Q1 2022 Ammo Inc Earnings Call
Okay.
Good day, ladies and gentlemen, thank you for standing by welcome to today's conference call to discuss <unk>, Inc. Financial results for the first fiscal quarter of 2022 at this time all participants are in a listen only mode.
Following the formal remarks, we will conduct a question and answer session and instructions will be provided at that time for you to queue up.
And today's conference call will be Reid Anderson with ICR. As a reminder, today's conference is being recorded and now I would like to turn the conference over to Mr. Anderson. Please go ahead Sir.
Thank you good afternoon, and welcome to <unk>, Inc. 's conference call to discuss results for the first fiscal quarter of 2022.
On the call today from Emily with prepared remarks are Fred Wagon Hall, Chairman and Chief Executive Officer, Rob Goodman.
<unk> and Rob Wiley Chief Financial Officer by now everyone should have access to the earnings release, which went out this afternoon at approximately 410 P M Eastern time.
You have not received the release it is available on the Investor Relations portion of ammo Inc's website at Www Dot Ammo, Inc. Dotcom.
Call is being webcast and a replay will be available on the company's website as well.
Before we begin we'd like to remind everyone that our prepared remarks contain forward looking statements and management may make additional forward looking statements in response to your questions. These statements do not guarantee future performance and therefore undue reliance should not be placed upon them.
Statements are based on current expectations of the company's management and involve inherent risks and uncertainties, including those identified in the risk factors section of Ammo Inc. 's. Most recently filed forms 10-K and 10-Q.
Please note that during today's call, we will discuss non-GAAP financial measures, including results on an adjusted basis management believes these financial measures can facilitate a more complete analysis and greater transparency into ammo inks ongoing results of operations, particularly when comparing underlying operating results from <unk>.
During the period. We've included a reconciliation of these non-GAAP measures with today's release. This call also contains time sensitive information that is accurate only as of the date. The slide broadcast August 16, 2021, Ammo, Inc. Assumes no obligation to update any forward looking projections that may be made in today's release.
Now I will turn the call over to Fred Wagon Hall, Chairman and Chief Executive Officer of Camel, Inc.
Thanks Reed.
I would like to extend my personal appreciation to all of our great employees.
Customers and shareholders for continuing to support our company during these exciting times.
I am pleased with our first quarter results, which showed significant growth in sales along with substantially improved profitability.
The ammunition segment was a key sales driver, reflecting strong demand for our core product.
And ammo H leadership position in the market.
Our marketplace segment was the other significant factor behind our strong first quarter results as we had two months of high margin revenue from them broker dotcom.
Which we acquired on April 30.
The gun broker Dotcom acquisition was a big event for Ammo Inc.
We are just in the early innings of realizing its true potential.
Over the next 12 months, we expect to leverage this dominant marketplace perform two significant broad.
Broadened our growth and increased margin.
I would like to bring you up to date and answer most of our questions. So they get hit with weekly from investors.
Our board of directors has a strong board.
Whereas our team effort.
First of all our son of myself.
But put together a team and I feel very proud of to take this company to the next level.
Our vice President John Ciulla, and done a great job in securing enough land from the city of Manitowoc to build.
Our new factory.
On the room and room for expansion in the future.
My son, Todd why you can all see executive Vice President in charge of getting the building built on time and under budget.
Move in date is summer of 2022.
This will be 165000 square foot state of the art manufacturing facility.
Jim Man or plant manager has done a remarkable job of integrating our patient loading operation into menopause brass facility.
Jim has had to read two additional warehouses.
Totaling 70000 square foot to keep up with the production demand until we move into our new building.
Mark <unk> our president.
Mobile marketing of John Ciulla, and they've been working due diligently on new product development for commercial use and government contracts.
At the present time, we have a D O D.
Contract with the government.
Rob widely our CFO and Susan loci CFO of gun broker dotcom and their team have worked around the clock to bring our accounting team up to par with the growth of our company.
We are fortunate to have our new accounting firm he key E F in place.
Matt Nicholson, our vice President of sales and Anthony Tate, our director of National accounts have done a tremendous job over the past 16 months.
Putting together an outstanding call center with current back orders over $200 million.
This includes working with dealers distributors of big box retailers.
Also met Anthony and made a quart head of our purchasing some phone primers and gunpowder throughout the world to keep our factories running.
We also have signed a five year contract with the federal to supply them with brass Casey.
And they supply us with partners.
Gunn broker dotcom the acquisition allowed am owing to have a dominant marketplace perform.
Steve Urban is on our board and is also active in future growth of the gun broker dotcom business.
Steve first because the man in charge of gun broker dotcom on a daily basis and has been running gun broker for the past 10 years.
We've put together is the team with Steve or Scott.
That's cross director of purchasing.
Matt Nicholson and Anthony take best is leading that team to secure ammunition and other items to put on gone broker dotcom.
This year, our goal is to put $25 million worth of items through gun broker dotcom with high margins.
Rob Good Medicine, President Board member Rob was brought in to help me run the day to day operations of this company because of his financial background and his wall Street background to.
So help me lineup with bankers for future growth of this company.
And to look at any acquisitions that might fit our wheelhouse horse.
Any future acquisitions must be accretive before we even look at them.
The other thing that keeps coming up.
As my retirement I don't plan on retired I plan on being heavier everyday at 530 in the morning, and conducting our eight o'clock production meetings.
With that I wanted to turn it over to Rob.
Goodness.
Thank you Fred.
Welcome to our earnings call.
We couldn't be more proud of the incredible team that Fred.
It has put together and the hard work everyone has put forth to create an outstanding quarter and all of the successes, we will have moving forward.
Total sales rose 360%.
It's almost $45 million.
By the way, which only includes two months of our marketplace gun brokers dotcom.
Our gross margins of 42, 7%.
Compared to last year of 11, 1%.
The demand trends in the U S domestic market and international ammunition markets remain extremely strong and show no signs of slowing.
As most of you know.
When Fred had the idea of animal.
It was not just an ammunition company.
It was to take in the industry.
That is extremely antiquated and bring technology and patented ideas to the forefront.
Our acquisition of gun brokers has been transformative.
Integration of the marketplace business with ammo, albeit in the early stages has been wildly successful.
Even though we've owned it for just over 90 days.
As a leading marketplace, the firearms and shooting sports enthusiasts.
Very excited about the impact from this business and accelerating our sales and earnings in 2022 and beyond.
The marketplace is 70% of our profit and ammo is 78% of our revenue.
This should show the street, who we are.
But we're not just a manufacturing company.
We've implemented many new initiatives.
We're focused on improving the overall experience in the marketplace.
For example, we've been adding personnel within customer service to speed up the process, whether it be the sale.
Or any issues that come to light.
We are adding new products as Fred mentioned.
The sites as we speak.
We will provide easy access to third party financing options along with loyalty programs.
To capture a broader share of potential transactions.
While increasing our average ticket size and making the relationships, we have with our customers stronger.
As Fred stated this acquisition of gun broker was truly.
Transformation for our company.
First quarter results give you an early glimpse of the significant long term potential.
This leading marketplace platform is highly leverage able and complementary to our businesses.
With that I will turn this over to our CFO Rob Wiley.
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Thank you, Rob and welcome everyone.
Let me walk you through our first quarter financials in more detail.
Total net revenue for the first quarter of fiscal 'twenty, two or $44.5 million up 360% from the $9.7 million, we reported in the Europe earlier period.
Growth in ammunition was the largest factor contributing to the year over year increase for.
For the quarter ammunition sales were $28.4 million compared to $6.4 million in last year's first quarter.
Our marketplace segment had revenue of $12.3 million versus nothing a year earlier, reflecting the acquisition of gun broker dot com at the end of April 2021.
For perspective on the significant growth we are seeing in our marketplace segment note that the two months of gun broker Dotcom revenue, we reported in the first quarter were 59% higher than the comparable two month period last year.
Higher sales drove a significant increase in gross profit to 19.0 million in the first quarter versus $1.1 million in the year earlier period.
The improvement in gross profit margin was equally impressive collecting the influence of our rapidly growing marketplace revenues.
For the quarter gross profit margin rose to 42, 7% from 11, 1% in last year's first quarter.
Inclusion of marketplace revenues, which had an 86, 5% gross margin in the quarter.
First quarter operating expenses totaled $9.3 million up from $3.9 million a year ago.
Several factors account of being counted.
The increase including the addition of marketplace operations.
Higher commission payments stemming from the growth in our ammunition sales higher noncash stock based compensation expense and professional fees related to the acquisition of gun broker dotcom.
As a percentage of net sales operating expenses declined to 29% in the first quarter of fiscal 2022.
40% in the year earlier period, reflecting operating leverage manufacturing scale on the mix shift in favor of higher margin marketplace revenues.
Operating income was $9.7 million for the first quarter compared to an operating loss of $2.8 million in your earlier period.
As a percentage of net sales operating income was 21, 8% driven by a 65% operating margin in the marketplace segment.
Net income available to common shareholders for the first quarter of fiscal 2022 was $9.2 million or <unk> <unk> per diluted share compared to a net loss of $3.1 million.
Negative seven cents loss per diluted share in the first quarter of fiscal 2021.
Adjusted net income per share was <unk> 13 versus an adjusted per share loss of <unk>.
Adjusted EBITDA was $16.3 million compared to adjusted EBITDA loss was $3 million in the year earlier period.
The significant improvement in adjusted EBITDA was due to the increased sales and improved gross margins reflecting growth in the core ammunition segment plus the addition of our higher margin marketplace segment.
Please note that adjusted EBITDA is a non-GAAP measure and you should refer to the reconciliation of our GAAP to non-GAAP results in today's press release for additional details.
Our total assets have increased significantly following the acquisition of gun broker dotcom from 170 million to $381 million.
Notable increases in our assets include intangible assets and goodwill from the acquisition as well as accounts receivable, which increased $14.8 million and.
And inventories, which increased $12.1 million.
We've built a backlog of 238 million, even as we continue to increase our sales and delivered to our customers.
Now let me provide you an update on our guidance given the strong underlying demand and our better than expected results in the latest quarter.
Creasing, our full year fiscal 'twenty, two revenue guidance from 190 million to $210 million.
This includes reiterating our second quarter estimate of 51 million that we first shared with you on July 15th and the expectation that revenues will be approximately $60 million in the third fiscal quarter.
Our full year adjusted EBITDA estimate for fiscal 2022 is now $70 million.
From the prior forecast of 65 million.
Mostly reflecting higher expectations for revenue growth.
As you look towards the remainder of our fiscal 2022, we expect to be able to offset a significant portion of our potential tax liability with our 31 million of net operating losses generated through our prior fiscal year end.
This concludes our prepared remarks, we're now ready to take questions. So I'll pass it back to our moderator. Thank you.
Thank you we will now be conducting a question and answer session.
We'd 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.
Press Star two 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.
Please while we poll for your questions.
Our first questions come from the line of Matt Koranda with Roth Capital. Please proceed with your questions.
Okay.
Hey, guys. Thanks.
I'm just wondering in the outlook that you provided the 210 million for revenue.
Do you think about the split between gun broker and the core ammunition business and then I guess, if I plug your second quarter and third quarter guidance with our full year guide it does seem to imply a sequential drop in the fourth quarter.
Just wanted to see if he can speak the seasonality that maybe you were betting in the outlook or if there's just conservatism there.
Hey, Matt This is Rob Wiley. Thank you for the question.
So the way we look at our guidance increasing from 190 million to $210 million is really made up but even split of the activity that will be generated through the income broker dotcom market place as well as our ammunition manufacturing operations.
And we really don't view.
Seasonality impacting that that total guidance overall.
Okay Gotcha.
And then I guess the other piece of the outlook if I just take sort of the remaining year worth of EBITDA and the remaining year worth of revenue.
It does seem to imply margins ticked down a little bit and I just wanted to get your thoughts on.
Put up a 37% our EBITDA.
EBITDA margin it looks like in the first quarter with only a partial contribution from gun broker and so is there any reason we should expect any margin degradation for the remainder of the year.
No we don't expect any margin degradation.
In fact looking on to our next quarter with a full three months of gun broker activity, coupled with our increasing.
Ammunition operations and leveraging that platform, we expect our margins to end up and approximately 45% conservatively.
You mentioned.
Our adjusted EBITA may seem low in comparison to the increase in guidance.
Historically, we feel like we've been conservative with our guidance and we'll update the street on.
Potential updates on guidance as we feel necessary.
Okay, that's fair.
And then I guess, a couple of more on one on backlog. So the 238 implies pretty strong order flow in the first quarter. So I just wondered if you guys could maybe disentangle and speak to.
What drove the order flow in the first quarter is there any of the military owners that you guys had press released within that backlog or is it all commercial and then any sort of new customer orders that you can call out on the commercial side that maybe drove the backlog as well.
It just felt like it all so it's mostly commercial.
Okay.
Oh gosh I'll take the rest of that offline and then.
One more from me and then I'll leave it to somebody else here, but the <unk>.
The 25 million goal of new goods through kind of broker dot com I think that was interesting and kind of incremental here is that all ammunition.
Or are there other products that you can put through the platform any more details you can provide on sort of.
Racking toward that $25 million goal for the year have we achieved any of it as of yet or is that all on the come for the rest of the year.
That's all on the come for the rest of the year, but.
It's.
Not all ammunition.
Other items, we're gonna be put bond and you'll be seeing those other items probably within the next 30 days.
Okay, Great I'll leave it there thanks guys.
Thank you.
Thank you. Our next question is come from the line of Mark Smith with Lake Street Capital. Please proceed with your questions.
Hi, guys. A quick question for me first on demand and I think Rob Goodman, and you might have talked about it a little bit in your commentary, but have you seen any change in demand primarily in ammunition at this point.
You know we have not seen any change.
Do you think we could.
Get rid of our backlog as everything has shipped more orders come in.
Backlog keeps growing.
The manufacturing is sort of has completed a ship.
That is what we're saying.
We have not seen really seen the only thing we've seen is a little price compression and some of the different rounds.
But nothing significant.
The demand is still very strong internationally and domestically.
And any change in your production as we look at just different calibers and different ammunition. You know is it safe to assume that still nine millimeter two to three continues to be high demand or have you started to mix into maybe some other.
Rounds of ammunition that maybe.
Kind of going back to them, if we're starting to meet some of the demand for for some of those high demand rounds.
Sure no worries.
They have.
Two to three in the background.
Always going to be there, but there has been a shift.
So more of a specialized rounds.
You know frankly, the margins are better and there's been no price compression at all.
The demand is out there for it.
And often times see a lot of the manufacturers.
Converting to doing virtually nothing but nine millimeter.
And rather than compete for lower prices, we'd rather compete in the higher margin.
Okay, and then I know you guys have had a lot of changes up in Manitowoc at your current facility can you talk about kind of during the quarter. You know any capacity increases you know maybe within the footprint that you've got today, you know potential on increasing capacity and you know kind of even if he can speak.
To kind of if you're pleased with the level of your operating out of that facility today.
I'm very pleased with what we're doing up there.
Uh huh.
As I said earlier, Jim Matt's done a great job.
When we shut down pace and integrating patient into the brass manufacturer. We found a real quickly we could put our whole operation and a 50000 square foot building.
John friend went out and helped us get US two new buildings are two buildings that we ran at 70000 square foot and.
And Jim has done a great job of.
Getting those buildings up and running.
In today's world you always have a people problem, but we seem to be toughing, it out and solve that problem on a daily basis.
It's.
Definitely going to be a lot better when we're in one building and we have a new facility.
Gotta be the state of the art ammunition facility in this country, but.
So right now.
It's tough every day, but we're making our numbers.
I said earlier, we get all the call every morning at eight o'clock and we focus on numbers numbers numbers.
And Fred you talked a little bit about you know people and maybe some inflationary pressure in wages are there other places where you guys are maybe seeing some inflationary.
Pressure in commodities or components that maybe either a I've seen price come up quite a bit or b that are just hard to get.
Well.
Thank you.
It's not been easy, but we've kept the fact that we're running and we seem to find primarily when we need them, we seem to find get passed.
Brass increases.
Yeah.
As you can see from our margins we've done a great job of.
Of what.
Raising prices when we had to.
Finding product when we had to.
But nothing's easy today, but I.
I think we got a great team of people.
Especially in purchasing that.
And we've had to go outside the United States to buy a lot of primers and gunpowder.
But.
We feel comfortable with these numbers and we feel comfortable everyday that.
We've got the right mix of product and the right mix of inventory.
Inventory coming in to supply our customers.
Okay sounds great. Thank you guys.
Yeah.
Thank you as a reminder, if you would like to ask a question. Please press star one on your telephone keypad.
Our next questions come from the line of Brandon <unk> with Marco macro Ops. Please proceed with your question.
Hey, guys great quarter.
I've got one shorter term question then to long term.
And I'm not going to take up too much of your time. So the first question on the shorter term when it comes to the gun broker dotcom low hanging fruits and you guys mentioned youre going to push.
25 million was the number.
Hmm.
That's from ammunition and other and other products on a UI UX.
How is that going to look on the site is it if I go to you know the endo for sale is it going to be you know and those products right at the top just kind of for buying now how are you guys thinking of listing your products amongst others.
To create kind of what you think is the optimal experience for the user.
Oh, what do I do not believe we're going to separate.
Yeah, I'll put them up at the top.
But there will be additional products we've taken.
Really it started at a fair amount of initiatives.
To coincide with the additional products that we're adding.
That we think are going to be beneficial to our customers.
Hum.
First of all calls maybe financial services, where there would be credit gift cards loyalty programs short term funding for the purchases.
And if we came into the cross selling.
Yeah.
Platform, which is easily leveraged with new products and services.
And we were just trying to create a very robust experience that.
It lacks a little bit in the past.
Adding personnel in the service area.
One we're kind of changing well some of our promotional activities and being.
It's a little more surgical in the promotion and activities that we do with existing clients.
Another workout as much back normally goes off.
Okay cool Thanks, and then the second so lots of questions you had a $118 million in cash in the bank.
More than double this time or you know from from from quarter over quarter.
What are your guys' plans with that from a long term view of let's say three 510 years out are there any other verticals that you were trying to pursue maybe strap on like what you did with you know like.
Jake men stamping or something along those lines or are you just thinking about reinvesting back into the animal business or investing into the dumb broker marketplace, where are you thinking in terms of allocating that $118 million in cash.
I think you've seen some of that funny.
Moving then to another vertical something that would be create for you Dave.
We do it generates.
No.
Frankly, a large part of cash.
But there are opportunities out there that we look at on a regular basis.
If they do match.
What we require.
Some money would go there.
Could go to me you know beefing up gun broker more machines.
Yeah, Theres not one SEC.
Thing, where we would spend our capital.
Got it and then this this might be something you know you don't have to you know you might not be able to answer too much but when you say ideas and and in verticals that meet your requirements is that some sort of internal rate of return that you guys are shooting for or is it more of a you know.
Qualitative.
You know just kind of it's got to it's got a strap on better than.
And then when it's not currently there.
You know I don't think there's a black or white answer to that.
It's part of the things that we've always done whether it be SEC.
Armor-piercing Street everything else had.
Nick let's call it just technology bend to it.
So, possibly it would not be accretive.
To the point, where it could be.
The capital and the market behind it.
Yeah.
Again that could be something simple as unique projectiles.
That's where I immediately got it.
Yep, Okay Cool and then last question Fred I know you said that you have no plans of retiring which is very comforting to hear.
As a longtime shareholder.
You said that you wake up at 530 every day and it sounds like you're excited to go into work. So maybe if you could just give us kind of some reasons why you're so excited about about what youre doing I mean, obviously, given your history and your and your background you could just be relaxed on the beach. So we didn't stop.
Fascinating to see someone at your age engaging in and the type of business.
Yeah.
Oh I like business.
Alex's.
Uh huh.
Well I guess, what my Crystal.
I think all of them are go up a few years three years ago. We said I think we can build a nice little ammunition company that's profitable.
Now.
We sit here and say I think we can build a.
Big ammunition company, that's very profitable.
It's it's the thrill of the deal.
I liked the deal.
I like what I'm, Don I think we've got a great staff of people.
I think this company I did $407 million a year in sales one time.
With my Old company.
Think we can beat that in the next.
Two years.
So my goal is record setting a beaten records so amit.
I'm excited to be here.
Awesome and I'm excited that they are at.
As a shareholder here that so again, great quarter, guys keep up the good work I'm going to hop off and just listen thanks again.
Thank you there are no further questions at this time I'd like to turn the call back over to management for any closing comments.
Okay.
Yes.
Yeah. So thank you everybody for joining us today are parting comment we'd like to leave you guys with as that.
We're excited about this fiscal year than the first.
Guidance point, we'd like to make is that we have over $31.5 million in net operating losses coming out of our previous fiscal year and we expect to utilize these by the end of our current fiscal year. So once again. Thank you very much for joining us on the call today.
I'll pass it over to Rob for some additional comments.
In closing and then I'll throw it to Fred.
Just wanted to reiterate that the acquisition of the gun broker.
Oh platform transformed ammo.
From a commodity focused products manufacturer to a marketplace.
Over 6 million registered users.
And our structural competitive advantages.
Most of the investors see commodity linked businesses.
Like Australia ammunition business.
Putting some short term supply constraints geopolitical insight demand.
Those who do Miss the point they Miss this opportunity I think to invest in the company to disrupt one of America's most boring industries.
Right.
Thank you.
Well I want to thank everybody for participating in the call.
And our company's growth.
You know firmly believe we've got a company here that you've got a lot of excitement to us.
Especially the gun broker, saying it puts us not even just the manufacturing and selling Apple, but we're where company now.
And the market place.
And it just happens to sell alcohol and other items, so were going to put on that site.
And I just hope everybody watches see what we're going to do over the next several months.
Our marketplace company.
Thank you very much.
Thank you. This does conclude today's teleconference. Thank.
Thank you for your participation you may disconnect your lines at this time and.
Have a great day.