Good afternoon. Welcome to VirTra's Fourth Quarter and Full Year 2019 Earnings Conference Call. My name is Jess, and I will be your operator for today's call. Joining us for today's presentation are the company's Chairman and CEO, Bob Ferris; and CFO, Judy Henry. Following their remarks, we will open up the call for questions from VirTra’s institutional analysts and investors. Before we begin the call, 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. Finally, I would like to remind everyone that this call will made available for replay via a link in the Investor Relations section of the company's website at www.virtra.com. Now, I would like to turn the call over to VirTra's Chairman and CEO, Mr. Bob Ferris. Sir, please proceed.

Thank you and good afternoon everyone, and thanks for joining us today. After the market closed, we issued our financial results for the fourth quarter and full year 2019 in a press release, a copy of which is available in the Investor Relations section of our website. I’d like to begin today by briefly describing some of the macro events, which are affecting most industries. Over the past few months, we’ve all experienced dramatic shifts in our daily lives as COVID-19 has spread across the globe. Many must wonder the potential impact on VirTra. As far as the supply side, VirTra’s supply chain is considerably insulated so far due to the fact that we’ve expanded in-house production abilities in recent years and what we don’t produce, we can usually purchase from multiple suppliers, many of which are U.S. based. As far as the demand side, we sell to government agencies that still must instruct trainees on effective firearm use even during these stressful times. Some would suggest that now more than ever the government must train first responders effectively, especially since simulation training can occur while maintaining social distancing guidelines. More to the point, we have not yet had a single order cancelled since COVID-19 made the headlines. However, the totality of the impacts at VirTra from this virus are not fully understood at this time, so we are proceeding cautiously. We are doing our part at VirTra to continue to serve the brave men and women who are working so hard to keep our nation safe while still mitigating the effects of COVID-19 to ensure our people and our partners remain healthy. I’ll touch more on this topic in my closing remarks, but first let’s look at the year-end review. When we last spoke in November, I ended our…

Thank you, Bob and good afternoon everyone. Our total revenue for the fourth quarter of 2019 was $5.9 million. This was a 133% increase from the $2.5 million of revenue we recognized in Q4 of 2018. For the full year 2019, our total revenue increased 3% to $18.7 million from $18.1 million in 2018. The increase in recognized revenue for both the three months and full year ended December 31, 2019 resulted from increase in the number of stimulators and accessories completed and delivered compared to the same period in 2018. Our gross profit for the fourth quarter of 2019 increased 176% to $2.6 million or 44.8% of revenue from $957,000 or 37.8% of revenue in the fourth quarter of 2018. For the full year ended December 31, 2019, our gross profit decreased 12% to $9.7 million or 51.9% of total revenue from 11 million or 61.1% of total revenue in 2018. In both periods, the changes in gross profit was primarily due to differences in the product mix and the varied quantities of systems, accessories, and services sold. Our net operating expense for the fourth quarter of 2019 decreased 19% to $2.3 million from $2.8 million in Q4 of 2018. For the full year 2019, our net operating expense decreased 6% to 9.5 million from 10 million in the same period a year ago. The decreases in net operating expense for the fourth quarter and full year 2019 were both due to decreases in the following. General and administrative cost, stock option compensation and redemptions, professional services, public company expense, which were all of slightly offset by increases in salary and benefits, sales and marketing, and facility costs. Additionally, during the year ended December 31, 2019 there was 120,000 of allowance for bad debt on accounts and notes receivable…

Thanks Judy. The fourth quarter was obviously a strong finish to the year for VirTra, but we have much more to accomplish in 2020 and beyond. We have laid a lot of the ground work required for our future growth. We expanded into new categories, introduced new and innovative products, and landed key new customers. As part of building this foundation, we expanded our recoil kit capability both from an internal development and by acquiring intellectual property. And we continued this theme by launching and driving simulator in the U.S. market after spending a great deal of time reviewing feedback from our initial deployments and leveraging our years of experience with domestic law enforcement to ensure these products and corresponding training content fit their needs, and we also launched the world's first 4K 300-degree simulators, which demonstrates that VirTra once again is leading the industry into the future. We will also continuously launch new scenarios and upgraded our certified V-VICTA training curriculum. In Q1, we launched curriculum for high-risk vehicle stops, which combines physical assets such as a vehicle with virtual scenario-based training. We then announced a new curriculum for non-escalation and de-escalation and crisis intervention which we developed in tandem with one of our strategic partners Vistelar. We also expanded the partnership we initiated in April of 2018 with four science institutes to create new realistic training and education for law enforcement officers, which is backed by the science of human performance. As a reminder, all of these scenarios not only increased the quality of our training platform, which I discussed earlier, but uniquely VirTra’s curriculum is actually certified and counts towards the mandatory training law enforcement officers are required to receive annually. This combination of increasing compliance, as well as improving the quality of training is one of…

Thank you. [Operator Instructions] We will move first to Jaeson Schmidt at Lake Street.

Hi, guys. Thanks for being my questions. Bob, it sounds like you really haven't seen a significant impact from COVID-19, but just curious if you’ve seen the sales cycle get elongated at all because of this issue or just the macro headlines in general?

As of today, we have not seen sales cycle lengthening, but it would be important to point out that our sales cycle range from sometimes a couple hours, which is the rare event where agencies need to spend it or lose it at the end of a fiscal cycle or it can be one to two years sales cycle. In this environment, I think it actually insulates VirTra a bit, because our sales cycles are longer, many times everything has been set up to get a purchase done or get a subscription done, and once all that’s setup, many times they don't want to derail that the machinery is in motion. So, I think that’s one reason that we have not seen a knee-jerk reaction by someone calling us up and saying, you know what we are going to need to cancel an order. I think that’s maybe rather specific to business to government companies like VirTra.

Okay. That’s helpful. And it sounds like the STEP program traction has been progressing nicely, just curious if you could quantify the number of customers signed up for that or just what percent of the engagements you’re currently seeing look to the STEP program instead of an outright purchase?

We aren’t giving that information. We do have an item in our financials that shows depreciation of the STEP hardware, so I would refer you to that to kind of get in some idea of the activity there, but we're not breaking that out right now.

Understood. And the last one and I will pass it. How are you guys thinking about OpEx and investment in the current macro environment?

I'm sorry, could you repeat that?

How are you guys thinking about operating expenses and investments in the current macro environment?

So, we are approaching the future cautiously, however, with our strong pipeline we’re seeing currently no cancellations. We are currently proceeding with maintaining our staff, making sure that our infrastructures are intact and continuing to do investments where opportunities present themselves. I believe the simulation training market is ripe with a lot of opportunity, particularly for an industry leader like VirTra, and so we are not slowing down and investing in that, but we are being prudent overall with how we approach investments and operating expenses.

Okay. Thanks a lot guys.

Thank you.

With no other questions holding, I would like to turn the call back over to Mr. Ferris for his closing remarks.

Thank you. It is my sincere hope that our extraordinary employees, customers, shareholders, and partners all remain healthy and safe during the great challenges we all face. Please note that VirTra’s staff is as committed as ever to advance our business, create the world's best simulators, and support our customers who are often those running towards danger to protect our very lives. We look forward to updating you on our next call. Thank you and God bless.

Thank you for joining us today for VirTra’s fourth quarter and full year 2019 conference call. You may now disconnect.