Good afternoon, and welcome to VirTra's Second Quarter 2026 Earnings 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, 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, and other 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.
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 VirTra solutions 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 continued 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 in size and 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 recognized revenue from previously awarded deployments 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. The level 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 VirTra's 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 flexibility and includes tenant leases expected to contribute positively to future financial performance. From a product standpoint, we continue to focus on expanding the ways customers can apply VirTra's 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. Our focus remains 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 Alanna to go over the financial results in more detail. Alanna?
Thank you, John, and good afternoon, everyone. Let's now review our unaudited financial results for the second quarter and six months ending June 30, 2026. Our total revenue for the second quarter was $5.8 million compared to $7.0 million in the prior year period. Revenue increased significantly from $3.5 million 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 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 total revenue, compared to $4.8 million, or 69% of 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 total revenue, compared to $10.0 million, or 71% of total revenue, in the prior year period. Again, that decrease was driven by 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. 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 disciplined expense management while continuing to invest in our key growth initiatives. Loss from operations for the second quarter was approximately $0.2 million compared to operating income of $0.9 million in the prior year period. Loss from operations for the first six months was approximately $1.5 million compared to operating income of $2.3 million in the prior year period. Our net loss for the second quarter was $0.3 million, or $0.02 per diluted share, compared to net income of $0.2 million, or $0.02 per diluted share, in the prior year period. Net loss for the first six months was approximately $1.6 million, or $0.14 per diluted share, compared to net income of $1.4 million, or $0.13 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. For the six months of 2026, adjusted EBITDA was approximately negative $0.4 million compared to $2.4 million in the prior year period. As of June 30, cash and cash equivalents totaled $14.3 million compared to $18.6 million at December 31, 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 our Orlando facility. As John mentioned, we completed that acquisition of our Orlando campus during the quarter. 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, VirTra 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 from our federal customers, and a number of capital systems purchased across all of our domestic sales territories. VirTra 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 backlog at June 30, 2026, 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 remainder of the year, although timing will continue to depend on customer funding, the procurement processes, and the installation schedules and acceptance 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, disciplined expense management, and strong balance sheet position us 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, Alanna. 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 through the acquisition of our Orlando campus. While 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.
We will now begin the question-and-answer session. I see that there are no questions in the live queue at this time. The company has received questions from investors to address now.
Question one, you discussed seeing meaningful progress in the funding environment, 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 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 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 requests for proposals that have been put out there that we've responded to. Both from military to federal agencies, we have requests in which we've submitted. The other positive indication is that we were awarded and accepted onto the new marketplace for the U.S. 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 law enforcement. So all of those are the really positive signs that we've seen in this funds release.
Question two, international revenue contributed meaningfully to the sequential improvement this quarter. 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?
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 the 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 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, VirTra 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, 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 international 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.