Q1 2024 AMMO Inc Earnings Call

Ladies and gentlemen, thank you for standing by good afternoon, and welcome to the Alamo, Inc. First quarter 'twenty 'twenty four earnings conference call. At this time all participants are in a listen only mode should you need assistance. Please signal a conference specialist by pressing the star.

Key followed by zero after today's 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 Lucey 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 <unk> leadership team are Fred Wag Hulse Executive Chairman, Gerry Smith, Chief Executive Officer, and Rob Wiley Chief Financial Officer.

During this call management will be making forward looking statements, including statements that address <unk> 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 statements.

More information about these risks please refer to the risk factors described in Apple's most recently filed periodic reports on Form 10-K Form 10-Q.

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 include non-GAAP financial measures that ammo believes can be useful in evaluating its performance you should not consider this additional information in isolation what this up.

The Q2 results prepared in accordance with GAAP.

Reconciliation of these non-GAAP financial measure to net loss its most directly comparable GAAP financial measure.

The reconciliation table.

The company's earnings press release.

The cognitive this call contains time sensitive information that is accurate only as of today August 19 2023.

As required by law, and we will 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 animals executive chairman spread vehicles.

Thank you and good afternoon I appreciate everyone joining us for our first quarter 2024 earnings call.

I would like to begin this call by Walther name Joe Smith.

As the new Chief Executive Officer of Ammo, Inc.

The board Executive management team and I believe the Gerets backdrop and success in the ammunition industry combined with his strategic vision for.

For our next phase of growth will be instrumental to.

You build greater shareholder value.

We look forward to working with him and are confident and energized He will guide ammo.

And future successes.

As the company's original founder I will continue to be engaged on a daily basis.

As the executive Chairman of the board and we will work very closely with your insurance assist in this transition as many of you on this call are aware Jared has been with ammo since January 2023, as President and Chief operating officer.

Sure.

So his recent appointment as CEO I look forward to remaining a strong boys and the execution of our strategic plan and we'll stay until the job is finished.

I believe the markets are significantly undervalued.

The opportunities in front of us.

I am proud of what we've built since I founded this company just seven years ago, and we will continue to make sure our stakeholders understand exactly what the vision of ammo.

Is and what we are working toward.

I am optimistic our value has nowhere to go but up.

Our board Executive management team.

And I are completely committed to making that happen.

At this time I would like to turn the call over to Joe Smith, <unk>, New Chief Executive Officer, He will discuss.

Our first quarter in more detail review the current state of operations and what we believe the future has in store for ammo. It's.

Each team.

And its shareholders.

Thank you Fred and good afternoon, everyone.

This is my first earnings call as CEO and I couldn't be more excited to be here.

The last six months, we've been rolling up our sleeves, and making tremendous strides in creating real operational lift inside and outside the four walls.

As I laid out in my letter to shareholders on July 31st we are driving the business to three major categories.

First category, we're expanding gun broker dot coms platform and reach through centralized payment processing Carty and the addition of services to complement the products relative to our community.

The second category is we're focusing the ammunition division on enhancing margins through expansion of our rifle brass lines.

The newest improvement measures and vertical integration and to project all manufacturing.

And finally, and most importantly, we're aligning the goals compensation and incentives of the management team with shareholder interest.

Our work and our strategic directions are starting to pay off as we have already begun to see the positive effects here in the first quarter.

Our gross margins were 49% compared to 27, 3% in the prior quarter.

With an adjusted EBITDA of $6 6 million up from $3 8 million in Q4.

Cash generated from operations was $13 million up from $5 2 million in the same quarter last year.

As we transition the business away from low margin commodity ammunition sales to higher margin OEM brass cells, We gave up top line revenue and focused on bottom line profitability.

This was reflected in ourselves for the quarter being down $34 3 million from $43 7 million in the prior quarter due to this transition in the business and overall market conditions.

We had a total increase in cash of $8 4 million and repurchased 739000 shares this last quarter.

Our buyback program.

We will continue to focus on strengthening our balance sheet and capital allocation with strategic buybacks and a credit of purchases as we see opportunity in the quarters ahead.

I'd now like to speak specifically on gun broker Dot com.

We moved $238 8 million in product on the platform this quarter down from $281 2 million in the prior quarter.

This follows industry seasonality was only slightly lower than our internal projections for gun broker dot com.

While revenues decreased our margins remained strong 87% compared to 85, 5% in the prior quarter.

We also expect a lift on the platform starting in Q3 Q4, as we rollout our centralized payment processing and multi item cart.

As we start the multi item cart will we will be able to increase accessory sales that over time increase our final value fee across the higher margin products and services.

We believe high single digits are achievable compared to the 5% to 6%. We currently earn today.

We are rolling out beta testing that payment processing and will continue to onboard new sellers through Q4.

Our cart capabilities are in development, and we anticipate that platform coming online by the end of our fiscal year.

Now I'd like to transition to the ammunition Division.

The ammunition division of ammo Ain't created positive margins for the first time since June of 2022.

We reported $23 million in revenue with a nine 5% gross margin up from negative eight 6% in the previous quarter.

While this is a major win we anticipate strong headwinds for loaded ammunition sells for the next two quarters.

We continue to refocus the ammunition company on the most profitable segments of the market and we'll continue to monitor our margins. During this very tough economic time.

The OEM market for casings brass casings.

The revenue increased to $6 2 million up from $3 5 million in the previous quarter.

This is a great result, considering we started this transition in January .

I'd like to thank everybody for joining the call today and I look forward to continued and robust communication with you as the year progresses. At this time I would now like to turn it over to Rob wildly to walk us through the financials.

Thank you Jared welcome everyone.

We now review the financials of the first quarter of 2020 for fiscal year in more detail.

Margins on our marketplace segment remained strong and our gross margins have increased on our ammunition segment as we begin to see the benefits of the transition to a leaner operating model.

The higher focus on brass sales.

We remain confident with the progress we have made to date, but still face headwinds as we continue to see softening in the U S commercial ammunition markets.

We have however continued to increase our cash position with $13 million in cash from operations generated in the quarter.

We ended the first quarter with total revenues of approximately $34 3 million in comparison to $60 8 million in the prior year quarter.

The decrease in revenue was primarily related to the decrease in sales activity from our ammunition segment as the U S commercial ammunition markets continued to soften.

Ours casing sales, however, which afford us higher gross margins increased to $6 2 million up from $3 3 million in the prior year period.

Our marketplace revenue was $13 9 million for the reported quarter.

Cost of goods sold was approximately $20 2 million for the quarter compared to $42 $6 million in the comparable prior year quarter.

The decrease in cost of goods sold was it related to the decrease in sales volume was also related to higher gross margins from our two segments.

Our gross margin for the quarter was $14 million or 49% compared to $18 1 million or 29, 8% in the prior year period.

The increase in gross profit margin is related to the shift in our sales mix.

There were approximately $2 8 million of nonrecurring legal expenses incurred in our first fiscal quarter.

We have included as an add back to adjusted EBITDA.

Without the nonrecurring legal expenses would've generated a profit for the quarter.

For the quarter, we recorded adjusted EBITDA of approximately $6 6 million compared to the prior year quarter, adjusted EBITDA of $10 6 million.

This resulted in a net loss per share of two cents on adjusted net income per share of <unk> compared to the prior year period net income of <unk> <unk> per share or adjusted net income per share of <unk>.

We continue to push forward on the improvements to our marketplace gun broker Dot com. We're currently in the process of rolling out beta testing for a payment platform with former launch expected to begin at the end of this quarter.

Our car platform for the gun broker Dot com marketplace is on pace and then and is expected to launch by the end of this fiscal year.

We feel confident in our financial position as we have reported a $136 million in current assets, including $47 5 million of cash and cash equivalents in comparison to $23 9 million and current liabilities.

We repurchased approximately 739000 shares of common stock under our repurchase plan in the reported quarter, bringing us to over.

1 million shares repurchased in total under the plan.

We continue to look for opportunities to bolster our impressive balance sheet.

That concludes our opening remarks, I will now turn the call over to the operator for questions. 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. If your question has been answered and you wish to withdraw. Your question you may do so by pressing the pound key.

Do you have in your speakerphone, please pick up your handset before entering your Christian speaking on the call.

Yeah.

One moment please for the first question.

Our first question comes from Matt Koranda with Roth. Please go ahead.

Hey, guys, Mike as they bring on for Matt.

Maybe just start on the case in some other business I guess just what.

What percentage of casings production are we currently selling to Oems.

Some point in the past <unk> talked about.

It would be 10% to 15%, but obviously the different business. Nowadays, so just where do we stand there and where does that need to go over time as we continue to scale the cases out of the business.

This is Joe Smith, Thank you for joining the call.

I see our business taking.

I turn for the positive over the next two quarters, the casings businesses easily going to be 25% to 35% of our business going forward. It is a.

It is a growing business there's demand out there there are strong margins to be captured there certainly in this very very tough economic time as ammunition sales continued to decline and margin compression across the board for the rest of the non vertically integrated players.

Got it and you know given that loaded ammo demand is still relatively soft across the entire industry. How should we think about pricing for shell casings are we having to compete on price here to add Oems or is price relatively stable for occasions.

No prices.

Yeah.

We re entered into this market in a declining market. So I would say right now.

For the foreseeable future prices very stable.

You know our capacities are increasing.

More capacity comes online with the new factory that we brought on line back in August every day and I see this I mean.

This is a huge win for us.

And I see this continuing and I do not see any further price erosion.

Related to the market on the casing demand.

Got it makes sense, maybe switching to the loaded ammo side good to see loading ammo margins kind of sequentially improve pretty meaningfully I was wondering do we have any remaining bulk loaded ammo inventory to clear through or are we kind of done on that end.

For the most part we're done we will always have to manufacture some amount of range ammo.

To be relevant in this market, but it will play a much much smaller role going forward than it has in the past.

In terms of marrying out.

Our inventory I think our inventories healthy are there still some items slow moving inventory that sit there Budd.

It's not a major factor.

Not a going concern for us.

Yep got it that makes sense.

Last one for me.

You know aside from any unforeseen discounting that's the demand environment gets worse, how should we think about the progression and timing of getting loaded ammo gross margins back to the 20% range.

Do you think we can get there by year end, just how are we thinking about how that maybe just scales over time.

Yeah, I think for our business margins improve we have more rifle brass capacity coming on in the two quarters ahead, that's clearly where we can make margin we can differ kind of that.

The non vertically integrated piece of our production over a larger dollar value and our margins increase and once again it really our focus is rifle ammunition and plane.

Much much larger role in their rifles base, both domestically and internationally.

Okay I'll take the rest offline thanks guys.

Thank you Sir.

And then if you have a question. Please press Star then one can be joined into the queue. The next question comes from Mark Smith with Lake Street. Please go ahead.

Hi, guys first question kind of broadly within ammo Jared can you give us any update.

Updates just as you know.

Talking about continued headwinds coming here, maybe talk about kind of high demand calibers nine millimeter to 3556 kind of what Youre seeing there and then you know any changes that you've seen in demand or pricing or kind of channel inventory.

Everything else primarily center fire rifle.

Okay.

Yes.

I think what's happened Mark is that a large a lot of the ammunition manufacturers have been holding on to inventory waiting for little shifts in the market for things to pop I see nine millimeter in two to three I really don't see any further price erosion out there from whats currently.

On the shelf there'll be some specials coming out for Black Friday, but I think for all intents and purposes, the market's fairly stable and we bottomed out and we will can stay at this for the next two quarters.

Going forward.

There are still.

Fantastic pockets that we can play in and revolver Theres still inventory out there that is.

Lower than pre pandemic.

Inventory levels in those areas and that's where we plan to play.

Okay.

And then maybe talk as much as you can or it might be tough competitively, but walk us through kind of the margin on brass casings sales versus on loaded ammo.

Yeah, I mean today.

Our cost to produce ball ammo is somewhere between $2 20 to $2 40 per thousand and the price at retail is 205, we just can't play there.

Whereas I can sell a brass case and I can still make 10% margins, so I sell brass casings anywhere between.

$75, a thousand up to $85 a thousand and there is there space and there's demand there and we can help out the international market. We can help out our domestic players and we can help out new brands, they're wanting to enter this space.

No.

The rifle ammunition, if we looked at like two to three.

Two to three at retail right now is going to anywhere between $3 75, and $4 25 for ball ammo.

We.

We're just the primers too much of a factor of our cost.

For us to play in volume against larger vertically integrated players, but we can sell the brass casing for 20% to 35% margin.

It's where we're going to stay and that's where we're going to play until this market.

Our returns and we're going into an election year next year. So we're quite excited and there's not a lack of international demand out there.

For brass casings.

Ross Rifle case, okay.

Yeah.

And then as we think broadly about.

You guys get it back more heavily into a briefcase and sales to Oems.

Can you talk at all about.

Maybe how much of this is on contract versus just kind of open to buy orders from Oems.

Great question, Mark, Yes, we are signing large contracts today I would say our contractual sales are now making up somewhere between 15% to 25% of our total capacity of that plant.

All new contracts within the last six months.

Okay.

And then I think the last one for me you know broadly speak to I know it was a it's a seasonally weaker quarter here for <unk> for gun broker and just kind of demand for some of these products, but but talk about you know where you guys see the consumer part.

Specific to gun broker, whereas this consumer what's it going to take to kind of maybe spur some more.

You're buying activity from these consumers maybe your outlook as we move into more important hunting and holiday seasons.

Sure.

Great question first of all.

<unk>.

Gunn broker is a perfect reflection.

The market and what we're seeing for new guns as that new guns are in their retail locations and they're not having to go to gun broker define.

Ubiquitous block 17 or.

The Remington 870, what they are going to go and broker for are those unique items and we're actually seeing in our marginality improve on the platform because we're doing a.

Sales a higher mix of sales of used guns, but what's really going to drive gun brokerage users back to the gun broker platform is streamlining the checkout process internalizing and providing credit card services and it's the cart item and it's really just the ease of use of that platform that will be delivered.

And in Q3 or Q4 of this year.

Excellent. Thank you guys.

Excellent. Thank you Mark.

This concludes our question and answer session and I were on the call over to Jarrett Smith for any closing comments.

I just wanted to say thank you for everybody for tuning in today, we are extremely bullish about the future. We're heading into the fall season. We've had this factory now for a year, they're in Manitowoc, Wisconsin.

Things are really starting to click forces breast cells are taken on from the gun broker side.

The developments that we're doing on the platform are exciting youre going to be hearing more from us in the future and stay tuned and thank you for joining the call today.

The conference has now concluded thank you for attending today's presentation.

All of that.