Good afternoon and welcome to VirTra's third quarter 2024 earnings conference call. My name is Matt, and I'll 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'll open the call for questions. Before we begin the call, I'd like to provide VirTra's Safe Harbor statement that includes cautions regarding forward-looking statements made during this call. During this presentation, management may discuss financial projections, information or expectation 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. You may begin.
Thank you, Matt, and thank you, everyone, for joining us this afternoon. After the markets closed today, we issued a press release that provided our financial results for third quarter ending September 30, 2024, along with highlighted business accomplishments. I'll start by reviewing our third quarter performance, including a discussion about the progress in our bookings growth and our V-XR platform introduction. I'll also provide updates on strategic advancements in core markets and early-stage growth markets where we are seeing promising progress. Afterwards, I'll hand it over to Alanna for a detailed financial review. Then I'll provide some closing remarks before moving to the Q&A. In the third quarter, we made positive strides towards accelerating our sales momentum. Our revenue came in at $7.5 million, up 23% from Q2 of 2024, and in line with the $7.6 million in Q3 of 2023.
Importantly, Q3 bookings increased to $8.9 million, up 51% from the $5.9 million in Q2 of 2024, and up 22% from the $7.3 million in Q3 of 2023. The performance reflects the early impact of our sales enhancement initiatives in the second half of 2023 and marks a solid recovery from earlier in the year. This bookings revenue growth confirms the substantial runway ahead and indicates we're only beginning to unlock our full potential. The rebound in Q3 bookings is also an encouraging sign of continued performance gains in Q4 and into 2025. Despite the top-line pressures, we've maintained a robust gross margin profile, demonstrating the resilience and efficiencies of our operating model. In Q3, our gross margins improved to 73% from 71% in Q3 of 2023, demonstrating the effectiveness of our operational efficiencies and our focus on lowering the cost of sales as we scale.
As we anticipate sales accelerations in the coming quarters, we are well-positioned for GAAP profitability growth as well. The stability of our margin structure, combined with strengthened sales momentum, sets us up for a promising trajectory. Looking more closely at our sales initiatives, we anticipate further growth in bookings as we continue to expand our international reseller network. This expansion allows us to build localized partnerships globally, enabling us to address a range of agency needs and respond swiftly to market demands. We have been focusing on and seeing success in Canada, South America, and Europe. Domestically, we're continuing to assist customers in securing federal grants to fund training systems. Our approach allows us to facilitate the acquisition of our systems for agencies that may not otherwise have the budget, and it complements our sales enhancement efforts by making our solution more accessible.
As a reminder, this grant fund process also moderately lengthens the sales cycle. Now, turning to the VXR, the rollout of our VXR platform is another key element to making our system more accessible as it offers agencies flexible training options that meet a range of budgetary needs. While initial deliveries are taking slightly longer than originally expected due to the finalizing of the terms and conditions with our hardware provider, I'm happy to share that we are now accepting customer orders, and preparations are underway for the initial customer deliveries. Early reception for the VXR systems has been highly encouraging. We recently showcased the VXR at IACP in Boston, where it generated strong interest from current and potential customers. Beyond law enforcement, VXR is also opening doors to adjacent markets such as healthcare, education, and large-scale event management, where there's growing demand for immersive training.
We are still in the early phases of this product rollout, and we are implementing customer needs to make sure it is adaptable to a variety of use cases. Furthermore, we're laying the groundwork for VXR content to eventually be compatible across different headsets, making our solution even more accessible and adaptable to a broader range of clients. This adaptability, combined with the unique immersive experience VXR provides, is a key differentiator for us. We're confident that VXR will become a cornerstone of our growth strategy in the years ahead, equipping agencies and other sectors with cutting-edge tools for de-escalation training while broadening VirTra's reach and solidifying VirTra as a leader in virtual training solutions. High-quality training content continues to be an important competitive advantage for us as we continue to invest in developing new training scenarios that address real-world challenges.
This quarter, we've added several scenarios focusing on high-stress situations, including crisis intervention, conflict resolution, and crowd control skills, increasingly relevant across a variety of sectors. As demand rises for this type of scenario-based training, our library of content is expanding to meet the evolving needs of both our core law enforcement markets and new sectors that rely on de-escalation and soft skills training. In the military space, we're making steady progress and expanding our engagement, particularly through our ongoing work with the U.S. Army and other Department of Defense channels. Our integration with systems like Virtual Battlespace enhances our ability to deliver holistic, mission-critical solutions that apply to military use cases. As a brief update on the U.S. Army's IVAS program, we remain on track with this partnership and are in the final stages of system validation.
It's worth reminding everyone that these military opportunities are large in scale, often involving large, one-time contract awards with long and intricate sales processes. We're seeing increasing activities from military sectors as new requests for proposals and market research requests begin to flow through. We continue to advance and align our technology with military training priorities and work towards capturing more military market share. In line with these efforts, I'm also excited to share that we've recently welcomed two distinguished leaders to our board of directors: retired U.S. Army Lieutenant General Maria R. Gervais and Executive Director Mike Ayers of the Georgia Peace Officers Standards and Training Council. Both bring deep experience and insight into military and law enforcement training, respectively. Lieutenant General Gervais led transformative initiatives in modernizing virtual training environments for the Army with insight from key programs like IVAS, which closely align with our military-focused initiatives.
Mike Ayers' extensive law enforcement training background aligns well with our mission to support officer preparedness through scenario-based training. Their additions strengthen our governance framework as four of our five board members are now independent. As I discussed in previous calls, our operational infrastructure is now better equipped than ever to support increased demands, and we are continuing to improve. Over the past two years, we've implemented significant improvements to our production process, including the establishment of a first-class manufacturing facility and the integration of a new ERP system. These advancements allow us to effectively manage complex, large-scale projects and ensure that we can meet growing demand with high-quality products. Additionally, our investment in automation within our machine shop, including systems that run through the night and over the weekends, has increased productivity while maintaining high quality.
This operational readiness positions us to scale confidently as we convert our sales pipeline into tangible results. Looking ahead, we are closely watching macroeconomic factors that could affect our customers' funding. December's budget discussions will be pivotal as the continuing resolution currently funding federal programs is set to expire on December 20. We anticipate that these discussions will bring greater clarity around federal allocations and funding priorities, particularly as the government adjusts post-election. While this may mean a slight delay in the distribution of funds, our strengthened pipeline, operational efficiencies, and cash flow position gives us the flexibility to navigate any fluctuations. This also positions us to capitalize on new funding when it becomes available. Before turning back over to Alanna, I'll give you the rundown of how our end markets performed in Q3.
In third quarter, our government revenue decreased to $6.9 million from $7.3 million in the prior year period. This difference reflects the prior three quarters' booking impact from federal funding delays and time needed to rebuild our sales team. Internationally, our revenue was $0.4 million, an increase from $0.2 in 2023. Our international pipeline continues to expand, and we expect the closing rate to continue increasing over the next several quarters as budgets are approved. Now, I'll turn the call over to Alanna to discuss our financial results in further detail. Alanna.
Thank you, John, and good afternoon, everyone. Now, let's review our unaudited financial results for the third quarter ended September 30, 2024. Total revenue was $7.5 million, slightly down from the $7.6 million in the prior year period. This modest decline is primarily due to lower bookings in the prior three quarters, largely stemming from funding delays and extended decision-making cycles among our government customers. Total revenue for the first nine months of 2024 was $21.7 million compared to $27.9 million in the prior year period. Gross profit for the quarter was $5.5 million, representing a 73% gross margin, an increase from the 71% in the prior year period. This improvement reflects operational efficiencies and a favorable mix of high-margin service and STEP contracts, which entail limited cost of sales.
Gross profit was $16.5 million for the first nine months of 2024, representing a 76% gross margin compared to $18.3 million, or 65% gross margin, in the prior year period. These improvements were driven by lower cost of sales, which were in part due to a reclassification of labor related to our development projects. This expense will be reflected in the income statement when we have corresponding matching revenue. Additionally, for the nine-month period, STEP and services made up 30% of total revenue, which have a lower cost of goods associated. Net operating expense for the quarter was $4.7 million, marking a 28% increase year over year. This increase is tied to strategic investments in sales and marketing, as well as hiring to support our ongoing growth initiatives. Additionally, we made enhancements to our IT infrastructure to ensure compliance with current and future contract requirements.
Net operating expense for the first nine months of 2024 was $13.2 million compared to $11.2 million. The increase is a result of those strategic investments in hiring and IT expenses previously mentioned. Operating income was $0.8 million compared to $1.7 million in the third quarter of 2023. Operating income was $3.3 million for the first nine months of 2024, compared to $7.1 million in the prior year period. Net income was $0.6 million, or $0.05 per diluted share, based on 11.2 million weighted average diluted shares outstanding, compared to net income of $1.6 million, or $0.15 per diluted share, based on 10.9 million weighted average diluted shares outstanding in the prior year period. Net income was $3 million for the first nine months of 2024, compared to $5.6 million in the prior year period.
Adjusted EBITDA, a non-GAAP metric, was $1.1 million for the third quarter, compared to $2.9 million in the prior year period. Adjusted EBITDA was $4.7 million for the first nine months of 2024, compared to $9.4 million in the prior year period. As of September 30th, 2024, we had unrestricted cash and cash equivalents of $19.7 million, compared to $18.4 million at June 30th, 2024, and $18.9 million at September 30th, 2023. Our positive cash flow and recent adjustments to our contract terms have fortified our working capital, which was $36 million as of September 30th. This allows us to respond quickly to new opportunities and strategically invest in areas that will drive growth. Now, turning to our bookings and backlog. We define bookings as the total of newly signed contracts and purchase orders received in a defined period.
For the third quarter of 2024, we received bookings totaling $8.9 million, bringing bookings total for the nine-month period to $17.7 million. Looking at our backlog, which we define as the accumulation of bookings from signed contracts and purchase orders that are not yet started or incomplete and cannot be recognized as revenue until delivered in a future period. As of September 30, 2024, our backlog totaled $15.2 million. This breakdown of backlog includes $7 million in capital, $6.2 million in service and warranties, and $2 million in STEP contracts. Additionally, our renewable STEP contracts, which extend over multiple years, represent an additional $5.8 million in revenue. For additional details of our financial results, please reference our 10-Q, which was filed earlier today. And that concludes my prepared remarks, and I'll turn the call back over to John for his closing remarks.
Thank you, Alanna. As we look ahead, it's clear that we still have work to do to be where we want to be. That said, our strategic initiatives and operational improvements are setting us up well for continued progress in 2025. We are focused on driving meaningful improvements in our marketing and sales functions in the coming months, which we expect to help grow our pipeline. These efforts, alongside the introduction of our VXR platform and continued progress towards penetrating military channels, give us confidence in our ability to execute our goals for the remainder of 2024 and into the early months of 2025. We recognize that while temporary funding dynamics may introduce some timing variability, our current backlog and sales pipeline, along with our focus on innovation, positions us to convert our opportunities as funding becomes available.
We are especially well prepared to respond as both grant funding and federal contracts become more certain over the coming months. That includes, despite near-term fluctuations, we are dedicated and more equipped than ever to lead the virtual training industry with innovation, adaptable solutions that meet the complex needs of our customers. We appreciate your continued support and interest, and we look forward to updating you on our progress in the coming quarters. And with that, we'll open the call up for questions. Operator, please provide the appropriate instructions.
Great. Thank you. We'll now be conducting a question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, we'll pull for questions. Once again, if you'd like to ask a question, it is star one. If no further questions, I'd like to turn the floor back to management for any closing comments.
Thank you. VirTra's dedication to our customers and their life-saving mission remains as strong as ever. The passion, hard work, and expertise of our team are the cornerstone of our success, and our ability to provide thought leadership to our customers will continue to keep us atop the industry. I'd like to thank our shareholders for their continued support and confidence as we continue driving meaningful impact in communities around the world. Wishing everyone a safe, healthy, and positive close to 2024, and we look forward to a successful year together in 2025. Operator.
This concludes today's teleconference. You may disconnect your lines at this time. Thank you again for your participation.