VirTra, Inc.

Good afternoon and welcome to Virtua's second quarter 2023 earnings conference call. My name is Kyle and I'll be your operator for today's call. Joining us today's presentation are the company's chairman and co-CEO Bob Ferris, co-CEO John Givens, and Chief Financial Officer Alena Boudreaux. Following their remarks, we will open the call for questions from Virtua's institutional analysts and investors. Before we begin the call, I would like to provide a virtual 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 the link in the Investor Relations section of the company's website at www.virtua.com. Now, I'd like to turn the call over to Virtua's Chairman and Co-CEO, Mr. Bob Ferris. Thank you, and you may proceed, sir.

Thank you, Kyle, and thank you, everyone, for joining us this afternoon. After the market closed today, we issued a press release that provided our financial results for the second quarter ended June 30, 2023, along with highlighted business accomplishments. We also filed our 10-Q with the SEC today, which is available for your review at your discretion. As a brief overview for today's call, I'll begin by providing highlights for the second quarter, 2023, and I'll summarize some of our recent business developments before passing the call to Ilana to discuss our financial results in more detail. John will then come on to discuss operations and our sales initiatives before providing an update on our military market progress. After that, I'll come back with some concluding remarks about our progress so far in 2023 before moving to Q&A. And with that, let's begin. In Q2, Virtua demonstrated exceptional performance, achieving the best financial results in our 30-year history. The success is the culmination of years of effort and a focus on operational excellence. Our internal process improvements have yielded remarkable results, propelling us to record-breaking revenue for the second consecutive quarter. During the period, our revenues rose to $10.3 million, a clear testament to the efficiency and effectiveness of our streamlined operations. Our focus on scaling the company and optimizing expenses has translated into our best-ever profitability quarter with a remarkable 25% increase in gross profit and net income of $1 million. further reinforcing the strength of our business model and the success of our strategic transformations in recent quarters. The results from the first half of 2023 set a strong foundation for the remainder of the year and beyond, but we are not satisfied, and there is still much work to be done as we progress into the second half of the year. Building on our momentum, we will continue to push key areas of our business, ensuring that we extend our market-leading position. One of those key areas of focus is actively pursuing product and content developments to enhance value for existing and potential customers while creating new revenue streams. On recent calls, I've talked about virtual volumetric video, or V3, and its potential to advance our customers' training content, which plays a crucial role in attracting and retaining clients. Our industry-leading capabilities in this area are driving the expansion of our market presence. John will elaborate on how we are leveraging our content creation engine to strengthen customer relationships and drive future sales, but today I'd like to spotlight other product enhancement initiatives. In Q2, we made progress towards improving the ease of use of our software interfaces, allowing customers to concentrate on their training objectives instead of navigating the system. By making our systems more intuitive, we aim to achieve multiple benefits. Firstly, we will reduce customer support instances, saving both us and our customers valuable time. Secondly, enhanced usability will extend our competitive advantage in technology and potentially increase win rates in competitive bids, ultimately driving revenue growth. And lastly, our commitment to creating user-friendly interfaces delivers a superior customer experience and opens us up to a larger market. John and the team have been driving opportunities in the military market. In some cases, to support their efforts, Virtua has ended up having engineers build entirely new capabilities never before seen in the market. In fact, during the second quarter, our engineering team has been heavily focused on brand new capabilities for several pistols for police and revolutionary recoil kit capabilities for military weapons such as the M4 and M249. By focusing on these product enhancements and content developments, we are positioned to strengthen our market presence, attract more customers, and create sustainable revenue growth. The dedication of our team and the continuous pursuit of excellence propel our success as a technology leader in the industry. I think it is safe to say that Virtua has invested more time and money into effective training technology, long-term infrastructure, and ultra-precise world-class production capabilities than any other company in our industry, and it is not even close. Due to our incredible customer base, we were able to both invest in our business and produce a profit, often a rare combination. Although we remain highly committed to keeping and growing Virtua's strategic advantages in the competitive landscape, it appears much of our capital investments are in the rearview mirror. Along with product R&D, we continue making progress towards building reliable, scalable operations. And a big part of that effort has been the centralization of our facilities. In Q2, we entered the final phase of consolidating our operations under one roof. I know John and I are both happy that we're in the final phase. It's been a whole lot of work. This milestone involved bringing our advanced machinery into headquarters and winding down construction. This brings multiple operational and cost efficiencies immediately. Additionally, we are opening a dedicated training center within our headquarters in the second half of the year. The basis for opening this facility is to further develop our relationships with existing and potential customers. We believe that offering expanded training services will naturally lead to greater adoption of our products by showcasing their potential and value. As we move into the second half of the year, we remain focused on growing our global footprint and broadening our reach in the industry. Under John's leadership, we have made remarkable advancements in our operations and they showed up in the first half results, first half of the year results. We're witnessing healthy demand driven by our commitment to offer the industry's best training solutions. This demand is particularly evident given the rise of international military threats and the intensifying challenges faced by local, state, and federal law enforcement agencies in America concerning policing. The spotlight on policing reform in Washington underscores the significance of equipping personnel with the very best training, making our solutions even more essential in these difficult times. With this in mind, let's take a finer look at how each of our in markets performed. In Q2, our government revenue increased by 285% to 9.5 million from 2.5 million in the prior year. The strong success was a result of improved performance in the law enforcement market, increases in federal government police contracts, and some early traction in the military market. Internationally, our revenue decreased by $1.2 million to $0.7 million. This can be primarily attributed to the anticipated timing patterns of international order placement, which John will discuss in further detail shortly. We have reported continual growth from our Subscription Training Equipment Partnership, or STEP, program, which provides recurring revenue for Virtua, and offers an easier on-ramp for smaller agencies interested in our solution that are perhaps budget constrained for an outright purchase. This also gives our staff another tool in closing the sale. Currently, our recurring revenue, including warranty revenue, represents 17% of the total quarterly revenue, but we expect this to increase in the future. Together with our talented team, and the unwavering support of our customers, we are well positioned to continue driving progress. This record-setting quarter serves as a testament to the solid foundations we have laid for profitable growth. We remain committed to seeking further opportunities for improvement. With a reputation of delivering the gold standard training solutions, an exceptional client base, and experienced leadership, we have advantages over our competition but we mustn't slow down, not even for a second, and we still have much to improve at Vertra. Moving forward, our focus is on enhancing customer relations through new products, technological upgrades, and operational improvements. I will now turn the call over to Alana to discuss the financial results in greater detail. Alana?

Thank you, Bob. Good afternoon, everyone. It's a pleasure to be speaking to you today to review our unaudited financial results for the second quarter ending June 30th, 2023. Our total revenue for the first six months of 2023 increased 38% to $20.4 million from $14.8 million in the prior year period. For the second quarter of 2023, revenue increased 29% to $10.3 million from $8 million in the second quarter of 2022. The increase in revenue resulted from improvements in operations, which helped move through the backlog and shift orders at a record pace. Our gross profit for the first six months of 2023 increased 25% to $12.9 million or 63% of revenue. compared to 8.4 million or 57% of revenue in the prior year period. The increase in gross profit margin was primarily due to the increased sales achieved while maintaining cost of sales in line with 2022 levels. For the second quarter, gross profit increased 25% to 5.9 million or 57% of revenue from 4.7 million or 49% of revenue. in the second quarter of 2022. The decrease in the gross profit margin resulted from the one-time inventory adjustments made when we went live with our new ERP system, which had the effect of increasing cost of sales in Q2 of 2023. Our net operating expense for the first six months increased to $7.5 million from $6.7 million in the prior year period. Net operating expense for the second quarter of 2023 was $4 million compared to $3.7 million in the second quarter of last year. The increase in net operating expense was primarily due to increases in salaries and benefits due to additional staff and expenses for the New Orlando office, as well as a $100,000 increase in R&D spend. Turning to our profitability measures, for the first six months of 2023, our operating income jumped to $5.4 million compared to $1.8 million in the prior year period. For the second quarter of 2023, operating income increased to $1.9 million from $1 million in the second quarter of 2022. Net income for the first six months of 2023 increased by $2.6 million to $4 million compared to $1.4 million in the prior year period. Net income for the second quarter of 2023 totaled $1 million or $0.09 per diluted share, which represents an increase compared to net income of $0.8 million or $0.07 per diluted share in the second quarter of 2022. For the first six months of 2023, adjusted EBITDA increased to $6.5 million from $2.3 million in the prior year period. Adjusted EBITDA, a non-GAAP metric for the second quarter of 2023, increased to $2.6 million from $1.3 million in the second quarter of 2022. Now turning to our bookings and backlog. We define bookings as the total of newly signed contracts and purchase orders received in a defined period. For the second quarter of 2023, we received bookings totaling $8.4 million, and we define Backlog as the accumulation of bookings from signed contracts and purchase orders that are not yet started or incomplete and cannot be recognized as revenue until delivered in a future period. As of June 30th, 2023, our backlog totaled $16.4 million. The breakout of this backlog includes $7.8 million in capital, $6.3 million in service and warranties, and $2.3 million in step contracts. Despite being lower compared to June 30th, 2022, this backlog still provides opportunity in the second half of 2023. As a reminder, service warranties and step backlog as revenue will be recognized on a straight line basis over the next seven years. In addition to the backlog, there are $7 million in potential renewable step contracts that would represent additional revenue for the next five years. Historically, we've had greater than a 95% renewal rate on our step contracts. And finally, to our balance sheet. As of June 30th, 2023, we had unrestricted cash and cash equivalents of $13.3 million, a decrease from the $14.3 million at March 31st, 2023, and a decrease from the $13.5 million at December 31st, 2022. From a working capital standpoint, at the end of the second quarter, we had $26.6 million in working capital, an increase of $24.3 million at the end of Q1. For additional details of our financial results, please reference our 10-Q, which was filed earlier today. And that concludes my prepared remarks, and now I'll turn it over to John to discuss operations.