VirTra Inc (VTSI)

[sharpchicity]

I'm mixed about this quarter. From a business perspective, good job but boring. From a stock perspective, I'm less excited.

Positives

* Revenue of $6.75 is the 3rd straight quarter of $6m+. They had one quarter in 2018 at this rate, one in 2019, two in 2020, and two in 2021. Seasonality is a thing and historical q1's were $3.2m in 2018, then 3.1m, 3.3m, and 4.4m in 2021. I'm hoping we see $2m+ international revenue in Q2...

* Profit margin back to 55%.

* Inventory continues to rise from $4.2m in 2021q1 to $7m in 2022q1. Some of this is surely supply chain safety stock, but also....

* machinery and equipment line item up to $2.5m from $1.1m 2021q1. $1.5m --> 1.74 --> 1.97 --> $2.45m. I will follow up with Bob next time, but this line item I believe is typically is for machinery to make recoil kits. Are we stocking up for inventory & machinery for IVAS still?

* $1.6m revenue from military segment. Not sure where it came from, but good to see.

* $6.4m bookings marks 6 of 7 quarters > $6m bookings and eight in a row > $5.5m. puts TTM bookings at $31.9m Historically TTM bookings in Q1's are $16m in 2019 --> $21.1 in '20 --> $25.3 in '21.

Negatives

* Net Margins are back down to 8% from 16% in Q1'21-Q3'21. FY22 revenue of $30m, which is 25% revenue growth, at these margins is only $2.5m EBITDA or 23c EPS which equates to a 17x forward EV/EBITDA multiple. hardly "cheap". If you project a 15% net margin you're looking at 10x forward multiple.

* Bob said after Q3 that R&D would go from $600k back down toward historic rates of $300-400k but it's gone up 3 quarters in a row to now $680k. (See quote below)

* Bob said in Q4 cc that SG&A due to accounting changes was mostly a Q4 thing but then Q1 was the same as Q4... Can we really trust Bob at this point?

* Bookings of $6.4m was good, but we've received roughly $100k in Q1 from federal. A lumpy federal order stream like this severely hinders growth. We may see big Q3/Q4 numbers as end of fiscal year ramp up, but it's also possible we see muted spending until federal standards are set next year. Again, delaying opportunity.

* $1.8m removed from backlog "due to budgetary cuts and government de-funding." This is the first time I've seen this happen but ties back to my prior point of federal spending being pushed out until standardization takes shape. I don't think this is likely, but if they're cutting spending now, will they cut spending on VirTra in the future? I'm guessing this is CBP orders as no other gov agency has placed >$1.5m orders recently from what i can see.

* Cash continues to go down. Less so than on the surface due to AR and Unbilled Revenue increases. I think it's ~$1.7m accounting for changes in AR/AP/Unbilled Rev/Deferred Rev.

Quote re: R&D

Looking at the R&D line, it stepped up pretty solidly in the quarter. I'm sort of curious what you think of as -- is this a new run rate we should be forecasting at? Was there anything unusual in there that maybe makes it more likely to revert to first half levels?
Robert Ferris
So yes, that -- actually, that relates to what I just mentioned about the ADMIRE contract where the government is actually paying us to do R&D work that, ultimately, we still have rights to, and so -- and it builds on a lot of the work we've already done, which obviously we have lots of rights on the work that we did at private expense, and we have full rights to that. So that has a lot to do with that. But we -- the interesting thing, I think, about VirTra here is that we do various things to be competitive that don't always show up as pure staff time and expense.
So we've -- we are investing in certain technologies and capabilities that we believe are next generation and -- some time. And a lot of that, we've already spent some of the money that -- a lot of the money we would expect to spend there.

Quote re: SG&A

And that type of and that probably continues for the next quarter or two, I guess, but then maybe comes down after that. Seems like a reasonable assumption, I would guess.

Bob Ferris

Not where we're at. Right now we are still working on those numbers. But we're, we think that fourth quarter of last year was a pretty unique quarter that it did, it did absorb some onetime items that we don't see as because they were one time at that time. We're not seeing them as recurring. So yes, I do think that fourth quarter was pretty unique. We, we consider it potentially a bit of an outlier, just because of the forces behind it that unique military contract with a lower margin profile. So we do really do think that that is, is unique. There's some things that we discussed about inflationary pressure, that would be on-going, but those overall were a much smaller magnitude of impact.