VirTra, Inc. (VTSI) Q4 2025 Earnings Report, Transcript and Summary

Good afternoon, and welcome to VirTra, Inc.'s Fourth Quarter and Full Year 2025 Earnings Conference 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, Inc.'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 be made available for replay via a link in the Investor Relations section on the company's website at www.virtra.com. I will now turn the call over to VirTra, Inc.'s CEO, John Givens. 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 the full year ending December 31, 2025, along with an update of our business and operating environment. 2025 was defined by an extended and highly atypical disruption in federal funding. These delays affected the timing of awards, procurement activities, and ultimately, system deliveries across our core markets. As a result, our reported revenue does not fully reflect the level of underlying demand or activity across the business. What I want to do this afternoon is walk you through what drove the disconnect, what we are seeing change in the funding environment, and how we are positioned as these conditions begin to normalize. Let me start with the funding environment because that has been the primary driver for our results. The federal funding freeze that began in 2024 was unlike anything that we have seen. Budget approvals that were expected to flow in fiscal year 2025 were held, and agencies were limited in their ability to move forward with procurement. That dynamic persisted through the fourth quarter. What has changed more recently, in the last several days, is that we are now seeing those programs begin to reopen. Specifically, just in the past week, the Justice Assistance Grant, or JAG, and the COPS Fund have both reopened for applications. Importantly, this includes fiscal year 2025 funding that was approved in the federal budget back in October 2024 and has been frozen since. It is only now being made available, but that gives you an indication of the extent of the delays we have been operating through. Behind that, additional funding cycles are progressing, as fiscal year 2026 and expected fiscal year 2027 allocations are moving through the system at the exact same time. As a result, we are seeing a meaningful increase in customer engagement and applications across our base. We are actively working alongside those customers as they move through the grant application and approval process. As we have noted before, this remains a multistep process: customers must apply, awards must be determined, and purchase orders must be issued, and then the systems must be delivered and accepted. We are staying closely engaged throughout the process to help conversions wherever we can. Based on what we are seeing today, that process is likely to play out over the coming quarters rather than all at once. So while the environment is clearly improving, the timing of revenue conversions will continue to be driven by those external funding timelines. One point I want to be clear on is that demand has remained strong throughout the period. We closed 2025 with $25,600,000 in backlog and generated $26,700,000 in bookings during the year. In many cases, orders have already been placed, but customers are not yet in a position to take delivery, either due to funding timing or readiness on their end, with buildings and space. We are also seeing this dynamic internationally, where contracts are in place across markets in EMEA and Latin America, but deliveries are tied to customer-side funding or operational readiness to accept. So the core dynamic we have been operating in is not a lack of demand, but the delay in conversion. We are ready for that conversion. We have used this period to align our operations, inventory, and production capacity so that we can fulfill orders quickly as they come through. Our inventory levels are where they need to be. Our production processes are optimized, and our team is positioned to execute. As funding is secured and purchase orders are issued, we expect to be able to move quickly from order to delivery. At the same time, we have made targeted investments in our sales organization in recent quarters. We are adding a second dedicated federal sales resource to increase coverage in that channel, which has a longer and more relationship-driven sales cycle. This allows the rest of our team to stay focused on law enforcement, where we already are seeing reengagement as the grant programs open. We have also recently added an experienced director of marketing with deep simulation and defense industry roots. Marketing cadence has increased meaningfully at the start of 2026, building on the website redesign we completed last fall. We are seeing early signs of improved engagement, including higher volumes of inbound activity and demo requests, increased time spent on our website, and more qualified leads. We are also planning to expand our presence at key industry events to further strengthen visibility and pipeline development in 2026. Additionally, we continue to progress through the GSA reentry process, which we believe should be completed by Q3 and will shorten the path for agencies from interest to order once completed. We are continuing to engage with federal training stakeholders, including agencies within DHS, where we believe our solutions align well with evolving use cases around immersive judgment, de-escalation, and scenario-based readiness training. On the product side, our focus has been on increasing the value of our platform and delivering the best possible training outcomes in the industry. I want to highlight several developments that I believe are meaningful for our competitive position and long-term growth. First, our Apex Analytics platform is now integrated across our system, enabling customers to capture and analyze performance data in real time and generate actionable insight around accuracy, reaction time, and decision-making. Apex is a meaningful step forward from traditional training environments and has already been a strong differentiator in recent customer wins. Apex also created the opportunity for ongoing engagement through customization and servicing, which could support a meaningful additional revenue model over time. We have also continued to advance our integration with VBS4, allowing for more flexibility and customized training environments tailored to specific customer requirements. We have demonstrated these capabilities with multiple U.S. military groups in real-world training settings where feedback has been encouraging and highlights the relevance of our platform in a more advanced training use case. Over time, this integration should further expand our role within the military training ecosystem and support additional services and development opportunities. In addition, we have introduced a drone defense training solution recently, which is designed for corrections professionals, helping agencies prepare for the growing threat of unauthorized drones in secure environments. This represents an expansion of our addressable market into a new and evolving use case, where we are beginning to see early interest and engagement. Adoption of the VXR platform continues to grow as well, with multiple systems sold in recent months and additional demand building in the pipeline. Across our product initiatives, the common theme is improving the value of our platform and deepening integration into agencies' training workflow. Our military pipeline continues to develop with active programs and evaluations underway across the Army, Navy, and Marine Corps. We currently have multiple opportunities in process, including demonstrations of our capability in real-world training environments. These opportunities are supported by our enhanced reporting, analytics, and customizable training environments. And in this period of lower revenue conversions, we have been focused on ensuring our solutions remain aligned with evolving military programs and requirements. To summarize, 2025 was a challenging year driven by external funding disruptions that impacted timing. We are now seeing clear signs that funding is moving again with multiple cycles making progress. We have maintained strong customer engagement, built backlog, strengthened our commercial organization, and prepared our operations to execute. As those funding cycles translate into awards and purchase orders, our focus is on converting that activity into revenue in a disciplined but efficient way. I will now turn the call over to Alanna for the detailed financial review. Alanna?

Thank you, John, and good afternoon, everyone. Now let us review our audited financial results for the fourth quarter and full year ended December 31, 2025. Our total revenue for the fourth quarter was $2,900,000 compared to $4,700,000 in the prior year period. The decrease was driven by those continued delays in government funding, the timing of customer procurement cycles, and deferred deliveries across both domestic and international customers. For the full year, our total revenue was $22,400,000 compared to $26,400,000 in 2024. The decline was primarily due to extended funding delays throughout the year. Breaking our full revenue down by market, our government revenue for the year was $17,800,000 compared to $22,900,000 in 2024. International revenue for the year was $4,200,000 compared to $3,100,000 in 2024, and commercial revenue was approximately $400,000, consistent year over year. Our gross profit for the fourth quarter was $1,700,000, or 58% of total revenue, compared to $2,900,000, or 62%, in the prior year period. The decline was primarily due to that lower revenue volume. For the full year, gross profit totaled $152,000,000, or 68% of revenue, compared to $19,400,000, or 74%, in 2024. Our net operating expense for the fourth quarter was $3,300,000, a 23% decrease from $4,200,000 in the prior year period. For the full year, net operating expense was $14,800,000 compared to $17,400,000 in 2024, representing a 15% reduction as we actively managed costs while continuing to invest in key areas of the business to help reaccelerate our growth. Operating loss for the fourth quarter was $1,600,000 compared to $1,300,000 in the prior year period, and for the full year, operating income was $400,000 compared to $2,000,000 in 2024. Net loss for the fourth quarter was $1,000,000, or $0.09 per diluted share, consistent with the prior year period, and for the full year, net income was $3,000,000, or $0.02 per diluted share, compared to $1,400,000, or $0.12 per diluted share, in 2024. Our adjusted EBITDA for the full year was $1,600,000 compared to $2,900,000 in the prior year period. As we turn to the balance sheet, we ended the year with $18,600,000 in cash, and $30,800,000 in working capital. This provides flexibility to navigate the current timing dynamics in the business. VirTra, Inc. defines our bookings as the total of newly signed contracts, awarded RFPs, and purchase orders received in a given period, and our bookings for the fourth quarter totaled $7,300,000, contributing to the full year bookings of $26,700,000. VirTra, Inc. defines our backlog as the accumulation of bookings from signed contracts and purchase orders that are not yet started or incomplete in their performance obligations and, therefore, cannot be recognized as revenue until delivery in a future period. We segment that backlog into three primary categories: Capital, which includes our simulators, accessories, installation, training, custom content, and design work; Service, which is primarily extended warranty and support contracts; and STEP, which is our long-term subscription-based program. Our backlog at December 31, 2025 stood at $25,600,000. That included $13,800,000 in Capital, $5,100,000 in Service, and $6,700,000 in STEP contracts. That concludes my prepared remarks, and I will turn the call back over to John for his closing comments. John?

Thank you, Alanna. At the start of 2026, we are beginning to see the macro conditions shift, with funding moving back into the system and customers actively increasing activity. We have used this period to strengthen our sales and marketing execution and enhance our product capabilities. With a robust backlog, continued support engagement, and the operational infrastructure and processes in place to scale, our focus is on converting that activity into revenue in a disciplined and efficient manner. That concludes my prepared remarks. Operator? Thank you.

At this time, we will conduct the question-and-answer session. If you would like to ask a question at this time, please press 1 on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. We will pause for a moment while we poll for questions. Your first question comes from Jaeson Schmidt with Lake Street Capital Markets. Please state your question.

Hey, guys. Thanks for taking my questions. John, just hoping you can expand a little bit about your commentary on the expansion of engagements with the military market. Just curious if that is expanding into different programs. Is it additional systems being trialed? Or how should we think about that?

Yes, all of those are accurate. We have multiple engagements across Army—several—and Navy and the Marine Corps. We have engaged with them to find out exactly what they are looking for on the systems. My commentary previously about how we are focusing on the systems and making them military-ready—it hardens them for LE as well—but there is a different dynamic in which the military requires a very dynamic, adaptive way that they think and learn on a system. So that is where VBS came into play. The programs that are out there—there is no secret—are out there as the SVT, the virtual trainer. There are several others that are out there as well, and some of the ones that we currently have with ADMIRE and with Special Operations. We also have Navy contracts coming up, and our engagements at I/ITSEC, the large show in Orlando, were quite a hit. We have one box called our V-100 Next Generation, which puts everything in one box. It is portable, and it is a hit. They are looking to replace some aging systems and ones that have lack of technology and are not nearly as mobile out there in the field. We have really honed our training and also our system to meet those needs, and they are all benefiting. So there are programs out there that you can look up that I have mentioned on these calls before. We also have several other military groups that are taking our systems, and they are doing evaluations with their staff, like gunnery sergeants and those sorts of things, and looking at it as a replacement. So the activity is quite robust right now. Much longer sales cycles, but we have been at it for a bit, so we are looking forward to those coming to fruition.

Okay. Great. That is good to hear. And then understanding that the funding environment remains challenging, just curious what you are seeing from a quoting activity standpoint so far this year and overall sales touch points even against this more challenging backdrop.

As I stated, demand has remained high, and I would say it is even higher. Our focus has been that a lot of these agencies had relied on multiple different grants that came from multiple places. As I stated, it has been unfortunate because none of the money that was allocated in these grants for fiscal year 2025, which was awarded in October 2024, and then subsequently 2026's in October 2025, have just been released. We already expect that. I have been on Capitol Hill, and we have been going through why it is important, and we have been in front of legislators and said they need to release the money. We do expect a pretty regimented release of funding. The only caveat to that that I would say is the quoting has increased. We have the quotes out there, and they are just sitting. Unfortunately, it is up to the agencies, because we cannot legally submit these grants. We help them in any way that we can and stay side by side with them. We have people in-house that are giving them the information that they need about the system and helping where we can. They still have to submit it, and then they still have to be down-selected. There still is a process, but we have not even had that process moving the last two years, so that is a great sign. As far as other activity, we are also starting to see, on the same time frame, our international market starting to see those monies flow as well. The only monies that are not flowing are DHS. As you know, we have DHS with Customs and Border Patrol as our customer, and we have Secret Service as our customer, and we have Coast Guard. As we talk about their upcoming upgrades and purchasing new systems, all that has come to a grinding halt. That is the only one that we are down that path, and it just came to a halt. There are other agencies as well that are also engaged with us wanting systems. The orders, the interest, the demand—it is all there. It is going to free up the funding. We are doing everything we can to help move that forward.

Got it. That is really helpful. I will jump back into the queue. Thank you.

Thank you, Jaeson. Great questions.

Thank you. To ask a question, press 1 on your phone. To withdraw your question, press 2 on your phone. The next question comes from Richard Baldry with ROTH Capital Partners. Please state your question.

Sort of following on that and building on what you talked about during the call, could you look in more detail at the process it will take to get the money to move? While it has been held, have people been building grant documentation so that it could move across the table very quickly? Did they, for some reason, not start that so that process still has to fully take place? Are there any timelines around, from submission to approvals—things that you have seen in the past under normal circumstances—to give us a feel for how slowly or quickly it could take to start to see some of these things move?

That is the crystal ball. The problem is there really has not been any consistency. We will get a consistency of April—several of these grants are due. Two and a half months, almost three months ago, we created what we call a grant stage in our CRM in Salesforce. All the sales folks have been working with them on a regular basis in constant contact. They already have quotes. They already like the system. They want the system. They have the training need. They just do not have the funds. As soon as we knew that there was something coming out, all the sales folks started that process. That process is demographics or geographics or certain types of training—there are specifications. We have grouped each of those and helped them identify which grant they would most likely be a good candidate for, with a higher success rate. We have done that. That grant stage consists of a number of police departments across the country. Then there are things like, what does the system do? We have a lot of that information that is just block information that we can give them. Then they have to fill out an application, and they have other items and things that they have to do that we have no visibility on. Once that is complete, then they submit it by the timeline. Once it goes there, unfortunately, Rich, I cannot tell you what the timeline is. We have seen it three months, we have seen it a year, and we have seen it eighteen months. It does vary, and it also varies based on the number of submissions they get and the level of staffing that they have of the administrators of those particular grants. Not all grants are created equal because they are coming out of different departments, but sometimes for the same thing. Then there is a level of priority for what they are looking for. If it is immigration and those sorts of things—if they have scenarios and things that they need to in their certain geographic area—they may have a priority or a precedence. It is uncertain who the source selection committee is and how they determine that. The best thing I can tell you is at least we have a deadline right now of submission. We have our team working directly with all those customers that have had active quotes for a while, and we are working them through and helping them—telling them what they have to do and reading all the documentation and walking them through as much as we can. Then it is up to them. After that, when it is all collected, they have a source selection committee that reviews all of them, and I do not always know how they choose the different groups. Then what we do is we collect all that data and start normalizing it. If anybody else is in the queue and someone with a certain geographic or demographic or size agency or training-specific need, we look for folks in our grant stage and start pushing them towards those grants. We do have a methodology that we are using with as much as we can, but there are a lot of variables. That is a great question. I wish I knew all the answers, Rich.

If I looked at your backlog, if I put the Services and STEP together, is it fair to view that as those two combined and then divide by four or whatever? Is that an annual sort of baseline, or can even the Service and STEP be multiyear, so we cannot really think of it that way?

Your latter. You cannot really think about it that way. I am going to let Alanna do some commentary. Backlog, as you said, has three components, and you can have Services and warranty. On a capital system, you also have the maintenance and warranty, so it could be multiple years as well. We may have a larger concentration in year two and three, or one and two. One might be coming off, another one going on. It is very hard to break that down to say, look, you have $25,000,000 in backlog. Clearly, not all of it—even if we were incredibly efficient and everything cleared up—you are not going to get $25,000,000. I think the capital was—what did you say—$12,000,000? So it is hard to say that. Alanna, did you want to make commentary on that?

I was just going to say the problem is the bookings and backlog, especially for the STEP. We have STEP contracts that we have signed this year that are three years long. Then we have STEPs that we signed the year before that are five years long. Some of those were not guaranteed, so those are in our future STEP revenue as opposed to what we just talked about on the call. If you look in the K, we think that on top of that backlog, we have an additional $2,500,000 that has not been resigned or committed to that can also be part of that, but that is another year or two. STEP can be anywhere from one year from now to all the way up to four years from now for revenue conversion. The same goes for the warranty service plan. Some people sign one-year agreements. Some people sign three-year agreements. Occasionally, somebody will allow a five-year agreement. It is not quite as easy as just divide by four because there is a mix in those numbers. The Capital extends out a little as well because some of that Capital is for what we talked about—our international customers or development work that is not going to convert until later in 2026 through early 2027, depending on when they can accept those items.

I think, Rich—and Alanna, you can correct me—but if you did want to do a quick number and you want to be on the conservative side, taking the STEP and dividing it by four would give you a very conservative number.

We were sort of backing into the fourth quarter numbers using your full year. I do not know if I heard this or not. Can you tell me what the fourth quarter adjusted EBITDA number was as a stand-alone?

Yes, I—

I do not have that reported in the K or the prepared remarks. Give me a minute to get that for you. Feel free to move on if you want to another question for John.

The last for me would be, are there any upcoming important milestones on the military side that we would see on our side of the table, or is it in a status where we are going to have to wait until something larger is announced by one of the other contractors, maybe?

It is a mix of both. There are larger contracts where we are a smaller component, where we are partnering with others to go after. Then there are larger contracts that are coming out that are more specific to us, where we will be the prime contractor on the bids. You can see quite a few of them—different branches of the service have several that are out there. One thing that we do see—I will mention this—is because of what happened with those, the military—at least the Army—has done, in their acquisition corps, a massive restructuring and taken one entity down and created a new one, and moved them around on who is responsible. There is speculation that some of these marksmanship training simulators and some of these programs may be combined—may be a much larger one. We are well-positioned for those, but the large ones may require that we actually take on a sub that may have staffing and those sorts of things because it is across the world, not just the U.S.

Maybe one more last one for me. A big topic across any of my software-driven companies is AI these days. Can you talk about to what extent you think AI is a threat, to what extent you think it is perhaps able to be monetized in incremental offerings, and to what extent you could use it internally to streamline processes and make things more efficient? Thanks.

That is a fantastic question, Rich, and I do not see it as a threat. I see it as an igniter. We will be able to do a lot more with less. What is happening in the AI world right now is they are coming out with AI skill sets and AI models, and we are taking advantage of the models and skill sets. A skill set might be programming facial recognition in a gaming environment with textured characters. We are taking advantage of those. One example: we do video shoots—they are like Hollywood movies—to be able to get our scenarios. That is why they are so good. The team took one of these AI models and they took all of the scenes and scenarios that they had recorded, and then they had this AI model, and they actually made an opening trailer for the scene with assets that they could not record on. It was quite amazing. Even the team was amazed. They have been at this, some of them, for thirty years in this industry. We are also using it, as far as comparative analysis as you start writing software and code—what it was kind of made for. As you find bugs and you find things inside your software, doing a comparative analysis sometimes took a long time to thread through millions of lines of code. The AI model with this programming skill set would be able to identify a potential area of this code. You still need that very strong skill set to identify, but it narrowed it down. We were able to fix a few things and identify performance-related issues in a matter of days rather than a matter of months or maybe even through two or three different releases of software. That is significant. The other one that is really coming around is the AI tutor. If you go to a weapons range and you shoot at a target, and you shoot a grouping of five shots in one area, but you have one or two that are out on the side, unless an instructor is there watching you, they would normally say, you did not breathe right, you pulled the trigger, you blinked your eyes, whatever that is. Now what we are able to do is take standard operating procedures, instructors' notes, cognitive performance studies—whatever it is—throw it into that AI model, and then once the shot is taken, we can have AI look at all the information that we put into that model, analyze the results, and give suggestions of what may have happened. So there is that AI tutor as well. It is not a replacement, but at least it gets you there, because what our systems have always done is present a target just like you are on the range. It shows you your results of what you have done, but then there is no one there to give an analysis. This section of AI that we are using now is able to do the analysis as well. There are a multitude of other areas that we are taking AI and looking at in performance enhancement. Monetizing is a different story in our case. We are looking at ways to monetize AI in that regard. That is a little tougher question and a harder look. What we are seeing is our bottom line showing cost savings across the board because of our implementation of these AI models and skill sets.

Got it. Thanks. Alanna, did you get that number?

It is negative $0.9 million.

Thank you.

Ladies and gentlemen, at this time, this concludes our question-and-answer session. Thank you for joining us today for VirTra, Inc.'s Fourth Quarter and Full Year 2025 Conference Call. You may now disconnect.