Q2 2023 VirTra Inc Earnings Call
Despite being lower compared to June 30 of 2022. This backlog still provides opportunity in the second half of 2023.
As a reminder, service warranties and step backlog as revenue will be recognized on a straight line basis over the next seven years. In addition to the backlog there are $7 million and potential renewable stack contracts that would represent additional revenue over the next five years.
Brickley, we've had greater than a 95% renewal rate on our stock contracts.
And finally to our balance sheet.
As of June 32023, we had unrestricted cash and cash equivalents $13 3 million decrease from the $14 3 million at March 31, 2023, and a decrease from $13 5 million.
December 31, 2022 from a working capital standpoint at the end of the second quarter, we had $26 6 million in working capital an increase of $24 3 million at the end of Q1.
For additional detail of our financial results. Please reference our 10-Q, which was filed earlier today and that concludes my prepared remarks, and now I'll turn it over to John to discuss operations.
Thanks, Atlanta, and good day everyone.
Like to provide you with an update on our overall company operations and our progress in the military market.
First it's important to note that our operational transformation in the full re implementation of the ERP have been highly successful, resulting in the significant improvements across our operations, allowing for us to serve our customers and position ourselves for suitable growth moving forward.
This successful implementation has effectively increased our capacity to install systems in an efficient manner, while also enhancing our customer service capabilities.
Furthermore, we have advanced our supply chain management, and minimizing potential delays or disruptions and optimizing our overall performance with those streamlined processes and a scalable infrastructure. We are also improved inventory management, allowing for timely order fulfillment and greater financial visibility.
These development and set the stage for effective scaling, enabling us to meet future demands and capitalize on new opportunities applying the same focus and tenacity. We are proactively taking measures to increase our bookings and unlock our full market potential both domestically and internationally.
Our sales enhancement initiatives are already underway and it's our top priority as we strive to surpass our year over year bookings performance.
Lower bookings in the first half are not uncommon due to budget cycles and decision making patterns. This significant process progress we've made to clear out backlog. So far this year positioned us with $16 4 million in backlog as we enter Q3.
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Presents a challenge for US. It also provides clarity on our capability to sell and deliver in a timely manner.
The standard federal budget cycle in Q3 provides a strategic opportunity for us to bolster those sales efforts and further prop up the backlog, helping us maintain this momentum that youre seeing.
As a key part of our sales initiatives, we're focusing on establishing our presence in thought leadership showcasing our capabilities and creating top tier scenario training.
Our success hinges on the quality of our scenario building and our expert training personnel, all reserving law enforcement and government agencies nationwide.
With our exceptional training service, including at regional training centers, and our New training center at headquarters complemented by our cutting edge content creation, using our <unk> technology, we are creating pathways to customer acquisition and retention.
Leveraging these lower revenue training opportunities as an entry point, we highlight our expertise and build lasting relationships with customers as.
As we innovate and expand our offerings these relationships become stepping stones to those higher yielding engagements.
As part of our comprehensive sales strategy, we are not only emphasizing our thought leadership and exceptional training service, but also.
Undertaking significant restructuring and expansion efforts, we are prioritizing sales territories and actively hiring and onboarding, new sales staff to strengthen our market presence and reach.
The sales lifecycle for law enforcement.
Mirrors that of the U S government and military.
Customers I dealt within the past.
Meaning a constant presence is essential given local localized politics to navigate in person demonstrations offered valuable insight into these organizations their funding processes and onsite training needs.
With the sales cycle spending six to 18 months, it's crucial to have boots on the ground engaging directly with the customers to cultivate these relationships and expand our footprint. This strategic approach involves increasing our sales staff by an ambitious 35%, allowing us to tap into new.
And seize growth opportunities.
To attract the best talent, we're putting together enticing incentives that reward success aligned with our vision for the company's future.
By restructuring our sales territories and expanding our team we're positioning ourselves to proactively understand and meet the evolving demands of our customer base and capitalize on these emerging opportunities. This forward thinking approach combined with our focus on content creation.
We are building new product development that Bob mentioned and exceptional training services create a compelling and well rounded sales initiative that propels us forward towards continued success and growth in the industry.
To bolster our global footprint, we are adding international salespeople, who will cover Central and South America, Canada Africa, Europe , and Asia to cultivate and grow our international pipeline.
Speaking, specifically about our military operations in Q2, a little better than expected we have been proactively building a robust pipeline of leads and connections progress has been promising and we have already recorded $4 million in military related contracts year to date, surpassing our internal target set.
For the beginning of the department of Defense fiscal 2024.
In October of 2023 given.
Given the highly competitive nature and the security sensitive.
<unk> expects that these contracts we are exercising caution in sharing the specific details about these contracts at this time. However, we are confident in our positioning for future growth in the military market, we remain dedicated to nurturing those existing relationships and cultivating those new leads and leveraging our strategic or.
Landa location to strengthen those ties within the industry and capitalize on those opportunities. We consider this space to be to just be underway.
And as we continue to execute on these initiatives, we eagerly anticipate sharing our progress and achievement with you in the coming quarters, our commitment to excellence and our longstanding connections with the industry provide a strong foundation for success as we forge ahead in this important market segment.
With our proactive approach.
And the addition of new talent, we're confident in our ability to effectively capture and capitalize on that potential growth opportunity in both the domestic and international markets delivering exceptional value to the clients.
At the core of our strategy and our prioritization of superior technology has positioned us competitively to satisfy those customers needs.
We remain dedicated.
The mission of driving revenue, while delivering a quality training product and through.
So we are just getting started I am optimistic about our prospects, while Q2 and the first half of Q3 yielded strong results the quality of our product and exceptional staff suggest that we've just begun to realize our potential I look forward to updating you on all the progress and our future quarters and now.
Ill turn the call back over to Bob Thank you.
Okay.
Thanks, John .
The first half of 2023 has been marked by significant milestones, including the addition of key new talent and the implementation of effective processes to support increased business volume leading to back to back record breaking quarters.
We recognize there are still areas needing improvement and far more growth potential and we are proactively addressing these opportunities as John has just mentioned.
Our focus remains on strengthening our business pipeline and key markets embracing a culture of world class operations.
And ensuring we deliver quality to our customers.
I'd like to extend my gratitude to the entire virtual team. These record shattering results are due to their hard work and dedication moves.
Moving forward I am confident in our ability to sustain this momentum under the leadership of John Givens, who has proven his exceptional effectiveness time and time again.
And with that well.
We'll open up the call for your questions operator, please provide the appropriate instructions.
Thank you.
Well now be conduct a question and answer session.
If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue.
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Our first question comes from Jason Smith with Lake Street. Please go ahead.
Hey, guys. Thanks for taking my questions and congrats on another strong quarter.
Just wanted to focus on the military market.
First just going forward is the team and infrastructure fully built out at this point for that business.
Yes, thanks for that question.
It's getting close we're targeting specific individuals for that space and to answer your question, we're probably about 75%.
Yeah.
Okay. That's helpful. And then the consolidation I know you said you are entering the final phase here. So should we expect to see certainly the full benefit from the efficiencies in Q4 or will you start to see a big chunk of that in Q3 here as well.
Bob you want to take that one.
Sure.
So I think the.
Total efficiencies with the final phase would be more showing up in in fourth some of fourth quarter and certainly by Q1 of next year. So we were expecting to have all of the final phase is done and by fourth quarter hopefully a lot.
All of that done in third quarter.
We have had challenges with construction deadlines.
No matter no matter how much.
No matter, how much hair I lose over it or John .
We've struggled with getting the timelines, where we want but we shifted.
John recommended we shifts contractors and so far that's working out a lot better. So we're now getting more confident that it would be third quarter fourth quarter based on the latest contractor we're using.
I'll give you. Another example, as well so timing is everything you can't shut down the machine shop in your production lines for very long and some of the contracts that we've talked about have specific deadlines. So we've shifted the shutdown of our machine shop for the move until we finish that so we have no <unk>.
Cups, so that's why there'll be a little bit of a delay of seeing the efficiencies just so that we perform above expectations on the current contracts that we have.
Yeah.
Yes, there are folks out there.
We're focused making that as seamless as seamless as possible transition since we.
Since since we have a lot of pressure on us to maintain our productivity each day.
Okay that makes sense and then just the last one for me and I'll jump back into queue. Obviously, you guys gave your bookings and backlog, but how should we think about for Q3 or any additional color you could provide on order patterns here in the first six weeks of the quarter.
John you want to you want to take that one.
Yes.
Patterns right now when it I'll speak specifically about military.
Budget cycles and.
September 30th so unfortunately, everybody waits till the final hour trying to move that money. So we won't see anything from the military until we've gotten some early we've.
We've been pushing and gotten some early revenue from military on a regular orders.
Seeing us dirty, but there.
Like we had talked about on previous calls there is a drop between second and third quarter.
And we've seen that same trend, but we are starting to see the orders and we're starting to see.
I guess you'd say positive movement.
For third quarter.
I hope that answered the question.
No that's really helpful. Thanks, a lot guys.
I would I would add to that that John has really been focused on the international market as well and and so the international market can also assist with having larger sales come in on kind of the on times that are are not as cyclical and so a lot of times that's.
There are timing on international is based on the country and their budget their internal budget cycle or award process and those are not normally in sync with the U S. Federal government cycle. So so part of Jon's push for International sales is also is also along the lines of <unk>.
Bolstering our sales throughout the year, if that makes sense.
No. It does thanks guys.
Thank you.
Our next question comes from Richard Baldry, with Roth and Kim. Please go ahead.
Thanks.
On the balance sheet.
Pretty unusual spike to receivables it looks like if you would.
When they call normalized levels of Dsos.
Two extra cash on the balance sheet that you have right now so I'm wondering if you can talk through why that very large step up I mean, it's disproportionate even to the revenues you put up.
The bookings et cetera, so how.
Should we think about that and when should that normalize to generate the cash. Thanks.
Hi, Yes, I can take that.
Price.
So one of the things we had to do when we transitioned.
Software from one ERP rebuilding was.
Two invoice.
And move everything to receive a ball section in order to be able to move it over.
That caused a spike in receivables, you'll see a decrease in the Unbilled revenue.
So a lot of those were some in some cases.
Invoices for partial deliveries were before were in the habit of only sending invoices when everything was totally completed.
We should start to see some of that convert in the next this.
This quarter and the beginning of fourth quarter into cash.
Okay great.
Yes, It does and can you talk about is there a way to think about what a comfortable level of backlog to operate which would be down U S.
Demonstrating the ability to ship her do a throughput.
Against orders now thats much faster how do we think about it in dollar terms months of revenues or is there. Some other way to try to think about what a good level for that should be.
So there is as we've started to break out the backlog to help give some transparency because some of those those are healthy right, though or warranty.
And backlog step things things that are going to take time.
The capital systems.
Our systems are the ones in which we normally have.
Have either been held up by our own internal processes to where things don't get produced quick enough or the client has requested.
A certain delay but.
Technically speaking a virtue would be would be wise to have the capacity to.
To fill orders within 7% to 30 days on a normalized basis.
No matter how large the simulator contract is now.
And the military circles, where John Gibbons.
Has cut his teeth there have been contracts that were like 900 simulators actually a little over 900 simulators and those don't get filled in a 30 day process.
Four contracts so.
So those would be a different a bit of an exception if we're fortunate enough to land things like that.
On an ongoing basis.
When it comes to selling.
Our product via capital just somebody buying the product not a subscription service.
Then that should be done quite rapidly outside of the fact that we sometimes have a customer say you know what I know you haven't ready, but please hold onto it for a couple of months for me and then ship it.
Okay.
Yeah.
Okay, and I'm not sure if I heard this exactly right, but it sounded like.
Military order here to date or actually above your 2024 goal for a year and again I may appear somewhat wrong, but the question would be if youre at about 75% of.
Infrastructure facilities staffing needs you have in that military world with orders there strong do you think that you need to accelerate sort of <unk>.
Finishing up that remaining 25% to get that fully staffed up the ramp.
Yes, it was kind of a twisted.
Twisted sentence here. So what that sentence met was is that we're already $4 million ahead of what our expectation was when we start the.
Tober 20 for fiscal year, we didn't expect to collect any revenue until that.
Starts so we've already collected $4 million.
Military contracts at that point.
We will continually staff.
Because other contracts sub contracts Theres, one prime contract and.
We will continue to ramp up but our expectation those arent the expectation that was just our internal expectations. We already brought money in that we didn't expect to bring any until after September 30th that's what that sentence was about com.
Okay.
Got it okay, and so does that.
Just a question that is does that give you any more confidence I guess in finishing up building that team out or do you feel like what you have is good to get your ramped into the order side and maybe you start finishing it up.
As the orders start coming in after a multiyear the October 2004, it start time.
The way the way I think about that is we have just the core.
Group in there now and we expect to grow that group as we grow the orders that we that we bring in.
That will be.
Directly proportionate with the amount of business that we bring in will expand program management will expand those things that currently arent there as well as customer support staff and technical staff to support those locally because they are pulled out of the Orlando market.
The Orlando.
Try and.
Army Air Force Marine Corps, all right there they're acquisition. So those will grow I don't expect that it's fully built out yet just the initial core staff, we're about 75% there.
Okay and then.
You gave a lot of backlog bookings information a lot of companies don't give sort of curious if we extend that one more level, you're talking about adding a 35% to your sales capacity.
That's a pretty good step up do you think.
Is there a way to think about the sales pipeline growth that youre seeing are opportunities per rep.
Capacity efficiency utilization of the existing group, that's giving you that confidence to make another big push on the capacity side.
Actually that's a great question so.
What we're looking at is making each of the sales territories more efficient what does that mean I need.
I need police departments that are over 5000.
Police officers and a budget greater than $50 million of greater than 1 billion whatever it is breaking up each of those territories. So each one of those specific.
Each one of those specific sales.
Territories have an equal amount of opportunity what ends up happening is because these sales require a lot of focus a lot of attention a lot of handholding.
Bring them through that cycle, because theyre cops theyre not in the market to buy and do all of these sorts of things can you just want to train and that's what we're experts in and so by doing that I think what virtual has done and been very successful at is a chase the low hanging fruit. So they just grabbed the things they could just because they were under staff.
This way we act more like farmers, then salesman, we go out there and we plow the fields, we plant we fertilize we nurture each one of those territories in those accounts and by doing that we're going to drive more sales more relationships and more revenue to virtually in that regards.
Got it great. Thanks, and congrats on a great first half of the year.
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. Please Sir go ahead.
Thank you Kyle.
Before we close I'd like to take a moment to announce the transition and the leadership team today.
Today I'm honored to announce John Gibbons as the new sole chief Executive officer of Archrock.
His visionary practical and World class leadership helped to generate our rapid progress and he continues to show us how much more is possible for virtual.
Throughout our 30 year journey virtual has been driven by a powerful mission.
To equip the brave men and women of armed forces and law enforcement agencies around the world with the tools they need to serve their country.
Complete their missions and return home safely.
This mission is at the very core of why we exist and remains our firm commitment.
As I take on the role of executive Chairman of the Board I will continue to support this vital mission knowing it is a worthy and noble calling that it resonates deeply with each member of the virtuous family from employee to investor to customer.
Our dedication to innovation and excellence is fuelled by the knowledge that the work we do directly impacts the lives of those who protect our communities and uphold the safety of free nations.
Having worked closely with Sean I have seen firsthand his expertise in accumulation military markets, which has been instrumental in our recent achievements.
Under his leadership I've seen virtual accomplish things that we thought were simply impossible.
I am confident that John's continued leadership as our CEO will lead virtue to even greater heights in fulfilling our mission.
We stand firm in our service to our customers and their lifesaving missions with John at the helm I have no doubt that our future is incredibly bright.
Passion and dedication of our team as the driving force behind our success and I have every confidence that we will continue to push the boundaries of what is possible and change the world for the better.
As we look forward to this new chapter I want to express my deepest gratitude to each and every member of the virtual family our staff, our shareholders and especially our customers. Your unwavering support has been the foundation of our success and I am.
We're excited to continue working with you all in my new role.
Together, we will work to bring about an even brighter future for virtual our journey is just getting started and I am honored to be part of this incredible team, what we've done and especially what we are about to do.
Thank you be safe take care and God bless.
Thank you for joining us for virtual <unk> second quarter 2023 conference call you may now disconnect.
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