VirTra, Inc. Stock

Good afternoon, and welcome to BERTRA's second quarter, 2026, Earnings and Profits. conference call. My name is Drew 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 Alana Ujwala. Following their remarks, we will open the call for questions. Before we begin the call, I would like to provide Bertra's safe harbor statement that include cautions regarding forward-looking statements made during this call. During this presentation, management may discuss financial projections, information, and other 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 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.vertra.com. Now, I'd like to turn the call over to Vertra's CEO, Mr. John Givens. Thank you,.

seat sir. Thank you Drew 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 second quarter, ended June 30, 2026, along with an update on our business and operating environment. For the quarter, revenue totaled $5.8 million, bookings were $5.5 million, and backlog remained strong at approximately $24.9 million. These results reflected improved revenue conversion compared to the first quarter, particularly within our international business, while customer funding and procurement timing continue to influence our overall performance. As we discussed over the last several quarters, the fundamental demand environment for VirtuaSolution has remained intact. The primary challenge has not been demand, but rather the timing associated with the funding awards, the procurement approvals, and customer acceptance processes. During the second quarter, we continue to see evidence that these processes are moving forward.

Multiple grant programs have reopened, funding allocations are moving through the system, and customers are actively submitting applications and advancing procurement efforts. While there are still several steps between an application and revenue recognition, we believe these developments represent meaningful progress compared with the constrained funding environment we've experienced over the last two years. Importantly, once funding is awarded and purchase orders are issued, our team remains well positioned to fulfill orders quickly. The uncertainty today is less about the customer's interest and more about the timing of administrative and procurement processes outside of our control. This quarter provided additional evidence that many of those processes are beginning to move. We saw stronger bookings, improved revenue conversion, and renewed activity from customers that had been largely inactive for extended periods. We also maintained a healthy backlog while converting revenue during the quarter. which speaks to the underlying level of customer interest we continue to see across our markets.

Turning to bookings, we generated $5.5 million during the quarter, up from $3.8 million in the first quarter. Activity included step agreements, capital system orders, renewed federal activity, and contributions across multiple domestic territories. One encouraging development was a return of activity from certain federal customers that had delayed purchasing decisions while funding remained constrained. Our team is also seeing progress across all of our domestic sales territories as the funding environments evolve. While individual orders may vary, varying timing, the broader participation reinforces the continued need for realistic scenario-based training solutions. Our backlog ended the quarter at approximately $24.9 million. We replenished much of what we delivered through new booking activities.

We believe this reflects continued customer engagement and provides an important foundation as funding and procurement activities continue to advance. Internationally, we recognize revenue from previously awarded deployment during the quarter and continue to see encouraging activity across our pipeline. These opportunities often involve long procurement cycles and can be difficult to forecast, but we believe our international opportunities are set to strengthen. We are submitting proposals more frequently than in the past and are seeing favorable outcomes across a number of these opportunities. of engagement we are seeing today gives us confidence that this market will remain an important contributor to our long-term growth strategy. In the military market, we recently achieved an important milestone with our acceptance into the U.S. Army's marketplace across three sections, weapons skills development, joint fires training, and counter unmanned aircraft systems capability areas. While it remains too early to predict the timing or magnitude of these resulting opportunities, this acceptance validates the capability and operational relevance of our technology while demonstrating that our solutions are aligned with the evolving mission requirements of the U.S. military.

It significantly strengthens our position. within the military training ecosystem, and it expands our visibility with key stakeholders and enhances our ability to compete for future programs and long-term opportunities. As we've said before, military opportunities tend to involve lengthy procurement cycles and can take significant time to move from initial engagement to contract award. However, we continue to participate in evaluations, proposal activities, and discussions across a number of military and defense-related opportunities, and we believe our position within that market continues to improve. We also significantly expanded our long-term presence within the military training and simulation market through the acquisition of our Orlando campus during the quarter. Strategically located within Central Florida's premier defense and modeling and simulation and training ecosystem, the facility serves as virtual. Program Management Office and positions the company in close proximity to the U.S. Army's simulation acquisition organizations located in Research Park, as well as the simulation acquisition and program management organizations supporting the other military services.

This location substantially enhances our ability to collaborate with government customers throughout the acquisition lifecycle, respond rapidly to program opportunities, and support customer demonstrations. develop training content, and conduct collaborative engineering and program execution. In addition to strengthening our operational presence and competitive position within the defense community, the property provides operational presence and competitive positions within the defense community. And the property provides operational flexibility and includes tenant leases regularly. expected to contribute positively to future financial performance. From a product standpoint, we continue to focus on expanding the ways customers can apply Virtuous Technologies. Beyond our core training business, we have also begun evaluating opportunities to leverage our immersive content production capabilities and other internal resources for adjacent commercial applications. While these efforts remain in the early stages, they reflect our ongoing focus on identifying complementary revenue opportunities that can further leverage the infrastructure, expertise, and technologies we have built over time. In addition, we continue investing in one of our key competitive differentiators, our content.

During the quarter, we produced approximately 10 new scenarios significantly above historical levels. This investment expands the value of our platform for existing customers, it supports future booking opportunities and helps ensure agencies have access to training content aligned with evolving operational requirements. Overall, we believe the second quarter demonstrated continued progress across several areas of the business. Revenue conversion improved, bookings increased, international activity contributed meaningfully to results, and customers continued moving through grant and procurement processes. We recognize that external funding timings remain the largest variable affecting near-term performance. However, the activity we are seeing today, combined with our backlog, pipeline, military initiatives, and growing international opportunities, reinforces our view that the underlying demand environment remains healthy. on helping customers navigate funding and procurement processes, delivering best-in-class training solutions, and converting opportunities into bookings, revenue, and long-term shareholder value. I'll now turn the call over to Alana to go over the financial results in more detail.

Alana?.

Thank you, John, and good afternoon, everyone. Let's now review our unaudited financial results for the second quarter and six-month ending June 30, 2026. Our total revenue for the second quarter was $5.8 million. Compared to $7 million in the prior year period, revenue increased significantly from $3.5 IN THE FIRST QUARTER OF 2026, REFLECTING IMPROVED REVENUE CONVERSION AND CONTRIBUTIONS FROM INTERNATIONAL DELIVERIES DURING THE QUARTER. BREAKING IT DOWN BY MARKET, GOVERNMENT REVENUE FOR THE SECOND QUARTER WAS 3.5 MILLION COMPARED TO 5.4 MILLION IN THE PRIOR YEAR PERIOD. INTERNATIONAL REVENUE FOR THE SECOND QUARTER WAS 2.2 MILLION COMPARED TO 1.4 MILLION IN THE FIRST QUARTER. in the prior year period. Our total revenue for the first six months was 9.2 million compared to 14.1 million in the prior year period.

The decrease primarily reflects the delayed customer funding procurement timelines and the customer acceptance activity that impacted the timing of our revenue recognition. Gross profit for the second quarter was 3.4 million or 59% of the total revenue compared to 4.8 million or 69% of the total revenue in the prior year period. Our gross margin continued to reflect the impact of lower revenue volume and our ongoing investments in content production and product development. initiatives. During the quarter, we continued producing new training content at an accelerated pace to support future customer deployments and platform adoption. Our gross profit for the first six months was $5.5 million, or 60% of the total revenue, compared to $10 million, or 71% of the total revenue in the prior year period. And again, that decrease was driven by those lower revenue volumes and our continued investment in strategic content and development initiatives to support future growth opportunities. OUR NET OPERATING EXPENSE FOR THE SECOND QUARTER WAS 3.6 MILLION COMPARED TO 3.9 MILLION IN THE PRIOR YEAR PERIOD.

AND OUR NET OPERATING EXPENSE FOR THE FIRST SIX MONTHS WAS 7.1 MILLION COMPARED TO 7.7 MILLION IN THE PRIOR YEAR PERIOD. THIS REFLECTS DISCIPLINE EXPENSE MANAGEMENT WHILE CONTINUING TO INVEST IN THE SECOND QUARTER. to invest in our key growth initiatives. Loss from operations for the second quarter was approximately 0.2 million compared to operating income of 0.2 million in the prior year period. Loss from operations for the first six months was approximately 1.5 million compared to operating income of 1.5 million in the prior year period. Our net loss for the second quarter was 0.3 million or two cents per diluted share compared to net income of 0.2 million or two cents per diluted share in the prior year period. Net loss for the first six months is approximately 1.6 million or 14 cents per diluted share compared to net income of 1.4 million 13 cents per diluted share in the prior year period. Adjusted EBITDA, a non-GAAP metric, was 0.4 million for the second quarter compared to 0.7 million in the prior year period.

And for six months of 2026, adjusted EBITDA was approximately 0.4 million compared to 2.4 million in the negative 0.4 million compared to 2.4 million in the prior year period. As of June 30th, cash and cash equivalents totaled $14.3 million compared to $18.6 million at December 31st, 2025. During the first half of the year, our cash usage reflected investment in inventory supporting customer deliveries, including our international shipments, as well as the acquisition of a our Orlando facility. As John mentioned, we completed that acquisition of our Orlando campus during the quarter. And in addition to strengthening our presence within the defense training simulation market, the property includes tenant leases that generate rental income and are expected to contribute positively to future financial performance. Now, Virtro defines bookings as the total of newly signed contracts, awarded RFPs and purchase orders received in a given period, and bookings for the second quarter totaled $5.5 million compared to $3.8 million in the first quarter. The increase reflected contributions from step agreements, capital system orders, renewed activities, and new contracts. from our federal customers and a number of capital systems purchased across all of our domestic sales territories.

Gertrude defines 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 delivered in a future period. We segment this backlog into three primary categories, capital, which includes our simulator systems, accessories, installs, training, custom content, and design work. Our service, which is primarily extended warranty and support contracts, and then STEP, our long-term subscription-based program. Our Our backlog at June 30, 2025 stood at 24.9 million. This included 13.2 million in capital, 3.8 million in service and 7.9 million in step contracts. During the quarter, we converted a portion of our backlog into revenue, including the first phase of a previously awarded international deployment. We expect additional backlog conversions during the remaining of the year.

Although timing will continue to depend on customer funding, the procurement processes and the installation schedules and accepted timelines. In summary, we're encouraged by the improvement in revenue conversion bookings and adjusted EBITDA during the quarter. And while customer funding and procurement timing continues to influence our near-term results. We believe our backlog, recurring revenue streams, discipline expense management, and strong balance sheet position positions as well to support future growth opportunities. That concludes my prepared remarks and I'll turn the call back over to John for his closing comments.

Thank you, Alana. We are encouraged by the progress we saw during the second quarter, including the improved revenue conversions, those stronger bookings, and continued backlog strength and growing customer activity across funding and procurement channels. We also continued advancing our position in both the international and the military markets while expanding our long-term capabilities throughout the acquisition of our Orlando campus. Funding and procurement timings remain key variables. We do believe the underlying demand environment remains healthy. Our focus remains on supporting our customers, executing on opportunities in front of us, and converting continued engagement into revenue growth over time. That concludes our prepared remarks. Drew, please open the call for questions.

Thank you. We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. At this time we will pause momentarily to assemble our roster. I see that there are no questions in the live queue at this time. The company has received from investors questions to address now.

Question one, you discussed seeing meaningful progress in the funding environment in including reopened grant programs and renewed federal activity, What specific indicators are giving you greater confidence today, and how should investors think about the path from that activity to bookings and ultimately revenue?.

Yes, that's a great question. The indicators are pretty strong and pretty glaringly obvious. The grants as far as there are three separate grants that we've been waiting on since October of 2024, and they've released those and we've been, We've been assisting our customers to the level that we can, and they've been submitting to those grants for appropriate funding for their needs. So just seeing that they were released was number one. Number two, that those submissions and our customers submitted requests. And then number three is that they are about to close on those and then award, they've announced that they will have a list out of who was awarded those funds. That's from the grant side, mostly law enforcement. The side on the military is the release of both both requests for information, they're trying to see who's out there in the market space that can fulfill their requirements.

The second piece is the request for proposals that have been put out there that we've responded to. both from military to federal agencies, have requests in which we've submitted. The other positive indication is that we were awarded and accepted onto the new marketplace for the US Army in three separate categories. In the past, we would have never qualified for the other categories, but because of our content And the flexibility that we've built into the system, we now are able to do just what Virtra does, the weapons skills trainers. Then we have – there's another set for joint fires for artillery and close air support. And then the third one is counter UAS, where – drones, it's a drone defense as well. And that's both for the military and for the law enforcement. So all of those are the really positive signs that we've seen in this fund's release.

Thank you. Question two, international revenue contributed meaningfully to the sequential improvement this quarter. What are you seeing in the international pipeline?.

And just to verify, go ahead. No, no, go ahead. I'm sorry.

Thank you. I just wanted to make sure I say this correctly. What are you seeing in the international pipeline, and how should investors think about the potential consistency of that business given the longer procurement cycles?.

Excuse me, thank you. Yes, I'll answer the second half of that because that's a much easier one. There is no consistency in the international market. We've been in an RFP process, and you get down the pipeline, and then there's delays for some reason or the other, whether it's geopolitical or same issues that happen in the U.S. with funding and elections and those things. So I apologize. we can't give you the certainty of that long-term and the continuity of that. It's a very lumpy revenue in the international space. But what we are seeing is we are seeing a bunch of different levels, both with U.S. involvement and and directly from countries, we're seeing the need for training in the UAS with everything happening overseas now, most people are aware of, and with some of the other items and issues and threats that are out there, VIRTUA is positioned well. to be able to meet those mission critical demands. So what contributed to this last quarter were some international sales that we had made that they just couldn't take it because of facilities or timing, and they were able to take some of those orders.

So that's what we were talking about about the timing of when we receive the order because they want to spend the money and obligate it, but they're not ready to actually receive it, so we can't recognize the revenue. So we see that quite often with our foreign intermediaries national sales just because when they have the money, they want to get it obligated on something so it can't be taken away. And then we have to work with them to try to figure out when their facilities are there, when their processes are able, or when we can get in there to do the installation and training.

Thank you. At this time, this concludes our question and answer session. Thank you for joining us today for Virtra's second quarter 2026 conference call. You may now disconnect.

This live transcript is auto-generated without human intervention or review.

[Call has ended.]

Welcome to VirTra, Inc. 2026 Annual Meeting of Stockholders Call. [Operator Instructions] Please note, this conference is being recorded. I would now like to 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 am the Chairman and CEO of VirTra. Welcome to the 2026 Annual Meeting of the Stockholders of VirTra. This meeting is being held in person and also being webcast live. The webcast will be posted on our website for a period of time after the meeting.

The matters on which the stockholders at this meeting are voting on are to: one, elect 5 directors; two, ratify the appointment of Haynie & Company as the company's independent registered public accounting firm for the year ending December 31, 2026; three, approve on an advisory basis, the compensation of our named executive officers as they are defined in our 2026 proxy statement; number four, solicit a nonbinding advisory vote from the company's stockholders on the frequency in which the company's stockholders shall have an advisory say-on-pay vote on the compensation of the company's named executive officers; and five, transact any other business that may properly come before the meeting.

I'd like to begin the meeting by introducing the current Board members of the company -- the members of the company's Board of Directors. They are besides myself, we have Gregg Johnson, Mike Ayers, Maria Gervais and Grant Barber. We also have present, Alanna Boudreau, our CFO; Fay Matsukage, who will serve as our outside corporate counsel, is attending remotely.

Fay will serve as Secretary of the meeting and record the proceedings. She has delivered the affidavit of the Issuers Direct Corporation as to the mailing of the notice of the meeting, which states that on April 29, 2026, notice of Internet availability of proxy material was mailed to all stockholders of record as of the close of business on April 24, 2026, the record date for the meeting, the Affidavit is available if the stockholders wish to examine it, and it will be filed with the minutes of this meeting. I will now discuss the procedures for transacting the business of this meeting. When an item of business on the agenda is before the meeting for consideration, we ask stockholders to limit their participation to one question and one 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 wait to be recognized. For those attending remotely, please type your question or comments into the Ask a Question tab on the left-hand side of your screen and then click send. If a stockholder has a question or comment not related to a business item on the agenda, 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 answered during the meeting or for individual matters of concern, please feel free to contact our Investor Relations team at [email protected].

I hereby appoint a representative of Issuers Direct and Alanna Boudreau as inspectors of election for this meeting and any adjournment or postponement of this meeting. They have signed an oath to act as inspectors of election, and this oath will be filed with the minutes of this meeting. The inspectors have the stockholders' list of the company as of the close of business on April 24, 2026, the record date for the meeting, which shows the stockholders and their respective number of shares entitled to vote at this meeting. This list is available in any stockholder -- if any stockholder wishes to examine it and will be filed with the minutes of this meeting. Issuers 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 the 5 directors of the company. The proxy statement made available to you earlier listed the company's nominees for directors. The Board's Nominating and Corporate Governance Committee headed by Gregg Johnson made its recommendations to the Board. The committee examined the need to have continuity at the Board level as well as subject matter expertise, Board composition, continuity planning and good governance.

In light of all of this, the committee made the following recommendations, which were accepted and approved by the Board. The retention and inclusion of Gregg Johnson, Michael Ayers, Maria Gervais and Grant Barber in their current roles as independent directors so as to provide continuity of the business and retention and inclusion of John Givens in his role as an inside director so as to provide a bridge between the Board and management. 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. We did not receive any nominations from stockholders. Therefore, I declare nominations for the directors closed.

A motion to elect 5 directors as described in the proxy statement is now in order.

My name is Chris Gold. As a stakeholder, I hereby move each 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 James Skoulikas, and I am a stockholder. I second the motion.

Are there any questions or comments on the motion? If there is no discussion, I'd like to move on to the second item on 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, 2026. 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 Grant Barber. I'm a stockholder. I hereby move that the stockholders ratify the appointment of Haynie & Company as our independent registered public accounting firm for the current fiscal year.

Does anyone second the motion?

This is Mike Ayers. As a shareholder, I second the motion.

Are there any questions on the motion? If there is no discussion, I'd like to move on to the third item on the agenda. The next item of business is to approve on the advisory basis, the compensation of our named executive officers as this term is defined in our proxy statement. The say-on-pay proposal is discussed in the proxy statement that was made available to you earlier. A motion to approve the compensation of our named executive officers is now in order.

This is Gregg Johnson as a shareholder. I hereby move that the compensation of our named executive officers be approved.

Does anyone second the motion?

This is Maria Gervais, and as a shareholder, I second the motion.

Are there any questions on the motion? If there is no discussion, I'd like to move on to the fourth item on the agenda. The next item of business is to indicate on an advisory basis, the preferred frequency of stockholder advisory votes on the compensation of our named executive officers. This proposal and the Board's recommendation to have an advisory vote every 3 years is discussed in the proxy statement that was made available to you earlier. A motion to vote on the preferred frequency of the stockholders' advisory vote on the executive compensation is now in order.

This is James Skoulikas. I hereby move that the stockholders vote on the preferred frequency of stockholder advisory votes on executive compensation, indicating their presence for 1, 2 or 3 years -- the preference for 1, 2 or 3 years.

Does anyone second the motion?

This is Chris Gold. I second the motion.

Are there any questions or comments on the motion? Are there any other matters to be properly considered at this meeting?

Since there are no further motions to be properly considered at this meeting, I will now call for a vote of these items. The Inspector of Elections will report on these results of the voting later in the meeting after tabulation has been completed. We will now wait for the tabulation to occur.

And while we wait, I'd like to open the meeting to questions that stockholders may have. If you have any questions related to the company, but not to the matters already voted on that at the meeting. You may raise your hand while the vote is being tabulated. Only matters that may concern all stockholders should be raised at this time. Any matters of individual concern to the stockholders should be raised directly with our Investor Relations professionals. Please note that in some cases, I will not be able to answer due to SEC disclosure restrictions. In light of this, I will try to answer as many questions as I can.

One question from the webcast. With recent shifts in federal priorities and budgets, how has VirTra been positioning themselves to remain aligned with the upcoming opportunities?

There's 2 ways that we've aligned ourselves. One, federal monies and budgets that are out there pertain to the military and federal agencies and then also law enforcement, which are also coming from federal funds through grants. There's been announcement of those grants, and we positioned ourselves and aligned our folks to be able to understand what each of those requirements are for all of those types of grants and make sure that our customer base that has been interested in purchasing systems from VirTra are aware of the requirements needed by them to be able to obtain those funds.

The second part in alignment is monitoring what contracts and what request for proposals are out there in the market space and making sure our product line and the requirements that are out there match and the teams have been aligned, keeping a close eye on those appropriations. And then the final thing is spending a lot of time in Washington, D.C. to help guide those requirements for individuals that will be purchasing.

Question from the room.

How are you feeling about upcoming military opportunities as compared to law enforcement opportunities for the company?

I'll take feelings out of it, and I'll put it just to the straight facts. Up until most recently, all funding has been held, and it's been a very difficult year for anybody in law enforcement because they relied on federal funds through the grant program that I just mentioned. And military funding all went towards war and those types of things.

So modeling and simulation and training, while it should be a top priority, doesn't always get the attention that it should, but it is now as they're sorting through those funding opportunities. A lot of this funding hasn't been issued since 2024 or the 2025 fiscal year. So that's part of the first question I answered is we're monitoring to make sure that we're aware when they're coming out, what the requirements are and to respond appropriately and on time. I understand that the votes have been counted and the preliminary report of the inspectors of election has been delivered to the company.

Alanna, will you please announce the results of the stockholder vote?

The preliminary report of the Inspector of Election indicates the following votes in favor of John Givens, 3,932,220 votes; Gregg Johnson, 3,010,520 votes; Michael Ayers, 3,254,580 votes; Lieutenant General Maria Gervais, 3,616,630 votes; and Grant Barber at 3,942,0446 votes.

As the company had 5 directors to be elected by plurality vote, all of the nominees have been elected. Ratification of the appointment of Haynie & Company as the company's independent registered public accounting firm for the year ending December 31, 2026, has been approved by the stockholders by the affirmative vote of a majority of the votes present in person via webcast or by proxy at the meeting.

The compensation of our named executive officers has been approved by the stockholders by the affirmative vote of a majority of the votes present in person or by proxy at the meeting and a majority of the votes present in person or by proxy at the meeting has indicated a preference of 1 year as the preferred frequency for obtaining an advisory vote on the executive compensation.

I hereby request that the final report of the Inspector of Elections be filed with the minutes of this meeting. You have now heard the results of the voting, and this completes the business to be conducted at this meeting. Since there is no other matters to come before the meeting, a motion to adjourn this meeting is now in order.

This is Grant Barber. I move that the meeting be adjourned.

Do I have a second on the motion?

This is Gregg Johnson. I second the motion.

All in favor of a motion to adjourn, please signify by saying Aye.

Aye.

Aye.

Aye.

Those opposed, please signify by saying no. The motion has been carried. I'd like to take the opportunity to thank you for your attendance today. Also, please know that your interest in VirTra is very appreciated and that the incredible support of our stakeholders has been critical to our success. Thank you, and God bless. I hereby declare this meeting adjourned.

This concludes today's conference, and you may now disconnect at this time. Thank you for your participation.

Good afternoon and welcome to VirTra's First Quarter 2026 Earnings Conference Call. My name is Ryan, 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 cautionary 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. You may proceed, sir.

Thank you, Ryan, 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 first quarter ended March 31, 2026, along with an update of our business and operating environment.

Since first quarter end, we have continued to see important movement across the business. Funding programs are moving back into the system and customers are working through grants and procurement steps, and our team is actively engaged with agencies as they move from interest and planning towards purchasing decisions. Q1 was still impacted by timing, particularly around government funding, customer procurement time lines, and the ability of certain customers to accept delivery. The most important point for today is how the environment is progressing as we move through the rest of 2026.

I want to focus today's discussion on where we are seeing progression, what has moved forward since quarter end and how we are positioning VirTra as funding and procurement activities continue to pick up in the system. Across our core markets, customers' activity has continued to move forward, agencies are reengaging as funding programs reopen, customers are working through grant applications and procurement steps, and our team is staying closely involved to help move those opportunities forward.

Our sales team is supporting customers as they identify the appropriate grant programs, prepare required materials, update quotes and submit applications by the application deadlines. Once applications are submitted, the agencies must still move through the review and award process and then through local procurement before a purchase order can be issued.

As we discussed on our last call, this remains a multistep process. Customers must apply for funding, applications must be reviewed, awards must be determined, purchase orders must be issued and the systems must be delivered and accepted before our revenue can be recognized. That timing is still not fully in our control, and we expect conversions to play out over the coming quarters. But the movement we are seeing today supports our expectations for improved sales momentum as we track through the second half of 2026.

The key change is that we are no longer talking about a frozen environment. Customers are actively working through funding and procurement processes, giving us a more constructive backdrop and clearer line of sight into the opportunities we're pursuing. The need for VirTra solution remains evident across law enforcement, corrections, federal, international and military markets. Our customers are looking for training systems that help them prepare for real-world situations in a safe, repeatable and measurable way. That includes judgmental use of force, de-escalation, marksmanship, scenario-based decision-making and the newer threat areas such as drone defense.

While we expect near-term conversion timing to vary from customer to customer, we have systematically remained close to those customers over the last several quarters. We are now focused on helping them move through each step of the funding and purchasing process. Some agencies are waiting on recently open grant awards. Some are working through the procurement stage. Some customers have funding but need to complete facility or internal readiness steps before they can accept the deliveries. With some of our international customers, we're seeing similar dynamics where contracts or customer commitments may be in place, but the delivery timing depends on the customer side funding or operational readiness. Providing best-in-class training remains at the top priority, and we are laser-focused on converting increasing activities into orders, deliveries and revenue as those processes advance.

We are also controlling the controllables, and we are seeing tangible progress from a more targeted commercial strategy in recent months. Over the past 3 months, qualified leads have approximately doubled. That improvement is being driven by better lead capture, improved customer segmentation, more needs-based marketing campaigns and a more disciplined process for moving prospects from initial interest into the sales pipeline.

Through our updated website and lead capture process, we are getting better visibility into who is engaging with VirTra, what solutions they are viewing and where they may be in the buying process.

We are also organizing prospects more effectively by customer type, training need, funding status, product interest and stage in the sales process, which allows our team to prioritize higher-quality opportunities and tailor follow-up more efficiently. Customers are increasingly looking for solutions tied to specific operational needs, including the judgmental use of force, de-escalation and marksmanship readiness, among others. A corrections agency evaluating drone-related perimeter threat has a different training requirement than a police department focused on de-escalation or military customers evaluating portable marksmanship training.

Our sales and marketing process is becoming more aligned with those distinct use cases. We are seeing this translate into more qualified activities across the business, including inbound interest, direct marketing responses, event-driven conversations and customer follow-up activities. While lead activity does not convert into bookings immediately, we believe this more disciplined commercial approach process should support improved pipeline progression as customers move through the funding steps in the coming quarters.

From a product standpoint, we continue to focus on expanding the ways customers can apply VirTra's technology. A key part of that, which we discussed, is our APEX data analytics platform. APEX is becoming an increasingly important part of how customers capture and analyze performance data. Early customer feedback indicates that these analytics can enhance training outcomes around accuracy, reaction times and decision-making.

We also spoke about our next-generation drone defense training system on the last call. During the quarter, we demonstrated at the American Corrections Association (sic) [ American Correctional Association ] Winter Conference and received positive feedback. Unauthorized drones are creating new challenges for correction facilities, including contraband delivery and perimeter security. Our simulation-based training gives agencies a way to prepare officers for those threats safely, repeatedly and without the cost and complexities of live fire ranges. We have generated several ongoing conversations from these demonstrations, and I look forward to sharing our commercial progress in this emerging area over time.

Across our product development initiatives, the through line is VirTra helping customers train in ways that are realistic, measurable and tightly aligned with the situations their personnel are facing in the field.

We continue to see encouraging activity across the military and federal markets. Military opportunities are long cycles by nature, and we are not treating them as a near-term revenue certainty. But the level of engagement here has continued to advance as expected. We have had demonstrations and evaluations across multiple branches, including Army and Marine Corps groups, and customer interest has continued to build as our systems have become more robust, data-driven and aligned with evolving training requirements.

Across several prospects, we have moved from early discussions and market research towards requirements, development and potential RFP pathways. The precise revenue timing for these opportunities is not clear yet, but we are -- but as we reach critical milestones such as RFP issuance, additional evaluations, selection decisions, awards and follow-on procurement activities, we will update the market as appropriate.

We are active here and our technology is being seriously evaluated, and our product capabilities are increasingly relevant to the market. To summarize, the first quarter continued to reflect revenue timing variability, but the business has continued to progress. As we move through 2026, our focus remains on converting increased customer activity, grant progression, procurement movement and pipeline opportunities in delivered systems and revenue.

With that, I'll turn it over to Alanna for the detailed financial review. Alanna?

Thank you, John, and good afternoon, everyone. Now let's review our unaudited financial results for the first quarter ended March 31, 2026. Total revenue for the first quarter was $3.5 million compared to $7.2 million in the prior year period. This decrease was due to a delay in the conversion of backlog to revenue as several customers could not accept delivery of the orders received in Q3 and Q4.

Breaking the revenue down by market, government revenue was $2.7 million compared to $5.2 million in Q1 of '25. International revenue was $0.7 million compared to $1.9 million in Q1 of 2025. And commercial revenue was approximately $84,000, consistent year-over-year.

During the quarter, the Subscription Training Equipment Partnership or STEP revenue was approximately $1 million compared to approximately $0.9 million in the prior year period. STEP represented 28% of the total revenue in Q1 2026 compared to 13% of the total revenue in Q1 2025. Primarily due to the lower level of capital system sales, STEP provides recurring revenue visibility and remains an attractive access model for agencies, but revenue from these agreements is recognized over the length of the contract. As a result, STEP represents a larger share of revenue and a lower capital sales quarter.

Our gross profit for the first quarter was $2.1 million or 61% of total revenue compared to $5.2 million or 73% in the prior year period. The decline was primarily due to the lower revenue volumes, along with the company continuing to work on integrations and new content to help drive future revenue.

Our net operating expense for the first quarter was $3.5 million compared to $3.8 million in the prior year period as we continue to manage expenses carefully while investing in key areas of the business.

Our operating loss for the first quarter was $1.3 million compared to operating income of $1.4 million in the prior year period.

Our net loss for the first quarter was $1.3 million or $0.12 per diluted share compared to the net income of $1.3 million or $0.11 per diluted share in the prior year period.

Our adjusted EBITDA for the first quarter was negative $0.8 million compared to $1.7 million in the prior year period.

Now as we turn to the balance sheet, we ended the quarter with $17.9 million in cash and cash equivalents compared to $18.6 million at December 31, 2025. This provides flexibility to navigate the current timing dynamics in the business while continuing to invest in areas that will support our future growth.

VirTra defines bookings as the total of newly signed contracts, awarded RFPs and purchase orders received in a given period. And our bookings for the first quarter totaled $3.8 million.

VirTra defines backlog as the accumulation of bookings from signed contracts and purchase orders that are not yet started or an incomplete performance obligation and therefore, cannot be recognized as revenue until delivered in a future period. We segment this backlog into 3 primary categories: capital, which includes our simulators, accessories, installation, training, custom content and design work; service, which is primarily our extended warranties and support contracts; and then STEP, which is that long-term subscription-based program.

Our backlog at March 31, 2026, stood at $25.2 million. That includes $13.2 million in capital, $4.4 million in service and $7.6 million in STEP contracts.

So that concludes my prepared remarks. I'll turn the call back over to John for his closing comments. John?

Thank you, Alanna. It is clear that our disciplined cost management has been important during a volatile period for new business conversion. It is also clear to me that VirTra's underlying business activity is moving in the right direction. Customers are reengaging, funding and procurement processes are advancing and our commercial execution is improving. We believe this activity positions us for improved financial performance as funding and procurement activities continue to convert over the course of 2026.

That concludes my prepared remarks. Operator, please open the call for questions.

[Operator Instructions] We take the first question from the line of Jaeson Schmidt from Lake Street Capital Markets.

John, you highlighted that qualified leads have approximately doubled over the past 3 months here. Can you just give us a sense on the conversion time line from a qualified lead to a quote or to a PO historically and whether you're seeing any compression in that cycle as funding reopens?

Great question, Jaeson. Thanks for asking. The leads have doubled because we've gone to more events this year, and we're talking to customers and qualifying them at the shows before they're entered into the system. So it's based on activity. The conversion cycle on those range anywhere from 6 to 12 months. It just depends on what agency it is. And if they have money or they have to put in for a budget, law enforcement is pretty much the same unless they've already been awarded a grant or they have funding available without having to go to the budget cycle. So usually, 6 to 12 months is what we're seeing.

We will see a bit of a compression on that this year because they're so far behind. I mentioned before on the last call that they're so far behind that -- the funding for fiscal year '25 that was -- that came about was approved in October of '24 still hasn't been put out there and hasn't been released. So we're seeing those funds start to come. And then '26 is right behind that and '27 is in October of this year.

So -- and then you've got the big beautiful bill. So all of those across all of our market segments, be it law enforcement that are looking for grants to supplement their training and purchase of training equipment to Department of War to 3-letter agencies that rely on government funding. So we do see that happening, but the doubling has been more of the marketing campaign and how we are collecting them now and the results of the new website that we had put together and how we qualify.

Okay. That's helpful. And then just as a follow-up, going back to your comments on the APEX data analytics and specifically that international win, any additional color can you provide on sort of the size of that and if there's an opportunity for additional expansion?

That was published. It was the INL Colombia deal that they -- the government wants to be able to monitor all the systems that they're placing out in these foreign countries under the International Narcotics and Law Enforcement agency that's under the State Department. And so they want to be able to report back to them not just are they being used, but how they're being used and how effective the training is for fighting crime in those different countries rather than reaching our shore. So that -- they wanted something to be able to collect that type of data.

What simulation and simulators typically do is they'll collect the data for the near term and what you're doing. So I shot this target, here's your number of shots or I ran through this scenario, here's what you did, and then that's it. It doesn't collect and send it anywhere so that it can be housed and then analyzed and then do trending analysis on it. And the government and other agencies and law enforcement want to use that to justify ROI for the simulators and the training curriculum that they're providing new mid-career and end-of-career soldiers and law enforcement.

We take the next question from the line of Richard Baldry from ROTH Capital Partners.

The bookings were slightly above the revenues on the quarter, but the backlog went down a little bit. I was wondering if you could walk me through sort of the pieces there, whether it's cancellations or other factors that drove that.

Alanna, do you want to take that?

Yes, the bookings -- the way the calculation is done is the bookings come in and then we take out the revenue. So something -- but some things do convert in the same quarter to revenue. So it's sort of -- it's not everything that came in. Some things converted immediately. So does that help?

Yes. Then on the balance sheet, I noted the inventory levels went up a little more than -- well, let's call it about 10% sequentially. Sort of curious about the drivers there. Is it something you're seeing in the pipeline that you want to be ready for, some scarcity issues you want to make sure you've got redundant inventories available for? Just curious about that driver.

There's a little bit of -- sorry -- it was a little bit of both. Sorry, go ahead, John. So there's a little bit of both...

Go ahead, Alanna. I'll stand by.

Yes, there's a little bit of both, Rich. So there are, in some cases, where we were aware of computer prices about to skyrocket, knowing what we had in the backlog to -- that we needed those computers for, we purchased them a little ahead of schedule to make sure we got a lower price instead of paying the other ones. There's also -- some of that is our work in progress as we are working on some more integration pieces, where dollars have gone into that development work as well for that and for our -- the Colombia contract that we spoke about. There's development work that's in there that's driving the work-in-progress numbers up in inventory.

And the other part of that, Rich, is that when we had quite a few -- when we're converting some of the backlog in the past, we had certain parts and certain components that we had -- everything was on hold waiting on backordered items, so -- and things we needed to manufacture. So we brought all the inventory up to their max levels so that we won't have any problem converting them instantly and trying to wait on manufacturing to build those parts. So it's anticipation as well.

With sort of an improving backdrop and knowing it's a multistep process to kind of gear back up, do you feel like Q1 should probably be a good base level for revenues here forward? It was up from Q4 sequentially. Do you think that pattern can start to sort of grind higher? How do you think of sort of the cadence of recovery here?

Well, I think if I give you a little bit of history from 2025, everything lags. So I mean the budget climate pose challenges for our industry. I mean in 2025, we faced unprecedented appropriation processes. I mean for the first time, both the Defense Department and law enforcement under the federal grants operated under a continuing resolution for the entire fiscal year and experienced that historic 43-day lapse in appropriation or shutdown. That was the longest in government history.

Additionally, the government continues to operate under those continuing resolutions through January through the first month of the quarter. And some of the federal law enforcement agencies are still without approved funds, some of our existing customers, a funding line. And while the outlook for '26 is kind of complex, there are signs of improvement as evident by the recent releases of funding for several grants and some of the appropriation bills that are making its way through legislation. So we do see all of those opening up.

But even if they do open up, quarter 1 was the indication that even as they open up, there's still all those items that I talked about, you have to apply, you have to get it, they have to assign the funds, if it's a contract, and then they have to go through the RFP process and then they have to award. So typically, what would happen is for a quarter or 2 until they get the money there and then you convert it in the following quarters, if all of that lines up.

Got it. Then last for me would be, when we look at the operating expense levels, it looks like it's run-rating about down 10% year-over-year, I assume reacting to the backdrop. Do you think we sort of sit at this level until the top line starts to open up? Are there other investments you want to make on the way? How do we think about your discretionary spending short-term?

I think our discretionary spending short-term remains a watch-and-see just because of the complexities of the market space. But as we start to see those, we'll adjust appropriately.

Ladies and gentlemen, at this time, this concludes our question-and-answer session. Thank you for joining us for today's VirTra's First Quarter 2026 Conference Call. You may now disconnect your lines.

Good afternoon, and welcome to VirTra'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'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. 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've seen, budget approvals that were expected to flow in fiscal year '25 were held and agencies were limited to 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 of 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've been operating through. Behind that, additional funding cycles are progressing as of 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've 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 closely engaged throughout the process to help conversions wherever we can.

Based on what we're 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 time lines. One point I want to be clear on is that demand has remained strong throughout the period. We closed 2025 with $25.6 million in backlog and generated $26.7 million in bookings during the year. In many cases, orders have been already placed but customers are not yet in a position to take delivery, either due to the funding timing or the 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've 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, production capacity so that we can fulfill orders quickly as they come through. Our inventory levels were are where 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 routes. Our 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 in 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 to -- from interest to order once completed. We are continuing to engage with federal training stakeholders, including agencies with 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've also continued to advance our integration with VBS4, allowing for more flexibility and customized training environments tailored to specific customer requirements. We've 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've introduced a drone defense training solution recently which is designed for correction 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 V-XR 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 conversion, we have been focused on ensuring our solutions remain aligned with evolving military programs and requirements.

To summarize 2025, it 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 cycling progress. We've maintained a strong customer engagement, built backlog, strengthened our commercial organization and prepared our operations to execute. As those fund cycles translate into awards and purchase orders, our focus is on converting that activity into revenue in a disciplined but efficient way.

With that, I'll turn the call over to Alanna for a detailed financial review. Alanna?

Thank you, John, and good afternoon, everyone. Now let's review our audited financial results for the fourth quarter and full year ended December 31, 2025. Our total revenue for the fourth quarter was $2.9 million compared to $4.7 million 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 $22.4 million compared to $26.4 million in 2024. The decline was primarily due to extending funding delays throughout the year.

Breaking our full revenue down by market, our government revenue for the year was $17.8 million compared to $22.9 million in 2024. International revenue for the year was $4.2 million compared to $3.1 million in 2024 and commercial revenue was approximately $400,000, consistent year-over-year.

Our gross profit for the fourth quarter was $1.7 million or 58% of total revenue compared to $2.9 million or 62% in the prior year period. The decline was primarily due to that lower revenue volume. For the full year, gross profit totaled $15.2 million or 68% of revenue compared to $19.4 million or 74% in 2024.

Our net operating expense for the fourth quarter was $3.3 million, a 23% decrease from $4.2 million in the prior year period. For the full year, net operating expense was $14.8 million compared to $17.4 million 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 $1.6 million compared to $1.3 million in the prior year period. And for the full year, operating income was $0.4 million compared to $2 million in 2024. Net loss for the fourth quarter was $1 million or $0.09 per diluted share, consistent with the prior year period. And for the full year, net income was $3 million or $0.02 per diluted share compared to $1.4 million or $0.12 per diluted share in 2024.

Our adjusted EBITDA for the full year was $1.6 million compared to $2.9 million in the prior year period. As we turn to the balance sheet, we ended the year with $18.6 million in cash and $30.8 million in working capital. This provides flexibility to navigate the current timing dynamics in the business.

VirTra defines 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 $7.3 million, contributing to the full year bookings of $26.7 million. VirTra defines our backlog as the accumulation of bookings from signed contracts and purchase orders that are not yet started are or incomplete in their performance obligations, and therefore, cannot be recognized as revenue until delivery in a future period.

So we segment that backlog into 3 primary categories. capital, which includes our simulators, our accessories, installation, training, custom content and our design work; service, which is primarily extended warranty and support contracts; step, which is our long-term subscription-based program. Our backlog at December 31, 2025, stood at $25.6 million. That included $13.8 million in capital, $5.1 million in service and $6.7 million in STEP contracts.

So that concludes my prepared remarks. And I'll 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 condition shift with funding moving back into the system and customers' activity increasing. 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?

[Operator Instructions] And your first question comes from Jaeson Schmidt with Lake Street Capital.

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 kind of additional systems being trialed? Or how should we think about that?

Yes, all of those are accurate. So we have multiple engagements across Army, Navy and in the Marine Corps. We've engaged with them to find out exactly what they're looking for the systems. My commentary previous about how we are focusing on the systems and making them military ready. It harden them for Elli as well, but there is a different dynamic in which the military requires a very dynamic adaptive as they think and learn on a system. So that's where VBS came into play.

We've had very -- the programs that are out there, there's no secret they're out there is the SVT, the Soldier Virtual Trainer. There's several others that are out there as well and extending some of the ones that we currently have with ADMIRE and with special operations. We also have -- Navy has contracts coming up and our engagements at ITSEC, the large show in Orlando was quite a hit. We have 1-box called our V-100 next generation, which puts everything in 1 box. It's portable, and it's a hit and they're looking to replace some aging sits and ones that have lack of technology and aren't nearly as mobile out there in the field. And so we've really honed our training and also our system to meet those needs, and they're all benefiting.

So there are programs out there that you can look up that I've mentioned on these calls before, that's there. We also have several other military groups that are they're taking our systems and they're doing valuations 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've been at for a bit. So we're looking forward to those coming to fruition.

Okay. Great. That's good to hear. And then understanding that the funding environment remains challenging. Just curious what you're seeing from sort of a quoting activity standpoint so far this year? And just overall, kind of sales touch points even against this kind of more challenging backdrop?

Yes. As I stated, the demand has been -- remained high, and I would say it's even higher. And what our focus has been is a lot of these agencies have relied on multiple different grants that came from multiple places. And as I stated, it's been unfortunate because none of the money that was allocated in these grants for fiscal year '25, which was awarded in October of '24. And then subsequently, '26 is and October of '25 those have just been released, and we already expect that I've been on Capitol Hill and we've been going through why it's important, and then we've been in front of legislators and said they need to lease some money. So what we do expect is we expect a pretty regimented release of funding.

The only caveat to that, that I would say is, so the quoting has increased. So we've got the quotes out there and they're just sitting. Then Unfortunately, it's up to because we can't legally submit these grants. So we help them in any way that we can. And stay side-by-side with them. We have people in-house that we're giving them the information that they need about the system and helping what we can. And they still have to submit it and then they still have to be down selected. So there still is a bit of a process, but we haven't even had that process moving to the last 2 years. So that's a great sign.

As far as other activity, we're also starting to see on the same time frame, our international market, we'll start to see those monies flow as well. And the only monies that are not flowing is DHS. As you know, we have DHS with Customs and Border Patrol is our customer, and we have Secret Service as our customer, and we have Coast Guard. And so as we talk about them as our upcoming upgrades and purchasing new systems, all that's come to a grinding halt. That's the only one that we were down that path and it just came to a halt.

And there's other agencies as well. You know about that are also engaged with us. wanting systems. So the orders, the interest, the demand, it's all there. It's got to free up the funding. And we're doing everything we can to help move that forward.

[Operator Instructions] Your next question comes from Richard Baldry with ROTH Capital Partners.

Sort of following on that and building on what you've talked about during the call. Looking on more detail at sort of like the process it will take to get the money to move. So while it's been held have people been building sort of grant documentation, so that could kind of move across the table very quickly? Do they, for some reason, not start that so that process still has to fully take place? Sort of any time lines around from submission to approval, things that you've seen in the past under normal circumstances to give us a feel for how flow will be slower quickly continue to start to see some of these things move?

Yes. I mean that's the crystal ball, right? The problem is there really hasn't been any consistency on we get a consistency of end of April, mid and end of April, several of these grants are due. 2.5 months, almost 3 months ago, we have what we call a grant stage in our CRM and Salesforce. And what we've done is all the sales folks have been working with them on a regular basis and constant. They've already have quotes. They already like the system. They want the system. They have the training need. They just don't have the funds.

So as soon we knew that there was something coming out, all the sales folks started that process, and that process is just that, whether it's demographics or geographics or certain types of training, there are specifications. And so we've grouped each of those and help them identify which grant that they would most likely be a good candidate for so with a higher success rate. So we've done that so that grant stage consists of the number of police departments across the country.

And then once -- then there's things like what does the system do. So we have a lot of that information that's just block information that we can give them. And then they have to fill out an application and then they have other items and things that they have to that we have no visibility on once that's complete, then they submit it by the time line. Once it goes there, unfortunately, Rich, I can't tell you what the time line is. We've seen it 3 months and then we've seen it a year and then we've seen in 18 months.

So 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. And not 1 grant not all grants are created equal because you're coming out of different departments, but sometimes for the same thing. So that's -- and then there's a level of priority for what they're looking for. If it's 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 precedent. And it's uncertain who the source selection committee and how they determine that.

So the best thing I can tell you is, at least we have a deadline right now of submission and we have our team that's working directly with all those customers that have had active quotes for a while, and we're working them through and helping them telling what they have to do and reading all the documentations and kind of walking them through as much as we can and then it would be up to them. After that, when it's all collected, they have a source selection committee that review all of them.

And I don't know always how they choose the different groups. But then what we do is we collect all that data and then we start to normalize it, so if anybody else in the queue and someone with a certain geographic or demographic or size agency or training specific need we then look for folks in our -- in our grant stage, and then we'll start pushing them towards those grants. So we do have a methodology that we're doing with as much as we can, but there are a lot of variables. But that's a great question. I wish I knew all the answers, Rich.

So if I look at your backlog, if I put the services and STEP together, is it fair to view that as those 2 combined and then divide by for whatever. Is that an annual sort of baseline? Or even the services and STEP can be multiyear, so I can't really think of it that way?

Now that -- your latter, you can't really think about -- I'm going to online do some commentary. So backlog, as you said, is 3 components. And you can have services and warranty. So on a capital system, you also have the maintenance and warranty so it could be multiple years as well. So we may have a larger concentration in year 2 and 3 or 1 and 2, one might be coming off another one going on.

So it's very hard to break that down to just say look, you got $25 million in backlog. Clearly, not all of it, even if we were incredibly efficient, everything cleared up, you're not going to get $25 million. I think the cap was what you say, was $12 million, yes. So it's hard to say that. Alanna, did you want to make a commentary on that?

Yes. I was just going to say the problem is the bookings and backlog, especially for the STEP. We have STEP contracts that we've signed this year that are 3 years long. And then we have STEPs that we signed the year before or whatever that were 5 years long. And some of those weren't the guarantees 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 additional $2.5 million that hasn't been resigned or committed to, that can also be part of that, but that is another year or 2. So STEP can be anywhere from 1 year from now to all the way up to 4 years from now for revenue conversion.

And the same goes for the same goes for the warranty service plans. Some people signed a 1 year agreement. Some people signed 3-year agreements. Occasionally, somebody will allow somebody to sign a 5-year agreement. So it's not quite as easy as just divide by 4 because there's a mix in those numbers. And the capital stands out a little as well because some of that capital are for what we talked about our international customers or development work that isn't going to convert until later in '26 through early '27, depending on when they can accept those items.

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 4 would give you a very conservative number.

Got it. And we're sort of backing into fourth quarter numbers using your full year. I don't 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 don't have that reported in the K for the thing. So it will give me a minute to get that for you. You can move on if you want to another question for John.

Yes. The last one 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 sort of a status where we're going to have to wait until something larger is announced by one of the other contractors maybe?

Yes. It's a good question. It's a mix of both. So there are larger contracts where we are a smaller component of that we're partnering with others to go after. But then there's larger contracts that are coming out that are more specific to us that will be the prime contractor on that we're bidding. And those you can see there's quite a few of them in all agent, all different branches of the service have several that are out there.

The one thing that we do see, I will mention this is because of what happened with dose and then some of the military has done, at least the Army has done in their acquisition core has just done a massive restructuring and 1 entity down and created a new one and move them around on who's responsible. And so there is something of a speculation that some of these marksmanship training simulators, some of these programs may be combined to may be a much larger one. And we're well positioned for those. But the larger ones may require that we actually take on a sub that may have staffing and those sorts of things that can -- because it's across the world, not just the U.S.

Maybe one more last one for me. Big topic across any of my software-driven companies is really AI these days. So maybe can you talk about to what extent you think AI is a threat? What extent you think it's perhaps able to be monetized and maybe incremental offerings? And third, what extent you could use it internally to streamline processes, make things more efficient?

That's a fantastic question, Rich, and I don't see it as a threat. I see it as an igniter. And what I mean by that is we'll be able to do a lot more with less. What's happening in the AI world right now is they're coming out with AI skill sets, and they're coming out with AI models. And we're taking advantage of the models and the skill set. So a skill set might be is that it's programming facial recognition in a gaming environment with textured characters. So that could be one. And we're taking advantage of those.

One we'll give you an example is we did a -- we do video shoots there like Hollywood movies basically to be able to get our scenarios. That's why they're 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 have this AI model, and they actually made an opening trailer for the scene with assets that they couldn't record on and it was quite amazing. I mean even the team was amazing. They've been at this for some of them for 30 years in this industry.

We're also using it as far as comparative as using software and codeword was kind of made for as you find bugs and you find things inside your software, do a comparative analysis Sims took a long time to thread through all these millions of lines of code. And the AI model of this skill set for programming would be able to identify a potential area of this code. You still need that skill set with very strong skill sets to identify, but it narrowed it down if 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 2 or 3 different releases of software. So that is pretty significant.

The other one that's really coming around is the AI tutor. What do I mean by that? If you go to a weapons range and you shoot at the target and you shoot a grouping of 5 shots in one area, but you have one or 2 that are out on the side. Unless an instructor is there watching you, they would normally say, "Oh, well, you took -- you didn't breathe right, you pulled the trigger, you blink your eyes," whatever that is. Now what we're able to do is take standard operating procedures, instructors, nodes, cognitive performance studies, whatever it is, throw it into that AI model and then once the shot is taken, we then can look at that, we can have AI look at all the information that we put into that model and then analyze the results and give suggestions of what may happen. So there's that AI tutor as well.

So it's not a replacement, but at least gets you because what our systems have always done is it presents a target, just like you're on the range. It shows you your results of what you've done, but then there's no one there to give an analysis. So this section of AI that we're using now is there's -- it's able to do the analysis as well. And then there's a multitude of other areas that we're taking AI and looking at. It's a performance enhancement.

Monetizing is a different story in ours. We're looking at ways to monetize AI in that regard. That's a little tougher question, a little bit harder look but what we are doing is we're seeing our bottom line, we're seeing cost savings across the board because of our implementation of these AI models and these AI skill sets. Alanna, did you get that?

Yes. Rich, yes, it's a negative $0.9 million.

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

Good afternoon, and welcome to VirTra's Third Quarter 2025 Earnings Conference Call. My name is Julian, 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 Virtu'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 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. You may proceed, sir.

Thank you, Julian, 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 third quarter and 9 months ending September 30, 2025, along with highlighted business accomplishments. .

In Q3, VirTra continued to manage through a slower federal funding cycle while keeping strong engagement with our customers and expanding our reach. the timing of Federal award and customer acceptance affected revenue recognition in Q3, but our backlog grew again during the quarter.

We also entered Q4 with a larger pipeline of opportunities tied to grant awards our operational discipline and continued focus on sales and marketing position us well as funding flows improve and pent-up demand converts to orders and deliveries. The operating environment is still being shaped by Federal funding delays.

Agency procurement cycles are still moving slower than normal as agencies wait for budget clarity and grant awards. While this timing has affected the short-term revenue recognition, agency engagement remains strong, and we see demand building in the background. Regarding the funding environment, the Department of Justice Cops grants program has already identified the agency slated to receive funding based on applications that closed on June 30.

Announcements were delayed by the Federal shutdowns. We believe virtual will be among the beneficiaries once those awards are posted and spending authority normalizes. We've also seen progress as key Federal director roles are being filled, which should facilitate authorizations and releases of funds.

We've been active in Washington, D.C., helping policymakers understand the importance of the immersive training and supporting funding initiatives that benefit our customers. When the government shutdown ends, the grant awards resume, we expect revenue conversions to improve. We made solid progress in Q3 and how we reach and support customers.

Our redesigned website launched in September, and the early results are encouraging. Visitors are spending more time evaluating products and requesting information, and we are generating more qualified leads than ever. Meanwhile, our sales model continues to improve accountability and responsiveness across territories. We've made targeted personnel changes to ensure we have the right people in the right roles which is strengthening our customer engagement and follow-through.

We also remain positioned to benefit from our recent entry into the GSA procurement cycle of channel, which streamlines sales processes and shorten delivery time lines. This is another positive step forward in our long-term go-to-market strategy. In parallel, our marketing cadence has increased as we placed a greater focus on press, trade events and targeted industry awareness such as law enforcement leadership gathering.

I also want to note that we've appointed Grant Barber to our Advisory Board. Grant brings over 3 decades of financial leadership including public company CFO experience to our Board. He will be instrumental in supporting our team as we scale. Turning to STEP. The program remains a strong selling point, especially for smaller agencies that may not have access to full Federal funding.

Agencies are using STEP to ensure they have the critical training they need which has driven consistent adoption and high renewal rates. It also creates reoccurring revenue from VirTra and provides us with stronger baseline revenue performance from quarter-to-quarter.

On the product side, our focus remains on delivering best-in-class training for agencies of all sizes. At the IACP last month, we introduced the V1 portable simulator designed specifically for a smaller department. The early response reinforces how important it is to offer high-quality training across a wide range of budgets.

This product expands our addressable market and positions us to serve departments that may have previously been priced out of advanced simulation technology. Our focus on product quality continues to be a major differentiator. Customers consistently report that our systems deliver superior training capabilities and withstands years of rigorous real-world use.

This validation reinforces our reputation as trusted long-term training partner and helps drive repeated business and renewals. It's worth noting that we are driving initiatives in our sales organization to accelerate adoption of our new systems.

We continue to strengthen our value proposition ensuring that VirTra remains well positioned to win and retain customers across multiple market segments. International markets continue to gain momentum in Q3. We as we more than doubled revenue compared to the same period last year, while international activity can be lumpy -- we're encouraged by new developments in Canada and Colombia.

These wins demonstrate the growing global recognition of virtuous training solutions as they diversify our revenue beyond our core U.S. market. Our military work is also progressing. Early this month, we demonstrated our next-generation Soldier VirTra Trainer or SVT system for the U.S. Army at our Orlando training facility.

The system exceeded expectations and showed how our portable V100 can deliver a complete ready-to-deploy solution for weapon skills, joint fires and the use of force training. We also introduced our new analytics platform, Apex, which tracks performance in real time, measuring accuracy, reduction time and decision-making.

Apex gives commanders valuable insight into soldier readiness. Every new virtuous simulator will now include Apex at no additional cost, further demonstrating our commitment to provide data-driven science-based training aligned with the Army's modernization goals. While these sales cycles are longer than our traditional law enforcement market, we are building strong relationships with our military partners as part of our long-term growth strategy.

Overall, Q3 showed continuous progress despite ongoing funding timing challenges. Our core law enforcement business remains a central focus as we are seeing stronger engagement across our customer base. Our meaningful backlog expanded product portfolios, improved marketing foundation and international momentum give us a solid base to convert opportunities into revenue as grant awards and customer acceptance picked back up.

With that, I'll turn it over to Alanna for the details of the financial review. Alanna?

Thank you, John, and good afternoon, everyone. Now let's review our unaudited financial results for the third quarter and 9 months ended September 30, 2025. Our total revenue for the third quarter was $5.3 million compared to $7.5 million in the prior year period. The decrease can primarily be attributed to lower revenues from the government sector due to those funding delays. .

Breaking this down by market, our government revenue for the third quarter was $4.1 million compared to $6.9 million in the prior year period. International revenue for the third quarter was $1.2 million compared to $0.4 million in the prior year period. Our total revenue for 9 months was $19.5 million compared to $20.9 million in the prior year period.

Gross profit for the third quarter was $3.5 million or 66% of total revenue compared to $5.5 million or 73% of total revenue in the prior year period. Last year's unusually high gross margin reflected capitalized labor on development of the XR and the IVAS program and a greater mix of high-margin service and stuff revenue.

Our gross profit for the 9 months was $13.5 million or 69% of total revenue compared to $15.7 million or 75% of total revenue in the prior year period. The change in gross margin reflects that higher mix of capital sales in 2025 relative to the service and staff revenue as well as the absence of unusual low cost of sales recorded in 2024 due to the capitalized labor and development projects.

Our net operating expense for the third quarter was $4 million down 16% from $4.7 million in the prior year period. Our net operating expense for the 9 months was $11.7 million or down 11% from $13.2 million in the prior year period. These decreases reflect our disciplined cost management while maintaining investment in our core growth initiatives.

The operating loss for the third quarter was $0.5 million compared to operating income of $0.8 million in the prior year period. Operating income for the 9 months was $1.8 million compared to $3.3 million in the prior year period. Net loss for the third quarter was $0.4 million or $0.03 per diluted share compared to net income of $0.6 million or $0.05 per diluted share in the prior year period.

Net income for the 9 months was $1.1 million or $0.09 per diluted share compared to $2.3 million or $0.21 per diluted share in the prior year period. Adjusted EBITDA, a non-GAAP metric, was $0.1 million for the third quarter and $2.5 million for the first 9 months of 2025.

As of September 30, our cash and cash equivalents totaled $20.8 million compared to $18 million at December 31, 2024. Working capital was $32.9 million, and we maintained a debt-like balance sheet. VirTra that define bookings as the total of newly signed contracts awarded RFPs and purchase orders received in a given period. Bookings for the third quarter was $8.4 million, up from $4.6 million in Q2. VirTra defines backlog as the accumulation of bookings from signed contracts and purchase orders that are not yet started or are incomplete in their performance obligations, and therefore, cannot yet be recognized as revenue until delivered in a future period.

We segment these backlog into 3 primary categories: capital, which includes our simulator systems, accessories, installation, training, custom content and design work, service, which is primarily extended warranties and support contracts and STEP our long-term subscription-based program.

Our backlog as of September 30, 2025, and stood at $21.9 million. This includes $10.2 million in capital, $5.3 million in service and $6.4 million in stock contracts. Additionally, we are continuing to track renewable STEP contract options, which are not yet included in the backlog total.

New capital bookings are largely expected to convert to revenue in the upcoming quarters due to customers having requested deferred deliveries. As always, our ability to convert backlog into revenue remains dependent on customer-driven installation time lines, which can shift based on factors outside of our control.

So in review, our backlog, recurring revenue base and strong balance sheet provide flexibility as funding will resume. Looking forward, we believe the combination of our disciplined cost management and enhanced contract structures and ongoing demand recovery will support continued progress. Our updated STEP program with its 3-year commitment and strong 95% renewal trends improves recurring revenue visibility and reinforces long-term customer relationships and position VirTra for sustainable growth.

That concludes my prepared remarks, and I'll turn the call back over to John for his closing comments. John?

Thank you, Alanna. As we finish out 2025 and look towards 2026, we stand ready to deliver critical training tools to our law enforcement partners when budgets open back up. We have remained focused on improving our sales process, products and operations to strengthen our foundation. .

We look forward to reaccelerating our business growth in the quarters ahead. That concludes my prepared remarks. Operator.

[Operator Instructions] And our first question comes from the line of Richard Baldry with ROTH Capital Partners.

Looking at the booking strength in the quarter, can you talk a bit about were there any multiyear deals that skewed that result? Or is it a fairly typical cadence versus prior? And then maybe -- was a lot of that international versus domestic or disproportionately? .

Alanna, would you take that.

Yes. Yes. Actually, at the end of the quarter was when we received a booking of about $4.8 million that we anticipate most of becoming revenue in 2026, and it did skew to the international customer. .

Okay. And then how does the shutdown or the funding backdrop impact military and your prospects there versus your typical police agency business? .

Well, it affects both proportionately. Most of the agencies that we're dealing have -- they rely a lot on government funding, whether it's full funding for the system under the comps or some of these grant programs or if it's a matched funding, it affects them pretty significantly.

As far as the military goes, when it shut down, we get no funding, the 4.8% that came in from the Colombian that we -- the Columbia deal that we looked at was from IML, which is international narcotics law enforcement. And there was a window where everything started to open up, they awarded it very quickly and then we went into the shutdown.

So there's a lot of pent-up demand and there's a lot of folks looking at our systems and wanting to talk the SVT program that we reported on. They continued even during the shutdown asking questions and us providing information. So we're gaining a lot of traction there. Unfortunately, that probably moves the slowest, but it's the most rewarding.

So we'll see some activity here coming forward as the shutdown ends and the funding continues to open up. The other side of that, though, Rich, is that a lot of these agencies that we have been talking to and the ones that have funding and that we have quotes in or have had deep discussions A lot of them since the new administration came in last January, haven't had their official directors there. So they've been very hesitant to award or use any of the firms whether they do not have the authority or whether they don't want to take the responsibility. So we're seeing a lot of the directors are now being assigned to that the government opening up and the funding starting to open. I think that was the trifecta that put us in bad shape, but it's all coming together now. So we should see a lot of positivity moving forward in the next several quarters.

Okay. And is there a way to think about the backlog in terms of what is actually funded but maybe waiting certain milestones or something deployable on the client side versus what's awaiting funding to try to get a figure for a feel for how much of that you can convert to revenue near term before the bottlenecks hopefully.

Yes, that's a good question. Remember, several years ago, we decided to break up the backlog, so gave you a little better idea of what was in the backlog. So when you look at those components to capital, capital is 10.5%. Let me just go back 10.2 in capital. The only thing that affects the conversion of that and has happened to us on several occasions, is the customer purchasing it, it's sitting on our docks but for some reason, whether right now, some of it's funding or whether the building is ready to take it or whether they have everything lined up that they can take it.

Sometimes, it's as little as 30 days, and we've had some there as long as a year. So those are the items that we talked about out of the control. The 5.3% in service contracts go -- we don't break it down of -- we have warranty of service in there for 2026, 2027, 2028, 3 years out, we don't break that down. So there's a portion of that, that would also be recognized.

And the same thing for the STEP program. the STEP program since we've changed our contracts and it's not an option for this step, but more of a obligation we can now recognize out years. So again, there's up to 3 years' worth of STEP contract to 6.4%. So if you have to look at it, you could do -- as you look at it, Rich, a good portion of the $10.2 million minus things we can't foresee. And maybe 1/3 and 1/3 would be something very, very rough for services and STEP because of the out years. And we do have some remaining on the 5-year step, which may be 2 more years out. That's about as much as I can break down for you.

Yes. Got it. So even in a pretty tough quarter, you managed to be slightly EBITDA positive. I'm sort of curious the balance sheet is well funded. During this period, would you view acquisitions or something as a way to bolster your offerings, waiting for things to move forward or buybacks? Or do you feel like first, we want to see the bottlenecks ease up and then we start to think about what to do strategically with the balance sheet. .

Yes, we've thought strategically for several years now, and with our Board and other advisers, we've looked at. There was too much uncertainty to make a move into the market. So we're just waiting to see as this clears up, but just like any good company, will I technologies, companies that would add something that's accretive to the balance sheet, accretive to our product offering without bearing too far off from our main focus. .

So we're always on the look and always for the hunt for those. But I think the step set back slightly and find out where it's going first is probably the safest bet and most protective for the shareholders at this moment.

And our next question comes from the line of Jaeson Schmidt with Lake Street Capital Markets. .

Just curious if you could give an update on the BXR and if you're seeing the same sort of headwinds you're seeing in the broader business in this market as well. .

Yes. The BXR is fully developed when it comes to training using our -- the, I would say, the library of training scenarios that we have, along with our Victor, that's the certified training courses through the nationally recognized idles program.

There's over 105 hours of certified courses that they can get what would be called their equivalent continuing education. We're seeing the same headwinds for funding. It really doesn't matter how much it is, whether it's the funding or directorship or the leadership making those decisions. A lot of good market acceptance -- it's just released at a time where things were a little tight.

But we see a lot of good comments from the sector and from the space and we're looking forward to host opening up and selling more.

Okay. That makes sense. And then just as a follow-up, I mean gross margin, understanding the dynamics the step back in Q3, but what should we be thinking about gross marketing going forward? .

Go ahead, Alanna.

You would anticipate that our gross margins stay similar to what we are seeing in this quarter and potentially going down a little bit more? Like we've always kind of talked about the fact that we'd like it to be somewhere between 60% and 65%, right? And that's where -- so anything above that for us is a win.

Yes, Jaeson, the only caveat I would make to that and I've reported in the past, I'm willing to sacrifice a little bit of gross margin to gain market share, especially in our segment as we start offering some of these new products for our first to market in a certain space with our type of content offering, I'd like to just jump in there, so we get the first foothold on that market segment with that type of product, especially as the new technology comes out. .

Thank you. And with that, at this time, this does conclude today's question-and-answer session. I'd now like to turn the call back over to Mr. Givens for his closing remarks. .

Thank you for joining us today and for your continued support of VirTra. We've made meaningful progress so far this year. We'll stay focused on execution, customer success and advancing our growth initiatives. We do appreciate your trust and look forward to updating you on our continued progress in the quarters to come. God bless you all and let's continue to make great strides together. .

Thank you for joining us today for VirTra's Third Quarter 2025 Conference Call. You may now disconnect your lines, and have a wonderful day.

Welcome to the VirTra, Inc. 2025 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 am the Chairman and CEO of VirTra. Welcome to the 2025 Annual Meeting of the Stockholders of VirTra. This meeting is being held in person and also being webcast live. The webcast will be posted on our website for a period of time after the meeting.

The matters on which the stockholders at the meeting are voting are to elect 5 directors, ratify the appointment of Haynie & Company as the company's independent registered public accounting firm for the year ending December 31, 2025, and transact any other business that may properly come before the meeting.

First, I'd like to begin the meeting by introducing a few current members of the Board of Directors. They are, besides myself, Gregg Johnson in the room; Jeffrey Brown, who's in the room; and then attending is Mike Ayers remotely; and also Maria Gervais. We also have present, Alanna Boudreau, our CFO; and 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 an affidavit to Issuers Direct Corporation as to the mailing of the notice of the meeting, which states that on August 26, 2025, notice of Internet availability of proxy materials was mailed to all stockholders of record as of the close of business, August 18, 2025, the record date for the meeting. This affidavit is available if any stock broker wishes to examine it and will be filed with the minutes of this meeting.

I will now discuss the procedures for transacting the business of this meeting. When an item of business on the agenda is before the meeting for consideration, we ask stockholders to limit their participation to one question and one 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 wait to be recognized.

For those attending remotely, please type your question or comment into the Ask a Question tab on the left-hand side of your screen and then click Send. If a stockholder has a question or comment not related to the business item on the agenda, an opportunity to raise other questions and comments will be provided after voting on the proposal described in the proxy statement. For any questions that cannot be addressed during the meeting or for individual matters of concern, please feel free to contact our Investor Relations team at [email protected].

I hereby appoint a representative of Issuer Direct and [ Angie Salom ] as inspectors of elections for the meeting and any adjournment and postponement of this meeting. They have signed an oath to act as inspectors of election, and this oath will be filed with the minutes of this meeting. The inspectors have the stockholder list of the company as of the close of business on October -- on August 18, 2025, the record date for the meeting, which shows the stockholders and their 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 the meeting, so I declare this 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 earlier listed the company's nominees for director. The Board's Nominating and Corporate Governance Committee headed by Gregg Johnson spent a considerable amount of time and effort in making its recommendations to the Board. The committee examined the need to have sufficient continuity at the Board level given the significant leadership changes that have occurred recently. The committee also considered subject matter expertise, Board composition, continuity planning and good governance. In light of all of this, the committee made the following recommendations, which were accepted and approved by the Board.

The retention and inclusion of Jeffrey Brown, Gregg Johnson, Maria Gervais and Michael Ayers in their current roles as independent directors so as to provide continuity of the business and the retention and inclusion of John Givens in his current role as an inside director so as to provide a bridge between the Board and management. 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.

We did not receive any nominations from stockholders. Therefore, I declare nominations of directors closed. A motion to elect 5 directors as described in the proxy statement is now in order.

My name is [ Joe Helm ]. 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 [ Troy Marcell ], and I'm a stockholder. I second the motion.

Are there any questions or comments on the motion? If there is no discussion, I'd like to move on the next item on 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, 2025. 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 Troy Marcell. I hereby move that the stockholders ratify the appointment of Haynie & Company as our independent registered public accounting firm for the current fiscal year.

Does anyone second the motion?

This is Joe Helm. I second the motion.

Are there any questions or comments on the motion? Are there any other matters to be properly considered at this meeting? Since there are no further motions to be properly considered at this meeting, I will now call for a vote of these items. The Inspector of Elections will report on the results of the voting later in the meeting after tabulation has been completed. We will now wait for the tabulation to occur.

While we wait, I'd like to open up the meeting to any questions that stockholders may have. If you have any questions relating to the company, but not to the matters already voted on at the meeting, you may raise them while the vote is being tabulated. Only matters that may concern all stockholders should be raised at this time. Any matter of individual concern to the stockholders should be raised directly with our Investor Relations professionals.

Please note that in some cases, I will not be able to answer due to SEC disclosure restrictions. In light of this, I will try to answer as many questions as I can. Any questions? Bob?

John, how are you feeling about our progress as a company into the military market?

Over the last 3 years, the company has been reproductizing what the company already has and building a product that is what the military needs, not what the company thought they needed. And we're positioned very well for the next stages of growth in the company based on that alone, not to mention what we've done in the law enforcement and some of the other adjacent markets. The military has now started to take notice that we're a single point. What I mean by that is everything that we provide, we manufacture or we control. So that's one thing that they are very happy with. There's not multiple vendors, prime and multiple subcontractors. So that puts us in a very good position. And some of the products that you'll see, the folks that are here for the tour, we've expanded our products to meet those specific needs.

Any other questions? Okay. I understand that the votes have been counted and the preliminary report of the inspectors of election has been delivered to the company. Alanna, will you please announce the results of the stockholders' vote?

The preliminary vote of the inspector of election indicates the following votes in favor: John Givens, 4,434,960 or approximately 98% of the votes; Jeffrey Brown, 2,426,321 or approximately 54% of the votes; Gregg Johnson, 2,445,953 or 85% of the vote. As the company had 5 directors to be elected by plurality vote, all of the nominees have been elected.

Ratification of the appointment of Haynie & Company as the independent registered public accounting firm for the year ending December 31, 2025 has been approved by the stockholders by the affirmative vote of the majority of the votes present and in person via webcast or by proxy at the meeting.

Can we pause 1 second? We've just got notification that the online version went out. I apologize if you're going to have to hear me read that again. We're back on.

As the company had 5 directors to be elected by plurality vote, all of the nominees have been elected. Ratification of the appointment of Haynie & Company as the company's independent registered public accounting firm for the year ending December 31, 2025, has been approved by the stockholders by the affirmative vote of a majority of the votes present in person via webcast or by proxy at the meeting. John?

I hereby request that the final report of the Inspector of Elections be filed with the minutes of this meeting. You have now heard the results of the voting, and this completes the business to be conducted at this meeting. Since there is no other matters to come before the meeting, a motion to adjourn this meeting is now in order.

So moved.

Do we have a second? All in favor of motion for adjournment, please signify by saying Aye. Those opposed, signify by saying No. The motion has been carried.

I'd like to take this opportunity to thank you for your attendance today. Also, please note that your interest in VirTra is very appreciated and the incredible support of the stockholders has been critical to our success. I personally think the best days are ahead of us, and thank you and God bless. I hereby declare this meeting adjourned.

This concludes today's conference call. You may now disconnect. Thank you for your participation.