Good afternoon, and welcome to VirTra’s Fourth Quarter and Full Year 2024 Earnings Call. My name is Diego, and I will be your operator for today’s call. Joining us for today’s presentation are the company’s CEO, John Givens; and CFO, Alanna Boudreau. Following their remarks, we will open the call for questions. 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’d like to remind everyone that this call will be made available for replay via a link in the Investor Relations section on the company’s website at www.virtra.com. Now I’d like to turn the call over to VirTra’s CEO, Mr. John Givens. Thank you, and you may proceed, sir.

Thank you, Diego, and thank you, everyone, for joining us this afternoon. After the market closed today, we issued a press release that provided our financial results for the fourth quarter and full year ended December 31, 2024, along with highlighted business accomplishments. VirTra provides immersive training solutions for law enforcement and military agencies, helping personnel develop critical decision-making skills in high-pressure situations. Our technology advances officer safety, response times and mission readiness, making our solution an essential part of effective modern training programs. 2024 was a challenging year due to persistent funding delays at the federal level. After starting 2024 under a continuing resolution, which limited new contract awards, we focused on adapting to these constraints while positioning VirTra for long-term growth. Despite the challenges, we still made meaningful progress. We delivered sequential bookings growth in every quarter, expanded our backlog and deepened our engagement with government and military customers. In contrast to our strong performance in 2023, which was driven by clearing a substantial backlog, this past year required us to be more flexible and proactive in navigating a constrained funding environment. Throughout the year, we strengthened our sales pipeline, secured international contracts and maintained a strong financial position to support long-term growth. Importantly, we closed the year with a $22 million backlog. So while the funding environments remain somewhat fluid and unpredictable, we are well positioned for revenue conversion as market conditions stabilize. Our sales pipeline continues to grow, supported by our ability to help law enforcement agencies navigate the grant process and secure funding. While federal grant disbursement delays have impacted near-term order conversion timing, these funds remain available, and we are actively working to ensure that our agencies can access them. In the past several months, I have personally met with over 25 policymakers, Department…

Thank you, John, and good afternoon, everyone. Let’s now review our audited financial results for the fourth quarter and full year ended December 31, 2024. Our total revenue for fourth quarter was $5.4 million, compared to $10.9 million in the prior year period. This decrease reflects the impact of federal budget delays and grant distribution pauses, which slowed contract execution and order conversion. Despite these challenges, bookings for the fourth quarter grew to $12.2 million, a 37% sequential increase from Q3 2024. However, many of these orders came late in the quarter, limiting our ability to fulfill and recognize revenue within this period. As a reminder, bookings are defined as the total of newly signed contracts and purchase orders received in a defined period. Our bookings for the full year 2024 total $29.6 million. While total bookings declined year-over-year by $4.2 million, it is important to note that excluding our 2023 design and prototype contracts, bookings for all federal services and STEP contracts actually increased 24% or $5.8 million. For the full year 2024 revenue was $26.4 million, compared to $38.8 million in 2023. This reflects the stocking book – softened booking environment early in the year, largely due to the federal government’s continuing resolution, which delayed funding decisions and contract approvals. However, our ability to consistently grow bookings each quarter demonstrates a strong recovery in demand and sales execution. Additionally, we did have to record a $750,000 revenue adjustment related to prior international sale from 2021, which reduced reported 2024 revenue and increased our 2023 revenue. Breaking revenue down by market, our government revenue for the year ended 2024 was $22.9 million, compared to $31 million in the prior year period, reflecting the funding environment’s impact on law enforcement agency purchases. International revenue for the year was $3.1 million,…

Thank you, Alanna. As we move through 2025, we remain focused on executing our strategy strengthening our customer relationships and improving our sales and operational efficiencies. We built a strong foundation with a return to consistent bookings growth and expanding backlog and deeper engagement with the federal and military agencies. While the funding environment remains unpredictable in the near-term, the long-term need for advanced training solutions continues to grow, and we are well positioned to support our customers as they secure funding. Our focus remains on converting backlog into revenue, scaling our content library and ensuring VirTra remains the industry leader in immersive training. I look forward to updating you on our first quarter progress in a few short weeks. Operator, we can now open the call for some questions.

Thank you. And at this time, we will conduct our question-and-answer session. [Operator Instructions] And our first question will come from Jaeson Schmidt with Lake Street Capital Markets. Please state your question.

Hey guys, thanks for taking my questions. Obviously, the current funding environment is pretty challenging out there. John, just given your history and background, curious about how long you think sort of this softness is going to last?

Yes. No crystal ball here. But we’ve been through these cycles before. And my read on it is that right now, first, you had an election, right? So there was some uncertainty. Part of our bookings at the end of the year where people knew that the new administration was coming in, so they wanted to get everything out as quick as they can, because they didn’t know if they would lose the funding. So we got a nice bump from that. But what ended up happening now is that they frozen all distribution of funding through grants and other federal programs. And I think once they get through all of the – their review of all the agencies, not only do I think that we’ll return back to where we were prior in the funding environment, but I think it will be even more succinct for VirTra and those that train law enforcement and the military. Because one of the things and the reason why I was advocating in D.C. is we were seeing these contracts – some of these grants, they had – they didn’t have good enough guardrails around them, meaning that the requirements were very slim. So anybody could go in and grab money as long as they had the word police on it or law enforcement. So I think now those dollars that were set aside for curriculum and training devices like what VirTra does, we’ll see more of those dollars being accounted for in the proper areas and distribute it appropriately. So I think that you’ll probably see another quarter or two of this wave of doing these assessments. And I would say maybe a couple more quarters, and then it will start to stabilize and then we’ll see significant growth and distribution of those funds.

Got you. That’s really helpful. And then what initiatives are you guys undertaking to sort of weather this uncertainty. I know you highlighted in the prepared remarks that you’ve met with a number of kind of policy leaders and government leaders and are gaining traction in D.C. Can you just expand and provide some additional color on sort of that traction you’re seeing?

Sure. So our sales team are out there knocking the doors and turning over every rock and trying to help everybody. We realized that so many of these departments are relied on federal funding or matching funding and so these are guys that are beat cops that are doing four different jobs and then they’re going to be the grant writers. And then when it finally gets up there, you’ve got these departments that are already short staff that are now evaluating plethora of grant. And so internally, what we’ve done is and I’ve spoken about this before, we’ve created a grant program where we’re – when we’re out with the customers and we find that they need this assistance, we try to guide them to the proper grant that would match their needs and to the people like PoliceOne that actually write grants for them. And then in the meantime, as we looked at the grants and the verbiage, we found that those grants, like I said on the previous question, is we saw that there wasn’t enough guardrails. So I met 27 legislators in the House and Senate over the course of the last month and went directly to the grant – the folks that actually administer these grants, trying to help them understand what we’re doing and then we have someone internal that went to a Senate subcommittee hearing and tried to give some color around what’s needed out there. So as the legislation in these grants are now created they’re created with the proper view and the proper information that will meet those needs of our customer base.

Got you. And then just the last one for me, and I’ll jump back into queue. Just want to kind of dig in a little bit more on the IVAS opportunity. And just to clarify the handoff from Microsoft to Anduril, you don’t expect that to have any impact. And I guess, more importantly, you think it’s a net positive for you guys?

Yes. A little education on this is all public information. But Microsoft has decided to disperse their Mixed Reality division and focus on AI and their Azure systems. And so what they’ve done is they call it the – it’s term novation, so they’ve novated the contract. And basically giving it to – we don’t know the deal, but they’ve given that contract to Anduril. Anduril is a long-time contract and the people that are there have dealt with government contracts for many years. Microsoft operated under what we would call a commercial electronics model. And that’s not the proper model when you’re managing government contracts. So we see the net positive in the things that we have dealt with on trying to manage the contract where Anduril will know how that all works. That’s net positive there. The other net positive is that knowing how the contracts work and the team that I have that have worked in that environment for a long time, they already know that our product is very stable. And as I mentioned, the government actually canceled their soldier assessments because the first four days of a three week testing phase, they found that our product was in their words, it was operating flawlessly. So now all we’re doing is reliability testing. So some of the employees that were at Microsoft are now working over at Anduril guiding, but the Anduril involvement is huge for us. The government knows them, the government trusts them and the government knows they’ll manage that. And then you also have Anduril and their lead have been in the VR market, a headset XR market as part of their genesis for creating that company. So it’s moving – we – I see it personally and the company as incredibly positive for us moving forward.

That’s really helpful. Thanks a lot.

No, problem. Thank you, Jason.

Your next question comes from Richard Baldry with ROTH Capital Partners. Please state your question.

Thanks. Just to make sure I’m clear on this. When somebody goes into bookings, does that mean it has a funding source? What I’m trying to figure out is if we look forward, how much of that $22 million in bookings should be recognized in 2025 or it could potentially still be contingent on budgets we're moving forward?

John, I can answer that.

Yes, please.

If we record it as a booking, it means we have the funding has been there. I won’t record or report to you guys anything in a booking that I think has a chance of losing funding. So all of that is – we expect majority of it to become revenue in 2025. There are some that it may go out to 2026 or 2027 because they're service contracts or step contracts, et cetera. But yes, if it’s a booking, it will be our revenue.

Got it. And could – you talked about bookings were up sequentially throughout the year. Can you remind us if there’s any seasonality we should be thinking about as you head into Q1? You’re pretty late in the quarter. Maybe could you talk about how bookings have trended so far in Q1, so we’ve got an idea of, again, how to model forward?

Alanna you want to – yes. Yes, I don’t want to give any forward statements, but the environment is pretty much it hasn’t stopped. We have the continuing resolution right at the beginning of the year, which was solved and we kind of went through that. Spending was held back from folks. It’s been the exact same environment as we started 2024 and ended 2024. So that’s why my statement of, I think we'll get back to normal in two quarters, it might extend into three, but that’s why we’re taking all these additional steps. Did that answer your question, Richard?

Yes, sort of. It’s – if we look – normal is a hard thing, right? Because we look back at last year, Q1 was fairly soft on bookings, the year before, it was higher than that. If there was any way to gauge because the bookings number in Q4 was pretty good. So I’m trying to figure out like what’s the normal environment, what we’ve seen in the last six months? Or do we smooth out the full 2024 year?

I would – yes, what is normal. That was a good question. So Q1 is always – it hasn’t been typical, as you stated. But Q1 was always a little soft. However, we did have quite a few bookings in Q4 that we couldn’t convert as we stated. So with our production capability and getting units out, our Q1 is a little – very hard to answer that, Richard, without giving you a forward statement. I would say that Q1, as you look at the course, averaging the last – probably the last six years, except for 2023.

Got it. And then just for modeling purposes, the $750,000 sort of moved from 2024 to 2023, I kind of understand, I think why that happened. But we don’t have a quarterly breakdown. What quarter does that revenue reverse from 2024? And I guess it goes into Q4 of 2023 from what I can see.

Yes, it’s – it would have reversed revenue that hit in Q1. So when you – when we file the Q for the rest of the year, the year-over-year will reflect that in Q1.

Got it. And then last for me would be V-XR is obviously pretty new, but you’ve had the first sale you said in Canada. Can you talk about what you’re starting to think about in terms of average revenues per unit or any range, low to high and sort of the market opportunity you see near term, long term for that. So we have an idea of what that could help drive incremental growth? Thanks.

Yes. What was – I’m sorry, I didn’t catch the first part of that question, Richard.

Yes. It’s to do with V-XR. So you had your first sale in Canada. So someone put up a price point hit it and that’s acceptable. So I was sort of wondering what you think about price points on that whether maybe that’s not a single point, but a range, a low to high? And what sort of the market opportunity unit volumes, you could see first year, second year? How do we think about what that can do for incremental growth?

Yes. Yes. So from a – when you talk about price points in that, the price point was set is number one, we didn’t have an offering in that range. So we are leaving money on the table for the smaller agencies. Competitively, if you look out there, they range anywhere from $35,000 to $100,000. So it was quite a range of what was offered. But with that and what a lot of the agencies want is they want weapons in there, and they want to be able to do the use of force on those systems. And so when they’ve been looking at headsets around and some of these – our competitors have actually gone out of business recently is because the technology isn’t there quite yet to introduce the weapons with – because it introduces negative training. So from looking at the sites because you’re not looking at the real one and you’re not with your partner, but there are some great opportunities there for the V-XR because we have the most certified training courses that are out there by IADLEST. So the first one was to get those out there and that’s what we’re seeing. And now there’s other ways that customers are starting to use it. There are other – the price point we feel is appropriate with the market. And then given that all of the certified training courses are also included with the headset as well. So when you combine the two, it’s quite a value and with the software, it’s just a rinse and repeat. So headsets would remain not just for us but for the industry. Microsoft getting out with the HoloLens and then the compression in that space becomes a challenge for those that are in the market to deliver training on the headsets because they do vary. And that’s the navigation that we’ve been working on recently. But we do see an adoption. I think it’s a matter of what is the headset good for? And what does it reduce my cost and how does it increase my readiness with the agencies. And so there’s a little more education that comes with it than expected, but we do see the outcome. I would say in the next two to four years or two to five years, I think that the platform with the screen-based platform, there’ll always be a need for that. But I think you’ll see a lot more of the revenue and a lot more of the purchases moving towards the headsets because you can reach deeper into the smaller police [ph] departments and budget conscious and budget-constrained agencies that are out there. And that’s basically our target market because that’s pretty much untapped.

And actually last for me. Will V-XR have a STEP capability as well? Or because of the price point, do you think that’s not necessary.

No, no, that’s funny. We kicked that around a long time. And the problem is those systems aren’t built – they’re not ruggedized or anything like that. So to do it in a STEP program, you’re spreading a very small amount of cost across the three areas. So most of our STEPs on our systems are above that price point at $50,000 or above. So this kind of gets that market. It was more about – the price point was more about hitting the lower markets, but also the agencies that don’t have a space. I forgot to mention that in the first part. So some don’t have the space to put one of our other simulators there. So no, there won’t be any STEP with it. I don’t think there’s an advantage there for us at all or the customer.

Thanks.

Thank you.

Thank you. At this time, this concludes our question-and-answer session. I’d now like to turn the call back over to Mr. Givens for his closing remarks.

As you’ve seen and heard, VirTra is dedicated to our customers and their life-saving mission remains as strong as ever. I’d like to thank our employees for their hard work and our shareholders for their continued support and confidence as we continue driving meaningful and impactful simulations to our communities around the world. Operator?

Thank you for joining us today for VirTra’s fourth quarter and full year 2024 conference call. You may now disconnect.