question. So I know you probably have been limited on what you can say before the financials are out but Bob curious if you could provide any color around how backlog is tracking in the early how order patterns have been at least through the start of this year.
Yeah. Thanks for the question.
Yeah. This year. This year is looking good our sales pipeline appears to be healthy and obviously last year fourth quarter, we had a very strong quarter with.
Approximately $8 3 million in new sales order in.
In fourth quarter of last year, which is fantastic so that momentum appears to be continuing into 2022.
Oh, Okay no good to hear and you noted some inflationary pressure is not terribly surprising as everyone seems to be in the same boat, but can you just talk about how the supply chain is impacting you and I guess going off those inflationary pressures are you looking to do any price increase.
As her passing along some of those price increases you're seeing.
Yes.
We absolutely are we.
We have implemented some price increases.
And we plan to do that as needed so yes.
Yes, the the beginning of your question was more on on stocking and supply chain and in that regard. We've really worked hard on on on two pronged approach. One is is create a more robust supply chain for us by sometimes designing.
In parks that have much higher availability. That's sometimes has involved electrical design reworks those have already been made most most all completed that were necessary and we started that a while ago.
The second it has more to do with stocking components and when we find supply making sure that we increase our stock levels in case that that those become in shorter supply and we've been very successful in doing that.
Right now those two approaches have combined as well as some some other.
Workloads that have been allocated to better insulate ourselves from specific situations.
Situations on specific products, but we've been able to really continue.
To to sell and deliver stimulators, we've heard and we've heard some in the market and I don't know how widespread this is but I'd heard the other day that that there was a competitor of ours that weren't able to deliver that they had had supply chain issues and we have and they were really.
And they were complimenting us on how and how we were able to do that so I'm not sure exactly how prolific that is with our competitors, but I do know.
And that virtuous.
For for the.
The majority of our product lines are well stocked and then those that have any issue, we do lean forward and and we will increase the stock levels as as a insulation against having to deny a purchase order or informer.
Informa client that were out of stock on something we'd much prefer to to have extra inventory and be prepared for that we're fortunate we're in a position where we're able to do that.
Okay that makes sense and then just the last one for me and I'll jump back into queue. Just looking at the audit just want to make sure I understand this I mean.
We're consolidating three independent systems into one ERP, but.
Some of this delay related to any sort of Robert recognition practices.
Not not not really that's not that's not the issue the issue.
As I understand it is much more around the integration of three systems the ERP.
And all of the work that's involved in in that.
<unk> re integration and then having the working with your auditors on on that and so that's really obviously COVID-19 did not help because that created additional complexities.
Of the whole supply chain I already just mentioned about.
Having extra stock of certain parts and not all trucks through the new ERP system and then you also have obviously a lot of remote work. We also when we also during the <unk>.
At the turn of the year. We also were in the midst of moving part of our departments over to the other facility that created complications as well.
So we we had.
A lot of things and in the midst of all of that we actually had record number of orders coming in from from from clients. So we love, having robust sales and having sales come in but we.
We did have a Russia sale right as we're trying to transition from a single accounting system and Siloed systems into an integrated.
The higher scale enterprise level system that is necessary for the kind of volumes and scope that we want this company to grow into.
Okay. That's helpful color. Thanks, a lot guys.
Thank you.
Sure.
And again as a reminder, if anyone has any question you May press star one on your telephone keypad in order to join the question and execute.
And our next question comes from the line of Richard Baldry with Roth Capital. Please proceed with your question.
Thanks, maybe not getting into the numbers side of the business, but maybe looking at planning. So we can gauge your confidence can you talk about like hiring plans for this year, maybe a comparable to last year.
You know changes to quotas are quota allocated so we get a feel for how you're feeling about you know how.
How you exited the year and how you're growing it into next year. Thanks.
Yeah.
Thanks Richard.
I think one thing I can share with you is is that you know as of today. We have 122 employees at virtual <unk>. We are actively recruiting for 11 additional positions. So if we can fill those 11 positions we would be at about 133 employees.
So we are confident about the outlook for our company.
And we do we do feel that the Canada opportunity is early we just won at recently, we did announce an initial sale on it.
And so we but we do expect that could contribute quite a bit to the overall growth of the company and in the months and years to come and we we are committed to having a right sized company and make sure that we we hire appropriately based.
Based on the opportunities we see that that we see in opportunities that frankly are also confirmed opportunities. So we also want to be careful that we don't get overly optimistic we want to be realistic, but we are we are encouraged with what we're seeing.
And can you talk a little bit more about the transition into the new facilities, how far along that is when you think it would be sort of I don't know if theres, a fully complete or if it's going to be a work in progress for a while.
Yeah.
The area that that probably is our longest lead time area and that is.
Is our CNC machine side of the company.
And that has to do with the preferred location for them at that facility.
Takes time to make that available for them and so I see them, they're probably the last group to get moved over and we will likely move over most all of the rest of the company prior to them now. They are also heavily position in the small suite. So as you may know we have to.
Leased area two leased facilities that are separated by a parking lot actually a shared parking lot and one of those is a smaller area that that actually used to be a satellite office for a bank and that got converted to have our CNC machine area.
And that area is probably going to be the last area to move over so.
We currently have part of our company at the new facility.
We also have some tenant improvements that are going on at the new facility.
Anyone who has lived in Phoenix, Arizona in the summer and had clients come in to see projects and product and process will appreciate we are adding air conditioning to the warehouse section of our of the building and that's underway.
It's a very critical component, especially with some of the higher tolerance work that we do.
We need the advantage of controlled.
Environments that that HVAC provides so the swamp cooler some that were at on the building or so.
So, we're making those improvements and end and that does create a bit of time, but we anticipated that in our planning.
And the last to the extent you're comfortable that it looks like cash went down a small amount you know quarter to quarter based on your current estimate do you think that has more to do with sort of ramping up the new facility and inventory safety stocks et cetera versus operations or is there any way to think about sort of.
What the drivers of that.
That you said could be.
Yes.
Yeah, Great question and actually.
You you you answered part of it there, but both of those are are absolutely true we did spend more money and building up inventories of certain components that that we feared might be hard to obtain in the future and we wanted to secure.
Secure stock.
There is some additional monies at that time into the tenant improvements at the new facility.
And then the other area that I think is.
Is going to be part of our of our flow is realize that we had our overall sales order just jumped about 37% year over year for the year for 2021 with that with that occurring and because we do a lot of work with governments keep in mind, there will be some.
There will be some times, where we're waiting on pay on payments and we've had to we've had to put upfront money down for components or our other cost of goods sold so I think there will be.
There will be some flux some modifications and there will be some flow.
On quarter to quarter based on just the scaling up of the company that we're looking forward to have to have happened. So.
Great. Thanks for answers.
And our next question comes from the line of Allen Klee with Maxim Group. Please proceed with your question.
Hi, This is Derek Greenberg on for Alan I was wondering if you could maybe provide an update on the idea IQ contract extending off the contract you guys received just how that's progressing and possibly if you'd seen any additional.
Additional opportunities as part of the idea IQ.
Yeah.
Are you, referring to the customs and border protection idea IQ.
Yeah, Yeah, yeah, okay.
That customer and Barbara protection remains an incredible customer for Berkshire.
And.
Their I D IQ seems to be well used by them.
They continue to invest in Berkshire, they've already invested considerably in virtue.
I think overall, we are approaching probably $200 million of equipment that we have sold throughout the years that our stimulation simulation training related equipment. That's.
That's market wide, but but that gives you just a little bit of the scale of after all of these years and we started selling in 2000 and for our first stimulators Theres a lot of our equipment out in the field and customs and border protection.
Has a large amount of of our products.
And we are very excited because.
Since we are a.
A very popular brand throughout the federal law enforcement community and because the presidential administration is very focused on on how on training increase.
Police training and policing throughout America and fund the police has been.
It's actually been a slogan that they've put out there.
We feel very fortunate that we're in a good position to where the company and the products that they've that the federal government has bedded for police training has really been virtual products and they it seems like they're looking for federal agencies to take some leadership role in sharing what.
They've learned on how to train lease and sharing that with the.
With the state and local police agencies, and and we really are excited to see that happen and obviously, we want to support and encourage that so.
As you know one of our challenges is just educating those who don't even know that there's effective.
The escalation in autism.
And use of force training, that's available for them in an affordable and reasonable way versus trying to hire actors or do other things like that so so we're really encouraged by it and we expect that they will continue to make good use of the idea Iq.
That is it was awarded.
With with virtual being the supplier.
Okay, great Yeah, that's very helpful. Thank you.
And then if you could maybe touch I think on the last call you might have mentioned that you guys are in the process of developing our.
Additional products in the pipeline.
And I'm trying to get patents that I was wondering if maybe you could touch on timing or if you see this as a potential opportunity for the next fiscal year.
Yes.
I definitely expect that work that we that we have in the development pipeline.
We'll be making there.
Their debut during this upcoming year and and Yeah, I'm I'm I mean, I think we have some really.
Amazing things in the pipeline that I think some of which will really kind of surprise people and if we've done our job in keeping that keeping it under wraps and there'll be they're there'd be rather amazed by by what we what we bring out but.
Our policy on that is to keep it under wraps until of course, it's time to release so.
But yeah, we've made good progress and we've had some important breakthroughs in that area some of which came through a massive tenacity for success of just weekend I mean, we really don't we want people to have a good work life balance, but I have to admit we've had some.
Research and development projects that have required weaken more far more weekend work that I'm comfortable with but I'm I'm honored to have a staff that is willing to put in the extra time to to achieve success, especially when it's hard.
Great that sounds.
They promise two.
And then I guess my last question would just be on maybe if you could touch on the partnership with action target if you're seeing any.
Additional client wins, you're receiving as a part of that or just how that's progressing overall.
Yes, so I'll just get it for the benefit of everyone on the call a little summary of that so we announced a partnership with action target action target is probably the number one company in the world for supplying live fire ranges.
Police departments.
And they also supply a lot of ranges for military as well, but they they are very dominant in police forces. They also supply ranges for commercial ventures. So you can think of a local shooting.
Wi Fi are shooting range.
And there they have a very good reputation based out of Utah, you know our neighboring our navy our neighbors to the west of Us.
And there are just a great group of folks really well respected in the industry and and so we ended up working with them on a on a partnership. They felt we were number one in the world and simulation training and we felt they were number one in the world with life fire.
Ranges and so we decided that we would be stronger if we work together and so we collaborate with us sharing certain client information with them and we you know.
Obviously, we have customers, who might need lie fire ranges and they ask us who we recommend and vice versa. Even at a point of working in conjunction with them. So we come in as a team. So you can imagine if somebody wanted to do training and they needed both wildfire training and they needed.
<unk> simulation training than they could have action target and virtual come in together to supply an overall package to satisfy their needs were.
Were action target as best of breed in their category and virtuous best of breed in our category.
A great solution versus maybe picking somebody who has a mediocre product in live fire in a mediocre simulation product and so we think this is a great idea in the future we were seen.
Some success with it.
It is still relatively new in our teams I think are still learning how to best leverage each other's contacts and knowledge base and I think there's still room for us to improve but I do think that that action target is a really wonderful group to work alongside.
And Theyre very committed to effective training, they're just focused on live fire, whereas we're focused on simulation. So it's a it's a great. It's a great great work work relationship between us and them.
Great. Thank you that's very helpful.
Yeah.
And at this time. 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.
We really appreciate everyone, taking the time to join us today.
Please know we are hard at work building and inventing the world's most effective simulation training products. So that the war fighter and the peace officer conserve their country and community accomplish their mission and make it home safely.
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 virtuous conference call you may now disconnect.
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