Q2 2022 Ammo Inc Earnings Call
Good day, ladies and gentlemen, thank you for standing by welcome today's conference call to discuss M O Inc's fiscal financial fiscal financial results for the second 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 hosting today's conference 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 Ammo, Inc Conference call to discuss results for the second fiscal quarter of 2022 on the call today from Emily with prepared remarks are Fred Wagon House, Chairman and Chief Executive Officer, Rob did mention President, Rob Wiley Chief Financial Officer.
By now everyone should have access to the earnings release, which went out this afternoon at approximately four O. Five P. M. Eastern time, if you've not received the release. It is available on the Investor Relations portion of ammo Inc's website at Www Dot Ammo, Inc. Dot com. This call is being webcast and a replay will be available on the company's website as well.
Before we begin we would 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.
These 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 period to 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 of this live broadcast November 15 2021.
Ammo, Inc assumes no obligation to update any forward looking projection that may be made in today's release or call now I will turn the call over to Fred Wagon Holmes, Chairman and Chief Executive Officer of ammo.
Thanks, Reed and good afternoon to everyone. Thank you for joining us today.
Like to extend my personal appreciation to all of our great employees.
And shareholders continuing.
Corridor company during these exciting times.
I am pleased with our Q2 results another quarter in which we delivered significant growth in revenue.
And improve profitability.
Based on the strong Q2 results and continued momentum across our entire business. We are again raising our outlook.
Increasing our fiscal 2022 revenue forecast to $250 million.
From 210 million previously.
And increasing our forecast for adjusted EBITDA to 80 million from $70 million previously.
I would like to bring you up to date.
To answer most of the questions that I get a daily with from investors.
The move in date for our new state of the Art 165000 square foot building in Manto TWA, Wisconsin.
As the summer of 2022.
Oh, sorry, executive VP has assured me that it will be on time and under budget.
We have pictures on their website for any one of you to view.
On a weekly basis.
Jim Mann, our VP of operations has done a remarkable job.
Integrating our pace and loading operation, which closed down in April into menopause warehouse facilities.
I'm also amazed that the new automation equipment that Jim and his team have begun to put in place to eliminate future cost.
Mark <unk>, our president global marketing and John Glenn Vice President had been working due diligently on our new product development and government contracts.
At the present time, we have two D O D contracts in place.
Rob why Lee, our CFO and Susan Lucky CFO 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.
We are fortunate to have our new accounting firm P. K S in place.
Matt Nicholson, our vice President of sales and Anthony take our director of National accounts.
Done a tremendous job over the past 16 months, putting together an outstanding call center with current back orders of.
Around $185 million those numbers change dailies.
This includes working with dealers distributors and big box retailers also Matt Anthony and made a quart head of purchasing.
Primers and gunpowder throughout the world to keep our factories running.
We also have signed a five year contract with Vista, So federal to supply them brass casings, and they will supply us with prime.
Gunn broker dot com.
The acquisition allowed ammo, Inc to have a dominant marketplace platform in the industry.
Steve Urban is on our board and it's also very active in future growth of gun broker dotcom.
Steve Busch President of gun broker Dotcom has put together a team that cross director of purchasing Matt Nicholson and Anthony tape.
Best is bleeding that team in securing additional ammo.
And other items to put on gun broker dotcom.
Yeah.
At this time, we have signed.
Up to 50000, new users per month.
We believe with the credit card program.
The letter of credit program and the new loyalty program, we're putting in place as well as looking into bitcoin programs. We believe these monthly numbers will increase dramatically.
Rob Goodman, President Board member, Rob has brought to us and to me.
To help me run this company on a day to day basis.
And because of his financial and Wall Street background.
Blind up banking for future growth of this company.
And looking at any acquisitions that might fit our wheelhouse.
Any future acquisitions.
Must be accretive.
And fit our wheelhouse before we even take a look at them.
With that I'm going to turn the call over to our President Rob goodness.
Thanks Fred.
Welcome everyone.
It's a pleasure to speak with you today.
We are proud of the incredible team that Fred has put together and grateful.
For all the hard work, everyone has put forth to create an outstanding quarter and all the success, we expect moving forward.
Yeah.
Total revenues.
408% to over 61 million.
Inclusive of our first full quarter from our marketplace segment gun broker dotcom.
Our gross margins of 43% for the quarter.
We're up significantly from the 10.7%.
We reported in the second quarter of 2020.
Reflecting the scale efficiencies in our manufacturing operations as well as the growing mix of high margin marketplace revenue.
Demand in the U S domestic markets and international ammunition markets remains robust.
And shows no signs of slowing down as.
As we've said before.
One friend had the idea of ammo.
It was not just an ammunition company.
It was to take an industry, that's extremely antiquated and bring technology and patent and ideas to the forefront.
Our results today illustrate the significant progress toward that vision.
Our acquisition of gun broker dotcom has been transformative to say the least last quarter. We updated you on the success of the early integration efforts I wanted to share additional details to provide a deeper understanding.
The powerful dynamics of this business.
During the five months of operations since we purchased gun broker dotcom auction revenue has increased approximately 20% on a year over year basis.
<unk> several factors, including mid single digit increase in the average revenue per item sold.
Well, it's an upper single digit increase in the number of items sold.
Also helping to drive strong top line growth in our marketplace was an 83% increase in our loyalty program revenue as well as the growth in fees from resistant.
Yeah.
In the second quarter, the marketplace revenue accounted for 28% of our company's revenue.
And 63% of the operating income.
As you can clearly see we are no longer simply a manufacturing company.
Our marketplace enables much deeper connections directly with fans consumer and as we continue evolving.
This Leverages Bowl platform, we will continue improving our profitability as well as drive strong revenue growth.
Lastly, I wanted to touch on some of the additional government contracts, we announced in late September.
An award by the irregular warfare technical support director at <unk>.
And operated under the U S Department of defense or military operations.
This ammunition was developed to provide warfighters with the ability to see the impact of the rounds fired from their weapons system.
On a wider variety of targets both day and night.
D S O T ammunition.
Allows machine gunner could see the bullets impact without a visible signature.
Quite exposing their firing position.
And a matter which occurs with the currently utilized tracer ammunition.
This advanced capability will increase the survivability by reducing the firing position identification and increase the legality by supporting the shooters ability to place more rounds on target.
Before turning the call over to Rob Reilly.
Want to add that we are very proud of our accomplishments in the second quarter and remain well positioned for significant growth in the future.
Our unique proprietary ammunition business continues benefiting from the strong industry demand coupled with our efforts to aggressively expand capacity.
Our marketplace business remains a transformational factor that is still in the very early innings amplify revenue growth and dramatically reshaping our profitability profile.
I'd like to turn it over to our CFO, Rob Reilly Rob.
Thank you Rob welcome everyone.
Let me walk you through our second quarter financials in more detail.
Total net revenues for the second quarter of fiscal 2022 were $61 million.
408% from the 12 million, we reported in the year earlier period.
Growth in ammunition was the largest factor contributing to the year over year increase.
For the quarter ammunition sales were $40 2 million compared to $8 7 million in last year's second quarter, an increase of 360%.
Our marketplace segment had revenues of $16 8 million versus nothing a year earlier, reflecting the acquisition of gun broker at the end of April 2021.
Gross profit of $26 2 million in the second quarter compared to $1 3 million in the year earlier period.
Reflecting significant growth in revenue.
So the quarter gross profit margin rose to 43% from 10, 7% in last year's second quarter as we benefited from scale related efficiencies in manufacturing as well as the addition of high margin revenue from our marketplace segment.
Second quarter operating expenses totaled $12 million up from $3 million a year ago Majid.
The majority of the increase in operating expenses related to the addition of gun broker dot com, including $5 5 million incremental noncash depreciation and amortization.
As a percentage of net sales operating expenses declined to 19, 7% in the second quarter of fiscal 'twenty two from 25% in the year earlier period, reflecting the mix shift in favor of higher margin marketplace revenues, plus operating efficiencies related to our increased scale.
Operating income was $14 2 million in the second quarter compared to an operating loss of $1 7 million in the year earlier period.
As a percent of net revenues operating income was 23, 3% compared to a negative 14, 2% a year earlier.
Net income available to common shareholders for the second quarter of fiscal 2022 was $13 3 million.
Or 11 cents per diluted share compared to a net loss of $2 3 million or five cents per diluted share in the second quarter of fiscal 2021.
Adjusted net income per diluted share was <unk> 17 cents.
Versus an adjusted net income per share loss of one and the year prior quarter.
Adjusted EBITDA was $24 million compared to adjusted EBITDA.
<unk> 4 million in the year earlier period.
The significant improvement in adjusted EBITA was due to increased sales and improved margins, reflecting growth in our 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 balance sheet remains strong with $33 million of cash and cash equivalents essentially no outstanding debt.
Order backlog at the end of September exceeded $185 million.
Now, let me provide an update on our guidance given the continued strength of demand across our businesses expanded capacity. We are again, increasing our full year fiscal 'twenty two revenue guidance of $250 million from the prior forecast of $210 million.
Similarly, we are also increasing our full year adjusted EBIT forecast at $80 million for fiscal 'twenty two from the prior guidance of $70 million.
This concludes our prepared remarks, we're now ready to take questions. So I'll pass it back to our moderator.
Yeah.
Thank you.
At this time, we'll 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 queue. You May press star two if you would like to remove your question from the queue for participants using speaker equipment and may be necessary to pick up your handset before pressing the star keys, one moment. Please when we pull for questions.
Our first question is from Matt Koranda with Roth Capital. Please proceed.
Hey, guys. Good afternoon, thanks for taking the questions.
Just wanted to talk about the updated outlook, so the $250 million in revenue for the full year.
Maybe if you could just provide a breakdown between.
The core ml ink revenue in the gun broker marketplace business in terms of revenue split and then just how should we think about the.
Revenue split between the remaining quarters in the second half of your fiscal year.
And then I got a couple of follow ups as well.
Hey, Matt This is Rob while I. Thank you for the question.
So we are maintaining a.
Steady guidance on begun broker portion of the revenue any increase from there our revenue increasing guidance will be increased from our ammunition production and ammunition demand as well as.
Sales through the broker platform as well.
We are not giving a corner by corner update on our guidance, we're sticking to an annual guidance update for the moment.
Well be sure to update our shareholders. If we do decide to give quarterly guidance updates.
Okay. Yeah, it's just hard to determine the seasonality I guess in the business given hasn't been growing so fast for the last couple of years.
So just any directionality on seasonality manager we expect.
Q4 to be a little bit larger than Q3 it.
It seems to stand a reason just given you guys are still ramping production is that a fair assumption.
Yes, I do think that the parents and the assumptions that you will consider continue.
Continue to see quarter over quarter growth heading into the end of our year.
Okay makes sense.
And then just the split and EBITDA would be helpful. As well so the 80 million how that breaks out I would assume kind of 65 35.
In terms of the percentage split.
Between the two just kind of mirroring what you guys had in the second quarter, but any additional color on sort of how you see that breaking down would be helpful.
No I think I think you're right on line there Matt.
You are in the guidance, we've given on EBITDA as conservative, but we are confident in our ability to main margins heading into the end of the year.
Okay.
Fair enough and then.
Wondering if you could help us just bridge backlog I guess theres a lot of different moving pieces here, but I think you guys had called out north of a 185 million in the backlog and I think if I'm not mistaken last quarter, you called out something like 238 million at the end of the first quarter. So just wondering if maybe you could talk about sort of.
Deliveries order flow during the period any cancellations or just changes in the way, we should be thinking about how you're characterizing backlog.
Yeah, This fed where I got all of.
Our back log and changes daily because we're increasing production.
And we're getting is <unk>.
Some days as many orders as we're shipping in some days more so.
I've seen it be 200 million that I've seen it go down to 185. So it's just a constant change every day.
Okay.
Got it I'll take the rest of those offline and then.
As we think about one of them is part of your question. We haven't had one major customer cancel any orders.
Got it okay.
<unk> stores.
Okay, Okay fair enough.
And then just a couple more for me.
I'm curious if you could maybe just provide a.
Update on loaded ammo production capacity and where we are in the ramp.
I guess, maybe just Brad if you could just characterize you've helped in terms of per day production numbers before but where are we in that ramp up in the third quarter here currently.
Or do you think we end up the.
The year in terms of loaded ammo production versus capacity.
And then how how well are you guys covered on prime or is I mean, it sounds like with the Vista contract and then you know going for a number of years.
You should be a reasonable reasonably covered on loaded ammo rounds, but just wanted to get your thoughts on sort of how we should think about the pain points in the supply chain.
We don't have a problem with polymers.
I mean, we hear that all the time.
It's you know it's constant war every day, but we don't have a problem getting primers right.
And Matt.
And some of your other questions.
Regarding the the capacity build out.
Every.
We're increasing capacity daily whether it be through.
The automation that we're putting in the machines that we've added it is going.
I can't give you I'd just give you a rough number and say it's <unk>.
Proximately $450 million.
Currently.
Something you need to keep in mind is at the new building when we start.
Well it should be.
Let's say mid summer, we'll be producing out of that building.
Building will produce over 1 billion rounds of year.
Yeah.
Got you very helpful. Thanks, Rob.
And then I guess, just one more housekeeping one maybe for Rob Reilly.
Just wondering if you could talk about the working capital dynamics, maybe within the second quarter.
And then how you see it playing out for the remainder of the year. It look like you used some cash to build inventory a little bit of a or on the balance sheet as well maybe you can just talk about sort of do we flush some of the inventory for the remainder of the year and tightened collections.
And so we get a pretty decent flash for the second half in working capital.
I'm just trying to get directionality in terms of how to think about cash flow for the remainder of the year.
Yes. The company is working to put in place a line of credit that would be secured against our current assets like accounts receivable and inventory for example that would free up cash flow for us to continue investing in the production of our company or any other revenue producing.
Assets that we may think about acquiring in the future.
Okay.
Okay got it I'll take the restaurant offline here guys I appreciate it thank you.
Yeah.
Okay.
Our next question is from Mark Smith with Lake Street Capital markets. Please proceed.
Hi, guys first I wanted to ask about raw material costs, especially as we look at brass and just your ability to pass through pricing.
Yeah.
Yeah, Thanks, Mark for the question.
<unk> experienced some raw material price increases that raw materials is what makes up a majority of the our inventory today as we are basically are shipping the product as soon as it comes off the line.
We are passing those increases that we are experiencing onto our customers.
As you know Mark were never been a price leader or.
We're definitely a follower.
Winchester, just raised 716% federal usually leads the way.
But we will follow in step with them.
So it has been passed.
Okay, and then kind of hit some of my next question is as we look at the ammunition business. You know if if if you can break out kind of.
Price is versus kind of volume and the growth you know how much of this revenue growth really came through additional capacity versus passing through some of these higher prices.
Yeah. Thanks Mark.
Really the increases we're seeing are related to volume and that's really to achieve scale through our production's efficiencies there.
Sure.
It has been price increases, but really we feel that the increase in AR.
Financial operation have been through our volume efficiencies.
Okay, and how much is it Fred I think it was Fred talked a little bit about this new equipment. You know how is this helping you and then you know future plans as we look at the next.
Nine months or so until we move into the new facility how much additional capacity is there for new equipment and machinery and your existing facility to kind of expand more production.
Well the first thing we looked at was.
Automating, our packaging area, which had approximately 35 to 40 people put in emulation and boxes.
We've automated a portion of that now.
On one SKU and we're now doing all of our Skus. So we should have that all finalized within the next three months.
And.
We're also automating our streak line.
As we speak.
And side.
As I mentioned before we have.
Annealing oven, that's never been put in place we've had set in a warehouse for.
Probably a year and a half now.
And that saves us approximately a penny plus a bullet.
Depending on.
The round.
And that will go into effect in our new building.
So we're looking.
Automation.
And how do we streamline it and make the most it'll be the most automated ammo built.
Building a plant in the country, when we get done with it.
Yeah, Mark just I would just like to add a little bit for Brad.
We have three separate facilities currently in Manitowoc.
And I think you've been up there theres really not a lot of room to add anything in our COO.
Current facility.
But we have we have added equipment and there isn't another facility.
St.
First Street gives now that's where the pack out is now.
We still need obviously more space.
And the building is designed to all.
Or everything we've got plus.
Significant add on that.
We have plans for that new building.
Okay.
And then last question for me is in and we're looking at a little bit further here, but as we look at the transition.
The new facility you know did what did you learn when you moved to you know operations from pacing up to Manitowoc and are there any labor concerns that you have are you able to get enough people to kind of staff this new facility.
I think our HR Department has done a great job in finding people.
Every question I've always gotten from analyst or brokers, they've always said, what's your biggest problem and it's always people getting people and just to come to work.
But she has done a remarkable job.
And I think with this new factory the way, it's set up in a way to streamline it.
Solve our people right.
Yeah on the move itself and the setting up of the equipment will take.
I mean, that's it.
Yeah.
Yeah, it's all laid out it's all planned out what goes where.
Everything will be done it will be pretty much plug and play.
Moving from Pes in Savannah to work, obviously, a number of days just in trucks.
Some of those machines that it would be broken down rebuilt put back up.
That would've taken.
It takes much longer than the new move into the new facility.
It is literally just across the street.
Yep.
Perfect. Thank you guys.
Thanks Mark.
Okay.
Our next question is from Michael Dwyer with Raymond James. Please proceed.
Hi, guys. Thanks for taking my call. This afternoon.
Given the movement around environmental social and.
Socially conscientious investing.
Are you guys looking at any biodegradable or environmentally friendly products several of the ammunition trade magazines that are out there have been writing about this concept recently I was wondering if you had anything in your Skunk works that you might want to share with us.
Yes.
You know, we have a contract with a company out of Spain for biodegradable shotgun shelves.
And it just so happened that they're here today.
Spent all morning with them.
On <unk>.
Probably.
Because of freight costs, we're going to have to build that hit them all here in the United States and our new facility.
And we'll be putting together a deal with them to assemble that product here in the U S.
And they.
Oh 30, some patents on their product worldwide.
<unk> gone out to suffer with them Tonight. So.
I think it was a very exciting day for us.
Thank you it looks like your marketplace is gradually adding skus to the offering can.
Can you give us some color around what you think next quarter next year would look like in terms of total of Skus offered on on your on your marketplace.
Hi, Mike This is Rob.
I don't have a set number it's got 165, skus and just be ammunition.
I think we'd be pretty safe.
Move up into it.
The low two hundreds.
In the near term on Skus.
I believe we'll be adding to that constantly.
You know it took us a short time to make the acquisition.
And build the team.
And we are currently now just putting products through there.
You know that tied with the.
The loyalty programs the credit card.
Lines of credit.
That type of thing and.
You know looking at bitcoin, there seems to be a very high correlation.
Between gun owners and all.
Turning to currency.
I'm sure. There's many many different programs out there that needs to be studied were taking a closer look at that as well.
[laughter].
Yeah. Thanks, Rob No more question for me Yeah, Thanks, great quarter.
Our next question is from Brandon Bela with macro ops. Please proceed.
Hey, guys great quarter again, just a couple of quick questions on capital allocation looking out three to five years.
You're starting to see a lot of cash flow come through net income positive. How are you guys deciding where that cash gets allocated now that you've got these manufacturing.
One is that you're ramping up and you've also got this online marketplace.
What are the internal discussions and then and then how did those dollars end up getting allocated when it's awesome.
I think we are at a number of different allocation scenario.
One would be adding product definitely.
Into the gun broker side.
I would be.
It would not be telling the truth, if I didn't say, we were looking to be a little more vertically integrated.
And with the additional space.
Thank you will probably see that happen.
You know in not too distant future.
The prices.
So based on how accretive the transaction is this can we structure it is.
Earn out.
And there's a lot of different things that come into play.
But rest assured that we're not going to do anything that doesn't fit and doesn't make sense.
And isn't immediately effective for us.
Yeah.
Yeah.
Got it and then just another question about gum bunkers. So it seems like some of the low hanging fruit that you guys could really start to chip away at was just general customer service.
Which would seem to be lacking before you guys bought it and it sounds like you guys are adding I think you said 55000, new members a month is that correct.
I think the number is closer to 50.
Okay, sorry, yeah, yeah, yeah. So so so 50000 months what are the main drivers of those those new people coming onboard and then what are what are some of the.
Programs, you guys are making to that platform, that's that's kind of.
Manifesting in this in this growth.
Well, if we go back to when we were looking at gun brokers, initially and finding out where their folks were.
Their biggest fault was in customer service.
So we've been spending a lot of time there.
As you mentioned, we've been adding people doing significant training doing some serious catch up and trying to make.
The whole process easier for the end user.
You know so you know it used to be you know just through emails now there's.
Actually talked to a lot of people.
They're doing a miraculous job and catching up.
Let's say in the customer service arena.
I think that that's what the people really.
It is all about the end users all about our customers how.
Oh, they are treated and that's what keeps them coming back.
And that keeps this business.
You know growing like it is growing.
Got it.
And then just kind of one quick question I know you had a target for the amount of.
Product sales through the marketplace.
Note that specific number I don't know if it's like 5 million through the first year of just ammo.
And I think product in the marketplace. How are you guys on that.
I know, it's I know, it's super early but have you seen some fairly.
Some fairly strong success pushing through your own product, maybe it's easier than you expected or maybe it is maybe it's been harder than you expected.
It hasn't been harder than expected. It you know it takes a little while to come.
The pipeline to bring it in.
I think some of the numbers we talked about previously.
We're.
I think we'd like to see at least 15% of our production.
Go straight to gun brokers.
With the increased capacity we won't be.
<unk> will actually still be growing.
Our large big box stores.
And fulfilling their orders, but then a game.
It does allow us to go direct to consumer.
Which of the consumers like yeah, that's probably the lowest hanging fruit that's out there.
Let's see.
Increasing production of customer service and the new products.
We hope to drive more and more people when they're being driven there today.
Got it got.
Got it and then one final question.
One final question, if we rollout gun broker to kind of a full stop what you guys envision this thing to be if it if it really works.
Is it is it something where most of your revenue most of your sales will be direct to consumer and you're not relying on big box distributors and retailers.
Or do you still see these big box retailers.
Like the best programs and stuff like that play a significant roles in revenue generation over the long term.
Oh, I think there will always play a significant role I mean, it's really it's not.
A question you know in any business, there's always competitors and where youre going to buy your ammunition.
You know as long as the price the pricing is.
Portable.
It's not it's just another competitor.
Gander would be the bass pro or.
Fleet farm would be to somebody else to rural King.
And where are you purchase it but we do not plan on.
You know, giving up or cutting back anything from our big box stores.
Got it all right I'll step away Fred enjoy summer Tonight, you are you've earned a few extra glasses of red wine or whenever whenever drink you can't see great quarter guys.
Thank you. Thank you.
Thank you ladies and gentlemen, there are no further questions at this time all right.
I'd like to hand, the call back to Fred wagon hauls for any closing remarks.
I just want to thank everybody for supporting us.
And.
Look forward to the next quarter.
Thank you are going to see some amazing things come out of this company over the next couple of quarters.
Good day.
Thank you. This does conclude today's conference you may disconnect. Your lines at this time. Thank you very much for your participation and have a great day.