VirTra, Inc. — Q2 2021 Form 10-Q Summary
Business Context and Reporting Period
VirTra provides judgmental use-of-force, firearms, driving, software, content and related training simulators to law-enforcement, military, educational and commercial customers worldwide. This unaudited Form 10-Q covers the three and six months ended June 30, 2021, compared with the corresponding 2020 periods.
Financial Performance and Position
| Metric | Q2 2021 | Q2 2020 | Six Months 2021 | Six Months 2020 |
|---|---|---|---|---|
| Total revenue | $5.26 million | $2.77 million | $9.70 million | $6.11 million |
| Gross profit | $3.13 million | $1.58 million | $5.70 million | $3.17 million |
| Gross margin | 59.7% | 57.0% | 58.8% | 51.9% |
| Operating income (loss) | $0.82 million | $(0.82) million | $1.38 million | $(1.33) million |
| Net income (loss) | $0.53 million | $(0.60) million | $1.18 million | $(0.99) million |
| Adjusted EBITDA | $1.00 million | $(0.58) million | $1.75 million | $(0.98) million |
| Operating cash flow | Not separately presented for the quarter | $0.94 million | $(0.29) million |
- Six-month revenue increased 59%, driven primarily by higher simulator and accessory deliveries and recognized revenue. Government customers represented 77% of six-month revenue, compared with 87% in the prior-year period; commercial and international revenue increased as percentages of total revenue.
- Six-month gross profit increased 79.7%, and gross margin expanded 6.9 percentage points to 58.8%, reflecting lower costs and product mix.
- Operating expenses declined 4.2% for the six months, primarily because the prior-year period included an impairment write-down, partially offset by higher software-license costs in 2021.
- Cash and restricted cash totaled $23.89 million at June 30, 2021, compared with $6.84 million at December 31, 2020. Working capital was $27.74 million versus $10.27 million.
- Operating cash flow was $0.94 million, while investing cash flow was $(0.69) million, principally for property and equipment and intangible assets. Financing cash flow was $16.80 million, largely from the April 2021 equity offering.
- Total debt consisted primarily of the PPP note: $0.53 million classified as current and $0.79 million as long term at June 30, 2021. The PPP note carried a 1% fixed interest rate and was subject to forgiveness.
- Accounts receivable were $5.51 million, inventory was $5.21 million, and deferred revenue was $9.68 million, including $7.88 million current and $1.80 million long term.
Material Changes Versus the Prior Comparable Period
- Revenue increased $2.49 million, or 90%, in Q2 and $3.59 million, or 59%, for the six-month period.
- VirTra shifted from operating and net losses in the 2020 comparable periods to operating and net profitability in 2021.
- The company completed a registered direct offering on April 5, 2021, selling 3.0 million common shares at $6.00 per share. Gross proceeds were $18.0 million and net proceeds were approximately $16.80 million after offering costs.
- Shares outstanding increased from 7.78 million at December 31, 2020 to 10.78 million at June 30, 2021, creating dilution but materially strengthening liquidity.
- Bookings were $13.5 million for the first six months, and backlog was $17.0 million at June 30, 2021. Management estimated that most first-half bookings would convert to revenue during 2021.
- Government concentration declined but remained significant. One foreign agency represented 10% of six-month revenue, and two federal agencies represented 18.7% and 17.6% of accounts receivable at June 30, 2021.
Guidance, Outlook, Risks and Unusual Items
- Management stated that existing capital resources should support operations and the current strategy for more than 12 months from the filing date. No formal revenue or earnings guidance was provided.
- COVID-19 continued to create shipment and installation delays. The company reported no order cancellations, but delayed shipments could reduce the timing of recognized revenue and potentially pressure gross margins. The ultimate impact could not be reasonably estimated.
- Management noted that backlog conversion depends on customer delivery dates, which may change, particularly due to COVID-19-related restrictions.
- The company applied for forgiveness of its $1.32 million PPP loan on June 16, 2021. Subsequent to quarter-end, on July 20, 2021, the lender notified VirTra that the SBA approved full forgiveness. The forgiveness was expected to be recognized in the quarter ending September 30, 2021.
- The stock repurchase program remained suspended while the PPP loan was outstanding.
- The company reported no threatened litigation and no material off-balance-sheet arrangements. The filing states that disclosure controls and procedures were not effective as of June 30, 2021 because of material weaknesses previously identified in the 2020 Form 10-K.
- Cash exposure above FDIC insurance limits was $23.28 million at June 30, 2021. The company also relies heavily on government customers and generally sells on credit without collateral.
- The six-month results are interim results and may be affected by seasonal variations; management cautioned that they are not necessarily indicative of full-year results.
Investor Verification Items
- Verify the sustainability of the 58.8% year-to-date gross margin and whether product mix or delivery timing affects future margins.
- Assess conversion of the $17.0 million backlog and $13.5 million of first-half bookings into recognized revenue and cash flow.
- Monitor government-customer concentration, accounts-receivable collection, and the potential effects of shipment or installation delays.
- Confirm the accounting impact and timing of the full PPP loan forgiveness in the third quarter of 2021.
- Review remediation of the material weaknesses and the effectiveness of internal controls in subsequent filings.
- Consider dilution from the 3.0 million-share offering and the company’s future financing needs despite its improved cash position.