Good afternoon, and welcome to VirTra’s First Quarter 2025 Earnings Conference Call. My name is Maria, 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, Maria, and thank you everyone for joining us this afternoon. After the markets closed today, we issued a press release that provided our financial results for the first quarter ending March 31st of 2025, along with the highlighted business accomplishments. We began the year with a continued focus on operational execution and saw encouraging signs across several areas. While the quarter was not without its challenges, we posted a return to GAAP profitability, strong gross margins, and continued progress in both sales efficiencies and operational scalability. In today's environment where many customers are still facing delayed budget approvals and grant allocations, I view this as a positive step forward. The broader operating environment, including economic uncertainty, shifting agency priorities and tightening government budget demands proactive focus and adaptability. At VirTra, we view these challenges as opportunities to sharpen our value proposition and reinforce our role as a trusted training partner. By aligning our offerings and high priority agency needs, anticipating procurement cycles and maintaining fiscal discipline, we continue to strengthen our market position, while delivering mission critical solutions that meet the evolving demands of law enforcement, military, and federal agencies. While it was a productive Q1, we remained fully aware of the macro headwinds shaping our customers' decisions. The reality is that, many government agencies are still navigating uncertainty around appropriations and budget cuts. Sales cycles are taking longer. In some cases, funding is being held back entirely, while internal reviews or leadership transitions play out. That said, training mandates are not going away. If anything, they are becoming more urgent. Agencies still need to demonstrate readiness, meet annual certification standards, and manage escalating risks within their communities. What's changing is, how they plan for that training. We're seeing more interest in flexible purchasing pathways, including subscription-based models…

Thank you, John, and good afternoon, everyone. Now let's review our unaudited financial results for the first quarter, ended March 31, 2025. Our total revenue for the first quarter was $7.2 million compared to $7.3 million in the prior year period. This 3% decrease was primarily due to delayed deliveries on several customer orders booked in late Q4 2024, which pushed revenue recognition into future quarters. If we break this down by market, we've got, government revenue for the first quarter was $5.2 million compared to $6.7 million in the prior year period and international revenue for the quarter was $1.9 million compared to $550,000 in the prior year period. Our gross profit for the first quarter improved to $5.2 million, or 73% of total revenue, compared to $4.7 million, or 64% in the prior year period. The increase in gross margin reflects a 25% decrease in cost of sales, driven by greater operational efficiencies. Our net operating expense for the quarter was $3.8 million, a 6% decrease from $4.1 million in the first quarter of 2024. This decrease reflects our drive to maintain or lower overhead costs as we mitigate challenges associated with potential government pauses on contracts. We are optimizing internal resources, while preserving investment in key growth initiatives. Our operating income for the quarter increased 110% to $1.4 million compared to $650,000 in the prior year period. Net income for the quarter was $1.3 million or $0.11 per diluted share based on 11.3 million weighted average diluted shares outstanding. This represents 170% increase from $470,000 or $0.04 per diluted share based on 11 million diluted shares outstanding in Q1 of 2024. Our adjusted EBITDA increased 22% to $1.7 million compared to $1.4 million in the prior year period, reflecting improved operating leverage and gross margin strength. As…

Thank you, Alanna. We know the path forward requires both heightened focus and flexibility. Our customers continue to navigate uncertainty, but they're still training, still evaluating, and still planning for the future. We are staying ready to deliver when funding is released to adapt as priorities evolve and to continue building trust throughout the execution. The progress we've made in sales, product development, and operations reflects that mindset, and we believe it puts us in a stronger position with each passing quarter. We'll keep listening, adjusting, and moving deliberately. That concludes my prepared remarks. Operator?

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Our first question comes from Jaeson Schmidt with Lake Street Capital Markets. Please proceed with your question.

Hey guys, congrats on strong results in a challenging environment. Just want to start with some of those macro dynamics. Do you think that contributed to any orders being pulled into Q1?

Not really sure if the macros did that. I think there were monies that were in budgets that they were trying to spend before it got swept or totally shut down. I think that there were some grants that -- grant monies that were awarded and then there was one set of grants that they actually distributed funding even during the shutdown or the hold back or no delivery of the funding. So I'm not quite sure. Each agency is different. That's why it's hard to answer. And there's just so much dynamics. Some of the agencies have their leadership in place and others are dealing with an assistant to the assistant to the assistant, so some are kind of shy of putting stuff out, approving budgets, or approving any of the funding releases or purchases.

Okay. That makes sense. And then looking at the V-XR, I know the healthcare market was a vertical that this made a lot of sense in, but are you seeing demand from other end market verticals? And I guess relatedly, is some of this demand being driven by any grant activity?

Yes. Two separate questions, but good ones. So, grant activity under de-escalation and training curriculum absolutely are driving the V-XR for us. Secondly is some of the adjacent markets, healthcare and -- it depends on what the -- what training objective that police, even fire and even the military will be using the headset for. So we're seeing interest in a lot of areas. Some of them are asking for things that the technology just doesn't do yet, but we're making note of that as the technology catches up, we'll be able to adapt quickly to those needs. So we're keeping that backlog and those leads as part of our development cycle and requirements. But I think there's other markets that are opening up, private security and others that a headset just makes much more sense.

Okay. That's good to hear. And just the last one from me and I'll jump back into queue. On the staff program and sort of these three-year agreements. Just want to clarify, are you forcing all customers over to these three-year agreements or is it now just an option?

Well, we're kind of forcing them into a three-year to move the purchase cycle forward with all the technologies and the advances that are being made both in hardware and software and the advent of AI. Some of the things that we'll produce, not just us, but others in any industry are finding that any equipment that's older than three years has a problem running and maintaining a level of performance that's acceptable. So two things, main reason. Move our sales cycle in from five years to three and see where they go. We do give them an option, it's more of a sales tactic that year four and five can be purchased if they're running -- if they're having problems with their funding or it's taking longer than it was taking before. We just have a lot of new technology that we want to get out there in their hands and keeping the system five years just -- it's moving faster about 18 months where it used to be three years. So we're just trying to get ahead of the technology curve and then bring the customers along and its financial reasons for both bookings and opportunities. So it's combination.

Can I add to that as well? I would add, Jaeson, that the reason we changed our terms to that three year was not giving them an easy out. Like they had a little bit too much of an easy out in my opinion for the original ones. And it was -- we were potential revenue, potential future revenue as opposed to now where I feel we're way more confident in what those terms say that it's guaranteed for three years.

Okay. That's really helpful. Thanks a lot, guys.

Thanks, Jason.

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

Thank you. As we wrap up our Q1 2025 call, I want to take a moment to reflect on the incredible progress we've made and the promising journey ahead. Thanks for all your unwavering support and dedication. We've achieved remarkable milestones that position us strongly for the future. Our commitment to innovation and excellence continues to drive our success and the strategies we've implemented are beginning to bear fruit. With a talented team and a clear vision, we are confident that the best is yet to come. As we look forward, the opportunities ahead are vast, and I truly believe that together we will navigate the challenges and celebrate future successes. Thank you for your trust and partnership. The future looks bright and I'm excited in what lies ahead. God bless you all and let's continue to make great strides together.

Thank you for joining us today for VirTra's first quarter 2025 conference call. You may now disconnect.