VirTra, Inc. (NASDAQ:VTSI) Q2 2024 Earnings Convention Name August 1, 0000 4:30 PM ET
Firm Members
John Givens – Chief Government OfficerAlanna Boudreau – Chief Monetary Officer
Convention Name Members
Jaeson Schmidt – Lake Road Capital MarketsRichard Baldry – ROTH Capital Companions
Operator
Good afternoon, and welcome to VirTra’s Second Quarter 2024 Earnings Convention Name. My identify is Paul, and I will probably be your operator for right now’s name. Becoming a member of us for right now’s presentation are the corporate’s CEO, John Givens; and CFO, Alanna Boudreau. Following their remarks, we’ll open the decision for questions.
Earlier than we start the decision, I wish to present VirTra’s protected harbor assertion that features cautions relating to forward-looking statements made throughout this name. Throughout this presentation, administration could talk about monetary projections, info or expectations concerning the firm’s services and products or markets or in any other case make statements concerning the future, that are forward-looking and topic to plenty of dangers and uncertainties that would trigger precise outcomes to vary materially from the statements made. The corporate doesn’t undertake any obligation to replace them as required by regulation. Lastly, I might prefer to remind everybody that this name will probably be made obtainable for replay by way of a hyperlink within the Investor Relations part of the corporate’s web site at www.virtra.com.
Now I might like to show the decision over to VirTra’s CEO, Mr. John Givens. Thanks. You could proceed, sir.
John Givens
Thanks, Paul, and thanks, everybody, for becoming a member of us this afternoon. After the markets closed right now, we issued a press launch that supplied our monetary outcomes for the second quarter ended June 30, 2024, together with highlighted enterprise accomplishments.
At this time, I will start by discussing our second quarter efficiency and strategic achievements, together with the launch of our V-XR platform and our navy market engagements earlier than handing it over to Alanna for an in depth monetary evaluate. After that, I will present some concluding remarks earlier than transferring on to Q&A portion.
Our second quarter outcomes replicate the continuation of a transitional interval as we ramp up our new gross sales initiatives. Whereas our efficiency was not robust as we had hoped, I take full duty for these outcomes. And we’ve got entered into the second-half ready to reboot progress.
Our income got here in at $6.1 million. The outcomes are on account of each controllable and uncontrollable components. The controllables are being our go-to-market efforts, the uncontrollables being delayed decision-making from delayed budgeting resolutions through the first-half of the yr. We’re making progress on the controllable areas and discovering workarounds to the uncontrollable areas, which I will element shortly.
Regardless of our high line outcomes, we maintained exceptionally robust gross margins of 91%, demonstrating that our operational efficiencies we put in place final yr and the start of this yr are yielding optimistic outcomes. These efficiencies will assist our development as gross sales initiatives achieve momentum. Notably, our bookings elevated by $3 million quarter-over-quarter, doubling since Q1, highlighting improved market situations and the strengthened gross sales method. Regardless of latest challenges, the demand for our answer stays sturdy, and we’re nonetheless positioned to capitalize on it transferring ahead.
We’ve confronted exterior headwinds within the first-half of the yr on account of primarily delayed price range selections on the federal and native ranges. These will not be excuses, however realities that we’re tackling head on. Whereas native regulation enforcement budgets are compressing, we’ve got strengthened our potential to safe federal grants, that are rising and can present important funding for our prospects. This method helps us preserve our pipeline and capitalize on development alternatives.
Whereas utilizing grant cash extends the gross sales cycle barely, it finally helps us develop our buyer base, and these efforts are essential as we prioritize long-term relationships. Moreover, with navy budgets starting to open, we’re positioned to grab new development alternatives there within the coming quarters.
As you could have seen, final week, we introduced the addition of Brandon Cox to our — to VirTra as our Chief Know-how Officer. Brandon brings a wealth of expertise in information analytics and system integration, which will probably be instrumental in accelerating our innovation and main new product improvement efforts. Having Brandon on the staff will free me as much as do what I’ve achieved in my complete profession, construct buyer relationships and drive gross sales. With navy budgets starting to open up, there is a vital alternative for VirTra to win giant and long-term contracts, and I plan to guide that effort with our gross sales staff.
In parallel with the adjustments we have made in our gross sales course of, we’re persevering with to boost our inside operations. Over the previous yr, we have fully rebuilt our ERP system. This variation in addition to a number of others to enhance our operations are persevering with to assist us enhance throughput, scale back manufacturing errors and finally enhance our book-to-ship occasions. As we develop our gross sales, we’re properly geared up to scale successfully.
Along with having operations to scale, we proceed to put money into the suitable content material. We strengthened our aggressive place. We’ve expanded our situation library to incorporate extra real-world conditions like disaster intervention and energetic shooter responses developed by our {industry} consultants. One of many newer areas that we have begun to create further content material for is the well being care discipline.
Since our preliminary V-180 deployment to Ascension’s St. John’s Hospital, we have seen a rise in demand for our coaching options for greater than six further establishments. The content material we created permits hospital safety workers to coach on widespread situations that guarantee the right response for affected person and workers security when responding. The early reception of those situation reveals the numerous untapped market potential.
We’re persevering with to create content material for these purposes and count on our V-XR to additionally develop gross sales in these markets. With the brand new content material we’re creating, we’re excited concerning the upcoming launch of our V-XR. Our new prolonged actuality answer is ready to disrupt and enhance skilled coaching environments. It is designed to boost mushy ability coaching throughout purposes in regulation enforcement, well being care, training and different associated sectors. We’re customizing the V-XR to accommodate various company sizes, price range constraints and particular coaching necessities.
By extending past the normal shoot, do not shoot scenario-based coaching, V-XR focuses on improvement of vital interpersonal expertise, enabling professionals to raised navigate delicate conditions, diffuse potential conflicts and construct robust neighborhood relationships. It is big selection of utility positions V-XR as a key pillar in our long-term development technique.
Since our final name, we have additionally added two further situations that was shipped when the product is launched. We’re presently finalizing phrases and situations with Meta. And as soon as that is full, we’ll be able to take orders after which start transport. With this launch, we’re ready to reasonable our robust revenue margins quickly to safe extra substantial market share and guarantee sustained development.
Earlier than turning the decision over to Alanna, I will provide you with a rundown of how our finish markets carried out in Q2. Within the second quarter, our authorities income decreased to $5.3 million from $9.5 million within the prior yr. This distinction is attributed to the delay in federal price range selections with — which impacted our potential to shut contracts throughout the anticipated timeframe.
As I discussed earlier within the name, regulation enforcement budgets are dealing with steady cuts and now rely closely on grant funding from the federal authorities. Our grant watch program will assist bridge this hole between the shopper and federal funding.
Internationally, our income was $0.6 million, a lower from $0.7 million in 2023. The slight lower in worldwide income is primarily because of the lengthy lead occasions in our worldwide pipeline, which have slowed the execution of alternatives. With our worldwide pipeline persevering with to develop, we count on larger shut charges within the subsequent a number of quarters because the budgets are accepted. As a part of our gross sales staff restructuring, we now have a devoted worldwide gross sales. And these adjustments are enhancing our potential to forecast and stabilize future income streams inside this section as we proceed to construct out a extra predictable worldwide pipeline.
Turning to our progress within the navy. We’re persevering with to make progress with U.S. Military’s Built-in Visible Augmentation System, or IVAS program. As a reminder, this can be a $5.9 million prototype contract secured via our collaboration with Microsoft as a first-rate contractor. Included on this order are our industry-leading recoil {hardware} kits, high-pressure air fill stations and magazines, all engineered to satisfy the U.S. Military’s stringent necessities. This partnership reaffirms the reliability and efficiency of our know-how and likewise highlights {our capability} to innovate and adapt in response to the demanding wants of navy coaching.
We’re additionally targeted on increasing our attain additional into U.S. federal and Division of Protection channels by pursuing these alternatives via focused advertising campaigns and strategic initiatives. We’ve deployed a devoted gross sales staff tasked with securing bigger contracts in U.S. Federal and Division protection channels. The specialised unit is strategically geared up to navigate complicated alternatives and drive vital development in these key areas.
This quarter, we’re additionally accepted for Division of Protection funding for analysis tasks. This approval confirms what we have identified virtuous simulators can report capturing efficiency precisely and observe particular person progress over time reliably, thereby qualifying them as a verified and constant analysis device. This was achieved by an impartial analysis research performed by Ohio State College and additional emphasizes our potential.
I will now flip the decision over to Alanna to debate our monetary leads to additional element. Alanna?
Alanna Boudreau
Thanks, John, and good afternoon, everybody. Now let’s evaluate our unaudited monetary outcomes for the second quarter ended June 30, 2024. Whole income was $6.1 million in comparison with $10.3 million within the prior yr interval. The lower was primarily on account of delays in federal funding attributed to the U.S. authorities’s persevering with decision, which precipitated quite a few contracts to be positioned on maintain. This non permanent problem impacted bookings within the first-half of the yr.
Our gross revenue totaled $5.5 million, 91% of complete income, in comparison with $5.9 million, 57% of complete income within the prior yr. The 7% lower in gross revenue was primarily because of the change in gross sales.
Gross margin elevated primarily because of the decrease value of gross sales pushed by operational enhancement, offsetting labor prices associated to improvement tasks and 40% of the entire income driving from our service and step contracts, which have restricted value of gross sales related to that income.
Web working expense was $4.4 million, marking a ten% enhance from the $4 million within the prior yr interval. This enhance was pushed by investments in gross sales and advertising, in addition to strategic hiring to assist development initiatives. Additionally including to the elevated working bills associated to our improved IT construction and compliance necessities for our future — for our present and future contracts.
Working revenue was $1.1 million, in comparison with $1.9 million within the second quarter of 2023. Web revenue was $1.2 million or $0.11 per diluted share based mostly on the 11.1 million weighted common diluted shares excellent, a 17% enhance from web revenue of $1 million or $0.09 per diluted share based mostly on 10.9 million weighted common diluted shares excellent within the prior yr interval. Adjusted EBITDA, a non-GAAP metric, was $1.6 million, in comparison with $2.6 million within the prior yr interval.
Now turning to our bookings and backlog. We outline bookings as the entire of newly signed contracts and buy orders acquired in an outlined interval. For the second quarter of 2024, we acquired bookings totaling $5.9 million.
Taking a look at our backlog, which we outline as the buildup of bookings from signed contracts and buy orders that aren’t but began or incomplete and can’t be acknowledged as income till delivered in a future interval. As of June 30, 2024, our backlog totaled $13.8 million. The breakout of this backlog consists of $5.6 million in capital, $6 million in service and warranties and $2.2 million in step contracts.
As a reminder, service warranties and step backlog is income that will probably be acknowledged on a straight-line foundation over the approaching years. Along with the backlog, there are $7 million in renewable stuff contracts that will symbolize further income for the subsequent 5 years.
This yr, as our first step prospects are ending their authentic agreements, we’re seeing a 93% fee of both renewing their subcontracts or transferring to a capital buy. This retention highlights our success in constructing a loyal buyer base as we deal with new pipeline improvement. Lastly, to our steadiness sheet.
As of June 30, 2024, we had unrestricted money and money equivalents of $18.4 million in comparison with $22.4 million on the March 30, 2024. This lower primarily displays in our company tax cost.
From a working capital standpoint, on the finish of second quarter, we had $34.8 million in working capital, up barely from the $33.2 million on the finish of Q1 in 2023. For added particulars of our monetary outcomes, please reference our 10-Q, which was filed earlier right now. That concludes my ready remarks.
And now I will flip it again over to John for his closing remarks.
John Givens
Thanks, Alanna. As we evaluate the previous quarter and the primary half, it is clear that whereas we’re navigating via some non permanent challenges, our strategic initiatives and our operational enhancements are setting the stage for unimaginable future development. Our upcoming launch of the V-XR platform and development into our strategic navy engagements are essential elements to this response, and they are going to be key to our success for the remainder of 2024.
Wanting forward, we’ve got the suitable procedures in place and are optimistic for the second half of the yr as grant funding turns into clear and navy contracts start to open. We’re positioned to capitalize on our wholesome pipeline of alternatives within the months forward whereas persevering with to boost our buyer relationships, that are the only most essential on this enterprise, significantly as we lengthen our world attain and rollout of latest merchandise.
In conclusion, regardless of the non permanent hurdles, VirTra does stay on the helm of coaching {industry}, pushed by innovation and a dedication to wonderful coaching outcomes. We’re optimistic about what the again finish of 2024 holds and we look ahead to sharing our progress, and we respect your continued assist and curiosity.
Now earlier than we open the decision for questions, I need to let everybody know that our Annual Shareholder Assembly will probably be held in Chandler, Arizona in October. We’ll comply with this with an Investor Day the place we’ll provide a presentation and a tour of the power. Extra particulars will probably be made obtainable in a forthcoming press launch, and we look ahead to participating with our shareholders and investor throughout these occasions.
And with that, we’ll open up the decision on your questions. Operator, please present the suitable directions.
Query-and-Reply Session
Operator
Thanks. Effectively, now we’ll be conducting a question-and-answer session. [Operator Instructions] Our first query is from Jaeson Schmidt with Lake Road Capital Markets. Please proceed along with your query.
Jaeson Schmidt
Hey guys, thanks for taking my questions. Simply need to dig in a little bit bit extra on type of the bookings exercise. Clearly, a pleasant rebound in Q2. Understanding the price range constraints impacting Q2. Simply curious if you happen to’ve seen bookings proceed to speed up right here in Q3?
John Givens
We’re seeing — see to not make it forward-looking. We’re happy with what’s occurring within the first month of the quarter.
Jaeson Schmidt
Okay. No, that is useful. After which taking a look at – sorry, you famous some continued traction within the well being care market, including sort of six further establishments. When do you suppose these may possibly pivot from extra sort of pilot packages to agency POs?
John Givens
Effectively, we’re seeing a number of of these are available in, and people are the numbers that have been reported in bookings. It is an underserved market that has — there’s particular guidelines in California and Connecticut now that require well being care employees to have some sort of coaching, not licensed, however I feel it is going to transfer in the direction of that and VirTra is correct there firstly and the center of it proper now. So we should always see that is the expansion that we’re seeing, the phrase’s getting out and VirTra is taking good care of their prospects they usually’re seeing that it is assembly the wants they’ve now and is driving a few of their insurance policies going ahead.
In order that’s a bit unpredictable of — it is going to be a really giant market, however we’ll must see how that performs out as a result of the well being care {industry} has by no means needed to cope with this — with coaching, they only normally had a safety power is simply coping with stuff. And as these legal guidelines come out to guard sufferers and well being care employees, it turns into — it is changing into extra obvious that they want some sort of coaching assist. And the coaching that we do, it does not require a lot to adapt to what they want in that {industry}. It is extra about how they deal with it inside their surroundings as a result of it’s barely completely different.
Jaeson Schmidt
Okay. That is actually useful. After which simply final one for me, and I will bounce again within the queue. Clearly, gross margin was extraordinarily robust within the quarter. You famous combine and another effectivity enhancements. However how ought to we take into consideration gross margin right here within the second-half? I assume it is going to not less than come down a bit from Q2 stage.
Alanna Boudreau
Sure, we count on…
John Givens
We do not — sure, go forward Alanna.
Alanna Boudreau
Sure. No, we do count on it to return down. There was type of the perfect of all of the issues that would have occurred on this quarter to get such a excessive quantity, as we pull within the improvement tasks that we have been speaking about and people begin — these bills begin to hit that each one type of stage set us out. So I nonetheless count on us to be within the low 60s the place we anticipated this quarter was simply distinctive in an outlier.
John Givens
And I will add, Jaeson. I am keen to sacrifice a little bit little bit of the gross margin to achieve after we begin releasing the V-XR to achieve as a lot market share as I can. So excessive 50s might be — mid- to excessive 50s is the bottom goal that I will go to, however I am keen to sacrifice a little bit bit for that.
Jaeson Schmidt
Okay, no, that is actually useful. Thanks lots, guys.
Alanna Boudreau
Thanks.
Operator
Thanks. Our subsequent query is from Richard Baldry with ROTH Capital Companions. Please proceed along with your query.
Richard Baldry
Thanks. You’ve got been very targeted on efficiencies within the enterprise because you took the CEO seat. I need to — I am curious that the stock stage type of set a brand new excessive within the quarter as revenues have been a bit mushy. Does that point out one thing you are seeing in type of near-term alternatives? Or are there extra defensive stance to be taken on possibly more durable to acquire gadgets or one thing we’d like to pay attention to?
Alanna Boudreau
One of many — I can take that. So one of many issues that you just’re seeing within the $1 million enhance in stock is these labor prices that we’re speaking about that bought moved to a work-in-progress account till these tasks come to fruition to match the income accordingly. So that may be a large chunk of it, work-in-progress.
Richard Baldry
Bought it. And…
John Givens
And Richard, the opposite half is the purchases for IVAS and our prototyping as properly. So we’re placing product out in every of these phases. So we’re shopping for for that whereas we’re nonetheless in manufacturing for our buyer base that we’ve got been for years.
Richard Baldry
Bought it. I do not need to be too bogged in technical accounting, however you have been EBITDA optimistic. The money went down about $4 million. That very same quantity principally is lacking from accrued bills and different. It is type of a random line. Are you able to stroll via what’s in that line? Why it fell to such a sort of dramatically low stage is in any other case the money would have been primarily sideways and would not appear like it was falling is why I ask.
Alanna Boudreau
Sure, it is all in our tax calculations and our tax provisions. We’re sitting on a pay as you go tax in each federal and state taxes, which is the place the money motion went. After which we have been trying to not maintain as a lot accounts payable on the steadiness sheet for quarter finish as properly.
Richard Baldry
Bought it. So then possibly from the next stage perspective, if you happen to step again and take into consideration the persevering with decision hampering budgets, are you able to discuss like exercise ranges exterior of that or whether or not that is product pipelines or gross sales pipelines, the diploma to which the gross sales persons are engaged with both present shoppers, new shoppers. And I am asking is that this a solution to gauge as soon as a price range scenario improved, there’s type of a mushy off the e book backlog of exercise that provides you some hope for type of a reenergized development fee going ahead?
John Givens
And I want I had a crystal ball for that one, Richard, as a result of there’s so many indicators. One is simply that they begin placing us again within the course of or they begin opening up the competitors. However I’ve acknowledged the variations earlier than. The navy and police regulation enforcement gross sales are very, very comparable. I perceive each of them very properly. The large distinction that individuals don’t perceive is whereas it is a large chunk and really giant contracts for the navy, you are solely coping with a handful of individuals for 25 or 30 websites as they purchase in quantity.
So that you cope with one contracting officer and one individual. These are straightforward to find out when these come round. The more durable half is there’s completely different companies which are placing out federal grants. And in every one of many regulation enforcement, you might have state, native, federal, metropolis municipalities, that each one have other ways of releasing funds and buying processes and all of that.
So I can provide you an excellent indication of when the navy markets open, nevertheless it’s state and native stage, some must undergo accounting commissioners. We perceive how all that works is simply — it is not very clear when that opens up since you’re speaking to completely different folks in several cities, in several states.
So what we — the largest indicator for us is the federal contracts as a result of lots of them are funding a few of the small municipalities and police departments. And with that, there are typically they’re going to be matching funds. So when these begin to transfer, we all know that the funds are beginning to launch and we’ll begin getting the POs. And we’re beginning to see a few of that now. I can reply your query particularly, however actually is — I want it was that straightforward to let you know what the reply is.
Richard Baldry
Bought it. Thanks on your assist.
John Givens
Thanks, Richard.
Operator
Right now, this concludes our question-and-answer session. I might now like to show the decision again over to Mr. Givens for his closing remarks.
John Givens
Thanks, Paul. VirTra is devoted to our prospects and their essential missions is as robust because it ever has been. Our ardour, onerous work and dedication of our staff are the cornerstone of our success, and I am assured in our potential to supply that management to our prospects and proceed innovating on the high of the {industry} and making a significant distinction. That is our precedence.
To our shareholders, I need to thanks on your continued assist and hope to see you in October in Chandler. Paul, over to you.
Operator
Thanks for becoming a member of us right now for VirTra’s second quarter 2024 convention name. You could now disconnect.
