VirTra, Inc. (VTSI) Earnings Call Transcript & Summary

Greetings. Welcome to VirTra, Inc.'s Virtual Annual General Meeting of Stockholders. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to our host, Mr. Bob Ferris, Chairman and CEO of VirTra, Inc. Please go ahead, sir.

Thank you, and welcome to VirTra's 2020 Virtual Annual Meeting of Shareholders. My name is Bob Ferris. I am VirTra's Chief Executive Officer and Chairman of the Board, and I will be moderating today's meeting. Please note that at the conclusion of the formal business portion of today's meeting, I'll open the floor up for questions. As we begin now with the formal business of the meeting, I would like to read a cautionary statement. During the course of this meeting and any statements or answers to questions, we may make forward-looking statements regarding future events or the future performance of the company. Actual events or results could differ materially. We are not undertaking any obligation to provide updates in the future. We refer you to the documents the company files from time to time with the SEC, specifically the company's most recent annual report on Form 10-K for the period ended December 31, 2019, its most recent quarterly report on Form 10-Q for the quarter ended June 30, 2020, and other reports we file with the SEC. These documents contain and identify important factors that could cause actual results to differ materially from those contained in any forward-looking statements. The 2020 Virtual Annual Shareholders Meeting of VirTra will now please come to order. We want to welcome you and express our thanks for your participation in this meeting. I would like to begin by introducing our directors, including myself, and Matt Burlend, our Chief Operating Officer; and our 3 independent directors: Jeff Brown, Jim Richardson and Mitch Saltz. I'd also like to introduce Judy Henry, our Chief Financial Officer. I'd now like to fill everyone on the agenda for today. You'll notice that the slide has changed on your screen for those that are logged on. We will begin with a welcome and introduction. We will start the official AGM. We'll go through the nomination and voting process. Then we'll conclude the official AGM, and then we'll open it up for questions and answers. I will now conduct the Virtual Annual Meeting as it relates to the proposals to be voted upon by our shareholders. [Operator Instructions] Notice of this meeting was given to all shareholders of record at the close of business on June 22, 2020, by United States Mail on or about June 26, 2020, and I have, for inclusion in the record of this meeting, an affidavit from Issuer Direct, our proxy agent, to that effect. Emily Watson, a representative of Issuer Direct LLC, the company's proxy agent, has been appointed to act as the inspector of elections at this meeting. Ms. Watson is available and present via telephone conference. She has submitted a voting report that indicates the following. The preliminary report of the inspector of elections is that more than 89.15% of the total number of shares outstanding and entitled to vote are present virtually or by proxy at this meeting. And therefore, I find there a sufficient number to constitute a quorum for purposes of transacting business today. And thus, this meeting is declared open to proceed with its business. In order to expedite the consideration of and vote on the business matters at this meeting, the following is the order of business, which I will follow. The matters to be discussed and acted upon by our shareholders at this meeting will be discussed, moved and seconded. After presenting all matters, we will vote on the matters to be acted upon. We will now consider nominations for directors to serve for a term of 1 year as set forth in the proxy statement or until their successors are duly elected and qualified. The Board of Directors favors the election of the following persons as directors. Robert D. Ferris, Matthew D. Burlend, Mitchell A. Saltz, Jeffrey D. Brown, James Richardson. These candidates are hereby nominated to be elected directors of the company. Other than these candidates, there are no other nominations in accordance with the procedures set forth in our bylaws. May I have a motion to close the nominations for directors?

I move the nominations be closed.

I second the nomination.

If there are no objections, the nominations are closed. Next, we will consider the proposal to hold a nonbinding advisory vote on executive compensation as described in the proxy statement. A motion on the proposal is now in order.

I move that the proposal to approve on an advisory basis the compensation paid to the company's named executive officers as disclosed in the proxy statement be approved.

I second the motion.

Next, we'll consider the proposal to hold a nonbinding advisory vote on the frequency of executive compensation advisory votes as described in the proxy statement. A motion on the proposal is now in order.

I move that the proposal to approve on an advisory basis every 3 years as the frequency for the company's executive compensation advisory vote as disclosed in the proxy statement be approved.

I second the motion.

Next we will consider the proposal to ratify the appointment of MaloneBailey LLP as our independent auditors, our independent accountants for the fiscal year ending December 31, 2020, as described in the proxy statement. A motion on the proposal is now in order.

I move that the proposal to ratify the appointment of MaloneBailey LLP as VirTra's independent registered public accounting firm for the year-end December 31, 2020, be approved.

I second the motion.

Now that we have reviewed the proposals to be voted upon, I hereby declare the polls open for voting. Please remember that if you've already sent in your proxy card or voted by Internet or telephone, your shares have been voted accordingly. Shareholders who have sent in proxies or already voted do not need to take any further action with respect to any of the matters to be voted on today. You do not need to vote today unless you are voting for the first time or want to change your previous vote. If you need to vote today, you may click on the Vote My Shares box on the left side of your screen and follow the applicable instructions. We will pause now for anyone who wishes to vote at this time. [Voting]

The voting is now closed. The inspector of elections will now complete the tabulation of the votes. The tabulation is complete. I will now report on the results of the shareholder vote. According to the preliminary report of the inspector of elections, each of the proposals presented at this virtual meeting have been approved with the following voting results. Proposal one, election of directors. Each of the persons nominated to be a director of the company has been elected; proposal two, nonbinding advisory vote on executive compensation. The executive compensation has been approved by the majority of the votes present and entitled to vote at the annual meeting. Proposal three, nonbinding advisory vote regarding 3 years as the frequency of executive compensation advisory votes. 3 years has been approved as the frequency of executive compensation advisory votes because 3 years received the greatest number of votes. Proposal four, ratification of the appointment of MaloneBailey LLP as the company's independent registered public accounting firm for the fiscal year ending December 31, 2020. The selection of MaloneBailey LLP as the company's independent registered public accounting firm has been ratified by the affirmative vote of the majority of the votes present and entitled to vote at the annual meeting. The matters that this virtual meeting was called to consider have been completed. Is there any additional business to come before this meeting? If there is no other business to come before the meeting, I would like to make some concluding remarks, and then I'll take some questions. I would like to thank you, our shareholders and employees, for your support, and I'd like to emphasize the commitment of each and every member of our team to deliver the best possible results for our company. We move forward with high expectations and a tenace for success to continue in our efforts to build shareholder value. I personally thank you for your support and look forward to accomplishing even more for you, our shareholders, in the years to come. The official agenda for VirTra's Annual General Meeting is now completed and the meeting is adjourned. Before we conclude for today, I'd like to open it up for your questions.

Okay. One question is, what can VirTra do to overcome the current obstacles that inhibit installations? And I think by this they mean the current situation with COVID 19. I think there's 4 things that come to mind on what we can do to overcome the restrictions of COVID-19 right now. First, we can keep our staff safe. This means working from home, means following CDC guidelines, it means being careful where staff travels, checking visitors to the office, asking preliminary questions before anyone comes to the office. Second, we can try alternative approaches, maybe instead of flying to a location, we drive to the location and avoid exposure at the airport. Third, we can quarantine staff. So if some staff does travel, they can quarantine at home and not potentially spread the virus while they may be asymptomatic but a carrier of the virus. And then fourth, we can do more to avoid the physical trip in the first place, such as doing Zoom calls or we have a technical capability to remote in to our clients' systems who have Internet and wish to have the service. And we can get -- we can essentially remote solve their problems that way without having a physical trip needed. And these 4 different approaches I just mentioned, our approach is that we currently employ during this time at different states or in different phases of COVID-19. So that is one approach, a combination of 4 different things. And so far, knock on wood, it's been successful. But we -- our focus is really mitigating the impact of COVID-19 as much as possible with the priority on safety and health. So there's a question concerning upcoming trade shows for visibility and what are other options that VirTra has to be in the public eye? Great question. The trade shows have been a really important avenue for VirTra, particularly because hands-on experience with our products is oftentimes an important part of the sales process, especially if they're able to compare our product with other products. So by not having as many trade shows, we do have to come up with other alternatives to how we get in front of the right buyers. So the way that we've done this has been really a digital full court press. We started with a new website that was launched in 2020 and was -- really couldn't have been better timing. We got lucky on that one. And we certainly made mistakes over the years, but we got lucky on our launch of a new website. That came along with a lot of new digital marketing material that we've made heavy use of. And so those have really helped us continue educating people about our products and getting in front of the right buyers. Meanwhile, our marketing team has worked diligently to refine our process so that we actually have a 50% increase in qualified leads with about a 24% decrease in costs. So that's through a lot of increased efficiencies on the marketing side. So -- also public relations and lobbying efforts are important to VirTra to get our name in front of the right groups and to have a seat at the table when there's policy decisions being made, and we made a lot of headway in those areas. So thank you for the question though. Another question received is asking about the factors that hold VirTra back from being implemented in more departments and agencies. And it's a great question. Boy, if I had a nickel for every time I thought about how we solve this one. It -- sadly, probably our #1 problem is apathy. If an agency is apathetic, if an agency does not really want to investigate or put effort into how they can more effectively train their officers, that's very hard to overcome. And so we've been working on how we overcome that. One thing that's really helped us, I would say, and given us instead of a headwind, like COVID-19 has given us some headwinds, but gives us a tailwind is the fact that we've, over the last several years, really become the standard, really the gold standard for stimulation training, especially at the federal law enforcement level that brings with it a lot of credibility. It brings with it a large customer base. And so it's been -- that's been very beneficial to our company and has given us a lot of opportunity and helps when people are really risk adverse. And you can imagine an agency that's not done any simulation training or they've just done the lowest cost simulation training they could find and to get -- to bring them up to current standards and what's possible with virtuous products. That's something that we work very hard at, and that's something that we always want to do better at. I feel like that's our greatest challenge many times. If the department decides they really want to put the effort and the money into having effective simulation training, then pretty much all other problems can be solved, especially with our STEP option. That is another great tool we have to help them get good training as quickly as possible. So thank you for that question. Okay. Another question is concerning the S-3. And so the question is related to really why did you do the S-3? And I -- and so a couple of things on the S-3. It's generally accepted as best practices for a NASDAQ-listed company to have an S-3 shelf registration. And a lot of the reason for that is to ensure that they're able to take advantage of potential market opportunities, should they arise. If we waited to complete an S-3 filing until after we needed it, in other words, until after we see a good opportunity, then it could easily be too late to take advantage of the -- of a good market opportunity. Another part of this is that in -- when you file an S-3, you include any original shareholders or company insiders who might wish to sell some of their stock if a transaction occurs. And in no way does an S-3 mean a shareholder is planning to sell their stock or is actively selling their stock. It just means that they would have the option to sell their stock and potentially a block if a transaction were to actually occur, and that many times can be actually helpful with the company and the other shareholders if an original shareholder during original issue shares or an insider is able to sell in one block in conjunction with the transaction. Again, don't have -- there is not a transaction occurring. This is more a preparatory move. This is being proactive rather than reactive. And there is -- and it does, in no way, mean that there are shareholders wishing to sell their shares. In fact, many of our -- of the folks that this refers to have had their shares for -- several of them have had it for 27, almost 28 years they've held on to their virtuous stock, and they've reported that we've been one of their better investments. So our goal is to do even better in the future than that. But thanks for the question. Okay. There's a question on virtual Annual General Meeting versus a physical one and the selection of the supplier that we had. So obviously, with COVID-19, just about every company is switching to a virtual Annual General Meeting. We were -- we selected the ISDR platform because they actually -- they own their product and their experience is one of the very top, and there were competitive priced. So they've done close to 100 of these. They have over 100 scheduled and then they do over 600 earning calls per quarter. And so groups like the IRS, Johnson & Johnson, Sherwin-Williams trust them for these kind of calls. We had heard of some companies that had problems with the technology. And fortunately, so far, it's gone very well for us. And so it is a safety issue and with the COVID-19 pandemic, and it did seem like the right thing to do is to do a virtual AGM this year. Thanks for the question. Okay. This question is asking -- concerning the executive compensation that was just voted on. And if there is expected to be changes or changing philosophies that generally VirTra has been known to have fair and well defined to VirTra's performance compensation, I'm not making that up. This actually seeds right. You guys can ask that's what they're saying in their question. So yes. Well, first of all, I appreciate the compliment on VirTra having executive compensation fair and tied to a virtuous performance. The vote on executive compensation is a... [Technical Difficulty]

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So this is looking okay here. This is showing connection. I apologize if everyone can hear what's going on, should we...

Gentlemen, yes, this is your operator. Your line is still connected and broadcasting, I believe.

Okay. All right. Thank you. Okay. Let them know that might be on their end. Okay. I apologize everyone. We thought we had a technical issue after just talking about the platform is -- has had a good track record, but it looks like it was possibly just a false alarm. Okay. So I'm sorry, we're talking about executive compensation. Yes. So what we voted on was a recommended best practice vote. So we are not the only company doing that. I believe just about every public company is having the same vote in their annual general meeting. And so it was -- and so we followed the best practices on that. I -- as of today, we continue to try to improve how we compensate everyone at VirTra and including the senior executives. So -- but there -- as of today, there is no plan for a major change of compensation. But we do always try to align compensation with performance, when and where possible. And so we do continue to do that. We can't promise no changes in the future. Of course, we always need to adjust to market conditions, but we do try to maintain a fair and appropriately tied compensation package to performance. So thank you for that question. All right. We have a few more questions. One is a simple one. Yes, we definitely can achieve positive share earnings this year. That is possible. It is hard to know for sure with COVID 19. So absolutely can't guarantee it, but it is a possibility. The -- another one is asking about the military market and discussing and expanding on that. I am limited on what I can say about the military market due to confidentiality. What I can highlight is the military seems interested in certain products that VirTra has perfected through our extensive customer base. Also, I think it's important to point out that military -- the military simulation market for the products that VirTra creates could certainly exceed VirTra's current total addressable market. Now many times, there's a scaling factor that goes into that. But that -- the total addressable market within the military is actually quite substantial and could eventually dwarf VirTra's current business, and that's not a problem. We feel well positioned to both lead the law enforcement market and emerge as a leader of the military market, particularly in certain areas where we've really perfected our expertise and where we can really benefit the military with what we've already accomplished. So that's probably about as much as I could say there. But yes, it is a very good fit. Some of our products are just a really good fit for the military, and we're starting to get traction in that area, I believe, but time will tell on that. Okay. One -- all right. One question is, do you foresee using debt in a good way to help the balance sheet? I do greatly appreciate how VirTra has strengthened its balance sheet through the years, been here since Kelly Jones days. So when it -- obviously, liquidity is a very important aspect right now. Between the PPP loan and our strong balance sheet, VirTra is not required to raise any capital at this time. But VirTra, like most companies, we value liquidity, and we plan to carefully manage our capital. And it is possible that we might establish a line of credit to provide additional liquidity due to the COVID-19 pandemic. And we're committed to growing the business. So we are open to certain market opportunities, which might require us to be more aggressive. But currently, we do not have plans to raise capital through equity nor do we have plans to take on a large loan. Now again, we're looking at opportunities and making sure that our business is healthy. And those could change, assuming the opportunity presents itself and that some capital is required for a really good purpose. But we are -- as everyone knows that's been around VirTra for a while, we're very selective in that area. We definitely are a bit more cautious than jumping without looking, and so we will continue to do that. But we also are mindful that sometimes there are great opportunities that justify taking on some risk. So I appreciate that question. And another question is concerning the unrest in the U.S. and VirTra's strategy to capitalize on the window of opportunity. So we obviously, as a leader in law enforcement simulation training with de-escalation, we are a very logical company to be in the spotlight during this time. Obviously, we have to be careful that we -- that it's not -- it doesn't come across incorrectly or insincere or that we are trying to capitalize on other people's pain. That is certainly not our intent. But it does bring an important spotlight on the issues of police having the very best training possible. And recent events have shown how important police policy is, policing is and police ability to practice and refine their skills in a safe environment, how important that is to our society. So VirTra is working incredibly hard. Our sales and marketing staff are geared towards taking advantage of the opportunity wherever it presents. And regardless of the headline cycle, we are extremely motivated and aggressive in selling our product because we know the value it adds and the positive impact it has on training and giving police more confidence in that they've been through tough situations in simulation, and they've gained some skills and some references that they can use in real-life encounters. And our top-tier simulation experts, our subject matter experts rather help make sure our scenarios and our content are at the highest quality possible. And again, VirTra is the only company with certified simulation content so that the required hours that police have to log per year, which could increase depending on if regulations change, but -- and normally, it's about 8 hours per year that police officers have to do continuing training, VirTra, because we're certified, we went through that process and our content met the requirements. If they spend an hour in a VirTra simulator, that goes against the 8-hour required per year per officer. So that's a huge value that VirTra supplies to our customers and that's something that only VirTra has. No other simulation company has gone through those processes and crafted their curriculum in such a way to pass that as far as we know. Thanks for the question. All right. Well, thank you very much, everyone, for attending our Annual General Meeting. I hope you could sense my excitement and optimism for the bright future in front of VirTra. We have the right products at the right time to make a major positive impact on the U.S. and world. If ever our mission statement rings true, it does so today, which is to provide the most effective simulation trained devices to the greatest number of trainees. Since our last Annual General Meeting, we've made solid progress in accomplishing this mission, but there is much left to accomplish. It is my expectation and hope that we'll make even greater strides in improving training and improving the value of our business between now and our next Annual General Meeting. Thank you for joining us today. Take care and God bless.

Ladies and gentlemen, this does conclude today's meeting. You may now disconnect. We hope that you enjoy the rest of your day.