Q3 2024 VirTra Inc Earnings Call
Matt: Good afternoon and welcome to VRTRA's third quarter 2024 earnings conference call. My name is Matt and I'll be your operator for today's call.
Matt: Joining us for today's presentation are the company's CEO, John Givens, and CFO, Alanna Boudreau.
Matt: Following the remarks, we'll open the call for questions. Before we begin the call, I'd like to provide Dirch's safe harbor statement that includes cautions regarding forward-looking statements made during this call.
Matt: During this presentation, management may discuss financial projections, information, or expectation 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.
Matt: The company does not undertake any obligation to update them as required by law.
Speaker Change: Finally, I'd like to remind everyone that this call will be made available for replay via a link in the investor relations section on the company's website at www.Veertra.com. Now I'd like to turn the call over to Veertra's CEO, Mr. John Givens. Thank you.
John Givens: Thank you Matt and thank you everyone for joining us this afternoon. After the markets closed today we issued a press release that provided our financial results for third quarter ending September 30th 2024 along with highlighted business accomplishments.
John Givens: where we are seeing promising progress. Afterwards, I'll hand it over to Alanna for a detailed financial review. Then I'll provide some closing remarks before moving to the Q and A.
John Givens: In the third quarter, we made positive strides towards accelerating our sales momentum. Our revenue came in at $7.5 million, up 23% from Q2 of 2024.
John Givens: and in line with the $7.6 million in Q3 of 2023.
Importantly,
John Givens: Q3 bookings increased to $8.9 million, up 51% from the $5.9 million in Q2 of 2024, and up 22% from the $7.3 million in Q3 of 2023. The performance reflects the early impact of our sales enhancement initiatives in the second half of 2023 and marks a solid recovery from earlier in the year.
John Givens: This bookings revenue growth confirms the substantial runway ahead indicates we're only beginning to unlock our full potential. The rebound in Q3 bookings is also an encouraging sign of continued performance gains in Q4 and into 2025.
John Givens: Despite the top-line pressures, we've maintained a robust gross margin profile.
John Givens: demonstrating the resilience and efficiencies of our operating model. In Q3, our gross margins improved to 73% from 71% in Q3 of 2023, demonstrating the effectiveness of our operational efficiencies and our focus on lowering the cost of sales as we scale.
John Givens: As we anticipate sales accelerations in the coming quarters, we are well positioned for gap profitability growth as well. The stability of our margin structure, combined with strengthened sales momentum, sets us up for a promising trajectory.
John Givens: Looking more closely at our sales initiatives, we anticipate further growth in bookings as we continue to expand our international reseller network.
John Givens: This expansion allows us to build localized partnerships globally, enabling us to address a range of agency needs and respond swiftly to market demands. We have been focusing on and seeing success in Canada, South America, and Europe.
John Givens: Domestically, we're continuing to assist customers in securing federal grants to fund training systems.
John Givens: As a reminder, this grant fund process also moderately lengthens the sales cycle.
John Givens: Now, turning to the VXR, the rollout of our VXR platform is another key element to making our system more accessible as it offers agencies flexible training options that meet a range of budgetary needs.
John Givens: While initial deliveries are taking slightly longer than originally expected due to the finalizing the terms and conditions with our hardware provider, I'm happy to share that we are now accepting customer orders and preparations are underway for the initial customer deliveries.
John Givens: Early reception for the VXR systems have been highly encouraging. We recently showcased the VXR at IACP in Boston, where it generated strong interest from current and potential customers. Beyond law enforcement, VXR is also opening doors
John Givens: to adjacent markets such as health care, education and event, large-scale event management where there's growing demand for immersive training.
John Givens: Furthermore, we're laying the groundwork for VXR content to eventually be compatible across different headsets, making our solution even more accessible and adaptable to a broader range of clients.
John Givens: This adaptability combined with the unique immersive experience VXR provides is a key differentiator for us.
John Givens: We're confident that VXR will become a cornerstone of our growth strategy in the years ahead, equipping agencies and other sectors with cutting-edge tools for de-escalation training while broadening Virtra's reach and solidifying Virtra as a leader in virtual training solutions.
John Givens: High quality training content continues to be an important competitive advantage for us as we
continue to invest in developing new training scenarios.
John Givens: that address real-world challenges. This quarter, we've added several scenarios focusing on high stress situation, including crisis intervention, conflict resolution, and crowd control skills increasing relevant across a variety of sectors.
John Givens: As demand rises for this type of scenario-based training, our library of content is expanding to meet the evolving needs of both our core law enforcement markets and new sectors that rely on de-escalation and soft skills training.
John Givens: In the military space, we're making steady progress in expanding our engagement, particularly through our ongoing work with the U.S. Army and other Department of Defense channels. Our integration with systems like Virtual Battle Space enhanced our ability to deliver holistic, mission-critical solutions that apply to military use cases.
John Givens: As a brief update on the U.S. Army's IVAS program, we remain on track with this partnership and are in the final stages of system validation.
John Givens: It's worth reminding everyone that these military opportunities are large in scale, often involving large, one-time contract awards with long and intricate sales processes. We're seeing increasing activities from military sectors as new...
John Givens: Requests for proposals and market research requests begin to flow through. We continue to advance and align our technology with military training priorities and work towards capturing more military market share.
John Givens: In line with these efforts, I'm also excited to share that we've recently welcomed two distinguished leaders to our Board of Directors, retired U.S. Army Lieutenant General Maria R. Gervais and Executive Director Mike Ayers of the Georgia Peace Officers Standards and Training Council.
John Givens: Both bring deep experience and insight into military and law enforcement training, respectively.
John Givens: Lieutenant General Gervais led transformative initiatives in modernizing virtual training environments for the Army with insight from key programs like IVAS, which closely aligned with our military-focused initiatives.
John Givens: Mike Ayer's extensive law enforcement training background aligns well with our mission to support officer preparedness through scenario-based training. Their additions strengthen our governance framework as four of our five board members are now independent.
John Givens: As I discussed in previous calls, our operational infrastructure is now better equipped than ever to support increased demands, and we are continuing to improve. Over the past two years, we've implemented significant improvements to our production process, including the establishment of a first-class manufacturing facility and the integration of a new ERP system.
John Givens: These advancements allow us to effectively manage complex, large-scale projects and ensure that we can meet growing demand with high-quality products.
John Givens: Additionally, our investment in automation within our machine shop, including systems that run through the night and over the weekends, has increased productivity while maintaining high quality. This operational readiness positions us to scale confidently as we convert our sales pipeline into tangible results.
John Givens: Looking ahead, we are closely watching macroeconomic factors that could affect our customers' funding. December's budget discussions will be pivotal, as the continuing resolution currently funding federal programs is set to expire on December 20th.
John Givens: We anticipate that these discussions will bring greater clarity around federal allocations and funding priorities, particularly as the government adjusts post-election.
John Givens: This also positions us to capitalize on new funding when it becomes available.
before turning back over to Alanna.
Speaker Change: I'll give you the rundown of how our end markets performed in Q3.
In third quarter, our government revenue decreased.
Speaker Change: to $6.9 million from $7.3 million in the prior year period. This difference reflects the prior three-quarters booking impact from federal funding delays and time needed to rebuild our sales team.
Speaker Change: Internationally, our revenue was $0.4 million, an increase from $0.2 million in 2023. Our international pipeline continues to expand, and we expect the closing rate to continue increasing over the next several quarters as budgets are approved.
Speaker Change: I'll now turn the call over to Alanna to discuss our financial results in further detail. Alanna? Thank you, John, and good afternoon, everyone. Now let's review our unaudited financial results for the third quarter and it's September 30, 2024.
Alanna Boudreau: Total revenue was $7.5 million, slightly down from the $7.6 million in the prior year period. This modest decline is primarily due to lower bookings in the prior three quarters, largely stemming from funding delays and extended decision-making cycles among our government customers.
Alanna Boudreau: Gross Profit for the quarter was $5.5 million, representing a 73% gross margin, an increase from the 71% in the prior year period.
Alanna Boudreau: This improvement reflects operational efficiencies and a favorable mix of high-margin service and step contracts, which entail limited cost of sales.
Alanna Boudreau: Gross profit was $16.5 million for the first nine months of 2024, representing a 76% gross margin compared to $18.3 million or 65% gross margin in the prior year period.
Alanna Boudreau: These improvements were driven by lower cost of sales, which were in part due to a reclassification of labor related to our development projects.
Alanna Boudreau: This expense will be reflected in the income statement when we have corresponding matching revenue.
Alanna Boudreau: Additionally, for the nine-month period, staff and services made up 30% of total revenue, which have a lower cost of goods associated.
Alanna Boudreau: This increase is tied to strategic investments in sales and marketing, as well as hiring to support our ongoing growth initiatives. Additionally, we made enhancements to our IT infrastructure to ensure compliance with current and future contract requirements.
Alanna Boudreau: Net operating expense for the first nine months of 2024 was $13.2 million compared to $11.2 million. The increase is a result of those strategic investments in hiring and IT expenses previously mentioned.
Alanna Boudreau: Operating income was $0.8 million compared to $1.7 million in the third quarter of 2023. Operating income was $3.3 million for the first nine months of 2024 compared to $7.1 million in the prior year period.
Alanna Boudreau: Net income was $3 million for the first nine months of 2024, compared to $5.6 million in the prior year period.
Alanna Boudreau: As of September 30, 2024, we had unrestricted cash and cash equivalents of $19.7 million compared to $18.4 million at June 30, 2024, and $18.9 million at September 31, 2023.
Alanna Boudreau: Our positive cash flow and recent adjustments to our contract terms have fortified our working capital, which was $36 million as of September 30th. This allows us to respond quickly to new opportunities and strategically invest in areas that will drive growth.
Now, turning to our bookings and backlog.
Alanna Boudreau: We define bookings as the total of newly signed contracts and purchase orders received in a defined period. For the third quarter of 2024, we received bookings totaling $8.9 million, bringing bookings total for the nine-month period to $17.7 million.
Alanna Boudreau: 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.
Alanna Boudreau: As of September 30, 2024, our backlog totaled $15.2 million. This breakout of backlog includes $7 million in capital, $6.2 million in service and warranties, and $2 million in stuff contracts.
Alanna Boudreau: Additionally, our Renewable Stuff Contracts, which extend over multiple years, represents an additional $5.8 million in revenue.
Alanna Boudreau: For additional details of our financial results, please reference our 10-Q, which was filed earlier today. And that concludes my prepared remarks, and I'll turn the call back over to John for his closing remarks.
John Givens: Thank you, Alanna. As we look ahead, it's clear that we still have work to do to be where we want to be.
John Givens: That said, our strategic initiatives and operational improvements are setting us up well for continued progress in 2025. We are focused on driving meaningful improvements in our marketing and sales functions in the coming months, which we expect to help grow our pipeline.
John Givens: These efforts, alongside an introduction of our BXR platform and continued progress towards penetrating military channels, gives us confidence in our ability to execute our goals for the remainder of 2024 and into the early months of 2025.
John Givens: We recognize that while temporary funding dynamics may introduce some timing variability, our current backlog and sales pipeline
John Givens: along with our focus on innovation, it positions us to convert our opportunities as funding becomes available. We're especially well prepared to respond as both grant funding and federal contracts become more certain over the coming months.
John Givens: To include, despite near-term fluctuations, we are dedicated and more equipped than ever to lead the virtual training industry with innovation, adaptable solutions that meet the complex needs of our customers.
John Givens: We appreciate your continued support and interest and we look forward to updating you on our progress in the coming quarters. And with that, we'll open the call up for questions. Operator, please provide the appropriate instructions.
Speaker Change: Great, thank you. We will 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.
Speaker Change: You may press star 2 to remove yourself from the queue.
Speaker Change: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the start key.
One moment, please, we'll report for questions.
Speaker Change: Once again, if you'd like to ask a question, it is star 1.
Speaker Change: I have no further questions. I'd like to turn the floor back to management for any closing comments.
Speaker Change: Thank you. Virtue's dedication to our customers and their life-saving mission remains as strong as ever. The passion, hard work...
Speaker Change: and expertise of our team are the cornerstone of our success and our ability to provide thought leadership to our customers will continue to keep us atop the industry.
Speaker Change: I'd like to thank our shareholders for their continued support and confidence as we continue driving meaningful impact in communities around the world. Wishing everyone a safe, healthy, and positive close to 2024, and we look forward to a successful year together in 2025. Operator?
Speaker Change: This concludes today's teleconference. You may disconnect your lines at this time. Thank you again for your participation.