VirTra, Inc.

Good afternoon, and welcome to Vertra's second quarter 2025 earnings conference call. My name is Ryan, and I will be your operator for today's call. Joining us for today's presentation are company CEO John Givens and CFO Alana Bordereau. Following their remarks, we will open the call for questions. Before we begin the call, I would like to provide Vertra's safe harbor statement that includes cautious 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 on the company's website at www.vertra.com. Now, I would like to turn the call over to Vertra CEO, Mr. John Givens. Thank you, and over to you, sir.

Thank you, operator, 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 and six months ended June 30th, 2025, along with highlighted business accomplishments. In Q2, Virtra delivered year-over-year growth in both revenue and bookings, maintained profitability, and strengthened our cash position. While bookings were lighter sequentially due to the timing of orders, and the ongoing funding delays, our operational discipline and customer engagement strategies continue to position us well for the back half of the year and into 2026. We remain confident in the strength of our solutions, our reoccurring revenue programs, and our ability to execute as funding flows improve. The operating environment remains shaped by the federal and international funding delays, Agency procurement cycles are still slower than normal, and in some cases, funding is being held back entirely until the fiscal year budgets reset. We believe these challenges are temporary, but they continue to influence our quarterly order patterns. That said, we are starting to see some movement. The Department of Justice COPS grant program reopened on June 1 and closed for submissions on June 30, a positive step that should help unlock some funding for agencies later in the year. We've been actively engaged in Washington, D.C. to help policymakers understand the value of immersive training and to support funding initiatives that benefit our customers. While the real impact of these programs will take time to flow through, we expect improved order activity in the quarters ahead. To this end, we continue to execute on our sales and marketing initiatives in the second quarter. Our marketing efforts remain a central focus with our redesigned website expected to launch in the coming weeks. We expect a new site to enhance lead capture, funnel visibility, and our conversion tracking. Our regional sales model continues to improve accountability and responsiveness across all territories. We have made targeted personnel changes to ensure we have the right people in the right roles, strengthening our customer engagement and follow through. We also remain positioned to benefit from our reentry into the GSA procurement channel, which will streamline contracting for eligible agencies and shorten delivery timelines once live. Although this is expected to impact Q4 and beyond, more meaningfully, it strengthens our long-term go-to-market approach. Step continues to be a strong selling point, especially in smaller markets. Six customers renewed early in Q2, primarily for the V180 and the V300 systems, signaling both the step's value and the customer satisfaction with our system's performance. These renewals, combined with the transition to three-year agreements, improve visibility into future reoccurring revenue. Interest in our VXR extended reality platform continues to grow with strong pipeline active quotes across public safety, academic, and healthcare markets. Customers are recognizing the flexibility and immersive fidelity of the system, and we expect to announce new developments with strategic partners in the coming quarters. Content conversion from our scenario library to the XR platform is progressing well too. Our robust library of certified content will further expand the appeal and applicability of the platform. Following on the BXR discussion, our commitment to product quality continues to be a key driver for Virtua's market position. In recent quarters, we have made deliberate investments to enhance our manufacturing processes, expand our reliability testing, and implement tighter quality control protocols. These actions combined with incorporating customer feedback directly into the product enhancements have meaningfully improved hardware durability, reliability, and overall performance. These improvements are being noticed in the field. Customers consistently report that our systems not only deliver the superior training capabilities, but also withstand years of rigorous real-world use. This validation reinforces our reputation as a trusted long-term training partner and helps drive repeat business and renewals. We are sustaining these quality advancements while operating with efficiency, and this dynamic is allowing us to price our systems competitively without sacrificing performance or reliability. We continue to strengthen our value proposition, ensuring that virtual remains well positioned to win and retain customers across multiple market segments. Our work on the IBAS program continues to advance. We've completed additional recall kit validations and reliability testing and remain in position for potential production opportunities. The recent novation of the contract from Microsoft to Anduril was a positive step in clarifying the program's future. We are also tracking broader DoD initiatives that emphasize modular, scalable systems, an area where virtual solution is well aligned. Overall, Q2 built on a progress made earlier in the year. We continue to strengthen our operations and maintain positive momentum, despite funding delays remaining a near-term challenge. Our strong cash position, stable reoccurring revenue base, and disciplined execution provide a solid foundation for the remainder of 2025. As funding flows improve, we are well positioned to convert opportunities into growth. With that, I'll turn it over to Alana for a detailed financial review. Alana?

Thank you, John, and good afternoon, everyone. Now, let's review our unaudited financial results for the second quarter and six months ending June 30th, 2025. Our total revenue for the second quarter was $7 million compared to $6.1 million in the prior year period. The 15% increase was primarily driven by the higher capital deliveries and stable reoccurring revenue from staff and service contracts. Breaking this down by market, government revenue for the second quarter was $5.4 million compared to $5.3 million in the prior year period. International revenue for the second quarter was $1.4 million compared to $0.6 million in the prior year period. Our total revenue for the six months was $14.1 million compared to $13.4 million in the prior year period. This 5% increase was driven as well by the higher capital deliveries, stable reoccurring revenue from staff and service contracts. Our gross profit for the second quarter was $4.8 million, or 69% of total revenue, compared to $5.5 million, or 91% of total revenue, in the prior year period. Last year's unusually high gross margin reflected capitalized labor on the development of VXR and the IVAS program, and a greater mix of high margin service and step revenue. Our gross profit for the first six months was $10 million, or 71% of total revenue, compared to $10.2 million, or 76% of total revenue, in the prior year period. The change in gross margin reflects a higher mix of capital sales in 2025 relative to service and stuff revenue, as well as the absence of the unusually low cost of sales recorded in 2024 due to that capitalized labor on those development projects. Our net operating expense for the second quarter was $3.9 million, an 11% decrease from $4.4 million in the prior year period. Our net operating expense for the first six months was $7.7 million, a 9% decrease from the $8.5 million in the prior year period. These decreases reflect the disciplined cost management while maintaining investment and core growth initiatives. Our operating income for the second quarter was 0.9 million compared to 1.1 million for the prior year period. And our operating income for the first six months was 2.3 million compared to 1.8 million in the prior year period. Our net income for the second quarter was 0.2 million or one cent per diluted share compared to 1.2 million or 10 cents per diluted share in the prior year period. Our net income for the first six months was $1.4 million or $0.12 per diluted share compared to $1.7 million or $0.15 per diluted share in the prior year period. Our adjusted EBITDA, a non-GAAP metric, was $0.7 million for the second quarter and $2.4 million for the first six months of 2025. As of June 30th, cash and cash equivalents totaled $20.7 million compared to $17.6 million at March 31st. Our working capital was $33.5 million, and we maintained a debt-light balance sheet. Vertra defines bookings as the total of newly signed contracts, awarded RFPs, and purchased orders received in a given period. Bookings for the second quarter totaled $4.6 million up from March 3.6 million in Q2 of 2024, but down from the 6.4 million in Q1 2025. The sequential decline was driven by the timing of awards and customer-related deferrals rather than lost opportunities. Bertra defines our backlog as the accumulation of bookings from signed contracts and purchase orders that are not yet started or are have incomplete performance obligations and therefore cannot be recognized as revenue until delivered in a future period. We segment this backlog into three primary categories. Capital, which includes our simulators, our accessories, installation, training, custom content, and any design work. Our service is primarily our extended warranties and support contracts, and STEP is our long-term subscription-based program. Our backlog at June 30, 2025 stood at $18.8 million. This includes $7.1 million in capital, $5.7 million in service, and $6 million in step contracts. Additionally, we continue to track renewable step contract options which are not included in the backlog total. Most new capital bookings from the first half are expected to convert to revenue within the current calendar year, though some orders, particularly from international customers, have requested a deferred delivery into early 2026. As always, our ability to convert backlog into revenue remains dependent on customer-driven installation timelines, which can shift based on factors outside of our control. So in review, our backlog remains solid, and the stability of our recurring revenue base, combined with a strong balance sheet, provides us flexibility as we move into the second half of the year. Looking forward, we believe the combination of our disciplined cost management, enhanced contract structures, and ongoing demand recovery will support continued progress. Our updated STEP program with its three-year commitments and strong 95% renewal trends transform what was once optional renewal potential into high-confidence recurring revenue. This not only strengthens our revenue visibility, but also reinforces long-term customer relationships and positions Fertra for substantial growth. That concludes my prepared remarks. I'll now turn the call back over to John for his closing comments. John?