VirTra, Inc.

Good afternoon. Welcome to Virtra's fourth quarter and full year 2022 earnings conference call. My name is Doug, and I will be your operator for today's call. Joining us for today's presentation are the company's chairman and co-CEO, Bob Farris, co-CEO, John Givens, and Chief Financial Officer, Alana Boudreau. Following your remarks, we will open the call for questions from Virtra's institutional analysts and investors. Before we begin the call, I would like to provide Bertra'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'd 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'd like to turn the call over to Vertra's chairman and co-CEO, Mr. Bob Ferris. Sir, please proceed.

Thank you, Doug, and thank you, everyone, for joining us this afternoon. After the market closed today, we issued a press release that provided our audited financial results for the full year ended December 31, 2022, along with highlighted business accomplishments. We also filed our 10-K with the SEC today, which is available for review at your discretion. As a brief overview for today's call, I'll begin by providing highlights for the fourth quarter and full year 2022, And I'll summarize some of our recent business developments before passing the call over to John to discuss operations and provide an update on our military market progress. After that, Alana will discuss our financial results in more detail. I'll then come back on to discuss how 2023 has been going so far before moving to Q&A. And with that, let's get started. 2022 is a successful year for Virch on many fronts. Our strong performance was the result of executing on our business strategy to drive profitable growth in the police and military markets for our industry-leading products. We generated record bookings and grew revenue for the 17th consecutive year, increasing the top line 16% to a record $28.3 million. On top of this, we delivered another year of solid profitability, generating $3.6 million of adjusted EBITDA and $2 million of net income. In addition to the strong financial performance we delivered last year, we achieved several significant operational milestones that have positioned us for long-term success. We made judicious investments in our technology that, from a competitive standpoint, further differentiated our products in the market. We have meaningfully increased the breadth and effectiveness of our training offerings and bolstered our competitive edge in the industry. These efforts included refinements to our software and upgrades to certain accessories like our V-ThreatFire device and drop and recoil kit capabilities, which make our solutions more indispensable and effective. In November, we showcased our latest technology at the ITSEC trade show in Orlando, where we received strong feedback and interest. In fact, I'd even state that anyone who attended ITSIC and tried out all small arms training options at the show would walk away realizing that Virtua is the gold standard, an accomplishment that is the result of enormous investment in both time and resources. Much of the financial investment is in the rearview mirror, like our Virtua volumetric video or V3 enabling technology, but we will continue to prioritize cost-effective enhancements to ensure exceptional value for our customers. I'd like to highlight important investments in our content department during 2022. In Q4, we introduced our breakthrough technology V3, which has the potential to provide a step function advancement in training content for our customers. V3 combines the advantages of high-definition video and 3D characters and empowers us to affordably build a comprehensive library of training content suitable for screen-based or headset-based platforms. High-quality, realistic content is a key differentiator for attracting and retaining customers in our market, and B3 helps us to continue building upon our advantage in this essential area. In fact, around Virtua, we often say content is king. Our investments have strengthened our position in every major aspect of training simulation, making us more competitive for 2023 and beyond. Another highlight in 2022 was our substantial effort centered around scaling our business. The move in our Chandler, Arizona headquarters is near complete, and we are looking forward to having the core of our operations centralized under one roof. In addition to driving efficiencies, the 48, I'm sorry, the 83 thousand square foot facility houses the most advanced development and production facilities in the industry, an attractive selling point for customers and partners alike. In the fourth quarter, we also officially opened our facility in Orlando, Florida. We hosted an open house event in October where we showcased our products and provided immersive training demonstrations to military, law enforcement, industry contractors, and government officials. The reception has been great thus far, and we believe the new facility will be instrumental in growing our military business. John will get further updates in this area shortly. In recent months, we have made key additions to our leadership team and board of directors that will be instrumental for our growth going forward. In December, we appointed Alana Bedro, whom you will hear from shortly, as our new CFO. Alana brings with her over 20 years of experience in managerial, financial, and operating functions. She has extensive experience overseeing accounting activities for public companies, and most recently led accounting activities for a publicly listed global industrial laser company. Her experience with public company reporting and her strong management skill set make her a great fit for Virtra, and she has already begun to make meaningful contributions to our financial operations. In the fourth quarter last year, we added Greg Johnson to our board. Greg is one of the top experts in the country in legal corporate compliance and senior management of high-growth entrepreneurial companies of the size of Virtua and larger. As background, Greg was the primary advisor to our board on our successful effort to list our stock on NASDAQ, and he was a member of Virtua's advisory board. In January of this year, we appointed Jim McDonald to the board. Jim is a recognized public safety executive and law enforcement leader, having served the public for four decades in roles such as the sheriff of Los Angeles County and chief of police in Long Beach, California. He is one of the most accomplished, thoughtful, and well-connected leaders in the law enforcement industry, and he brings a tremendous level of expertise in public safety, tactical training, operational growth, and command accountability to our team. And now I'd like to provide some updates in each of our markets. Our government revenue increased by 33% from the prior year from $16.8 million to $22.4 million due to improved success in the law enforcement market, as well as an increase in federal government police contracts. Internationally, we saw a 6% decrease in our revenue to $4.2 million from $4.4 million, which was a result of contract timing. We also continue to generate strong growth from our subscription training equipment partnership, or STEP for short. As a reminder, the STEP program provides recurring revenue for Virtua that also offers an easier on-ramp for smaller agencies interested in our solution, but are perhaps budget constrained for an outright purchase. In 2002, STEP revenue was 2.9 million, representing 10% of total sales and growing 48% from the prior year. We continue to focus on expanding this valuable recurring revenue stream going forward. In summary, our financial and operational performance in 2022 was strong and left us well positioned to continue our profitable growth path into 2023 and beyond. We are focused on generating ever higher levels of shareholder value as our business continues to expand. I will now turn the call over to John to give an update on Virtra's activity in the military market and overall company operations. John.

Thank you, Bob. Good afternoon, everyone. 2022 was an important operational year for Virtra. The processes we implemented in the fourth quarter of 2022 and continue to prove daily are finally beginning to bear fruit. As Bob alluded to earlier in the call, the finalization of our move into our Chandler, Arizona headquarters and additionally our facilities in Orlando have helped in many ways. but especially as it pertains to product manufacturing, sales, order fulfillment, and customer success. First, with product manufacturing, our new facilities allow us to implement more streamlined production processes. These capabilities have already begun to show meaningful improvements in efficiency, product quality, which allows us to fulfill orders quicker and reduce our backlog at a much higher rate. Secondly, These new centralized hubs will greatly help strengthen our relationships with current prospective customers. As I talked about in the third quarter call, the Orlando facility is an extension of our military sales effort and serves as the East Coast hub for customer service, live demonstrations, and meeting site for prospective customers. With Orlando being the acquisition epicenter of the military simulation market, we are in a strategic position to provide our expertise to the industry, that is seeking cutting edge solutions. We have already begun to see benefits from the new space. The convenience factor is huge for major customers and prime contractors alike. And the live demonstration capabilities just down the street, now that's a business developer's dream. The external competitive environment has really relaxed in 2022 and is affording Virtra great opportunities to become the tier one preferred vendor for small arms simulation to the military market. In fact, It's my opinion that as of today, for the military market, Virtra has more staff, more expertise, more technology, more investments to benefit the customers, and more relevant capacity than any other company in the industry. Regarding staff and operations, we work diligently throughout 2022 to improve our ERP system, and we are in a much better position to realize operating efficiencies going forward. Our forecasting capabilities are better, allowing for our purchasing and production activities to become more optimized. This makes our operations more automated, and it improves our order fulfillment time, increasing customer satisfaction. We will continue to refine these systems, but we are already seeing vast improvements across the organization. Additionally, we are beginning to build out our teams to further support our customers in a scalable fashion. We introduced a dedicated quality team to ensure that we are putting out the best product possible, and we have vastly improved our customer support function, including field service representatives that are not only meant to increase customer satisfaction, but increase our ability to install more systems, reducing the backlog. The additional field service representatives also raised the number of touch points with our customers to improve our product feedback loop. Moving specifically to military operations, we are seeing strong interest and have been hard at working to build the pipeline. I want to remind everyone of the three ingredients of success in the military market I mentioned in the Q3 call. First is having a physical presence. Our new facility conveniently located Orlando's site provides us with an invaluable access to the industry and its key decision makers. Second is having strong relationships. In tandem with being able to build relationships in person with military and government officials, my extensive experience in military simulation market and time served in the U.S. Army have brought me many strong connections that will be critical to our growth in this market. We also have added military veterans to the Orlando office with relationships as strong as my own. And finally, having a strong product offering. It's critical to the success of this market, as is true in any industry. And as Bob and I have alluded to, we have been laser focused on enhancing our technology and processes to ensure that our solutions are the gold standard and remain world class. Our October open house event was a great success and sparked new promising leads while introducing, and more importantly, a mature leading product from the law enforcement industry to our military community and existing customer contacts. Over the last few months, we have been very busy at Orlando office with tours, demos, and meetings with key industry stakeholders and prospects. As I spoke about on our Q3 call, we are optimistic about the Department of Defense fiscal year 24, which begins in October of 23. That is the timeline we continue to target for demonstrating strong and meaningful traction. Looking ahead, Our operational and technological advancements in 2022 have bolstered our competitive position and placed us on a solid growth trajectory for the years ahead. The growing demand and constructive funding environments for Virtra's innovative training solution gives us confidence in our ability to capitalize on the robust pipeline of opportunities in law enforcement, military, and international markets. I look forward to I look forward to keeping you all up to date and developments in our business in the future. Sorry, Bob, I'm going to kind of go off script here. I don't want to read this anymore. So now that I'm approaching a year at the company, I'd like to reflect on my findings and our corrective actions regarding the company's performance expectations and the focus that we brought to the table. The company's made some huge mistakes, including the ERP implementation. I don't know, but that was so harmful to the company at all levels. It was quite daunting. Inexperienced staff and key leadership positions, lack of processes, lack of timely financial reporting, this all added to problems. But despite the major business setbacks, the company has managed to show some modest growth. There are two reasons for that modest success, in my opinion. a superior product that's second to none, and a line staff dedicated to those they serve. There's quite camaraderie between the company and those individuals that we're serving. Unfortunately, for me, change doesn't happen quickly enough, as often as I wanted it to. Keep in mind, we weren't able to really start working on significant change until our filings were completed, we removed the red flags, and after the reorganization in August of 2022. And we still have a lot of work to improve sales, supply line, inventory management, and finalizing our capital improvements. And Bob said we're almost done. The last item that we need to move over is our machine shop. It's a little bit more coordination to do that and timing so that we don't interrupt our production and our delivery. We've been hardworking to reimplement the ERP, and we've replaced those key leader positions with strong, proven talent. We've implemented processes that contain cost, and we've provided real-time matrix to improve our communication and finally filed a timely 2022 Q3 and a 10K report. This company has incredible potential, and we intend to build a market share and expand our offering, which you'll hear about later. But for the record, we're not happy with our performance yet. And we will continue to build that pipeline, close more deals, drive costs down, and deliver products faster. Make sure we provide superior customer experience and protect shareholder value. So thank you for your patience and your investment, Virtra. I'll now go back on script. And Alana, I'll turn the call over to you to provide financial update.