Q1 2025 VirTra Inc Earnings Call

Good afternoon, and welcome to <unk> first quarter 2025 earnings Conference call. My name is Maria and I'll be your operator for today's call joining us for today's presentation are the company's CEO, John Gibbons our CFO.

Operator: Good afternoon and welcome to VirTra's first quarter 2025 earnings conference call. My name is Maria and I will be your operator for today's call.

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.

Speaker Change: The lineup of drought following their remarks, we will open the call for questions before we begin the call I would like to provide a 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.

Operator: 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.

Speaker Change: 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.

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 on the company's website at www.virtra.com.

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.

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

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

John Givens: Thank you, Maria, 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 the first quarter, ending March 31 of 2025, along with the highlighted business accomplishment. We began the year with a continued focus on operational execution and saw encouraging signs across several areas. While the quarter was not without its challenges, we posted a return to gap profitability, strong gross margins, and continued progress in both sales efficiencies and operational scalability. In today's environment, where many customers are still facing delayed budget approvals and grant allocations, I view this as a positive step forward.

John Gibbons: Thank you Maria 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 first quarter ending March 31st of 2025, along with the highlighted business accomplishments.

John Gibbons: We began the year with a continued focus on operational execution and saw encouraging signs across several areas. While the quarter was not without its challenges we posted a return to GAAP profitability strong gross margins and continued progress in both sales efficiencies and operational scalability.

John Gibbons: In today's environment, where many customers are still facing delayed budget approvals and grant allocations I view. This as a positive step forward the broader operating environment, including economic uncertainty shifting agency priorities and tightening government budget.

John Givens: The broader operating environment, including economic uncertainty, shifting agency priorities, and tightening government budget demands proactive focus and adaptability. At Virture, we view these challenges as opportunities to sharpen our value proposition and reinforce our role as a trusted training partner. By aligning our offerings and high-priority agency needs, anticipating procurement cycles, and maintaining fiscal discipline, we continue to strengthen our market position while delivering mission-critical solutions that meet the evolving demands of law enforcement, military, and federal agencies. While it was a productive Q1, we remain fully aware of the macro headwinds shaping our customers' decisions. The reality is that many government agencies are still navigating uncertainty around appropriations and budget cuts.

John Gibbons: It demands proactive focus and adaptability advair.

John Gibbons: At Berkshire, we view these challenges as opportunities to sharpen our value proposition and reinforce our role as a trusted training partner.

John Gibbons: By aligning our offerings and high priority agency needs anticipating procurement cycles and maintaining fiscal discipline, we continue to strengthen our market position, while delivering mission critical solutions that meet the evolving demands of law enforcement military and federal agencies.

John Gibbons: It was a productive Q1, we remain fully aware of the macro headwinds shaping our customers' decisions. The reality is that many government agencies are still navigating uncertainty around appropriations and budget cuts sale.

John Givens: Sales cycles are taking longer. In some cases, funding is being held back entirely while internal reviews or leadership transitions play out. That said, training mandates are not going away. If anything, they're becoming more urgent. Agencies still need to demonstrate readiness, meet annual certification standards, and manage escalating risks within their communities. What's changing is how they plan for that training. We're seeing more interest in flexible purchasing pathways, including subscription based models like our step and bundled offerings that eliminate friction during the approval process. We believe that our immersive training solution and industry-leading content library are increasingly aligned with what agencies need in their environment.

John Gibbons: Sales cycles are taking longer.

John Gibbons: Some cases funding is being held back entirely while internal reviews or leadership transitions play out that.

John Gibbons: That said training mandates are not going away, if anything theyre, becoming more urgent agencies still need to demonstrate readiness meet annual certification standards and manage escalating risks within their communities. What's changing is how they plan for that training.

We're seeing more interest in flexible purchasing pathways, including subscription based models like our step and bundled offerings that eliminate friction during the approval process.

John Gibbons: We believe that our immersive training solution and industry, leading content library are increasingly aligned with the with what agencies need in their environment systems that are effective.

John Givens: Systems that are effective, affordable, and easy to deploy. Our ability to support both large capital projects and reoccurring lower footprint programs allows us to remain engaged across a range of buyer profiles, even as broader spending Despite ongoing pressures on federal and state agency budgets, we successfully expanded our presence through targeted engagements, disciplined pipeline management, and deep alignment with procurement schedules. Key actions include early coordination with agencies during their budgeting process, allowing us to shape requirements and provide. tailored solutions aligned with upcoming funding allocations. For example, our government sales team collaborated closely with law enforcement agencies seeking to utilize fiscal year 24 burn JAG and Homeland Security grant funding, positioning Virtra systems as priority.

John Gibbons: Portable and easy to deploy.

John Gibbons: Our ability to support both large capital projects and reoccurring lower footprint programs allows us to remain engaged across a range of buyer profiles, even as broader spending solvents disc.

John Gibbons: Despite ongoing pressures with on federal and State agency budgets, we successfully expanded our presence in targeted engagements disciplined pipeline management and deep alignment with procurement schedules.

John Gibbons: Key actions include early coordination with agencies during their budgeting process, allowing us to shape requirements and provide <unk>.

John Gibbons: <unk> solutions aligned with upcoming funding allocations for example, our government sales team collaborating closely with poor enforcement agencies seeking to utilize <unk>.

John Gibbons: 24, burn Jag and homeland security Grant funding positioning virtuous systems as priority.

John Gibbons: Additionally, we strategically timed proposal submissions in alignment with key procurement windows, such as DHS is safer grant and Dod's Q1 obligation targets, resulting in increased quote activity and new contract awards by maintaining active communications with.

John Givens: Additionally, we strategically timed proposal submissions in alignment with key procurement windows such as DHS's SAFER grant and DOD's Q1 obligation targets, resulting in increased quote activity and new contract awards. By maintaining active communications with procurement officers and leveraging our GSA schedule and sole source pathways where applicable, we minimize delays and maximize contract efficiency.

John Gibbons: Procurement officers and leveraging our GSA schedule, and social with pathways, where applicable we minimize delays and maximize contract efficiencies.

John Givens: Alanna will walk you through that in detail. our financials, we ended Q1 with $6.4 million in bookings and a $21.2 million backlog. From a strategic standpoint, these numbers are encouraging as they show the trust our customers continue to place in VirTra even amidst a slower contracting environment. So while the top-line revenue can still fluctuate quarter-to-quarter based on delivery, timing, and funding schedules, the underlying engine, bookings, backlog, and pipeline momentum, they continue to reinforce our forward trajectory.

Ah lunar: Ah lunar will walk you through that in detail.

Ah lunar: Our financials. We ended Q1 was $6 4 million in bookings and a $21.2 million backlog from a strategic standpoint. These numbers are encouraging as they show the trust our customers continued to place in portrait even amidst a slower contracting environment.

Ah lunar: So while the topline revenue can still fluctuate quarter to quarter based on delivery timing and funding schedules the underlying engine bookings backlog and pipeline momentum they continue to reinforce our forward trajectory.

Ah lunar: We've made notable progress restructuring our sales organization entering the year, our key sales initiatives were to expand our high performing sales force optimize sales efficiency and increase our market presence through a revamped marketing strategy.

John Givens: We've made notable progress restructuring our sales organization. Entering the year, our key sales initiatives were to expand our high performing sales force, optimize sales efficiency, and increase our market presence through a revamped marketing strategy. In respect to our expanding our high performance sales force, we transition to a regional sales model with new leadership, improving both accountability and responsiveness across key territories. This structure ensures that our top performers are empowered to lead within their zones and that customers benefit from closer, more consistent engagement.

Ah lunar: In respect to our expanding our high performance sales force, we transitioned to a regional sales model with new leadership, improving both accountability.

Ah lunar: And responsiveness across key territories. This structure ensures that our top performers are empowered to lead within their zones and customers benefit from closer more consistent engagement.

John Givens: in regards to optimizing sales efficiency. Our team is now operating with more focus. supported by improved leadership management systems, refined outreach strategies, and clearer follow-up process. These changes already are already driving higher quality engagements and shortening the average time between first contact and signed contract.

Ah lunar: In regards to optimizing sales efficiency. Our team is now operating with more focus supported by improved leadership management systems refined outreach strategies and clearer follow up processes.

Ah lunar: These changes already are already driving higher quality engagements and shortening the average time between first contact and signed contract.

Ah lunar: To further reduce friction we've entered the GSA General services administration procurement channel in Q1.

John Givens: To further reduce friction, we've entered the GSA General Services Administration Procurement Channel in Q1. This enabled agencies at all levels of government to purchase directly from a pre-approved federal catalog, eliminating the need for lengthy negotiations. In tandem, we introduce standardized product bundles that streamline quoting and speed up fulfillment. Improvements that enhance predictability and scalability across our pipeline.

Ah lunar: This enabled agencies at all levels of government to purchase directly from a preapproved federal catalog eliminating the need for lengthy negotiations in tandem we introduced standardized product bundles that streamlined quoting and speed up fulfillment improvements that enhance predictability and scalability.

Ah lunar: Across our pipeline.

John Givens: To increase our market presence, we've taken steps to improve our marketing function. We've started by overhauling our digital strategy, rebuilding our corporate website to improve usability and lead capture, enhancing how we track engagements from campaigns and increasing return on investment from partner platforms. Early signs are encouraging. Our team captured more than double the expected number of qualified leads at recent events like Border Expo and SHOT Show, and we're seeing increased traction from previously underperforming channels. Virtual continues to build a disciplined data driven approach to lead generation and customer acquisition with a sharp focus on maximizing return on investment.

Ah lunar: To increase our market presence, we've taken steps to improve our marketing function.

Ah lunar: We've started by overhauling, our digital strategy rebuilding our corporate website to improve usability and lead capture enhancing how we track engagements from campaigns and increasing return on investment from partner platforms.

Ah lunar: Early signs are encouraging our team captured more than double the expected number of qualified leads at recent events like border Expo and shot show and we're seeing increased traction from previously underperforming channels.

Ah lunar: Mercury continues to build a disciplined data driven approach to lead generation and customer acquisition with a sharp focus on maximizing the return on investment.

John Givens: We have implemented structured lead capture methods supported by detailed systematic follow up to ensure each opportunity is matured with purpose and clarity. This deliberate approach allows us to improve conversion rates, while maintaining a strong pipeline of qualified process. Our marketing efforts are guided by common sense, targeted campaigns that speak directly to the needs of law enforcement and military agents. These campaigns are closely aligned with our sales strategies, ensuring we are not only attracting the right leads, but doing so efficiently, fully aware of the cost required to capture and sustain each customer relationship.

We have implemented structured lead capture methods supported by detailed systematic follow up to ensure each opportunity has matured with purpose and clarity.

Ah lunar: This deliberate approach allows us to improve conversion rates.

Ah lunar: While maintaining a strong pipeline of qualified prospects.

Ah lunar: Our marketing efforts are guided by common sense targeted campaigns that speak directly to the needs of law enforcement and military agencies. These campaigns are closely aligned with our sales strategies, ensuring we're not only attracting the right leads but doing so efficiently fully aware of the cost required to capture it.

Ah lunar: Sustained each customer relationship to this end we've invested in specialized personnel with the expertise to design and execute these critical initiatives.

John Givens: To this end, we've invested in specialized personnel with the expertise to design and execute these critical initiatives. We are also fostering a more collaborative relationship between sales, marketing, and our customers. This integrated approach has led to increased internal alignment, improved messaging consistency, and more meaningful engagement throughout the customer journey. Through the use of our enhanced CRM reporting, we've added greater accountability and visibility, allowing us to track touchpoints, monitor performance, and continuously improve the customer experience.

Ah lunar: We are also fostering a more collaborative relationship between sales marketing and our customers. This integrated approach has led to increase internal alignment improve.

Ah lunar: Improved messaging consistency and more meaningful engagement throughout the customer journey.

Ah lunar: Through the use of our enhanced CRM reporting we've added greater accountability and visibility, allowing us to attract touch points monitor performance and continuously improve the customer experience.

John Givens: As we move forward, this strategic focus on high-quality lead generation, campaign precision, and customer alignment will be key to sustaining momentum and driving long-term growth.

Ah lunar: As we move forward the strategic focus on high quality lead generation campaign precision and customer alignment will be key to sustaining momentum in driving long term growth.

Our V XR extended reality platform continues to generate growing interests.

John Givens: Our VXR Extended Reality Platform continues to generate growing interest. Two units have been sold to date, with the first customer deliveries expected in Q2. Several more are in active quote. Discussions with customers responded positively to the system's flexibility, accessibility, and immersive fidelity. We're also working to expand headset compatibility and streamline deployment, ensuring the system scales efficiently across varied training environments.

Ah lunar: Two units have been sold to date with the first customer deliveries expected in Q2.

Ah lunar: Several more are in active discussions with customers responded positively to the system's flexibility accessibility and immersive fidelity.

Ah lunar: We're also working to expand headset compatibility and streamline deployment.

Ah lunar: Ensuring the system scales efficiently across varied training environments as we discussed in recent quarters. The XR reflects our long term strategy to lead the industry in next generation headset based immersive training. These early sales are encouraging and we're actively gathering customer feedback to help refine the dx our platform.

John Givens: As we discussed in recent quarters, VXR reflects our long-term strategy to lead the industry in next-generation, headset-based, immersive training. These early sales are encouraging, and we're actively gathering customer feedback to help refine the VXR platform and support broader adoption. For many agencies, incorporating XR-based training into their long-term plans requires budget alignment, grant application updates, and internal approval. Virtual will continue to play a key role in that process by helping agencies understand how VXR meets evolving training mandates and equipping them with the data and documentation needed to pursue grant funding and approvals.

Ah lunar: And support broader adoption for many agencies incorporating XR based training into their long term plans requires budget alignment grant application updates and internal approvals.

Ah lunar: Virtual will continue to play a key role in that process by helping agencies understand how DSR meets evolving training mandates and equipping them with the data and documentation needed to pursue grant funding and approvals. We continue to focus on the Dx our content library converting our massive scenario.

John Givens: We continue to focus on the VXR content library, converting our massive scenario-based training for the use in our headset. We are receiving continued interest in the approach and will see more sale conversion as funding lines start to flow.

Ah lunar: <unk> training for the use of our headset where.

Ah lunar: We are receiving continued interest in the approach and we'll see more sales conversion as funding lines start to flow.

John Givens: Beyond the XR, we continue to strengthen our core technology platform. In Q1, we expanded scenario packaging efforts to better match customer needs with relevant real world training models. We also continue to increase the use of our AI tools to accelerate content development, cutting production times significantly, and allowing our team to generate higher volumes of certified training faster than ever before.

Ah lunar: Beyond the XR, we continue to strengthen our core technology platform in Q1, we expanded scenario packaging efforts to better match customer needs with relevant real world training modules.

Ah lunar: We also continued to increase the use of our AI tools to accelerate content development cutting production time significantly and allowing our team to generate higher volumes of certified training faster than ever before.

John Givens: Virtue is proud to report significant progress in the expansion of our certified training content, with over 120 hours of certified courses now available. This milestone reflects our ongoing commitment to delivering high-impact For more information visit www.fema.gov Standards Aligned Training that directly addresses the needs of our law enforcement and military partners. We remain focused on building scenarios that are not only realistic, but shaped by the evolving challenges faced in the field. From emerging threat dynamics to community interactions and de-escalation, our scenarios develop development is informed by current events and direct customer feedback, ensuring maximum relevance and training.

Ah lunar: Virtuous proud to report significant progress in the expansion of our certified training content with over 120 hours of certified courses now available. This milestone reflects our ongoing commitment to delivering high impact.

Ah lunar: Standards aligned training that directly addresses the needs of our law enforcement and military partners.

Ah lunar: We remain focused on building scenarios that are not only realistic shaped by the.

Ah lunar: Evolving challenges faced in the field.

Ah lunar: From emerging threat dynamics to community interactions and de escalation or scenarios.

Ah lunar: <unk> develops.

Ah lunar: Development is informed by current events and direct customer feedback, ensuring maximum relevance and training effectiveness.

Ah lunar: Our content library continues to grow at an accelerated pace.

John Givens: Our content library continues to grow at an accelerated pace. both in size and in quality, driven by the integration of advanced video production, motion capture, and AI-enhanced animation tools. This unexpected acceleration in scenario creation is allowing us to respond more quickly to shifting training demands, offering a broader range of immersive experience with a higher level of realism than previously possible.

Ah lunar: Both in size and in quality driven by the integration of advanced video production motion capture and AI enhanced animation tools.

Ah lunar: This unexpected acceleration in scenario creation is allowing us to respond more quickly to shifting training demands offering a broader range of immersive experience with a higher level of realism than previously possible.

Ah lunar: Purchase commitment to content excellence supported by innovation and direct agency collaboration positions us as a clear leader in scenario based training solutions as part of our broader operational upgrades, we're reconfiguring our facility to support future scalability, adding dedicated space for Avaya.

John Givens: Virch's commitment to content excellence, supported by innovation and direct agency collaboration, positions us as a clear leader in scenario-based training solutions.

John Givens: As part of our broader operational upgrades, we're reconfiguring our facility to support future scalability, adding dedicated space for reliability testing and expanding our assembly line and integrating lean manufacturing processes to speed throughput. These changes were informed by lessons learned during last year's testing cycles related to IVAS. and they will help ensure consistent quality as volumes grow.

Ah lunar: <unk> testing and expanding our assembly line and integrating lean manufacturing processes speed.

Ah lunar: Speed throughput these.

Ah lunar: These changes were informed by lessons learned during last year's testing cycles related to <unk>.

Ah lunar: And they will help ensure consistent quality as volumes grow.

John Givens: Speaking of IBAS, we continue to advance our partnership with the U.S. Army during Q1. We completed Advanced Recoil Kit Validation and began implementing reliability testing protocols as we prepare for potential production.

Ah lunar: Speaking of bypass we continued to advance our partnership with U S. Army. During Q1, we completed advanced recall kit validation and began implementing reliability testing protocols as we prepare for prudential potential production.

John Givens: The Army has now officially novated the I-VAS contract from Microsoft to Andral, a key milestone that clarifies next steps for the program's future. As we shared last quarter, our technology performed exceptionally well during the final R&D phases, with the Army concluding soldier assessments early due to our system's exceeding expectations. With the DoD now evaluating overlapping programs for consolidation, our track record and strong technical performance leaves us well positioned to support expanded work under IVAS or similar initiatives.

Ah lunar: The Army has now officially novae to divest contract to microwave from Microsoft to agile a key milestone that clarifies next steps for the program future.

Ah lunar: As we shared last quarter, our technology performed exceptionally well during the final R&D phases with the army conducting soldier assessments concluding.

Ah lunar: Concluding soldier assessments early due to our systems exceeding expectation.

Ah lunar: With the D O D now evaluating overlapping programs for consolidation our track record and strong technical performance leaves us well positioned to support expanded work under I've asked or similar initiatives.

John Givens: The Department of Defense is undergoing a strategic shift in acquisition priorities, emphasizing speed, modernization, and mission readiness. Key initiatives such as DOD's Adaptive Acquisition Framework and the increased use of other transaction authority agreements and the push for modular open system architecture are accelerating procurement timelines and enabling faster adoption of innovative technologies like those developed by VirTra. This alignment directly benefits VirTra by reducing traditional barriers to entry and allowing for more agile contracting mechanisms. As a technology-forward company delivering mission-critical training solutions, VirTra is well-positioned to take advantage of these changes. Our emphasis on modular.

Ah lunar: The department of defense is undergoing a strategic shift in acquisition priorities.

Ah lunar: Empathizing speed modernization and mission readiness.

Ah lunar: Key initiatives, such as D O DS adaptive acquisition framework.

Ah lunar: And the increased use of other transaction authority agreements and the push for modular open system architecture.

Ah lunar: Our accelerating procurement timelines and enabling faster adoption of innovative technologies like those developed by virtue.

Speaker Change: This alignment directly benefits virtual by reducing traditional barriers to entry and allowing for more agile contracting mechanisms as a technology forward company delivering mission critical training solutions Mercury is well positioned to take advantage of these changes.

Ah lunar: Our emphasis on modular.

Ah lunar: Scalable systems combined with growing partnerships and sole source opportunities enables us to more efficiently.

John Givens: Unknown Report, Unknown Host, Unknown Favorite Rapporteur, Unknown Final Report, Unknown meet evolving training requirements across the services. Additionally, DOD's focus on readiness and immersive training to address modern threats environments increases demand for realistic, high-fidelity simulations.

Ah lunar: Meet evolving training requirements across the services. Additionally, dod's focus on readiness and immersive training to address modern threats environments.

Kris: Kris as demand for realistic high fidelity simulation.

John Givens: Virtus.core company. As acquisitions reform continues to prioritize capability over bureaucracy, VirTra expects to see stronger engagement, faster procurement cycles, and expanded market access within the defense sector. Overall, Q1 reflected continuing progress in our operational execution.

Kris: <unk> core competency as acquisitions reform continues to prioritize capability over bureaucracy mercury expected to see stronger engagement faster procurement cycles and expanded market access within the defense sector.

Kris: Overall Q1 reflected continuing progress in our operational execution, while funding constraints remain a headwind for the industry at large we're building a more agile and effective organization. We're able we are better equipped to convert backlog support scalable growth and meet the evolving training needs of our.

John Givens: While funding constraints remain a headwind for the industry at large, we're building a more agile and effective organization. We are better equipped to convert backlog, support scalable growth, and meet the evolving training needs of our customers.

Kris: Customers. We are executing these actions decisively confident they will deliver measurable results and enhanced returns for our shareholders as the macro environment shift.

John Givens: We are executing these actions decisively, confident they will deliver measurable results and enhance returns for our shareholders as the macro environment shifts.

Alanna Boudreau: With that, I'll turn it over to Alanna for a detailed financial review. Thank you, John, and good afternoon, everyone. Now let's review our unaudited financial results for the first quarter ended March 31, 2025. Our total revenue for the first quarter was $7.2 million compared to $7.3 million in the prior year period. This 3% decrease was primarily due to delayed deliveries on several customer orders booked in late Q4 2024, which pushed revenue recognition into future quarters. If we break this down by market, we've got government revenue for the first quarter was $5.2 million compared to $6.7 million in the prior year period, and international revenue for the quarter was $1.9 million compared to $550,000 in the prior year period.

Kris: With that I'll turn it over to Atlanta for a detailed financial review Atlanta.

Speaker Change: Thank you John and good after.

Speaker Change: Everyone now lets review our unaudited financial results for the first quarter ended March 31st 2025, our total revenue for the first quarter was $7 2 million compared to $7 3 million in the prior year period.

Speaker Change: The 8% decrease was primarily due to delayed deliveries on several customer orders booked in late Q4, 2024, which pushed revenue recognition in the future quarters.

Speaker Change: We break this down by market, we've got government revenue for the first quarter was $5 2 million compared to $6 7 million in the prior year period and international revenue for the quarter was $1 9 million compared to 550000 in the prior year period.

Alanna Boudreau: Our gross profit for the first quarter improved to $5.2 million, or 73% of total revenue compared to $4.7 million, or 64% in a prior year period. The increase in gross margin reflects a 25% decrease in cost of sales driven by greater operational efficiencies. Our net operating expense for the quarter was $3.8 million, a 6% decrease from $4.1 million in the first quarter of 2024. This decrease reflects our drive to maintain or lower overhead costs as we mitigate challenges associated with potential government pauses on contracts. We are optimizing internal resources while preserving investment in key growth initiatives.

Speaker Change: Our gross profit for the first quarter improved to $5 2 million or 73% of total revenue compared to four 7 million or 64% in the prior year period.

Speaker Change: Increase in gross margin reflects a 25% decrease in cost of sales driven by greater operational efficiencies.

Speaker Change: Our net operating expense for the quarter was $3 8, million% to 6% decrease from $4 1 million in the first quarter of 2024.

Speaker Change: Increase reflects our drive to maintain or lower overhead costs as we mitigate challenges associated with potential government pauses on contracts, we are optimizing internal resources, while preserving investment in key growth initiatives, our operating income for the quarter increased 110%.

Alanna Boudreau: Our operating income for the quarter increased 110% to $1.4 million compared to $650,000 in the prior year period. Net income for the quarter was $1.3 million, or $0.11 per diluted share, based on 11.3 million weighted average diluted shares outstanding. This represents a 170% increase from $470,000, or $0.04 per diluted share, based on 11 million diluted shares outstanding in Q1 of 2024. Our adjusted EBIT out increased 22% to $1.7 million compared to $1.4 million in the prior year period, reflecting improved operating leverage and gross margin strength. As of March 31st, cash and cash equivalents totaled $17.6 million compared to $18 million at December 31st.

Speaker Change: The $1 4 million compared to 650000 in the prior year period.

Speaker Change: Net income for the quarter was one 3 million or 11 cents per diluted share based on 11 3 million weighted average diluted shares outstanding.

Speaker Change: Presents a 170% increase from 470000 or four cents per diluted share based on 11 million diluted shares outstanding in Q1 of 2024.

Speaker Change: Our adjusted EBITDA increased 22% to $1 7 million compared to $1 4 million in the prior year period, reflecting improved operating leverage and gross margin strength.

Speaker Change: As of March 31st cash and cash equivalents totaled $17 6 million compared to $18 million at December 31st working capital increased to $35 3 million and we maintain that light capital structure, giving us both stability and flexibility as we execute against our growth strategies.

Alanna Boudreau: Working capital increased to $35.3 million, and we maintain a debt-light capital structure, giving us both stability and flexibility as we execute against our growth strategy.

Sure.

Alanna Boudreau: defines their bookings as the total of newly signed contracts, awarded RSTs, and purchase orders received in a given period. Bookings for the quarter totaled $6.4 million, more than double the $2.9 million recorded in Q1 of 2024. This strong year-over-year growth contributed to $33.4 million in total bookings over the trailing 12 months and reflects continued traction, despite the ongoing funding uncertainties.

Speaker Change: Our bookings as the total of newly signed contracts awarded Rfps and purchase orders received in a given period.

Speaker Change: Bookings for the quarter totaled $6 4 million more than double the 2.9 billion recorded in Q1 of 2024.

Speaker Change: This strong year over year growth contributed.

Speaker Change: Is $33 4 million in total bookings over the trailing 12 months and reflects continued traction despite the ongoing funding uncertainties.

Speaker Change: Berkshire define backlog as the accumulation of bookings from signed contracts and purchase orders that are not yet started or are incomplete performance obligations and therefore cannot be recognized as revenue until delivered in future period.

Alanna Boudreau: VirTra defines backlog as the accumulation of bookings from signed contracts and purchase orders that are not yet started or are incomplete performance obligations, and therefore cannot be recognized as revenue until delivered in a future period. We segment backlog into 3 primary categories. Capital, which includes our simulators, accessories, installation, training, custom content work, and design work. To our services, which are primarily extended warranties and support contracts. And then 3rd is our step, which is our long term subscription based program. Our backlog then at March 31st, 2025 stood at 21.2Million. This included 9.9Million in capital, 5.8Million in service and 5.5Million in step contracts.

Speaker Change: Segment backlog into three primary categories capital, which includes our simulators accessories installation training custom content work and design work.

Speaker Change: Our services.

Speaker Change: Which are primarily extended warranties and support contracts and then the third.

Speaker Change: As our stock, which is our long term subscription based program.

Speaker Change: Backlog at March 31st 2025 stood at 21 point 10 million. This included $9 9 million in capital $5 8 million in service and $5 5 million in step contracts.

Alanna Boudreau: Additionally, we continue to track approximately 5 million in renewable step contract options, which are not included in the backlog total. Most of our new capital bookings from Q1 are expected to convert to revenue within the current calendar year. However, a portion of those, particularly from international customers, have requested deferred delivery into 2026. As always, our ability to convert backlog into revenue remains dependent on customer-driven installation timelines, which are subject to change due to factors outside of our control. Looking forward, we believe the combination of our disciplined cost management, enhanced contract structures, and ongoing demand recovery will support continued progress.

Speaker Change: Additionally, we continue to track approximately $5 million in renewable Steph contract options, which are not included in the backlog turtle.

Speaker Change: Most of our new capital bookings from Q1 are expected to convert to revenue within the current calendar year. However, a portion of those particularly from international customers have requested deferred delivery into 'twenty or 'twenty six.

Speaker Change: Always our ability to convert backlog into revenue it remains dependent on customer driven installation timelines, which are subject to change due to factors outside of our control.

Speaker Change: Looking forward, we believe the combination of our disciplined cost management enhanced contract structures and ongoing demand recovery will support continued progress in particular recent updates to our stock program, which now feature full three year commitments transform what was previously considered optional renewal potential into high.

Alanna Boudreau: In particular, recent updates to our STEP program, which now feature full three-year commitments, transform what was previously considered optional renewal potential into high confidence recurring revenue. Renewal trends remain strong, with performance tracking around 95%, both within our older structured contract terms, as well as our first year step customers who are now signing new three-year agreements.

Speaker Change: Confidence recurring revenue.

Speaker Change: Renewal trends remained strong with performance tracking around 95% both within our older structured contract terms as well as our first year step customers, who are now signing new three year agreements and that concludes my prepared remarks, I'll now turn the call back over to John for his closing comments.

Alanna Boudreau: And that concludes my prepared remarks. I'll now turn the call back over to John for his closing comments.

John Givens: John? Thank you, Alanna. We know the path forward requires both heightened focus and flexibility. Our customers continue to navigate uncertainty, but they're still training, still evaluating and still planning for the future. We are staying ready to deliver when funding is released to adapt as priorities evolve and to continue building trust throughout the execution. The progress we've made in sales, product development, and operations reflects that mindset, and we believe it puts us in a stronger position with each passing quarter. We'll keep listening, adjusting, and moving deliberately.

John Gibbons: Thank you Atlanta.

John Gibbons: We know the path forward requires both heightened focus and flexibility our customers continue to navigate uncertainty, but theres still training still evaluating and still planning for the future.

John Gibbons: We are staying ready to deliver when funding is released to adapt as priorities evolve and to continue building trust throughout the execution there.

John Gibbons: The progress we've made in sales product development and operations reflects that mindset and we believe it puts us in a stronger position with each passing quarter, we'll keep listening adjusting and moving deliberately.

John Givens: That concludes my prepared remarks, operator. Thank you.

John Gibbons: That concludes my prepared remarks operator.

John Gibbons: Thank you we will now be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad.

Operator: We will now be 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 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. One moment please while we poll for questions.

John Gibbons: Confirmation tone will indicate that your line is in the question queue. You May press star two if he would like to remove your question from the queue.

John Gibbons: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys, one moment, please while we poll for questions.

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

Jason Schmidt: Our first question comes from Jason Schmidt with Lake Street Capital Markets. Please proceed with your question. Hey guys, congrats on the strong results in a challenging environment. Just want to start with some of those macro dynamics. Do you think that contributed to any orders being pulled into Q1? Not really sure if the macros did that. I think there were monies that were in budgets that they were trying to spend before it got swept or totally shut down. I think that there were some grants that grant monies that were awarded. And then there was one set of grants that they actually So, I'm not quite sure.

Jason Smith: Hey, guys. Congrats on the strong results in a challenging environment just wanted to start with some of those macro dynamics do you think that contributed to any orders being pulled into Q1.

Speaker Change: Not really sure if the macros did did that I think there were monies that were in budgets that they were trying to spend before it got swept bird totally shut down I think that there were some grants that grant monies that were Ah.

Speaker Change: Worded and then there was one set of grants that they actually distributed funding even during.

Speaker Change: Even during the shut down or they hold back or no delivery of.

Speaker Change: Of the funding so I'm.

Speaker Change: I'm not quite sure.

Speaker Change: Each agency has different that's why it's hard to answer and then Theres just so many so much dynamics some of the agencies have their leadership in place and others are dealing with a assistant to the assistant to the assistant so somewhere kind of shy of putting stuff out approving budgets are improving.

John Givens: Each agency is different. That's why it's hard to answer. And there's just so many so much dynamic. Some of the agencies have their leadership in place. And others are dealing with a assistant to the assistant to the assistant. So some are kind of shy of putting stuff out, approving budgets or approving any of the funding releases or purchases.

Speaker Change: Any of the funding releases or purchases.

Speaker Change: Okay that makes sense and then looking at the Dx or I know the health care market was a vertical that that's made a lot of sense and but are you seeing demand from other end market verticals and I guess relatedly is some of this demand being driven by any grant activity.

Jason Schmidt: Okay, that makes sense.

John Givens: And then looking at the VXR, I know the healthcare market was a vertical that this made a lot of sense in, but are you seeing demand from other end market verticals? I guess relatedly, is some of this demand being driven by any grant activity? Yeah, two separate questions, but good ones.

Speaker Change: Yeah, two separate questions, but good ones, so grant activity under D escalation and training.

John Givens: So grant activity under de-escalation and training curriculum, absolutely are driving the VXR for us. Secondly, is some of the adjacent markets healthcare, and it depends on what the what training objective that police, even fire, and even the military will be using the headset for. So we're seeing interest in a lot of areas. Some of them are asking for things that the technology just doesn't do yet, but we're making note of that as a technology catches up, we'll be able to adapt quickly to those needs. So we're keeping that backlog and those leads as part of our as part of our development cycle and requirements.

Speaker Change: Curriculum, absolutely are driving the VX or for us.

Speaker Change: Secondly is some of the adjacent markets healthcare and.

Speaker Change: It depends on what the.

Speaker Change: What training objective that police, even fire and even the military will be using that headset for so we're seeing interest in a lot of areas. Some of them are asking for things that the technology just doesn't do yet, but we're making note of that as a technology catches up we'll be able to adapt.

Speaker Change: Quickly to those needs. So we're keeping that backlog and those leads.

Speaker Change: As part of our.

Speaker Change: As part of our development cycle and requirements, but I think there's other markets that are opening up private security and others that are headset just makes much more sense.

John Givens: But I think there's other markets that are opening up private security and others that a headset just makes much more sense. Okay, that's good to hear.

Speaker Change: Okay. That's good to hear and just the last one for me and I'll jump back into queue than on the step program and sorry to be three year agreements. Just wanted to clarify are you, forcing all customers over to these three year agreements or is it now just an option.

Jason Schmidt: And just the last one for me, and I'll jump back into queue. On the STEP program, and sorry, these three-year agreements, just want to clarify, are you forcing all customers over to these three-year agreements? Or is it now just an option?

Speaker Change: Well, we're kind of forcing them into a three year to move the purchase cycle forward with all the technologies and the advances that are being made both in hardware and software and the advent of AI.

John Givens: Well, we're kind of forcing them into a three year to move the purchase cycle forward with all the technologies and the advances that are being made both in hardware and software and the advent of AI. Some of the things that will produce not just us, but others in in any industry are finding that any equipment that's older than three years has a problem running and maintaining a level of performance that's acceptable. So Two things main reason move our sales cycle in from five years to three and see where they go. We do give them an option.

Speaker Change: Some of the things that will produce not just us but others in any industry are finding that any equipment. That's older than three years has a problem.

Speaker Change: Running and maintaining a level of performance that's acceptable so.

Speaker Change: Two things the main reason move our sales cycle in from five years to three and see where they go we do give them an option. It's more of a sales tactic that your four and five can't be purchase if they're running now if theyre having problems with their funding or you know, it's taking longer than it was taking before.

John Givens: It's more of a sales tactic that year four and five can be purchased if they're running, you know, if they're having problems with their funding, or, you know, it's taking longer than it was taking before. We just have a lot of new technology that we want to get out there in their hands and keeping a system five years just it's moving faster about 18 months, where it used to be three years. So we're just trying to get ahead of the technology curve and then bring the customers along and its financial reasons for both bookings and opportunities.

Speaker Change: Just have a lot of new technology that we want to get out there in their hands and keeping our system five years just it's.

Speaker Change: It's moving faster about 18 months, where it used to be three years. So we're just trying to get ahead of the technology curve and then bring the customers along and its financial reasons for both bookings and opportunities.

John Givens: So it's a combination. and others as well.

Speaker Change: So its coming on.

Speaker Change: Yes that as well.

Alanna Boudreau: I would add, Jason, that the reason we changed our terms to that three-year was not giving them an easy out. Like they had a little bit too much of an easy out, in my opinion, for the original ones. And it was, we were potential revenue, potential future revenue, as opposed to now where I feel we're way more confident in what those terms say, that it's guaranteed for three years. Okay, that's really helpful. Thanks a lot, guys. Thanks, Jason.

Jason Gibbons: I would add Jason that the the reason why we changed our terms so to that three year with not giving them.

Jason Gibbons: And easy out like they had a little bit too much and then easy out in my opinion for the original one.

Jason Gibbons: And it was we were potential revenue potential future revenue as opposed to now where I feel way more confident and what those terms that it's a guaranteed for three years.

Jason Gibbons: Okay. That's really helpful. Thanks, a lot guys.

Jason: Thanks, Jason.

Speaker Change: At this time. This concludes our question and answer session and I'd now like to turn the call back over to Mr. Gibbons first closing remarks.

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

Speaker Change: Thank you as.

John Givens: As we wrap up our Q1 2025 call, I want to take a moment to reflect on the incredible progress we've made and the promising journey ahead. Thanks for all your unwavering support and dedication. We've achieved remarkable milestones that position us strongly for the future. Our commitment to innovation and excellence continues to drive our success and the strategies we've implemented are beginning to bear fruit. With a talented team and a clear vision, we're confident that the best is yet to come. As we look forward, the opportunities ahead are vast and I truly believe that together we will navigate the challenges and celebrate future successes.

As we wrap up our Q1 2025 call I wanted to take a moment to reflect on the incredible progress we've made.

Speaker Change: And the promising journey ahead. Thanks for all your unwavering support and dedication we've achieved remarkable milestones that position us strongly for the future our commitment to innovation and excellence continues to drive our success and the strategies. We've implemented are beginning to bear fruit.

Speaker Change: With a talented team and a clear vision, we're confident that the best is yet to come as we look forward. The opportunities ahead are vast and I truly believe that together, we will navigate the challenges and celebrate future successes. Thank you for your trust and partnership the future looks bright and I'm excited and what lies.

John Givens: Thank you for your trust and partnership.

John Givens: The future looks bright and I'm excited on what lies ahead.

Speaker Change: Ahead, God bless you all and let's continue to make great strides together.

John Givens: God bless you all and let's continue to make great strides together.

Speaker Change: Thank you for joining us today for <unk> first quarter 2025 conference call you may now disconnect.

Operator: Thank you for joining us today for VirTra's first quarter 2025 conference call.

Operator: You may now disconnect.

Speaker Change: Okay.

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