Q4 2021 VirTra Inc Earnings Call
Good afternoon.
What kind of device trust fourth quarter and full year 2021 earnings conference call.
My name is Vikram and I will be your operator for today's call.
Joining us for today's presentation of the company's chairman and co CEO Bob Ferris.
Co CEO John Gibbons.
And Chief Accounting Officer Marcia Fox.
Following their remarks, we will open the call for questions for vault trust institutional analysts and investors.
Before we begin the call I'd like to provide Virtualized safe Harbor statement about.
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 future.
Which are forward looking and subject to a number of risks and uncertainties that could cause actual.
Results could differ materially from the statements made.
The company does not undertake any obligation to update them as required by law.
Finally, I'd 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 Ww W. Dot Dot com.
I'd now like to turn the call over to Virtualize, Chairman and co CEO , Mr. Bob Ferris Sir Please proceed.
Thank you operator, and thank you everyone for joining us this afternoon.
After the market close today, we issued a press release that provided our audited financial results for the full year ended December 31, 2021 along with highlighted business accomplishments. We also filed our 10-K with the SEC today, which is available for review at your discretion as.
As we discussed at a high level on our March conference call 2021 was a very successful year for <unk> on many fronts.
We grew revenue 28% from the prior year to a record $24 4 million as we generated strong growth in both the commercial and international markets, while our core government market remains a healthy contributor.
We also remain profitable on both an adjusted EBITDA and GAAP net income basis.
This also represents a rare accomplishment for any business. It is the 16th consecutive year of top line growth revenue growth at Bertram.
In our commercial segment, which includes military sales through a prime contractor revenue grew 145% from the prior year to 3.2 million largely as a result of the strategic contract win we.
We believe this strategic military contract will situate us well for future business as we demonstrate our capabilities and build a track record with military customers.
However, this initial contract required extensive development and testing in order to deliver product features desired by this military customer and contributed to downward pressure on our margins in 2021, and the fourth quarter in particular, where most of the contract revenue was recognized.
Nonetheless, we believe this contract is very much in the best long term interests of versa and could prove to be an important beachhead for future contracts. Since we have now been able to develop unique capabilities and expertise for military solutions through this work.
Going forward, we expect to earn a margin profile in the military market that is more in line with the value. We believe we provide especially when considering the track record of our new co CEO , John Gibbons, who you will hear from shortly.
Yeah.
Okay.
Yeah.
Internationally, we saw an almost tenfold increase in our revenue to $4 4 million as our international business greatly benefited from a return to more normal operating conditions.
Covid significantly limited our ability to sell internationally during 2020 with the world, having largely returned to more normal operations. We expect our international segment to continue to generate healthy growth.
Our government revenue declined modestly from the prior year from 17.4 million to $16 8 million due to fewer shipments and installations of simulators, which is how we recognize revenue.
In mind, our backlog was sufficiently large that if we were able to install more equipment than we would have exceeded last year in this category as well.
We also continued to generate strong growth from our subscription training equipment partnership or step program. As a reminder, the step program provides higher margin recurring revenue for virtue that also provides an easier on ramp for agencies interested in our solution, but are perhaps budget constrained.
For an outright purchase.
In 2021 step revenue was $2 million, representing 8% of total sales and growing almost 150% from the prior year and we continue to internally focus on driving this valuable recurring revenue in the future.
In addition to our strong revenue growth in 2020. One. We also took an opportunity to strengthen our balance sheet with the strategic $18 million common stock issuance in April 2021.
We believe having a strong balance sheet with adequate liquidity is key to working with larger potential customers and competing and more significant contract opportunities for Berkshire, especially as we see continued demand justify the scaling of our operations.
As part of our expansion plans. We also used a portion of the ability to acquire an industrial building in Chandler, Arizona to be the new site of purchase headquarters.
We began our move in in December 2021, and we remain on track to complete our full move in by the end of the year.
Recall this state of the art facility will give us a larger and more centralized footprint, providing us greater operational efficiencies that are two currently leased facilities.
Both of which we plan to sub lease once we move out.
We are excited about the capabilities. We will have once this facility is 100% operational as we think it will be the most advanced and capable simulation training headquarters in our industry and should attract some of the largest customers in the market to ultra.
I will now turn the call over to our co CEO , John Gibbons, who joined our board in November of 2020, and was announced as co CEO in early May.
John has had a tremendously successful history in the military stimulation market. He was the founder of the U S Division of Bohemia Interactive Stimulations, which started at $0 in sales and recently sold to be a systems for $200 million.
I am honored he has brought his industry, leading talents to virtual and I look forward to working with him to make virtual far more successful than ever before John .
Thank you Bob and it's a pleasure to be speaking with all of you today. Since this is my first conference call as co CEO of virtual I thought it'd be helpful to provide a bit of background on myself and the opportunity I see for the company.
Most recently was president of a company called Bohemia interactive simulations or be a Sim, which I founded in 2010 and let it to become one of the most widely deployed stimulation products throughout all branches of the U S and Allied military forces.
While building this company I became familiar with virtual and Bob and we grew a mutual respect for one another's products company and dedication to providing value add products and services to those who put their lives on the line to defend and protect our country as.
The U S Army veteran myself, working with law enforcement and military professionals as a business I'm passionate about.
So when the opportunity presented itself to get involved with virtual eagerly took a seat on the board in 2020 to provide strategic advice and business referrals when appropriate.
But given my full time commitment to be I assume my time was obviously see largely committed to that company ultimately be I assume had a very successful exit with the $200 million sale to be a systems earlier this year and why a very easily could have retired.
I saw such an amazing opportunity with virtual, especially in the military markets, which is my background.
Robin I gave began having more serious conversations about leadership structure that would increase my role with the company, culminating in a co CEO structure. We have today going forward I plan to focus much of my time on fully exploiting the military markets for virtue, where I see great product market fit a need for <unk>.
Stronger training solutions and an overall massive market that bertrade historically has underpenetrated given its focus on the bread and butter law enforcement. Another reason for under penetration I believe has been underinvestment in the Orlando, Florida area, which is the epicenter of military simulation market.
Over the coming quarters, we plan to build out a more meaningful presence in Orlando given us boots on the ground access to better position ourselves to win this military business, while the military market can certainly be challenging to break into it can be done and I am determined to succeed with virtual.
Much like Bohemia virtual began with humble roots, but now has a dominant law enforcement market share and likewise I believe we have a great opportunity to increase the market share in the military segment, leveraging virtual world class capabilities and my experience relationships and success from my time at D. A.
I'm now going to turn the call over to Chief Accounting Officer, Marcia Fox to provide financial updates.
Thank you John and good afternoon, everyone. It's a pleasure to be speaking to you today to review our audited financial results for the fourth quarter and full year ended December 31st 2021.
Our total revenue for the fourth quarter of 2021 $8 $6 million.
This was a 32% increase from the $6 6 million of revenue we recognized in the fourth quarter of last year for.
For 2021 total revenue increased 28% to $24.4 million from $19 1 million in 2020.
The increase of revenue resulted from the increase in sales of simulators step sales accessories curriculum and training and recurring extended warranty revenue.
Gross profit for the fourth quarter of 2021 decreased to $2 $8 million from $4 8 million in the fourth quarter of last year.
Gross profit margin for the fourth quarter of 2021 with 32, 7%, which was lower than the 72, 5% in the fourth quarter of last year.
For 2021 gross profit decreased to $11.4 million from 11 9 million in 2020.
This profit margin for 2021 was 46, 7%, which was lower than the 62, 3% for 2020.
The decrease in gross profit was primarily due to a specific military contract with a lower margin profile differences and the quantity and type of simulator systems type of accessories and variety of services sold combined with an increase in cost of sales.
Our net operating expense for the fourth quarter of 'twenty, 'twenty, one with $3 million compared to $3 4 million in the fourth quarter last year.
For 2021 net operating expense was $10 million compared to $10 7 million in 2020.
The decrease was primarily due to a 346000 dollar allowance for bad debt on accounts and notes receivable and a one time $840000 impairment life both recorded in 2020.
Turning to our profitability measures for.
For the fourth quarter of 2021 we recorded an operating loss of $196000 compared to $1 3 million and operating income in the fourth quarter of 2020.
For 2021 our income from operations was one $5 million, an improvement compared to $1 2 million for 2020.
Net income for the fourth quarter of 'twenty, 'twenty, one totaled $13000 or zero cents per diluted share.
Decrease compared to net income of one 6 million or 21 cents per diluted share in the fourth quarter of 2020.
For 2021 net income totaled $2 $5 million or 25 cents per basic and diluted share an improvement compared to net income of $1 5 million or 19 cents per basic and diluted share for 2020.
Adjusted EBITDA, a non-GAAP metric for the fourth quarter of 2021.
A loss of $220000 compared to $2 2 million in positive adjusted EBITDA in the fourth quarter of 2020.
For 2021 adjusted EBITDA totaled $2 $1 million, a decrease from $2 8 million in 2020 the.
The change in adjusted EBITDA was significantly impacted by a one time impairment on the T. E. C. Note. The one time event of the official forgiveness of our PPP loan and the lower gross profit.
Turning to our bookings and backlog.
Identify bookings as the total of newly signed contracts and purchase orders received in a defined period.
For the fourth quarter and full year 2021 we received bookings totaling $8 4 million and $32 $9 million respectively.
Furthermore, we define backlog as the accumulation of bookings from signed contracts and purchase orders that are not yet started or are uncompleted and cannot be recognized as revenue until delivered in a future period.
Backlog also includes extended warranty agreements and step agreements that are deferred revenue recognized on a straight line basis over the life of each respective agreement.
As of December 31st 2021, our backlog totaled $23 $1 million, which was at six 5% from the prior quarter and 58, 2% from December 31st 2020.
And finally to our balance sheet.
As of December 31st 2021, we had unrestricted cash and cash equivalents of $19 $7 million.
Compared to $21 5 million at the end of the prior quarter.
I'm, a working capital standpoint at the end of the fourth quarter, we had $25 $9 million in working capital.
Might increase from $25 8 million at the end of Q3.
For additional details of our financial results. Please reference our Form 10-K, which was filed earlier today.
This concludes my prepared remarks, I'll now turn it back to Bob.
Thanks, Marcia I now would like to spend a few minutes to discuss our audit and ERP implementation as we've discussed in the past we began implementing a new company wide ERP system to consolidate three independent systems and provide us with better operational efficiencies and <unk>.
More scale ability given our business growth over the past several years.
There is still optimization work that will be ongoing over the course of 2022, and we expect the need for continuous improvements, which are common with ERP systems, but we're happy to have much of the initial implementation work behind us.
Case in point is the successful completion of our independent audit and the filing of our 10-K today for the full year ended December 31 2021.
As we laid out to NASDAQ, we expect to file both our 10-K for the full year ended December 31, 2021, and the 10-Q for the first quarter ended March 31, 2022 August 12th 'twenty, 'twenty, two which remains our expectations today as we plan to file our 10-Q for the first.
Order on August 11th. Additionally, we expect to file our 10-Q for the second quarter ended June 32022 on August 19th 2022.
Which is within the seven day extension period allowed by the SEC.
With these filings we will be caught up with our financial reports to maintain our NASDAQ listing I would like to take a moment to thank the employees of perfect for their hard work and dedication to push through this and get us back on solid footing with our financial reporting practices.
We are disappointed that we had a delay in timely reporting to our shareholders and we are committed to reporting our financial results on time going forward.
Now onto the topic of margins, which were below our historic levels in 2021, particularly in the fourth quarter as.
As Marshall mentioned gross profit margin for the full year 2021 was 646, 7% and for the fourth quarter of 2021. It was 32, 7%.
But both below our historic norms.
The lower margins were mainly caused by the pursuit of a strategically important military contract.
While negatively impacting margins in the short term, we believe this will situate us well for certain future military business going forward.
Other way to think of this contract is akin to paid R&D and that virtual was able to earn revenue while developing new product offerings that will have direct applicability to future military opportunities.
With the expertise and experience now more significantly develop we expect to earn a margin profile in the military market that is more in line with the value. We believe we provide and I personally believe John will be a great driver of ensuring we generate the value purchase products deserve.
The second reason is inflation, which is impacting all types of companies around the globe as I'm sure. Most of you are aware by now and virtue has not been immune.
We are seeing higher labor material and travel costs, all of which have negatively impacted our gross margins.
We are actively working to mitigate or offset as much of these impacts as possible.
Looking ahead, we expect gross margins in 2022 to improve relative to our 2021 levels as the strategic military contract is largely was largely complete in 2021.
And we continue to optimize our business to adjust to the inflationary impacts we have been seen.
To conclude we are pleased to be able to resume communicating our results to shareholders and look forward to filing and announcing our remaining financials for the first half of 2022 to catch up on our reporting in the coming weeks.
As we put these delays in the rearview mirror, we look forward to shifting focus to the immense opportunities we see for our business as John given shifts from focusing on operationally preparing versa for larger volumes of business to winning the larger volumes of business.
As industry, leading expertise leadership operational excellence and military truck.
Be great assets for <unk> and its shareholders.
Our sales pipeline remains robust and we are in a strong financial position to capitalize on our opportunities with $19 $7 million of cash and equivalents at the end of 2021.
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.
At this time, we will be conducting a question and answer session.
If you'd 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 May press star two if you'd like to remove your question from the queue.
For 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.
We have a first question from the line of Richard Baldry with Roth Capital. Please go ahead.
Thanks.
We're now seven months down in 'twenty, two so I'm sort of curious if you can give any commentary on how operations have been year to date.
Got you know quantitatively, maybe qualitatively do you feel like you are up versus year ago and has there been continued hiring maybe as an indicator that business continues to grow.
Anything to put on on how to look at 22 now versus 21 from a revenue or an earnings perspective. Thanks.
Yeah.
Yeah appreciate that question.
But at this point, we are we are still.
We're still getting all the numbers together for the Auditor review and we really can't comment on on that until we have that information back from the auditors. So.
So.
We're still working until it's complete but it will be a good news is is that we don't have much time from now until well be on.
On the phone again and giving updates for this this year.
Okay.
Okay. Thanks.
Thank you we have next question from the line of Jason Smith with Lake Street. Please go ahead.
Hey, guys. Thanks for taking my questions. John You mentioned Underinvestment in Orlando potentially being one of the gating factors in the military business, but just curious if you think that investment is really going to go towards kind of marketing and a improving perception of the simulators.
In the military market or if you think just simulators or maybe lagging from a technology standpoint, and that investment is really going to that bucket.
Yes, thanks for that call so I've been in the Orlando market.
Multiple decades and.
The reason why you have to have presence there is that as the acquisition epicenter of the planet for the military all branches. So it's the visibility. So we recently actually opened up an office, where we will be placing simulators here. So that all of those acquisition officers and everybody this buying anything in the.
Asian environment comes to Orlando, they'll come into our office and be able to look at review and actually get their hands on our products the technology that Berkshire has today.
Some of it is as the industry has but much of it is what the industry doesn't have.
The only group that has really benefited from this technology and the innovative.
Items that have been put together is the law enforcement and this is what's going to drive that what I might call. It's just an untapped market for this type of quality product.
Okay. That's helpful. And then I'm just curious if you could comment on what Youre seeing from a supply chain standpoint, I mean, obviously it seems like the environment remains challenging out there for most but are is that creating any sort of significant headwinds for you guys. This year.
Yeah appreciate that question.
I do think that Covid and supply related issues did hurt us somewhat in 2021 and in some areas.
Again, it's a combination of of the scheduling that virtual can put together and the scheduling the customer will allow us to in other words Theres times when we.
We might be ready to ship and install a simulator and recognize the revenue, but the customer.
Says, they're not ready and we're going to always cater to the customer as far as what their timing is to be able to install and train them on the equipment.
And so I would say that that the supply chain issue is a constant monitoring and overstocking. So our approach has been to to err to the side of always make sure. We have the ability to supply simulators to those who need it and be able to.
Take the sales org.
<unk> when it's given to us strike, while the iron is hot attitude and so we have.
Increased our stock levels of certain items far far beyond anything that we ever stock prior to the supply chain headaches that COVID-19 created I'm really.
Quite impressed by our team in this in this area and that we've been able to keep the flow of our products going in in our market space.
And so we have.
So far have been able to have a steady supply of products.
There's areas, we need to improve internally and that's already been mentioned in this call.
And and we're making headway with those improvements, but when it comes to making sure. We have the right products on the shelf to fill orders. So far we've done a great job of that but it's a constant you have we have to be constantly vigilant about that so we have not seen those issues subsided at this point.
The visual lenses required ongoing right now.
Okay got it and then just the last one for me and I'll jump back in the queue I know you're going to be releasing kind of 2022 results here shortly but just curious from a.
Our customer standpoint are you seeing customers sort of delaying purchasing decisions pushing these decisions to the right just given concerns about the overall macro environment recessionary fears et cetera.
We are we are not seeing changes.
At this time.
Okay got it.
Thanks, a lot guys.
Thank you for your questions.
Yeah.
Thank you we have next question from the line up Allen Klee with Maxim Group. Please go ahead.
Good afternoon can you for the quarter can you quantify how much is of course, you would kind of say it was more one time related to.
Oh auditing changing account and implementing the ERP system in and anything else because we did see.
G&A jump around you know over 400000 sequentially. So it will be helpful to know if some of that.
Maybe as potentially one time thank you.
Yes, thanks for that question.
I do think you in many ways you answered your own question. So you're right there was quite a bit of a one time impact and in that in that quarter and we mentioned that so yes, we think there's quite a bit of one time.
Involved in that in those numbers.
And that type of.
And that probably.
Continues for the next quarter or two I guess, but then maybe maybe calms down after that it seems it seems like a reasonable assumption I would guess.
Not where we're right now we're still working on those numbers, but we're.
We think that our fourth quarter of last year was a pretty unique quarter that it did it did absorb some one time items that we don't see as because they were one time at that time were not seeing them as recurring so so yes, I do think that fourth quarter was pretty unique.
We we consider potentially a bit of an outlier just because of the forces behind it that are unique military contract with a lower.
Margin profile. So we do really do think that that is is unique there is theres. Some things that we discussed about inflationary pressure that would be ongoing but those overall were a much smaller magnitude of impact.
Okay and then.
Is there anything you've for the military.
Contract that you were awarded and worked on is there anything you can tell us about that and then anything about it.
Can you explain how that can expand the military business potentially.
Yes, so on the details on that one we have assigned.
Assigned NDA related to that so we have very major limits on what we can speak to on that I think the best thing. We can do is say that we feel that capabilities that came out of that effort.
Our valuable to Berkshire and valuable to other military customers we believe.
We do think that that the work was.
Good and positioning us for future work, but we can't really get into further detail than that and we also have to be careful getting into too much detail because of the competitive landscape as well so but we definitely have limits on what we can speak to in detail I hope to have those limits.
Remove someday, but.
But as of right now we are we have to honor the the agreements and that's considered confidential information.
Okay.
Prior call.
Or at some point you had spoken about how.
You haven't had an opportunity in Canada, which which I had thought at the time could be pretty attractive.
Any update on how that market is doing with that opportunity.
Yeah.
So we did we did have an announcement that we won the standing offer in Canada that competition was a critical one we think.
And virtual won it and they only awarded to one they could have done it in various ways, but they decided that they would have one winner of that standing offer and virtue was the company that want it. We then announced that we received our first order from it.
But youre right. There has not been a lot of press release related to Canada, but I also believe you are right in Canada that that standing offer and that unique opportunity, which cris crosses essentially every single non military agency across Canada.
That's all of their various law enforcement related security related.
In their prison their correction.
Groups are all under that.
Agreements, so we think that there's.
A really good future for that and our team is working diligently on that.
That's great. My last question I didn't get to do the math on this yet could you tell me, what the Capex and depreciation and amortization was for the quarter and is it reasonable to think that those are decent run rates going forward.
Well as you recall, we did purchase the new property for our new headquarters in August of last year. So our depreciation expense for fourth fourth quarter included the additional on the building.
Okay.
Hi, Ann.
R R.
Depreciation expense for the year.
Was 585000 and change.
But that was.
That does include all of our step assets as well.
That's the subscription the recurring revenue subscription program.
So there was already.
Sorry go ahead no go ahead, sorry go ahead.
That does represent about a $200000 increase over the prior year.
Okay great.
Thank you so much appreciate it.
Sure. Thanks Alan.
Thank you.
At this time. This concludes our question and answer session and I'd like to turn the call back over to Mr. Ferris for his closing remarks, how about yourself.
Thank you we really appreciate everyone, taking the time to join US today. Please know we are dedicated more than ever before to building shareholder value and building the world's most effective simulation training products. So that the war fighter and the law officer conserve their country their 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 very much sir.
Gentlemen, thank you for joining us today for volt trusts fourth quarter and full year, 'twenty or 'twenty One conference call.
I'll disconnect here.
Okay.
Okay.
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Yes.
Yes.
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