Q4 2024 VirTra Inc Earnings Call
Good afternoon, and welcome to veterans fourth quarter and full year 2024 earnings call. My name is Diego and I'll be your operator for today's call.
Speaker Change: Joining us for today's presentation are the company's CEO, John Gibbons and C. F O a lineup boudreaux.
Speaker Change: 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.
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 Dot virtual dot com.
John Gibbons: Now I'd like to turn the call over to virtuous T O. Mr. John Gibbons. Thank you and you May proceed sir.
John Gibbons: Thank you Diego and thank you everyone for joining us. This afternoon. After the market closed today, we issued a press release that provided our financial results for the fourth quarter and full year ended December 31, 2024, along with highlighted business accomplishments.
Speaker Change: <unk> provides immersive training solutions for law enforcement military agencies, helping personnel develop critical decision, making skills and high pressure situations are technology advances officer safety response times and mission readiness, making our solution an essential part of effective modern training programs.
John Gibbons: <unk>.
John Gibbons: 2024 was a challenging year due to persistent funding delays at the federal level. After starting 2024 under a continuing resolution, which limited new contract awards, we focused on adapting to these constraints, while positioning virtue for long term growth.
John Gibbons: Despite the challenges we still made meaningful progress we delivered sequential bookings growth in every quarter expanded our backlog and deepened our engagement with government government and military customers. In contrast to our strong performance in 2023, which was driven by clearing a substantial backlog.
John Gibbons: This past year required us to be more flexible and proactive in navigating a constrained funding environment.
John Gibbons: Out the year, we strengthened our sales pipeline secured international contracts and maintained a strong financial position to support long term growth.
John Gibbons: Importantly, we closed the year with a $22 million backlog. So while the funding environments remains somewhat fluid and unpredictable we are well positioned for revenue conversion as market conditions stabilize.
John Gibbons: Our sales pipeline continues to grow supported by our ability to help law enforcement agencies navigate the grant process and secure funding while federal grant.
John Gibbons: <unk> delays have impacted near term order conversion timing. These funds remained available and we are actively working to ensure that our agencies can access them in.
John Gibbons: In the past several months I have personally met with over 25 policymakers Department of Justice officials and leaders in the federal grant offices to advocate for clearer more structured funding processes that prioritize modern training programs. These discussions remain ongoing and we are encouraged by the.
John Gibbons: Traction that we're gaining in Washington D C.
John Gibbons: At the federal level, we continue to strengthen our long standing partnership with customs and border protection, The secret service and the Federal Law enforcement training center key customers that rely on our solutions to meet their evolving training needs.
John Gibbons: Internationally, we secured contracts that government and law enforcement agencies in Europe, and Latin America are training solutions are now operating in 44 countries.
John Gibbons: With much more room for virtue to expand into security training programs around the world. Additionally, we recorded our first the XR platform sale in Canada signaling early adoption of our extended reality training technology.
John Gibbons: The rollout of the <unk> platform remains a strategic priority.
John Gibbons: And a key part of our long term growth strategy early customer reception has been strong with positive feedback at the shot show and ICP and with the initial delivery underway. Looking ahead, we are working to enhance hardware compatibility ensure that the platform remains adaptable across different.
John Gibbons: XR headsets the system provides agencies with flexible training options that meet a range of budgetary needs.
John Gibbons: Virtuous committed to leveraging extended reality technologies for delivering our certified training courses.
John Gibbons: We firmly believe XR provides unparallel.
John Gibbons: Immersive learning experience tactical accuracy significantly enhances training, the effectiveness and positions us to meet evolving customer requirements and industry standards.
John Gibbons: One of <unk> greatest competitive strengths is our unmatched library of high quality immersive training content in Q4, we significantly expanded our scenario catalog introducing dynamically trained tailored specifically for hospital security teams across both our innovative <unk>.
John Gibbons: Traditional screen based platforms.
John Gibbons: We are also leveraging AI efficiencies just significantly accelerate content production by.
John Gibbons: By automating parts of our video editing and scenario development processes, we have cut our production times from days to minutes, allowing us to scale content output faster than ever before our content expansion strategically reinforces virtuous leadership and immersive training, so that our customers risk.
John Gibbons: See the most realistic adaptable and forward looking training experience available.
John Gibbons: In the military sector, we continue to expand our engagement, particularly through our work with the U S Army and other department of defense channels.
John Gibbons: Our final development phase for the U S. Army's integrated visual augmentation system or <unk> program was completed 42 days ahead of schedule due to our products strong performance. The army finalized testing early and canceled the remaining soldier assessments satisfied that the.
John Gibbons: That the product was ready for production.
John Gibbons: The transition of I've asked to Andrew a prominent defense technology leader with a proven history and department of defense contracting marks a significant and favorable milestone for both the program and for virtual we are currently conducting reliability testing on recall kits as part of the.
John Gibbons: Final prototyping phase and maintain confidence in our sustained participation strategically positioning us for effective support with the forthcoming production stage initiatives.
John Gibbons: As we continue scaling our.
John Gibbons: Our operational infrastructure is more robust than ever over the past two years, we have made significant improvements in our manufacturing capabilities, including establishing a state of the art production facility implementing a new ERP system to streamline operations and investing in automation within our machine shop, allowing for round.
John Gibbons: The clock production, while improving quality these investment positions us to handle large scale contracts effectively ensuring that we can meet growing demand, while maintaining our operational flexibility.
John Gibbons: As we look ahead, we are closely monitoring macroeconomic factors, particularly those that impact government funding cycles federal budget negotiations and evolving department adjusted grants structures remain key areas of focus while these factors create some near term variability.
John Gibbons: We believe our strong backlog and disciplined approach to executing our position.
John Gibbons: Puts us well and market conditions evolve.
John Gibbons: Virtually is laser focused on accelerating sales growth through a disciplined strategic approach that directly aligns with shareholder value specifically, we're implementing initiatives designed to enhance our sales performance, including expanding our high performance sales force by strategically recruiting top.
John Gibbons: Talent with proven industry success, and ensuring we have the right team to drive sustained growth.
John Gibbons: Optimizing sales efficiency through refined lead generation streamlining pipeline management and targeted outreach efforts to maximize revenue opportunities and shorten our sales cycles.
John Gibbons: And increasing our market presence by leveraging strategic partnerships and targeted marketing campaigns to deepen penetration within both law enforcement and military sectors. We remain committed to executing these actions decisively.
Speaker Change: Confident they will deliver measurable results and enhance return for our shareholders with that I'll turn the call over to Atlanta for the detailed financial review.
John Gibbons: Later.
Speaker Change: Thank you John and good afternoon, everyone. Let's now review our audited financial results for the fourth quarter and full year ended December 31st 2024, our total revenue for fourth quarter was $5 4 million compared to $10 9 million in the prior year period. This decrease reflects the impact of federal budget delays.
Speaker Change: And grant distribution process, which slows contract execution and order conversion.
Speaker Change: Despite these challenges bookings for the fourth quarter grew to $12 2 million or 37% sequential increase from Q3 2020 for however, many of these orders came late in the quarter limiting our ability to fulfill and recognize revenue with almost here Ann.
Speaker Change: As a reminder, bookings are defined as the total of newly signed contracts and purchase orders received in a defined period, our bookings for the full year 2024, total $29 6 million, while total bookings declined year over year by $4 2 million. It is important to note that excluding our 2023 design in.
Speaker Change: Prototype contract bookings for all but all service on step contracts actually increased 24% or $5 8 million.
Speaker Change: For the full year 2020 for Robin Al was $26 4 million compared to $38 8 million in 2023. This reflects to soften softened bookings environment early in the year largely due to the federal government's continuing resolution, which delayed funding decisions and contract approvals.
Our ability to consistently grow bookings each quarter demonstrates a strong recovery in demand and sales execution.
Speaker Change: <unk>, we did have to a record $750000 revenue adjustment related to our international sales from 2021, which reduced for Florida in 2020 for revenue and increased our 2023 right now.
Speaker Change: Breaking revenue down by market, our Governor government revenue for the year ended 2024 was $22 9 million compared to 31 million in the prior year period.
Speaker Change: Reflecting the funding environment impact on law enforcement agency purchases international revenue for the year was $3 1 million compared to $6 5 million in the prior year period and while revenues in this category were lower than in 2023, the bookings number and international market have increased by 68% mostly support.
Speaker Change: And by strong traction in Latin America, and Europe, where we secured major contracts in Q4.
Speaker Change: Our gross profit for the fourth quarter was $3 7 million or 69% of total revenue compared to $9 2 million or 84% in the prior year period. The decline primarily reflects the lower revenue.
Speaker Change: Full year 2024 hour gross profit totaled $19 4 million or 74% of total revenue compared to $27 4 million or 71% in 2023 the improvement in full year gross margin reflects a shift in product mix and operational efficiencies through the Q4. So the Q4 decline highlights the impact.
Speaker Change: <unk> of lower sales volume on fixed cost.
Speaker Change: Net operating expense for the fourth quarter was 4.2, million% to 13% increase from $3 7 million in the prior year period. This.
Speaker Change: Increase was driven by investments in high level personnel to support long term growth expanded sales and marketing efforts to reinforce our pipeline enhancement to ice tea infrastructure and compliance measures to support current and future contracts for.
Speaker Change: For the full year 2024, our net operating expense of $17 4 million compared to 17 million in 2023, reflecting targeted investments in growth initiatives, while maintaining cost discipline.
Speaker Change: Our operating loss for the fourth quarter was half a million compared to operating income of $1 7 million in the prior year period.
Speaker Change: Then for the full year 2024, operating income was 2 million compared to.
Speaker Change: $10 4 million in 2023, refract, reflecting lower revenues and increased operating expenses.
Speaker Change: Loss for the fourth quarter was <unk> 9 million or negative eight cents per diluted share compared to net income of $3 5 million or positive <unk> 32 cents per diluted share in the fourth quarter of 2023 included in this loss was a one time payment for 275000 from a lease settlement related to a legacy facility contract.
Speaker Change: Which contributed to that loss for the full year 2024, net income was one 4 million or 12 cents per diluted share compared to $9 2 million or <unk> 85 cents per diluted share in 2023.
Speaker Change: For the full year 2024, adjusted EBITDA was $2 9 million compared to $12 4 million in 2023.
Speaker Change: As of December 31st 2024, cash and cash equivalents were 18 million compared to $18 8 million in the summer of 2023 positioning us well to navigate market conditions, while continuing to invest strategically.
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 not be recognized as revenue until delivered in a future period as of December 31, 2024, our backlog totaled $22 million. This breakout of backlog includes 10.6.
Speaker Change: $6 6 million in service and warranties and $4 8 million in stock contracts. Additionally, our renewable stock contracts that extend over multiple years represents potential additional $5 3 million in revenue.
Speaker Change: Additional detailed financial results. Please reference our 10-K that concludes my prepared remarks, and now I'll turn the car call back over to John John.
Speaker Change: Thank you Atlanta as we move through 2025, we remain focused on executing our strategy strengthening our customer relationships and improving our sales and operational efficiencies. We build a strong foundation with a return to consistent bookings growth and expanding backlog and deeper engagement with the federal and military agent.
Speaker Change: While the funding environment remains unpredictable in the near term the long term need for advanced training solutions continues to grow and we are well positioned to support our customers as they secure funding our focus remains on converting backlog into revenue scaling our content library and ensuring virtual remains.
Speaker Change: The industry leader and immersive training I look forward to updating you on our first quarter's progress in a few short weeks operator, we can now open the call for some questions.
Speaker Change: Thank you.
Speaker Change: And at this time, we will conduct a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad.
Speaker Change: Information tone will indicate that your line is in the question queue. You May Press Star two if you would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys.
Speaker Change: And our first question will come from Jason Smith with Lake Street Capital markets. Please state your question.
Jason Smith: Hey, guys. Thanks for taking my questions. Obviously, the current funding environment is pretty challenging out there John just given your history and background curious about how long you think this softness is going to last.
Speaker Change: Yeah.
Speaker Change: No crystal ball here, but we've been through these cycles before.
Speaker Change: And my read on it is that right now first you got an election right. So there was some uncertainty part of our bookings at the end of the year, where people knew that the new administration was coming in so they wanted to get everything out as quick as they can because they didn't know if they would lose the funding. So we got a nice bump from that but what is it.
Speaker Change: What's happening now is that they frozen all distribution of funding through grants and other federal programs and I think once they get through all of all of the.
Speaker Change: Review of all of the agencies.
Speaker Change: Not only do I think that will return back to where we were prior.
Speaker Change: In the funding environment, but I think it will be even more so sink for virtual and those that trained law enforcement and the military because one of the things and the reason why I was advocating in D. C is we were seeing some of these contracts. So again these grants they had they do.
Speaker Change: Have a good enough guardrails around them, meaning that the requirements were very slim. So anybody could go into grab money as long as they had the word police on it our law enforcement. So I think now those dollars that were set aside for curriculum and training devices like what virtual does we'll see.
Speaker Change: More of those dollars being.
Speaker Change: Accounted for in the proper areas and distribute distributed appropriately.
Speaker Change: So I think that youll, probably see another quarter or two of this wave of doing these assessments and I would say maybe a couple more quarters and then it will start to stabilize and then we will see significant growth and distribution of those funds.
Speaker Change: Got you that's really helpful. And then what initiatives you guys undertaking to sort of whether that's uncertain D. I know you highlighted in the prepared remarks that you've met with a number of kind of policy leaders and government leaders and are gaining traction in D. C. Can you just expand and provide some additional color on sorry about traction you're seeing.
Speaker Change: Sure. So our sales team are out there knocking the doors in.
Speaker Change: Turning over every rock and trying to help everybody we realized that so many of these departments have relied on federal funding or matching funding.
Speaker Change: And so.
Speaker Change: These are guys that are beat cops that are doing for different jobs, and then theyre going to be the grant writers and then when it finally gets up there you've got these departments that are already short staff that are now evaluating.
Speaker Change: This plethora of of grants and so internally what we've done is and have spoken about this before we've created a grant program where were.
Speaker Change: When we're out with the customers and we find that they need. This assistance, we tried to guide them to the proper grant that would match their needs and to the people like the least one that actually write grants for them and then in the meantime, as we looked at the grants and the verbiage. We found that those grants like I said on the previous.
Speaker Change: Question is we saw that there wasn't enough guardrails. So I'm at 27 legislators in the house and Senate over the course of the last month and went directly to the grant the folks that actually administer these grants trying to help them understand what we're doing and then we have someone internal that went to a Senate subcommittee hearing.
Speaker Change: And tried to give some some color around what's needed out there. So as the legislation in these grants are now created they are created with the proper view and the proper information that will meet those needs of our customer base.
Speaker Change: Gotcha and then just the last one for me and I'll jump back into queue, just wanted to kind of digging a little bit more on the ipass opportunity and just to clarify the handoff from Microsoft to Andrew you don't expect back half any impact and I guess more importantly, you think.
Speaker Change: The net positive for you guys.
Speaker Change: Yes.
Speaker Change: Little education, and this is all public information, but Microsoft decided to disperse they're mixed reality division and focus on AI and there is your systems and so what they've done is a call what they.
Its term novation, so they have no veda to contract and basically giving it to you. We don't know the deal, but they've given that contract to Andrew Andrew as a longtime contract and the people that are there have dealt with government contracts for many years.
Speaker Change: Microsoft operated under what we would call it commercial electronics model and Thats not the proper model when you're managing government contracts. So we see the net positive in the things that we have dealt with on trying to manage the contract where Andrew will know how that all works that's net positive there.
The other net positive is that knowing how the contracts work and the team that I have that have worked in that environment for a long time.
Speaker Change: They already know that our product is is very stable and as I mentioned the government actually cancelled there.
Speaker Change: Soldier assessments, because the first four days of a three week testing phase.
Speaker Change: They found that our product was in their words was operating flawlessly. So now all we're doing is reliability testing. So some of the employees that were at Microsoft are now working over it Andrew.
Speaker Change: Guiding but the Andrew involvement is huge for us the government knows I'm the government trust them and the government knows though they'll manage that and then you also have Andrew and their lead have been in the VR market, a headset XR market as part of their Genesis for creating that company. So.
Speaker Change: Moving it.
Speaker Change: Personally and the company is incredibly positive for us moving forward.
Speaker Change: That's really helpful. Thanks, a lot.
Jason Smith: No problem. Thank you Jason.
Speaker Change: Your next question comes from Richard Baldry with Roth Capital Partners. Please state your question.
Jason Smith: Thanks.
Richard Baldry: Just to make sure I'm clear on that when somebody goes into bookings does that mean it has a funding source when trying to figure out is if we look forward how much that 22 million in bookings.
Richard Baldry: It should be recognized in 'twenty, five or it could potentially still be contingent on how budgets work.
Richard Baldry: Moving forward.
John: John I can answer that please.
John: Please if we if we recorded as a booking it means we have the funding has been there I won't record or report to you guys anything in a bucket that I think has a chance.
John: Losing funding so all of that is.
John: We shouldn't we.
John: We expect.
John: Majority of it to become revenue in 2025, and there are some that it may go out to 'twenty six 'twenty seven because their service contracts are step contracts et cetera.
John: But yes, it's a booking its it will be our revenue.
John: Got it.
Speaker Change: And could you you talked about bookings were up sequentially throughout the year can you remind us if theres any seasonality, we should be thinking about as you head into Q1, you know pretty late in the quarter. I mean can you talk about how bookings.
John: Trended so far in Q1.
Speaker Change: So we've got an idea of again how to.
John: Model forward.
John: Yes.
John: Plenty.
John: Yeah, I don't want to give any forward statements, but the environment is pretty much.
John: It Hasnt stopped with the continuing resolution right at the beginning of the year.
John: Which was solved and we kind of went through that spending was held back from folks.
John: It's been the exact same environment as we started 24 and ended 24 so.
John: That's why my statement of I think we'll get back to normal in two quarters it might extend into three but and that's why we're taking all of these additional steps.
John: Does that answer your question Richard.
Richard Baldry: Yes sort of.
Richard Baldry: If we look normal is a hard thing right because if we look back at last year Q1 was fairly soft on bookings a year before it was higher than that.
Richard Baldry: If there was any way to gauge because the bookings number in Q4 was pretty good.
Richard Baldry: So I'm trying to figure out like what's the normal environment, what we've seen in the last six months or do we smooth out the full 24 year.
Richard Baldry:
Richard Baldry: I would.
Richard Baldry: What is normal that was a good question so.
Richard Baldry:
Richard Baldry: Q1 is always is.
When it Hasnt been typical as you stated, but Q1 it was always a little soft. However, we did have quite a few bookings in Q4 that we couldnt convert as we stated so with our protein production.
Richard Baldry:
Richard Baldry: Our production capability and getting units out.
Richard Baldry: Our Q1 is.
Richard Baldry: He is a little.
Richard Baldry: Very hard to answer that Richard without giving you a forward statement.
Richard Baldry: I would say that Q1 as you look over the course, averaging the last.
Richard Baldry: Probably the last six years, except for.
Richard Baldry: 23.
Richard Baldry: Got it.
Richard Baldry: And then just for modeling purposes.
Richard Baldry: $750000 for <unk>.
Richard Baldry: Move from 24 to 23, I can kind of understand I think why that happened, but we don't have a really breakdown what quarter does that revenue reverse from 24, and I guess it goes into Q4 of 23 from what I can see.
Richard Baldry: Yeah, It would ever reverse revenue that hit in Q1.
Richard Baldry: So when you when we file that case for the rest of the year.
Richard Baldry: The year over year, well will reflect that.
Richard Baldry: In Q1.
Richard Baldry: Got it and then.
Richard Baldry: Last for me would be <unk>, obviously pretty new but you've had the first sale is that in Canada.
Richard Baldry: You talk about what Youre, starting to think about in terms of average revenue per unit or any range low to high.
Richard Baldry: And sort of the market opportunity in the near term long term for that so we have an idea of what that could help drive incremental growth. Thanks.
Richard Baldry: Yes, I'm, sorry, I didn't catch the first part of that question Richard.
Richard Baldry: Yeah. It is.
Richard Baldry: The XR. So you you had your first sale in Canada.
Richard Baldry: Yep.
Richard Baldry: I put up a price point hit it.
Speaker Change: Is that also sort of wondering what you think about price points on that.
Speaker Change: Whether maybe that's not a single point of range of low to high and what what's sort of the market opportunity unit volume that you could see first year second year, how do we think about what that can do for incremental growth yeah.
Speaker Change: Yes, so from a.
Speaker Change: When you talk about price points and the.
Speaker Change: The price what was said is number one we didn't have an offering in that range. So we're leaving money on the table for the smaller.
Speaker Change: The smaller agencies.
Speaker Change: <unk>, if you look out there they range anywhere from.
Speaker Change: 35000 to 100000, so it was quite a range of what was offered.
Speaker Change: But with that and what a lot of the agencies want is they want weapons in there and they wanted to be able to do the use of force on those systems.
Speaker Change: And so when they have been looking at headsets around in some of these competitors have actually gone out of business recently.
Speaker Change: Is because the technology isn't there quite yet to introduce the weapons with because it introduces negative.
Speaker Change: Negative training so from looking at the sites because youre not looking at the real one and Youre not with your partner, but there are some great.
Speaker Change: Great opportunities there for the <unk> because we have the most certified training courses that are out there by analyst. So the first one was to get those out there and Thats what were seeing and now theres other ways that customers are starting to use it there are other of the price point, we feel is appropriate.
Speaker Change: With the market and then given that all of the certified training courses are also included with the headset as well. So when you combine the two it's quite a value and with the software. It's just a rinse and repeat so headsets would remain not just for us but for the industry, Microsoft getting out with the holo lens.
Speaker Change: And then the compression in that space becomes a challenge for those that are.
Speaker Change: Are in the market to deliver training on the headsets, because they do vary and thats. The navigation that we've been working on recently, but we do see an adoption I think it's a matter of what is the headset good for and what does it reduce my cost and how does the increase my readiness with the agencies.
Speaker Change: And so theres, a little more education that comes with it than expected, but we do see the outcome.
Speaker Change: I would say in the next the next two to four years or two to five years.
Speaker Change: Think that the that the platform with the.
Speaker Change: The screen based platform there will always be a need for that but I think youll see a lot more of the revenue in a lot more of the purchases moving towards the headsets because you can reach deeper into the smaller police departments in budget conscious and budget constrained.
Speaker Change: <unk> that are out there and thats basically our target market, because thats pretty much untapped.
Speaker Change: And actually last for me with <unk> have a step capability as well or because of the price point do you think thats not necessary no no. That's funny, we kicked that around a long time and the problem is those systems are built.
Speaker Change: Theyre, not ruggedized or anything like that so to do it in a step program, you're spreading a very small amount of.
Speaker Change: Of course across the three areas so.
Speaker Change: Most of our steps on our own.
Speaker Change: Our systems are above that price point at 50000 or above so this kind of gets that market. It was more about the price point was more about.
Speaker Change: Hitting the lower markets, but also the agencies that don't have the space I forgot to mention that in the first part. So some don't have the space to put one of our other simulators here. So no there won't be any step with it I don't think there is an advantage there for us at all.
Speaker Change: For the customer base.
Speaker Change: Great. Thank you.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: At this time. This concludes our question and answer session I'd now like to turn the call back over to Mr. <unk> for his closing remarks.
Speaker Change: As you've seen and heard virtuous dedicated to our customers and their life saving mission remains as strong as ever I'd like to thank our employees for their hard work and our shareholders for their continued support and confidence as we continue driving meaningful and impactful.
Speaker Change: Simulations to our communities around the world operator.
Speaker Change: Thank you for joining us today for a virtuous fourth quarter and full year 2024 conference call you may now disconnect.