Q2 2023 Byrna Technologies Inc Earnings Call
Okay.
Good morning, welcome to burn is fiscal second quarter 2023 earnings Conference call. My name is Kevin and I'll be your operator for today's call.
For today's presentation are the company's CEO , Brian <unk> and CFO David North.
Following their remarks, we'll open the call for questions.
Brennan released results for its fiscal second quarter ended may 31st 2023.
Copy of the press release is available on the company's website.
Before turning the call over to Brian .
Bernie psychologist Chief Executive Officer, I'll read the Safe Harbor statement.
Scott can tell today include forward looking statements actual results could differ materially from the statements made today. Please refer to burn his most recent 10-K and 10-Q filings for a more complete description of risk factors that could affect these projections and assumptions.
The company assumes no obligation to update forward looking statements as a result of new information future events or otherwise.
Hold on hold references to non-GAAP results. Please see the press release in the investors section of our website IR Scott burnt a dotcom.
For further information regarding forward looking statements and reconciliations of non-GAAP results to GAAP results now I would like to turn the call over to Bernie CEO , Brian gas Sir. Please proceed.
Thank you Kevin and thank you everyone for joining us today.
As Kevin mentioned this morning, we filed our 10-Q with the SEC and issued a press release, providing our financial results for the second quarter ended May 31, 2023, along with key business accomplishments today I would like to start by providing a few key highlights and recent business developments then.
I will hand, the call over to David North to discuss our financial results in more detail.
After that I'll come back and provide some color on our performance touching on both those areas of the business. We are pleased with the underperforming areas of the business that require our retention.
After that we can take questions from our publishing analysts and with that let's begin.
First production I am pleased to report that during the quarter, we commence production serial production of the new more powerful burnout L. A launcher and successfully worked through the backlog and waitlist of 5800 units reported at the end of the first quarter of 2023.
Shipping out a total of 6235 burner L E kits during Q2.
<unk> is continuing to ramp up production of the burn of L. A and we intend to release it on Amazon. This week, we believe well there is still room for improvement in terms of manufacturing efficiency, the manufacturing and supply chain challenges that we face will rolling out to burn a L. A are firmly behind US. We also commenced production in.
Shipments of our new Revolutionary 12 gauge less lethal around during the quarter. The router was voted best shot show 2023 and was recently favorably reviewed by firearms news a copy of this article was available to view on our website.
In the 12 gauge section and is linked to our press release issued this morning.
Accolades appear to be well deserved according to Biokinetics, a third party testing lab after extensive testing of burn as round against Nato's AEP Ninety-nine standards Burnished 12 gauge kinetic rounds were judged to be and I quote extremely safe AEP 99 is a <unk> injury risk assessment the.
<unk> is the risk of ribbon sternal fractures, resulting from impact or a combination of empirical and numerical evaluation. This testing concluded. The burn is 12 gauge kinetic rounds are extremely unlikely to cause serious injury or death, even when firing ranges inside of five feet.
As a result of this very favorable report validating burn as claims regarding the safety of its revolutionary new shock out or shock going around and the demonstrated accuracy and effectiveness against humans, we're seeing tremendous interest from both domestic and international law enforcement agencies, I expect to be able to report the adoption.
I was born as 12 gauge kinetic round by several large law enforcement agencies on our next quarter's earnings call.
Next premier dealers, a furnace saw strong growth in dealer sales during Q2, posting a 47% year over year increase in revenue. This resulted in part from our focus on the development of Premier dealers Premier dealers are owner operated brick and mortar stores that derived more than 50% of their <unk>.
Revenue from burn in products.
Upon the success of burn as one retail store in Las Vegas, and our dealer of the year lives Safe, Hawaii, We decided to institute a new Premier dealer program for entrepreneurs did share Burns passion for less lethal and believe in our mission of saving lives by giving consumers and law enforcement professionals.
A safe effective and reliable non lethal alternatives to traditional firearms in the first 90 days of rolling out. This quasi franchise program BARDA was able to sign three new Premier dealers is this includes greener motor's integrated marine systems operating as live save Socal.
<unk> and K P. G S operating as Burnham intact.
The owners included trucking company that came to embrace our mission when they provided burn as to all of their drivers.
Restoration company. It started selling burn is at boat shows and in private security company that issued burnished all its security guards you can see the interview with the owner as a security company Juvie era on Barneys website.
Burnout Heartache episode 11 in.
In the first 90 days of signing on with burn of these three dealers have generated more than $180000 in new business.
Burnt a lot Tau burn are also recently landed three large law enforcement accounts in Argentina Cordoba lot news in Buenos Aires, the agencies have ordered a combined 3000 burner SD launchers, and ammunition, the orders, which total approximately 5 million U S dollars will be filled by.
Burnham Latam distributor in Argentina Bursa.
So while they do not show up in Barneys revenue numbers. They are nonetheless, a big win for burner in terms of credibility with law enforcement and validation of the burn in products.
Florida has benefited from a unique political situation in Argentina as the two leading candidates presidency had been promoting burnout by name, citing burn as non-lethal handguns is the answer to both police violence and street crime in Argentina, you can see these stories on <unk> website.
Based on our success in Argentina furnace head of law enforcement training Wayne Moody has been invited to Brazil next week to speak at the Brazilian Congress of municipal guards in public safety, there will be over 1000 government officials in attendance from 200 different municipalities.
Subject of Wayne's presentation will be the use of less lethal devices, such as BARDA to managed threat to the public without the need to resort to lethal Force Wayne Moody, who heads up our law enforcement training program is a highly decorated member of the Galveston P D and former swap commander he brings more than 30 years of.
Leasing experienced a burnout.
In anticipation of Wayne's visit several high ranking Brazilian police officers, who will be in attendance visited burn is fort Wayne production facility in June we expect our operations and test firing the burner watchers well neither burn a lot of times in our burner sales are reflected in burn as reported numbers. These recently.
Wins underscore the importance of burnout, Argentina is a burn is argentinean subsidiary and the long term growth opportunity for burner in the Latin American market.
Finally, Australia in Q2 Barna secured the company's first law enforcement contract in Australia.
The New South Wales Correctional facility. This achievement marks a significant milestone for burn is regional expansion, establishing a promising foundation for increased market penetration in the large Australian market and the broader Asian Pacific region.
Before I go any further I'd like to turn the call back over to David to discuss our financial results for the quarter in greater detail David. Thank you, Brian and good morning, everyone, let's discuss our financial results for fiscal Q2, our net.
Net revenue for the second quarter of 2023 declined slightly by 1% year over year to $11 $5 million from $11 $6 million in Q2 of 2022 had a slight decrease in sales are primarily due to a decline in international waters, specifically, a one time $1 1 million dollar order from South Africa.
Recorded last year in Q2.
As well as a temporary drop in online sales due to production delays affecting burner LTE products. The decrease in sales was offset by a 900000 dollar increase in sales domestic dealers, which were up 47% year over year.
Gross profit for the second quarter of 2023 increased to $6 $2 million from $6 $1 million in the prior year period gross profit margin for the second quarter of 2023 improved to 53, 9% from 52, 7% in the same period last year the improvement in gross profit and gross margin as prime.
Mainly due to the decrease in the proportion of sales to lower margin international channels.
Gross margin improvements were slightly offset by challenges in production and supply chain disruptions early in the quarter on a sequential sequential basis gross margin declined due to both customer mix a larger percentage of lower margin dealer in international sales in Q2, as well as unfavorable manufacturing variances, resulting from lower production volumes and <unk>.
Melting scrap is the factory worked to get the Hell he into serial production.
Operating expenses were $7.1 million, that's a 20% decrease from $8 $7 million in Q2 of 2022.
Reduction primarily resulted from a $600000 decrease in payroll costs.
And marketing spend of $600000 and lower professional fees and insurance costs of $400000.
Turning to our profitability measures.
The net loss of $1.1 million, marking a 64% improvement from $3 $1 million in the prior year period improvement was a result of reduction in operating expenses that I just mentioned.
Adjusted EBITDA, which is a non-GAAP metric improved by $1 $6 million to $700000 in the second quarter of 2023 compared to a $900000 loss in the second quarter of 2022, the improvement in EBITDA, primarily stems from slightly higher margins coupled with the decrease in operating.
As previously mentioned.
Onto the balance sheet as of May 31st 2023, we had $15 $4 million in cash and cash equivalents, which was up from $14 $4 million at the end of the fiscal first quarter on February 28 2023 at.
At quarter end, we also held $17 $5 million in inventory compared to $18.1 million at the end of the first quarter. We also continued to maintain a debt free balance sheet.
That concludes my prepared remarks, I'll now turn it back to Brian .
Thank you David.
Now I'd like to provide some color on the results outlined David.
First let me repeat that I believe that the production and supply chain problems that we grappled with in Q1 and the beginning of Q2 are behind US we do not see production issues negatively impacting sales in the foreseeable future.
Second the structural changes and management reorganization that we implemented a burner this year, which has resulted in a lower operating expense run rate.
We believe we'll continue at the current pace well, we will be adding some new positions in product development and sales and marketing will also be consolidating some positions in other areas of the company. So that the net effect should be neutral.
So that brings me to what I really want to talk about sales.
Well net revenue for Q2, 2023 was essentially flat year over year that doesn't begin to tell the whole story.
I will explain there are segments of the business that have surprised to the upside.
There are other segments of the business that will they appear to be underperforming or in fact in line with expectations and finally, there are still other segments of the business that while appearing to be keeping pace with last year, our areas of concern for management.
On the positive side, we have dealer sales, which were up 47% or 900000 compared to Q2 2022.
As we discussed this is being driven by several factors, including our Premier dealer program.
As well as our new inside sales initiatives until this year burning relied primarily on a handful of manufacturers rep groups to open new dealer accounts. This approach was advantageous for burner, given our smaller size in a relatively limited human resources. These manufacturer reps groups with their well.
Customer basis, and a roster of on the road sales reps facilitated burn as quick entry into a number of marquee retail chains, such as bass Pro Cabela's Sportsman's warehouse shields and by March.
These four chains alone represent more than 400 brick and mortar locations for.
More importantly, they give birth to the credibility that comes with being associated with such iconic brand names.
What they do not do however is drive significant sales with bass pro sportsman and by Mark are all in our top 10 dealer list sales on a per store basis at these big chain stores ranked near the bottom of our dealer list. The reason is simple burn is needs to be sold not simply placed on the shelf because.
Less lethal is a new category for most consumers and because Barnett is a relatively new brands, we cannot sell our launchers ammo and accessories in the same manner as the well known long established weapons companies like Smith, <unk> Wesson block or six hour.
When someone wants to purchase a firearm they generally know exactly what they want the sales associate merely needs to pointing in the right direction blocks to the left to the right. The same cannot be said for selling burner selling burn is less lethal launchers, and ammo requires a passionate well trained sales associates did not only.
Believes in the mission that can explain in detail, how burnell launches work and can provide performance information and product specifications at the big box stores, we rely on sales associates, who typically have a high turnover rate and are compensated at relatively lower levels. As a result, these the performance of these.
Big box stores on a per store or per square foot basis is underwhelmed. Conversely at our premier dealers, where we have owner operators that are passionate about burns mission and are intimately familiar with the product sales are in order of magnitude better than these big chain stores.
The purpose of our newly formed inside sales team is to focus on the development of more smaller owner operated dealers. These may include gun stores outdoor stores sporting goods stores as well as both dealers trucking companies and private security companies.
As we just saw with our latest three premier dealers any place that caters to well heeled customers that are open to having a weapon to protect themselves and their family.
The potential fair enough dealer.
We kicked off this program in early 2023 and have now expanded it to three inside salespeople our goal over the next 12 months is to increase the inside sales force.
10, salespeople, each averaging 1 million or more in annual sales. The inside sales team's efforts are geographically focused on areas of the country, where our dealer coverage is limited ensuring the dealer sales are not cannibalized. In addition to looking for newborn to dealers. The inside sales team has been tasked with growing our side hustle business.
Side hustle dealers or individuals that do not have a brick and mortar location, but are interested in selling burgers at gun shows boat shows state fairs, RV and camping shows and other events.
They generally come from the ranks of passionate Barnett customers, we advertise on our side hustle opportunity on our customer to our customer base.
<unk> the inside sales team then calls back those individuals that have expressed an interest last year, our side hustle dealers generated $1 2 million in business at our best dealer margins most pay with a credit card. So we don't need to carry receivables. This year two of our top 10 dealers are side hustle.
To put this in perspective, they are both running ahead of bass pro shops in terms of purchases from Burnham.
The other benefit of decide Hustled program is that it is in essence, a farm team for Premier dealers as these dealers see firsthand the interest in furnace products by selling at gun shows boat shows and other events. They develop the confidence to invest in a brick and mortar location, our largest dealer lives safe Hawaii.
<unk> offers a side hustle dealer this quarter, we converted another side hustle dealer Greener motors, the trucking company I referred to earlier into a premier dealer as a result of our inside sales effort.
Our new focus on developing premier dealers and a new renewed effort too.
To grow our side Hustle business, we expect our dealer sales division to continue to outperform expectations.
In the category of not as bad as it looks as international sales.
International sales were down 53% or $1 4 million when compared to Q2 of last year is in fact really in line with expectations first it is important to remember that international sales by their very nature are episodic. These are generally large sales often more than $1 million in a single sale.
As a result, a small delay in shipping out an order can significantly impact our results for any given quarter. This makes it difficult to project international sales quarter by quarter and it is easy for shipments to get pushed into the next quarter as we grappled with import permits export permits dawn proliferation approvals accordingly.
Well this quarter, we were $1 4 million behind last year, we expect that we will make up the shortfall in Q3.
The other reason why international sales appear to be lagging behind.
This year versus last year is that this year sales of burn of products in Latin America do not show up as revenue on our income statement as we account for burn of Latam on the equity method of accounting in comparison sales into.
South and Central America.
This contribute to revenue last year, specifically, they contributed $4 5 million to revenue as I discussed earlier, we are having far greater success, introducing barna into Argentina than we could have possibly imagined as several candidates for the presidency of Argentina promoting burn as part of the solution to that.
<unk> Street crime in Argentina, and police shootings in response to this crime.
Based on orders received by our distributor and RF skews, specifically naming burner, we believe that in the next 90 days more than $5 million of burn of products will be sold into Argentina by our dealer versa as they fulfill those orders from the police departments in Cordoba news and <unk> none.
These sales however, it will show up in furnace numbers as they are being filled with products sold at Barca last year for these reasons, we believe that our international sales effort well lumpier than we would like it to be.
Is in line with expectations.
Okay that brings us the DTC sales, which is currently an area that requires focused effort and strategic navigation from fair enough.
Management team Hello.
On the face of its sales for the quarter at burner Dot com and Amazon Dot com were off less than 1% and 6% respectively.
These declines for tend to trend that we are actively addressing in late March meta and google's simultaneously implemented a ban on any advertising buy burner on their platforms classifying burner as a contra band product GUL has since backed off its positioned slightly allowing bernard to run ads on.
On Youtube, but not on Google meta however has been unrelenting in its advertising ban of all burner products on Facebook and Instagram, we have been kicked off with Facebook in the past.
When this happened we had been able to speak to a person to get the ban lifted.
This time, we are unable to even get married to engage with US clearly there has been a change in policy at the corporate level.
This inability to advertise on these large social media sites has resulted in an immediate falloff in web traffic on burn a dot com Bernadotte CA <unk>.
<unk>, Canada, and Amazon Dot Com on Bernadotte car daily web traffic fell from an average of 26000 sessions a day in the first three months of calendar 2023.
To an average of about 12000 sessions a day in the second three months of calendar 2023, or 55% decline Amazon sessions declined by 10, 4% during the same period.
Most concerning evolves brenna, Canada, where sessions are down 80% from the beginning of the year as we don't have the installed user base in Canada that can drive engagement. Despite the significant decline in sessions sales on Bernie Dot com for the quarter were off less than 1% comps.
Compared to the same period last year, while Amazon sales were off just five 5% compared to the same periods last year, Canada shows an improvement year over year, but that's primarily because we were not selling in Canada in Q2 of last year, though we are pleased with the resilience of our E Commerce sales we.
Is that overtime fewer sessions will result in lower sales, we do not know when or if that is ban on advertising a British products will be lifted.
Accordingly, we are working around the clock to find effective alternatives. So the large social media sites as we look to get the burner story out to the public over the next several months, we will be expanding sales efforts to include other e-commerce sites, such as target and Walmart, we will be redirecting our advertising spend to <unk>.
Later into smaller niche market websites cater to burn as key demographics in other words boaters campers RV years, hikers motorcyclists car enthusiasts private pilots liquor store owners convenience store owners security guards et cetera, We also plan to increase our print media advertising budget.
And place a greater emphasis on being a gun shows trade shows and other events through our side hustle dealers.
We are extremely disappointed that meta and Google have taken a step to band burner from advertising on their platforms. We firmly believe the burden provides a solution to America's epidemic of gun violence. We are actively working to overachieve overturn these existing bands in advertising marketing and frankly, even.
The discussion of less lethal weapons on social media, we believe that it is crucial that we educate consumers as to the viable non lethal alternatives to traditional firearms. So anytime someone uses a non lethal device rather than a traditional firearms to defend themselves.
Potential tragedy is diverted towards this ends on July 6th burner kicked off a campaign using email billboards print media and social media sites, such as Twitter to try to get managed to reconsider their position you can find this campaign on <unk> website. Our goal is to convince med.
That their decision to ban advertising by less lethal weapons companies robs consumers the opportunity to learn about less lethal alternatives.
Two traditional firearms in this case free speech saves lives. We urge all of you to go to our website and support our efforts to drive awareness of the benefits of less lethal options to traditional firearms.
This band is a challenge that Burnham must overcome Fortunately, we are well positioned to meet this challenge Vernon is currently cash flow positive with over $15 4 million of cash and cash equivalents.
No that we are in a strong working capital position in the coming quarters, we expect to work through our sizable inventory, which will free up still additional cash providing an ample cushion whenever we will remain vigilant and it's cost control efforts to remain profitable while the company works to develop alternate ways.
To get this message out to consumers. This solid financial foundation provides us with the ability to navigate the current challenges, while we position ourselves to invest in key areas of the business and still maintain a robust cash flow trajectory.
Before we hand, the call over to questions I'd like to take a moment to provide an update on our outlook. As you may have seen from this morning's press release, we have made the strategic decision to withdraw our previously communicated guidance for fiscal 2023, we have not taken this decision lightly which is why we're taking.
The time to review it right now in short due to the uncertainty created by the ban of advertising of our products on various social media platforms, but particularly met up we feel that it is extremely difficult to forecast DTC sales until we are able until we are able to redeploy our advertising funds.
Redirect our marketing effort to new venues and new approaches.
Once we have a better understanding of the effectiveness of these advertising platforms and the impact of our direct social media engagement, we will be in a better position to forecast E. Commerce revenues. Nonetheless, we remain optimistic about our ability to enhance both our top and bottom line performance and.
Fiscal 2023, we will provide regular updates on our progress in rebuilding our web sessions and E. Commerce sales, we remain committed to making Burnett the premier provider of non-lethal personal security solutions. We believe the actions we are taken today will position our company for sustainable future growth.
<unk> and greater long term cash generation now, let's open the call for your questions. Operator, please provide the appropriate instructions.
Certainly the company will not be taking questions from <unk> publishing analysts if you'd like to be placed in the question queue. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two if you'd like to move your question from a Q1 moment. Please while we poll for questions and once again.
Star one to be placed in the question queue.
Our first question is coming from Jeff Van <unk> from B Riley. Your line is now live.
Hi, good morning, everyone.
Sort of a I guess a conceptual question.
Ralph Nader.
And I'm surprised that they're not responding at all.
He was really unusual me, but do you think that meda has any idea that by default band is actually supporting.
Injury, and perhaps debt with firearms.
Not enabling.
People.
Non lethal.
Just any more around that because it just seems like such a strange position for them to take.
Yeah look I think that.
I think that this is not intentional I don't think <unk> clearly is looking to for people to get injured on the other hand.
Every time somebody complains about a website that shows something that looks like a gun they have to deal with it. So I think they've taken the easy way out and just say it's easier for us not to deal with this and we'll just ban burners products from the website.
Our efforts to engage with them and this includes taking out billboards right across from their office.
To get.
Get them to understand that less lethal weapons are part of the solution to the epidemic of gun violence in America.
Hopefully that over time. These efforts will be successful I think this was a knee jerk reaction.
This happened in the wake of the Nashville School shooting.
We're all of the website's just basically crack down on any advertising of any weapon on their platforms.
I think you know I think over time, Jeff we should be able to convince them that it is important.
You look at Matt is.
Historic mission their mission is to educate.
The public their mission is to provide a forum for the transfer of knowledge. So we're hopeful that we can get this message across them and Thats also why we are urging all of our customers. We've got a email subscriber list of almost 300000 people.
We're trying to engage on social media in various chat rooms, and so forth, but we would like people to start engaging with meta and carrying this story for it because it is an important story to tell.
That's helpful I think to understand the Navy.
Thank you.
Reaction.
Can you dig into that a little bit deeper.
Got it understand.
The powerful platform.
Actually good.
Prevent injury in this world.
Maybe we could turn to <unk>.
As you withdrew guidance, but I guess, just thinking along the lines of order magnitude.
Maybe what are you thinking.
The revenue progression over the remainder of this year, maybe considering various year over year comparison elements because I know, we've got some of those and obviously you've got some episodic elements and some of your businesses.
And then also just kind of considering the increasing penetration of dealers dealer sales.
Maybe you can just touch on an anticipation for gross margin progression over the next couple of quarters.
Well in terms of gross margin progression.
We think that will be improving over the next couple of quarters. As we said there was a relatively large.
Negative manufacturing variances due to the difficulties we faced early in the quarter. David you want to yes, I think I think part of it is.
Over the long term I expect gross margins to be improving to be more like what we saw last quarter, but one of the one of the drivers of where we are right. Now is simply that we've got a lot of inventory and its FIFO and that means that we.
Got a sell out this inventory that we built at the old costs.
So I expect slight improvement in the next two quarters, probably not much improvement in Q3.
Slight improvement in Q4.
And then.
Probably as we get into Q1, we'll start to see that.
Similar modern costs coming in but I would say over the next few quarters only slight improvement.
Okay and then just.
If we could turn to the 12 gauge for a minute.
Realize we're still early in the process now.
I know that Youre in some dealers just maybe just kind of update us on where we stand there how many dealers worried at this point.
Any data on early sell throughs, which I'm sure is also being impacted by that.
Getting challenges.
Yes, we had a lot of success with the 12 gauge at shot show and we had taken orders for the first 250000 rounds with dealers and our goal was to get those rounds out which we have done.
We have seen a little bit of reordering.
But it's still too early I think it's important to keep in mind that this is a completely new product category. So.
12, gauged less lethal is really not a thing there are some.
Being backgrounds and other rounds that have been used by law enforcement, but it's not really a consumer product. So we still have a lot of education that we need to do.
I will say to you we are extraordinarily encouraged because nobody has used it and.
Had anything negative to say about it. So we know it is extremely well received and it's just a matter of you know.
Word of mouth of getting it out there what I think has been.
More interesting for US is the number of law enforcement agencies that have expressed an interest in it.
And I can't discuss the specific agencies, but some of the very largest agencies in the U S.
Lastly for of course is an importance.
An important part of our.
Policing.
The 12 gauge rounds that they use currently.
Carey between 70, and 110 jewels of energy.
There was just a story.
A couple of weeks ago about.
<unk> been background, it was deployed and broke somebody's jaw and seriously injured.
Individual.
And that agency is particularly looking at.
Burner, because rather than 70% to 100 tangibles of energy, we're at 19 joules of energy so.
I think that with the combination of the Biokinetics report.
Validating that these rounds are extremely safe and with the level of accuracy and effectiveness that we've been able to demonstrate that we will continue to see growth. It is a little difficult Jeff for us to gauge how quick this growth will come but we are very encouraged that there is a real market for this.
And that over time this will become an important part of <unk> revenue stream.
Okay. Thanks for taking my questions I'll take the rest offline.
Thank you.
Thank you as a reminder, that star one to be placed in the question queue.
Next question is coming from Jimmy <unk> from Dawson James Your line is now live.
Thank you good morning.
I'm, hoping that you can help me understand.
The cost differences.
In advertising through.
The alternatives website that you discussed versus.
Uh huh.
As well as.
Preliminarily, what you think that the take rate would be so.
You have to make up numbers.
Put out 10000.
In order to get that 1000 sales how many did you have to put out on this alternative website. So I'm just trying to again understand the.
The response rates and costs.
Got it.
Honestly, we don't have enough information yet.
Did not react.
Overnight when metal band us because as I said in the past. This has happened probably a half dozen times and we were able to reach somebody had matter and usually within a month.
We're back up on Facebook.
Facebook and Instagram.
We started to take this very seriously two months into this.
And we recognize that this was a different situation that we had faced so we are in the process of trying to find alternate sources of advertising, we have not yet engaged with any of these.
Different platforms.
And just to give you an idea of what we're talking about.
There are car magazines.
Probably a dozen different car magazines, where they send out E mails to their subscriber base and those E mails have advertising.
And when you click on them and you go to their website their websites have advertising. So we have started the process of reaching out we're hiring a digital advertising specialists to manage this process. Because this will take a lot more work than just giving Facebook $200000.
Now instead of getting Facebook $200000, we're gonna have to give.
40 different platforms $5000.
To drive business, but we intend to do this in the segments, where we know we're speaking to our demographic.
One of the things that's kind of interesting about this is Facebook was sort of like <unk>.
Crack it was it was easy and it was somewhat effective it was hard for us to get off but we recognize that over time, it was becoming less effective so even when the sessions fell off dramatically when our sessions went from 26000 to 12.
We did not see a significant drop off in sales as I said, our sales for the quarter were off less than 1% and we are still seeing a much much higher conversion rate than we did when we were advertising on meta. So we knew the effectiveness of meta was waning and we think it's waning was waning for two reasons.
One we were unable to really focus our ads as precisely as we had been in the past.
Apple has started to provide less.
Personal information about his customers it has become more difficult to really slice.
There.
Customer base demographically.
We think that by going after these specific platforms that cater to our customer base, we're able to do two things one we're able to replicate in total the number of views that we're getting.
But more importantly, we will be able to do it.
Geared to the specific demographics that we know are interested in burner. So.
As I said, we will keep people apprised.
Our success going forward, we don't have enough information at this point. Yes. This is I mean this is the main reason for our withdrawing guidance because this is uncharted territory.
And really what Youre asking about is what will the results be what will the uptake uptick in sales and one where the return on advertising dollars be we don't know.
We'll tell you as it goes but.
We will know soon.
Yes.
And as far as the David your discussion about gross margin.
That obviously assumes some mix shifts.
Away from direct to consumer does that have a big impact on you.
Your.
Your prediction that gross margins improve modestly over the next couple of quarters are we saying two things happened one we're getting rid of the yield inventory, but we're getting hit by the change in the mix.
The main thing I'm looking at is just what's the what's the cost of the old inventory is going to be going I haven't done a lot to predict what the change in the mix be.
For the same reason why we're not providing guidance.
It's hard to predict what the mix will be over the next couple of quarters over the longer term.
What we see happening with the <unk>.
<unk> sales.
That I expect to be a long term trend.
That does that will that dealer sales will gradually form a greater percentage of our overall revenues and yes over the longer term that will have a dampening effect on our gross margin percentage.
That's longer term and.
David if I could just interrupt but not as much as you would think so with the side hustle dealers and with these premier dealers. We are not working through rep groups. So we're not building in the margin of the reps were not working through distributors. So we're not building in the margin of the distributors. These are the highest margin dealer sales.
The side household business and the Premier dealers. So we think that the change in mix, we will have some impact but not as great as just substituting our dealer our current dealer margins.
Our current DTC margins.
Got it okay. Thank you that's it for me thanks.
Thank you.
Thank you we've reached end of our question and answer session I'd like to turn the floor back over to management for any further or closing comments.
Again, I want to thank everybody for participating on this call I'd like to take this opportunity to just share a little bit of Sad news.
Michael <unk>, who was our chief strategy officer passed away.
This last weekend after a very difficult battle with cancer.
Was.
A really good friend and colleague.
And what's very important over the last several years in burn is growth and development.
And we will miss him.
Anyway. Thank you very much for joining us and we'll look forward to taking other questions offline.
Thank you that does conclude today's teleconference and webcast you may disconnect. Your lines at this time and have a wonderful day, we thank you for your participation today.
Thank you.