VTSI

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 include 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, 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 30th, 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 continued to influence our overall performance. As we discussed over the last several quarters, the fundamental demand environment for VirTra solution 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 deployment 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 life cycle, 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 continue moving through grant and procurement processes. We recognize that external funding timings remain the largest variable affecting near-term performance. However, the activity we're 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-month ending June 30th, 2026. Our total revenue for the second quarter was $5.8 million, compared to $7 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 the total revenue, compared to $4.8 million, or 69% of the 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 the total revenue, compared to $10 million or 71% of the total revenue in the prior year period.

That decrease was driven by those 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 $2.2 million in the prior year period. Loss from operations for the first six months was approximately $1.5 million compared to operating income of $1.5 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 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 30th, cash and cash equivalents totaled $14.3 million compared to $18.6 million at December 31st, 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, and 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. 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 activity 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 are 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. Then STEP, our long-term subscription-based program. Our backlog at June 30, 2025 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 conversion during the remaining of the year, although timing will continue to depend on customer funding, the procurement processes, and the installation schedules and accepted timelines. In summary, we are encouraged by the improvement in revenue conversion, bookings, and adjusted EBITDA during the quarter. 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 positions us well to support future growth opportunities. That concludes my prepared remarks, and I will turn the call back over to John for his closing comments. John?

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 in 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 throughout 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.

Thank you. We will now begin the Q&A session. To ask a question, you may press star then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. I see that there are no questions in the live queue at this time. The company has received from investors questions 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?

Yeah, that is a great question. The indicators are pretty strong and pretty glaringly obvious. The grants, as far as there are three separate grants that we have been waiting on since October of 2024, and they have released those, and we have been assisting our customers to the level that we can. They have been submitting to those grants for appropriate funding for their needs. Just seeing that they were released was number one.

Number two, that those submissions and our customers submitted requests. Number three is that they are about to close on those and then award. They have announced that they will have a list out of who was awarded those funds. That is from the grant side, mostly law enforcement. The side on the military is the release of both requests for information. They are trying to see who is out there in the market space that can fulfill their requirements.

The second piece is the request for proposals that have been put out there that we've responded to, both from military to federal agencies have requested, 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 Development trainers. Then there's another set for Joint Fires Training for artillery and close air support. And then the third one is Counter-UAS, where it's a drone defense as well, and that's both for the military and for the law enforcement. So all of those are the really positive signs that we've seen in this fund's release.

Thank you. Question two, international revenue contributed meaningfully to the sequential improvement this quarter. What are you seeing in the international pipeline?

No, no, go ahead. I'm sorry. I thought you were done.

Oh, thank you. Just wanted to make sure I say this correctly. 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? Excuse me. Thank you.

Yes. 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 same issues that happen in the U.S. with funding and elections and those things. 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 in 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. 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. That's when we talk about the timing of when we received 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.

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. 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 Q&A session. Thank you for joining us today for VirTra's second quarter 2026 conference call. You may now disconnect.

Good afternoon, welcome to VirTra's First Quarter 2026 Earnings Conference Call. My name is Ryan, 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 cautionary 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 market 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. You may proceed, sir.

Thank you, Ryan, 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 first quarter end March 31st, 2026, along with an update of our business and operating environment. Since first quarter-end, we have continued to see important movement across the business. Funding programs are moving back into the system. Customers are working through grants and procurement steps. Our team is actively engaged with agencies as they move from interest and planning towards purchasing decisions. Q1 was still impacted by timing, particularly around government funding, customer procurement timelines, and the ability of certain customers to accept delivery. The most important point for today is how the environment is progressing as we move through the rest of 2026.

I wanna focus today's discussion on where we are seeing progression, what has moved forward since quarter-end, and how we are positioning VirTra as funding and procurement activities continue to pick up in the system. Across our core markets, customers' activity has continued to move forward. Agencies are re-engaging as funding programs reopen. Customers are working through grant applications and procurement steps, and our team is staying closely involved to help move those opportunities forward. Our sales team is supporting customers as they identify the appropriate grant programs, prepare required materials, update quotes, and submit applications by the application deadlines. Once applications are submitted, the agencies must still move through the review and award process and then through local procurement before a purchase order can be issued. As we discussed on our last call, this remains a multi-step process.

Customers must apply for funding, applications must be reviewed, awards must be determined, purchase orders must be issued, and the systems must be delivered and accepted before our revenue can be recognized. That timing is still not fully in our control, and we expect conversions to play out over the coming quarters. The movement we are seeing today supports our expectations for improved sales momentum as we track through the second half of 2026. The key change is that we are no longer talking about a frozen environment. Customers are actively working through funding and procurement processes, giving us a more constructive backdrop and clearer line of sight into the opportunities we're pursuing. The need for VirTra's solution remains evident across law enforcement, corrections, federal, international, and military markets.

Our customers are looking for training systems that help them prepare for real-world situations in a safe, repeatable, and measurable way. That includes judgmental use-of-force, de-escalation, marksmanship, scenario-based decision-making, and the newer threat areas such as drone defense. While we expect near-term conversion timing to vary from customer to customer, we have systematically remained close to those customers over the last several quarters. We are now focused on helping them move through each step of the funding and purchasing process. Some agencies are waiting on recently opened grant awards. Some are working through the procurement stage. Some customers have funding but need to complete facility or internal readiness steps before they can accept the deliveries. With some of our international customers, we're seeing similar dynamics where contracts or customer commitments may be in place, but the delivery timing depends on the customer's side funding or operational readiness.

Providing best-in-class training remains at the top priority, we are laser-focused on converting increasing activities into orders, deliveries, and revenue as those processes advance. We are also controlling the controllables. We are seeing tangible progress from a more targeted commercial strategy in recent months. Over the past three months, qualified leads have approximately doubled. That improvement is being driven by better lead capture, improved customer segmentation, more needs-based marketing campaigns, and a more disciplined process for moving prospects from initial interest into the sales pipeline. Through our updated website and lead capture process, we are getting better visibility into who is engaging with VirTra, what solutions they are viewing, and where they may be in the buying process.

We are also organizing prospects more effectively by customer type, training need, funding status, product interest, and stage in the sales process, which allows our team to prioritize higher quality opportunities and tailor follow-up more efficiently. Customers are increasingly looking for solutions tied to specific operational needs, including the judgmental use of force, de-escalation, and marksmanship readiness, among others. A corrections agency evaluating drone-related perimeter threat has a different training requirement than a police department focused on de-escalation or military customers evaluating portable marksmanship training. Our sales and marketing process is becoming more aligned with those distinct use cases. We are seeing this translate into more qualified activities across a business, including inbound interest, direct marketing responses, event-driven conversations, and customer follow-up activities.

While lead activity does not convert into bookings immediately, we believe this more disciplined commercial approach process should support improved pipeline progression as customers move through the funding steps in the coming quarters. From a product standpoint, we continue to focus on expanding the ways customers can apply VirTra's technology. A key part of that, which we discussed, is our APEX data analytics platform. APEX is becoming an increasingly important part of how customers capture and analyze performance data. Early customer feedback indicates that these analytics can enhance training outcomes around accuracy, reaction times, and decision-making. We also spoke about our next-generation drone defense training system on the last call. During the quarter, we demonstrated at the American Correctional Association Winter Conference and received positive feedback. Unauthorized drones are creating new challenges for correction facilities, including contraband delivery and perimeter security.

Our simulation-based training gives agencies a way to prepare officers for those threats safely, repeatedly, and without the cost and complexities of live-fire ranges. We have generated several ongoing conversations from these demonstrations, and I look forward to sharing our commercial progress in this emerging area over time. Across our product development initiatives, the through line is VirTra helping customers train in ways that are realistic, measurable, and tightly aligned with the situations their personnel are facing in the field. We continue to see encouraging activity across the military and federal markets. Military opportunities are long cycles by nature, and we are not treating them as a near-term revenue certainty. The level of engagement here has continued to advance as expected.

We have had demonstrations and evaluations across multiple branches, including Army and Marine Corps groups. Customer interest has continued to build as our systems have become more robust, data-driven, and aligned with evolving training requirements. Across several prospects, we have moved from early discussions and market research towards requirements development and potential RFP pathways. The precise revenue timing for these opportunities is not clear yet. As we reach critical milestones such as RFP issuance, additional evaluations, selection decisions, awards, and follow-on procurement activities, we will update the market as appropriate. We are active here. Our technology is being seriously evaluated. Our product capabilities are increasingly relevant to the market.

To summarize, the first quarter continued to reflect revenue timing variability. The business has continued to progress. As we move through 2026, our focus remains on converting increased customer activity, grant progression, procurement movement, and pipeline opportunities into delivered systems and revenue. With that, I'll turn it over to Alanna for the detailed financial review. Alanna?

Thank you, John, good afternoon, everyone. Now let's re-review our unaudited financial results for the first quarter and March 31st, 2026. Total revenue for the first quarter was $3.5 million, compared to $7.2 million in the prior year period. This decrease was due to a delay in the conversion of backlog to revenue as several customers could not accept delivery of the orders received in Q3 and Q4. Breaking the revenue down by market, government revenue was $2.7 million, compared to $5.2 million in Q1 of 2025. International revenue was $0.7 million, compared to $1.9 million in Q1 of 2025. Commercial revenue was approximately $84,000, consistent year-over-year.

During the quarter, the Subscription Training Equipment Partnership, or STEP, revenue was approximately $1 million, compared to approximately $0.9 million in the prior year period. STEP represented 28% of the total revenue in Q1 2026, compared to 13% of the total revenue in Q1 2025, primarily due to the lower level of capital system sales. STEP provides recurring revenue visibility and remains an attractive access model for agencies. Revenue from these agreements is recognized over the length of the contract. As a result, STEP represents a larger share of revenue in a lower capital sales quarter. Our gross profit for the first quarter was $2.1 million or 61% of total revenue, compared to $5.2 million or 73% in the prior year period.

The decline was primarily due to the lower revenue volumes, along with the company continuing to work on integrations and new content to help drive future revenue. Our net operating expense for the first quarter was $3.5 million, compared to $3.8 million in the prior year period, as we continue to manage expenses carefully while investing in key areas of the business. Our operating loss for the first quarter was $1.3 million, compared to operating income of $1.4 million in the prior year period. Our net loss for the first quarter was $1.3 million, or $0.12 per diluted share, compared to the net income of $1.3 million or $0.11 per diluted share in the prior year period.

Our adjusted EBITDA for the first quarter was -$0.8 million compared to $1.7 million in the prior year period. As we turn to the balance sheet, we ended the quarter with $17.9 million in cash and cash equivalents compared to $18.6 million at December 31st, 2025. This provides flexibility to navigate the current timing dynamics in the business while continuing to invest in areas that will support our future growth. VirTra defines bookings as the total of newly signed contracts, awarded RFPs, and purchase orders received in a given period. Our bookings for the first quarter totaled $3.8 million. VirTra defines backlog as the accumulation of bookings from signed contracts and purchase orders that are not yet started or an incomplete performance obligation 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 simulators, accessories, installation, training, custom content, and design work. Service, which is primarily our extended warranties and support contracts. STEP, which is that long-term subscription-based program. Our backlog at March 31st, 2026 stood at $25.2 million. That includes $13.2 million in capital, $4.4 million in service, and $7.6 million in STEP contracts. That concludes my prepared remarks. I'll turn the call back over to John for his closing comments. John?

Thank you, Alanna. It is clear that our disciplined cost management has been important during a volatile period for new business conversion. It is also clear to me that VirTra's underlying business activity is moving in the right direction. Customers are re-engaging, funding and procurement processes are advancing, and our commercial execution is improving. We believe this activity positions us for improved financial performance as funding and procurement activities continue to convert over the course of 2026. That concludes my prepared remarks. Operator, please open the call for questions.

We take the first question from the line of Jaeson Schmidt from Lake Street Capital Markets. Please go ahead.

Hey, guys. Thanks for taking my questions. John, you highlighted that qualified leads have approximately doubled over the past three months here. Can you just give us a sense on the conversion timeline from a qualified lead to a quote or to a PO historically, and whether you're seeing any compression in that cycle as funding reopens?

Great question, Jaeson. Thanks for asking. The leads have doubled because we've gone to more events this year, and we're talking to customers and qualifying them at the shows before they're entered into the system. It's based on activity. The conversion cycle on those range anywhere from 6-12 months. It just depends on what agency it is and if they have money or they have to put in for a budget. Law enforcement is pretty much the same, unless they've already been awarded a grant or they have funding available without having to go to the budget cycle. Usually it's six to 12 months is what we're seeing. We will see a bit of a compression on that this year because they're so far behind.

I mentioned before on the last call that, they're so far behind that the funding for fiscal year 2025 that came about was approved in October of 2024, still hasn't been put out there and hasn't been released. We're seeing those funds start to come, and then 2026 is right behind that, and 2027 is in October of this year. You've got the big beautiful bill. All of those across all of our market segments, be it law enforcement that are looking for grants to supplement their training and purchase of training equipment to Department of War to three-letter agencies that rely on government funding.

We do see that happening, but the doubling has been more of the marketing campaign and how we are collecting them now and the results of the new website that we had put together and how we qualify.

Okay, that's helpful. Just as a follow-up, going back to your comments on the APEX data analytics and specifically that international win, any additional color can you provide on sort of the size of that and if there's an opportunity for additional expansion?

That was published. It was the INL Colombia deal that the government wants to be able to monitor all the systems that they're placing out in these foreign countries under the International Narcotics Law Enforcement Agency that's under the State Department. So they wanna be able to report back to them, not just are they being used, but how they're being used and how effective the training is for fighting crime in those different countries rather than reaching our shore. They wanted something to be able to collect that type of data. What simulation and simulators typically do is they'll collect the data for the near-term and what you're doing. So I've shot this target, here's your number of shots, or I ran through this scenario, here's what you did, and then that's it.

It doesn't collect and send it anywhere so that it can be housed and then analyzed, and then do trending analysis on it. The government and other agencies and law enforcement want to use that to justify ROI for the simulators and the training curriculum that they're providing new mid-career and end of career soldiers and law enforcement.

Okay. Thanks a lot, guys.

Thanks, Jaeson.

Thank you. We take the next question from the line of Richard Baldry from Roth Capital Partners. Please go ahead.

Thanks. The bookings were slightly above the revenues on the quarter, but the backlog went down a little bit. I was just wondering if you could walk me through sort of the pieces there, whether it's cancellations or other factors that drove that.

Alanna, you wanna take that?

Yeah. There, the bookings, the way the calculation is done is the bookings come in, and then we take out the revenue. Some things do convert in the same quarter to revenue, so it's sort of it's not everything that came in. Some things converted immediately. Does that help?

Okay. Yep.

Does that, Rich? Yeah.

On the balance sheet note, the inventory levels went up a little more than, well, let's call it about 10% sequentially. Sort of curious about the drivers there. Is it something you're seeing in the pipeline that you wanna be ready for? Is it some scarcity issues you wanna make sure you've got, you know, redundant inventories capable for? Just curious about that driver.

So we are-

Oh, sorry.

Go ahead.

Go ahead, John.

Yeah.

I'd say there's a little bit of both.

Go ahead, Alanna. I'll stand by.

Yeah, there's a little bit of both, Rich. There are, in some cases, where we were aware of computer prices about to skyrocket. Knowing what we had in the backlog that we needed those computers for, we purchased them a little ahead of schedule to make sure we got a lower price instead of paying the other ones. There's also some of that is our work in progress as we are working on some more integration pieces where dollars have gone into that development work as well for that and for the Colombia contract that we spoke about. There's development work that's in there that's driving the work in progress numbers up in the inventory.

The other part of that, Rich, is that, when we had, quite a few when we were converting some of the backlog in the past, we had certain parts and certain components that we had everything was on hold, waiting on, back-ordered items, so, and things we needed to manufacture. We brought all the inventory up to their max levels so that we won't have any problem converting them instantly and trying to wait on manufacturing to build those parts. It's anticipation as well.

Okay. With sort of an improving backdrop and knowing it's, you know, multi-step, you know, process to kind of gear back up, do you feel like Q1 should probably be, you know, a good base level for revenues here forward? It was up from Q4 sequentially. Do you think that pattern can start to sort of grind higher? How do you think of sort of the cadence of recovery here?

I think if I give you a little bit of history from 2025, you know, everything lags. I mean, the budget climate posed challenges for our industry. I mean, in 2025, we faced unprecedented appropriation processes. I mean, for the first time, both the Defense Department and law enforcement under the federal grants operated under a continuing resolution for the entire fiscal year and experienced that historic 43-day lapse in appropriation or shutdown. That was the longest in government history. You know, additionally, the government continues to operate under those continuing resolutions through January, through the first month of the quarter, and some of the federal law enforcement agencies are still without approved funds, some of our existing customers, a funding line.

While the outlook for 2026 is kinda complex, you know, there are signs of improvement as evident by the recent releases of funding for several grants and some of the appropriation bills that are making its way through legislation. We do see all of those opening up, but even if they do open up, quarter one was the indication that even as they open up, there's still all those items that I talked about. You have to apply, you have to get it, they have to assign the funds if it's a contract, and then they have to go through the RFP process, and then they have to award. Typically what would happen is, you know, for a quarter or two till they get the money there, and then you convert it in the, in the following quarters, if all of that lines up.

Got it. Last for me would be, when we look at this, the operating expense levels, looks like it's run rating about down 10% year-over-year. Sort of, I assume, you know, reacting to the backdrop. Do you think we sort of sit at this level until the top line starts to open up? Are there other investments you wanna make on the way? How do we think about, you know, your discretionary spending short term?

I think our discretionary spending short term remains a watch and see, just because of the complexities of the market space. As we start to see those, we'll adjust appropriately.

Got it. Thanks.

Yep. Thanks, Rich.

Thank you. Ladies and gentlemen, at this time, this concludes our question and answer session. Thank you for joining us for today's VirTra's First Quarter 2026 Conference Call. You may now disconnect your lines.

Good afternoon, and welcome to VirTra, Inc.'s Fourth Quarter and Full Year 2025 Earnings Conference Call. My name is Diego, 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, Inc.'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 would 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. I will now turn the call over to VirTra, Inc.'s CEO, John Givens. You may proceed, sir.

Thank you, Diego, 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 fourth quarter and the full year ending December 31, 2025, along with an update of our business and operating environment. 2025 was defined by an extended and highly atypical disruption in federal funding. These delays affected the timing of awards, procurement activities, and ultimately, system deliveries across our core markets. As a result, our reported revenue does not fully reflect the level of underlying demand or activity across the business. What I want to do this afternoon is walk you through what drove the disconnect, what we are seeing change in the funding environment, and how we are positioned as these conditions begin to normalize. Let me start with the funding environment because that has been the primary driver for our results. The federal funding freeze that began in 2024 was unlike anything that we have seen. Budget approvals that were expected to flow in fiscal year 2025 were held, and agencies were limited in their ability to move forward with procurement. That dynamic persisted through the fourth quarter. What has changed more recently, in the last several days, is that we are now seeing those programs begin to reopen. Specifically, just in the past week, the Justice Assistance Grant, or JAG, and the COPS Fund have both reopened for applications. Importantly, this includes fiscal year 2025 funding that was approved in the federal budget back in October 2024 and has been frozen since. It is only now being made available, but that gives you an indication of the extent of the delays we have been operating through. Behind that, additional funding cycles are progressing, as fiscal year 2026 and expected fiscal year 2027 allocations are moving through the system at the exact same time. As a result, we are seeing a meaningful increase in customer engagement and applications across our base. We are actively working alongside those customers as they move through the grant application and approval process. As we have noted before, this remains a multistep process: customers must apply, awards must be determined, and purchase orders must be issued, and then the systems must be delivered and accepted. We are staying closely engaged throughout the process to help conversions wherever we can. Based on what we are seeing today, that process is likely to play out over the coming quarters rather than all at once. So while the environment is clearly improving, the timing of revenue conversions will continue to be driven by those external funding timelines. One point I want to be clear on is that demand has remained strong throughout the period. We closed 2025 with $25,600,000 in backlog and generated $26,700,000 in bookings during the year. In many cases, orders have already been placed, but customers are not yet in a position to take delivery, either due to funding timing or readiness on their end, with buildings and space. We are also seeing this dynamic internationally, where contracts are in place across markets in EMEA and Latin America, but deliveries are tied to customer-side funding or operational readiness to accept. So the core dynamic we have been operating in is not a lack of demand, but the delay in conversion. We are ready for that conversion. We have used this period to align our operations, inventory, and production capacity so that we can fulfill orders quickly as they come through. Our inventory levels are where they need to be. Our production processes are optimized, and our team is positioned to execute. As funding is secured and purchase orders are issued, we expect to be able to move quickly from order to delivery. At the same time, we have made targeted investments in our sales organization in recent quarters. We are adding a second dedicated federal sales resource to increase coverage in that channel, which has a longer and more relationship-driven sales cycle. This allows the rest of our team to stay focused on law enforcement, where we already are seeing reengagement as the grant programs open. We have also recently added an experienced director of marketing with deep simulation and defense industry roots. Marketing cadence has increased meaningfully at the start of 2026, building on the website redesign we completed last fall. We are seeing early signs of improved engagement, including higher volumes of inbound activity and demo requests, increased time spent on our website, and more qualified leads. We are also planning to expand our presence at key industry events to further strengthen visibility and pipeline development in 2026. Additionally, we continue to progress through the GSA reentry process, which we believe should be completed by Q3 and will shorten the path for agencies from interest to order once completed. We are continuing to engage with federal training stakeholders, including agencies within DHS, where we believe our solutions align well with evolving use cases around immersive judgment, de-escalation, and scenario-based readiness training. On the product side, our focus has been on increasing the value of our platform and delivering the best possible training outcomes in the industry. I want to highlight several developments that I believe are meaningful for our competitive position and long-term growth. First, our Apex Analytics platform is now integrated across our system, enabling customers to capture and analyze performance data in real time and generate actionable insight around accuracy, reaction time, and decision-making. Apex is a meaningful step forward from traditional training environments and has already been a strong differentiator in recent customer wins. Apex also created the opportunity for ongoing engagement through customization and servicing, which could support a meaningful additional revenue model over time. We have also continued to advance our integration with VBS4, allowing for more flexibility and customized training environments tailored to specific customer requirements. We have demonstrated these capabilities with multiple U.S. military groups in real-world training settings where feedback has been encouraging and highlights the relevance of our platform in a more advanced training use case. Over time, this integration should further expand our role within the military training ecosystem and support additional services and development opportunities. In addition, we have introduced a drone defense training solution recently, which is designed for corrections professionals, helping agencies prepare for the growing threat of unauthorized drones in secure environments. This represents an expansion of our addressable market into a new and evolving use case, where we are beginning to see early interest and engagement. Adoption of the VXR platform continues to grow as well, with multiple systems sold in recent months and additional demand building in the pipeline. Across our product initiatives, the common theme is improving the value of our platform and deepening integration into agencies' training workflow. Our military pipeline continues to develop with active programs and evaluations underway across the Army, Navy, and Marine Corps. We currently have multiple opportunities in process, including demonstrations of our capability in real-world training environments. These opportunities are supported by our enhanced reporting, analytics, and customizable training environments. And in this period of lower revenue conversions, we have been focused on ensuring our solutions remain aligned with evolving military programs and requirements. To summarize, 2025 was a challenging year driven by external funding disruptions that impacted timing. We are now seeing clear signs that funding is moving again with multiple cycles making progress. We have maintained strong customer engagement, built backlog, strengthened our commercial organization, and prepared our operations to execute. As those funding cycles translate into awards and purchase orders, our focus is on converting that activity into revenue in a disciplined but efficient way. I will now turn the call over to Alanna for the detailed financial review. Alanna?

Thank you, John, and good afternoon, everyone. Now let us review our audited financial results for the fourth quarter and full year ended December 31, 2025. Our total revenue for the fourth quarter was $2,900,000 compared to $4,700,000 in the prior year period. The decrease was driven by those continued delays in government funding, the timing of customer procurement cycles, and deferred deliveries across both domestic and international customers. For the full year, our total revenue was $22,400,000 compared to $26,400,000 in 2024. The decline was primarily due to extended funding delays throughout the year. Breaking our full revenue down by market, our government revenue for the year was $17,800,000 compared to $22,900,000 in 2024. International revenue for the year was $4,200,000 compared to $3,100,000 in 2024, and commercial revenue was approximately $400,000, consistent year over year. Our gross profit for the fourth quarter was $1,700,000, or 58% of total revenue, compared to $2,900,000, or 62%, in the prior year period. The decline was primarily due to that lower revenue volume. For the full year, gross profit totaled $152,000,000, or 68% of revenue, compared to $19,400,000, or 74%, in 2024. Our net operating expense for the fourth quarter was $3,300,000, a 23% decrease from $4,200,000 in the prior year period. For the full year, net operating expense was $14,800,000 compared to $17,400,000 in 2024, representing a 15% reduction as we actively managed costs while continuing to invest in key areas of the business to help reaccelerate our growth. Operating loss for the fourth quarter was $1,600,000 compared to $1,300,000 in the prior year period, and for the full year, operating income was $400,000 compared to $2,000,000 in 2024. Net loss for the fourth quarter was $1,000,000, or $0.09 per diluted share, consistent with the prior year period, and for the full year, net income was $3,000,000, or $0.02 per diluted share, compared to $1,400,000, or $0.12 per diluted share, in 2024. Our adjusted EBITDA for the full year was $1,600,000 compared to $2,900,000 in the prior year period. As we turn to the balance sheet, we ended the year with $18,600,000 in cash, and $30,800,000 in working capital. This provides flexibility to navigate the current timing dynamics in the business. VirTra, Inc. defines our bookings as the total of newly signed contracts, awarded RFPs, and purchase orders received in a given period, and our bookings for the fourth quarter totaled $7,300,000, contributing to the full year bookings of $26,700,000. VirTra, Inc. defines our 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 delivery in a future period. We segment that backlog into three primary categories: Capital, which includes our simulators, accessories, installation, training, custom content, and design work; Service, which is primarily extended warranty and support contracts; and STEP, which is our long-term subscription-based program. Our backlog at December 31, 2025 stood at $25,600,000. That included $13,800,000 in Capital, $5,100,000 in Service, and $6,700,000 in STEP contracts. That concludes my prepared remarks, and I will turn the call back over to John for his closing comments. John?

Thank you, Alanna. At the start of 2026, we are beginning to see the macro conditions shift, with funding moving back into the system and customers actively increasing activity. We have used this period to strengthen our sales and marketing execution and enhance our product capabilities. With a robust backlog, continued support engagement, and the operational infrastructure and processes in place to scale, our focus is on converting that activity into revenue in a disciplined and efficient manner. That concludes my prepared remarks. Operator? Thank you.

At this time, we will conduct the question-and-answer session. If you would like to ask a question at this time, please press 1 on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. We will pause for a moment while we poll for questions. Your first question comes from Jaeson Schmidt with Lake Street Capital Markets. Please state your question.

Hey, guys. Thanks for taking my questions. John, just hoping you can expand a little bit about your commentary on the expansion of engagements with the military market. Just curious if that is expanding into different programs. Is it additional systems being trialed? Or how should we think about that?

Yes, all of those are accurate. We have multiple engagements across Army—several—and Navy and the Marine Corps. We have engaged with them to find out exactly what they are looking for on the systems. My commentary previously about how we are focusing on the systems and making them military-ready—it hardens them for LE as well—but there is a different dynamic in which the military requires a very dynamic, adaptive way that they think and learn on a system. So that is where VBS came into play. The programs that are out there—there is no secret—are out there as the SVT, the virtual trainer. There are several others that are out there as well, and some of the ones that we currently have with ADMIRE and with Special Operations. We also have Navy contracts coming up, and our engagements at I/ITSEC, the large show in Orlando, were quite a hit. We have one box called our V-100 Next Generation, which puts everything in one box. It is portable, and it is a hit. They are looking to replace some aging systems and ones that have lack of technology and are not nearly as mobile out there in the field. We have really honed our training and also our system to meet those needs, and they are all benefiting. So there are programs out there that you can look up that I have mentioned on these calls before. We also have several other military groups that are taking our systems, and they are doing evaluations with their staff, like gunnery sergeants and those sorts of things, and looking at it as a replacement. So the activity is quite robust right now. Much longer sales cycles, but we have been at it for a bit, so we are looking forward to those coming to fruition.

Okay. Great. That is good to hear. And then understanding that the funding environment remains challenging, just curious what you are seeing from a quoting activity standpoint so far this year and overall sales touch points even against this more challenging backdrop.

As I stated, demand has remained high, and I would say it is even higher. Our focus has been that a lot of these agencies had relied on multiple different grants that came from multiple places. As I stated, it has been unfortunate because none of the money that was allocated in these grants for fiscal year 2025, which was awarded in October 2024, and then subsequently 2026's in October 2025, have just been released. We already expect that. I have been on Capitol Hill, and we have been going through why it is important, and we have been in front of legislators and said they need to release the money. We do expect a pretty regimented release of funding. The only caveat to that that I would say is the quoting has increased. We have the quotes out there, and they are just sitting. Unfortunately, it is up to the agencies, because we cannot legally submit these grants. We help them in any way that we can and stay side by side with them. We have people in-house that are giving them the information that they need about the system and helping where we can. They still have to submit it, and then they still have to be down-selected. There still is a process, but we have not even had that process moving the last two years, so that is a great sign. As far as other activity, we are also starting to see, on the same time frame, our international market starting to see those monies flow as well. The only monies that are not flowing are DHS. As you know, we have DHS with Customs and Border Patrol as our customer, and we have Secret Service as our customer, and we have Coast Guard. As we talk about their upcoming upgrades and purchasing new systems, all that has come to a grinding halt. That is the only one that we are down that path, and it just came to a halt. There are other agencies as well that are also engaged with us wanting systems. The orders, the interest, the demand—it is all there. It is going to free up the funding. We are doing everything we can to help move that forward.

Got it. That is really helpful. I will jump back into the queue. Thank you.

Thank you, Jaeson. Great questions.

Thank you. To ask a question, press 1 on your phone. To withdraw your question, press 2 on your phone. The next question comes from Richard Baldry with ROTH Capital Partners. Please state your question.

Sort of following on that and building on what you talked about during the call, could you look in more detail at the process it will take to get the money to move? While it has been held, have people been building grant documentation so that it could move across the table very quickly? Did they, for some reason, not start that so that process still has to fully take place? Are there any timelines around, from submission to approvals—things that you have seen in the past under normal circumstances—to give us a feel for how slowly or quickly it could take to start to see some of these things move?

That is the crystal ball. The problem is there really has not been any consistency. We will get a consistency of April—several of these grants are due. Two and a half months, almost three months ago, we created what we call a grant stage in our CRM in Salesforce. All the sales folks have been working with them on a regular basis in constant contact. They already have quotes. They already like the system. They want the system. They have the training need. They just do not have the funds. As soon as we knew that there was something coming out, all the sales folks started that process. That process is demographics or geographics or certain types of training—there are specifications. We have grouped each of those and helped them identify which grant they would most likely be a good candidate for, with a higher success rate. We have done that. That grant stage consists of a number of police departments across the country. Then there are things like, what does the system do? We have a lot of that information that is just block information that we can give them. Then they have to fill out an application, and they have other items and things that they have to do that we have no visibility on. Once that is complete, then they submit it by the timeline. Once it goes there, unfortunately, Rich, I cannot tell you what the timeline is. We have seen it three months, we have seen it a year, and we have seen it eighteen months. It does vary, and it also varies based on the number of submissions they get and the level of staffing that they have of the administrators of those particular grants. Not all grants are created equal because they are coming out of different departments, but sometimes for the same thing. Then there is a level of priority for what they are looking for. If it is immigration and those sorts of things—if they have scenarios and things that they need to in their certain geographic area—they may have a priority or a precedence. It is uncertain who the source selection committee is and how they determine that. The best thing I can tell you is at least we have a deadline right now of submission. We have our team working directly with all those customers that have had active quotes for a while, and we are working them through and helping them—telling them what they have to do and reading all the documentation and walking them through as much as we can. Then it is up to them. After that, when it is all collected, they have a source selection committee that reviews all of them, and I do not always know how they choose the different groups. Then what we do is we collect all that data and start normalizing it. If anybody else is in the queue and someone with a certain geographic or demographic or size agency or training-specific need, we look for folks in our grant stage and start pushing them towards those grants. We do have a methodology that we are using with as much as we can, but there are a lot of variables. That is a great question. I wish I knew all the answers, Rich.

If I looked at your backlog, if I put the Services and STEP together, is it fair to view that as those two combined and then divide by four or whatever? Is that an annual sort of baseline, or can even the Service and STEP be multiyear, so we cannot really think of it that way?

Your latter. You cannot really think about it that way. I am going to let Alanna do some commentary. Backlog, as you said, has three components, and you can have Services and warranty. On a capital system, you also have the maintenance and warranty, so it could be multiple years as well. We may have a larger concentration in year two and three, or one and two. One might be coming off, another one going on. It is very hard to break that down to say, look, you have $25,000,000 in backlog. Clearly, not all of it—even if we were incredibly efficient and everything cleared up—you are not going to get $25,000,000. I think the capital was—what did you say—$12,000,000? So it is hard to say that. Alanna, did you want to make commentary on that?

I was just going to say the problem is the bookings and backlog, especially for the STEP. We have STEP contracts that we have signed this year that are three years long. Then we have STEPs that we signed the year before that are five years long. Some of those were not guaranteed, so those are in our future STEP revenue as opposed to what we just talked about on the call. If you look in the K, we think that on top of that backlog, we have an additional $2,500,000 that has not been resigned or committed to that can also be part of that, but that is another year or two. STEP can be anywhere from one year from now to all the way up to four years from now for revenue conversion. The same goes for the warranty service plan. Some people sign one-year agreements. Some people sign three-year agreements. Occasionally, somebody will allow a five-year agreement. It is not quite as easy as just divide by four because there is a mix in those numbers. The Capital extends out a little as well because some of that Capital is for what we talked about—our international customers or development work that is not going to convert until later in 2026 through early 2027, depending on when they can accept those items.

I think, Rich—and Alanna, you can correct me—but if you did want to do a quick number and you want to be on the conservative side, taking the STEP and dividing it by four would give you a very conservative number.

We were sort of backing into the fourth quarter numbers using your full year. I do not know if I heard this or not. Can you tell me what the fourth quarter adjusted EBITDA number was as a stand-alone?

Yes, I—

I do not have that reported in the K or the prepared remarks. Give me a minute to get that for you. Feel free to move on if you want to another question for John.

The last for me would be, are there any upcoming important milestones on the military side that we would see on our side of the table, or is it in a status where we are going to have to wait until something larger is announced by one of the other contractors, maybe?

It is a mix of both. There are larger contracts where we are a smaller component, where we are partnering with others to go after. Then there are larger contracts that are coming out that are more specific to us, where we will be the prime contractor on the bids. You can see quite a few of them—different branches of the service have several that are out there. One thing that we do see—I will mention this—is because of what happened with those, the military—at least the Army—has done, in their acquisition corps, a massive restructuring and taken one entity down and created a new one, and moved them around on who is responsible. There is speculation that some of these marksmanship training simulators and some of these programs may be combined—may be a much larger one. We are well-positioned for those, but the large ones may require that we actually take on a sub that may have staffing and those sorts of things because it is across the world, not just the U.S.

Maybe one more last one for me. A big topic across any of my software-driven companies is AI these days. Can you talk about to what extent you think AI is a threat, to what extent you think it is perhaps able to be monetized in incremental offerings, and to what extent you could use it internally to streamline processes and make things more efficient? Thanks.

That is a fantastic question, Rich, and I do not see it as a threat. I see it as an igniter. We will be able to do a lot more with less. What is happening in the AI world right now is they are coming out with AI skill sets and AI models, and we are taking advantage of the models and skill sets. A skill set might be programming facial recognition in a gaming environment with textured characters. We are taking advantage of those. One example: we do video shoots—they are like Hollywood movies—to be able to get our scenarios. That is why they are so good. The team took one of these AI models and they took all of the scenes and scenarios that they had recorded, and then they had this AI model, and they actually made an opening trailer for the scene with assets that they could not record on. It was quite amazing. Even the team was amazed. They have been at this, some of them, for thirty years in this industry. We are also using it, as far as comparative analysis as you start writing software and code—what it was kind of made for. As you find bugs and you find things inside your software, doing a comparative analysis sometimes took a long time to thread through millions of lines of code. The AI model with this programming skill set would be able to identify a potential area of this code. You still need that very strong skill set to identify, but it narrowed it down. We were able to fix a few things and identify performance-related issues in a matter of days rather than a matter of months or maybe even through two or three different releases of software. That is significant. The other one that is really coming around is the AI tutor. If you go to a weapons range and you shoot at a target, and you shoot a grouping of five shots in one area, but you have one or two that are out on the side, unless an instructor is there watching you, they would normally say, you did not breathe right, you pulled the trigger, you blinked your eyes, whatever that is. Now what we are able to do is take standard operating procedures, instructors' notes, cognitive performance studies—whatever it is—throw it into that AI model, and then once the shot is taken, we can have AI look at all the information that we put into that model, analyze the results, and give suggestions of what may have happened. So there is that AI tutor as well. It is not a replacement, but at least it gets you there, because what our systems have always done is present a target just like you are on the range. It shows you your results of what you have done, but then there is no one there to give an analysis. This section of AI that we are using now is able to do the analysis as well. There are a multitude of other areas that we are taking AI and looking at in performance enhancement. Monetizing is a different story in our case. We are looking at ways to monetize AI in that regard. That is a little tougher question and a harder look. What we are seeing is our bottom line showing cost savings across the board because of our implementation of these AI models and skill sets.

Got it. Thanks. Alanna, did you get that number?

It is negative $0.9 million.

Thank you.

Ladies and gentlemen, at this time, this concludes our question-and-answer session. Thank you for joining us today for VirTra, Inc.'s Fourth Quarter and Full Year 2025 Conference Call. You may now disconnect.