VirTra, Inc. (VTSI) Earnings Call Transcript

Greetings. Welcome to the VirTra Inc. 2024 Annual Meeting of Stockholders Call. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to your host, John Givens, Chairman and CEO of VirTra. John, please go ahead.

Good afternoon. Will the meeting please come to order. My name is John Givens, and I'm Chairman and CEO of VirTra. Welcome to the 2024 Annual Meeting of the Stockholders of VirTra and the first since 2019 live in our offices in Chandler, Arizona. This meeting is being held in person and also webcast live. The webcast will be posted on our website for a period of time after the meeting. The matters in which the stockholders at this meeting are voting are: elect 5 directors, ratify the appointment of Haynie & Company as the company's independent registered public accounting firm for the year ending December 31, 2024 and transact any other business that may properly come here in the meeting. I'd like to begin the meeting by introducing the current members of our company's Board of Directors. They are besides myself, we have Jeffrey Brown. Jeff? Gregg Johnson. Thank you, Gregg. Jim McDonnell, who is currently a director, has declined to be nominated for reelection to the Board and is not present today. I'd like to also introduce our Board nominees, Lieutenant General (Retired), Maria Gervais and Mike Ayers. We also have present Alanna Boudreau, our CFO. And I would also like to recognize today the founder of VirTra, Bob Ferris. Fay Matsukage, who serves as our outside corporate legal counsel, is attending remotely. Fay will serve as the Secretary of the meeting and record the proceedings. She has delivered the affidavit of Issuer Direct Corporation as the mailing of the Notice of the Meeting, which states that on September 6, 2024, notice of intent, availability of proxy material was mailed to all stockholders of record as of the close of business of October -- August 26, 2024, the record date for the meeting. This affidavit is available if any stockholder wishes to examine it and will be filed with the minutes of this meeting. I'll now discuss the procedures for transacting the business in this meeting. When an item of business on the agenda is before the meeting for consideration, we ask stockholders to limit their participation to 1 question and 1 follow-up per person to ensure everyone has an opportunity to engage. Questions and comments should be specific to the business item currently under discussion. If you wish to ask such a question or make such a statement, please raise your hand. And if you haven't submitted a card to Gregg in the back, he will collect those. And those comments should be related to the agenda items and business for this meeting. An opportunity to raise other questions and comments will be provided after voting on the proposals described in the proxy statement. For any questions that cannot be addressed during this meeting for individual matters or concerns, please feel free to contact our Investor Relations at vtsi@gateway-grp.com. And also, Alec Wilson from our Investor Relations is in the back of the room for those of you live if you want to meet with him about your personal question. I hereby appoint a representative of Issuer Direct and [ Jim Skalucas ] as Inspectors of Election for the meeting and any adjournment or postponement of the meeting. The inspectors have the stockholder list of the company as of the close of business on August 26, 2024, the record date for the meeting, which shows the stockholders and the respective number of shares entitled to vote at this meeting. This list is available if any stockholder wishes to examine it and will be filed with the minutes of this meeting. Issuer Direct, which has been tabulating proxies has advised us that a quorum is present at this meeting, so I declare the meeting duly and lawfully convened. The meeting is now open and ready for business. The first item of business is the election of 5 directors of the company. The proxy statement made available to you either listed the company's nominees for directors. The Board is nominating and Corporate Governance Committee headed by Gregg Johnson spent considerable amount of time and effort in making recommendations to the Board. The committee examined the need to have sufficient continuity of the Board level given all the significant changes that we've recently had. And given the significant leadership changes that have occurred, the committee also considered subject matter expertise, the Board composition, continuity planning and good governance. In light of all this, the committee made the following recommendations, which were accepted and approved by the Board: the retention and inclusion of Jeffrey Brown and Gregg Johnson in their current roles as independent directors so as to provide continuity of business. The retention and inclusion of John Givens in his current role and an inside director so as to provide a bridge between the Board and management. The inclusion of Lieutenant General (Retired) Marina Gervais (sic) [ Maria Gervais ] and Michael Ayers given their significant subject matter expertise in military training and law enforcement, respectively. In accordance with the bylaws of the company, stockholders are required to provide advanced notice of their intent to nominate candidates for directors and provide certain information as required by the SEC's proxy rules. While we received one self-nomination, we did not receive certain information as required by SEC's proxy rules. Therefore, I declare the nominations for directors closed. A motion to elect 5 directors as described in the proxy statement is now in order.

Mr. Chairman, my name is Gregg Johnson, and as a stockholder, I hereby move that each of the company's nominees be elected as directors to serve until the next annual meeting of stockholders or until their respective successors are elected and qualified.

Does anyone second the motion?

My name is Jeffrey Brown, and I'm a stockholder and I second.

Are there any questions or comments on this motion? If there are no discussions, I'd like to move on to the next item in the agenda, and then have the inspector of elections announce the votes that have been received on each matter after we have presented each agenda item. The next item of business is to ratify the appointment of Haynie & Company as the company's independent registered public accounting firm for the year ending December 31, 2024. The appointment of Haynie & Company is discussed in the proxy statement that was made available to you earlier. A motion to ratify the auditor appointment as described in the proxy statement is now in order.

This is Jeffrey Brown again, and I hereby move that the stockholders ratify the appointment of Haynie & Company as our independent registered public accounting firm for the current year.

Does anyone second the motion?

Mr. Chairman, Gregg Johnson, I second the motion.

Are there any questions or comments on this motion? Are there any other matters to be properly considered at this meeting? Since there's no further motion to be properly considered at this meeting, I will now call the vote on these items, the Inspector of Elections will report on there's results of the voting later in the meeting after tabulation has been completed. We'll now wait for the tabulation to occur. While we wait, I'd like to open the meeting to any questions that stockholders may have. If you have a question, relating to the company but not to matters already voted on in this meeting, you may raise them while the vote is being tabulated. Only matters that concern all stockholders should be raised at this time. Any matter of individual concern to the stockholder should be raised directly to our Investor Relations professional. Gregg, do you have first question?

Yes. The impact of the U.S. government continuing the resolution. What is the status of the contract and what's happening with respect to the continuing resolution?

Well, the continuing resolutions have been resolved in bits and pieces. So they pushed it further down the line. They have released funds, and we are seeing contracts, discussions with the individuals who are posting those request for proposals, and our current contracts have not had any interruptions whatsoever.

Mr. Chairman, we had some questions about some of the people that are up for election today. I prefer to leave those questions for after the meeting ends and when we have the tabulation complete.

Agreed.

So I will leave those for now. Another question about the continuing resolution, although somewhat changed. Can we get some context on whether there's any temporary headwinds in the context of a continuing resolution or any other headwinds?

See headwinds. So the continuing resolution definitely impacted many areas, not just military contract, but also federally funded grants. The headwinds that I can report today, and I'm glad to report is that several of the grants for the law enforcement have been opened, and we have been -- some of those folks have already been awarded contracts. So we're starting to see that flow. I don't know what the impact will be if those headwinds will be stalled if they don't come to another resolution. I'm not sure exactly what, I think, it's December time frame. But we don't expect any additional issues, but we have seen those headwinds coming open with grants. And then also our military contracts, we started seeing the release of RFPs and request for information for market research.

There's a question regarding potential revenue that may be associated with or coming as a result of your former association with Bohemia. Do you see that as being advantageous to VirTra?

Yes, I kind of get this question a lot. What's the relationship like between VirTra and Bohemia. Well, I started VirTra -- I mean, I started Bohemia. So I started that as a #1 employee. And the relationship there is I'm in contact with British Aerospace engineering and the new President and they want to do business with us. So we have a lot of systems, a lot of systems that are out there running VBS, Virtual Battle Space, which is their product and tying that together with our SIM and the multitude of small arms weapons training contracts that are out there that you can find. VBS now runs on VirTra's system, and we're partnering with them in 2 different regards. One, to have a closer integration and then two, just to do business development as well, so we can combine the 2 sales teams and go after additional work. And then some of the other products that we're working on, that relationship is -- I mean, I don't know how to answer that because we're really tied closely. I mean with me starting it, they still call me and ask questions and want advice and how do I sell and those sorts of things. So it's a partnership that will go on for quite some time.

We have some questions regarding the current cash balances of the company and questions regarding what the Board and company have considered to do with these cash reserves. Suggestions would include the buyback of shares, the payment of the dividend or are we aware of the immediate uses of funds.

Well, I could tell you, the cash balance in the bank is just to make sure that we function on a daily basis for a year. And as all of you know, VirTra didn't had a real problem with EPICOR. So there was no reporting. There was no historical data. So it was kind of hard when I came in to see what is the trajectory, what is our baseline and where can we go from there? So my initial thought was and it still stands today is make sure they have all salaries covered for a year and a good portion of the expenses. And then I like to use this statement is I'd like to keep my powder dry because there's competing technologies, there's other companies. There's things that we may want to bolt on and attach to the company, and I want to make sure that I have enough cash available. And also if we win larger production contracts, I have to make an investment in order -- in hardware and people to take that to the next level. So until -- up until this point, I now have a year worth of data, we can now start looking at long-term planning. In a real way, just not in a, hey, this is what we'd like to do, but in a real fashion to be able to get there.

And in fact, Mr. Chairman, we have spent some of the proceeds on some major key items [indiscernible]. Can you talk about those for a second?

Yes. We spent it on the -- as reported before, we spent $2.5 million on an upgrade for our machine shop, which those that are attending live will get to see and some of the parts. And what that's provided us for is I've identified -- I don't want to put 3 shifts of people on. I want to automate. So we've attached automation, and we're running systems through the night and over the weekends and still kicking out parts, and they're at high quality. We've invested in quality testing tools, and we've invested in talent and skill. Rather than -- we're growing a lot of that, but sometimes it's necessary to buy that skill and that talent to leapfrog your competition.

There's a generic question about shareholder value. And this particular shareholder expressed concern that perhaps the company is underperforming. Do you have any thoughts about performance?

Yes, no one should ever be thinking that they're overperforming. So I come from a position that we can always do better, and we can always drive further. What I will tell you today, though, is that VirTra is in a much better place to scale and drive that performance going forward. It wasn't positioned in the past because, again, visibility of the financials, the processes in production internally. And then we weren't taking advantage of the customer base that we currently had. And the sales organization, we restructured for some of those same reasons. And we're starting to see some of those -- reaping some of those benefits. So from that perspective, I always feel like we're underperforming. And the stock is underperforming. It should be somewhere in the $8 to $10 range, given what we've been doing.

Mr. Chairman, there's also some questions about -- we've spent a considerable amount of time working on several aspects of the business. One of the aspects of the business of this question is about sales. And in particular, the question is, is our sales force working with the various agencies that purchase our equipment to write free grants? Are we acting as a resource to the potential buyers of our product to make their -- make them more accessible?

100%. So there's a fine line. They're not even a gray area. It's a very fine line that what you can do to help write those grants because we are a vendor. However, we have a grant -- a grant proposal process here where if we're working with a customer and we get to the quote stage and they said, we don't have the money, we still give them a quote and then we entered into the database, and we put it in the proposal stage. At the proposal stage, we have specialists internally that's in that environment with the grants and knows a lot about it and is helping to guide those grants through the Senate subcommittee hearings that we've attended to drive the requirements. And we're giving them all the language that they would need. We're also partnered with several grant writing groups. I don't want to mention them all, but several grant writing groups that we put in contact with the customer, and then we keep chatting with them and helping them get through that process. There's always quite a large pipeline in that process because when you have 18,000 police departments around the country, if you only have about 3,500 to 4,500 that have pretty large budgets and over 25 police officers, that leaves quite a few that we can capture with other things that we're doing. So they have that need and they're trying to do so many things with the staff that they have. So we do what we can to alleviate that, and we recognize that there's a lot of opportunity on the table there to capture.

Gregg, can you come up here? You just got a...

We have a question online...

We have a question online that says they can't hear you.

Sorry.

For those of you that couldn't hear Gregg in the beginning, we'll make sure that in the minutes, we'll be able to capture those. I apologize.

All right. The next question, Mr. Chairman, is a comment sort of posed as a question. And that is the shareholder expresses some concern that perhaps the company isn't requiring directors to have skin in the game. And this shareholder, in particular, calls me out for not having sufficient skin in the game in order to sit as a director. I'm asking for the company's comment on that.

Well, I don't know how to answer that, Gregg. Would you like to make a comment, Gregg, yourself? Feel free.

It's not just directed specifically to me. It is just using me as an example.

Yes, I know. I've been in the position a year and I'm trying to figure that out. My specific, there's also been questions of why I haven't purchased more, and I have. I will tell you that, certainly, that's a very legitimate question. My unique one, I'll answer specifically is that this unexpected opportunity to come to VirTra at this point in my career, many years of me designing and commuting funds into long-term personal investments, balance and strategy, those funds, I didn't expect to come to a publicly traded company. And although right now, my personal portfolio is not easily liquidated. It in no way changes my 100% confidence and support in VirTra. I wouldn't be here if I didn't expect this company to be wildly successful. I wish I had more liquid -- liquidity in my investments so I could purchase VTSI stock. We have -- when our portfolio funds have become available, I did purchase VirTra's stock versus rolling it into another long-term investment. That may not be what you want to hear, but it's as simple as that. So I was already retired. Bob snatched me out of retirement, and my wife still tells me that I'm a miserable failure at retirement. It lasted 4 days. So that's -- we don't have -- I guess, we don't have a requirement, and I haven't researched what or why that is. So I'll take the heat on that one. Just 1 of the many things I'm tackling that wasn't at the top of my list, but I understand why people ask that question. And I really wish I could put more in because I'd be much wealthier when this is -- wherever it goes.

Yes. I guess my comment would be, no matter what company I've worked with over the 35 years I've been doing this, that is a common response among shareholders that the directors should be buying more. I don't think a lot of shareholders realize the scrutiny and restrictions that the SEC and the NASDAQ have for us as directors and senior management. If we buy stock in our company, you get 50% of the people that think we're doing it because we have insider information, and it can actually trigger lawsuits. For those of us that sit in the position, it becomes in very many respects, an illiquid investment because there are times when you can and can't sell which are limited for us. But there's also the perception that if you're selling, there must be a reason why you're selling, and it's not necessarily related to something personally. I'll tell you that for me personally, VirTra is the only company I've worked with that I have not been a founder of. So where I deploy my capital is companies that I helped to found and actually provide the seed capital to get started, and I ultimately take it public and that's how I hold my positions. I'm met Bob. Bob, how many years ago, 2006, I think, for the first time. So I worked for the company for -- or with the company for 12, 14 years before doing anything like this.

Did that include all the years you worked for free?

Is there a question here?