VirTra, Inc. — Form 10-Q Summary
Reporting period: Three months ended March 31, 2021; filed May 17, 2021. VirTra provides judgmental use-of-force, firearms, driving and related training simulators, software, content and services to law enforcement, military, educational and commercial customers.
Financial performance and position
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Total revenue | $4.44 million | $3.34 million | +33% |
| Gross profit | $2.57 million | $1.60 million | +61% |
| Gross margin | 58% | 48% | +10 percentage points |
| Operating income (loss) | $564,055 | $(511,904) | Improved by $1.08 million |
| Net income (loss) | $655,163 | $(389,410) | Improved by $1.04 million |
| Basic diluted EPS | $0.08 | $(0.05) | Improved |
| Adjusted EBITDA | $751,499 | $(326,252) | Improved by $1.08 million |
- Revenue growth reflected more simulator and accessory completions, deliveries and recognized revenue. Government customers represented 66% of revenue, international customers 27% and commercial customers 7%.
- Gross margin increased primarily because of lower costs and a favorable mix of systems, accessories and services.
- Operating expenses declined 5% to $2.00 million, mainly from lower selling and travel expenses, partly offset by higher professional services expense.
- Cash and cash equivalents were $5.04 million at March 31, 2021, compared with $6.84 million at December 31, 2020. Working capital was $10.78 million, compared with $10.27 million at year-end.
- Operating cash flow was negative $1.75 million, compared with positive $723,364 in Q1 2020, primarily due to increases in accounts receivable, inventory and unbilled revenue.
- Investing cash flow was negative $48,205, primarily for intangible assets. Financing cash flow was negative $4,946.
- Inventory increased to $4.19 million from $3.52 million; the inventory reserve increased to $503,709 from $120,652.
- Total note payable was approximately $1.32 million, consisting primarily of the PPP loan. Operating lease liabilities totaled $1.10 million.
- Total assets were $23.88 million and stockholders’ equity was $12.32 million at March 31, 2021.
Material changes versus the prior comparable period
- Revenue increased $1.10 million, while cost of sales increased only $130,468, producing a substantial improvement in gross profit and margin.
- The company moved from an operating loss and net loss in Q1 2020 to operating and net income in Q1 2021.
- Cash declined by $1.80 million during the quarter because of operating working-capital requirements, despite reported net income.
- Revenue mix became less concentrated in government customers: government revenue declined from 87% to 66% of total revenue, while international revenue increased from 10% to 27%.
- Bookings were $7.4 million during Q1 2021 and reported backlog was $16.1 million at March 31, 2021. Management expected most Q1 bookings to convert to revenue during 2021, subject to customer delivery changes.
Outlook, risks and unusual items
- Management stated that existing capital resources were expected to support operations and the current strategy for more than 12 months from the filing date, while noting that additional financing may be pursued for growth.
- COVID-19 continued to create uncertainty, including delayed shipments and installations, potentially lower recognized revenue and lower gross margins. The company reported no order cancellations; delayed orders remained in backlog.
- The company had approximately $4.54 million of uninsured cash and cash equivalents at March 31, 2021, creating bank-deposit concentration exposure.
- One federal agency represented 10% and one foreign agency 22% of Q1 revenue. Accounts receivable also included significant concentrations with one federal agency and two state agencies.
- The $1.32 million PPP loan bears 1% interest and may be forgiven in whole or in part, but the filing provides no assurance of forgiveness. The stock repurchase program remained suspended while the PPP loan was outstanding.
- On April 5, 2021, after quarter-end, the company completed a registered direct offering of 3.0 million shares at $6.00 per share, generating $18.0 million of gross proceeds before placement fees and other offering expenses.
- Management reported no threatened litigation and no material off-balance-sheet arrangements.
- Disclosure controls and procedures were determined to be ineffective as of March 31, 2021 because of material weaknesses previously identified in the 2020 Form 10-K. No material change in internal control was reported during the quarter.
Investor verification priorities
- Verify the timing and net proceeds of the April 2021 equity offering, including placement-agent fees, expenses and the resulting share dilution.
- Assess whether the $16.1 million backlog and $7.4 million of bookings convert to revenue as management expects, particularly given COVID-related shipment and installation delays.
- Review the composition and collectability of accounts receivable, unbilled revenue and the increased inventory reserve.
- Confirm the status and ultimate forgiveness amount of the PPP loan and its effect on liquidity and the suspended repurchase program.
- Review remediation of the material weaknesses that caused disclosure controls to be ineffective.
- Reconcile the reported income-tax provision and net-income presentation in the financial statements, as the displayed tax line appears inconsistent with pretax income and reported net income.