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

Thank you, Megan, and good afternoon to all of you. We appreciate your joining us today as we discuss the financial results for our third quarter of 2026. It was a strong quarter, with revenue of $7.6 million, bookings totaling $10.3 million, and net income of $2.2 million, equal to $0.19 per diluted share. Revenue grew 42% compared with the prior year quarter. Bookings climbed 87% sequentially over the second quarter, and we achieved sequential revenue growth for a third quarter in a row. These results show continued progress in turning customer demand into revenue, earnings, and shareholder value. Operating performance reflected that improvement as well. Margins on a gross basis climbed to 70%, and tight control over costs contributed to operating income of $2 million, compared with an operating loss in the same quarter a year earlier. We believe these figures demonstrate the operating leverage inherent in our business model, as revenue conversion strengthens and we continue executing with efficiency. Additionally, we booked $10.3 million in the quarter and ended September with a backlog of $27.6 million. Such measures provide substantial visibility into upcoming revenue opportunities and mirror steady demand for VirTra's training solutions across our law enforcement, federal, military, and international markets. Our emphasis remains on turning those commitments into deployments while we keep broadening customer relationships and securing new business. Looking at our markets, there are encouraging signals when it comes to law enforcement funding. Following roughly two years in which grant activity was limited, programs are starting up again, and agencies are actively going after funding opportunities; that gives departments more ways to put money into training and to move ahead with purchasing decisions. Even though it's still somewhat hard to predict when grants will be awarded, when funds will be distributed, and when customers will deploy, activity levels have picked up noticeably. Our team stays focused on assisting customers as they work through the funding process and on turning that activity into future orders and deployments. We see these programs continuing to reopen as a positive development for the market. Turning to demand, a clear sign that it is still robust is how people reacted to our Taskforce Santa program, through which agencies can vie for a V-100 simulator system. So far, applications have come in from 154 departments, which shows the continuing need throughout law enforcement communities for top-quality training solutions. Even more significant, that reaction underscores how strong the appetite is for sophisticated training solutions and how vigorously agencies are chasing funding chances to back these investments. We’re eager to collaborate with those agencies in finding grant possibilities that could assist them in speeding up system rollouts and enhancing training readiness. In the federal sector, the five-year sole source contract we announced recently with US Customs and Border Protection underscores the enduring worth of our customer relationship and demonstrates how relevant VirTra’s training solutions are for larger organizations. Carrying a maximum potential value of $14 million, this contract gives CBP a structure for modernizing, maintaining, and supporting its nationwide simulator training network. Importantly, this opportunity goes past the first simulator installations. It reflects a long-term customer that continues investing in its training infrastructure, and it creates openings for modernization, upgrades, and support in the future. As with any indefinite delivery contract, the $14 million is a ceiling amount. The actual revenue we realize depends on the customer's order volume and on how effectively we execute under the agreement. Our focus remains on delivering the capabilities and services that strengthen these relationships and position VirTra for additional opportunities. Regarding the military, our solutions are now available for evaluation in the US Army's marketplace in three mission-critical capability areas: weapon skills development, joint fires training, and counter-unmanned aircraft systems. That inclusion broadens awareness of VirTra's technology and lets us demonstrate how our training solution can address a wider spectrum of military readiness requirements. Being included doesn't guarantee a procurement award, but it does raise our visibility with potential users and procurement decision-makers throughout the Army. We also picked up a $1.5 million sole source award from the US Army for a V-300 training system and related equipment that supports firearm training and force readiness efforts in Tajikistan; that award is one more example of how we can meet military training requirements both at home and abroad. Taken together, these developments keep widening our opportunities in the military market and reinforce how broadly applicable our training platform is. International deliveries contributed significantly to third quarter revenue performance and show how awarded business turns into financial results as customer requirements get fulfilled and systems get deployed. We keep chasing opportunities in international markets while staying focused on executing against existing commitments and supporting customers all the way through deployment. As governments and security organizations look for advanced training solutions, we believe VirTra is well-positioned to meet those needs. Innovation also stays a core part of our long-term strategy. Our Version 7 software platform is built to make VirTra systems more intuitive, efficient, and effective for customers. The release folds in customer feedback, usability enhancements, and workflow improvements meant to improve the overall training experience. We're going to officially unveil this platform at the Interservice/Industry Training, Simulation and Education Conference coming up, running November 30th through December 3rd in Orlando, Florida — that's where customers and folks from the industry will be able to see these enhancements for themselves. During the third quarter, we demonstrated that we can transform customer demand into revenue and earnings; we posted strong bookings, saw gross margins expand, achieved profitability, and continued to cultivate opportunities throughout our core markets. Our priorities are straightforward: turn backlog into deployments, strengthen ties with our customers, and go after growth by investing with discipline and managing costs. With a solid balance sheet and an expanding pipeline of opportunities supporting us, we feel we're well-positioned to build on the progress achieved during the quarter. Our confidence in the worth of the training solutions we deliver to customers is unchanged, and our attention stays on turning that worth into lasting business results for shareholders. With that said, I'll hand things over to Alanna for a look at the financial results.

Thank you, John, and good afternoon, everyone. Let's now go over our unaudited financial results covering both the third quarter and the nine months that ended September 30th, 2026. Total revenue for the third quarter came in at $7.6 million, versus $5.3 million in the same period a year earlier. Revenue rose substantially from $5.8 million in the second quarter and $3.5 million in the first quarter, which mirrors better revenue conversions along with contributions from international deliveries made during the quarter. Looking at this by market, government revenue in the third quarter reached $5 million, compared with $4.1 million in the prior year period. International revenue in the third quarter totaled $2.4 million, compared with $1.2 million in the prior year period. Total revenue across the first nine months was $16.9 million, versus $19.5 million in the prior year period. That decline mainly mirrors delayed customer funding, procurement timelines, and customer acceptance activities, all of which affected when revenue recognition occurred, largely earlier in the year. Gross profit in the third quarter was $5.3 million, or 70% of total revenue, versus $3.5 million, or 66% of total revenue, in the prior year period. Gross margin still reflects the effect of the operational efficiencies we've implemented and that we gain from once we're able to recognize revenue. Gross profit across the first nine months was $10.9 million, or 65% of total revenue, versus $13.5 million, or 69% of total revenue, in the prior year period. That decrease came from lower revenue volumes along with continued investment in our strategic content and development initiatives, which support our future growth opportunities. Net operating expense in the third quarter was $3.3 million, versus $4 million in the prior year period. Net operating expense across the first nine months was $10.4 million, versus $11.7 million in the prior year period. This mirrors disciplined expense management on our part while we keep investing in our key growth initiatives. Income from operations in the third quarter was roughly $2 million, versus a loss of $0.5 million in the prior year period. Income from operations across the first nine months was roughly $0.5 million, versus $1.8 million in the prior year period. Net income in the third quarter was $2.2 million, or $0.19 per diluted share, versus a net loss of $0.4 million, or negative $0.03 per diluted share, in the prior year period. Net income across the first nine months was roughly $0.6 million, or $0.05 per diluted share, versus net income of $1.1 million, or $0.09 per diluted share, in the prior year period. Adjusted EBITDA, which is a non-GAAP metric, was $2.6 million, versus $0.09 million in the prior year period. For the first nine months of 2026, Adjusted EBITDA was roughly $2.2 million, versus $2.5 million in the prior year period. By September 30th, cash and cash equivalents came to $18.4 million, versus $18.6 million on December 31st, 2025. Over the year's first nine months, cash use reflected inventory investments that support customer deliveries, international shipments among them, plus the purchase of our Orlando facility. Turning now to bookings: VirTra counts bookings as all newly signed contracts, awarded RFPs, and purchase orders received within a given period. Third-quarter bookings reached $10.3 million, up against $5.5 million in the second quarter and $3.8 million in the first quarter. That rise came from STEP agreements, capital system orders, renewed activity among federal customers, and multiple capital systems bought throughout our domestic sales territories. Backlog, as VirTra defines it, is the accumulation of bookings from signed contracts and purchase orders whose performance obligations are not yet started or remain incomplete, so revenue cannot be recognized until they are delivered in a future period. We split that backlog into three main categories: capital, covering our simulators, accessories, installations, training, custom content, and design work; service, mainly extended warranty and support contracts; and then STEP, our long-term subscription-based program. As of September 30th, 2026, backlog was $27.6 million. That figure comprised $14.1 million of capital, $3.9 million of service, and $9.6 million of STEP contracts. In the quarter, we turned part of our backlog into revenue, among it the second phase of the international deployment in Colombia we were awarded earlier. We anticipate further backlog conversion in the fourth quarter, though timing will keep hinging on the procurement process, installation schedules, and acceptance timelines. To sum up, the momentum across the business in the third quarter encourages us. Better revenue conversion, strong booking performance, and Adjusted EBITDA growth all reflect ongoing progress on our strategic priorities. Customer funding and procurement decisions can make timing vary from quarter to quarter, yet we believe our backlog, recurring revenue streams, and strong financial position give us a solid foundation for continued execution and growth; that wraps up my prepared remarks. I will hand the call back to John for his closing comments. John?

Thanks, Alanna. When we look back at the third quarter, we feel good about the strides we've taken throughout the company; we posted sequential revenue growth for a third quarter in a row, brought in bookings above $10 million, pushed gross margins up to 70%, and added to our backlog, and we did all of that while deepening customer engagement in our law enforcement, federal, military, and international markets; these results offer more proof that the money we've put into our products, our customer relationships, and go-to-market initiatives is starting to pay off. As we look forward, the underlying demand environment and the activity level we see across our pipeline continue to encourage us. We think the quickening pace of grant activity, rising federal engagement, a healthy backlog, and strong booking performance leave us well placed for further progress. To wrap up, we're pleased with the progress achieved this quarter. With demand for effective training and readiness solutions continuing to change, we believe VirTra is well-positioned to meet customers' mission-critical needs and at the same time build long-term value for shareholders. We look forward to bringing you up to date on further progress in the quarters to come. That wraps up our prepared remarks. Operator, please open the call for questions.

Thank you, and congratulations on a strong quarter. Could you discuss how sustainable this is, or how far this revenue level can be extended, perhaps by looking at the top of the funnel? With bookings as strong as they are, things look good, but do you believe you can replenish revenue at this level consistently? How should we view this step-up you've experienced?

Well, that's a great question, Rich. The environment has been somewhat tumultuous across the last four or five quarters, because of the grants and government funding we depend on. We've moved into additional areas, so our pipeline has actually grown. One thing to note is that in the prior quarter, even though the revenue might not have been present, we were rebuilding that backlog, and that work continues. Looking ahead, quite a few opportunities exist out there. We have the military expanding through the marketplace. We also have plenty of other areas in research and in adjacent markets coming online as well, all of which require examining either de-escalation or handling varying levels of issues involving people and the public, when you consider law enforcement, security forces, and similar groups. My belief is that it simply keeps growing, and one thing we've observed is that word about VirTra is spreading. Although we may have been number one in the law enforcement environment, we were comparatively unknown in the federal and military space. We do have some federal customers, but we didn't build on that during VirTra's early days. I think that, together with what we've done, we've brought on a new director of marketing. She's assembling the systems and doing some remarkable outreach, and we're seeing results from that in our leads. Our shows are aimed more at the needs of the current times. The theme when we attend shows, what we're doing, and how we respond to the industry is far more direct and far more focused on the needs. We're seeing some effects on the programs and the processes we're putting in place. Yes, I do believe we can do the backfill and the backlog, and to Alanna's point, our bigger challenge is that we can get products out quickly, but customers aren't ready for them, whether that's constructing a building, or where they'll put it, or who will be in charge of it, or how they'll integrate it into their training program. Those are the things that truly stand in our way, and those are the things we're trying to help with by publishing materials and assisting them through that process. But yes, to your question, yes, we'll be able to fill that pipeline and that backlog.

Perhaps there's another way to view this: given the wins you've recently had with companies and shipping, is it a big number of somewhat mid-sized to smaller deals, or does some lumpiness exist along with bigger deals that might raise a bit more worry about sustainability?

That's precisely what you described. It comes down to the mix, correct? Will we see thousands of deals at $50,000, or will we see 25 deals at four or $5,000? Or will we sell more STEP for recurring revenue? Will we maintain capital? That's where lumpiness enters. As we said, what made this quarter was that we had an international component, we managed to book more international revenue, which carries a higher margin, and that affected our gross margin. So what we're attempting to do is level out those peaks and valleys by making sure we focus on the mix. But as I mentioned, there are usually three variables beyond our control, yet we're doing things such as publishing a paper. How do you take a VirTra system and incorporate it into your training program, or how do you build a training program around the VirTra system? And also guiding them through the grant process. So we're helping in every way we can. We've identified the problems our customer base is having, and we're viewed as the thought leadership in those areas, and that's why you're seeing this big shift as we move through. But unfortunately, the lumpiness, as much as we want to control it, we're trying. I just don't know that I really don't have a good answer for that, Rich. I apologize.

No, that's a good response. My final question has roughly two components, but G&A declined on both a year-over-year and a sequential basis. Could you perhaps comment on whether we're at a healthy run rate level right now, or whether some one-time items contributed to it looking as strong as it did? Then, it wouldn't really be a sell-side call without somebody requesting that you elaborate on how AI can be used to make the company stronger and better down the road, so we'll give you that opportunity. Thanks.

I'll have Alanna take the first part of that, and I'll handle the AI portion. Alanna?

So yes, I'd say we're taking a very careful approach when it comes to G&A, and by now I think we've settled on a level where we can still see revenue growth without needing to raise those figures meaningfully for some time. With our overhead staff, our fixed costs and all of that, I feel fairly comfortable about where we stand. And yes, I'd say this is probably a good — I'm not sure how much further we can trim from this. Given the work we've done, I think this is probably a good run rate.

Yes, I’d agree with that. On the AI side, here’s what I’d say: we’re cautiously optimistic as we evaluate the options. At the moment, putting your material out there feels like the Wild West, so we’re taking a very careful approach on that front. But we’re examining—we’ve deployed it across many different areas, from content development to some sales work. We’re reviewing sales. We’re reviewing our pipeline. We’re comparing close rates, win rates, and proposals, and checking those against the matrix of what’s being requested in a proposal. So we’re doing everything you’d read about in the industry, but we’re also doing certain things that will genuinely drive our productivity which, from a competitive standpoint, I’d really rather not discuss on this call. We’re seeing an enormous amount of productivity in a handful of areas that will help drive the bottom line, boost our profitability and our gross margins. At that point, as I’ve said before, there are certain areas where we’ll give up some gross margin in order to gain more market share. With these new AI advancements and the way we’re applying them, that’s how we’ll hold the levels we have now and still be able to reach and bring prices to a point where we can serve those 13,500 police agencies that are incredibly underserved; we’ve seen that through the products we’ve produced in our V-One and our V-100 NG, and then some of the other accessories and items we’ve put in place that try to reach and help out those individuals.