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

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

Good afternoon, everyone. Will the meeting please come to order. My name is Bob Ferris, and I'm the Chairman of the Board and CEO of VirTra. Welcome to the 2021 Annual Meeting of the Stockholders of VirTra. This meeting is being webcast live, and the webcast will be posted on our website for a period of time after the meeting, the matters on which the stockholders at the meeting are voting are too: one, elect 5 directors; two, ratify the appointment of MaloneBailey, LLP as the company's independent registered public accounting firm for the year ending December 31, 2021; and three, transact any other business that may properly come before the meeting. I would like to begin the meeting by introducing the current members of the company's Board of Directors. They are myself, Bob Ferris. I also serve as Chairman and CEO; and Jeffrey Brown; James Richardson; John Givens; Matt Burlend. Matt also serves as our Chief Operating Officer. In addition to Matt, we have Marsha Foxx, President, who serves as our Chief Accounting Officer. Marsha will serve as Secretary of the meeting and record the proceedings. She has delivered an affidavit to Issuer Direct Corporation as to the mailing of the notice of the meeting, which states that on September 13, 2021, notice of Internet availability of proxy materials was mailed to all stockholders of record as of the close of business on September 2, 2021, the record date for the meeting. This affidavit is available if any stockholder wishes to examine it and will be filed with the minutes of this meeting. Marsha Foxx will now discuss the procedures for transacting the business of the meeting. Marsha?

Good afternoon. When an item of business is on the agenda is before the meeting for consideration, questions and comments should be limited to that item. If a stockholder has a question or comment not related to a business item on the agenda, an opportunity to raise other questions and comments will be provided after voting on the proposals described in the proxy statement. Stockholders will have the opportunity to ask a question or make a statement about any resolution pending on the floor. [Operator Instructions]. please keep your questions and statements brief and limited to the specific item of the discussion. Following the agenda items, Bob Ferris will accept general questions from stockholders or proxy holders. If you wish to ask a question at that time, please type your question or comment into the Ask A Question tab on the left-hand side of your screen and click send. If any stockholder has any matter of individual concern, please contact our Investor Relations professionals directly. Bob?

Thank you, Marsha. I hereby appoint a representative of Issuer Direct as Inspector of Election for the meeting and any adjournment or postponement of this meeting. They have signed an oath to act as Inspector of Election, and this oath will be filed with the minutes of this meeting. The inspector has the stockholder list of the company as of the close of business on September 2, 2021, the record date for the meeting, which shows the stockholders and the respective number of shares entitled to vote at this meeting. This list is available if any stockholder wishes to examine it and will be filed with the minutes of this meeting. Marsha has advised us that a quorum is present at the meeting, so I declare the meeting duly and lawfully convened. The meeting is now open and ready for business. The first item of business is the election of 5 directors of the company. The proxy statement made available to you earlier listed the company's nominees for director. The candidates for director who have been nominated to serve as directors by the company's Nominating and Corporate Governance Committee are: Bob Ferris, Matt Burlend, Jeffrey Brown, James Richardson and John Givens. In accordance with the bylaws of the company, stockholders are required to provide advanced notice of their intent to nominate candidates for directors. No such notice was received. Therefore, I declare the nominations for directors closed. A motion to elect 5 directors as described in the proxy statement is now in order.

My name is Matt Burlend and I am a stockholder. I hereby move that each of the companies nominees be elected as directors to serve until the next Annual Meeting of Stockholders or until their respective successors are elected and qualified.

Does anyone second the motion?

My name is Jeff Brown, and I am a stockholder. I second the motion. Are there any questions or comments on this motion? I hereby call the question and declare the polls open to vote on the motion. Any stockholders desiring to vote in-person should do so at this time. The second item of business is to ratify the appointment of MaloneBailey, LLP as the company's independent registered public accounting firm for the year ending December 31, 2021. The appointment of MaloneBailey is discussed in the proxy statement that was made available to you earlier. A motion to ratify the auditor appointment as described in the proxy statement is now in order.

My name is Matt Burlend, and I'm a stockholder. I hereby move that the appointment of MaloneBailey as the company's independent registered public accounting firm for the year ending December 31, 2021 be ratified.

Does anyone second the motion?

My name is Jeff Brown, and I am a stockholder. I second the motion.

Are there any questions or comments on this motion? I hereby call the question and declare the polls open to vote on the motion. Any stockholders desiring to vote in-person should do so at this time. The Inspector of Election will report on the results of the voting later in the meeting after tabulation has been completed. We will now wait for the tabulation to occur. While we wait, I would like to open the meeting to any questions that stockholders may have. If you have any question relating to the company, but not to the matters already voted on at the meeting, you may raise them while the vote is being tabulated. Only matters that may concern all stockholders should be raised at this time. Any matter of individual concern to a stockholder should be raised directly with our Investor Relations professionals. Prior to answering any questions I will be reading a statement regarding forward-looking statements. I would like to provide VirTra's 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. The first question is regarding headset related products and purchase plans regarding AR, VR in the marketplace. So on this item, VirTra, as many know, actually began with headset products in 1993. And our first decade in business, our products were exclusively headset products. We are very aware of the interest in headset-related products. We monitor it very closely. And there have been installations of headset-related products that have not gone well and have essentially stymied that in certain areas. We do think that headsets could be very, very good for training eventually. The technology advances and VirTra has plans underway with that. We have not announced a particular headset based product, since many, many years ago. We did have VR headset based products, though for a period of time. So at this time, our products are screen-based. The underlying technology behind our products, software and content, accessories, drop-in recoil kits, Threat-Fire to return device, Threat-Fire, return fire device. Those are all -- have applicability to a headset based ecosystem. So there is a lot of work we've already done that actually would prepare us well for migrating into an AR, VR headset product line. So we are very familiar with this market space, and we are aware that there are headset products that have come out in the market. We monitor it closely, and we do see that in the future, there could very well be a market and excellent training provided by headset-related products. We expect that VirTra will lead the way with that. But many of the current products are not providing adequate training from what we're hearing, and there's limitations that we believe will be overcome by other technologies and/or things that VirTra is working on. So appreciate that question. Next question. Have there been any updates on military opportunities? So I -- we continue to work hard on military opportunities. There's no major update in that arena for us. We continue with work that we've previously mentioned in other calls, although we are under NDA and have limitations on what we can disclose at this time. Next question has to do with virtual reality, how dangerous do we believe virtual reality is from a competitive standpoint compared to our offerings? That is something that we monitor very closely. As of today, I can report that our sales pipeline has not been affected to a significant extent from VR offerings. In fact, it's really not impacted us as of today. We continue to sell product, and we have a healthy pipeline. So as of right now, we are not seeing really any impact from virtual reality products in the marketplace compared to our traditional products. Okay. We have -- okay. The next question we have is, how do our recoil kits compare to other products in the market space. So VirTra's recoil kit technology is rather unique. VirTra has spent about 17 years working on lock-back capabilities. In other words, we -- our recoil kit drops into a firearm -- an actual live fire -- a live fire arm converts it into training and also supports the end of ammunition condition, also supports the ability to practice what happens if you have a jam while firing your weapon or if you have ammunition that doesn't work while firing your weapon. So it allows you to safely practice procedures on how to clear those malfunctions. This is something that has been publicly expressed by military and others as acute interest to them for programs going forward. We also have uniquely an alternate version where it's a mechanical lock-back system that can do the same thing, but does not require batteries or circuit boards. So we have 2 different ways of actually performing that function. And we have thousands and thousands of units of experience that we fielded. So we believe that, that gives us a real leg up. We also have a lot of recoil kit technology. We've developed in-house as well as production capability where we figured out certain materials that work well and certain post processes that work really well with recoil kits that allow them to survive and have higher durability. The other thing that's very unique to VirTra is the power in our recoil kits. So we believe we have the most powerful and reliable recoil kit. And that's hard to do. Because as you increase the G forces of the recoil kit, as it kicks more and more realistically, the product wants to tear itself apart. So it's very hard to engineer reliability and realistic effective training into the same package. And VirTra's team has achieved that ability far beyond anyone else in the industry, we believe. So I think that, that gives us a huge leg up on the critical component of how does the trainee engage simulated hostiles in a training environment. The other part of that, that I don't want us to lose sight of is the other part is return fire. How do simulated hostiles safely engage the trainees so that they can apply consequences and apply stress and pressure during training and help them actually learn how to fight through potential surprises like feeling shrapnel or having pain while being in an engagement. So we think -- and that we have patents on, and that's a product that we really lead the world in the return fire product as well. So they go hand in hand. If you only do one of those, you're only doing 50% of the interaction with the system, if you only allow for people to shoot at simulated enemies, that's 50%. If you allow simulated enemies to engage the trainee then you complete the loop with the other 50%. So frankly, if a training program only does 1 of those 2, it's only actually doing 50% of interaction. And so for me, 50% is a failing grade. You need 100% is the kind of grade that you're looking for, and that's what VirTra provides. So -- okay. Next question. It appears that Canada was pulling a pretty large simulator bid of putting out a large simulator bid, did VirTra submit on it? And do you know the status of the opportunity? Canada did put out a very large simulator bid. I personally think VirTra is a great fit for that opportunity. I do not have an update for anyone on that opportunity. I can't say that we did respond to that opportunity. Okay. One question is, are there other markets besides the military and state local government police that are different that you are thinking of entering? Yes. All right. Next question. So question about, do we feel that COVID restrictions have retreated enough to allow us to move faster through our backlog? That -- there's no easy answer on that one. COVID and date is a real day-to-day operational situation for us. So while travel restrictions lifting might allow us to move faster through backlog, we still have the issue of supply chain, logistics and COVID impacts various areas at various times in various ways. So it's a moving target on that. Internationally, COVID is still alive and well, sadly. So on the international side, COVID still represents challenges. Although, as you probably know, we've made some announcements of some progress made on securing contracts internationally. There's a question on the current headcount as of today. That is 118, and we are -- have 18 open positions we are trying to fill as of -- actually, I got that information yesterday. As far as other markets that we are thinking about I would just -- I would say we -- as a rule, we don't talk specifics on anything that would be in development just to avoid our competitors from having the heads up. But you can imagine that we would be interested in how can we take all of the technology and investment that we -- that's already been made into our product line and our services and how can we leverage that into adjacent markets effectively. And so that's something that we're always thinking about. But that also obviously has to compete for priority with our work and growing and scaling our company within the police and military markets where we have significant advantages, some hard-earned advantages and unique positioning for our company. So I can't give specifics or we could lose a competitive edge as far as entering into additional markets. So a question is coming into the composition of the pipeline particularly our STEP program versus our right purchase. So those not familiar with the term STEP, that's a subscription model where someone would sign up for our simulator to have access to it for a 12-month period. They don't own the product, but they are provided the product for 12 months, and then they can choose to renew that subscription at the conclusion of the 12 months or essentially slightly before the conclusion to the 12 months. And that is -- and the philosophy behind that was, we figured, when it comes to government buyers, there's times when they have the ability to buy because they have grant money and they can just purchase the product outright. Or there's other times when government buyers would rather do a subscription where they would rather have pay operational funds where they would actually not own the product outright themselves that they would just have access to the training equipment. And so VirTra, we decided it would be wise to have both of those available to government buyers so that they -- whether they prefer to purchase outright or they prefer to have a subscription that we would have an opportunity for them to buy from us either way. So we don't break out the percentage of sales that have chosen to use the subscription model versus the outright purchase model. But we do -- our sales team does offer both options to our clients. Okay. I understand that the votes have been counted and the preliminary report of the Inspector of Election has been delivered to the company. Marsha, will you please announce the results of the stockholders' vote?

The preliminary report of the inspector of election indicates that Bob Ferris, Matt Burlend, Jeffrey Brown, James Richardson and John Givens, have been elected as directors by the stockholders. Each candidate received the affirmative vote of a majority of those shares present in-person or by proxy at the meeting. Ratification of the appointment of MaloneBailey, LLP as the company's independent registered public accounting firm for the year ending December 31, 2021 has been approved by the stockholders by the affirmative vote of a majority of the votes present in-person or by proxy at the meeting. The results will be filed with our Form 8-K. Bob?

I hereby request that the final report of the Inspector of Election be filed within the minutes of this meeting. You have now heard the results of the voting, and this completes the business to be conducted at this meeting. Since there are no other matters to come before the meeting, a motion to adjourn the meeting is now in order.

My name is Matt Burlend, and I am a stockholder. I hereby move that this meeting be adjourned.

Do I have a second on this motion?

My name is Jeff Brown, and I am a stockholder. I second the motion.

All in favor of the motion of adjournment, please signify by saying, aye.

Aye.

Aye.

Those are pose signify by saying no. The motion has been carried. I would like to take this opportunity to thank you for your attendance today. Also please note that your interest in VirTra is very appreciated and that the incredible support of our stakeholders has been critical to our successes. I personally think our best days are in front of us. Thank you. And God bless. I hereby declare this meeting adjourned.

This concludes today's conference. You may disconnect at this time. Thank you for your participation.