Q4 2023 AMMO Inc Earnings Call

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 to withdraw your question. Please press Star then two.

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 Matt Lazy of core IR, the company's Investor Relations firm. Please go ahead Sir.

Good afternoon, and thank you for participating in today's conference call. Joining me from animal leadership team, our freight wagon Hall, Chairman and Chief Executive Officer, George Smith, President and Chief operating Officer, and Rob wildly Chief Financial Officer.

During this call in Israel will be making forward looking statements, including statements discussed expectations for future performance or operational results.

Forward looking statements involve risks and other factors that may cause actual results to differ materially from those states.

For more information about these risks please refer to the risk factors described in the animals. Most recently filed periodic reports on Form 10-K Form 10-Q.

The 8-K filed with the SEC today, and the Companys press release that accompanies this call, particularly the cautionary statements.

Today's conference call includes non-GAAP financial measures that we 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 for a reconciliation of these non-GAAP financial measure to net loss. Its most directly comparable GAAP financial measures. Please see the reconciliation table located in <unk>.

These earnings press release.

The content of this call contains time sensitive information that is accurate only as of today June two 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.

Let me turn the call over to Fred wagon host Chairman and CEO .

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Thank you good afternoon, I appreciate everyone joining us for our fourth quarter and fiscal 2023 earnings call I would like to start this call by acknowledging all the hard work of our employees and the patience of our investors as we continue to navigate.

Through a very challenging environment over the past year.

Well, it's been challenging period for all of us.

The market in general I firmly believe we have laid the foundation for the next great growth cycle for our company.

I'm going to take a few minutes to highlight a few of these initiatives and then hand the call over to Jared to discuss these in more detail.

During the past few quarters, so global and U S economy downturn, which has impacted our market as well.

We have been hard at work transitioning our customer base toward longer terms.

T J clients, while also positioning the company has long term supplier of pistol and brass casings to OEM and international markets.

As the ammunition market normalizes, we will also continue our.

Penetration into higher margin niche markets with our proprietary technology.

The expansion of our international markets and continue to press forward on our exciting government work.

This pivot and strategic was designed to.

They actually improve the profitability of our pistol rifle and brass sales, while also reducing our working capital needed.

And improving the balance sheet.

We are confident with these changes along with the significantly greater capacity at our state of the art manufacturing, Wisconsin facility.

We will put us in that.

Excellent position to rapidly improve profitability as we execute in the coming quarters.

Moving now to gun broker dotcom, while Brooke.

And mortar retailers have suffered from the significant decrease in revenue in foot traffic or gun broker dotcom revenue and profitability has remained steady.

Well the past fiscal year.

We believe this has been a function of improving customer acquisition tools significantly upgrading our targeting marketing.

And better overall customer experience, which the team has spent a lot of time and effort in enhancing and every material way.

As I have discussed on previous calls we are undertaking a number of nation lives over the past year to enhance the gun brokered dotcom platform, including Carty.

And credit cards.

Processing capability, which are for pairing to roll out as we continue the necessary and critical beta testing.

Meanwhile, the massive layoffs seen in the technology industry has allowed us to expand our developed well caper.

Capabilities as we have leveraged the increased availability of skilled workers to add a number of highly strategic hires.

I remain confident that we are only in the early stages of what we believe will be a long runway.

Revenue growth and increasing profitability.

We started the company in 2016, whats the vision and mission.

To innovate and capture a meaningful share of the ammunition market.

Our spot for acquisitions.

They 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 the future going forward.

But there is much work left to be done and we now have the team assembled to meet these challenges.

At this time I would like to turn the call over to Jarrett smell ammo as president and C O O.

He will discuss these initiatives in more detail.

We view the current state of operations and what we believe the future has in store for ammo, it's team and our shareholders.

Thank you Fred Good afternoon, everyone. This is my second time addressing you on an earnings call as President and CFO and then these last five months I have seen transformative change here at ammo.

Joined Fred and thanking our employees for making this change is possible they're.

Their dedication and a wealth of knowledge continue to make great things happen and make calls like today, all the more enjoyable knowing the great work we have accomplished.

Before I dig into the business our team and shareholders, let's take a look at our balance sheet. We ended our fiscal year with $39 1 million of cash have limited debt and generated $35 5 million in cash from operations over the past 12 months, we are well prepared for this downturn the company repositioned. Its operations, we are ready to meet this new market head on.

Our sales and margins are down from 'twenty to 'twenty, two we have retooled our factory and changed our go to market approach for both the ammunition and getting broker dotcom divisions.

2023, and the first half of 'twenty 'twenty four will be a challenging year for the NDA for this industry.

Markets normalized shelves of restock and our customers are once again looking for value if they tighten their belts.

To thrive in this environment, we must create opportunities in the marketplace building relationships and communicate the value and strength of our platform and products.

I first want to focus on execution concerning the major process changes, we have implemented which may seem simple in nature, but provide a major lift for a young emerging company.

These process improvements are essential in a tightening market and our requirement for repeatable margin growth during the continuing headwinds this sector faces we see.

Late nights and countless weekends developing these process processes programs and new products to take this market head on.

Operationally, we have developed ourselves and operating model.

Same store sales and market forecast tightened our purchasing plans shortened feedback loops and continue with cost out initiatives that will keep us lean and competitive in the quarters ahead.

We have also aligned the execution of those plans for project management principles that will allow us to continue to monitor our execution and delivery on these key principles.

Finally, we continue to add talent to grow our people and in turn our performance.

Let's talk a minute about gun broken dotcom and broker dotcom was about managing and establishing trust the buyer trust and the experience of buying a new or used firearm online without first handle trusting the experience been a firearm will be shipped to the U S. F L undamaged and in a timely manner and following all the necessary state and federal law.

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Seller must trust that the funds settle accurately and in a timely manner.

They must trust at the transparent FSL will handle the firearm transfer experience professionally for their customer.

For non firearm purchases Christmas exists at the product being deliberate isn't the same condition as noted in the listing by the seller with a full process quite payment upon bidding or buying the selected item.

It is that trust that we are building upon today I trust that our community does not we ever take lightly.

Helpers and managers recognize that we must get it right.

We've discussed in the past with the Onboarding of credit card processing Mccarty. This platform will change streamline and expedite processes within our system and we must do everything in our power to ensure that we keep the trust of this community.

To ensure that we continue to bring value, we must provide new tools that.

That empower buyers and sellers with a deeper level of engagement within the community.

The first major advancement, what's from a universal to a unique approach and our marketing campaigns, we shifted to an in house team that generates campaigns around gun broker dotcoms individualized quantified and internally generated data this resonates with our customer base and enables us unprecedented metrics as buyers discovered.

That was on the platform around lease personalised itself selected genres.

We are aware of no other competitor in our space that possesses and are poised. This data in this method.

This resulted in a 126 targeted unique customer personas that are curated and use a banner and email campaigns that direct traffic back to those curated items by our sellers. It's campaign also generates 1.5 million emails daily to an active and engaged audience segmented from an overall.

That's the 1.5 million opt in subscribers.

Second major advancement with some a reactive to a proactive approach and customer service seller engagement and industry relationships.

By restructuring customer service and adding product specialists, we have unified our outreach to both the seller and buyer community leading to better navigation within the platform.

We have accelerated customer response time.

Differently increased our satisfaction ratings.

The third major advancement of our marketplace was enabled by the outlooks for manufacturers sites and manufacturer stores within gun broker dot com, which are fulfilled by our sellers inventories.

Also recognized and helped draw out one of the core strengths of the marketplace with the sellers.

Sellers can exceed normal industry margins on the rare highly sought after and collectible goods with the auction process.

This book has become clear to our sell out to me that he has become a source of much talk and something we will continue to educate our user base onto a new podcast launching in July .

Podcast will be filled with conversations around fun facts, and you Miss define consumer selling and buying and historical relevance of the product that can be found on gun book with Dot com.

Also very excited to announce the newest member of our management team of industry Veterans of Allen Parker, Our Vice President of public relations and brand management.

Well Alan will help.

Our attention to polka dot com and the ever growing number of programs and services. It offers salary buyers in the outdoor industry.

As a whole the entire book of about content.

Just really hitting their stride with the past two years focused on the strategic planning and development. What is now being deployed bringing a whole new breadth of services and opportunities to the platform and its uses.

I'd now like to transition to ammo Anthony ammunition Division.

Despite the current recessionary and inflationary macroeconomic effect no ammunition division still benefits from geopolitical events and conflicts that you read in the news today.

<unk> Brasil I think well the word is getting out there that ammo was open for business and has significant capacity for its growing customer base.

Securing new born in domestic contracts for rifle and pistol brass just as we anticipated and our international clientele contractual supplies that will carry them through the next election cycle versus being cut off when the domestic market rebounds here in the U S.

To make these opportunities in reality you have to go back to the drawing board and clear out our cabinets purge, our old inventories and rolled out of pocket.

We reduced our working capital requirement will continue to work through slow moving inventory to close the mine and the factory for.

Our continuous improvement projects will create an even leaner operating model in the months ahead as we processed through the material after the consolidation of our two facilities last fall.

Sales teams are also busy implementing strategic account management, which focuses our energy and resources on the highest performing dealer.

Retail and distributor customers in this space.

We must continue to do it ourselves and marketing organizations to listen and understand the requirement of our dealers and retailers and effectively communicate our core strengths and strategic offerings at.

At the same time, we must create the conversation with our consumers who are getting lost in the aisles and options to choose from in the ammunition category.

We will do this by rebranding and repackaging, the ammo signature lines to stand out on the shelf.

It's well communicate the strength of our best in class brass, we manufacture and the highest quality of components, we source from other premium U S manufacturers.

We are superior and take great pride in being a U S manufacturer based in Manitowoc, Wisconsin.

As we transition our CTO product offerings will continue to move our products into stable niche markets with loyal customers.

Over the last six months, our ammo division has transitioned away from top line revenue.

It's a margin creates in conjunction with contractual growth without premium OEM partners.

Sales margins and crude volumes stabilized and strict inventory without some plans have been put into place.

We are filling in the factory that came on last fall and continue the C machine efficiencies increase well, we find new demand for this capacity.

We will continue to build out ourselves and marketing teams to move the needle in a profitable and sustainable manner.

Domestic markets will not keep our factories full military need a sporadic and timing is unpredictable.

International business, well not to say that even with the current conflicts way going beyond that border.

We must take a balanced and multidisciplinary approach strategically place our business with clients that are monitoring and measuring the business.

Pain care and diligence with which we measure hours.

Shifting to account management is based on the principle that we will find out with credible clients with a similar focus on the bottom line and our ability to market their brands with the same effectiveness that we will market hours.

They also have come rather easily in the past three years with Covid, yes.

The industrial base has grown well.

We will now have to prepare ourselves strategies to compete with this excess capacity and the lunar our operations, creating efficiencies to compete with manufacturers that have been in this business for over 100 years.

We will automate what we can but automation it takes time.

Our strategy is differentiation in caliber selection golar people cut costs and manage our relationships both domestically internationally militarily, all while hoping for a little walk along the way.

We abide by the wise words of Thomas Jefferson.

Great believer, a lot and I find the harder I work the more I have of it.

Entire ammo team for the exact same way.

Our industry has grown its inherent capacity beyond pure consumption bigger factors like political cycles regulation international and domestic turbulence drive this market to unprecedented levels. These factors must be managed the way.

As the cell management team holds into the market. We will take all of these factors into consideration as we build shareholder value through steady and predictable growth.

I'd now like to turn the call over to Rob wildly to discuss the quarter.

Thank you Jarrod and welcome everyone.

Let me now review, our fourth quarter and fiscal year 2023 financials in more detail.

We are pleased with the progress we have made to date as we continue with the transition period, but headwinds are still active in the market today, along with the rest of the industry.

We remain excited about the new direction of our two segments.

We are nearing the end of our first quarter 2020 for fiscal year.

And this is observed but appears 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 adult across most industries.

However, our plan to recoup cash tied up in our inventory and accounts receivable had gone. According to plan as we ended the year with cash generated from operations of approximately $35 5 million.

We were able to reduce our total inventories by $12 8 million in our fourth fiscal quarter as we shifted our direction for a leaner operating model focusing on increased breast sales, which afford us higher margins.

Additionally, we continued to push forward with improvements to gun broker dot com.

The payment suite and car platform to launch our 2020 for fiscal year, which should drive growth and profitability to the site.

We ended the fourth quarter with total revenues of approximately $43 7 million in comparison to approximately $70 1 million in the prior year quarter.

This was a decrease of 37, 7% from the prior year quarter.

For the fiscal year total revenues were 191 4 million decreasing 23% from the prior year.

The decrease in revenue was mainly attributable to our 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 7% decrease from the prior year quarter.

And a 2% decrease from the prior year in total.

However, opt.

Operating performance up our marketplace gun broker dot com they'll remain strong and although our topline revenues wavered on margins or so comparable to historical performance.

Our cost of revenues to be approximately $31 8 million for the quarter compared to $49 million in the comparable prior year quarter.

For the full fiscal year was $136 million compared to 151 5 million in the prior year.

This decrease was related to reduced sales volumes and increased commodity and overhead costs.

Accordingly. This resulted in a gross margin of 11 9 million compared to $21 1 million in the prior year quarter to $55 4 million for the year compared to $88 8 million in the prior fiscal year.

And their sales volume fell in the reported period, we are navigating a difficult climate as macro trends appear to be impacting our performance.

Transition to more profitable sales activity is currently in effect for our first fiscal quarter 2020 for fiscal year.

By shifting our focus to more sales of our premium bras and large caliber ammunition rounds.

Our balance sheet remains strong with a total current liabilities decreasing by 29% since our prior year end and our total current assets virtually unchanged, but our cash position increased $15 8 million since the prior fiscal year, 68%.

For the quarter, we recorded adjusted EBITDA of approximately $3 8 million compared to <unk>.

Prior year quarter, adjusted EBITDA of $10 7 million.

For our fiscal year, our adjusted EBITDA was $26 4 million compared to $60 8 million in the prior fiscal year.

This resulted in a loss per share of three cents for the quarter. Our adjusted net income per share of three sons.

Person to a net income per share of zero cents in the prior year quarter, our adjusted net income per share of seven cents.

And for our fiscal year loss per share of seven sons or adjusted net income per share of 16 cents.

Comparisons of net income per share 27 cents or adjusted net income per share of 46 cents in the prior year.

Looking forward to our next fiscal year, we expect the new direction of our company to increase profitability through increased sales of our breast casings and our performance rifle ammunition that will increase the gross margins of our ammunition segment.

Additionally, the launch of our payment processing suite.

Cardio ability and analytic offerings are anticipated to position our gun broker dot com marketplace.

Increases in gross merchandise volume and as a result.

<unk> revenue and profitability.

Our common stock repurchase plan is underway with approximately 1 million shares repurchased in total under the plan thus far.

Current plan is in effect until February 2024, with approximately $28 million and funds remaining under the plan.

Thank you very much we will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad, if youre using a speakerphone. Please pick up your handset before pressing mckeith COVID-19.

It dropped from the question queue. Please press Star then two at this time, we will pause momentarily to assemble Iraq there.

Today's first question comes from Matt Koranda with Roth N K N. Please go ahead.

Hey, guys. It's my favorite on for Matt.

I guess, just starting with the manufacturing side in the press release says the transition to more profitable sales activities. Currently in effect just wanted to clarify here does this mean, we're fully switched over to the target production mix or if not how far are we in that process now what does the rest of the trans.

[noise] entail and when can we expect that production transition to be completed.

Yeah sure I'll.

I'll take that question.

In terms of the product mix, we fully transitioned.

We still have capacity to bring on and we will be bringing on more and more capacity as we find additional sales, but in terms of product mix itself.

Today, we're confident in the directions that we stated.

I couldn't be happier with the team and the progress that we're seeing.

Long term contractual.

Volumes that secure factories like ours.

That answered it answers your question.

Post Covid is that while we've seen decreased traffic on the website, we're actually seeing increased profitability and that's because during COVID-19. There's this new base.

Sellers and buyers on the community that it's recognized and were seeing a.

Higher ticket items.

Items for sale on the platform, we're seeing a better use of the listing options and the overall percentage of sell in has actually increased.

Since the start of the year.

Got it that's helpful and.

Last one for me so.

The recent take rate increases and gun broker or are they in preparation for the expected improvements.

Or can we expect the take rate decline further alongside those improvements when they're actually enacted.

Hey, this is Rob wildly so the recent increase in our take rate is actually related to the increase in our average ticket size.

Which also relates to the ancillary it.

Listening options that come from those.

Higher ticket items for sale.

We have not increased our take rate related to any of the upcoming activity and that would just be.

Upside not fixed but.

Yeah, I don't think we will see a multi tiered take rate.

Intel.

Okay.

End of this calendar year, but really into 2024.

Now the goal is to continue to communicate bring buyers and sellers on the platform show and demonstrate the strength of the platform forgetting.

A higher value for your firearms and increase the user community and awareness within the specific genres.

Drive the overall community.

And benefits to the to the user base.

Yes.

With credit card in Karting coming on in 'twenty three 'twenty four.

We've got nowhere to go but up.

That makes sense.

Is there a target take rate that we plan to end the year with them and given the higher take rate, but considering you know sort of the ammo down cycle that we're in what type of growth are we expecting for G. M D.

So we do have a hard target take rate in mind, I think we envision ourselves eventually being at.

Towards the hired.

Single digit ended the spectrum, but we wouldnt want to increase our take rate without providing value to our users. So as we continue to add services to the site that.

That would be what it would be appropriate for us to increase our take rate.

And then obviously the GMB from there is kind of dependent on market activities. So it's really.

Hard for us to come out of a number on that one and our increases in take rate are really related to the card in capabilities and bringing in a larger assortment of <unk>.

Items that have higher margins right now our goal is to keep.

The volume on the platform keep the seller's happy.

I don't see us adjusting our take rate to the on firearms in the 'twenty three calendar year, but whats happening and Rob alluded to it earlier is that through listing fees.

Inventories sitting a little bit longer things are cycling.

Over people are seeing the value.

The listing options.

Different <unk>.

Ability is to kind of enhance your product on the website. Those are really what's driving our increase take rate over the last three to six months.

Makes sense, that's all from me guys. Thanks.

Thank you for your time Sir.

The next question comes from Mark Smith with Lake Street Capital markets. Please go ahead.

Hi, guys.

First question, just kind of big picture.

Little bit of follow up but just as you guys get pretty good insight into consumer and consumer trends and you spoke to some of that here that you saw in the quarter any update you know as we look at Q1 any updates in consumer behavior that you can speak to whether it's you're probably some your gun broker data or.

Ammunition.

So mark Gerry Smith here within the ammunition sector, we're certainly seeing a decrease in demand.

We're seeing.

Price erosion.

On commodity products as we're seeing more imports into the U S market I would tell you from the ammo side is because we've moved away from those sectors and we're not trying to compete on 9% and two to three are our strategy is really about product differentiation increased caliber growth.

And servicing the OEM market.

We are well positioned to go into the remainder of the year.

And from a gun broker side, you know the overall mix volume.

Is pretty stable from what we've seen but you know our.

Our consumers are looking for better value.

And they're shopping harder we think gun brokerage is one of the places that they are coming to shop and do comparison pricing. So.

While we may see a lower value or gross monetary value in 2022.

We're seeing strong activity in the sectors that we want which is higher value sales. There is still a very very loyal base out there that goes to gun brokerage to find unique firearm that they're looking for.

And as we add card even credit card processing.

Increase our search capabilities enhance our community engagement with podcast and better tools and kind of dissecting the genres of firearms in services and products that we have on our site.

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We really think that's where the consumer is going.

I hope that answers your question Sir.

Yeah No. That's that's that's helpful.

As we think about you you answered. This question just a minute ago, but I wanted to just dig deeper on it kind of a shift in manufacturing can you just update us on the two sides because it seems like you're pretty far into it first a shift to manufacture more profitable calibers and rounds of shift away from two absolutely in that mill.

Kind of where that's at and then also Jared I think you've talked previously about kind of a shift back to supplying more of kind of your OEM peers with brass casings.

Can you give an update on kind of where that is as well.

Absolutely I'm going to take the second part of that question first.

We are and have shifted and I'd like to take credit for it but we have a phenomenal team in Manitowoc, Wisconsin they produce.

And really the core talent there is around brass rifle manufacturing.

I think they do it as well if not better than anybody else and our mix of products is where we want it today and it's really just growing the capacities in that medium and large rifle caliber base are 50 catalysts are 50 Cal line is coming on and there is still.

More and more demand than I ever would have guessed for things like $12. Seven by went away 50 cow in these kind of larger premium.

Rocco calendars.

And I know I was taking the second question first and I forgot. The first question. So can you repeat the question Yeah. Just yeah, just a shift in manufacturing kind of away from nine mill into Q3 and into more specialty crops.

Jobs.

Yeah, It really comes.

It's really just that simple you walk over to the machine and you turn it off.

And you divert your purchasing plans and your sales and operating models.

Where we're seeing it and continue to see margin at 38, $3 57, and $44 45 long Coke.

Straight wall calibers.

And these.

The mix of products that.

The larger manufacturers have fully dedicated lines dedicated.

Dedicated benign dedicated to the loading dedicated to the bullet production dedicated to the assembly dedicated to the drawing we just don't have that in our factory and allows us to shift and pivot quickly.

Yes.

Okay.

One last question for me just can you just talk about you know commodities labor your other inflationary pressures, maybe even an update since the quarter ended as well in Q1 now.

You know on what you're seeing on the inflationary pressure side.

Yeah absolutely.

What we saw at the end of 2022.

End of 2022 really was a continued and steady to increase in raw materials copper and zinc were going up our labor inputs were going up.

I think as the recession has said in those are actually turning around and we've seen copper prices back back off so we actually have a good guy there.

In terms of our inputs primers are still in high demand, but there is additional primary capacity coming on both internationally and domestically.

And just the lack of demand has created a little bit of slack in the prime of supply from.

From a commodity standpoint, youre always going to have your imports flooding in because they've got to sell through those factories from the state of military readiness.

Unfortunately, we don't have to play there and we don't have to compete there.

Yeah.

Perfect. Thank you guys.

Today's last question comes from Edward Reilly with E. F. Hutton. Please go ahead.

Hey, guys. Just wondering if you can maybe give us some color on the cadence of gross margins in the ammunition segment.

Throughout the next fiscal year, just given the strategy to maybe continue seller slower moving selling slower moving.

Inventory in the near term.

When do you anticipate getting through that inventory in.

What my gross margins look like within that segment when it's when it's finally moved.

We're working through that inventory now Ed.

What we're seeing is that we've improved margins by 10% to 15% in pistol.

Going into the end of calendar year 'twenty two into 'twenty three we were damn near breaking even on most of our rifle ammunition, a lot of that was imported and resold.

But it was still heavily commodity mixed so we turned those machines off and we've seen a 10 to 15.

Some months, 17% increase in margins based upon the mix that we're putting out that month.

And we have grown our margin business by six fold I mean, our brass business by six fold since January where.

Where we're seeing 30% margins.

Okay, great. Thank you for that.

Yeah, absolutely, we're excited where we're going.

I got to tell you what looking back at.

Where the company's come from and it's quick short.

Seven years in 'twenty, two with the proxy contest and legal fees.

We are off to the races.

This 24 fiscal years.

So I appreciate it.

This concludes our question and answer session I would now like to turn the call back to Fred Wagon Hall for any closing remarks.

Thank you shareholders and supporters of the company I appreciate your support.

I've watched jarrett put together a phenomenal team.

Over the past five months.

And I have the privilege of studying into meetings and seeing where we're going into the next.

Year.

And I said, you're going to see some very exciting things. This company. Thanks again for everything.

The conference has now concluded. Thank you for attending today's presentation you may now disconnect.

Okay.

Hum.

Uh huh.

[music].