Q2 2024 VirTra Inc Earnings Call - Q&A

Operator: Good afternoon, and welcome to VirTra's second quarter 2024 earnings conference call. My name is Paul, and I will be your operator for today. Joining us for today's presentation are the company's CEO, John Givens, and CFO, Alanna Boudreau. Following their remarks, we will open the call for questions. Before we begin the call, I would like to provide VirTra's safe harbor statement 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 to differ materially from the statements made. The company does not undertake any obligation to update them as required by law.

Paul: Good afternoon, and welcome to VirTra's second quarter 2024 earnings conference call. My name is Paul, and I will be your operator for today. Joining us for today's presentation are the company's CEO, John Givens, and CFO, Alanna Boudreau. Following their remarks, we will open the call for questions. Before we begin the call, I would like to provide VirTra's safe harbor statement 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 to differ materially from the statements made. The company does not undertake any obligation to update them as required by law.

Good afternoon, and welcome to virtuous second quarter 2024 earnings Conference call. My name is Paul and I will be your operator for today's call.

Operator: 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 www.virtra.com. Now, I'd like to turn the call over to VirTra's CEO, Mr. John Givens. Thank you. You may proceed, sir.

Paul: 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 www.virtra.com. Now, I'd like to turn the call over to VirTra's CEO, Mr. John Givens. Thank you.

John Givens: Thank you, Paul. Virtue is dedicated to our customers, and their crucial missions are as strong as it ever has been. Our passion, hard work, and dedication by our team are the cornerstone of our success, and I'm confident in our ability to provide that leadership to our customers and continue innovating at the top of the industry and making a meaningful difference. That's our priority. To our shareholders, I want to thank you for your continued support and hope to see you in October in Chandler. Paul, over to you.

Speaker Change: Joining us for today's presentation are the company's CEO, John Gibbons and CFO Lana Boudreaux following their remarks, we will open the call for questions.

Speaker Change: 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.

Speaker Change: 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 to differ materially from the statements made.

Speaker Change: 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 Www Dot Bert drunk dotcom.

Operator: Thank you for joining us today for VirTra's second quarter 2024 conference call. You may now disconnect.

Speaker Change: Now I'd like to turn the call over to virtual CEO, Mr. John Gibbons. Thank you you May proceed sir.

John Gibbons: Thank you Paul and thank you everyone for joining us. This afternoon after market close today, we issued a press release, providing our financial results for the second quarter.

John Givens: Thank you, Paul, and thank you, everyone, for joining us this afternoon. After Marcus closed today, we issued a press release that provided our financial results for the second quarter and did June 30, 2024, along with highlighted business accomplishments. Today I'll begin by discussing our second quarter performance and strategic achievements, including the launch of our VXR platform and our military market engagements, before handing it over to Alanna for a detailed financial review. After that, I'll provide some concluding remarks before moving on to the Q&A portion.

Speaker Change: At.

Speaker Change: June 30, 'twenty 'twenty, four along with highlighted business accomplishments.

John Givens: Our second quarter results reflect the continuation of a transitional period as we ramp up our new sales initiatives. While our performance was not as strong as we had hoped, I take full responsibility for these results, and we have entered into the second half in a position to reboot progress. Our revenue came in at $6.1 million. The results are due to both controllable and uncontrollable factors.

Speaker Change: Today I'll begin by discussing our second quarter performance and strategic achievements, including the launch of our Dx our platform and our military market engagements before handing it over to <unk> for a detailed financial review.

Speaker Change: After that I'll provide some concluding remarks before moving on to the Q&A portion.

Our second quarter results reflect the continuation of a transitional period as we ramp up our new sales initiatives buoy performance was not as strong as we had hoped I take full responsibility for these results and we have entered into the second half in a position to reboot progress.

Speaker Change: Revenue came in at $6 1 billion. The results are due to both controllable and uncontrollable factors the controllable or are being.

John Givens: The controllables are being, our go-to-market efforts; the uncontrollables are delayed decision-making from delayed budgeting resolutions during the first half of the year. We are making progress on the controllable areas and finding workarounds for the uncontrollable areas, which I'll detail shortly. Despite our top-line results, we maintained exceptionally strong gross margins of 91%, demonstrating that the operational efficiencies we put in place last year and the beginning of this year are yielding positive results.

Our go to market efforts, the uncontrollable being delayed decision, making from delayed budgeting resolutions during the first half of the year we.

Speaker Change: We are making progress on the controllable areas and finding workarounds to the uncontrollable areas, which I'll detail shortly.

Speaker Change: Despite our topline results, we maintain exceptionally strong gross margins up 91% demonstrating that our operational efficiencies we've put in place last year and the beginning of this year are yielding positive results. These efficiencies will support our growth and sales initiatives gain momentum.

John Givens: These efficiencies will support our growth as sales initiatives gain momentum. Notably, our bookings increased by $3 million quarter over quarter, doubling since Q1, highlighting improved market conditions and a strengthened sales approach. Despite recent challenges, the demand for our solution remains robust, and we are still positioned to capitalize on it moving forward. We have faced external headwinds in the first half of the year due to, primarily, delayed budget decisions at the federal and local levels.

Speaker Change: Notably our bookings increased by $3 million quarter over quarter, doubling since Q1, highlighting the improved market conditions and the strength in sales approach. This.

Speaker Change: Despite recent challenges the demand for our solution remains robust and we are still positioned to capitalize on it moving forward.

Speaker Change: We have faced external headwinds in the first half of the year due to primarily.

Speaker Change: They budget decisions at the federal and local levels. These are not excuses, but realities that we're tackling head on while local law enforcement budgets are compressing we have strengthened our ability to secure federal grants, which are increasing and we will provide a central funding for our customers. This approach helps us maintain our pipeline in <unk>.

John Givens: These are not excuses, but realities that we are tackling head-on. While local law enforcement budgets are shrinking, we have strengthened our ability to secure federal grants, which are increasing and will provide essential funding for our customers. This approach helps us maintain our pipeline and capitalize on growth opportunities. While using grant money extends the sales cycle slightly, it ultimately helps us grow our customer base, and these efforts are important as we prioritize long-term relationships.

Speaker Change: Lives on growth opportunities.

Speaker Change: While using grant money extended the sales cycle slightly it ultimately helps us grow our customer base and these efforts are important as we prioritize long term relationships. Additionally, with military budgets begin to open we are positioned to seize new growth opportunities there in the coming quarters.

John Givens: Additionally, with military budgets beginning to open, we are positioned to seize new growth opportunities there in the coming quarter. As you may have seen, last week we announced the addition of Brandon Cox to VirTra as our Chief Technology Officer. Brandon brings a wealth of experience in data analytics and system integration, which will be instrumental in accelerating our innovation and leading new product development activities. Having Brandon on the team will free me up to do what I've done my whole career, build customer relationships and drive sales.

Speaker Change: As you May have seen last week, we announced the additional branding Cox two are two virtual <unk> as our Chief Technology Officer, Brendan brings a wealth of experience in data analytics and system integration, which will be instrumental in accelerating our innovation and meeting new product development efforts, having brandon on the team of <unk>.

Speaker Change: We need to do what I've done my whole career build customer relationships and drive sales with military budgets beginning to open up there's a significant opportunity for Berkshire to win large and long term contracts and I plan to lead that effort with our sales team.

John Givens: With military budgets beginning to open up, there's a significant opportunity for VirTra to win large and long-term contracts, and I plan to lead that effort with our sales team. In parallel with the changes we've made in our sales process, we are continuing to enhance our internal operation. For example, over the past year, we've completely rebuilt our ERP system.

Speaker Change: In parallel with the changes we've made in our sales process, we are continuing to enhance our internal operations.

Speaker Change: Over the past year, we've completely rebuilt our ERP system. This change as well as several others to improve our operations are continuing to help us increase throughput reduced production errors and ultimately improve our book to ship types as we grow our sales we are well equipped to ski.

John Givens: This change, as well as several others to improve our operations, is continuing to help us increase throughput, reduce production errors, and ultimately improve our book-to-ship time. As we grow our sales, we are well equipped to scale effectively. In addition to having operations to scale, we continue to invest in the right content. We strengthen our competitive position.

Speaker Change: <unk> effectively.

Speaker Change: In addition to having operations to scale, we continue to invest in the right content, we strengthen our competitive position.

John Givens: We have expanded our scenario library to include more real-world situations like crisis intervention and active shooter responses developed by our industry experts. One of the newer areas that we've begun to create additional content for is the healthcare field. Since our initial V-180 deployment at Ascension's St. John's Hospital, we've seen an increase in demand for our training solutions at more than six additional institutions. The content we've created allows hospital security staff to train on common scenarios that ensure the proper response for patient and staff safety when responding. The early reception of these scenarios shows the significant untapped market potential.

Speaker Change: We have expanded our scenario library to include more real world situations like crisis intervention and active shooter responses developed by our industry experts.

Speaker Change: One of the newer areas that we'd begun to create additional content, whereas the health care field since our initial D 180 deployment to Ascension St. John's Hospital, we've seen an increase in demand for our training solutions for more than six additional institutions. The content. We've created allows hospitals security.

Speaker Change: Fab to train on common scenarios that ensure the proper response for patient and staff safety. When you responded.

Speaker Change: The early reception to these scenarios shows the significant untapped market potential.

John Givens: We are continuing to create content for these applications and expect our BXR to also grow sales in these markets. With the new content we are creating, we are excited about the upcoming launch of our DXR. Our new extended reality solution is set to disrupt and improve professional training environments. It's designed to enhance soft skill training across applications in law enforcement, healthcare, education, and other related sectors. We are customizing the VXR to accommodate diverse agency sizes, budget constraints, and specific training requirements.

Speaker Change: We are continuing to create content for these applications and expect our <unk> to also grow sales in these markets.

Speaker Change: With the new content, we are creating we are excited about the upcoming launch of RPX or our new extended reality solution is set to disrupt and improve professional training environments. It's designed to enhance soft skills training across applications and law enforcement health care education and other related sectors. We are customize.

Speaker Change: And to be XR to accommodate diverse agency sizes budget constraints and specific training requirements by extending beyond the traditional don't shoot scenario based training. The XR focuses on development of critical interpersonal skills, enabling professionals to better navigate sensitive situations.

John Givens: By extending beyond the traditional shoot-don't-shoot scenario-based training, VXR focuses on the development of critical interpersonal skills, enabling professionals to better navigate sensitive situations, diffuse potential conflicts, and build strong community relationships. Its wide array of applications positions VXR as a key pillar in our long-term growth strategy. Since our last call, we've also added two additional scenarios that will ship when the product is launched. We are currently finalizing terms and conditions with Meta, and once this is complete, we'll be ready to take orders and then begin shipping.

<unk> potential conflicts and build strong community relationships, it's wider array of application positions <unk> as a key pillar in our long term growth strategy.

Speaker Change: Since our last call. We've also added two additional scenarios that will ship when the product is launched we are currently finalizing terms and conditions with metal and once this is complete we will be ready to take orders and then begin shifting with this launch we are prepared to moderate our strong profit margins temporarily to secure even more.

John Givens: With this launch, we are prepared to moderate our strong profit margins temporarily to secure a more substantial market share and ensure sustained growth. Before turning the call over to Alanna, I'll give you a rundown of how our end markets performed in Q2. In the second quarter, our government revenue decreased to $5.3 million from $9.5 million in the prior year.

Speaker Change: Substantial market share and ensure sustained growth.

John Givens: This difference is attributed to the delay in federal budget decisions, which impacted our ability to close contracts within the expected time frame. As I mentioned earlier in the call, law enforcement budgets are facing continuous cuts and now rely heavily on grant funding from the federal government. Our Grant Watch program will help bridge this gap between the customer and federal funding. Internationally, our revenue was $0.6 million, a decrease from $0.7 million in 2023.

Speaker Change: Before turning the call over to our lineup I'll give you a rundown of how our end markets performed in Q2.

Speaker Change: In the second quarter, our government revenue decreased to $5 3 million from $9 5 million in the prior year. This difference is attributed to the delay in federal budget decisions with which impacted our ability to close contracts within the expected timeframe.

Speaker Change: As I mentioned early on the call law enforcement budgets facing continuous cuts and now rely heavily on grant funding from federal from the Federal government a grant watch program will help bridge this gap between the customer and federal funding.

John Givens: The slight decrease in international revenue is primarily due to the long lead times in our international pipeline, which have slowed the execution of opportunities in our International Pipeline. Continuing to grow, we expect higher close rates in the next several quarters as the budgets are approved. As part of our sales team restructuring, we now have a dedicated international sales team, and these changes are enhancing our ability to forecast and stabilize future revenue streams within this segment as we continue to build out a more predictable international pipeline.

Speaker Change: Internationally, our revenue was $6 million a decrease from <unk> 7 million in 2023.

Speaker Change: Slight decrease in international revenues, primarily due to the long lead times in our international pipeline, which has slowed the execution of opportunities.

Speaker Change: With our international pipeline continuing.

Speaker Change: Continuing to grow we expect higher close rates in the next several quarters as the budgets are approved.

Speaker Change: As part of our sales team restructuring, we now have a dedicated international sales and these changes are enhancing our ability to forecast and stabilize future revenue streams. Within this segment as we continue to build out a more predictable international pipeline.

John Givens: Turning to our progress in the military, we are continuing to make progress with the U.S. Army's Integrated Visual Augmentation System, or IVAS. As a reminder, this is a $5.9 million prototype contract secured through our collaboration with Microsoft as a prime contractor. Included in this order are our industry-leading recoil hardware kits, high-pressure airfield stations, and magazines, all engineered to meet the U.S. Army's stringent requirements. This partnership reaffirms the reliability and performance of our technology and also highlights our capability to innovate and adapt in response to the demanding needs of military training.

Speaker Change: Turning to our progress in the military we are continuing to make progress with the U S. Army's integrated visual augmentation system or <unk> program. As a reminder, this is a $5 9 million dollar prototype contract secured three our collaboration with Microsoft as a prime contractor included in this order.

Speaker Change: Our our industry, leading recall hardware kits high pressure air filled stations and magazines all engineered to meet the U S. Army's stringent requirements. This partnership reaffirms the reliability and performance of our technology and also highlights our capability to innovate and adapt in response to the <unk>.

Speaker Change: Demanding needs of military training we.

John Givens: We are also focused on expanding our reach further into U.S. Federal and Department of Defense channels by pursuing these opportunities through targeted marketing campaigns and strategic initiatives. We have deployed a dedicated sales team tasked with securing larger contracts in U.S. Federal and Department of Defense channels. The specialized unit is strategically equipped to navigate complex opportunities and drive significant growth in these key areas. This quarter, they were also approved for Department of Defense funding for research projects.

Speaker Change: We are also focused on expanding our reach further into U S. Federal and department of defense channels by pursuing these opportunities through a targeted marketing campaigns and strategic initiatives. We have deployed a dedicated sales team tasked with securing larger contracts in U S Federal and department of defense channels the Spa.

Speaker Change: <unk> unit is strategically equipped to navigate complex opportunities and drive significant growth in these key areas.

Speaker Change: This quarter were also approved for department of Defense funding for research projects. This approval confirms what we've known virtuous simulators can record shooting performance accurately and track individual progress over time reliable reliably, thereby qualifying them as a verified and consistent research tool. This was.

John Givens: This approval confirms what we've known, VirTra simulators can record shooting performance accurately and track individual progress over time reliably, thereby qualifying them as a verified and consistent research tool. This was done by an independent research study conducted by Ohio State University and further emphasizes our potential. I'll now turn the call over to Alanna to discuss our financial results in further detail.

Speaker Change: Done by an independent research study conducted by Ohio State University and further emphasizes our potential I'll now turn the call over to Atlanta to discuss our financial results in further detail our Lana.

Alanna Boudreau: Thank you, John, and good afternoon, everyone. Now, let's review our unaudited financial results for the second quarter ended June 30, 2024. Total revenue was $6.1 million compared to $10.3 million in the prior year period. The decrease was primarily due to delays in federal funding attributed to the U.S. government's continuing resolution, which caused numerous contracts to be placed on hold.

Lana Boudreaux: Thank you John and good afternoon, everyone now lets review our unaudited financial results for the second quarter ended June 31, 2024, total revenue was $6 1 million compared to $10 3 million in the prior year period. The decrease was primarily due to delays in federal funding attributed to the U S government continuing resolution.

Speaker Change: Which caused numerous contracts to be placed on hold.

Speaker Change: Temporary challenge impacting bookings in the first half of the year.

Alanna Boudreau: This temporary challenge impacted bookings in the first half of the year. Our gross profit totaled $5.5 million, 91% of total revenue, compared to $5.9 million, 57% of total revenue in the prior year. The 7% decrease in gross profit was primarily due to the change in sales.

Speaker Change: Our gross profit totaled $5 5 million, 91% of total revenue compared to $5 9 million, 57% of total revenue in the prior year.

Alanna Boudreau: Gross margin increased mainly due to the lower cost of sales driven by operational enhancement, offsetting labor costs related to development projects, and 40% of the total revenue driving from our service and staff contracts, which have a limited cost of sales associated with that revenue. Net operating expenses were $4.4 million, marking a 10% increase from the $4 million in the prior year period. This increase was driven by investments in sales and marketing as well as strategic hiring to support growth initiatives.

Speaker Change: 7% decrease in gross profit was primarily due to the change in sales gross margin increased mainly due to the lower cost of sales driven by operational enhancements offsetting labor costs related to development projects and 40% of the total revenue driving from our service and staff contracts, which have limited cockpits that was associated with.

Speaker Change: That revenue.

Speaker Change: Net operating expense was four points along million, marking a 10% increase from the 4 million in the prior year period. This increase was driven by investments in sales and marketing as well as strategic hiring to support growth initiatives also adding to the increased operating expenses related to our improved structure and compliance requirements.

Alanna Boudreau: Also, adding to the increase in operating expenses related to our improved IT structure and compliance requirements for our future and government for our current and future contracts. Operating income was $1.1 million compared to $1.9 million in the second quarter of 2023. Net income was $1.2 million or $0.11 per diluted share based on the $11.1 million weighted average diluted shares outstanding, a 17% increase from net income of $1 million or $0.09 per diluted share based on $10.9 million weighted average diluted shares outstanding in the prior year period.

Speaker Change: For our future and demand.

Speaker Change: For our current and future contracts.

Speaker Change: Operating income was $1 1 million compared to $1 9 million in the second quarter of 2023.

Speaker Change: Net income was $1 2 million or 11 cents per diluted share based on the $11 1 million weighted average diluted shares outstanding a seven.

Speaker Change: 10% increase from net income of 1 million or nine cents per diluted share based on $10 9 million weighted average diluted shares outstanding in the prior year period.

Alanna Boudreau: Adjusted EBITDA, a non-GAAP metric, was $1.6 million compared to $2.6 million in the prior year period. Now, turning to our bookings and backlog. We define bookings as the total of newly signed contracts and purchase orders received in a defined period. For the second quarter of 2024, we received bookings totaling $5.9 million. Looking at our backlog, which we define as the accumulation of bookings from signed contracts and purchase orders that are not yet started or incomplete and cannot be recognized as revenue until delivered in a future period.

Adjusted EBITDA, a non-GAAP metric was $1 6 million compared to $2 6 million in the prior year period.

Speaker Change: Now turning to our bookings and backlog, we define bookings as the total of newly signed contracts and purchase orders received in a defined period for the second quarter of 2024, we received bookings totaling $5 9 million.

Alanna Boudreau: As of June 30, 2024, our backlog totaled $13.8 million. The breakout of this backlog includes $5.6 million in capital, $6 million in service and warranties, and $2.2 million in step contracts. As a reminder, Service Warranties and Step Backlog is revenue that will be recognized on a straight line basis over the coming years. In addition to the backlog, there are $7 million in renewable step contracts that would represent additional revenue for the next five years.

Speaker Change: Looking at our backlog, which we define as the accumulation of bookings from signed contracts and purchase orders that are not yet started or incomplete and cannot be recognized as revenue until delivered in a future period.

Speaker Change: As of June 32024, our backlog totaled $13 8 million. The breakout of this backlog includes $5 6 million in capital 6 million in service and warranties and $2 2 million in stock buybacks.

Speaker Change: As a reminder, service warranties and stuff backlog as revenue that will be recognized on a straight line basis over the coming years. In addition to the backlog there are $7 million in renewable stop contracts that would represent additional revenue for the next five years.

Alanna Boudreau: This year, as our first step customers are ending their original agreements, we are seeing a 93% rate of either renewing their subcontracts or moving to a capital purchase. This retention highlights our success in building a loyal customer base as we focus on new pipeline development.

Speaker Change: This year as our first step customers are ending their original agreements, we are seeing a 93% rate of either renewing their shelf contracts or moving to a capital purchase this retention highlights our success in building a loyal customer base as we focus on new pipeline development.

Alanna Boudreau: Finally, to our balance sheet. As of June 30, 2024, we had unrestricted cash and cash equivalents of $18.4 million compared to $22.4 million at March 30, 2024. This decrease primarily reflects our corporate tax payment. From a working capital standpoint, at the end of the second quarter, we had $34.8 million in working capital, up slightly from the $33.2 million at the end of Q1 in 2023. For additional details of our financial results, please refer to our 10-Q, which was filed earlier today. That concludes my prepared remarks, and now I'll turn it back over to John for his closing remarks.

Speaker Change: Finally to our balance sheet as of June 32024, we had unrestricted cash and cash equivalents of $18 4 million compared to $22 4 million at March 30, <unk> 2024. This decrease primarily reflects in our corporate tax payment.

Speaker Change: From a working capital standpoint at the end of the second quarter, we had $34 8 million and working capital up slightly from the 30 to 33.2 million at the end of Q1 in 2023 or additional details of our financial results. Please reference our 10-Q, which was filed earlier today that concludes my prepared remarks, and now I'll turn it back over to.

Speaker Change: John for his closing remarks.

John Gibbons: Thank you Ilana.

John Givens: As we review the past quarter and the first half, it's clear that while we are navigating through some temporary challenges, our strategic initiatives and our operational improvements are setting the stage for incredible future growth. Our upcoming launch of the VRXR platform and growth in our strategic military engagements are important components to this response, and they will be key to our success for the rest of 2024. Looking ahead, we have the right procedures in place and are optimistic about the second half of the year as grant funding becomes clearer, and military contracts begin to open.

John Gibbons: As we review the past quarter and the first half it's clear that while we are navigating through some temporary challenges our strategic initiatives and our operational improvements are setting the stage for incredible future growth.

John Gibbons: Our upcoming launch of the BRC solid platform and growth into our strategic military engagements are important components to this response and they will be key to our success for the rest of 2024 looking ahead, we have the right procedures in place and are optimistic for the second half of the year as grant funding becomes clear.

Operator: Good afternoon and welcome to Virtua's second quarter, 2024 Earnings Conference Call. My name is Paul and I will be your operator for today's call.

John Gibbons: <unk> and military contracts begin to open we are positioned to capitalize on our healthy pipeline of opportunities in the months ahead, while continuing to enhance our customer relationships, which are the single most important in this business, particularly as we extend our global reach and rollout of new products.

John Givens: We are positioned to capitalize on our healthy pipeline of opportunities in the months ahead while continuing to enhance our customer relationships, which are the single most important in this business, particularly as we extend our global reach and rollout of new products. In conclusion, despite the temporary hurdles, VirTra does remain at the helm of the training industry, driven by innovation and a commitment to excellent training outcomes. We are optimistic about what the back end of 2024 holds, and we look forward to sharing our progress, and we appreciate your continued support and interest. Now, before we open the call to questions...

Operator: Joining us for today's presentation are the company's CEO, John Givens, and CFO, Alanna Boudreau. Following their remarks, we will open the call for questions.

Operator: Before we begin the call, I would like to provide Virtua's safe harbor statement 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 made 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.

Speaker Change: In conclusion, despite the temporary hurdles Berkshire does remain at the helm of training industry, driven by innovation and our commitment to excellent training outcomes. We are optimistic about what the back end of 2024 holds and we look forward to sharing our progress and we appreciate your continued support and interest.

Speaker Change: Now before we open the call for questions I want to let everyone know that our annual shareholder meeting will be held in Chandler, Arizona in October will follow this with an Investor day, where we will offer a presentation and a tour of the facility more details will be made available.

John Givens: I want to let everyone know that our annual shareholder meeting will be held in Chandler, Arizona, in October. We'll follow this with an investor day where we'll offer a presentation and a tour of the facility. More details will be made available in a forthcoming press release. We look forward to engaging with our shareholders and investors during these events. And with that, we'll open up the call for your questions. Operator, please provide the appropriate instructions.

Operator: Finally, I'd like to remind everyone that this call will be made available for reply via a link in the investor relations section of the company's website at www.vertra.com.

John Givens: Now, I'd like to turn the call over to Virtua's CEO, Mr. John Givens. Thank you. You may proceed, sir. Thank you, Paul, and thank you, everyone, for joining us this afternoon. After March is closed today, we issued a press release that provided our financial results for the second quarter ended June 30, 2024, along with highlighted business accomplishments. Today, I'll begin by discussing our second quarter performance and strategic achievements, including the launch of our VXR platform and a military market engagements before handing it over to Alana for a detailed financial review.

Speaker Change: <unk> in a forthcoming press release, when we look forward to engaging with our shareholders and investor.

Speaker Change: During these events.

Speaker Change: And with that we'll open up the call for your questions operator.

Speaker Change: Please provide the appropriate instructions.

Operator: Thank you. We'll now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may have pressed star 2 if you'd like to remove your question from the chat. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the start button. One moment, please, while we poll for questions. Thank you. Our first question is from Jason Schmidt with Lake Street Capital Markets. Please proceed with your question. Hey guys, thanks for taking my questions.

Speaker Change: Thank you well now be.

Speaker Change: Well now be conducting a question and answer session if you'd like to ask a question. Please press star one on your telephone keypad.

Speaker Change: Confirmation tone will indicate your line is in the question queue.

Speaker Change: Press Star two if you'd like to remove your question from the queue for participants using speaker equipment and may be necessary to pick up your handset before pressing the star keys, one moment, please while we poll for questions.

Speaker Change: Okay.

John Givens: After that, I'll provide some concluding remarks before moving on to Q&A's portion. Our second quarter results reflect the continuation of a transitional period as we ramp up our new sales initiatives. While our performance was not strong, as we had hoped, I take full responsibility for these results. We have entered into the second half in a position to reboot progress. Our revenue came in at $6.1 million. The results are due to both controllable and uncontrollable factors.

Speaker Change: Thank you. Our first question is from Jason Jason Smith with Lake Street Capital Markets. Please proceed with your question.

Jason Schmidt: Hey guys, thanks for taking my questions. I just want to dig in a little bit more on sort of the bookings activity. Obviously, a nice rebound in Q2. I understand the budget constraints impacting Q2. Just curious if you've seen bookings continue to accelerate here in Q3.

Jason Smith: Hey, guys. Thanks for taking my questions just wanted to dig in a little bit more on sort of the bookings activity. Obviously, a nice rebound in Q2 understanding the budget constraints impact in Q2, just curious if you've seen bookings.

John Givens: The controllables are being our go-to-market efforts, the uncontrollables being delayed decision making from delayed budgeting resolutions during the first half of the year. We are making progress on the controllable areas and finding work-arounds to the uncontrollable areas, which I'll detail shortly. Despite our top-line results, we maintain exceptionally strong gross margins of 91%, demonstrating that our operational efficiencies we put in place last year and the beginning of this year are yielding positive results.

Speaker Change: Continue to accelerate here in Q3.

Jason Smith: Yeah.

Jason Smith: Hmm.

Jason Smith: Yeah.

John Givens: We are pleased with what's happening in the first month of the quarter.

Jason Smith: We are seeing could see right now to make it forward looking.

Jason Smith: We're pleased with what's happening in the first month of the quarter.

John Givens: Okay, no, that's helpful. And then looking at, sorry, you noted some continued traction in the healthcare market, adding kind of six additional institutions. When do you think those could maybe pivot from more kind of pilot programs to firm POs?

Jason Smith: Okay.

Speaker Change: That's helpful. And then looking at sorry, you noted some continued traction in the health care market, adding kind of six additional institutions. When do you think those could maybe pivot to more kind of highlight programs to firm T O.

John Givens: These efficiencies will support our growth as sales initiatives gain momentum. Notably, our bookings increased by $3 million quarter over quarter, doubling since Q1, highlighting improved market conditions and the strengthened sales approach. Despite recent challenges that demand for our solution remains robust and we are still positioned to capitalize on it moving forward. We have faced external headwinds in the first half of the year due to primarily delayed budget decisions at the federal and local levels.

John Givens: Well, we're seeing several of those come in, and those are the numbers that were reported in bookings. It's an underserved market that has specific laws in California and Connecticut now that require healthcare workers to have some type of training, not certification, but I think it's going to move towards that. And VirTra is right there in the start, in the middle of it right now. So we should see, that growth that we're seeing, the word is getting out, and VirTra is taking care of its customers, and they're seeing that it's meeting the needs they have now, and it's driving some of their policies going forward. So that's a bit unpredictable.

Speaker Change: Well, we're seeing several of them.

Speaker Change: He's come in and those are the numbers that were reported in bookings.

Speaker Change: It's a it's an underserved market that has Ah theres specific laws in California in Connecticut, now that require health care workers to.

Speaker Change: Perhaps some type of training that certified but I think it's going to move towards that and purchase right. There at the start in the middle of it right now.

John Givens: These are not excuses but realities that we are tackling head-on. While local law enforcement budgets are compressing, we have strengthened our ability to secure federal grants which are increasing and will provide essential funding for our customers. This approach helps us maintain our pipeline and capitalize on growth opportunities. While using grant money extends the sales cycle slightly, it ultimately helps us grow our customer base and these efforts are important as we prioritize long-term relationships. Additionally, with military budgets beginning to open, we are positioned to seize new growth opportunities there in the coming quarters.

Speaker Change: So we should see that that's the growth that we're seeing the word's getting out and purchased taking care of their customers and they're seeing that it's meeting the needs. They have now and it's driving some of their policies going forward.

Speaker Change: So that's a bit unpredictable or it's going to be a very large market, but we're gonna have to see how that plays out because the health care industry has never had to deal with this with.

John Givens: It's going to be a very large market, but we're going to have to see how that plays out because the healthcare industry has never had to deal with this kind of training. They just usually have a security force that's just dealing with stuff. And as these laws come out to protect patients and healthcare workers, it becomes, it's becoming more apparent that they need some type of training aid, and the training that we do, it doesn't, it doesn't require much to adapt to what they need in that industry. It's more about how they handle it within their environment because it is slightly different.

Speaker Change: With training they just usually had a security forces just dealing with stuff and.

Speaker Change: As these laws come out to protect patients and health care workers. It becomes it's becoming more apparent that they need some type of training aid and the training that we do it doesn't it doesn't require much to adapt to what they need in that industry. It's more about how they handle it within their environment because it is slightly different.

John Givens: As you may have seen last week, we announced the addition of Brandon Cox to our, to VirTra as our chief technology officer. Brandon brings a wealth of experience in data analytics and system integration, which will be instrumental in accelerating our innovation and leading new product development efforts. Having Brandon on the team will free me up to do what I've done my whole career, build customer relationships and drive sales.

John Givens: Okay, that's really helpful. And then just the last one for me, and I'll jump back into Q. Obviously, gross margin was extremely strong in the quarter, you noted mix and some other efficiency improvements. But how should we think about gross margin here in the second half? I assume it's going to at least come down a bit from the Q2 level.

Speaker Change: Okay. That's really helpful. And then just last one for me and I'll jump back into queue. Obviously gross margin was extremely strong in the quarter, you noted mix and some other efficiency improvements, but how should we think about gross margin here in the second half I assume it's going to.

John Givens: With military budgets beginning to open up, there's a significant opportunity for VirTra to win large and long-term contracts and high plans to lead that effort with our sales team. In parallel with the changes we've made in our sales process, we are continuing to enhance our internal operations. Over the past year, we've completely rebuilt our ERP system. This change as well as several others to improve our operations are continuing to help us increase throughput, reduce production errors and ultimately improve our book to ship times.

Speaker Change: At least come down a bit from Q2 level.

John Givens: Yeah, we expect it. Yeah, no, we do expect it to come down.

Speaker Change: Yeah.

Speaker Change: Yes.

John Givens: It was sort of the best of all the things that could have happened in this quarter to get such a high number. As we pull in the development projects that we were talking about, and those expenses start to hit, that'll sort of level set us out. So I still expect us to be in the low 60s where we anticipated, because this quarter was just unique and an outlier.

Speaker Change: Go ahead Atlanta.

Speaker Change: Yeah, No we do expect it to come down there was sort of the mid <unk>.

Speaker Change: First of all the things that could have happened in this quarter to get such a high number.

Speaker Change: As we pull in.

The development projects that we were talking about and those start.

Speaker Change: Expenses start to hit that all sort of level set us.

Speaker Change: So I still.

Speaker Change: Expect us to be in the.

John Givens: As we grow our sales, we are well equipped to scale effectively. In addition to having operations to scale, we continue to invest in the right content. We strengthen our competitive position. We have expanded our scenario library to include more real-world situations like crisis intervention and active shooter responses developed by our industry experts. One of the newer areas that we've begun to create additional content for is the healthcare field. Since our initial V-180 deployment to Ascension's St. John's Hospital, we've seen an increase in demand for our training solutions for more than six additional institutions.

Speaker Change: Low sixty's, where we anticipated this quarter was just unique and an outlier.

John Givens: and I'll add, Jason, I'm willing to sacrifice a little bit of the gross margin to gain when we start releasing the BXR to gain as much market share as I can, so high 50s is probably mid to high 50s is the lowest target that I'll go to, but I'm willing to sacrifice a little bit for that.

And I'll ask Jason I'm willing to sacrifice a little bit of the gross margin to gain when we start releasing the <unk> XR to gain as much market share as I can so high fifties as it is.

Speaker Change: Is it is probably more.

Speaker Change: Mid to high Fifty's has a lowest target that'll go to but I'm willing to sacrifice a little bit for that.

John Givens: The content we've created allows hospital security staff to train on common scenarios that ensure the proper response for patient and staff safety when responding. The early reception of these scenarios shows the significant untapped market potential. We are continuing to create content for these applications and expect our VXR to also grow sales in these markets.

Speaker Change: Yeah.

Jason Schmidt: Okay, no, that's really helpful. Thanks a lot, guys.

Speaker Change: Okay. No that's really helpful. Thanks, a lot guys.

Speaker Change: Thanks.

Richard Baldry: Thank you. Our next question is from Richard Baldry with Roth Capital Partners. Please proceed with your question.

Speaker Change: Thank you. Our next question is from Richard Baldry with Roth Capital Partners. Please proceed with your question.

Richard Baldry: Thanks. You've been, you know, very focused on efficiencies in the business or since you took the CEO seat. I want to, I'm curious that the inventory level sort of set a new high in the quarter as revenues have been a bit soft. Does that, you know, indicate something you're seeing in sort of near-term opportunities? Or are there, you know, more defensive stands to be taken on maybe harder-to-procure items or something we need to be aware of?

Speaker Change: Thanks.

Speaker Change: <unk> been very focused on efficiencies in the business since you took.

Richard Baldry: The CEO seat I Wonder I'm curious that the inventory level sort of set a new high in the quarter as revenues have been a bit soft is that indicate something you're seeing in sort of near term opportunities are there you know more defensive stance be taken on maybe harder her procure items are something we need to go.

John Givens: With the new content we are creating, we are excited about the upcoming launch of our VXR. Our new extended reality solution is set to disrupt and improve professional training environments. It's designed to enhance soft skill training across applications in law enforcement, healthcare, education, and other related sectors. We are customizing the VXR to accommodate diverse agency sizes, budget constraints, and specific training requirements. By extending beyond the traditional shoot-don't-shoot scenario-based training, VXR focuses on development of critical interpersonal skills, enabling professionals to better navigate sensitive situations, diffuse potential conflicts, and build strong community relationships.

Speaker Change: Thanks.

Speaker Change: One of the I can take that so one of the things that youre seeing in that $1 million increase in inventory is those labor costs that we're talking about that got moved to a work in progress account.

Speaker Change: To until those projects come to fruition to match the revenue accordingly.

Speaker Change: So that is a big chunk of that work in progress.

Speaker Change: Got it.

Rich: And then rich you know what the.

Speaker Change: The other part is the purchases for Ipass and our prototyping as well.

Speaker Change: So we're putting product out in each of those phases. So we are buying for that while were still in production for our customer base that we have been for years.

John Givens: It's wide array of application positions VXR as a key pillar in our long-term growth strategy Since our last poll, we've also added two additional scenarios that were shipped when the product is launched. We are currently finalizing terms and conditions with meta and once this is complete, we'll be ready to take orders and then begin shipping. With this launch, we are prepared to moderate our strong profit margins temporarily to secure a more substantial market share and ensure sustained growth.

Speaker Change: Got it.

Speaker Change: And I'm gonna be too bogged in technical accounting, but it.

Speaker Change: You were EBITDA positive the cash went down about $4 million that same amount basically is missing from accrued expenses and other it it's sort of a random line could you walk through what's in that line why it fell to such a kind of dramatically low level.

Speaker Change: Otherwise you know the cash would've been essentially sideways and when it looked like it was falling so I ask thanks.

John Givens: But for turning the call over to Alanna, I'll give you a rundown of how our end markets performed in Q2. In the second quarter, our government revenue decreased to 5.3 million from 9.5 million in the prior year. This difference is attributed to the delay in federal budget decisions with which impacted our ability to close contracts within the expected time frame. As I mentioned earlier in the call, law enforcement budgets are facing continuous cuts and now rely heavily on grant funding from federal government.

Speaker Change: Yeah, it's all in that is that in our tax.

Speaker Change: And our tax calculations and our tax provision.

Speaker Change: We are sitting on a prepaid.

Speaker Change: Prepaid tax in both federal and state.

Speaker Change: State taxes, which is where that the cash movement went.

Speaker Change: And then we were attempting to not hold as much accounts payable.

Speaker Change: On the balance sheet.

Speaker Change: Right around as well.

Speaker Change: Got it so.

Speaker Change: So then maybe from a higher level perspective, if you step back and think about the continuing resolution hampering budgets can you talk about like activity levels outside of that or whether that's.

John Givens: Our grant watch program will help bridge this gap between the customer and federal funding. Internationally, our revenue was 0.6 million a decrease from 0.7 million in 2023. The slight decrease in international revenues primarily due to the long lead times in our international pipeline which have slowed the execution of opportunities. With our international pipeline continuing to grow, we expect higher close rates in the next several quarters as the budgets are approved.

Speaker Change: Product pipelines or sales pipelines.

Speaker Change: The degree to which the salespeople are engage with either existing clients new clients and.

Speaker Change: I am asking is there a way to gauge one you know a bunch of situation improved.

Speaker Change: Sort of a soft off the books backlog of activity that gives you some hope for sort of a re energize growth rate going forward. Thanks.

John Givens: As part of our sales team restructuring, we now have dedicated international sales and these changes are enhancing our ability to forecast and stabilize future revenue streams within this segment as we continue to build out a more predictable international pipeline. Turning to our progress in the military, we are continuing to make progress with US Army's integrated visual augmentation system or IBAS program. As a reminder, this is a 5.9 million dollar prototype contract secured through our collaboration with Microsoft as a prime contractor.

Speaker Change: I mean, I wish I had a crystal ball for that one Richard.

Richard Baldry: Because there's so many indicators.

Richard Baldry: One is just that they start.

Richard Baldry: Putting us back in the process or they start opening up the.

Richard Baldry: The competition, but I've stated the differences before.

Richard Baldry: The military and.

Richard Baldry: Police law enforcement sales are very very similar.

Richard Baldry: I understand both of them very well the big difference that people do not understand as well.

John Givens: Included in this order are our industry leading recoil hardware kits, high pressure airflow stations and magazines, all engineered to meet the US Army's stringent requirements. This partnership reaffirms the reliability performance of our technology and also highlights our capability to innovate and adapt in this response to the demanding needs of military training. We are also focused on expanding our reach further into US Federal and Department of Defense channels by pursuing these opportunities through a targeted marketing campaigns and strategic initiatives.

While it's a big chunk and very large contracts with the military you're only dealing with you know.

Richard Baldry: A handful of people for 25 years 30 sites as they buy in volumes you deal with one contracting officer in one person those are easy determined windows come around.

Richard Baldry: The harder part is.

Richard Baldry: Theres different agencies that are putting up federal grants and in each one of the law enforcement you have state local federal.

Richard Baldry: City municipalities that all have different ways of releasing funds and purchasing processes and all of that.

John Givens: We have deployed a dedicated sales team tasked with securing larger contracts in US Federal and Department of Defense channels. The specialized unit is strategically equipped to navigate complex opportunities and drive significant growth in these key areas. This corner will also approve for Department of Defense funding for research projects. This approval confirms what we've known, virtuous simulators can record shooting performance accurately and track individual progress over time reliably, reliably, thereby qualifying them as a verify and consistent research tool. This was done by an independent research study conducted by Ohio State University and further emphasizes our potential.

Richard Baldry: So I can give you a very good indication of when the military markets open, but at state and federal state and local level. Some have to go through county Commissioners, we understand how all of that work is just it's not very clear when that opens up because youre talking to different people in different cities in different states.

Speaker Change: So what.

Speaker Change: What we.

Speaker Change: The biggest indicator for us is the federal contracts because a lot of them are funding some of the small municipalities and police departments and with that there are sometimes they'll do matching funds. So when those start to move we know that there that the funds are starting to release and then in.

Unknown Executive: Mitchell.

Alanna Boudreau: I'll now turn the call over to Alanna to discuss our financial results and for the detail. Alanna. Thank you, John and good afternoon everyone.

Speaker Change: And you start getting the P o's and we're starting to see some of that now.

Speaker Change: Great. Thanks for the question, specifically, but there really isn't I wish I wish it was that easy to to tell you what the answer is.

Alanna Boudreau: Now let's review our on audited financial results for the second quarter ended June 30th, 2024. Total revenue was 6.1 million compared to 10.3 million in the prior year period. The decrease was primarily due to delays in federal funding attributed to the US government's continuing resolution, which caused numerous contracts to be placed on hold. This temporary challenge impacted bookings in the first half of the year. Our gross profit told us 5.5 million, 91% of total revenue compared to 5.9 million, 57% of total revenue in the prior year.

Speaker Change: Got it thanks for your help.

Richard Baldry: Thanks Richard.

Richard Baldry: At this time. This concludes our question and answer session I would now like to turn the call back over to Mr. Givens for his closing remarks.

Mr. Givens: Thank you Paul virtuous dedicated to our customers and their crucial missions is as strong as it ever has been.

Mr. Givens: Our passion hard work and dedication of our team are the cornerstone of our success and Im confident in our ability to provide that leadership to our customers and continue innovating at the top of the industry and making a meaningful difference that's our priority.

Alanna Boudreau: The 7% decrease in gross profit was primarily due to the change in sales. Gross margin increased mainly due to the lower cost of sales driven by operational enhancement. Offsetting labor costs related to development projects. And 40% of the total revenue driving from our service and step contracts, which have limited cost of sales associated with that revenue. Net operating expense was 4.4 million, marking a 10% increase from the 4 million in the prior year period.

Mr. Givens: To our shareholders I want to thank you for your continued support and hope to see you in October and Chambal Paul over to you.

Alanna Boudreau: Thanks.

Chambal Paul: Thank you for joining us today for <unk> second quarter 2024 Conference call you may now disconnect.

John Givens: One of the things that you're seeing in that million dollar increase in inventory is those labor costs that we're talking about that got moved to a work in progress account until those projects come to fruition to match the revenue accordingly. So that is a big chunk of it.

Richard Baldry: Got it. And Richard, the other part is the purchases for IBAS and our prototyping as well. So we're putting product out in each of those phases. So we are buying for that while we're still in production for our customer base that we have been for years.

Richard Baldry: I don't want to be too bogged down in technical accounting, but you were even positive that the cash went down about $4 million. That same amount basically is missing from accrued expenses and other, it's sort of a random line. Can you walk through what's in that line, why it fell to such a kind of dramatically low level? Because otherwise, you know, the cash would have been essentially sideways and wouldn't have looked like it was falling. Yeah, it's all in the details.

Alanna Boudreau: Yeah, it's all in the tax and our tax calculations and our tax provisions. We are sitting on prepaid prepaid tax in both federal and state taxes, which is where the cash movement went. And then we were attempting to not hold as much accounts payable on the balance sheet.

Richard Baldry: So then maybe from a higher level perspective, if you step back and think about, you know, the continuing resolution, hampering budgets, can you talk about activity levels outside of that, or whether that's product pipelines or sales pipelines, the degree to which the sales people are engaged with either existing clients or new clients. And I'm asking if there is a way to gauge once you know the budget situation has improved, there's sort of a soft off the books backlog of activity that gives you some hope for sort of a re-energized growth rate going forward. Thanks.

John Givens: And I wish I had a crystal ball for that one, Richard, because there are so many indicators. One is just that they start putting us back in the process, or they start opening up the competition. But I've stated the differences before. The military and Police, Law Enforcement, Sales are very, very similar. I understand both of them very well. The big difference that people do not understand is...

Alanna Boudreau: This increase was driven by investments in sales and marketing as well as strategic hiring to support growth initiatives. Also adding to the increase to operating expenses related to our improved IT structure and compliance requirements for our future. Operating income was 1.1 million compared to 1.9 million in the second quarter of 2023. Net income was 1.2 million or 11 cents per diluted share based on the 11.1 million weighted average diluted shares outstanding a 17% increase from net income of 1 million or 9 cents per diluted share based on 10.9 million weighted average diluted shares outstanding in the prior year period. Adjusted EBITDA a non gap metric was 1.6 million compared to 2.6 million in the prior year period.

John Givens: While it's a big chunk, but in very large contracts for the military, you're only dealing with, you know, a handful of people for 25 or 30 sites as they buy in volumes; you deal with one contracting officer and one person; those are easy to determine when those come around. The harder part is that there are different agencies that are putting out federal grants. And in each one of the law enforcement, you have state, local, federal, city, and municipalities that all have different ways of releasing funds and purchasing processes and all of that.

John Givens: So, I can give you a very good indication of when the military markets open, but at state, federal, you know, state, and local level, some have to go through county commissioners. We understand how all that works. It's just, it's not very clear when that opens up because you're talking to different people in different cities and different states. So, what do we do? The biggest indicator for us is the federal contracts because a lot of them are funding some of the small municipalities and police departments.

John Givens: And sometimes, there will be matching funds. So when those start to move, we know that the funds are starting to release, and we'll start getting the POs. And we're starting to see some of that now.

Richard Baldry: Great, thanks for your help. I can answer your question specifically, but I wish it was that easy to tell you what the answer is.

Operator: At this time, this concludes our question and answer session. I'd now like to turn the call back over to Mr. Givens for his closing remarks. Thank you, Paul.

Alanna Boudreau: Now turning to our bookings and backlog we define bookings as the total of newly signed contracts and purchase orders received in a defined period for the second quarter of 2024. We received bookings totaling 5.9 million looking at our backlog which we define as the accumulation of bookings from signed contracts and purchase orders that are not yet started or incomplete. It cannot be recognized as revenue until delivered in a future period as of June 30th 2024 our backlog total 313.8 million to break out of this backlog includes 5.6 million in capital 6 million in service and warranties and 2.2 million in step contracts.

Alanna Boudreau: As a reminder service warranties and step backlog is revenue that will be recognized on a straight line basis over the coming years. In addition to the backlog there are 7 million in renewable step contracts that would represent additional revenue for the next five years. This year as our first step customers are ending their original agreements we are seeing a 93% rate of either renewing their step contracts or moving to a capital purchase. This retention highlights our success in building a loyal customer base as we focus on new pipeline development.

Alanna Boudreau: Finally to our balance sheet as of June 30th 2024 we had unrestricted cash and cash equivalence of 18.4 million compared to 22.4 million at the March 30 2024. Just to please primarily reflect in our corporate tax payment from a working capital standpoint at the end of second quarter. We had 34.8 million in working capital up slightly from the 32.33.2 million at the end of Q1 in 2023.

Alanna Boudreau: For additional details of our financial results please reference for 10Q which was filed earlier today.

John Givens: That concludes my prepared remarks and I'll turn it back over to John for his closing remarks. Thanks. Thank you, Alanna. As we review the past quarter and the first half, it's clear that while we are navigating through some temporary challenges, our strategic initiatives and our operational improvements are setting the stage for incredible future growth. Our upcoming launch of the VRXOD platform and growth into our strategic military engagements are important components to this response and they will be key to our success for the rest of 2024.

John Givens: Looking ahead, we have the right procedures in place and are optimistic for the second half of the year as grant funding becomes clear and military contracts begin to open. We are positioned to capitalize on our healthy pipeline of opportunities in the months ahead while continuing to enhance our customer relationships, which are single most important in this business, particularly as we extend our global reach and roll out of new products.

John Givens: In conclusion, despite the temporary hurdles, VirTra does remain at the helm of training industry driven by innovation and a commitment to excellent training outcomes. We are optimistic about what the back end of 2024 holds and we look forward to sharing our progress and we appreciate your continued support interest.

John Givens: Now, before we open the call for questions, I want to let everyone know that our annual shareholder meeting will be held in Chandler, Arizona in October. We'll follow this with an investor day where we'll offer a presentation and a tour of the facility. More details will be made available in a forthcoming press release when we look forward to engaging with our shareholder as an investor during these events. With that, we'll open up the call for your questions, operator, please provide the appropriate instructions. Thank you.

Operator: Now we're conducting 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. 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 hand set before pressing the star keys. One moment, please, while we pull for questions.

Operator: Thank you.

Jason Smith: Our first question is from Jason Smith with Lake Street Capital Markets. Please proceed with your question. Thanks for taking my questions. Just want to dig in a little bit more on sort of the booking activity. Obviously, a nice rebound in queue two. Understanding the budget constraints, impact in queue two. Just curious if you've seen bookings continue to accelerate here in queue three. We are seeing, I'm not to make it forward looking, we're pleased with what's happening in the first month of the quarter.

Jason Smith: Okay, no, that's helpful. And then looking at, sorry, you noted some continued traction in the healthcare market adding kind of six additional institutions. When do you think those could maybe pivot from more kind of pilot programs to firm POs? Well, we've seen several of those come in and those are the numbers that were reported in bookings. It's an underserved market that has, there's specific laws in California and Connecticut now that require healthcare workers to have some type of training not certified but I think it's going to move towards that and purchase right there at the start and the middle of it right now.

Jason Smith: So we should see that that's the growth that we're seeing, the words getting out and purchase taking care of their customers and they're seeing that it's meeting the needs they have now and it's driving some of their policies going forward. So that's a bit unpredictable of it's going to be a very large market but we're going to have to see how that plays out because the healthcare industry has never had to deal with this, with training they just usually have a security force is just dealing with stuff and as these laws come out to protect patients and healthcare workers it becomes, it's becoming more apparent that they need some type of training aid and the training that we do it doesn't, it doesn't require much to adapt to what they need in that industry. It's more about how they handle it within their environment because it is slightly different.

John Givens: Okay, that's really helpful and then just the last one for me and I'll jump back into Q. Obviously, gross margin was extremely strong in the quarter, you noted mix and some other efficiency improvements but how should we think about gross margin here in the second half? I assume it's going to at least come down a bit from Q2 level. Yeah, we expect, yeah, no, we do expect it to come down. There was sort of the best of all the things that could have happened in this quarter to get such a high number.

John Givens: As we pull in the development projects that we were talking about and those expenses start to hit that old sort of level set us out. So I still expect us to be in the low 60s where we anticipated this quarter was just unique and in that layer. And I'll add Jason, I'm willing to sacrifice a little bit of the gross margin to gain when we start releasing the BXR to gain as much market share as I can.

John Givens: So high 50s is probably mid to high 50s as a lowest target that I'll go to but I'm willing to sacrifice a little bit for that. Okay, no, that's really helpful. Thanks a lot, guys. Thanks. Thank you.

Richard Valtteri: Our next question is from Richard Valtteri with Roth Capital Partners. Please proceed with your question. Thanks. You've been very focused on efficiencies in the business since you took the CEO seat. I'm curious that the inventory level sort of set a new high in the quarter as revenues have been a bit soft. Is that, you know, indicate something you're seeing in sort of near-term opportunities or are there, you know, more defensive stance be taken on maybe harder to procure items or something we need to go where.

Richard Valtteri: Thanks One of the I can take that so one of the the things that you're seeing in that million dollar increase in inventory is those labor costs that we're talking about that got moved to a work in progress account to until those projects come to fruition to match the revenue accordingly. So that is a big chunk of it work in progress. Got it. And Richard, you know, well, the other part is the purchases for IVAS and our prototyping as well.

Richard Valtteri: So we're putting product out in each of those phases. So we are buying for that while we're still in production for our customer base that we have been for years. Got it. And I want to be, you know, too bogged and technical accounting, but you know, you were even positive. The cash went down about four million that same amount basically is missing from accrued expenses and other. It's sort of a random line.

Richard Valtteri: Can you walk through what in that line why it fell to such a kind of dramatically low level is otherwise, you know, the cash would have been essentially sideways and wouldn't look like it was falling. Thanks. Yeah, it's all in the in our tax in our tax calculations and our tax provisions. We are sitting on a prepaid prepaid tax in both federal and and state taxes, which is where the cash movement went. And then we were attempting to now hold as much accounts available on the balance sheet for a quarter end as well. Got it.

Richard Valtteri: So then maybe from a higher level perspective, you step back and think about, you know, the continuum resolution, hampering budgets. Can you tell us like activity levels outside of the ads or whether that's product pipelines or sales pipelines. The degree to which salespeople are engaged with other existing clients, new clients and I'm asking is there a way to gauge once, you know, a budget situation improved. And there's sort of a soft off the books backlog of activity that gives you some hope for sort of a reenergized growth rate going forward.

Richard Valtteri: Thanks. And I wish I had a crystal ball for that one Richard because there's so many indicators. One is just that they start putting us back in the process or they start opening up the competition. But I've stated the differences before the military and police law enforcement sales are very, very similar. I understand both of them very well. The big difference that people do not understand is while it's a big chunk and very large contracts for the military, you're only dealing with, you know, a handful of people for 25 or 30 sites as they buy in volumes.

Richard Valtteri: You deal with one contracting officer and one person. Those are easy to determine when those come around. The harder part is there's different agencies that are putting up federal grants. And in each one of law enforcement, you have state, local, federal, city municipalities that all have different ways of releasing funds and purchasing processes and all of that. So I can give you a very good indication of when the military market's open.

Richard Valtteri: But at state, you know, state local level, some have to go through county commissioners. We understand how all that works is just it's not very clear when that opens up because you're talking to different people in different cities and different states. So what we.., the biggest indicator for us is the federal contracts, because a lot of them are funding some of the small municipalities and police departments, and with that there are sometimes, they'll be matching funds.

Richard Valtteri: So when those start to move, we know that the funds are starting to release and then and and we'll start getting the POs, and we're starting to see some of that now. Great, thank you for your help. Good question, specifically, but the brilliant, I wish it was that easy to tell you what the answer is. Got it, thanks for help. Thanks, Richard.

Operator: At this time, this concludes our question and answer session.

John Givens: I'd now like to turn the call back over to Mr. Givens for his closing remarks. Thank you Paul. Virtures dedicated to our customers and their crucial missions is as strong as it ever has been.

John Givens: Our passion, hard work and dedication of our team are the cornerstone of our success and our confident in our ability to provide that leadership to our customers and continue innovating at the top of the industry and making a meaningful difference. That's our priority.

Operator: To our shareholders, I want to thank you for your continued support and hope to see you in October in Chambon. Paul, over you. Thank you for joining us today for Virtures 2nd quarter, 2024 conference call.

Operator: You may now disconnect.