VTSI - VIRTRA: FILLING THE GAPS IN THE LAW ENFORCEMENT TRAINING INDUSTRY
VIRTRA: FILLING THE GAPS IN THE LAW ENFORCEMENT TRAINING INDUSTRY
VirTra, Inc. (NASDAQ: VTSI) is a global provider of judgmental use of force and firearms training simulators for law enforcement and military markets. The Company’s patented technologies, software, and scenarios provide intense training for de-escalation, judgmental use-of-force, marksmanship, and related training that mimics real-world situations.
VirTra, Inc. (NASDAQ: VTSI)
Market Cap: $59.94M; Current Share Price: $5.50
Data by YCharts
Notable Products
VirTra is an industry leader in de-escalation & judgmental use-of-force simulators, as alternatives are often too expensive, unrealistic, or dangerous.
The Company’s training simulators are used in hundreds of agencies in 40 countries.
The VirTra firearms training simulator allows marksmanship and realistic scenario-based training to occur daily without requiring a shooting range, protective equipment, role players, safety officers, or a scenario-based training site.
The Company has developed a higher standard in simulation training, including multi-screen, video-based scenarios, unique scenario authoring ability, superior training scenarios, the patented Threat-Fire™ shoot-back system, powerful gas-powered simulated recoil weapons, and more.
Through its offerings, VirTra aims to safely & cost-effectively replicate the stress & uncertainty of real-world confrontations to teach first responders how to de-escalate a potentially violent situation and respond with appropriate force when necessary to increase both police and civilian safety.
We’ll discuss a few factors as to why VirTra seems like a promising company.
- Superior Technology
VirTra’s products are superior to other similar technologies available in the market.
The Company offers realistic 300? and 180? simulators with more than 100 deployments for each category and a far superior training content library compared to peers. Hence, the Company’s simulator allows students to receive immediate feedback from the instructor without the potential for sustaining injuries by the instructor or the students. The instructor can teach and re-mediate critical issues while placing realistic stress on the students due to the realistic and safe training environment created by the VirTra simulator.
Also, the Company’s V-VICTA Curriculum is widely recognized and highly lauded.
On the other hand, none, or very few of VirTra’s competitors, provide 300? and 180? simulator deployments. Instead, VirTra’s competitors’ products offer simplistic and low-budget scenarios, often lacking realism and training value.
The Company is exceptionally well known for its industry-leading accessories, such as the patented Threat-Fire® product. Thus, VirTra enjoys a top reputation due to its quality products and customer service. Meanwhile, most of VirTra’s competitors lack proprietary devices and try to copy VirTra’s products with inconsistent quality and customer service.
Finally, customers prefer VirTra’s products because the higher-quality training can help them decrease legal liabilities. In contrast, inferior products offered by competitors can result in poor legal defense and protection.
Overall, VirTra seems to have the edge over its competitors due to its strength in developing a more effective training solution ecosystem, patented products, and an extensive library of training content that would require time and a substantial investment by a competitor to offer a comparable product. The Company has achieved an above 95% customer retention rate which shows customer preference for VirTra’s products.
In other words, the Company’s sophisticated, comprehensive product line and library of training content also act as an effective barrier to entry for prospective entrants in the industry.
- Significant Growth Opportunities
The currently prevalent methods for police training are insufficient or too expensive. Classroom/academics/online training is inadequate because knowledge does not always equal performance.
Simunition® training with actors and shooting range/live fire is too expensive and has limitations such as a lack of reviews or decision-making abilities. In such circumstances, customers much favor VirTra as it provides practical and cost-effective training via reviewable and repeatable scenarios.
Regarding the domestic law enforcement market, the Total Addressable Market for providers such as VirTra stands at $650 million (this includes 6,500 larger U.S. agencies).
Moreover, the Company’s Subscription Training Equipment Partnership (STEP)™ program (that allows agencies to utilize VirTra’s simulator products, accessories, and V-VICTA interactive coursework on a subscription basis) has the potential to expand to all 18,000 U.S. agencies.
The military market also presents additional growth opportunities for VirTra. As simulation training gains acceptance & tech improves in this market, there will be growing demand for AR/VR tech, de-escalation, and recoil Kits, all well suited to VirTra’s innovation and core immersive tech.
VirTra has implemented a three-pronged strategy to benefit from the growth opportunities. Firstly, they aim to leverage strategic partnerships with Force Science Institute, Haley Strategic Partners, and National Sheriff’s Association.
Secondly, the Company plans to grow beyond existing products and markets by introducing new product categories, which would increase recurring revenue streams.
Finally, they plan to grow within existing products and markets by generating new sales with medium to large police departments and increasing new content, warranty coverage, and upgrades amongst existing customers.
During the years ended December 31, 2022, and 2021, the Company’s research and product development expenses were $2,606,840 and $1,865,880, respectively, marking an increase of 40% over the previous year. The extensive and increasing R&D expenditure indicates that the management is committed to bringing innovations and introducing new product categories to bolster revenue streams. This is also evident from the fact that during FY22, the Company launched VirTra Volumetric Video. This breakthrough technology can potentially provide a step-function change in training content.
Operationally, VirTra centralized and expanded its Arizona headquarters, opened a new facility in Orlando to support military growth opportunities, and implemented a new ERP system to prepare for a more significant scale to improve efficiencies.
Additionally, the management is focussing on new marketing and product and service offerings to widen the number of customers who might consider VirTra’s products or services uniquely compelling.
Thus, the Company’s ongoing efforts to capitalize on the growing market opportunities should help it significantly expand its revenues and market share.
- Impressive Financial Performance
For FY22, VirTra’s total revenue increased 16% to $28.3 million from $24.4 million in FY21. The increase in revenue resulted from STEP sales, simulator sales, accessories, curriculum and training, and recurring extended warranty revenue in FY22.
Gross profit was $16.3 million, compared to $11.4 million in FY21, representing an increase of 43%. Gross profit margin, defined as total revenue less cost of sales, was 57.4%, compared to 46.7% for the fiscal year of FY21. The increase in gross profit was primarily due to the rise in simulator system sales and recurring STEP revenue, which helped increase revenue while decreasing the cost of goods sold.
Adjusted EBITDA, a non-GAAP metric, totaled $3.6 million, compared to $2.1 million in FY21. VirTra exited FY22 with record bookings of $33.0 million and a record backlog of $27.7 million.
As can be seen from the graph above, VirTra has a consistent track record of revenue growth and has done exceptionally well in this regard over the last two years. Recently, CFO Alanna Boudreau commented, “In 2022, VirTra grew revenue for the 17th consecutive year on its way to expanding gross profit margins by over 57% and improving operating income by over $1 million.”
Thus, the Company’s ability to grow profitability amidst operational transformations highlights the business model’s strength and VirTra’s increasing role in the law enforcement and military simulator markets.
At the end of FY22, the Company had $13.5 million in cash. VirTra is open to raising additional funds from the capital markets at a fair valuation to purchase a business or assets, expand production capacity, expand products and services, enhance sales and marketing efforts and effectiveness, and aggressively take advantage of market opportunities.
Overall, a purview of the above factors indicates that VirTra already has a solid foundational core and is building upon it to scale and grow its business. Therefore it seems poised for significant growth over the next few years.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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Reference:
https://www.virtra.com/virtra-reports-fourth-quarter-and-full-year-2022-financial-results/
https://www.virtra.com/wp-content/uploads/VirTra-IR-Presentation-April-2023.pdf
https://www.sec.gov/ix?doc=/Archives/edgar/data/1085243/000149315223010250/form10-k.htm