Q2 2022 Byrna Technologies Inc Earnings Call
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Speaker 1: Our operator. Please assist.
Speaker 2: Ok can you guys hear me weok, great. So a couple things I wanted to touch on. You guys have a lot going on here for second half wanted to see it. Maybe you can speak to. I guess how you're approaching. I know you've got training going on the school segment for the ballistic pack, but just maybe give us a little more color on marketing around back to school for the Shield product, the kind of response you're getting from from schools for the ballist attack and so forth.
Speaker 3: We've obviously invested a lot in terms of financial resources and human resources into the development of our school safety initiative. Last quarter we brought on board Andy pollck, you who famously wrote the book why Meadow died about his, his daughter, who was killed in the parkland shooting. We have gotten a lot of press, with Andy being on, you know, numerous television and radio shows. We believe, like all of the products that we released, that it's going to take some time.
Speaker 3: To provide training and evaluation, particularly for larger school districts and, again as I mentioned, with the only requirement being that we're able to invite local news.
Speaker 3: So we think this is just a function of being able to get these products in front of people, one of the things. When we introduced the burna HC three years ago. I'd like to tell the story. The first day we went live with this, we sold one
Speaker 3: And the next day we sold one and I think the third day we sold none. And it took some period of time before we start to gain traction with theburnna. And there is a lot of know one people, one person tells two people, who tell four people, who tell eight people, who tell 16 people. So it is important for us to start this process and gaining to gain traction. So yes, we've not seen very strong orders yet. That's not to say that we're not selling shields. We're selling dozens of shields every day, but we're not selling.
Speaker 3: Hundreds or thousands of shields every day, as we suspect that we will once this becomes better known through our school safety initiative and and once we have a a larger, established user base.
Speaker 4: Okay that's helpful, and then if we could switch over to the bad guys spray for a minute. Just wondering, I guess, where you are, any update you can give us on discussions with potential brick-and-mortar retailers, how the process is going, building out the website with the Amazon and so forth?
Speaker 4: Helpful and then if we could switch over to the bad guys spray for a minute. Just wondering, I guess, where you are. Any update you can give us on discussions with potential Brick and mortar retailers, how the process is going, building out the website with the Amazon and so forth?
Speaker 3: This is moving very, very quickly. We are trying to get to the point where you can begin to ship bad guy repellants. We are in production on this. What's holding us up are simply labels for the and packaging for the product, but that should be available in the next week to 10 days. We have begun taking preorders on our website. It's been extremely well received and we've received significant interest from both our existing dealers and from very large national chains, many of which who cannot by the nature of what they sell.
Speaker 3: Sell the bup launcher but are very interested in the burna bad guy repellants. We are also going to market with a two brand strategy.
Speaker 3: Where we're selling Fox Labs as more of a price point product and bad guy repellant as a premium product, So that we can go after the premium locations and the price point locations. And we have received the first quarter for Fox lab repellment from Walmart. But Walmart, we know, is obviously a price point retailer, So Fox Labs, as I ideal for them, this will not impact the MSRP of the bad guy repellant, which is about 20% higher.
Speaker 3: And we've been going after some premium flagship stores. We expect to receive orders and to be able to report on those in the next several weeks.
Speaker 5: Ok great, and then just one other. I could squeezze it in. Sure, there's a quick question, but at this point I know you're trying to launch the 12 gauge in Q4, just wondering what else needs to be done to stand that up and to start getting product actually out the door in Q4 and then the marketing launch plan around that. But we've been, as I mentioned in my discussion, this has been a multiyear, multiillion dollar projects and it requires us to produce obviously the rounds, but also the casings.
Speaker 3: To be, and there has to be a tremendous amount of testing that goes along with this product. Obviously, this is now a pyrotechnic product that will not use co two for pulsion, So we're in a completely different realm. We need to have 100% confidence that these are nonlethal rounds. More importantly, we have to have confidence that they are.
Speaker 3: Easily identifiable So that users will not confuse them with legal rounds. So a lot of what we're doing now is just continuous testing. When you're in testing mode, it's very difficult to say at what point your're done with testing. The only thing I could say to you is: right now, testing is going extremely well. We're very encouraged by the results. Currently, we don't see any reason that this could not be released in Q4 and we're beginning to take all of the other necessary steps to lease.
Speaker 3: A new products, including production of the packaging, ordering of molds, building out of the facility in redmonmed Oregon, buying the equipment necessary. So there's a lot that goes into the introduction of a new product like this. This will be 100% produce in house, including the casing itself, and it will be a? U's made product. So there's a lot that's going into this, but we are in the we're in the ninth inning of this Jeff.
Speaker 4: Okay that's a deciding. We're looking forward to that. Appreciate you taking my questions. Continue to success. Thank you very much.
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Speaker 6: Our next question is coming from Brian J wali, from Raymond James. So you, your line is now live.
Speaker 7: I.
Speaker 7: Hey good morning, Brian . one and 2, to maybe just touch on a few things here. 1: can you talk about the promotional activity in the back half of the year? It sounds like the spray product has some really good momentum and we're looking to launch the 12 gauge. Can you talk about maybe some promotional activity around prime day, the holidays, and maybe where you found some good return success in your marketing activities around some of the core products?
Speaker 3: Yes a'brian, Thank you so much for that question. Be very happy to talk about that. Over the last 12 or 18 months, we've discussed how we will get smarter every quarter as we tried various approaches and see how they perform. When we evaluated marketing campaign, we doing an ROI analysis, which basically means we look at what we refer to as row as or return on advertising spend and, as most of you in this call know, we we worked with billboards, we worked with OTT and live TV.
Speaker 3: And while both of those were effective, because of the very high cost associated with them, they were not really cost effective.
Speaker 3: And we have discontinued both billboards and OTT and linear TV. We have been putting most of our money into.
Speaker 3: You two and social media. And what we found is most important is the creative itself. So we've been doing a lot of work, a building up our in house capabilities to develop creative. one of the announcements we made last week, as I'm sure our been call knows, was our partnership with Christine Chu. Christine Chu is the Star and producer of bling Empire, which is essentially a Netflix version of crazy rich Asians. She is.
Speaker 3: Extremely popular, but with an audience that we don't think we're really reaching today. With her video, we have seen a significant increase in our online sessions, So we've been averaging approximately 20 20- two thousand sessions a day. On Bernard DOT com, on Tuesday we had five thousand web sessions, which we attribute to her video. Yesterday we had four thousand web sessions, again attributable to her video.
Speaker 3: So it is these types of creative that get shared, that drive a lot of awareness and help introduce us to new audiences. And again, this very top of the funneladvertising is extremely important as we start to approach prime day and, more importantly, as we start to approach Q4. soyou asked about what are we doing for prime day. We are participating in prime day and, as much as I hate giving up even a single margin point, Amazon has become such an important channel for us.
Speaker 3: That we recognize that we needed to participate in prime day and we expect to see a significant increase in our Amazon sales for the several days a prime day and the few days following. But last year we had an extraordinarily strong Q4 online. We saw sales go up when we would put out promotional specials to our burnation group, in other words, our email listists. Sales went up 300%. This year our email list is now 25 thousand members strong.
Speaker 3: List we're hoping that, you know, we'll be well over three thousand, maybe 35 thousand, by the time we get to black Friday specials, because this will be very important for us, of course, for hitting our, you know, Q4 numbers.
Speaker 2: prithat's great color. If I could follow up, maybe just on a couple of things, can you remind us of how you're thinking of the addressable market of both the aerosol products and the lista packs and how that can develop into meaningful revenue streams for you guys in the future?
Speaker 3: It's interesting and again this is.
Speaker 3: We don't know when the total addressable market is, even for the bdener, but but let's just say for arguments sake that the addressable market of somebody who is going to you know carry something that looks like a firearm to use to protect themselves is maybe one million Americans.
Speaker 3: If the addressable market for the BA sthese one million, then the addressable market or sprays is fifty million.
Speaker 3: And the addressable market for backpack shields is essentially every parent in the? U's. So we look at these as being significantly the larger addressable markets for Vera than the, the bverurna launcher itself. But what it does, particularly with the bad diagram appellants, is it gets people into the B ecosystem. So one of the issues that we've been facing from the very inception of the company is that the launcher is expensive. Right now the burn's D retails for $399. By the time you get out of the store and you bought extra AMO, maybe a whole.
Speaker 3: Address a much larger market with bad guy repellents and an even larger market with the burto shield and that once people into the burden ecosystem that they will graduate to the more expensive products and frankly the more tactical products. So we think that these are very very important for us not just for the sales that they will bring to burnup and we think that they will be substantial. We think we will sell even this year millions of dollars of bad guy repellant and foxlab phprays over the balance of the year and we believe that we will sell millions of dollars of burta shields between now and year end but.
Speaker 3: They're even more important for the fact that they bring into the BD ecosystem. These people that could not otherwise aafford to burna launcher or might not otherwise be inclined to buy a burna launcher. But once they're in the BD ecosystem and once they're able to see what we have to offer may be able to do so and frankly you know we look at the 12 gauge. In much the same way. We think that there's an enormous market for the 12 auge but we also think it opens us up to a segment of the.
Speaker 3: Population that might not otherwise be inclined buy a burna. So you're looking at know, tens of millions, maybe as many as five million people that own a shotgun in the United States.
Speaker 3: umif, we can get you know 10% of these people, five million people, to come to the website to buy, you know, a box of a non-lethal 12 gauge rounds.
Speaker 3: At the same time they're going to set a look, they've got a launcher that I could keep in my glove box, or they've got a Shield that I could buy for my kid going to school, or they've got bad guy repellant that I could give to my daughter in college. So we think that all of these other products not only are important in and of their own bright, but also the for the fact that they will ING bring people into the bdta ecosystem.
Speaker 2: Yes that's really interesting, is a gateway product.
Speaker 8: Ban can you maybe? Just I want want to talk two last questions, I don't jump out. 1: can you maybe give us, give us, your thoughts on vast pro shops and how that's developing? And then, on the gross margin front, you've executed and mitigated a lot of rising costs this year. Can you maybe just remind us and talk about your long-term gross margin objectives, and then I'm want that. Thanks so much.
Speaker 3: Bass pro is. We've just started with bass pro and we're our sales are nothing to write home about with bass pro, where we're probably right around $1 thousand of sales to them to date. They have non rolled us out in every store. They've always started with one color, So but this is very similar to what we've seen with a lot of the brick-and-mortar. They're trying something because they don't want to miss out, they don't want to be late to the party. By the same token, we have to earn our stripes there. Things are going extremely well. They've put in several reorders.
Speaker 3: In the very short period of time they've been carrying, burn up, which moves products, which means the products are moving and and we do think that these dealers are an important part of our overall channel mix. Obviously, we like direct to consumer sales the best because they are the highest margin sales, but there is a segment of the population that does not want to buy a product like this online. They want to hold it, feel it, see it. They want to be able to have the immediate gratification of buying it and walking out the store with it that day. So we do think that.
Speaker 3: By having this available in bass, fro and sports bins and chields and Frontier Justice, that that we're able to address that segment of the of the buying population. But there's also a lot of crossover between Brick and mortder and dt C, So there are people that will walk into a Brick and more store and propy people on this phone call that will look at something and then pick up their phone, go online and, you know, order it direct from the company ordeder on Amazon. Similarly, there are people that will come on to our website- and we know this- and they go to our dealer locator and they find a dealer near them.
Speaker 3: So we do think that you know, Brick and mortar drives e commerce business at. e-commerce business drives Brick and mortar business. Despite the fact that we have a somewhat lower margin margins on the dealers is around 50%. Just slightly low 50% margin versus, you know, very high fifty's four e commerce sales. It is worth in terms of our overall margin improvement. We've been say this for a long time. We think that we have a terminal margin, you know, in the 65% range.
Speaker 3: And the way we figure that is largely through cost reduction. Right now we have a very significant part of our cost of goods sold is inbound freight. Frankly, inbound freight now represents probably.
Speaker 3: 25% of our raw material costs we had when I started developing the business plan for this business. We have projected that the inbound freight would be 5% of our raw material cost.
Speaker 3: We've run into two problems. 1: because of the rapid growth at burno, we've never been able to switch the ocean freight. We've been reliance on airfreight from the very beginning, from day more. And then of course we're hit with the pandemic and energy cris which, as they airfreight phenomenally expensive. So right now, as we're building up our inventory and we anticipate being able to switch the ocean freight, we see a significant component of that margin improvement simply being the reduction in freight costs. Just a given example: we have some of our projectiles.
Speaker 3: That we make for pennies but that the freight may be 10 cents or morear to shift the projectile. So the freight in fact is 300% the cost of the projectile itself. Once we can put these things on the water. We will see a significant improvement in margins. Secondly. We're seeing an improvement because of the shift in product mix. So you know I was just talking with David. This morning that we were actually very pleased with our margins this quarter because despite the fact that we have higher freight rates of.
Speaker 9: Our domestic margins were essentially unchanged, and that's unchanged, with not only higher freight rates but a significantly higher percentage to dealers. So the reason for that is the mix. We are seeing more and more BTA X, cels, which having much better gross profit margin than the standard SD. Interestingly, BTA xcels are about 22% of our online sales on berta com.
Speaker 9: On Amazon there are almost 50% of our launch sales. You know we've been scratch heads a little bit on that one We're thinking perhaps that you know the Amazon crime buyer is a very well to do buyer and for whom the the price point difference doesn'it make that bigger difference in terms of their purchasing decision. But we're seeitting, because of the new product introductions, an increase in gross profit margin. So we remain completely convinced that you know we should be, you know, over the next 12 months, maybe 18 months at that 65% gross profit margin that we've been projecting for sometime.
Speaker 9: Interest and support of a burnup.
Speaker 9: As I mentioned, that we think that we're very well positioned to take advantage of future growth opportunities. We're excited for the second half of the year, as we've got a lot of new products coming online, and we look forward to our Q3 earnings call, where we can give you an update on the performance of bgr and our new mission products in our school safety initiative and, very hopefully, our 12 -gauge grounds. Thank you very much to everyone. Thank you.
Speaker 9: summarance cost OpEx for the quarter with six point three million down from the OpEx of last of last quarter of six point four five million. Last quarter we stated that we have begun to see a leveling off in burnus operating expenses and we've further stated that OpEx should remain reasonably constant for the remainder of fiscal year 22, with the only increases coming from one time charges or the additional variable operating expenses such as credit card fees, Amazon fees, outbound frreight, which all increase as revenues increased. This leveling off of our OpEx was apparent this quarter with OpEx before.