VirTra, Inc.

Good afternoon. Welcome to Vertra's fourth quarter and full year 2020 earnings conference call. My name is John and I will be your operator for today's call. Joining us for today's presentation are the company's chairman and CEO, Bob Farris, and chief accounting officer, Marsha Fox. Following their remarks, we will open the call for questions from the Vertra's institutional analysts and investors. 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. Finally, I would like to remind everyone that this call will be made available for replay via a link in the investor relations section of the company's website at www.Vertra.com. Now I would like to turn the call over to Vertra's chairman and CEO, Mr. Bob Ferris. Sir, please proceed.

Thank you, John. Good afternoon, everyone, and thank you for joining us today for Virtua's fourth quarter and full year 2020 earnings call. I'm also joined today by our new Chief Accounting Officer, Marcia Fox. When we held our 2019 earnings call one year ago, we had all just begun to experience dramatic shifts in our daily lives as COVID-19 spread across the United States and our federal government, states, and local communities responded to the pandemic. Fear and uncertainty were rampant, and at that time, as markets declined, schools closed, and businesses shut down, the idea that Virtua could produce record financial results in 2020 would have been met with healthy skepticism, to say the least. Yet, we did. In fact, by many metrics, 2020 was the most successful financial year in our company's history, which you'd expect for a growing business during normal times. Despite pandemic headwinds and against the odds, our tenacious staff grew revenue for the 15th consecutive year. The $6.6 million in revenue we produced in the fourth quarter of 2020 ensured a strong finish as we produced $19.1 million in revenue for the full year 2020. We earned $1.5 million in net income and our adjusted EBITDA decreased 161%. to two point, I'm sorry, increased 161% to 2.8 million in 2020. Even with a positive result in the fourth quarter, our backlog increased to 14.6 million in December, at December 31, 2020. It's natural to ask why VRCHA flourished in a year that was incredibly challenging for so many. First, we serve a need that proved to be integral to law enforcement and military requirements. Our highly effective simulation products improve the training, which improves the performance of law enforcement and military personnel. Second, we have great people who are unusually dedicated to our mission to save and improve lives through uniquely effective high-tech products. Lastly, regardless of being the largest police simulation company in the world, we very much operate like a nimble company with a flexible organizational structure quickly adapting to changing circumstances and flourishing in the midst of them. Despite the number of challenges posed over the past year, canceled trade shows, travel restrictions that impacted installations and international sales, calls to defund the police, and fears of budget constraints within our core customer group, despite all of it, Virgin not only persevered but thrived in 2020. With the lack of trade shows and conferences, which we traditionally rely on to generate leads and demo new products to current and prospective clients, our sales team adapted by switching to web-based tools, which were timely deployed by our marketing team. As COVID restrictions lift, our regional sales staff are performing in-person sales calls and demos whenever deemed safe for both parties. They've really done an excellent job throughout the year performing demos and converting them into sales, and in the fourth quarter alone, we generated $5.5 million in new bookings. However, the primary reason for the strong financial end of the year was that our team went above and beyond in converting a good portion of the $14.4 million backlog we had at the end of the third quarter into revenue. The combination of our salespeople continuing to pound the pavement in their respective regions coupled with our ability to effectively convert our backlog into recognized revenues, has led to the rare accomplishment of 15 years of consecutive top-line growth. At December 31, 2020, our backlog and our revenue both climbed, which demonstrates that we not only ended the year on a high note, but that there is strong momentum for 2021. While we've had to adjust some of our tactics given the state of the world, Our fundamental strategy remains unchanged. Innovate and launch solutions that serve the current and future needs of our core customer base to build our reputation as an industry leader in marksmanship skills and use of force training, and then capitalize on that reputation to expand our foothold within the law enforcement and the military markets. During 2020, we excelled in each of these areas. We enhanced our BVICTA training curriculum with content for autism awareness training We expanded our deployments of our new driving simulators through an IDIQ contract from the Department of State for the Republic of Mexico. As a result, we now have a total of 77 simulators deployed in 10 different states within Mexico, just to name one contract. We received follow-on orders from Customs and Border Protection, which is a long-standing PURCHA client. And we received a major follow-on order from the Federal Law Enforcement Training Center, or FLETC, in September of last year. Through our relationship with PLETSI, there's now the potential for thousands of additional federal officers to be exposed to Birch's industry-leading products each year as we help modernize their programs with the latest technology, with certified use-of-force and decision-making training, and with interactive content that contains the highest quality branching scenarios on the market. In the military market specifically, we secured a $1.9 million contract to support the Air Force Research Laboratory Admire program, which is intended to develop technology that improves our military warfighters' decision-making and marksmanship skills. While our 2020 results are very encouraging, we did face headwinds last year, particularly in the foreign markets. Selling internationally in 2020 was an enormous challenge due to extensive travel restrictions. But our ability to continue to grow despite these headwinds demonstrates how robust our core customer base is and the growing scale of our business. As the world changed around us, Virta experienced its own internal changes as well this past year. Our business has grown along with the opportunities in front of us. We've increased our personnel to ensure we have the right people in place to meet the growing demand we see in our pipeline. In fact, for the first time in our company's history, we have reached 100 employees. As part of the growing process, we decided to invest in our infrastructure and prepare to transition to a new ERP or enterprise resource planning system. Not so long ago, our company was about one fifth the size it is today. And we could get by with various systems that weren't fully integrated with each other, sometimes doing manual work to bridge the gap. However, as we've grown in staff and revenues, it became clear that we needed to better handle our current business and prepare for future growth. And so we moved to a robust ERP that went live in early 2021. Such transitions are logistically challenging in the short term, but necessary for sustained long-term returns. Also, it was a difficult time for us in October of 2020 with the passing of Mitch Salts, a long-time VRTHA board member. His vacancy on our board was filled by John Given's appointment, whose expertise and connections in the military market have already proven to be beneficial to VRTHA. The military, as I'll discuss in a moment, remains one of the largest potential growth drivers for VRTHA, and by having John on our team, we're that much better positioned to capitalize on those opportunities. As you likely recall, our former CFO, Judy Henry, retired in November of 2020. Her vacancy was filled by our new Chief Accounting Officer, Marsha Fox. Marsha originally joined us in an interim capacity, but I'm pleased to report that she'll be staying on full time. She brings over 20 years of experience in financial operations, business transformation strategies, and all phases of the accounting process and controls to our team. She's held multiple senior leadership positions in various industries, including our own. She's been doing an excellent job since taking the reins from Judy, and we're very happy to have her on board. So with that introduction, I'm going to turn the call over to Marcia to provide an overview of the financial results for the fourth quarter and full year 2020. Marcia.

Thank you, Bob, and good afternoon, everyone. It's a pleasure to be speaking to you today for the first time as a member of the VRTRA team. Our total revenue for the fourth quarter of 2020 was $6.6 million. This was an 11% increase from the $5.9 million of revenue we recognized in Q4 of last year. For the full year ended December 31st, 2020, our total revenue was $19.1 million. This was a 2% increase from the $18.7 million we reported in 2019. The increase in revenues in both periods was the result of an increase in sales and subscriptions of simulators, accessories, curriculum and training, and recurring extended warranty revenue in 2020. Our gross profit for the fourth quarter of 2020 increased 80% to $4.8 million or 72.5% of revenue from $2.6 million or 44.8% of revenue in the fourth quarter of 2019. For the full year, our gross profit increased 23% to $11.9 million or 62.3% of total revenue from 9.7 million or 51.9% of total revenue. In both periods, the increase in gross profit was primarily due to differences in the quantity and type of simulator systems, type of accessories, and variety of services sold, combined with a decrease in the cost of sales. Our operating expense for the fourth quarter of 2020 was $3.4 million. a 50% increase from the $2.3 million we reported in Q4 of last year. For the full year 2020, our operating expense increased 13% to $10.7 million from $9.5 million in the same period a year ago. The increase in operating expense for the three months ended December 31, 2020, was due to a $434,000 impairment in the investment in Nats Entertainment Corp., or Modern Round, which was recorded as an operating expense as well as a $307,000 allowance for bad debt on accounts and notes receivable. The full year results included an $840,000 impairment in the investment of VASI Entertainment, recorded as an operating expense, as well as a $346,000 allowance for bad debt on accounts and notes receivable. Turning now to our profitability measures. Income from operations for the fourth quarter of 2020 was $1.3 million. a 276% increase from income from operations of $356,000 in Q4 of last year. For the full year 2020, income from operations was $1.2 million, a 367% increase from the income from operations of $262,000 we reported in 2019. Our net income for the fourth quarter of 2020 totaled $1.6 million or 21 cents per diluted share. This compares to the net loss of $66,000 or one penny per diluted share in Q4 of last year. For the full year ended December 31st, 2020, our net income totaled $1.5 million or 19 cents per diluted share compared to a net loss of $75,000 or one penny per diluted share in 2019. Our adjusted EBITDA, a non-GAAP financial measure, increased 119% to $2.2 million in the fourth quarter of 2020 from $729,000 in Q4 last year. For the full year 2020, our adjusted EBITDA increased 161% to $2.8 million from $1.1 million in 2019. Turning to our bookings and backlogs. We define bookings as the total of newly signed contracts and purchase orders received in a time period. For the three months ended December 31st, 2020, we received bookings totaling $5.5 million. We define backlog as the accumulation of bookings from signed contracts and purchase orders that are not started or are uncompleted performance objectives and cannot be recognized as revenue until delivered in a future period. Backlog also includes extended warranty agreements, and step agreements that are deferred revenue recognized on a straight-line basis over the life of each respective agreement. As of December 31, 2020, our backlog was $14.6 million, which is up 52% from the $9.6 million we reported a year ago and up from the $14.4 million at September 30, 2020. And finally, to our balance sheet. At December 31st, 2020, we had approximately $6.8 million in cash and cash equivalents, which was up from the $3.3 million in cash, cash equivalents, and certificates of deposit at December 31st, 2019. Accounts receivable in unbilled revenue combined to total approximately $6.8 million at year end compared to 5.9 million at December 31st, 2019. From a working capital standpoint, we ended the full year 2020 with 10.3 million in working capital compared to 7.2 million in working capital at December 31st, 2019. For additional details of our financial results, please reference our Form 10-K, which was filed earlier today. That concludes my prepared remarks. I'll now turn it back to Bob.