VirTra, Inc.

Good afternoon and welcome to Virtra's second quarter 2022 earnings conference call. My name is Laura and I will be the operator for today's call. Joining us for today's presentation are the company's chairman and co-CEO, Bob Ferris, co-CEO, John Givens, and Chief Accounting Officer, Marsha Fox. Following their remarks, we will open the call for questions for 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 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 co-CEO, Mr. Bob Farris. Sir, please proceed.

Thank you, Laura, and thank you, everyone, for joining us this morning. Before the market opened today, we issued a press release that provided our financial results for the second quarter and six months ended June 30, 2022, along with highlighted business accomplishments. We also filed our 10-Q at the SEC, which is available for review at your discretion. The first half of 2022 has been a strong start for Virtua, putting us on track for another year of record revenues as total revenue in the first half of 2022 was up over 50% from the comparable period in 2021, which was our highest revenue period in our history. The operational momentum we are capturing is noteworthy as we continue to penetrate our key growth markets in commercial, government, and international. Additionally, this growth is being achieved while generating profits, as adjusted EBITDA grew 33% in the first half of the year, and we remained profitable on a GAAP net income basis. This strong growth is being largely driven by the international commercial markets. You might notice that our government sales is down slightly, but keep in mind that normally the high season for us to receive new government orders is during the third quarter, and our sales pipeline is strong. Internationally revenue in the first half of 2022 increased 125% from the prior year comparable period, but this was due to an unusual circumstance. As we have discussed on past calls, the international business was negatively impacted in 2020 and 2021 due to COVID related travel restrictions. With travel restrictions now largely removed and international business travel resuming, we have been better able to sell our products and services internationally. which is manifesting itself in our 2022 results. With this momentum now reestablished, we are optimistic about our continued international growth, which was recently highlighted by another order in Canada under the standing offer we have with their government that provides a streamlined and standardized process for multiple federal, provincial, and municipal agencies in the country with VRTHA as the sole provider. In our commercial segment, which includes military sales through a prime contractor, revenue grew over five-fold in the first half of the year to $5.2 million as we continue to penetrate key markets where Virtua has a competitive solution. Importantly, commercial revenue in the second quarter of $3.6 million exceeded the $3.2 million of commercial revenue we generated for all of 2021. Additionally, while we do not disclose margins by revenue segment, I think it is clear that we are generating healthier margins in the commercial market given it represented 45% of revenue in the second quarter and we generated almost 60% gross margins as a company in the quarter. What also gets me excited about this market is this growth is essentially achieved all before co-CEO John Givens took his current position earlier this year. So with his addition, we think we are only in the very early stages of fully capturing this larger military market opportunity for Virtra. So with that, I'm going to pass it over to John to discuss his thoughts on his work at Virtra so far. John?

Thanks, Bob. Thank you. I'd like to focus my remarks today on the first 100 days or so at Virtra and tell you that we've been very busy day, night, weekends. As discussed in our last conference call, which was my first since joining the company, I felt we needed a presence in Orlando, Florida, if we wanted to significantly expand our ability to capture the opportunities within the military market. Orlando is known as a worldwide epicenter for modeling and simulation industry for the military. Their four major military branches all have procurement centralized out of Orlando, where they manage multi-billion dollar portfolios, including military PEO STRI for the U.S. Army, PM TRACES for the U.S. Marines, AFAMS for the U.S. Air Force, and NAVAIR for the U.S. Navy. So in my experience, if you don't have a physical presence in Orlando to easily demonstrate your products and conduct on-site meetings, you're going to have a real hard time penetrating those markets. As you might guess, all the major defense contractors have offices in Orlando for this very reason. Since I've joined, we have leased a building right in the heart of this action. It's already up and operational, and we have a respected and seasoned program manager based in Orlando and expect to add business development and other personnel in the coming months. We have virtual equipment on site. We've already completed demos and expect to be actively conducting regular demonstrations with military personnel over the remainder of the year. To succeed in the military space, In the military market, I believe we need three key ingredients. First and foremost, you need a great product offering, which Virtra clearly possesses. The other two are presence in Orlando and relationships to facilitate buying support for your product within the military. The two latter Virtra has historically lacked, but I'm confident that the company is now well positioned to begin investing capturing more opportunities in the military market. The other item I've been intensely focused on during my first 100 days is ensuring Virtra has the right corporate structure in place to ensure efficient operations and scalability. As is often the case with a rapid growth company, there can be some inefficiencies unintentionally created as a result of operations racing to keep up with record sales being recorded year after year. With fresh eyes from an outsider's perspective and my experience scaling up an operation at Bohemia to 200 million, it became evident to me that there were some areas of optimization. Accordingly, we effected a reorganization at Virtua on August 16th, which will reduce our staff by about 10%. Now, I want to be clear. This is not an adjustment merely to cut costs. I expect this improvement to greatly improve the operational efficiency of virtual staff by eliminating the redundancies and streamlining the org chart based on functionality and focusing on facilitating significant scaling for virtual employees to increase the potential for business or business. I'm excited about the direction we're taking, and I'm now going to turn it over to our Chief Accounting Officer, Marcia Fox, to provide financial updates.

Thank you, John, and good afternoon, everyone. It's a pleasure to be speaking to you today to review our financial results for the second quarter and six months ended June 30th, 2022. Our total revenue for the second quarter of 2022 was $8 million. This was a 52% increase from the $5.3 million of revenue we recognized in the second quarter of last year. For the six months ended in 2022, total revenue increased 52% to $14.8 million from $9.7 million in 2021. The increase in revenues for the three and six months ended June 30, 2022, resulted from an increase in the number of simulators and accessories completed, delivered, and revenue recognized compared to the same periods in 2021. Our gross profit for the second quarter of 2022 increased 51% to $4.7 million from $3.1 million in the second quarter of last year. Gross profit margin for the second quarter of 2022 was 59%. which was slightly lower than the 60% in the second quarter of last year. For the six months ended in 2022, gross profit increased 48% to $8.4 million from $5.7 million in the six months ended in 2021. The increase in gross profit was driven by an increase in the number of simulators and accessories completed, delivered, and revenue recognized compared to the same period in 2021. Gross profit margin for the six months ended in 2022 was 57%, which was slightly lower than the 59% for the six months ended in 2021. Our net operating expense for the second quarter of 2022 was $3.7 million compared to 2.3 million in the second quarter last year. For the six months ended in 2022, net operating expense was $6.7 million compared to 4.3 million for the six months ended in 2021. The increase was primarily due to expenses related to the move into the new building, increased research and development costs, and increased payroll costs. Keep in mind that as we transition out of our old headquarters into our new headquarters, we are paying far more overhead than we require. As we fully transition, we expect to realize some cost savings from this move. Turning to our profitability measures. For the second quarter of 2022, we recorded an operating income of $1 million compared to $821,000 in operating income in the second quarter of 2021. For the six months ended in 2022, our income from operations was $1.8 million, an improvement compared to the $1.4 million for the six months ended in 2021. Net income for the second quarter of 2022 totaled $787,000 or seven cents per diluted share. An increase compared to net income of 529,000 or five cents per diluted share in the second quarter of 2021. For the six months ended in 2022, net income totaled $1.4 million or 13 cents per basic and diluted share which compares to net income of 1.2 million or 13 cents per basic and diluted share for the six months ended in 2021. Adjusted EBITDA, a non-GAAP metric for the second quarter of 2022 was $1.3 million compared to 1 million in adjusted EBITDA in the second quarter of 2021. For the six months ended in 2022, adjusted EBITDA totaled 2.3 million an increase from 1.8 million in the six months ended in 2021. Turning to our bookings and backlogs. We defined bookings as the total of newly signed contracts and purchase orders received in a defined period. For the second quarter and six months ended in 2022, we received bookings totaling 3.5 million and $9.9 million respectively. Furthermore, we define backlog as the accumulation of bookings from signed contracts and purchase orders that are not yet 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 June 30, 2022, our backlog totaled $16.5 million, which compares to $21 million at March 31, 2022, and $17 million at June 30, 2021. And finally, to our balance sheet. As of June 30, 2022, we had unrestricted cash and cash equivalents of $15 million compared to $15.7 million at the end of the prior quarter. From a working capital standpoint, at the end of the second quarter, we had $27 million in working capital, a slight decrease from the 25.9 million at the end of Q1. Excuse me, it was a slight increase from 25.9 million at the end of Q1. For additional details of our financial results, Please reference our 10Q, which has been filed. That concludes my prepared remarks. I'll now turn it back to Bob.

Thanks, Marcia. Before I dive into my closing remarks, I want to spend a moment to discuss the departure of our Chief Operating Officer and Director, Matt Berlin, which we announced in our earnings release. Matt departed Virtua earlier this week after more than 20 years with the company, working his way up, from an engineer to COO. Matt is credited with a long list of major accomplishments at Virtua and for the market. Matt was a key contributor to the growth and success of Virtua over the years, and we wish him all the best as he pursues new opportunities. To be clear, his departure was not the result of any disagreement with the company on any matters relating to its operations, policies, or practices. We will not seek an immediate replacement for Matt at the company level, but we will plan to fill his board vacancy in due course. I'd next like to spend a minute to recap our gross margin progression thus far in 2022. If you recall, gross margins in 2021 and the second half of 2021 in particular were negatively impacted short-term by our pursuit of a strategically important military contract that we believe will situate us well for certain future military business going forward. We thought of this as paid R&D and a short-term dynamic as we progressed through that contract. Additionally, inflation through higher labor materials and travel costs further impacted margins in 2021. So, as we adjusted our business to deal with the inflation and move past that strategic military contract, we have seen gross margins return closer to our historical range. While margins will continue to fluctuate quarter to quarter, we are encouraged by the fact that gross margins in the first half of 2022 were 57%, very close to last year's 59%, despite the inflationary headwinds everyone's familiar with. This is also a significant improvement from the 47% gross margin we recorded for full year 2021. Now, looking ahead for Virta, I think we are in the best shape we have ever been. Our growth opportunities remain extremely robust, bolstered by our co-CEO John Givens' proven abilities in the military market. Our balance sheet remains robust and our internal operations are being streamlined to facilitate maximum scale and operational efficiencies. In Arizona, our move to our new headquarters in Chandler continues to be on track for a full move in by the end of the year. As we have stated before, this state-of-the-art facility provides us with a larger and more centralized footprint and greater operational efficiencies. Coupled with our recently established Orlando presence, we have a growing capability to demonstrate our advanced training simulation offerings to the industry. And with that, I'm going to wrap up my prepared remarks and we'll open the call up for your questions. Operator, please provide the appropriate instructions.

At this time, we'll be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 to remove your question from the queue. for participants using speaker equipment. It may be necessary for you to pick up your handset before pressing the star keys. One moment while we poll for questions. Our first question comes from the line of Richard Baldry with Roth. You may proceed with your question.

Thanks. Maybe a question for John. In the military market, if you talk about the cadence of seasonal bookings that you saw maybe at Bohemia prior, is there a distinct seasonality to it? And what kind of scale do you think the company has to get up to before that seasonality would impact? I assume when you're early in something, maybe you can outgrow seasonality for a year or two.

Yeah, that's a two-part question. So when it comes to the seasonality, the way military contracts work, they're usually issued as a base with four years of options for a five-year contract. Very, very, very rarely do they cancel option years once you've won the contract. It's usually to protect them for a non-performing company. So when you talk about seasonality, typically September 30th is their end of year. So everyone's trying to spend their money and get things on contract so they don't de-obligate funding from all these different entities. So that seasonality you'll see is September, but then it kind of oscillates depending on when contracts are let and when they're ending their five-year contract run. The one big difference that we're going to take advantage of is the government, because of shortages of staff and those things, they've decided that they'll start working on seven- and ten-year contracts with, like, a three- or four-year base. That's what we're going to take an opportunity on. The second part of the question is, when I talked about scalability, internally, Virtra's done an amazing job on... developing R&D smaller. We haven't done anything where we, I call them cookie cutter, basically. We'll build one set of equipment, software, or a capability for one customer, and we're able to resell it over and over again. Virtual wasn't set up in their org chart to be able to handle that type of cadence. So that's what the reorg was all about. I hope that answers the question.

Okay, and maybe in the regular police market, the traditional market, if you talk about what you're seeing in the backdrop there, bookings were off a bit year over year. Is there something happening in budgets or just timing just so we can kind of get a better grasp of what maybe the second half has for that?

Yeah. Bob, I can give a quick – go ahead, Bob. Yeah, so –

The bookings, I was curious if someone might ask that question. With COVID impacting our abilities to schedule installs, we had unusually high backlog, kind of basically products stacked up. And so now with COVID-19 limitations subsiding, we've been able to clear out and our team did a great job in moving orders into actual delivered ship products, signed for products. And so our revenue, we were able to recognize an increase, but that did take some out of our backlog. So our backlog is going to decrease. So there's always that healthy balance of how much backlog do you have and how much of it you're able to convert to revenue in any given quarter. And I think that that But that's improved. The other comment on that is that we do normally, remember, we are the principal supplier for federal law enforcement in the United States. So federal law enforcement, they normally are on that federal budget cycle that John mentioned. Military is often on. And so federal law enforcement, where we get quite a bit of our revenue on the police side of the house, that is something that hits us more so in third quarter than pretty much any other quarter normally. That's when they commit their funds, and that's when we take on new sales orders there. So I think those, you know, we are always monitoring that carefully, and we always feel like there's areas where we can do a better job. And, John, just to be clear, and one reason John was ready to jump in on that question too is, is John, and even though we talk about John's military market expertise, which is pretty close to second to none from my 29 years in the simulation industry, he is actually actively involved in Virtua at the highest level for both sides. He is in communication and directing our sales efforts in law enforcement, as well as military, as well as he's working operationally. So don't Don't think of this as Bob is working law enforcement and John Givens is working military. And I think some would assume that based on John's amazing pedigree in the military side of the business. So just to be clear, John and I are working with different areas of virtue, but not in a market delineated fashion.

Okay. And then in terms of sort of operational steadiness, can you maybe talk about Are the ERP systems in a steady state that you feel like keeping up with filings? This should be pretty easy, essentially, going forward. And then inventories have stepped up to a much higher level. I assume a lot of that's to do with increasing orders and some safety stocks for COVID-lagging reasons. Overall, do you feel like you're in a more smooth execution positioning now?

Well, as much as we can be, given that we're still moving and setting up our main facility. So our target is to have full integration in our new headquarters by the end of this year. And John Givens actually has been on the ground here physically helping move stuff. He's a surprisingly hands-on guy for his track record in the market. So we've been – so there's that. The ERP system, as we said before, is an evolving part of our company. So it is not done as of today, but as far as answering your question about the scaling, we absolutely are looking to ensure that we have scalability for the company, and we are – So we are definitely looking at how we make sure and have no future delinquencies. We plan to not have that happen again. We think that was a symptom of doing a lot of changes at once that could have been done in a more streamlined fashion, and that's where a lot of John's changes have started to be implemented, with an eye to how do we avoid those delays in filing. So, yes, we're planning to continue with being an on-time filer as we have for years and years previous to the ERP implementation.

Hey, Bob, I would like to add one thing to that. So, while the ERP is not perfect, we have identified all of the all of the miscomings of the system and have implemented manual processes that are being implemented into the ERP as we speak. So we're not skipping a beat at all. Finance reports to me, we're going to make every single filing going forward because we have a higher visibility now that those processes are in place.

And last for me is if we look to the first half of last year, military is pretty negligible. If you look in the past, nine months, you're a third to times over 40% of revenues. And I assume that's basically the U S market. If you think about, you know, 18 months out from now, and is that a larger market or larger component inside the business now than the police side is, you know, have you had some early wins that were sort of backed up that maybe make it run rate higher than you would expect on a long term? How do we think about the next longer term?

Well, I, The longer term, it will be a large part of the company's business. In the short term, we're still prepping the company for those types. Like there's certain requirements that each one of the products have to meet with drop tests, and there's a myriad of those. And one of the projects that Bob has mentioned on previous calls has helped us get there. We go back to the cyclical nature is when you look at that market space, it's a very large market, and there's a lot of different opportunities where Virtua is a sub-company. contractor to a much larger prime, and we already have all those relationships. And in the past, those relationships weren't there, and the presence in Orlando wasn't there. And that was the two, as I mentioned, two significant key factors of why Virtra hasn't captured that data. There's almost a need to be there with those buyers because not only is the acquisition in Orlando, but every one of the proponents is in the business, like whoever's going to be using the equipment comes to Orlando to speak with and to guide the acquisition officers. So we see that as being there and having a key program manager there and the size of that market and the aging equipment in the sweet spot that Virtra fits is going to do nothing but drive the business higher. One of those contracts or two of those contracts could be a third of Virtra's earnings in a year. And that's what we're targeting.

Great. Thanks for your help.

Our next question comes from the line of Alan Clee with Maxim Group. You may proceed with your question.

Yes. Good morning. The question is on your operating expenses and the G&A jump in the quarter. Can you give us some color of how much of that you would say is growth initiatives or one-time related? And following up on that also, the 10% cut of staff, can you quantify what that means too? Thank you.

I'll start with the last part of that question, Alan, and thanks for asking that. The 10% cut in staff, is part of the restructuring. It will likely be replaced with a QA department that the company doesn't currently have. So that function will offset cost savings on that. Like John said in his remarks, the reorganization was not specifically a cost reduction strategy. It was an optimization strategy. for the prep for scaling. So if we get some cost savings as a result of that, that is just a side effect of the effort. The real key to the effort is optimization, efficiencies, elimination of redundancies. We absolutely abhorred waste. We don't want to waste any resources or or have a function that's redundant and wasteful. So that is definitely part of it. But also just prepping for scale is really the bigger part. And having a really world-class QA part of the company that's really needed as we move into the military market more so is a key aspect of that whole reorganization effort. It's difficult for us to answer the other part of your question at this time. We don't have perfect visibility into the future on that, but we do think that our SG&A is appropriate for where we're at. We are doing a bit more R&D that we can't give a lot of details on. That's our policy when it comes to R&D efforts, but we have stepped up our R&D spending and efforts because we see some opportunities in different markets for that. But the SG&A we think is appropriate and we do think it is a bit, there are parts of that that are more one-time because of the move and different costs associated with the fact that we have an Orlando facility, we have a mortgage Phoenix facility, we have leased facilities and that are, so we currently have a vacant lease facility that we're working on subleasing, but we're going to, We're going to centralize those facilities together, and that should allow us to have a more efficient ongoing presence as a company and actually have a more streamlined SG&A going forward for what we get out of our SG&A, if that makes sense.

Thank you. My last question is, as we're approaching the September budget fiscal year ends for the government and for law enforcement and the military, can you give us some qualitative comments of how conversations are going on deals in the pipeline and how you feel about opportunities?

I'm sorry, I didn't quite catch all of that. Can you repeat the question?

Basically, comment on how you feel about the September budget flushes from your customers in terms of the pipeline of opportunities you have and your potential to win some of them.

Yeah, we're very excited with our sales pipeline. I wish I could get into greater detail than that. We are very excited about it. But somebody who's been in this for 29 years, until it crosses the finish line, it's not done. So while we are optimistic and excited, we still are paranoid and hardworking. So that might be the best way to explain it.

Okay. Thank you.

Thank you.

Our next question comes from the line of Jason Smith with Lake Street Capital. You may proceed with your question.

Hey, guys. Thanks for taking my questions. I just want to follow up on some of the previous questions. And, I mean, we're halfway through the September quarter here, and obviously everyone sort of alluded to potential some seasonality in the government space. Can you just talk about how order patterns have tracked so far this quarter?

Yeah, thanks. Thanks, Jason. The, you know, we're always monitoring that carefully and it is, you know, certain things like sequestration that we've had or budget gridlocks are things that we monitor and can be very concerning to us. Fortunately, as of right now, those normal headwinds that we sometimes face on the government side of our business, which is the bulk of our business, We're not seeing any major issues in that regard. Police budgets do fluctuate, and there was that period of time where there was the call for defunding the police that was a minority view that some people were getting headlines of stripping police departments of their funding. It seemed like that ended up fading away, and what replaced it was actually fund the police more so and get them better training. I think Bircha has been a recipient of some of that attitude. We are hopeful that that attitude continues. We really believe that police departments are making the right choice when they buy the world's most realistic rehearsal tool for life and death scenarios. So police have the chance of making a mistake in a simulator and not making a mistake in real life with dire consequences. We think that makes sense with or without headlines. of the need for police to be trained at the highest level. We really think that saving money on training simulators or trying to use a VR game headset and trying to do training with something that's not a professional training and that you often have trainees kind of take off and laugh at and consider as not good use of their time with their limited training budget and limited training time. You know, we think that those are potentially poor decisions that we want government agencies to avoid. Fortunately, when they do demonstrations head-to-head and they try out our professional mature training product and then they try out possibly a new piece of technology that may not be fully ready for prime time training, you know, it's usually very clear in their mind that, you know, we're worth the money that we charge and, you know, we're dedicated to saving lives through our technology. We keep hearing from different people in the industry. We've had different folks that let us know that they had moments in their career where they had to make a life or death decision and they felt like our simulator and the training we provided them made a difference. That speaks volumes of why we do what we do and I think we have some staff here that could work at a lot of other places for probably more money, but they work at Virtua because of the mission we have and why we do it. And I think that resonates with police departments. And I still believe that there is plenty of money out there in government agencies from quarter to quarter, regardless of seasonality. The key for Virtua continues to be educating the market of the need for high quality training in life and death situations, which sounds self-evident, but no, we actually have to work with people and educate them and explain why that makes sense. And I think that's our, you know, the big opportunity for Virtua on the law enforcement side is really just educating people and getting in front and and having those that have apathy about, well, you know, we don't do really any simulation training right now, and explaining to them the need of having that being part of their program of training and the need for police to have that training. So sorry that's a long-winded answer, but it gets to kind of the core of what we do. I think that if we explain to people why they need our simulator or we give them the chance to try out our simulator versus other options, they will find the budget. It might be in a month or two or it might be in six months that they are able to get the budget and space allocated, but it's very likely that we're going to win the day somewhat independent of the budget cycle of the moment, if that makes sense.

Okay, I really appreciate that caller and just want to make sure I fully understand if I heard correctly. So the 10% headcount reduction, you don't anticipate that to lead to any sort of significant savings, given that it's going to be sort of backfilled with this new department. Is that how we should think about it?

Generally, yes. I mean, there may be some, but our focus is our reputation in the market. We need to succeed for our clients, each and every client. We want successful installation. We want high quality. We're spending more money on components for our product to make sure we're the higher quality standard out in the industry. So Yes, there may be some decrease, but I would not. If you're looking to model Virtua, you shouldn't model Virtua as on a road of just slashing our SG&A, especially if doing so would endanger our reputation or our performance or our ability to scale. But again, there could be some savings as a result of it, but part of that would be replaced by new hires and new department that makes sense going forward.

Okay, got it. And I know you mentioned some of the funded R&D that hurt gross margins earlier, but can you just sort of discuss some of the dynamics that are driving the better gross margins in the commercial space?

Yeah, I mean, it really, it's really almost like a return back to normal than any initiative. And the return back to normal is related to that strategic military contract. You know, we recognize that Virtua is not the company that's for the last 20 years won all the military simulation contracts. We are not that company. Um, but we are the company that dominates the law enforcement and federal law enforcement training. And there's tremendous overlap between those products and the products that the military needs. So, um, so yeah, we're, um, so we're, we do, we do think that the, the way that we make our products and it's going to fit very well for the military moving forward, but, um, But yeah, we're anticipating that we will be seeing a lot of positive results from the fact that we might have done a military project at a considerable discount than we would normally charge for our products, just to make sure we got our foot in the door, to make sure that we got the product developed to the way the military would want it, and almost like a paid R&D project where we would have spent our own money to go do it, but we were able to actually get it offset or funded by a customer. You may know our history. We're a company that really began with bootstraps, and we're normally a company where if we want to put money in our bank, we need to go make profitable products and earn money. have earnings, and that's how we do it. We have raised some money, but our background as a company has really been, you know, make a compelling product that people want, make it at a profit, and our innovative products over the years have often been those products where we make our most profit because they're really contributing something unique to the market, and they become indispensable for our customers, and that's when we seem to be at our best, and And that's what we're focused on and why we took that military contract for a much different and a much lower profit margin than historically we do.

Okay. Thanks a lot, guys. I'll jump back into queue.

Thank you.

At this time, this concludes our question and answer session. I would now like to turn the call over to Mr. Farris for closing remarks.

Thank you, Laura. Well, we really appreciate everyone for taking time to join us today. Please know we are dedicated more than ever to building shareholder value and building the world's most effective simulation training products so that the warfighter and the law officer can serve their country, accomplish their mission, and make it home safely. I firmly believe the best days for Virtua are ahead of us. Be safe, take care, and God bless.

Thank you for joining us today for Virtra's second quarter 2022 earnings conference call. You may now disconnect your lines at this time. Thank you for your participation. Enjoy the rest of your day.