VirTra, Inc.

Good afternoon and welcome to Virtra's first quarter 2021 earnings conference call. My name is Matthew and I'll 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, Marcia Fox. Following their remarks, we will open up the call for questions from Virtra'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 the 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 at the investor relations section of the company's website at www.Vertra.com. Now, I'd like to turn the call over to Vertra's chairman and CEO, Mr. Bob Farris. Sir, please proceed.

Thank you. Good afternoon, everyone, and thank you for joining us today for Vertra's first quarter 2021 earnings call. We entered this year with strong momentum after completing a very successful 2020. Today, I'm very pleased to announce that last year's momentum continued into and through the first quarter of 2021. During the first quarter, we generated $4.4 million in revenue, net income of $655,000, which translates to earnings per share of $0.08 and positive adjusted EBITDA of $751,000. While each of these metrics is a substantial improvement from the first quarter of last year, we're particularly encouraged by our ability to beat last year's results and grow our revenues 33% year over year, while our backlog grew 42% year over year to a record $16.1 million. We also exited the quarter with $5 million in cash and cash equivalents. After successfully executing an $18 million capital raise following our last call, our cash position has improved to $23.7 million. Demand for our solutions is reaching a fever pitch, and our ability to fulfill that demand and to continue to grow has never been more critical. However, before we dig into where we're headed, let's review where we've been. Success of the first quarter can predominantly be attributed to our increased sales, which improve our ability to ship and install simulators despite COVID limitations. Virtua's success is a direct reflection of two fundamental attributes of our company. First, our people and partners. Virtua has worked alongside some of the most talented people in our industry long before de-escalation training made the headlines. We fundamentally believe in effective training and we have a unique ability to deliver value to our end users and our shareholders. Second, our high-tech solutions improve marksmanship and decision-making skills, which improves the performance of law enforcement and military personnel. We've all seen the headlines about how the decisions made by law enforcement officers can unfortunately end in negative outcomes. Everyone knows that the subject of when and how law enforcement officers can or should use force is top of mind, which is why it frequently surprises people to hear that some agencies are okay with mediocre training or no training at all. In this climate, it's easy to see the inescapable need for better training. However, actually implementing quality training is a different story. And despite all the advantages VRTCH can offer to a department, from improving an officer's ability to make decisions under duress to meeting certified training requirements, there are still thousands of agencies not currently taking advantage of VRTCH's best-in-class solutions. And with our very affordable subscription model, our products are now within the budgets of nearly every single agency in our country. Something is seriously broken in our society if a police officer is authorized to use deadly force but is not trained sufficiently for such monumental responsibility. However, that may be changing. If simulation training were ever to become a legally required part of becoming a law enforcement officer, maintaining your status as one, or a requirement for reviewing the actions of one, it could completely change our industry. It also just makes sense. While such a large change may be many years into the future, we have some evidence of the tide starting to shift in that direction. Recently, our home state of Arizona mandated that before a person becomes a member of a civilian board that reviews the actions of peace officers in our state, that person must complete several requirements. And one of them is 20 hours of simulated event law enforcement training. This kind of legislation is certainly a step in the right direction and something that could bode well for virtue in the future given that we have pioneered certified training curriculum And our customers enjoy patented products that are unmatched in their realism and effectiveness. In addition, enhanced demand and improvements in our sales and marketing processes led to more sales and more profit. And with that comes the need to expand and to upgrade our internal systems to be more appropriate for a company of our size. Less than two months ago, we passed the 100 employee mark for the first time. Today we have 103 employees. Our expansion extends across many departments from increases in our operations and production staff to increases in staff creating our remarkable training content and next generation products. And with each passing day, we are investing more and more into our future success in areas beyond just R&D. In addition to enhancing our staff during the first quarter, We also completed upgrading our enterprise resource management software system that touches nearly all of our internal processes. Now, typically, these back-end improvements were not worth highlighting. However, this demonstrates that we are preparing our company to scale to an ever-larger size, and doing so demanded a major overhaul of our logistical systems. Today, much of this transitional work is now behind us, which means our attention is now focused on growth. During our last call, I discussed some of the details of our sales strategy as it pertains to the military market. As a reminder, we often find success by leveraging our industry-leading patented products by partnering with larger players who are already ingrained with decision makers. Due to the competitiveness of our industry and the sense of nature of many of our client relationships, we are often prohibited from disclosing details related to current contracts, as well as prospective growth areas. We understand that the lack of large numbers of press releases can be frustrating for some investors who are eager to learn more details about where Virchia is growing and how. However, our mentality at Virchia is to put the business and the customer first, especially when releasing too much information too early can endanger material opportunities. We also believe actions speak louder than words. We say as much as we can when we can, but there are instances in which we are prohibited from disclosing details. Unfortunately, this is one of those instances. But I can confirm that we've made very real progress in the military market. In fact, the fruits of that labor have started to show up in our backlog in a material way. As long as the need for quality training exists and as long as we're able to execute on our strategy, we believe that our success could well continue and might even accelerate. We know the headlines of our day shine a spotlight on the need for quality training and the tragic results when proper training is not prioritized. but it is also being reflected in our improving financial results as well. To provide more insight into that performance, I'll now turn the call over to Marcia to provide an overview of the financial results for the first quarter of 2021. Marcia.

Thank you, Bob, and good afternoon, everyone. It's a pleasure to be speaking to you today to review our financial results for the first quarter ended March 31st, 2021. Our total revenue for the first quarter of 2021 was $4.4 million. This was a 33% increase from the 3.3 million of revenue we recognized in Q1 of last year. The increase in revenues was the result of an increase in the number of simulators and accessories completed and delivered, and therefore revenue recognized, compared to the same period in 2020. Our gross profit for the first quarter of 2021 increased 61% to $2.6 million or 57.8% of revenue from $1.6 million or 47.8% of revenue in the first quarter of 2020. The increase in gross profit was primarily due to decreased costs as well as differences in the product mix of systems, accessories, and services sold. Our operating expense for the first quarter of 2021 was $2 million, a 5% decrease from the 2.1 million we reported in Q1 of last year. The decrease in operating expense for the three months ended March 31st, 2021 was mainly due to reduced selling and traveling expenses partially offset by an increase in professional services expense. Turning to our profitability measures. Income from operations for the first quarter of 2021 improved to $564,000 from a loss of operations of $512,000 in Q1 of last year. Our net income for the first quarter of 2021 totaled $655,000 or 8 cents per diluted share. This compares to a net loss of $389,000 or a loss of 5 cents per diluted share in Q1 of last year. Our adjusted EBITDA, a non-GAAP financial measure, increased to positive $751,000 in the first quarter of 2021 from a loss of $326,000 in Q1 last year. Turning to our bookings and backlog. We define bookings as the total of newly signed contracts and purchase orders received in a time period. For the three months ended March 31st, 2021, we received bookings totaling $7.4 million. We define backlog as the accumulation of bookings from signed contracts and purchase orders that are not started or are uncompleted 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 March 31st, 2021, our backlog was $16.1 million, which is up 42% from the 11.3 million we reported a year ago and up from 14.6 million at December 31st, 2020. Finally, to our balance sheet. At March 31st, 2021, we had approximately $5 million in cash and cash equivalents, which compares to $6.8 million in cash and cash equivalents at December 31st, 2020. Accounts receivable and unbilled revenue combined to total approximately $8.9 million at the end of first quarter compared to $6.8 million at December 31st, 2020. Subsequent to the quarter's end, we completed a public offering in which we raised gross proceeds of $18 million for 3 million shares of our common stock. As a result, today our company has approximately $23.7 million in cash and cash equivalents and approximately 10.8 million shares outstanding. From a working capital standpoint, We ended the first quarter of 2021 with $10.8 million in working capital compared to the $10.3 million in working capital at December 31, 2020. For additional details of our financial results, please reference our 10-Q, which was filed earlier today. That concludes my prepared remarks. I'll now turn it back to Bob.