Good afternoon. Welcome to VirTra's Fourth Quarter and Full Year 2022 Earnings Conference Call. My name is Doug. I will be your operator for today's call. Joining us for today's presentation are the company's Chairman and Co-CEO, Bob Ferris, Co-CEO, John Givens, and Chief Financial Officer, Alanna Boudreau. Following their remarks, we will open the call for questions from VirTra's institutional analysts and investors. Before we begin the call, I would like to provide VirTra's safe harbor statement that includes cautions regarding forward-looking statements made during this call. During this presentation, management may discuss financial projections, information, 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. I'd like to remind everyone that this call will be made available for replay via a link in the investor relations section of the company's website at www.virtra.com. I'd like to turn the call over to VirTra's Chairman and Co-CEO, Mr. Bob Ferris. Sir, please proceed.
Thank you, Doug, and thank you everyone for joining us this afternoon. After the market closed today, we issued a press release that provided our audited financial results for the full year ended 31 December 2022, along with highlighted business accomplishments. We also filed our 10-K with the SEC today, which is available for review at your discretion. As a brief overview for today's call, I'll begin by providing highlights for the four th quarter and full year 2022, and I'll summarize some of our recent business developments before passing the call over to John to discuss operations and provide an update on our military market progress. After that, Alanna will discuss our financial results in more detail. I'll then come back on to discuss how 2023 has been going so far before moving to Q&A. With that, let's get started.
2022 was a successful year for VirTra on many fronts. Our strong performance was a result of executing on our business strategy to drive profitable growth in the police and military markets for our industry-leading products. We generated record bookings and grew revenue for the 17th consecutive year, increasing the top line 16% to a record $28.3 million. On top of this, we delivered another year of solid profitability, generating $3.6 million of Adjusted EBITDA and $2 million of net income. In addition to the strong financial performance we delivered last year, we achieved several significant operational milestones that have positioned us for long-term success. We made judicious investments in our technology that, from a competitive standpoint, further differentiated our products in the market. We have meaningfully increased the breadth and effectiveness of our training offerings and bolstered our competitive edge in the industry.
These efforts included refinements to our software and upgrades to certain accessories like our V-Threat-Fire® device and Drop-In Recoil Kit capabilities, which make our solutions more indispensable and effective. In November, we showcased our latest technology at the I/ITSEC trade show in Orlando, where we received strong feedback and interest. In fact, I'd even state that anyone who attended I/ITSEC and tried out all small arms training options at the show would walk away realizing that VirTra is the gold standard. An accomplishment that is the result of enormous investment in both time and resources. Much of the financial investment is in the rearview mirror, like our VirTra Volumetric Video or V3 enabling technology, but we will continue to prioritize cost-effective enhancements to ensure exceptional value for our customers. I'd like to highlight important investments in our content department during 2022.
In Q4, we introduced our breakthrough technology, V3, which has the potential to provide a step function advancement in training content for our customers. V3 combines the advantages of high definition video and 3D characters and empowers us to affordably build a comprehensive library of training content suitable for screen-based or headset-based platforms. High quality, realistic content is a key differentiator for attracting and retaining customers in our market. V3 helps us to continue building upon our advantage in this essential area. In fact, around VirTra, we often say content is king. Our investments have strengthened our position in every major aspect of training simulation, making us more competitive for 2023 and beyond. Another highlight in 2022 was our substantial efforts centered around scaling our business.
The move in our Chandler, Arizona headquarters is near complete, and we are looking forward to having the core of our operations centralized under one roof. In addition to driving efficiencies, the 83,000 sq ft facility houses the most advanced development and production facilities in the industry, an attractive selling point for customers and partners alike. In the fourth quarter, we also officially opened our facility in Orlando, Florida. We hosted an open house event in October, where we showcased our products and provided immersive training demonstrations to military, law enforcement, industry contractors, and government officials. The reception has been great thus far, and we believe the new facility will be instrumental in growing our military business. John will give further updates in this area shortly.
In recent months, we have made key additions to our leadership team and board of directors that will be instrumental for our growth going forward. In December, we appointed Alanna Boudreau, whom you will hear from shortly, as our new CFO. Alanna brings with her over 20 years of experience in managerial, financial, and operating functions. She has extensive experience overseeing accounting activities for public companies, and most recently led accounting activities for a publicly listed global industrial laser company. Her experience with public company reporting and her strong management skill set make her a great fit for VirTra, and she has already begun to make meaningful contributions to our financial operations. In the fourth quarter last year, we added Gregg Johnson to our board.
Gregg is one of the top experts in the country in legal corporate compliance and senior management of high growth entrepreneurial companies of the size of VirTra and larger. As background, Gregg was the primary advisor to our board on our successful effort to list our stock on Nasdaq. He was a member of VirTra's advisory board. In January of this year, we appointed Jim McDonnell to the board. Jim is a recognized public safety executive and law enforcement leader, having served the public for four decades in roles such as the Sheriff of Los Angeles County and Chief of Police in Long Beach, California. He is one of the most accomplished, thoughtful, and well-connected leaders in the law enforcement industry. He brings a tremendous level of expertise in public safety, tactical training, operational growth, and command accountability to our team.
Now I'd like to provide some updates in each of our markets. Our government revenue increased by 33% from the prior year from $16.8 million to $22.4 million due to improved success in the law enforcement market, as well as an increase in federal government police contracts. Internationally, we saw a 6% decrease in our revenue to $4.2 million from $4.4 million, which was a result of contract timing. We also continued to generate strong growth from our subscription training equipment partnership or STEP for short. As a reminder, the STEP program provides recurring revenue for VirTra that also offers an easier on-ramp for smaller agencies interested in our solution, but are perhaps budget-constrained for an outright purchase.
In 2002, STEP revenue was $2.9 million, representing 10% of total sales and growing 48% from the prior year. We continue to focus on expanding this valuable recurring revenue stream going forward. In summary, our financial and operational performance in 2022 was strong and left us well-positioned to continue our profitable growth path into 2023 and beyond. We are focused on generating ever higher levels of shareholder value as our business continues to expand. I will now turn the call over to John to give an update on VirTra's activity in the military market and overall company operations. John.
Thank you, Bob. Good afternoon, everyone. 2022 was an important operational year for VirTra. The processes we implemented in the fourth quarter of 2022 and continue to prove daily are finally beginning to bear fruit. As Bob alluded to earlier in the call, the finalization of our move into our Chandler, Arizona, headquarters, and additionally, our facilities in Orlando have helped in many ways, but especially as it pertains to product manufacturing, sales, order fulfillment, and customer success. First, with product manufacturing. Our new facility allow us to implement more streamlined production processes. These capabilities have already begun to show meaningful improvements in efficiency, product quality, which allows us to fulfill orders quicker and reduce our backlog at a much higher rate. Secondly, these new centralized hubs will greatly help strengthen our relationships with current prospective customers.
As I talked about in the third quarter call, the Orlando facility is an extension of our military sales effort and serves as the East Coast hub for customer service, live demonstrations, and meeting site for prospective customers. With Orlando being the acquisition epicenter of the military simulation market, we are in a strategic position to provide our expertise to the industry that is seeking cutting-edge solutions. We have already begun to see benefits from the new space. The convenience factor is huge for major customers and prime contractors alike, and the live demonstration capabilities just down the street, now that's a business developer's dream. The external competitive environment has really relaxed in 2022 and is affording VirTra great opportunities to become the tier one preferred vendor for small arm simulation to the military market.
In fact, it's my opinion that as of today, for the military market, VirTra has more staff, more expertise, more technology, more investments to benefit the customers, and more relevant capacity than any other company in the industry. Regarding staff and operations, we worked diligently throughout 2022 to improve our ERP system. We are in a much better position to realize operating efficiencies going forward. Our forecasting capabilities are better, allowing for our purchasing and production activities to become more optimized. This makes our operations more automated, and it improves our order fulfillment time, increasing customer satisfaction. We will continue to refine these systems. We are already seeing vast improvements across the organization. Additionally, we are beginning to build out our teams to further support our customers in a scalable fashion.
We introduced a dedicated quality team to ensure that we are putting out the best product possible, and we have vastly improved our customer support function, including field service representatives that are not only meant to increase customer satisfaction, but increase our ability to install more systems, reducing the backlog. The additional field service representatives also raise the number of touch points with our customers to improve our product feedback loop. Moving specifically to military operations, we are seeing strong interest and have been hard at working to build the pipeline. I wanna remind everyone of the three ingredients of success in the military market I mentioned in the Q3 call. First is having a physical presence. Our new facility, conveniently located Orlando site, provides us with an invaluable access to the industry and its key decision-makers. Second is having a strong relationships.
In tandem with being able to build relationships in person with military and government officials, my extensive experience in military simulation market and time served in the U.S. Army have brought me many strong connections that will be critical to our growth in this market. We also have added military veterans to the Orlando office with relationships as strong as my own. Finally, having a strong product offering. It's critical to the success of this market, as is true in any industry. As Bob and I have alluded to, we have been laser-focused on enhancing our technology and processes to ensure that our solutions are the gold standard and remain world-class. Our October open house event was a great success and sparked new promising leads while introducing, and more importantly, a mature leading product from the law enforcement industry to our military community and existing customer contacts.
Over the last few months, we have been very busy at Orlando office with tours, demos, and meetings with key industry stakeholders and prospects. As I spoke about on our Q3 call, we are optimistic about the Department of Defense Fiscal Year 2024, which begins in October of 2023. That is the timeline we continue to target for demonstrating strong and meaningful traction. Looking ahead, our operational and technological advancements in 2022 have bolstered our competitive position and placed us on solid growth trajectory for the years ahead. The growing demand and constructive funding environments for VirTra's innovative training solution gives us confidence in our ability to capitalize on the robust pipeline of opportunities in law enforcement, military, and international markets. I look forward to keeping you all up to date in developments in our business in the future.
Sorry, Bob, I'm gonna kinda go off script here. I don't wanna read this anymore. Now that I'm approaching a year at the company, I'd like to reflect on my findings and our corrective actions regarding the company's performance expectations and the focus that we brought to the table. The company's made some huge mistakes, including the ERP implementation. I don't know, that was so harmful to the company at all levels. It was quite daunting. Inexperienced staff in key leadership positions, lack of processes, lack of timely financial reporting, this all added to problems. Despite the major business setbacks, the company has managed to show some modest growth. There are two reasons for that modest success, in my opinion: a superior product that's second to none, and a line staff dedicated to those they serve.
There's quite camaraderie between the company and those individuals that we're serving. Unfortunately, for me, change doesn't happen quickly enough as often as I wanted it to. Keep in mind, we weren't able to really start working on significant change until our filings were completed, we removed the red flags, and after the reorganization in August of 2022. We still have a lot of work to improve sales, supply line, inventory management, and finalizing our capital improvements. Bob said we are almost done. The last item that we need to move over is our machine shop. It's a little bit more coordination to do that and timing so that we don't interrupt our production and our delivery.
We've been hardworking to reimplement the ERP, and we've replaced those key leader positions with strong, proven talent. We've implemented processes to contain cost, and we've provided real-time metrics to improve our communication, and finally filed a timely 2022 Q3 and a 10-K report. This company has incredible potential, and we intend to build a market share and expand our offering, which you'll hear about later. For the record, we're not happy with our performance yet, and we will continue to build that pipeline, close more deals, drive costs down, and deliver products faster, make sure we provide superior customer experience, and protect shareholder value. Thank you for your patience and your investment in VirTra. I'll now go back on script. Alanna, I'll turn the call over to you to provide financial update.
Thank you, John. Good afternoon, everyone. It's a pleasure to be speaking to you today and to review our audited financial results for the fourth quarter and the full year ended 31 December 2022. In my first few months at VirTra, I've already seen our team's remarkable dedication to our customers and equally strong commitment to our mission, and I'm looking forward to keeping you updated on our progress for many years to come. With that, I'll get started on the Q4 and full 2022 financial update. Our total revenue for the fourth quarter of 2022 was $8.7 million, which was up slightly from the $8.6 million of revenue we recognized in the fourth quarter of last year. For 2022, total revenue increased 16% to a record $28.3 million from $24.4 million in 2021.
The increase in revenue resulted from a 48% increase in our STEP revenue and a 54% increase in our simulator sales driven by the law enforcement market. As a result of our operational streamlining, we were able to deliver the first 16 systems of a large federal contract within 90 days of purchase order receipt. Our gross profit for the fourth quarter of 2022 increased to $5.3 million from $2.8 million in the fourth quarter of last year. Gross profit margin for the first fourth quarter of 2022 was 61.4%, an improvement from 32.7% in the fourth quarter of last year. For 2022, gross profit increased to $16.3 million from $11.4 million in 2021.
Gross profit margin for 2022 was 57.4%, an increase from 46.7% for 2021. The increase in gross profit was due to a 7% decrease in our cost of goods sold, combined with our 16% increase in revenue. Our net operating expense for 4th quarter of 2022 was $3.4 million, compared to $3 million in the fourth quarter last year. For 2022, net operating expense was $13.7 million, compared to $10 million in 2021. The increase was primarily due to a 74% increase in our sales and marketing spend from our increased participation in industry trade shows and the associated travel, as well as a 39% increase in R&D expenses and an increase in one-time costs related to the facility move and relaunching our ERP system. Turning to profitability measures.
For the fourth quarter of 2022, we recorded operating income of $1.9 million, compared to a loss of $0.2 million in fourth quarter of 2021. For 2022, our income from operations was $2.6 million, an improvement from the $1.5 million of 2021. Net income for the fourth quarter of 2022 totaled $1.4 million or $0.13 per diluted share. This was an increase of the net income of $13,000 or less than $0.01 per diluted share in the fourth quarter of 2021. For 2022, net income totaled $2 million or $0.18 per basic and diluted share, which compares to a net income of $2.5 million or $0.25 per basic and diluted share for 2021.
Our Adjusted EBITDA, a non-GAAP metric for the fourth quarter of 2022, was $1.7 million, compared to $500,000 in the fourth quarter of 2021. For 2022, Adjusted EBITDA totaled $3.6 million, an increase of $1.2 million in 2021. The increase in Adjusted EBITDA was significantly impacted by the one-time event of the official forgiveness of the PPP loan. 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 fourth quarter and full year 2022, we received booking totals of $6.4 million and $33 million respectively. Furthermore, we define backlog as the accumulation of bookings from signed contracts and purchase orders that are not started or uncompleted and cannot be recognized as revenue until delivered in a future period.
Backlog also includes our extended warranty agreements and STEP agreements that are deferred revenue recognized on a straight-line basis over the life of each respective agreement. As of 31 December 2022, our backlog totaled $27.7 million, which was up 20% from 31 December 2021. Finally, to our balance sheet. As of 31 December 2022, we had unrestricted cash and cash equivalents of $13.5 million, compared to $15.7 million at the end of third quarter. From a working capital standpoint, at the end of fourth quarter, we had $24.3 million in working capital, a decrease from the $25.7 million at the end of Q3.
VirTra's cash balance increased as we continued the construction of the new building, which has increased our property, plant, and equipment balance, and we saw an increase in our accounts receivable and unbilled revenue as items shipped to our customers at the end of the quarter. We expect to see the cash increase as we exit Q1. For additional details of our financial results, please reference our 10-K, which was filed earlier today. That concludes my prepared remarks, and I'll turn it back to Bob.
Thanks, Alanna. It is great to have you on the VirTra team. You've been doing a great job. In closing, 2022 was a successful year for onboarding tremendous new talent and implementing the right processes for VirTra to win and service larger volumes of business. We did so while also achieving improved profitability and continuing our streak of annual revenue growth. With new operational systems in place, we expect to build out our business pipeline in both our law enforcement markets, international markets, and military markets in 2023. There are immense opportunities in front of VirTra to serve industries that need the gold standard of training solutions, and this year's focus will be on increasing momentum in our target markets. In fact, we are off to a strong start already in 2023.
Our sales pipeline remains robust, and we are determined to do better as we see many areas where we can improve and must improve, as John indicated. With that, I'm gonna wrap up my prepared remarks, and we'll open the call up for your questions. Operator, please provide the appropriate instructions.
Thank you. Ladies and gentlemen, at this time, we will be conducting a question-and-answer session. If you'd like to ask a question, you may press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two 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 key. Our first question comes from the line of Jaeson Schmidt with Lake Street. Please proceed with your question.
Hey, guys. Thanks for taking my questions. Just wanna start, Bob, with sort of your last comment on the sales pipeline. Obviously, backlog remains pretty robust here. Just curious if you could comment on what you're seeing from an order pattern perspective year to date, just given all the macro challenges out there.
Yeah. Well, thanks for the question. We're still seeing a robust sales pipeline. We are working a lot of deals, international, military, and there are issues with timing on that, but. We have our standard domestic and federal and international law enforcement pipeline. Overall, we're still seeing people willing to spend money on effective training solutions. With that, you know, it seems like there's a continued emphasis on how do we properly train people for lethal force, and that's an ever-increasing reality on the military side as international threats increase, and it's an ever-present pressure on state, local, federal government in America with policing. Obviously, policing reform has been in the headlines with Washington working on it.
I think that underscores the presence and ubiquity of trying to get the very best training into those that are entrusted with lethal force.
Okay. Are you seeing any continued impact from the supply chain? What are you seeing in sort of the supply chain backdrop?
So far, we've had good inventories of parts that were the ones that we were most concerned about. Once in a while, we get surprised by an item that we didn't know we needed to have extra stock of, such as if they do a design change and don't notify us. John Givens led an effort recently to overcome that, and it was an all hands-on deck, you know, stay till it's done type of effort that was successful but was unplanned. Supply chain still is a danger. So far, VirTra's had a great track record of navigating it well.
We plan to continue that, but it's a constant effort, much more than we had to do, you know, three or four years ago, on doing that. As of right now, we're in good shape.
I'd like to add to that too, is that what we're finding is, we're setting our min and maxes in our inventory, and with the ERP re-implementation, we're able to manage our vendor pipeline much better. The only thing that we see remnants of the supply chain issues is that when the vendor makes a mistake on a larger order, it does take a little bit longer because they don't have stock and supply. That's what Bob was alluding to. We just recently had a small problem with a vendor, and we had to modify to try to use what they gave us, even though it was a mistake. We modified our software to be able to utilize it. Those things we'll deal with one-offs, but I don't think those are any different than it was prior to the COVID.
Yeah, It's getting a lot better.
I would add to that. One thing that differentiates VirTra in our market is we have teams of engineers on staff, many of whom have worked at VirTra for years. Other companies we compete with, many times, they hire a 1099 staffer, or they hire a firm to do a project, and then it goes dormant. Then years later, to modify it or change it's a big problem.
By VirTra having teams of engineers and having enough scale in our industry to afford to do that, when things like that happen, we have a much easier time in accommodating it because we have that kind of trained staff on site, versus trying to track down what company did it or what 1099 employee did it for us. It's just, it's one advantage of the investments that over so many years our shareholders have made in VirTra to have that kind of robust infrastructure. That comes in very handy.
Okay. That's helpful color. Then just the last one from me, and I'll jump back in the queue. Just curious if you guys could expand on sort of John's comments on some of the challenges in the past. I mean, I can understand how the ERP system can cause some friction, but was this a case of a sales strategy not being well thought out or not going after the right customers? Any additional color would be helpful.
Well, there's so many ways I can go with that. No, the ERP implementation was just no one knew what they were doing. Classic mistake, if you took every business case from Harvard that talks about implementation of large systems, I think someone used it as a roadmap to make all the mistakes, every single one that people have made. Unraveling that, the problem with that is so systemic, because if that's the heartbeat of the organization, it messes up all your processes. Everybody was trying to manage things separately, you know, with spreadsheets and all of that. That's part of the reason why financials weren't complete.
Now that that's all been corrected and we're continuing to take advantage of the ERP, I mean, there were things that weren't taken advantage of that makes the business much more streamlined, and the effort of the folks that are here now really have jumped in. We're seeing where we're building reports, where we're catching things way ahead of time, and we're not sending things out incorrectly. There's a myriad of things. It had nothing to do with the sales or anything. It was just an operational mishap.
Okay. Thanks a lot, guys.
Thank you. Appreciate it.
Our next question comes from the line of Richard Baldry with ROTH Capital Partners. Please proceed with your question.
Thanks. Maybe sort of building off of that last part. Can you talk about the prospects you think to be able to cut the backlog down over the year ahead now that systems are running more smoothly? Maybe another way to think about it is like what's a You've got almost a year of revenue in backlog, depending on, you know, someone's outlook. What, what would a normal or healthy level of backlog on, you know, quarters, months, year, you know, tend to be long-term, do you think?
Yeah, that's a really good question. Having a backlog that large is, in my opinion, I mean, not good. In the operation piece, we've changed how we're now building systems in separate job groups. If you look at the numbers, we grew the backlog by 20%. You know, my goal would be is that the backlog is less than half. If you look at the components that make up the backlog, I don't know that we could get down any further than that. The only way I would build the backlog to what it is higher today, and it would be good, is in our STEP program with recurring revenue. Our goal is to raise that recurring revenue through our STEP programs. Those contracts will go three years, they come up for renewal.
Keeping those customers and keep dripping them so that they'll spend additional revenue with us, that's kind of the model. You'll see it start to go down, but then the idea would be build back up, and it doesn't have anything to do with getting the systems out the door. Our internal goal and our stretch goal is that once we get a PO, we want the systems going out the door in 30 days. The staff themselves have challenged themselves to, once we get an order, it'll be out the door in seven days, and I continue to support that.
I would just add that if VirTra was able to achieve 30 days, that would probably break all records in our industry. If we hit seven days, there's not a company that's been able to sustain that speed of delivery. That would be a remarkable accomplishment. I believe we can be successful with either of those, but seven-day turnaround on product would be an incredibly efficient, very streamlined process and operational system, which would be a bit of a miracle in our industry. I do believe it is possible.
you know, the gross margins on the quarter were very strong. Again, sort of building off the same theme we're all talking about, given the efficiencies and things that you've had, can you talk about, you know, how you think those gross margins should trend? Is it the efficiencies are helping you turn things faster, you know, match up product better? those should be sustainable or, you know, how do you view that long-term trend?
Happy with our gross margins.
Am I happy with my gross margins? Heck no, I'm never happy with gross margins. I think the trend will.
Go ahead.
I think the trend will continue to go up. There's a couple ways of that. One, we haven't raised the price as much, and so a lot of the price increases on some of the products, we just had a modest price increase. Now getting to the point where we have all of our costs accounted for, both labor, you know, our COGS are fully laid out, we're able to stay competitive while raising those margins. That's always a tricky item. They'll go up a little bit. They'll go up some more because we have some more efficiencies in areas that we're cleaning up and finalizing those processes and making it much more robust.
Some of that might be some G&A improvements.
Yeah, G&A improvement, right.
Yeah.
Yeah.
still.
I would say maybe 10% higher is kind of where it would be a fair target over the next 18 months.
We might improve some quality. We might have.
Yeah
...a little increase in cost to improve some quality of some items.
The technologies changes too. I think we'd also be able to take advantage and make the margins higher by technology, some, you know, reducing some of the equipment. You know, that's kind of what we're looking at.
All right.
I'd also like to note that, you know, in the history of military simulation training, when companies have been able to win larger military contracts, they get a lot more economy as a scale on those. Whereas police contracts are often smaller and are more diverse equipment, which makes it a bit tougher to have larger margins on, so.
That's a great point. Yeah.
Last for me would be, you started to touch on it actually answering my last question. You know, with the efficiencies you've done, and are able to achieve with the systems now more streamlined, your G&A has actually gone down two quarters in a row. You know, how do we think about absolute spending there, trending there? You know, how efficient do you feel you're at now sort of from a capacity? You know, when would you need to be adding to that just as a natural course of growing the overall business? Thanks.
I think a lot of that has to do with the kind of growth that we have. Right now, the way we're building the scalability of the company would be to handle growth without having a lot of expense. You know, John and I are both very conservative. I mean, even to the point where John doesn't rent a car. He borrowed a car that I have, and then he paid for tires to go on the car, so, just to avoid a rent-a-car fee for the company when John was here. We're very careful with the cash of the company and how it's spent. We feel like we've spent a lot of company money to build the scalability.
We invested in the ERP system and are reinvesting in it to get it improved and much more effective than the first implementation where we had a lot of problems, as John mentioned. We would like to see it slow down, but only when we don't see a good return. If we see a good return on investment, then, you know, John and I, we wanna be the most competitive company in the industry, and sometimes that takes some investment. I think generally we're thinking some of that spend is gonna slow down. You know, our plan is it would be to see it slow down unless there is an obvious need for it. You know, we would like...
we would prefer to move into the mode of higher efficiencies on SG&A, a reduction of capital spend. Now that V3 is set up and a lot of our construction is done, I think that's the.
Bulk of it.
Yeah, the bulk of what we thought was needed to prep VirTra to be the tier one supplier for both military and law enforcement.
I think it's gonna even as we increase business, I don't think we'll reach an equilibrium. I think it's gonna go down and stay there for several quarters anyways.
Great. Thanks.
That was all the time we have for questions. I'd like to hand the call back to Bob Ferris for closing remarks.
Thank you, Doug. Thank you, everyone. We appreciate your continued interest in our company. To our investors, thank you for your continued support. Please know that we are dedicated more than ever before to building shareholder value and building the world's most effective simulation training products so that the war fighter and the law officer can serve their country, accomplish their mission, and make it home safely. With 2023 off to a strong start, I firmly believe the best days for VirTra are ahead of us. As always, be safe, take care, and God bless.
Ladies and gentlemen, that does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time. Have a wonderful day.