Q4 2021 Byrna Technologies Inc Earnings Call
Greetings and welcome to the burner technologies fiscal yearend 2021 earnings conference call and webcast. As a reminder, this conference call is being recorded and all participants on a listen only mode.
Before turning the call over to Brian cans Burner technologies, Chief Executive Officer, I will read the Safe Harbor statement some.
<unk> made today may include forward looking statements actual results could differ materially from the statements made today. Please refer to burn his most recent 10-K and 10-Q filings for a more complete description of risk factors that could affect these projections and assumptions. The company assumes no obligations to update forward looking statements as a REIT.
A lot of new information future events or otherwise.
This call will include references to non-GAAP results. Please see the press release in the investors section of our website IR suffered a dot com for further information regarding forward looking statements and reconciliations of non-GAAP results to GAAP results I will now turn the call over to Mr. Brian Jones. Thank you Sir Please go ahead.
Thank you very much.
Good morning, everyone and thank you for joining us for <unk>, 'twenty, 'twenty, one and fourth quarter and full year earnings call.
Hi, David North and I will be discussing our Q4 and full year 2021 results and I will also be taking this opportunity to update everyone on our progress to date this quarter.
During 2021 burn achieved a number of significant milestones.
We beat our quarterly and yearly guidance for fiscal year 2021, posting Q4 sales of $11 2 million and full year 2021 sales of $42 2 million.
Well this was only slightly higher than the same period last year up just one 2%.
Orders received during the quarter increased by 57, 4% to $12 million up from seven.
$7 6 million in fiscal year 2020.
Is the Q4 2020 results include a fulfillment of $3 4 million of orders received in prior quarters.
This order flow was driven by increased brand awareness as evidenced by the almost 2 million web sessions on boarding of dot com during the fourth quarter up from $1 6 billion web sessions in Q3, and just 800000 web sessions in Q4 2020 for.
For the year Berta Dot Com had $6, one 5 million total web visitors, resulting in 88400 orders totaling $29 5 million in E. Commerce orders E. Commerce sales for the year were $31 7 million as BARDA came into the year with several million dollars of backlog.
Florida started selling on Amazon Dot com late in Q3 and for the year 187000 people visited our store in Amazon, resulting in 3600 orders and $875000 in sales in.
In 2021 dealer sales totaled $5 5 million as BARDA kicks off a.
Its dealer program in earnest. We also started selling to law enforcement in fiscal year 2021 trading over 200 agencies and booking over $550000 in sales.
The new product development front burner commenced in house production of our payload ammunition.
<unk> Berta Pepper, Berta, Max and Burnup Pro training. This is a critical milestone as this moves significantly reduces the risk of supply chain disruption and ensures the quality of the BARDA product.
I also have to say it was a major technical accomplishment.
And without doubt Berta now produces the finest chemical era to project out on the planet.
In conjunction with the developments of the eco kinetic rounds in Q3 of last year, the only truly environmentally friendly round or the market <unk> has established itself as the premier innovator in this space.
Now I'd like to hand, the call over to David to discuss our fourth quarter and full year financial performance and then I'll come back on to discuss recent developments in more detail and to take questions. David Thanks, Brian and thanks, everyone for joining us today.
Slide to review the financial results for the fiscal fourth quarter and for the full year ended November 32021.
Revenues for the fourth quarter of 2021 were $11 2 million, a slight increase compared to 11 point home million dollars in last year's fourth quarter. However, as Brian mentioned orders received during the quarter increased substantially up 57, 4% to $12.1 million this quarter from $7 $6 million in it.
Fourth quarter of 2020, when sales included the fulfillment of $3 $4 million of back orders received in prior quarters.
Gross profit increased by 16, 4% to $5 $7 million from $4 $9 million in last year's fourth quarter gross gross margin improved to 51, 1% from 44, 4% in last year's fourth quarter.
Well there was significant year on year improvement this was lower than in the previous two quarters. When gross margin was over 56% of cost of sales was negatively impacted by significant increases in international shipping costs, which reduced gross margin nearly 2% year end holiday promotions and liquidation of burn.
<unk> HD inventory reduced fourth quarter gross margin further each by approximately 2%.
Operating expenses rose to $8 $8 million in the fourth quarter of 2021 from the $6 $2 million in the fourth quarter of 2026.
$6 $7 million in the third quarter of this year.
Part of the increase over the third quarter are about a quarter million dollars was due to variable costs on higher sales volume.
The main drivers of the increase in operating expenses this quarter were twofold.
First we incurred $1 $3 million in one time severance.
Severance expenses of $700000 of that being noncash stock compensation.
To eliminate highly compensated positions.
Second as part of our strategic campaign to promote growth and brand awareness advertising spending was increased by just over $1 million.
As a combined result of the depressed gross margin with the increase in operating expenses. This quarter net loss for the quarter was $3 $2 million compared to a net loss of $1 $6 million in the same quarter one year earlier.
Adjusted for noncash stock based compensation costs, and one time severance costs non-GAAP adjusted net loss was approximately $1 $5 million compared with a net loss of $1 1 million in last year's fourth quarter.
non-GAAP adjusted EBITDA was a loss of $1 $5 million compared with a loss of zero.
Zero point $7 million in the fourth quarter of fiscal year 2020.
For the full year, we've experienced spectacular growth revenues increased 154.5% to $42 $2 million for the full year 2021 from $16 $6 million. In 2020. This was driven largely by burn has continued advertising and marketing efforts are designed to introduce the burner brand too.
A larger audience growth.
Gross profit rose to $22 9 million or 54, 3% of reported net room revenue for the full year of 2021 in line with our 53% to 55% guidance as compared to gross profit of $5 $7 million or 45, 3%.
Net revenue in 2020, the improvement was due to improved operating efficiencies at both of our factories as.
As well as higher production volumes in Fort Wayne, allowing for improved cost efficiency.
<unk> also benefited from the introduction of new higher margin products.
Nevertheless increased freight costs caused by the global supply chain prices had a negative impact on margins, particularly in the fourth quarter of 2021.
Operating expenses for the year rose to $26 $2 million from $11 $8 million in 2020, reflecting the general growth of the company and its operating and its operations, particularly in the area of people costs.
The average head count.
Approximately doubled from 2020 to 2021.
Net loss for 2021 was $3 $3 million compared to a net loss of $12 $6 million in fiscal year 2020, and net loss in 2020 included a non operating loss of six point of $1 million, resulting from extinguishment of debt.
non-GAAP net income for 2021, adjusted for $3 $2 million of nonstop and noncash stock compensation expense and for $1 $3 million of one time severance expense was zero.
Zero point $9 million compared to non-GAAP adjusted net loss of $3 6 million in the prior year non.
non-GAAP adjusted EBITDA, excluding noncash stock based compensation and severance cost was a profit of $1 $3 million versus a loss of $2 $8 million in 2020.
Finally, our balance sheet remains strong with over $56 million of available cash and cash equivalents and no debt.
Now I will turn it back over to Brian .
Thanks, David.
Let me get right into the elephants in the room, which is the revision of our full year guidance.
The reduction of our Q1 sales projections, which we announced in the.
Press release this morning.
As I'm sure everyone knows in our earnings release, we reduced our Q1 guidance from 11% to 11 5 million down to eight four to $9 2 million and we reduced our full year guidance from $60 million to $65 million down to $55 million to $60 million.
First why such a wide range of our Q1 numbers. After all we're only three weeks out from the end of the quarter. The reason is simply that we have close to 700000 in international orders, where we are waiting for export permits from the South African government, we hope that we will receive the necessary paperwork.
Prior to the ended the quarter however.
Beyond our control.
Additionally, we have an initial stocking order of approximately $350000 from a new chain store customer in the U S, where we're waiting for shipping instructions. This as a large national chain with more than 100 locations that were extremely excited to get started with however, we do not know if this order will ship this quarter or next.
Quarter and.
And as soon as we get the go ahead to ship, we will be announcing the name of this new retail partner.
Even at the top end of the range. However, we are $2 million below consensus so what happened.
As everyone knows the world is in the grips of a global supply chain crisis. Unfortunately burner has not been exempt from the effects.
As a result of production problems with suppliers and shipping delays.
Acerbate by loss shipments damage shipments, we have been in a persistently out of stock situation on a number of critical components necessary for the production of Berta launchers.
The simple fact is that there are 114th parts that go into every burner SD launcher and Unfortunately, we cannot go into production if we have only 113.
As a result during the first 70 days of Q1 due to shortage of parts. The factory in Fort Wayne has been in production just 23 days.
Yeah.
With the production of Fort Wayne in South Africa. This means we produced a grand total of 12265 burner SD launchers, which is far short of our production plan. These.
These unplanned factory shutdowns, which we experienced throughout the quarter have resulted an empty shelves at our dealers and out of stock notifications on our burner website.
The situation was even worse with Amazon is Amazon will not even allow you to display or advertising out of stock product. Consequently, due we do not even know how many sessions and sales were lost with the Amazon due to inventory shortages.
The good news is that we went back into production of new burner SD launchers yesterday in Fort Wayne and we expect to restart production in South Africa next week with both factories back in production, we hope to produce 6500, BARDA SP and SD XL launchers between now and mindset.
Unfortunately, this will still limit our sale to $9 2 million for the quarter.
My father always told me you could not sell from an empty basket.
On a positive note as of yesterday the company has sufficient inventory to produce 10000 launchers, and we expect to have enough raw material components on hand by the end of the quarter to produce 30000 launchers. This improvement in our inventory situation is there.
Result of first an ongoing realignment of suppliers, including moving production of several critical components to U S vendors and to getting past the impact of the Christmas holiday and Chinese new year shutdown periods.
Over the longer term burn it is continuing to pursue its stated goal of an all truck strategy simply put we want to be able to supply the Fort Wayne factory, 100% of the components necessary to produce the burn of SD launchers from suppliers in North America, we expect to have.
This in place by the end of this fiscal year. Once this happens we will be somewhat insulated from the excessive freight costs and shipping delays that we are currently experiencing.
Well, we plan to have our old truck strategy in place by end of year. There can be no assurance that the current supply chain issues, which have severely impacted the company. During Q1, we will not continue to negatively impact, Florida for several months or maybe even several quarters to come.
That's the reason for the reduction of our overall guidance our full year guidance.
Nevertheless, I really believe that the worst is behind us.
Yesterday, we start restart production and we produced 350, new burner SD launches as planned with a 95% first pass yield, which frankly is extremely good for the first day of production after being shut down since February .
We are planning to produce 350, a day for the balance of the month.
So what about demand is our growth narrative holding up.
I believe that it is in building our forecast, we projected burn a dot com sales.
For $6 1 million in Q1.
If we maintain our current pace web sales will come in at slightly over $5 8 million, which given the number of days we were out of stock is extremely encouraging.
And coming up with our original projection of $6 1 million, we made a number of assumptions. The most important assumption is the number of web sessions, how many people are visiting the berta dot com website.
Based on current trends, we expect web sessions for the quarter to come in at about $175 million versus an assumption of $1 $65 million.
Despite being out of stock for much of the quarter, we actually had more people visit our websites and we had expected.
Not only did we beat expectations, but web sessions were up more than 100% from the 852000 web sessions. We saw in the first quarter of 2021, clearly we are getting the word out with our ramped up advertising spend.
The reason sales were slightly below expectations with web sessions above expectations is that we saw a lower conversion rate.
108% this quarter, rather than the 125% we had projected.
But the.
The conversion rate bounces around over the last 30 months, we've seen a low with seven 7% and a high of $2 four 5%. However, it always seems to revert to mean at one 5% so.
Confident that we will see our full year conversion rate meet or likely exceed the assumed 125%.
Dealer sales.
This quarter dealer sales are expected to come in $600000 below expectations.
Fight the shortfall.
A very high degree of confidence that we will achieve our numbers for the year in dealer sales.
Largely due to these large national chains.
We will be signing on.
Unfortunately, however for this quarter, if you don't deliver product in December you can't deliver twice as much in February the last December sales are lost forever.
But as I alluded to earlier, we have a large initial order in hand from a well known national chain store that if we can ship before month end will shape $350000 off our dealer shortfall.
We're also in the final stages of Onboarding, another very large and widely recognized national chain that we hope will be able to announce in the coming months.
Once these chain stores are on board, we would expect them to generate several million dollars each in annual sales.
The biggest shortfall for this quarter will be Amazon.
Had projected $1.7 million in sales for the quarter and that number will come in at around 900000.
Unfortunately, we simply don't have enough experience with Amazon to know how much of the shortfall is due to inventory shortages and how much is due to a lack of demand.
The first several months on Amazon, we were constrained by Amazon imposed limitations on quote unquote shelf space as we are allocated just over 3000 spaces based on the sales velocity Amazon increased our shelf space to 14000 spaces, but we've been unable to fill the spots.
Currently we have just 4000 plus items in stock at Amazon. Consequently, we do not have enough data on what level of sales, we could expect with 14000 allocated spaces.
It is reasonable to expect however that as we continue to advertise we will see a commensurate increase in bold burner dot com and Amazon Dot Com sessions.
And sales provided of course that we have product in stock at Amazon as everyone knows many people when looking for a product that they have seen advertise will simply search on Amazon.
Nevertheless, we are taking our forecast for Amazon down.
About $9 9 million to $7 5 million for the year.
Our forecast for 2022 was always back end loaded, particularly as Q4 is always a very strong.
Period due to the holiday <unk>.
Sales.
But now with these adjustments it will be more so.
With the reduction in guidance from 60 to 65 million down $2 $55 million to $60 million. Most if not all of this shortfall is expected to come in the first half of the year as we continue to work through supply chain issues and focus on the release of new products.
New product releases have been challenging for much the same reason supply chain issues negatively impacted <unk> ability to bring out new products.
S suppliers were unwilling or unable to devote extremely scarce machine time.
The prototyping of the parts that are necessary for the development of any new product turnaround times on prototype parts increased from roughly one week to more than four weeks as a result burn has not yet been able to release several new products, including the seven round magazine, the burner SD Pro <unk>.
A TCR and these delays negatively impacted Q1 sales now.
Believe that all of these products will be in production by the end of the first quarter or very early in the second quarter and that they will help with Q2 sales.
The two new products that we expect to have the greatest impact on sales in fiscal year 'twenty. Two however are the 12 gauge less lethal fin project style and the burner LD model for specifically for law enforcement.
12 gauge round as I've discussed before.
Allow burn is patented and highly effective <unk> round projectile to be fired from any 12 gauge shotgun without having to spend more than $1000 to purchase a dedicated launcher.
This will allow the owners of approximately $100 million shotguns in the U S alone to use their existing weapons system to disarm a threat at safe standoff distances without employing lethal force. The shotgun is the most common weapon used for home defense in the U S, allowing it to be you.
Used in a less lethal matter could be a game changer. When it comes to the widespread acceptance of less lethal force and we believe this will help build <unk> brand and will drive sales of burner launchers. In addition to the revenue that's a 12 gauge brings to BARDA.
If all goes as planned burner intends to also to go into production of the 12 gauge round in Q3 of this year. We will initially be able to produce 100000 rounds of month and we expect these to retail for $7 around and wholesale for $4.55 around.
The Barnett L E.
Specifically designed.
Law enforcement requirements, we will have greater stopping power than the current burner SD range of products.
This product, which we also expect to bring to market in Q3 of 2022 will be offered to both law enforcement and consumers and we expect that many owners of burner, HD and Berta SD launchers will upgrade to the faster more accurate and far more powerful burner Lee.
The burden of <unk> will also be produced exclusively in the U S.
Along with the addition of new products, we expect to benefit in the coming quarters from the addition of the new markets.
We previously mentioned that we were looking to start selling into Canada in order to do this we had to create a special recreational launch for Canada, which involve new packaging in French and English along with new manuals are completely.
Redesigned website.
I am pleased to say that we shipped our first test order to Canada. This week and I was informed yesterday that it cleared customs.
Fortunately we were also informed that it has stuck at the border in the trucker blockade.
You can't make this stuff up.
We expect to kick off the Canadian program in earnest on February 21.
And hopefully if the charterer blockade is not an issue sales.
Sales are projected at 10, a day to start we believe.
This will add more than $1 million to burn as revenue over the balance of the year.
We are also going to be opening our Las Vegas retail store in Q2.
Initially we are expecting only three sales a day, but EBIT at these levels, we expect the store to add another 400000 to the topline over the next three quarters.
Okay.
Despite the recent difficulties.
We have to remember that it has been an amazing journey.
Just two years ago, <unk> had less than $1 million in sales only 96000 people visited our website and we had filled just 968 orders.
We had no factory no advertising budget and just 10 employees.
Two years later, we've seen our sales increased by more than 4500%.
More than $8 6 million people have visited our website and we have filled more than a 138000 orders.
At the same time, we established two manufacturing facilities on two different continents.
The production of both launchers and ammunition in house, and we have put into place the people infrastructure and balance sheet necessary to take burns to the next level and.
And we did all of this in the middle of a pandemic and global supply chain crisis.
It has not been without its growing pains and there is a whole lot of work to do as we strive to improve procedures enhanced quality control processes and expand operations globally. However on balance I am extremely proud of what the team at <unk> has been able to accomplish in just a few short years.
I look forward to working with this amazing group of people as we pursue our mission of building burner into a global brands by saving lives and giving folks the ability to live safe.
I'd like to turn this back over to the operator, and we'll be happy to take a few questions from our analysts.
Thank you the floor is now open for questions.
Ask a question. Please press star one on your telephone keypad at this time, a confirmation tone will indicate your line is in the question queue. You May press star two if he would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys once again Thats Star one to register a question.
First question today is coming from.
Yes, Wally of Raymond James Please go ahead.
Hey, good morning, and I appreciate all the detail on the call.
And I wanted to maybe flush out the expenses and gross margins a little bit throughout the year can you talk about maybe the gross margin kind of entry point and exit point as we think about the year and some of the things that are transitory and maybe enduring from an expense side of things.
And then also with that can you talk about maybe opex dollars, what your run rate as you think going forward.
Versus where you are kind of currently running at and how much we should model that up flat or down based on on how you feel about the business right now.
Okay.
Let me take the gross margin question first and then I'll have David discussed the Opex run rate.
I've been very very clear from the beginning that we think are term rental gross margin is going to be in the.
65% to 70% range and I see no reason to change that projection.
We have David said, we had an increase of 2%, but that increase for freight but that increase was on top of what had already been very very high freight costs.
Just as a very quick example.
We make.
Certain products that cost of several pennies to produce but we ended up paying more than 15 cents to ship them by air freight to the U S.
This week, we actually put 500000 rounds of ammunition in a container coming to the U S by Ocean freight.
This will reduce our freight for more than 15.
Round two much less in <unk> around so a lot of the freight costs that we've been incurring are due to the fact that every single components and products that we've moved has gone by airfreight since the inception of the company by being able to get ahead of production.
Option.
And we've been able to get ahead of production on the ammo side because we've now brought this in house, but being able to get ahead of production allows us to take much more efficient means of moving the product.
So that will that alone is going to have a significant improvement on margins. The new products that we will be producing will also have a significant improvement on margins. So we believe that over the next I don't know.
18 months.
We will start to get closer to that 65%.
Most profit margin level.
David can you talk about what we're looking at for ongoing.
Sort of structural Opex sure and forgive me.
And that I want to be careful about giving forward looking guidance that we haven't already given.
I don't want to talk about specific quarterly numbers.
But I would point out that.
This quarters operating expenses had a.
$1, three and severance which is a one time.
It's kind of a cost that we don't expect to keep.
Going forward.
But it also had a.
$1 million more than the prior quarter and discretionary marketing expenditure and we do expect that to keep going forward.
Expect to be <unk>.
<unk> about $1 million $5, a quarter and discretionary marketing.
And that would be an increase over the run rate that <unk> had this year.
So yeah I think that you can you can model from that those are the main the main changes this quarter to what our run rate is.
In terms of just what I think about is structural opex.
We don't see any significant changes this year from the run rate in the second half of last year.
As I said, we doubled the workforce in 2021 from 2020, but that didn't all happen on January one that happened over the course of the year by the time, we got to Q4, we were pretty much running at what we think is going to be a stabilized run rate now keep in mind there are certain.
Does that are variable.
As David mentioned, we probably have $300000 of additional Q4 expenses related to credit card processing fees and freight and OEM base, yet or just volume based and those will go up.
We have a pretty.
Good management team now we don't see any significant additions to that that would that would really drive overhead. Yes. Those are the main factors I think you should take into account.
Brian was really I think saying, they're structurally is if you look at a company like us.
Our operating expenses.
Real core of our structural cost is people related it's our head count and so on and we aren't.
Planning any significant changes there we've got a crew that will take us through.
The coming year.
Without a big increases in that structure.
And then underlying that there.
Other kinds of service fees consultants and legal and so on and we have.
Increases that we expect will happen now and we also have cost saving measures that we expect will happen there that I think will even out I think.
The main change that we're going to see and we've been talking about this for quite some time.
Is the increase in discretionary spending and marketing.
I have seen the full effects of in this fourth quarter.
Okay. That's real helpful. Maybe if I can just sneak in a quick follow up to that specifically and then they'll move on to another topic.
The plant the plant shutdowns is there anything that we should think of from an uptick in manufacturing costs. As you are you have the supply chain wrinkles figured out.
And then I guess, maybe if you could share.
Next question.
Any lessons learned from our marketing and maybe an update on how the Billboard campaign is going.
In terms of the impact of the lower volumes on production costs, clearly, we expect to see some negative.
<unk> as a result of being below plan.
That said, we also expect to see some.
Savings from production efficiencies so.
I don't know, where the variances will come out for this quarter, but wherever they are I don't see that as an issue on.
Forward going quarters.
And Brian what was the second question second part of I, just wanted to get yes, I just wanted to get an update on maybe some lessons learned from marketing things that are working specifically.
Then also just thoughts on how the Billboard campaign has gone and what you've learned from that with a little bit more data.
We just started we just rolled out also.
The television campaign, both linear in other words subscriber base and also whats called OTT.
Our campaigns.
And we look at that and the Billboards kind of in the same way is very top of funnel.
Campaigns to get burn a brand out to people that have not heard of it.
I will tell you that both campaigns have been extraordinarily effective we are doing these campaigns in test markets and what we're finding is with both campaigns that when we look at the number of web sessions in other words, a number of people that are going to visit BARDA dot com.
In the period of time that we're running either the billboards or the TV campaigns. They are up markedly hundreds of percent.
So we know that these campaigns are effective.
Issue that we have right now is that they're also expensive. So we've been talking to both the Billboard company and.
Provider of television advertising to see how can we get the cost of these ads now because we know that they're working.
Right now of course, we're paying top dollar because we're in very few markets, we're not getting any sort of volume discounts, we're not getting any sort of discount for longer term commitments.
We've been told that we can probably get the cost of these campaigns to out by as much as 50%.
If we can get the cost of these campaigns down by 50%, we will be looking at ROE as numbers return on advertising spend.
Well above our targets right now despite what has been very effective.
The campaigns are not showing.
<unk> numbers that didn't meet our targets, but again, we're in the sort of early stages of understanding what works and what doesn't work.
The print media campaign has been extremely effective.
Seeing ROE as number very far above our targets, but again were somewhat limited with where we can advertise not every.
Periodical magazine will allow us to show a picture of the launcher.
And that's of course, the significant challenge with all of our advertising.
<unk>.
On television channels and shows that will allow us to actually show the picture of the launcher and we're running the video that aired on the Hannity show.
Two years ago that shows the sort of an animated.
Video of how the BARDA works and Thats been great on the Billboards again, we can show the video and that's been very effective so I think as we as.
As we go down this road, we just need to figure out how we do this less expensive Lee.
That's great and last one and then I'll jump back into the queue can you can you talk about the contributions.
Both in the quarter and how we should think about 'twenty two for the acquisitions mission less lethal and blister packs.
Part of the issue that we have with production.
Rolls over to the mission less lethal.
We were selling 10.
Mission for US a day at $1000 that was $10000 a day every day until we ran out of product.
And.
We have an order in with.
Core who was the company that we bought mission less lethal from for 2400 launchers.
400, a month.
Has not been filled now they're dealing with the same supply chain issues that we're dealing with but thats certainly had a very negative impact on our sales in this quarter and I think that will continue into Q2 the TCR.
Which we think is going to be the most significant.
Difficult shoulder fired larger because it is a very easy point to shoot launcher.
The first 200 of those were.
Are being shipped to the Spokane Sheriff's Department those will go out this month, but we only have enough parts to make I think another hundred and again. This is something where we're trying to produce in my opinion, a 1000 a month.
And this is going to retail at $699. So we expect significant contribution from the.
<unk> mission launchers, but again you can't sell from an empty basket so were dealing.
<unk> is dealing with the same supply chain issues that we've been having.
Now we are taking over production of the TCR ourselves.
But that means we have to build all of these molds.
Net vendors up to speed on all of the components.
The TCR launcher has more than 150 components.
Great.
Good.
Thank you Greg.
I appreciate that thanks for all the color.
Thank you, ladies and gentlemen, once again Thats Star one if you would like to register your question. Our next question is coming from Jeff.
<unk> of B Riley. Please go ahead.
Okay. Thanks for taking my question Hi, everyone.
So a little bit of an over simplification.
But Brian as you think about it is it fair to say that the long term picture for burner sales and margins really has not changed but the near term metric outlook has changed predominantly due to supply chain.
I think thats very fair.
Jeff I remain convinced that we're just scratching the surface of the market.
There are.
Two sort of countervailing trends that both are working in <unk> favor. One is despite the drop in Nix checks recently there are still enormous number of first time gun buyers over the last two years $13 8 million people bought a firearm for the first time, meaning that.
$13 8 million people that were so concerned for the safety of themselves and their family and their community that they were willing to purchase a lethal weapon to protect themselves.
What percentage of those 13, eight would've bought Alberta had they known about BARDA.
At 10%.
138 million or 10 times, the total number of orders we've sold since inception.
Again, we're focused on advertising because we need to get people to know about this option. So yes, I think that the growth narrative remains intact.
We think that this is a billion plus dollar.
Market.
<unk>.
And it's just a question of how long is it going to take to get there.
So we've got tailwind in terms of people are concerned there is also a tailwind because.
People are concerned about gun violence, so they're looking to protect themselves, but at the same time. They are looking for a non lethal way to do it. So although it is an over simplification I do believe this is more an issue of timing rather than end result.
Okay. Thanks for that and then.
Just if we can turn back to Amazon for a minute and I understand it's tough to know on this but is there anything you can point to that that might explain amazon potentially slower demand or do you think maybe it's simply more.
Solved with less or stop there in the Amazon algorithms I guess in other words why would trends on Amazon diverged from trends Youre currently experiencing on your on website, which I think is kind of what you're telegraphing has happened.
Yeah look we have.
So very very capable people running the Amazon program for us at burner that have been doing this for a long time and I asked them. The same question that you're asking me.
Specifically, what do you think we would have done if.
If we didn't have any supply chain constraints. So we had projected for the quarter $1 7 million $1 7 million and they came back and they said look we think the shortfall was essentially 300000 in terms of.
Lower demand, but the other 500000 was in terms of.
Being out of stock. They believed that we would have done $1 4 million had we been in stock. So that's why we took the year projection down from nine 9% to seven five.
Because.
The growth is a little bit slower, but that would still be substantial growth over the less than $1 million, we did last year.
Okay. That's helpful and then.
Just wanted to I guess sort of a box of supply chain for a minute in terms of the reason is your suppliers are giving you for the I know everybody's got supply chain problems. It seems like these days almost seems like almost no one is landscape but.
In terms of the reasons your suppliers have given you for lower production I know, we've talked about the Christmas holiday is Chinese new year, and then anything you can give us on kind of which components are in part did you think this is a lot of this is just due to the omicron surge in early part of the year and then maybe you can just touch on the plans to get to that 100%.
Supply chain redundancy kind of I guess, what the milestones are youre looking at for this year.
Okay look I believe that this is more a freight and logistics issue than it is a production issue. So just as we have been shut down because we don't have product our suppliers have been shut down because they don't have product. So it just rolls downhill.
I'll now one of the things that we were discussing here at burnt or the other day is why are we having so many lost or damaged shipments. So we're having loss and damage shipments from first class carriers like UBS.
We have shipments.
It's sort of endemic comedy loss and damage shipments, we have and we think that this relates back to just the general worker shortage. So you've got a lot of people in.
In the freight system that our new <unk> don't know what theyre doing taking.
Taking the care.
Moving packages that.
Historically, well trained employees did so to that extent I do think that this is somewhat of an ongoing problem I think it will get better, but it's going to take some time for these newer employees to really.
Get up to speed and I think that the.
The freight and shipping aspect of this crisis is also part of our cost problems the costs, especially in the fourth quarter.
And especially on international freight.
Have really gone up significantly and that sort of touches back on an earlier question about where do we see.
The gross margins and cost of sales going I think.
The other I think impression that I have of it is that.
It's not getting worse, it's a question of when it's going to get better.
Yeah, and look I don't think any of our suppliers are intentionally shortchanging us.
We like our suppliers, we think we have great suppliers.
They're bemoaning the same issues that were bemoaning, which is they don't have supply of the inputs that they need.
But as David said I think it is getting better.
Certainly with the end of Omicron and getting past these Christmas and Chinese new year shutdowns will help.
But I don't think its going to be a V shaped recovery I think that the improvements in the supply chain will be a process.
Okay. Okay. That's helpful. And then if I could just squeeze in one more I just wanted to see if it's possible. If you have any more color you could share in terms of project ourselves kind of what youre seeing now.
The.
<unk> sales remained very strong I think the most interesting thing for US is the widespread acceptance of the eco kinetic rounds. So this was really odd.
Honestly kind of a pet project for me.
I was concerned even in my own backyard, how many pieces of plastic I was leaving and I really wanted to come up with a solution to this.
Didn't know how it would be embraced.
This was initially intended to be only for consumers practicing in their backyard as it turns out this is even being used now for law enforcement for their training programs. So this has been a very big big success.
When I mentioned that we just put a half a million rounds in the market on the ocean that was a half a million.
<unk> kinetic rounds, and we're producing these currently at the rate of a half a million a week.
Now Thats a little bit ahead of our.
Our sales of eco kinetics, but it will help us build up enough inventory.
So that will be able to meet demand.
But the.
The split between.
Ammo and launchers. This first quarter is skewing very heavily to ammo for one reason, we havent had enough launchers.
So.
We're seeing <unk> average order values decline a little bit because.
We're getting a lot of return customers that are buying ammo. So I would expect when we report Q1 numbers that we'll see a larger percentage of ammo versus launchers than we've shown historically and I would point out there is a really important implications too.
Brian .
Brian just said about the acceptance and.
Popularity of the Echo kinetic ground we have.
Maintained that what we have is a razor razor blade model where you've.
<unk> and then you come back for ammunition in the ammunition is very high margin and we have.
Pointed out that.
Ammunition accessories have been about 25% of our sales that have been fairly steady there because sales are growing rapidly the thing about the eco kinetics is.
You buy eco kinetics.
For practice recreation and training.
In other words that is the raise of the disposable razorblade, that's what you are buying.
Hi.
Not just to have it.
In your in your magazine for self defense users, but for ongoing consumption and the fact that this is.
Popular and selling well shows that.
Yes that is what people are doing they are.
Lending to continue consuming ammunition.
And for recreational purposes.
Okay. Thanks for that.
Good point, thanks for taking my questions and best of luck for the remainder of the quarter.
Thanks, Jeff.
Thank you ladies and gentlemen, this brings us to the end of our question and answer session I would like to turn the floor back over to management for any additional or closing comments.
I just want to thank everybody for their support obviously, it's been tough.
Tough the last couple of months.
But.
I've been doing this for 40 years and we know these things go in cycles.
As we said to Jeff We don't think anything has changed in terms of our long term view of the opportunity.
We do think that.
<unk> is benefiting from.
<unk>.
The fraying of the social fabric in the civil unrest and people being concerned and at the same time, the sort of anti gun violence movement.
Market is extremely large and.
We're looking at this over the long term, we're playing the long game.
We think we're in the very early innings.
And that over time, we do see the opportunity to drive sales.
Significantly north of where they are now as we gain greater brand recognition.
And get into new markets.
You bet I want to thank everybody for their support and.
As always happy too.
Take questions and speak to analysts if they would like so thank you very much and with that we'll conclude the call.
Ladies and gentlemen, thank you for your participation and interest in burner technologies. You may disconnect. Your lines of log off the webcast at this time and enjoy the rest of your day.
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