VirTra, Inc.
Q1 2018 Earnings Call Transcript

Published: 14 May 2018

[Operator:]

Greetings and welcome to the VirTra First Quarter 2018 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Jeff Stanlis of Hayden IR.

[Jeff Stanlis:]

Thank you, Jeremy. I would like to welcome everyone to VirTra's first quarter 2018 earnings call. Hosting the call today are Bob Ferris, Chairman and Chief Executive Officer and Judy Henry, Chief Financial Officer. By now, you should have received a copy of today's press release. If not, it's available on the company's website at website at www.virtra.com. In addition, you will be able to access the company's first quarter financial report on the corporate section of the website under the company reports tab later today. This webcast is being recorded and will be available for replay for 60 days on the company's website, starting later this afternoon. Before I turn the call over to management, please take a moment to read the company's notice regarding forward-looking statements. During this webcast, 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. Following the prepared remarks and similar to previous webcasts, management will answer your questions as time permits. I would now like to turn the call over to Bob Ferris and turn the call over to him. Bob, the call is yours.

[Bob Ferris:]

Thanks, Jeff. Good afternoon and welcome to VirTra's first quarter 2018 earnings call. Thank you for joining us. VirTra announced a record level of new orders in the first quarter giving management increased conference that 2018 will be a strong year for the company. However, since the bookings came in late in the first quarter, we didn't have time to deliver the volume of products in the same quarter. This resulted in a record quarter in new bookings while we report a 23% lower revenue for the quarter as compared to the same period a year ago. Please keep in mind the conversion of bookings revenue is contingent on the timing of delivery which is coordinated with our customers and can vary based on a variety of factors many of which are outside our direct control. Just recently, and after first quarter close, VirTra was also honored to receive another $1.25 million contract from U.S. Department of States. As the report shows only a small fraction of the $8.6 million booked during the first quarter was recognized as revenue in the first quarter, so we exited the quarter with an $8.3 million backlog which did not include the $1.25 million Department of State order I just mentioned. Combined with the $3.2 million in revenue reported in the first quarter, I'm pleased to announce that VirTra has $12.75 million in bookings and revenue publicly reported and we have not yet reached the halfway point of 2018. This is progress is a testament to our product, reputation, and the investments we have made in our organization over the past year. We are benefiting from highly positive media coverage and maintaining a larger presence in key tradeshows around the world. We have forged new strategic partnerships with the Haley Group and with Force Science Institute, bolstering our reputation in the industry and expanding our addressable market. We continue to build a solid pipeline of identified new business opportunities. As I mentioned, subsequent to quarter end and not included in the $8.6 million in first quarter bookings, we received a new contract valued at $1.25 million for our training simulators under our previously announced indefinite delivery, indefinite quantity IDIQ contract with the United States Department of State. This order expands our international presence and our relationship with the State Department. We expect to deliver on this order in the third quarter of 2018 and it is our understanding that the State Department plans on donating the training simulators to the Ukraine and Mexico in support of U.S. foreign assistance programs. The simulators will be used in basic and advanced weapons training for developing proficiency in marksmanship, use of force regimental skills, close quarters exercises, and other related training which law enforcement personnel require in the execution of their duties. Meanwhile, we are seeing increased adoption of simulator technology as governments are increasingly recognizing many benefits of improved training for those entrusted with use of force decisions in stressful situations. In summary, while revenue recognition remains difficult to predict, overall we are seeing increased demand for our products and it is translating to increased bookings, backlog, and ultimately revenues. I would now like to turn the call over to Judy Henry, our CFO to review the financial results. Judy?

[Judy Henry:]

Thank you, Bob. Revenues for the first quarter of 2018 of $3.2 million were down 23% compared to $4.2 million for the corresponding period in 2017. The decrease was due to lower delivery of simulator and accessory orders which were partially offset by increase in sales of scenarios and warranties. Gross profit for the first quarter of 2018 was $2.2 million or 68.4% of revenue compared to $2.4 million or 57.7% of revenue for the corresponding period last year. The increase in gross profit as a percentage of revenue was due to optimal use of our mission staff [ph] and a reduction in material costs resulting from more favorable pricing of raw materials and system components. In addition, the sales mix for the quarter included a larger proportion of higher margin products and services. As we stated customer mix can impact our margin from period to period and in this quarter we benefited from the favorable mix. Net operating expense was $2.4 million for the three months ended March 31, 2018 compared to $2 million for the same period in 2017 an increase of 21%. There were several factors which drove the higher operating expenses. First, we expanded staffing levels and recognized increases in payroll and benefit costs; second, we had increased professional service fees related to our audit, accounting and legal fees. The year-over-year increase in professional services included approximately $132,000 of nonrecurring legal and public company expense directly related to the company's qualification and conclusion of its regulation A+ offering, completion of SEC registration, and NASDAQ listing. These recurring costs to be behind us at this point. Net loss for the first quarter of 2018 was $86,000 or negative $0.01 per basic and diluted share compared to net income of $402,000 or $0.05 per basic and diluted share for the first quarter of 2017. Again, this included the $132,000 in nonrecurring expenses. The diluted weighted average shares outstanding decreased from approximately 8.3 million shares in the first quarter of last year to approximately 7.9 million in the first quarter of this year because VirTra had a net loss for the quarter. Diluted net loss per share for March 31, 2018 excludes the effects of common stock equivalents consisting of stock options which are anti-dilutive. The total numbers of stock options excluded from consideration in the calculation of diluted net loss per share for the three months ended March 31, 2018 were 348,000. Turning to the balance sheet, as of March 31, 2018 the company had approximately $4.5 million in cash and cash equivalents compared to $5.1 million at December 31, 2017. Additionally, the company had essentially no outstanding debt at March 31, 2018. I will now turn the call back over to Bob for closing comments.

[Bob Ferris:]

Thanks Judy. I would also like to note that as a NASDAQ listed company we are now evaluating more potential acquisitions. Of course we will not discuss any possible M&A activity until we have a definitive agreement in place. Please keep in mind that potential M&A is one of several options for the Board when determining the best location for our capital. Our goal is to create value for our shareholders and we will carefully contemplate the most appropriate use of our capital with this goal in mind. In closing, I would like to remind everyone that May 13 through 19 is National Police Week. In addition, tomorrow May 15 is Peace Officers Memorial Day where we honor the men and women and canines that have died in the service of our communities and our country. I would ask that we now observe a brief moment of silence in memory of the 199 fallen heroes who died last year. With that, I will now turn the call over to the operator for questions.

[Operator:]

Thank you. [Operator Instructions] Our first question comes from the line of Charles Landis [ph]. Please proceed with your question.

[Unidentified Analyst:]

Hi my question is regarding the new training companies have an association with VirTra that we've read about, how does any profit or how does it get to VirTra's bottom line?

[Bob Ferris:]

So we have two different groups that we've recently engaged with; Haley Strategic and Force Science Institute. The way that that affects VirTra's bottom line is a couple ways. One is that both of those groups have folks who follow them and are familiar with their brands and VirTra are quite reputable brands in their own circles and so they essentially are introducing VirTra to the folks that are familiar with them. And so we get that introduction. We noticed that when we were in the same booth with Haley Strategic at the SHOT Show. It was amazing to see how many people came just to see Haley and then they would see us or they came to see us and they recognized Haley. So that's part of it is getting more mindshare in the industry on VirTra's brand. Another thing of course is associating with top tier brands, Haley and Force Science are considered to be extremely good at what they do and they are thought leaders in their own space and so that's beneficial. And then in addition, we do have a revenue share arrangement with Haley strategic, so as they go through their training programs VirTra does see part of that revenue.

[Unidentified Analyst:]

All right, and how many employees are there currently, full time employees at VirTra?

[Bob Ferris:]

There are currently 83 full time employees.

[Unidentified Analyst:]

Does that number appear to be stable or increasing looking forward?

[Bob Ferris:]

It is – that number we anticipate could increase during this year. We are quite busy right now with the orders that we have in line to be produced, but we do have quite a bit of flexibility in handling increases in production out of our facility with our current staff. But as long as we continue down the path of growing our revenue then I expect that that numbers can also increase.

[Unidentified Analyst:]

All right and the last couple of quarters has been a lot of one-off expenses, are those about used up or not used up, are finished?

[Bob Ferris:]

Yes, very true. Fourth quarter of last year and first quarter of this year both included some one-time expenses mainly related to the Regulation A+, the us listing to NASDAQ for positioning for that and also registering with the SEC. I do expect that those expenses will be much abated going forward. I would say that the bulk of those expenses were absorbed in fourth quarter last year and first quarter this year.

[Unidentified Analyst:]

All right, that's certainly good news. And looking ahead for your shows and where you are displaying your products, is that going to stay relatively consistent over last year or is that growing?

[Bob Ferris:]

We – it really depends on the feedback coming out of those shows, so we generally have expanded our trade show presence year-after-year and we've done that for many years, but we do carefully monitor our expected return coming out of shows to make sure it's the appropriate show for us. I think this year we're expecting a pretty busy tradeshow season overall, but it does fluctuate. And then we also sometimes get unique opportunities to somebody wants us in their tradeshow booths we draw a lot of attention and large crowd at any tradeshow that we attend because the quality of our simulators and the kind of training that we provide. So sometimes we do have some extra opportunities throughout the year where we essentially partner with another company for a tradeshow and those things can occur as well. But we're expecting a strong tradeshow season for 2018 right now.

[Unidentified Analyst:]

All right, which product lines or services do you see paying off the best as far as the current expansion or expectation of sales?

[Bob Ferris:]

I think both of our of our top products being the world's most realistic simulator, the V300, Judgmental Use of Force simulator for police training, I think that that's going to continue to be strong for us. And then we also have a very strong product now in a very accurate marksmanship capability and so our product line overall is quite strong and robust, but I think those two both have a lot of potential for us during 2018. We did the large order going to Pakistan does relate to our overall simulation capabilities. I think that is – was a rather large order that we're on schedule for, but of course the final delivery of that is going to be dependent on the customer.

[Unidentified Analyst:]

All right. And finally, right now are you anticipating or currently even working with or promoting better analyst coverage or actually sponsorship by an analyst or house to get a better awareness to VirTra among people that are interested in companies?

[Bob Ferris:]

Yes Chuck, the analyst coverage would be fantastic for VirTra. We are pursuing analyst coverage and I would very much like to see some analyst coverage occur this year. We are certainly working towards that end, but I agree, that could be very valuable for VirTra.

[Unidentified Analyst:]

But nothing solid or immediate plan or anything that is for that endeavor?

[Bob Ferris:]

As of today there is no analyst coverage of VirTra and I would like to change that, but I do not have a date to give you of when that might change.

[Unidentified Analyst:]

All right, Bob, well thank you very much and just keep more sales coming in, hopefully we could some more into the bottom line though. Thank you, Bob.

[Bob Ferris:]

Well, thank you and thanks for all your support over the years, too.

[Operator:]

[Operator Instructions] Our next question comes from the line of George Haugen [ph] a Private Investor. Please proceed with your question.

[Unidentified Analyst:]

Hi Bob, it's George.

[Bob Ferris:]

My goodness, how are you George?

[Unidentified Analyst:]

Sure good, it's been a long, long time. Chuck answered a lot, a couple of the questions I had, so I'm just wondering with his current backlog in new orders coming, I'm kind of wondering if you're going to be able to fulfill these orders timely and what are these going to be 2018 deals or some of these you'll be pushing to 2019?

[Bob Ferris:]

Yes, great question. We are right now doing a surprisingly good job of dealing with the backlog. I mean it's a real testament to the 18 people that we have working in production and service her at VirTra and they are doing an exceptional job on staying on top of that. We are expecting a lot of the revenue we currently have to end up showing up as recognized revenue during 2018. Now we do expect that right now once in a while we do have situations where the product is produced and ready to go to the client and then the client has a situation, maybe the room is not ready and so they have to push us back to a delivery at a later date, those sometimes happen, so barring any of those kind of situations, we do expect what we have right now to be fulfilled in 2018 and that’s our hope and our plan right now.

[Unidentified Analyst:]

Okay, one more question if I could, are you guys, is the company still buying back shares?

[Bob Ferris:]

The company has currently about 900,000 available on the authorization to buy back shares, however we also have other potential opportunities with deployment of our capital such as potential acquisition. So the Board of Directors is going to have to decide how they want to proceed along those lines. So yes, but we are very mindful of that and we are available to buyback our shares. We have no offering open or anything like that.

[Unidentified Analyst:]

Yes, no I was hoping you don’t really need to, but I was expecting with the NASDAQ listing to see a little more activity than we are, but I think sales will ultimately make that happen.

[Bob Ferris:]

I agree. I mean, if we can improve the fundamental value of the business that underlies the stock I think that’s best for shareholders long term and can be very accretive to all of our hopes, so I agree, the more valuable the business the better.

[Unidentified Analyst:]

All right, well thanks for your time Bob.

[Bob Ferris:]

Thank you.

[Operator:]

[Operator Instructions] Our next question comes from the line of Troy Parcells [ph] from CWP Incorporated. Please proceed.

[Unidentified Analyst:]

Hey Bob, it’s Troy. How are you?

[Bob Ferris:]

Good, how are you Troy?

[Unidentified Analyst:]

Okay, not too bad. So some of my questions have already been answered, but I do have just some questions. Over the last year, there's been some talk on other conference calls that you had about new products, new services, additional markets that you were going to enter and it's been a while and I think the only thing that we've really heard about product wise is the Taser, the new design, the Taser simulation. When do you think we might start hearing about those? I mean, I'm sure those have been developed for a long time and I mean we're ready to hear what's coming out, so any idea when a release date might be?

[Bob Ferris:]

I think there will be some new products coming out in 2018, but you are right, we are really careful about any announcements like that until the product has been, has gotten through testing and we want to make sure it's an exceptional product before it goes out, but we do have work underway and I do look forward to announcing that as it becomes available.

[Unidentified Analyst:]

Okay, well great. All my other questions have been answered. Thanks Bob.

[Bob Ferris:]

All right, thank you.

[Unidentified Analyst:]

Okay, all right. Bye-bye.

[Operator:]

There are no further questions. At this time, I would like to return the conference over to management.

[Bob Ferris:]

All right, thank you very much. I'd like to end today's call with a sincere thank you to all VirTra stakeholders who are part of our success in training law enforcement, military, civilians at the very highest level possible in 29 countries around the world and in the United States. Our company is well positioned to succeed in 2018 and beyond and I firmly believe our best days are ahead of us. Thank you and God bless. Good bye.

[Operator:]

This includes today's teleconference; you may disconnect your lines at this time. Thank you for your participation.