Q3 2023 Ammo Inc Earnings Call
Ladies and gentlemen, thank you for standing by.
And welcome to the Alamo.
This cool third quarter 2023 earnings call.
At this time, all participants are in listen only mode.
If you need assistance. Please signal conference specialist by pressing the star key followed by Europe .
After todays presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on your telephone keypad.
Your question, Please press the star and chip.
Participants of this call are advised that the audio of this conference call is being broadcast live over the Internet and is also being recorded for playback purposes.
I would now like to turn the call over to Scott Arnold.
Arnold of core IR, the company's Investor relations firm.
Go ahead Sir.
Good morning, and thank you for participating in today's conference call. Joining me from <unk> leadership team are Fred Wagon Hall, Chairman and Chief Executive Officer, Rob Reilly, Chief Financial Officer, and Jared Smith, President and Chief operating Officer. During this call management will be making forward looking statements, including statements that address analysts' expectations for future performed.
Or operational results forward looking statements involve risks and other factors that may cause actual results to differ materially from those statements for more information about these risks. Please refer to the risk factors described in ammo is most recently filed periodic reports on Form 10-K Form 10-Q, the form 8-K filed with the SEC today.
And the company's press release that accompanies this call, particularly the cautionary statements.
Today's conference call includes non-GAAP financial measures that ammo believes can be useful in evaluating its performance you should not consider this additional information in isolation or as a substitute for results prepared in accordance with GAAP. A reconciliation of this non-GAAP financial measure to net loss its most directly comparable GAAP financial measure please see the.
<unk> table located in the company's earnings press release.
Content of this call contains time sensitive information that is accurate only as of today February 14th 2023, except as required by law ammo disclaims any obligation to publicly update or revise any information to reflect events or circumstances that occur. After this call. It is now my pleasure to turn the call over to Fred wagon.
Thank you and I appreciate everyone joining us for our fiscal third quarter 2023 earnings call I would like to start the call by saying how excited I am.
Introduce our newest management team member President and CEO , Gerry Smith to our shareholders.
Management teams spent a lot of.
Focus time over the past year is searching for the right person to join us to help us refine our operations as we moved into our new manufacturing facility at Manitowoc.
Sure It was the one.
From what I've seen in just the past months since he came aboard.
Our board and our management team did a great job in finding someone who will be integral piece to take this company to the next level of growth Gerry and Rob wildly our CFO will discuss the market environment.
And our performance in detail across both the manufacturing of marketplace segment of our business.
But I did want to comment on a few items before I hand, the floor over to my colleagues.
We started this company in 2016 with the vision and the mission to innovate and capture a meaningful share of the ammunition market.
Picking our spots for acquisitions and staying focused on always improving manufacturing operations.
All while working to bring our customers the product they desire.
We have grown by leaps and bounds in the short seven plus years and I am proud of what we've accomplished but there is much work left to do and we now have the team assembled to meet these challenges and are excited about the opportunities that lie before us.
Regardless of the political spend.
We all hear coming out of Washington, The U S is already in the throes of a recession.
That'd be inflationary drivers are hitting consumers hard in their pocket books.
Those pressures are being felt across the market both by ammo and its peers alike.
However, we are responding to those charts.
And Gerard will outline what we are doing.
To best position our company within the environment.
And we will highlight a number of the positive changes we have already made and will continue to make.
In the face of these headwinds as we continue to increase capacity and operational efficiencies.
I have spoken on a few occasions about the development at <unk>.
One broker dotcom and we are excited that these enhancements are going to start rolling off this spring.
So the marketplace users both buyers and sellers can take advantage of these new opportunities.
This enhanced platform will significantly leverage the amazing gun broker dotcom platform driver.
Driving greater revenues and profitability to the ammo as bottom line.
We are continued to.
To explore the market for additional best in class folks to join our team.
<unk> is a prime example of the new leadership, we are adding to the mix.
In 17 years.
T J and focus the experience to the table.
We have already spent a lot of time together speaking with both industry and marketplace about our plans going forward.
At this time and without further Ado I would like to turn the call over to Jarrett Smith, <unk>, New President and CEO Oh he will.
I'll walk you through the current state of our operations and what we believe the future has in store for ammo.
Its team and our shareholders.
Thank you Fred good morning, everyone.
First I want to thank the ammo team for the opportunity to be here as president and COO.
I joined the company on January six of this year. So I've been in the saddle for Mir 39 days, So bear with me because we've got quite a bit of ground to cover.
I've spent the last 17 years in the firearm and ammunition sector and I've always seen ammo Inc's Amy initiative marketplace businesses. Following the acquisition of gun broker Dot com as best in class for their space and potential.
What Fred and the team accomplished over the last seven years is truly remarkable.
Transformative addition, and the gun broker dot com marketplace to the ammo portfolio certainly made the entire market stand up and take notice.
I ultimately joined this team because of the huge potential of the operations opportunities to innovate the ability to bring transformative change and continue the growth trajectory of this company.
I'm excited to share my vision for the company.
With you, but before we begin one must understand the current state of the ammunition market as well as ammo inks position in it.
For the last two quarters the industry has seen serious headwinds from its record highs in 2021 in early 'twenty two.
Consumer confidence and increased inflation has caused an erosion of the customer's wallet for other items, such as gas milk and bread, while our costs for copper zinc lead and labor are all up.
And ammunition prices on the shelf or down in comparison.
We've seen margin compression in almost every sector.
A non vertically integrated manufacturers such as ammo gets squeezed in the middle.
<unk> produces cases loads and manufacturers some but few of its project ALS and none of the primary component.
Supply chain for gunpowder not just cellulose is more difficult than ever and the team has been sourcing European primers and powders at high prices at an unpredictable volumes to sustain their production.
All of these issues lead to high cost and the time of a normalizing market, especially for nine in two to three calendars.
Our factories youre not pivot overnight and we will continue to see an adverse effect in this last quarter as we continued to sell off higher price component Flushing out slower moving inventory and sell off commodities, which will have a negative impact on margins.
However, our sales and operations are pivoting, but no large manufacturing operation is capable of pivoting at the rate wall Street, or our shareholders would like to see.
To be blunt as our earnings forecast for this quarter reflect we were not fully prepared as a manufacturer for the shift.
And most of that 'twenty, 'twenty, one and 2022 manufacturing commodity products to meet consumer demand, we manufacture commodity products, because they were easier and higher throughput with less cost than their counterparts, we manufactured commodity product as a larger percentage of cells, because it simplified planning and logistics.
Our purchasing and sourcing opportunities where based on this trend.
Sales teams were oriented towards top line revenues like most grown companies and we weren't sufficiently focused on our brand and margin maintenance during this time.
Which leaves us where we are today.
Share. This with you. So everyone is aware of how we got here. So you can see the trajectory of where we're going.
It is important to note atmos rifle and pistol brass manufacturing capability is truly unmatched towards open capacity and potential.
And previous roles as an industrial buyer supplier and consumer available products I've always greatly appreciated the quality of the pistol and rifle bras that came off the lines, especially the uniqueness of the strict technology that they brought to market.
Behind the scenes the ammo team was not stagnant and knew they must pivot.
They were very busy constructing a manufacturing facility to produce a completely different offering while attending to never before seen consumer demand.
In August of 2022, we moved into a new 185000 square foot brass manufacturing loading and testing facility that can produce calibers that range from twenty-five auto up to 50, BMG and everything in between.
This is where we refine and enhance the operations at all levels to position the company for a bright and profitable future.
It is here, where our skill set and core competencies are ready for the real demand that will thrive in strong markets and execute profitably in normalized markets.
It is here, where we will be positioned to react in a nimbler fashion to the market's macro trends what are those trends and why do they matter.
Last two year 16 million, new consumers purchased a firearms for the first time.
Secondly, the shooting sports captured the fastest growing high school sport in the U S track shooting.
The third macro trend as conflicts in Europe .
On the European continent have resulted in an environment, where those countries will be restocking their inventories for the next 10 to 15 years. This is important.
The fourth macro trend that we're following is consumers are looking for longer range flatter heavier payloads with greater energy delivered to their targets than ever before across both pistol and rifle, that's both commercially and militarily.
And the last trend is commercial L. A in the military are looking for luxury alternatives.
So how do we take these macro trends and adjust our business model.
Our consumers and industrial partners are wanting to shift their production to higher performance products that meet the needs of these macro trends. Our company is one of the only manufacturers with the open capacity and skill set to meet this demand today, our state of the art plant came online at an opportune time to position our organization to better meet those challenges.
We will brand around and deliver new technology to this target market.
And we will enable our industrial partners to meet those needs both domestically and internationally.
This shift to brass manufacturing, there's a larger percentage of our business and loading high performance rifle ammunition.
Manufacturing requires less working capital enables higher margins and better cash flow.
We will continue to leverage our relationships to diversify our supply chain, allowing us to better plan price and maintain margin and our loaded ammunition operations.
We'll be freeing up cash currently stuck in inventory and streamlining our purchasing around new domestic supply lines.
I will report on the guidance for the next year, but we are knee deep into the re forecasting and budgeting process. We.
We are preparing our budget and our forecast around a new set of execution principles for this enhanced footprint.
While I pause on our guidance everyone should know that in the last 40 days, we sold out of our entire current capacity for long action rifle Bras.
And the last 40 days, we secured domestic gunpowder sources, which will free up cash flow, enabling us to sell off our high inventories of European powders and primers.
Ammo equal finally compete in the high performance high margin categories that it has it effectively participated in due to a lack of premium powders.
We are in a better position to execute and our outlook is healthier today than it's ever been and we are in a better position because we have a tool that we have not leveraged in the past.
With the company's purchase of gun broker, we have solidified a way to aggregate data.
And cultivate a wealth of opportunity.
For example.
A diverse group of participants from hunters to sports and Mr. Long range shooting enthusiast, all flocked to the website and every search purchase or bid. They initiate is captured for us.
This price list cultivation of data does not exist in this form for anyone else in the market.
This allows us to make data driven market oriented decisions that will fuel our investments.
This will enable us to find the areas of real performance and demand on a real time basis.
This is the new trend line for the ammunition Division.
I've told this story 100 times over the last 40 days and I will continue to tell the story every day for the next 180 days for the investors on the phone listening or watching for the first time done broker facilitates a legally compliant and thoroughly documented exchange between a buyer and a seller either through an auction or the buy it now capability.
<unk>.
One item one transaction at a time and this is incredibly important to understand one item one transaction at a time gun.
Gunn brokerage as all of this while meeting every federal and state regulation for the exchange of firearms.
It has no inventory and does not receive or ship anything.
It merely facilitates the transaction.
We are in the top 500 websites for traffic in the U S and over 5 million unique users come to our site in any given month.
Under any objective metric, where the 600 pound gorilla in the space and we have been and remain in that position notwithstanding the fact that gun broker has not developed the ability to cart product <unk>.
Process credit card fees internally or capture advertising revenue in any meaningful way.
This all changes in 2023 2024 calendar year.
This 600 pound gorilla becomes the 900 pound gorilla that it was meant to be.
<unk> broker is transitioning from a one item per transaction platform to a cart based platform.
The gun broker team has been working around the clock since acquisition testing developing and building relationships with the banking community as well as the distribution dealer network across the country to make this next step of reality.
When we go live this summer we will be positioned to not only facilitate the cell or directly sell a firearm to the consumer but also support and leverage that foundational transaction with the sale of the scope sling scope mounts ammunition camouflage boots water bottles batteries.
You get the picture.
For any new hunting shooting consumer the gone is most likely the least expensive purchase should make certainly when you view and value. The total aggregated transaction of all complementary accessories required by the market to enjoy the shooting sports hunting experience.
Hunting and shooting sports participants will have a user friendly marketplace, where the consumer can interact with new and used equipment dealers distributors and other enthusiasts reselling their equipment to kit out their next endeavor.
In 2022 gun broker facilitated $1.2 billion in exchange on our marketplace website based on singular transactions between a buyer and seller with no ability to card product.
In the past gun brokers only received revenue based on a fee for processing that singular transaction.
Going forward, we will have an incredibly robust and user friendly platform before the market that presents gun broker with multiple revenue sources.
Gunn broker operates in a federal and state regulated environment Gunby.
<unk> broker is roughly 6% of the entire firearm trade in the U S. You've got to think about that 6%.
We shipped to multiple locations managing different state sales tax implications, all while managing different buyers and sellers.
Our customers value data privacy value in real terms and efficiency.
We manage this value offering all while maintaining the largest auction in marketplace of its kind for this industry. This is the moat that protects us the more complicated and intricate space. We operate in the higher the cost of entry is for our competition.
We are the largest player in this space and the security and the tech to make the operational efficiencies flow seamlessly keep us in this space.
One might ask why is this not already been done or communicated before now.
The real answer is that this takes time and dedicated teams to execute at the scale.
Many software houses don't want to have anything to do with this firearm centric marketplace banking relationships had to be forged transactional volume secured tested and accounted for.
Why have we not done a better job of communicating the story well.
We failed to communicate the fundamentals of how buyers and sellers transact today versus the future.
Secondly, our message is messaging is confusing we our ammo Inc. Our stickers Pao and when you hear the historic message we've been focused on ammunition with ammunition themes based on in ammunition market that made front pages.
Gunn brokers messaging got lost.
The buyer and seller experience and the new user experience was not articulated until now.
Within our portfolio, our messaging going forward must change the look and feel of how we go to market change.
I Hope you can tell how excited I am about the future of this company I couldn't be more bullish about our future and that is why I joined the team while the industry is currently facing headwinds we have been busy creating our own tail winds.
I can't express the energy and passion. This team brings to the table every single day, we are constantly onboarding top talent to facilitate this new growth and we're seeking talented engineers accountants analyst and leaders to see how they can fit into the larger ecosystem that we're creating here.
Thank you for taking the time.
<unk> me to come on board this team.
Listen to my thoughts today at this time I would like to turn it over to Rob wildly to walk us through the financials.
Thank you Jared welcome everyone. Let me now review, our third quarter financials in more detail, we were facing headwinds in the market today, along with the rest of the industry, but we remain excited about the new direction of our two segments in upcoming quarters for their marketplace enhancements coming online in the first half of our next fiscal year.
Our manufacturing strategy, which will drive profitability.
And this is observed by the peers within our space, we continue to see margin compression on our ammunition segment.
U S commercial ammunition market continues to slow from the inflationary impact and global recessionary drivers being felt across most industries.
A reduction in sales higher commodity and freight costs, along with the increased operating expenses such as the remainder of the one time legal expenses related to the proxy contention stock compensation.
Corporate insurance and payroll and increased our cost of revenues and operating expenses, resulting in a net loss for the period.
To address these increases and as discussed earlier on the call we plan to recoup cash tied up in our inventory and our quarter ending in March.
The direction of our manufacturing operations opportunities that provide enhanced profitability opportunities such as premium rightful brass, including our expanded offerings large caliber brass.
Additionally.
We continue to push forward on the improvements to our gum broker dotcom marketplace, which represent great leveraging opportunities that springs from this incredibly robust site.
In this regard we are currently tracking for the payment suite and cart platform to launch in the first half of our next fiscal year.
Which we remain reasonably confident will drive growth and profitability to the site.
We entered the third quarter with total revenues of approximately $38 7 million in comparison to approximately $64 7 million in the prior year period.
This was a decrease of 40% from the prior year quarter.
The decrease in revenue was mainly attributable for.
Ammunition segment and the inflationary impacts that are currently affecting the market.
These market conditions also impacted the revenue of our marketplace segment affecting a 12% decrease from the prior year period.
However, operating performance of our marketplace done broker dotcom still remained strong.
Although our topline revenues wavered, our margins are still comparable to historical performance.
Our cost of revenues were approximately $26 2 million for the quarter compared to 42 point.
$2 million.
In the comparable prior year quarter.
This decrease was related to reduced sales volume and increased commodity costs. Accordingly. This resulted in a gross margin of $12 5 million compared to $22 5 million.
And their sales volume fell in the reported quarter, we anticipate another quarter of margin compression due to these increased costs.
To swiftly transition to more profitable sales activity starting in the first quarter of our next fiscal year by shifting our focus more sales of our premium brass large caliber ammunition rounds.
Our balance sheet remained strong with our total current liabilities decreasing by 21% since our year end.
Our total current assets virtually unchanged.
We are revising our adjusted EBITDA and adjusted net income per share calculations moving forward, which we believe will provide the market with a more accurate representation of our operates it operations.
The transition to our new calculations, we are providing our historical adjusted EBITDA and adjusted net income per share calculations as well as the calculations you can expect to see moving forward and incorporate it into our update David guidance.
For the quarter using our historical adjusted EBITDA and adjusted net income per share calculation. We recorded adjusted EBITDA of approximately $7 9 million compared to the prior year quarter, adjusted EBITDA of $20 1 million.
Using our moving forward adjusted EBIT calculation, we recorded $4 8 million and adjusted EBITDA for the period compared to $10 7 million in the prior year period.
This resulted in a loss per share of four cents or historical adjusted net income per share of <unk> in comparison to 14 cents in the prior year period.
Our updated calculation adjusted net income per share was five cents in.
Comparison to adjusted net income per share of eight cents in the prior year period.
Due to the decline in sales activity as a result of market shifts we are reducing our guidance for our 2023 fiscal year.
We are updating guidance to revenues of $185 million adjusted EBITDA, using a new calculation of 22 million and EBITDA of $17 million.
Looking forward towards next fiscal year, we expect the new direction of our company to increase profitability through increased sales of our brass casings and our performance rifle ammunition that will increase the gross margins of our ammunition segment.
Additionally, the launch of the payment processing suite carting platform analytics offerings are anticipated to position our gun broker dotcom marketplace will allow for increases in our gross merchandise volume and as a result, increasing revenue and profitability.
That concludes our opening remarks, I will now turn the call over to the operator for questions.
<unk>.
Thank you ladies and gentlemen.
If you wish to ask a question on today's call you will need to press Star then the number one on your telephone.
Your question has been answered and you wish to withdraw your question. Please press Star then two.
Mid teens.
Speakerphone, please pick up your handset before actually your request and speaking on the call.
One moment please for our first question.
And that first question is from Matt Koranda with Roth Capital. Please go ahead.
Hey, guys good afternoon.
Just wanted to start out with the ammo business.
Can you just different angle for us sort of the embedded price.
This declines versus the volume.
In that segment.
In the third quarter, just curious like you mentioned demand seems to be an issue, but just also curious.
Sort of how to think about production.
At the facility during the quarter and was there any.
Apply disruption or was it all a demand issue.
And currently in terms of the decline.
Hey, Matt This is Jeff first of all thank you for your.
Question I'm going to repeat the question back to make sure I heard it correctly, you're asking about.
And.
This past quarter, the lack of demand or the lack of volume and sales was that related to production issues or just pure market issues.
A correct assumption of your question.
Yeah, that's correct or at Baxter.
Fantastic. So the reality is it's a mix of both when you move into any new facility like this new 185000 square foot facility. There's laws that has to go up there is racking that has to go in place.
<unk> have to be set layed and turned back on so is there an impact from the move absolutely was there an impact from the market absolutely.
And the sheer demand on nine in two to three as I said in the private accordingly.
The volumes of nine and two to three in relation to our total capacity.
It was affected by the market, but the real reality is that we didn't have the primers. We didn't have the powder and we didn't have the fundamentals to shift to these other higher margin plays that we will be tuning our factory to over the next three.
Three to six months.
Yeah.
Okay got it.
Helpful.
I'm.
Curious also if you could just maybe speak to the changeover that you've alluded to in terms of capacity.
Sounds like Youre going to be going after more center fire rifle rounds.
More casings in the mix on a go forward basis maybe.
Just draw a path would be good for the next couple of quarters in terms of how.
The capacity cuts over what to expect as we kind of obviously you've embedded.
This ended the fourth quarter, but I'm just curious over the next call it two to three quarters how.
How we should expect capacity in production to trend within the ammo business as you've cut over to the you know sort of a more differentiated rounds and some of the.
The more casing, having a mix that you've alluded to.
Well you can't compare.
Historic ammo production and its existing factory to what we have going forward.
The other very interesting fact about this factory is that we have the ability to change over from nine millimeter to 300 blackout on almost every one of our lines that has a unique capability that does not exist in this market.
So our ability to draw off of and sell premium rifle cases in both short long action is truly unique and as I alluded to earlier, we already in the first 30 days sold out of our entire long rifle action capacity.
So what you'll see in the course of April May I'm sorry.
February March April is that we will be moving off of our inventories that we have a heavy.
Commodities products that have already been built and are in the process of being loaded and then we'll shift that production capacity to selling bras, so instead of losing.
510% margins will be gaining 30% margins you will see a reduction in the top line, but you will see a growth in the bottom line and that's where the focus is.
Okay.
Got it and then maybe just could you just clarify how you guys think about market share, whether that'd be with Oems or whether that'd be with retailers just curious how to think about.
You know you guys have talked about retailers have lower purchase volumes have you lost any customers over the last couple of quarters or are they just essentially downsizing volume.
Across the board how do you think about market share and what you are defending their currently and over the next couple of quarters.
They've downsized across the board.
They've also realized that they are not profitable in these positions around commodity products.
Our position on the U S market is less than 1%.
Total market share for the ammunition, we manufacture there was this massive space out there and the trend line is for premium rifle, which is really what this factory was built around.
The facility in Wisconsin is a rifle case manufacturer with the ability to produce pistol cases, and we match that brass capacity with loading capacity.
But the beauty of our story going forward is that we don't have to produce the full capacity in ammo. Our goal is to support our industrial partners.
The large OEM manufacturers out there the goal is for us define the niche products. My following the trend lines that we see within gun broker to be able to Orient our production facility around those opportunities.
What are those opportunities its room to cartridges like 44 Mag in 45 colt.
It's a collection of cough.
[noise] capacities that were seeing trend very very heavy right now due to impacts from the European theater.
We are able to follow those because we don't have dedicated lines to nine in two to three we have completely flexible lines.
Dedicated to a range of calibers from nine to 300 blackout.
It's.
Our ability to meet that new demand because we don't produce project I was and I don't have to turn on nine millimeter or turn off nine millimeter project all machines.
That make up a third of our factory.
When we can't sell ammo at high margins will sell brass at high margins.
Okay, I got it Super clear.
And then just maybe if you could just finally stitch that together for us either Jerry or Rob just in the way, we should be thinking about the path forward for gross margins, especially for the manufacturing business. It looks like on brokers relatively rock steady on the margin front, so really curious about the core manufacturing business.
How do we think about getting back to call it that mid to high.
Every time, we sell a class morass.
Every time, we sell a piece of brass, we make anywhere between 20, and 40% margin and even more on the as you go up in caliber the higher the margin is so 338, northern Magnum, which we have capacity for 3338 lap what 50 BMG those are 50, 50% to 60% margin play.
Yes.
So we don't have to load, we can sell brass and when we see opportunities.
<unk>, we don't fill those niche opportunities through our existing shelf.
The goal is is that in the next 180 days.
We will completely.
Turn this ship over to focus on profitability.
To focus on throughput based around profitability.
I go into next week with the team here and we are putting down our new budget and our forecast I don't have a lot more to say on this in the following weeks, but where because I've only sat in this seat for 39 days, there's still a lot of work to be done.
Fair enough appreciate all the commentary and I'll leave it there guys. Thanks.
And the next question is from Edward Reilly from.
Please go ahead.
Hi, guys. Thanks for taking my question.
Last quarter, you cited expectation of stronger demand from the export market wondering if that's still the case today.
It is its the case today that we are seeing stronger demand from the export market and what it's doing it's actually diverting the larger.
Oh I'm sorry, the larger manufacturers in this space for a small town.
Especially lake city to focus on those export opportunities, which is freeing up capacity and space, both domestically and internationally.
Their lines are focused on once again high volume a.
Hi output around 556, 762 by 51 and in some cases 50.
Okay great.
And then just on the comments around.
The long rifle capacity.
They're already being sold out over the past 30 days I'm wondering if you could maybe give us any details.
Around the customer mix there.
It's it's very very heavy towards OEM.
Large players that are now seeing this shift and are coming back to Jamie for the quality that they've known that they bought in the past.
And when we say long action, that's $2 70 36 three.
<unk> three eight Norma 300 win Mag seven millimeter win Mag things, where we have tremendous margins.
And those are players that come to this market.
Want a strong partner and industrial partner that can help them meet their demands year end year out.
So it's not a one time customer with bad credit.
That is non strategic to our business.
Okay got it thank you.
And the next question is from Mark Smith from Lake Street. Please go ahead.
Hi, guys.
Got a handful of questions here, Jerry just wanted to kind of stay on that the ammo piece first just is how how are you looking at channel inventory you know domestically today, obviously, we see issues and a lot of nine mill in two to 3556 are you seeing the increase in.
You know other center fire rifle, even some of the specialty type rounds.
Today walk us through kind of where that channel inventory is.
Essentially how long it takes to clean up some of these calibers that they've gotten too heavy.
I think for calibers that work.
This market is overly focused on is 9% and two to three and they've been overly focused on it with every cyclical market that we've seen over the last 10 years.
There are still a.
There are still really bright spaces in the market as I said earlier for 44 Mag forty-five long cold all year round cartridges, you still see really strong demand in this new space of six millimeter art 6.5, PRC seven millimeter PRC.
Three eight normal magnum.
Those channels are yet to be filled and that's where we'll end up tuning our factories and our capacity towards when you say in terms of sitting inventories, yes, there's inventory coming back on the shelf and that's due to an inflationary and recessionary effect of just total market share.
But.
Those total dollars in market share. It is once again, primarily in that high commodity space.
And we're not too concerned about those volumes sitting in the retail space, because we will divert our production elsewhere.
Okay.
As we think about shifting over to some of these other rounds.
You know walk us through kind of how you weigh your.
Just shifting purely over to brass and selling brass into other Oems to kind of hit some of this demand versus shifting lines over to six five P. R C or whatever.
<unk> may be.
You know kind of how you weigh that decision making.
Our our decision making is based upon what we call strategic account management is that we are going to segment. The marketplace. We're gonna find the clients that have been underserved in the in the last year that are high creditworthy clients that we have a direct relationship and we will continue to feed those clients.
Time and time again.
When we look at things like 6.5 create more in the trend line for $6 five create more there are six other calibers that are coming to the market that we.
We can then divert our focus away from these areas that are getting over saturated and that's how we look at this space does that answer your question.
That does that the other piece that I just wanted to look rear view mirror a little bit on maybe why some of the shift wasn't done sooner and walk me through it was it was it maybe just being slower on shift some of that having a new plant or was it that you could get.
Perhaps some of the project algae powder that you needed to build some of these other rounds.
We couldn't get the powder to go after those other rounds, we couldn't get enough supply of primers to go after those opportunities we couldn't get our factory up fast enough.
And we did it in 13 months by the way, but we kind of get the factory up fast enough and tuned in the annealing line setup and the operations and the staffing to reorganize it was done in record pace time, but once again, it's never fast enough.
But we're here now and we're shifting and we're pivoting.
Okay.
And then just as we think purely about you know brass casing manufacturing walk us through kind of added capacity and the new plant and maybe where you're at today on.
Your.
Whats your medium as far as your capacity just as we look purely at cases.
Oh historically in the past the maximum cases that ever came out of any previous facility related to ammo within that 350 to 400 million space.
Capacity, that's available out of this plant exceed $750 million.
And our current shift operation.
So we can double the capacity of cases.
We have ample.
Manufacturing and loading space to go after these opportunities.
It's not gonna be for a lack of capacity going forward.
Okay.
Great.
You guys talked about Oh go ahead Joe.
No I was just saying.
The beauty of all this.
And what.
I didnt realize until really coming in the door and sitting down with the analytics team.
Is that we can tune our forecast on a weekly basis based upon the trend lines that we're seeing coming out of gun broker. It has such a data rich environment that allows us as manufacturers to make better decisions on where we're making our next investment.
Yeah.
And do you have more flexibility and shifting production within bras casing is is that pretty easy if you see you know for.
For instance, more demand on some straight wall brass casing from other Oems or are you able to shift and hit that pretty quickly or.
There may be more tooling and <unk> that are needed to shift some of that over.
Theres always tooling and dyes that we need to invest in as new calibers evolve, but the breadth of the tooling and die sets are already there there's not massive capex that we have to put into place to make this profitable.
Its existing and we can go like I said earlier, we can go from nine to 300 blackout on the same machine.
It's really unheard of in this industry.
Yeah.
Good.
And then just you know gum broker sounds like continues to do well.
Walk us through any more that you can in depth today on.
Where you're at as far as learning from the demand trends that you're seeing that gun broker and and shifting that over to you know some of the decision, making and manufacturing ammunition.
Well. This is the piece that really baffles in my mind as I came into this space is the lack of awareness of where gun broker is today and where it's going.
Within the next six months.
This single transaction.
It's capped by a single transaction because of the way the development that's been done and the ability to go to a cart.
It's huge for gun broker.
And bye.
That shift a scene, where not only people are buying.
Seven millimeter PRC rifle, we're seeing where they're also investing their dollars. So we can take.
That data work with our industrial partners work within our own factories and build those relationships with those marketers and those people that are going to market to go.
Want to put a package together gather a seven millimeter P. R C with.
The latest holster or the next firearm manufacturer, that's the kind of data and the ability for us to be able to leverage going forward.
Okay.
I think the last question for me and maybe Rob this might be best for you you know any breakdown you can give us as we look at your top line guidance.
And I realize it's just one quarter, but any.
Additional info you can give us on.
What the gun broker sales, maybe or as the breakout within your guidance as.
As well as any shifts even though they may be small within kind of case in sales, it's built into the guidance for March quarter.
Yeah. Thank you Mark this is Rob Reilly and typically we don't get too granular on our guidance, but just for looking at Q4.
Sure you can come up with the remainder of the revenue that we're forecasting there, but we really think of the split of 60% out of the ammunition casing side of the business and the remainder of 40% from the gun broker platform.
Perfect. Thank you guys.
[noise].
Ladies and gentlemen, this concludes our question and answer session I would like to turn the conference back over to Fred wagon halls.
The MX.
Yeah. Thank you Ann.
You know I know the investors can't see it from where you're sitting but there's been a big change in this company since <unk> came on board.
And 40 days, we've made a lot of progress.
Just watch and see where we go over the next four to six months. Thank you very much have a good day gentlemen.
And thank you Sir the conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Okay.
Yeah.
[music].