Good afternoon, and welcome to VirTra's First Quarter 2024 Earnings Conference Call. My name is Robert, 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'd 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, and you may proceed, sir.

Thank you, operator, and thank you, everybody, for joining us this afternoon. After the markets closed today, we issued a press release that provided our financial results for the first quarter ending March 31, 2024, along with the highlighted business accomplishments. Today, I'll begin by discussing our first quarter performance and strategic achievements, including our progress with the V-XR platform and our military market engagements before handing over to Alanna for a detailed financial review. After that, I'll provide some concluding remarks before we move on to questions and answers. Our first quarter performance was not where we want it to be. Revenue dipped to $8.1 million, a figure that frankly reflects our current challenges as much as it highlights our potential. While we maintain a strong gross margin of 67%, the decrease in revenue was an indicator that our new sales initiatives need to be accelerated. We are facing external headwinds, notably from cyclical budget decisions and the impact from the U.S. government's continuing resolutions. These are not excuses, but the realities, and we are tackling them head-on. We are not sitting idle. The substantial effort in 2023 to clear out the significant backlog was essential. However, it has temporarily impacted our revenue streams to start this year. In recent months, we've been hard at work implementing our sales initiatives, ramping up our grant assistance programs and pursuing sales growth. While these actions take time to yield results, they will be important for our continuing progress and further penetrating the global markets and supporting the upcoming V-XR launch. As an update, our V-XR launch preparations advanced on schedule this quarter, and we are targeting deliveries in the coming months. Our new extended reality solution is set to disrupt and improve the professional training environments. It is designed to enhance soft skills training across applications in law enforcement, health care, education and other related sectors. We are tailoring V-XR to meet the diverse needs of all agency sizes, budgets and training requirements. By extending beyond the shoot, don't shoot scenario-based training, V-XR focuses on the development of critical interpersonal skills, enabling professionals to better navigate sensitive situations, diffuse potential conflicts and build strong community relationships. Its wide array of applications positions V-XR as a key pillar in our long-term growth strategy. With this launch, we are prepared to moderate our strong profit margins temporarily to secure a more substantial market share and ensure sustained growth. As we progress through 2024, advancing our sales and marketing strategy is a key priority to efficiently bring our core screen-based simulators and new innovations like V-XR to market. We've streamlined our sales approach to boost productivity and customer success. By establishing additional territories and optimizing our sales staff's focus, we're enhancing customer engagement and operational efficiencies. Our revised sales initiative program, incentive program and the strategic addition of sales support specialists in key locations are already improving our pipeline visibility and customer interactions, ensuring that our sales force is as advanced and efficient as our technologies. We are strategically investing in content and technology to ensure all of our training solutions, including V-XR, provide effective training modules across various applications and scenarios. Our investment in content development continues to strengthen our competitive position. We have expanded our scenario library to include more real-world situations like crisis intervention and active shooter responses developed in consultation with industry experts. This expansion is enhancing our training effectiveness and solidifying our early mover advantage in the industry. Our proprietary D3 technology fuels these developments, making our training solutions comprehensive and realistic. Much of our content is also certified through IADLEST, ensuring it meets the rigorous national standards. Each hour of our training curriculum saves approximately 65 hours of research and preparation for our clients, demonstrating significant value and efficiency. Growing our content library will continue to be a key priority in the years ahead as quality content continues to be the crucial differentiator for securing new customers, improving current customers' experience and driving positive training outcomes. We are ramping up content development across our training solutions and continuously growing our output rates. These enhancements in content are paralleled by continuous improvements in our internal operations. We've been optimizing our production process and further enhancing our ERP system to improve our operational agility, which is a crucial factor in fulfilling our backlog in 2023. As a result, throughput has significantly increased, demonstrating our ability to handle larger volumes more efficiently, which is crucial as we scale operations. We've improved our book to ship times and product quality, reducing production errors and we're seeing much better cooperation between departments. Together, these advances are achieving financial efficiencies and ultimately leading to greater customer satisfaction, which we expect to continue strengthening as our customers' success initiatives take hold. Looking closer at how our end markets performed in Q1. In the first quarter, our government revenue increased by 7% to $6.7 million from $6.3 million in the prior year. This growth is attributed to design and prototyping revenue. As law enforcement budgets face continuous cuts, they rely heavily on the grant funding from the federal government. We have implemented the grant watch program, which monitors and matches department needs with grants required to fund needed equipment for training. Internationally, our revenue was $1.3 million a decrease from $3.2 million in 2023. The dip in this segment can primarily be attributed to the longer lead times in our international pipeline. With our international pipeline continuing to grow, the U.S. government continuing resolution and budget issues, along with the current geopolitical landscape has affected the expected release dates of many opportunities, which rely heavily on government funding. We expect a higher close rate in the next several quarters as budgets are approved and the continuing resolution was resolved. As part of our sales team restructuring, the appointment of dedicated international sales personnel is beginning to show results. These changes are enhancing our ability to forecast and stabilize future revenue streams within this segment as we continue to build out a more predictable international pipeline. Turning to our progress in the military. The recent award of a $5.9 million prototype contract from the U.S. Army's Integrated Visual Augmentation System, or IVAS program, underscores our strategic alignment with military needs and our pivotal role in advancing training technologies. This contract, secured through our collaboration with Microsoft as the prime contractor, is an important continuation of our involvement with the IVAS program. Included in the order are our industry-leading recoil hardware kits, high-pressure air fill stations and magazines, all engineered to meet the U.S. Army's stringent requirements. This partnership reaffirms the reliability and performance of our technology and highlights our capability to innovate and adapt in response to the demanding needs of military training. Over the past 2 years, we have significantly expanded our production capacity, preparing VirTra for mass production and enabling us to meet the growing demands of the U.S. Army. Our work on this project has advanced our technological capabilities and provided us with valuable insights into effectively serving military markets globally. Through initiatives like IVAS, VirTra is not merely participating in the defense sector; we are actively shaping the next generation of military training solutions. Our efforts ensure that service members are equipped to handle the complexities of modern combat scenarios and this contract serves as a foundation for future innovations in army training technologies. I'll now turn the call over to Alanna to discuss our financial results in further detail.

Thank you, John, and good afternoon, everyone. Now let's review our unaudited financial results for the first quarter ended March 31, 2024. Total revenue was $8.1 million compared to $10 million in the prior year period. The 19% decrease was primarily due to delays in federal funding, attributed to the U.S. government's continuing resolution, which caused numerous contracts to be placed on hold. This temporary challenge impacted bookings in both the fourth quarter of 2023 and the first quarter of 2024. Our gross profit totaled $5.5 million, 67% of total revenue, compared to $6.9 million, 69% of total revenue in the prior year period. The 21% decrease in gross profit was primarily due to the change in sales. Gross margin decreased mainly due to cost increases from the Microsoft contract. Specifically, the milestone payment in December 2023, which incurred minimal cost, previously boosted margins. However, costs associated with subsequent milestone payment in the first quarter of 2024 adversely affected those gross margins. Effective cost management and other system sales partially offset this effect. Net operating expense was $4.1 million, marking a 17% increase from $3.5 million in the prior year period. This rise was driven by higher payroll and benefits associated with recruiting senior-level staff for strategic growth, increased IT spending to enhance compliance for potential government contracts and expanded travel to broaden sales territory coverage. Our operating income decreased $1.4 million from $3.5 million. Our net income was $1.2 million, or $0.11 per diluted share, based on 11 million weighted average diluted shares outstanding, compared to net income of $2.9 million or $0.27 per diluted share based on 10.9 million weighted average diluted shares outstanding in the prior year period. Our adjusted EBITDA, a non-GAAP metric, was $1.9 million compared to $4 million in the prior year period. Now turning to our bookings and backlog. We define bookings as the total of newly signed contracts and purchase orders received in a defined period. For the first quarter of 2024, we received bookings totaling $2.9 million. Looking at our backlog, which we define as the accumulation of bookings from signed contracts and purchase orders that are not yet started or incomplete and cannot be recognized as revenue until delivered in a future period. As of March 31, 2024, our backlog totaled $14 million. The breakout of this backlog includes $5.4 million in capital, $6.4 million in service and warranties and $2.2 million in STEP contracts. As a reminder, service warranties and STEP backlog is revenue that will be recognized on a straight-line basis over the coming years. In addition to the backlog, there are $6.8 million in renewable STEP contracts that would represent additional revenue for the next 5 years. Historically, we have had greater than a 95% renewal rate on our STEP contracts. Finally, to our balance sheet. As of March 31, 2024, we had unrestricted cash and cash equivalents of $22.4 million, an increase from $18.9 million at December 31, 2023. From a working capital standpoint, at the end of the first quarter, we had $33.2 million in working capital, consistent with the $33.2 million at the end of Q4 2023. For additional details on our financial results, please reference our 10-Q, which was filed earlier today. That concludes my prepared remarks. And now I'll turn over to John for his closing remarks.

Thank you, Alanna. As we review this past quarter, it's clear that while we are not satisfied with our current performance, we are actively addressing these challenges. Our upcoming launch of the V-XR platform and the growth in our strategic military engagements are important components to this response, and they will be key to our success in the rest of 2024. Looking ahead, we're focused on converting our robust pipeline into tangible outcomes. We may see similar sales figures in Q2 as we did in Q1, but as government budget resolutions take shape, this could change. We are positioned to capitalize on our healthy pipeline of opportunities in the months ahead. Enhancing our customer relationships remains a top priority, particularly as we extend our global reach and roll out new products. In conclusion, despite the temporary hurdles, VirTra remains at the helm of the training industry, driven by innovation and a commitment to excel training outcomes. We are optimistic about what 2024 holds, and we look forward to sharing our progress. We appreciate your continued support and interest. And with that, we'll open up the call for questions. Operator, please provide the appropriate instructions.

Our first question comes from Jaeson Schmidt with Lake Street Capital.

John, I just want to start with sort of your comments on kind of Q2 maybe similar to Q1. I guess maybe to expand on that a little further, can you just discuss how bookings have been tracking through the first 2 weeks of this quarter?

Yes. Bookings are progressing well, and we have several opportunities that depend on federal funding. The timing of when those funds will be available is uncertain until the continuing resolution is resolved. I wanted to make everyone aware of this potential delay, but we are optimistic as we see improvements happening now. We should be fine, but timing is crucial.

Okay. That makes sense. And then just following up on your comments on the IVAS win. I mean, that definitely sounds like a pretty significant milestone for you guys. How should we think about the kind of high-level big picture opportunity with this program?

As most people are aware, this is a prototype contract. We utilized our existing technology to meet their stringent requirements and conduct reliability testing for humidity and salt, as they intend to use the products outdoors. We successfully met numerous milestones, and this contract involves field testing with soldiers as part of a larger initiative. If everything goes according to plan, there are challenges in obtaining ammunition and training ranges, which complicates getting soldiers out for training for safety reasons. They are exploring alternative training methods in both field settings and back at their home stations.

Got it. And then just last one for me, and I'll jump back in the queue. It sounds like the V-XR is right on track for launch. How many customers will be receiving this? Is it a couple, half dozen, a dozen? How should we be thinking about that?

We have active purchase orders and are currently collaborating with the headset manufacturer regarding terms, conditions, and pricing. There is a substantial number of new and existing customers interested in the headset. The main purpose for using the headset is to enhance soft skills training, which requires minimal space. As I mentioned previously, we are not pursuing the shoot/don't shoot training at this moment because the technology is not advanced enough and could lead to negative training experiences. Many of our current customers view this headset as a way to enhance their training systems without impacting that revenue stream. While I can’t provide specific numbers, there is significant interest, and we have sent out quotes and purchase orders.

At this time, this concludes our question-and-answer session. I'd now like to turn the call back over to Mr. Givens for his closing remarks.

Thank you. VirTra is dedicated to our customers, and their crucial missions are as strong as ever. Our passion, hard work and dedication of our team are the cornerstone of our success, and I'm confident in our ability to provide thought leadership to our customers, continue innovating at the top of the industry and making a meaningful difference. To our shareholders, thank you for your continued support. As we move forward into the rest of 2024 and beyond, I'm looking forward to sharing our success and progress with you. Thanks for all of your ongoing support.

Thank you for joining us today for VirTra's First Quarter 2024 Conference Call. You may now disconnect your lines.