VirTra, Inc.
Q2 2017 Earnings Call Transcript

Published: 14 Aug 2017

[Larry Clark:]

Good day, and welcome to the Second Quarter 2017 VirTra Inc. Earnings Webcast. My name is Larry Clark, Investor Relations Counsel for the Company, and I will be moderating the webcast today. By now you should have received a copy of today's press release. If not, it's available on the Company's website at www.VirTra.com. The press release also includes a reconciliation of non-GAAP financial measures used therein. In addition, you can access the Company's second quarter financial report on the corporate section of the website under company reports tab. This webcast is being recorded and will be available for replay for 60 days on the Company's website starting later this afternoon. Before we continue, 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 statements 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 except as required by law. Presenting today for management will be Bob Ferris, Chairman and Chief Executive Officer. Following Bob's remarks and similar to our first quarter webcast, we will review and answer questions that have been received in advance by email as time permits. Now I would like to turn the presentation over to Bob Ferris.

[Bob Ferris:]

Thank you, Larry. Welcome everyone and we appreciate you joining us today. We are very pleased to report a very strong second quarter converting a significant portion of our first quarter orders and backlog into realized revenue. During the quarter we generated total revenue a $5.3 million up 55% from the year ago period and a gross profit of $3.8 million almost double the amount recorded in the second quarter of 2016. We generated second quarter net income of $1.6 million up from $361,000 in the year ago quarter. Our financial results for the quarter represent the second highest level of both revenue and net income in the company's history as a testament to the dedicated efforts of the entire VirTra team. In addition we have generated positive cash flow from operations year to date and continue to maintain a strong balance sheet. From a new sales perspective we remain active during the quarter even though we didn't announce any major new contracts as our new business involved a number of smaller contracts. We continue to be encouraged by the traction that we are receiving in both domestic and international markets based on our ongoing investment in sales and marketing. As we have discussed in the past our orders and our revenue can and will vary from quarter to quarter due to the long sales cycle involved in our business as well as the timing of installations that are driven by our customer schedules and their ability to have their training facilities ready to receive our equipment. That being said we are encouraged by our strong start to 2017. In addition to our strong financial results in the second quarter we continue to make progress on our other corporate goals and initiatives such as our focus on moving to a national exchange, working on new products and services and also refine our existing products. To help ensure our success we're bolstering our operational infrastructure and now have 75 fulltime employees versus 52 employees just one year ago. As a result of our ongoing investment in our infrastructure and ensuring we provide excellent customer service while growing our customer base our total operating expenses for the second quarter was $2.1 million from $1.6 million in the second quarter of 2016. In addition, we continue to push forward on our plans to register with the SEC and to uplist our stock to national exchange. In conjunction with our uplisting to national exchange we're evaluating the option of raising additional funds in order to expand our products and services offered to enhance our sales and marketing efforts and effectiveness and to aggressively take advantage of market opportunities. We will make the appropriate announcements when and if we decide to move forward with a capital raise. We remain committed to making our training solutions more accessible to an ever greater number of police departments throughout the country and internationally and also plan to expand our simulation technology into additional product and market categories. Recently at a trade show I had one of our customers pull me aside to thank me for the high quality of training provided by our simulators. Her department have been using VirTra for several years and she was overwhelmed with compliments and praise saying things like I'm a real believer in VirTra, it is just incredible training. In conclusion I remain extremely optimistic about our future. We have come a long way and achieved much and yet we have much less to do in the months and years ahead. I want to thank all of our employees, customers, investors and vendors for their support over the years and look forward to a bright future together. That concludes my prepared remarks and I would now like to turn the floor back to Larry Clark to moderate the question and answer session. Larry you may proceed.

[Larry Clark:]

Thanks, Bob. Similar to our first quarter webcast I will be reading questions that have been previously submitted to us for you or shareholders. In the spirit of transparency and disclosure is our intention to answer every question that was submitted unless we believe that by answering it it would put the company at a competitive disadvantage. With that I'll start with the first question. Of the 100 largest police departments and sheriff's offices in the U.S. how many currently use VirTra simulators today?

[Bob Ferris:]

Well there's no official industry data detailing the market penetration of judgemental use of force simulators in the U.S. Many times VirTra must first educate the customer on the critical importance and need for high quality judgemental use of force simulation training because they currently don't have a working simulator in use. While we don't release statistical information on our total number of larger customers, we do publicly announce new customers from time to time when the customer approves it.

[Larry Clark:]

How many employees does VirTra currently have and how many in the machine shop?

[Bob Ferris:]

VirTra currently has 75 employees and four of those are in the machine shop.

[Larry Clark:]

Bob, can you talk about the status of the $40 million forty million IDIQ Award?

[Bob Ferris:]

Sure. We review each individual contract offered by the government under that IDIQ from shooting simulators to driving simulators and we pursue only those contracts that we believe are good fit for our company. Now we're pleased with the contracts that we have secured from the IDIQ to-date and we're continuing to compete for those specific contracts that are best suited to our products and services in the future.

[Larry Clark:]

Thanks What's your outlook for simulators sales to the U.S. government and also international?

[Bob Ferris:]

I believe the outlook for simulator sells the U.S. and international is very strong . Our investment in marketing, sales, customer relations management has considerably accelerated during 2017 and as a result our sales pipeline is robust.

[Larry Clark:]

Have you been affected by any current or future contract delays and if so please explain?

[Bob Ferris:]

Well VirTra is susceptible to common delays that occur during the contracting process for governmental agencies but none that have negatively affected our business at present.

[Larry Clark:]

When do you anticipate releasing new product launches and information to the public? Are you working on expanding into driver or flight simulation?

[Bob Ferris:]

When it comes to new product or service introductions we intentionally keep those plans confidential until the new product or service is officially release.

[Larry Clark:]

Okay. Thanks. Bob, are any VirTra systems in operation at Dave & Buster's locations?

[Bob Ferris:]

[Indiscernible] does have some systems in operation at an Dave & Buster's location that is using VirTra technology.

[Larry Clark:]

What type of economics do you receive from a Dave & Buster's location?

[Bob Ferris:]

I'm not at liberty to disclose the economics regarding the Dave & Buster's location at this time.

[Larry Clark:]

When will expenses decline as a percentage of revenue?

[Bob Ferris:]

Well while we continue to invest back into our business it's unlikely that expenses will decline as a percentage of revenue. This is due to the cost normally associated with growing of business including sales and marketing, customer service, R&D, corporate infrastructure, and to name a few.

[Larry Clark:]

Okay. Would you please provide an update regarding your plans to register with the SEC and your plans of uplist either to NASDAQ or NYSE and what's the minimum stock price requirement to list with NASDAQ?

[Bob Ferris:]

Sure. As you know we have retained Boustead Securities as our financial advisor, an underwriter to represent VirTra in the capital markets and the sponsor are uplisting to NASDAQ. Information about Boustead Securities can be found at their website listed in the recent press release. We intend to pursue our uplisting using a recent process created under the Jobs Act called Regulation A Plus, this process is more efficient, less expensive than the prior registration process and will ultimately result if successful in VirTra becoming registered with the SEC and thus eligible to uplist to national exchange. Of course one national exchange NASDAQ, we obviously have interest in that and it has a different standard for admission which requires either a $2 or $3 minimum stock price for companies that are already quoted in a public market such as ours. In order to achieve the standard with a lower $2 requirement we must have a market capitalization of $50 million which we do not currently meet. If we're unable to meet the $50 million threshold after our anticipated public offering then we must achieve a minimum price of $3 in order to qualify.

[Larry Clark:]

Does the company have plans to raise equity and under what market conditions or circumstances would you do so?

[Bob Ferris:]

Although VirTra does generate very healthy margins and cash flow present, those funds are limited. As such we've determined that additional capital may be required to allow us to substantially grow revenues and enable VirTra to be in a position to acquire other businesses that we find attractive and act quickly when those opportunities become available. The machine shop recently was a fairly small purchase but has been a tremendous advantage of VirTra. Furthermore a capital raise may be necessary in order to qualify for national exchange. With respect to market conditions we obviously believe the market price of our stock is trading below fair value to the point that our Board of Directors decided to buy back our shares. It is our hope that the result we announced today will be just one of many achievements to come that will ultimately drive the share price to where it would be attractive to potentially raise funds. If we do raise funds our plans would be to use those funds to drive the future results for the company which is something we've done exceptionally well for the past nine years.

[Larry Clark:]

Thank you, Bob. Those are all the questions that we have at this point and so therefore this concludes our question and answer session. We want to thank everyone for joining our webcast today and we look forward to speaking with you next quarter. Have a great day. Thank you.