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 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 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 the 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 awards 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 short-term revenue recognition, agency engagement remains strong, and we see demand building in the background. Regarding the funding environment, the Department of Justice's 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 VirTra 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 shortens delivery timelines. 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 gatherings. 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 recurring revenue for 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 V-One 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 withstand years of rigorous real-world use. This validation reinforces our reputation as trusted long-term training partners and helps drive repeated business and renewals. It's worth noting that we are driving initiatives in our sales organization to accelerate the 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, 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 VirTra's 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 Virtual Trainer or SVT system for the U.S. Army at our Orlando training facility. The system exceeded expectations and showed how our portable V-100 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 VirTra 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 pick back up. With that, I'll turn it over to Alanna for the details of the financial review.

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 STEP 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 STEP revenue, as well as the absence of the unusually 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 the $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 defines 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 this 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, stood at $21.9 million. This includes $10.2 million in capital, $5.3 million in service, and $6.4 million in STEP 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 timelines, 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, as well as 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, positioning VirTra for sustainable growth. That concludes my prepared remarks, and I'll turn the call back over to John for his closing comments.

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.

Looking at the booking strength in the quarter, can you discuss whether any multiyear deals affected that result? Or is this a typical pattern compared to previous quarters? Additionally, was much of that international as opposed to domestic, or was there a significant imbalance?

Alanna, do you want to take that?

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 with rely heavily on government funding, whether it's full funding for the system under the COPS or some of these grant programs or if it's matched funding; it affects them pretty significantly. As far as the military goes, when it shut down, we get no funding; the $4.8 million that came in from the Colombian deal was from INL, which is International Narcotics Law Enforcement. There was a window where everything started to open up, and they awarded it very quickly, then we went into the shutdown. So there's a lot of pent-up demand and a lot of folks looking at our systems and wanting to talk about 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 with the government opening up and the funding starting to open. I think that was the trifecta that put us in a bad shape, but it's all coming together now. So we should see a lot of positivity moving forward in the next several quarters.

Is there a way to assess the backlog in terms of what is actually funded, but perhaps waiting for certain milestones or something deployable on the client side, versus what's awaiting funding? This could help us understand how much of that can be converted to revenue in the near term before the bottlenecks hopefully resolve.

That's a great question. A few years ago, we chose to segment the backlog to provide better visibility. When you examine the components of capital, it's at 10.5, and previously it was at 10.2. The main factor affecting the conversion is the customer purchasing the product; it may be on our docks but might not be taken due to reasons like funding issues or site readiness. This can range from as little as 30 days to as long as a year. These elements are beyond our control. The 5.3 in service contracts includes warranties extending to 2026, 2027, and 2028, but we don't provide a detailed breakdown for those. Also, regarding the STEP program, since we modified our contracts to create obligations instead of options, we can recognize contracts up to three years out, totaling 6.4. Essentially, when considering 10.2, we should account for unforeseen factors. A rough estimate could suggest that about one-third is related to services and STEP, considering the future contracts. We also have some contracts from the 5-year STEP that may extend for an additional two years. That’s the extent of the details I can offer.

Yes. Got it. So even in a pretty tough quarter, you managed to be slightly EBITDA positive. I'm sort of curious about the balance sheet being 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 advisors, 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, we'll eye technologies or companies that would add something that's accretive to the balance sheet, accretive to our product offering without deviating too far off from our main focus. So we're always on the lookout and always hunting for those. But I think the STEP setback slightly and finding out where it's going first is probably the safest bet and most protective for the shareholders at this moment.

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 in terms of training, utilizing our library of training scenarios, along with V-VICTA, which consists of certified training courses from the nationally recognized IADLEST program. There are over 105 hours of certified courses available for what would be considered equivalent continuing education. We are experiencing similar challenges in funding, regardless of whether it involves funding itself or the decision-makers. There’s strong market acceptance, but it has been released during a time of some constraints. However, we are receiving positive feedback from the sector and are eager to open up and sell more.

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

Go ahead, Alanna.

You would expect our gross margins to remain similar to this quarter and possibly decrease slightly. We have consistently mentioned our target range is between 60% and 65%, so anything above that would be considered a success for us.

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 can get the first foothold on that market segment and 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.