Q1 2024 Byrna Technologies Inc Earnings Call
Yes.
[music].
Hum.
Good morning, welcome to <unk>.
Fiscal first quarter 2024 earnings conference call.
Rob: My name is Rob there'll be around here for today's call.
Rob: Joining expertise.
Rob: Company's CEO, Brian <unk> and CFO David <unk>.
None: Following their remarks, we'll open the call to questions.
None: Earlier today.
None: Least results for its fiscal first quarter ended February 29 2024.
None: Copy of the press releases.
None: These websites.
None: But fortunately, the Colorado, Kansas furnished technologies, Chief Executive Officer.
None: I read the Safe Harbor statement.
None: The discussion today includes forward looking statements.
None: Actual results could differ materially from this.
None: Okay.
None: Please refer to <unk>. Most recent 10-K 10-Q filings for a more complete description of risk okay great.
None: That could affect these projections and assumptions.
None: A couple of pretty substantial obligation to update forward looking statements as a result of information future events or otherwise.
None: As this call will include references to non-GAAP results.
None: The press release in the investors section of our website IR Dot dot com.
None: Information regarding forward looking statements reconciliations of non-GAAP results non.
None: non-GAAP results results now.
Burn: Now, let's turn the call over to burn a C E O.
None: Yes.
None: Sir Please proceed.
Thank you Bob and thank you everyone for joining us today.
None: This morning, we filed.
CEO: First quarter 10-Q.
CEO: <unk> press.
CEO: Press release, providing actual results for them.
CEO: For.
CEO: February 29 2024.
CEO: Along with key accomplishments.
None: Thank you Sir.
None: This year.
None: I'll begin thinking about that.
None: David North Argentina.
None: To discuss our financial results for Q1 following that I'll review.
David R. North: Strong start to the year.
By our GAAP profitability.
For insights into our operations.
David R. North: Thus our go forward.
David R. North: Our strategy.
David R. North: Then lastly.
David R. North: Questions are publishing analysts.
David R. North: David.
Thanks, Brian.
David: Good morning, everyone.
None: So let's discuss.
David: Financial results for the first fiscal quarter ended February 19 2020.
David: Revenue for Q1.
David: <unk> was $16 7 million.
David: And that's up 9%.
David: From the $84 million to reported.
David: First fiscal quarter of 2023.
David: This increase.
David: Increase is primarily due to the trends for me.
David: And our advertising strategy, which we kicked off in September.
David: The success of our celebrity endorsed strategy.
David: $6 7 million increase.
David: The increase in.
In direct to customer and news to our west.
None: My name is.
None: To the prior year period, we also.
None: Your growth throughout all of our business segments.
None: Gross profit for Q1, 2024 was $9 6 million or 58%.
None: $2 million for Q1 of 2020.
None: Increase in gross profit was a result of the increased sales.
None: Operating expenses for Q1 2024.
Yeah.
None: Compared to $7.2 million for Q1 2023.
None: Greece and operating expenses.
None: And by an increase in marketing spend.
None: The company's new celebrity.
None: Celebrity endorsement and TV advertising.
None: And also of course by an increase in variable expenses.
None: Which increase with sales volume.
None: This quarter it was profitable.
None: Net income for Q1 2024 was $17000.
To a net loss of approximately 2 million.
None: For Q1 2023.
None: Significant improvement in net income was primarily due to the increases can also associated with new marketing campaigns.
None: So the EBITDA bridge.
None: non-GAAP metric for Q1, 2020 totaled $1 2 million compared.
None: Compared to negative.
None: Zero point $6 million from Q1 2023.
None: Onto the balance sheet cash cash equivalence on February 29, 2024.
None: Totaled $21.2 million compared to $28 $5 million on November 32000.
None: 'twenty three.
None: Inventories at February 29, 2020, before totaled $12 1 million compared to $13 9 million.
None: 32023.
The company has no correct.
Okay.
None: That concludes my prepared remarks, and ill now turn it back to Brian.
Brian: Thank you David.
Brian: As you can tell from our financial results. The pivot we made in 2023.
Brian: With respect to our advertising.
Brian: Is continuing to shrink.
Brian: Could have impacts on our business as we are seeing.
Brian: <unk> across all segments of the business.
Brian: Performance metrics.
Brian: Specifically as David mentioned revenue for the quarter was up 98%.
Brian: Dewey record 16 points.
Brian: <unk>.
Brian: Taking a little deeper we see it as a majority of this growth came from our <unk> business.
Brian: Yes.
Brian: Amazon Com sales combined for over $12 7 million or 76% of our total sales for the quarter.
Brian: Most of the DTC sales.
Brian: Attributable.
Brian: The customers learned about alright, thats correct.
Brian: Influencers, Sean Hannity, Joe Jeanine Pirro.
Brian: Riley and most recently Glenn Beck.
Brian: In January.
Brian: Well we saw it.
Brian: How successful we were with Sean Kennedy back in September of 2020.
Brian: We have three basic questions regarding celebrity.
Brian: Fluids or strategy.
Brian: Was it right.
Brian: Two.
Brian: Scalable.
Brian: And three what is it sustainable.
In our last earnings call.
Brian: Two questions first is replicable.
Brian: We can use other influencers and similarly return on advertising spend.
Well as we are presuming Glenn back right.
Brian: Janine.
None: Secondly, although it is not.
None: The scalable for any single influences there.
At some point brining more ACH payments Influencer marketing.
Dramatically increased sales.
None: Is helpful to the extent that we can sign up additional influences.
None: Thank you Jim.
None: In fact, we just saw.
None: Dan budget.
None: He will be joining the burn a roster of celebrity influencers in the third quarter this year.
None: Ask the third question.
None: Tangible.
None: Jury is still out.
None: Not many.
None: All lines it would indicate that.
None: Our AD spending is weighed.
None: In fact.
None: The opposite.
None: Quarter of 2024.
None: In March our ROE was five six.
None: So taking.
None: All of our assets across our DTC.
None: DC channel.
None: Sales were five six times.
None: Yes.
None: Alright.
None: Harsh.
None: Yes.
None: March of this year.
None: Right.
None: 16% to 6.5 vacs.
None: Average daily web sessions, which were up 33%.
None: Our current.
None: Thanks, Tom.
None: It is positive.
Site.
None: And we increased our production capabilities. However.
None: We'll adjust our advertising spend as needed to maintain.
None: So trajectory.
None: Taking a look.
None: A closer look at our sales channels.
None: By channel.
None: It continues to be a primary focus for our business and advertising strategies to driving new customers to our website.
None: <unk> second.
None: Second quarter, we are noticing an elevated number of orders from new customers.
None: First time customer rates.
None: 70% of total orders.
None: Q1, 2024 up from 56% in Q1, 2023 and up from 67, 2%.
None: Last quarter of 2023.
None: Hi, first time customer rates higher average order value.
None: As first time customers.
At a minimum our vision for.
For first time customers is around.
None: $50 <unk>.
None: 100 <unk>.
For returning customers.
None: Yeah.
First time customer percentage than drilling.
None: Okay.
None: To $348 63.
None: <unk> purchased 360 <unk>.
None: In the prior year period.
None: For your first customer rates also plus the opportunity to go back.
None: As we engage these customers with.
None: Offer of ammunition and accessories to our targeted E mail marketing campaigns for first time buyers.
None: We also interestingly saw an increase in conversion rates on dot com.
None: We averaged one four.
None: 4% during Q1 of 'twenty three 'twenty four.
None: Compared with zero, 8% prior year period.
None: These improvements.
None: And conversion rates.
None: With a 33% increase sessions combined to produce 100.
None: 8% year over year increase in daily orders on Brian Com in Q1 of 2012.
None: Sure.
None: As David mentioned sales however were also up.
None: All of our other channels.
None: Sales posting a 44, 7% increase.
Fox last posting a 62, 8% increase in our Canadian sales posting a 35, 4%.
None: The increase once again, we attribute these increases to greater brand recognition, resulting from our celebrity endorsement and advertising efforts.
None: Specific importance Inc.
None: All our sales and specifically the increasing premier dealer sale.
None: Since we introduced our Premier dealer program last year this is making.
None: In growth segments of our business.
None: As I previously.
None: Amir dealers operate much like a burnout franchisee and while we do not require a franchise seem to be a premier dealer.
None: Dealers could only sell non lethal self defense products.
None: Derive more than 80% of their revenue from products.
None: In addition store from us.
None: Strict brand.
None: <unk>, including a firing range on premises.
So customers can testify that Brian launchers.
None: Okay.
None: Yes geographic exclusivity preferred pricing.
None: Co op advertising budget training for our certified law enforcement training.
None: And <unk>.
None: Towards the service and repair lockers at first dibs on new products.
None: Hundreds of retail stores nationwide.
None: Nationwide basis.
None: The end of last year, we had 16 premier dealers since then.
None: Our core premier dealers, including our first.
None: Premier dealer that has already ordered more than 500.
None: Okay.
None: Glory artificial.
None: Artificial works suggest that the U S and Canada could support more than 100 dedicated.
None: Stores.
None: The process of it.
None: <unk> specializes in the franchise.
None: To assess the potential burn a franchise program.
None: Assist us in creating a business plan.
None: To put such a program in place.
None: We are planning on opening three new.
None: On retail stores in Boston.
None: Wei.
None: Currently our Lv Las Vegas retail.
None: Running at around <unk>.
None: $800 to.
None: So a $1 billion in sales year, we want to see if we can.
In other markets that are demographically.
None: At the same time.
None: We're looking at the potential to add value.
None: <unk> expanded our law enforcement opportunity.
None: When I joined the company in.
None: In 2017, Burnup, then call Securities International.
None: Our STI.
None: Manufactured and sold.
None: Meter impact roundhouse black impact.
None: We referred to as bit.
None: Exclusively to law enforcement.
None: Never exceeded.
Okay.
None: Mike.
Turn the company around.
None: As I evaluated SDI operations business model.
None: Quickly learned that law enforcement is a very difficult market crack.
None: First it is highly fragmented there are over.
None: Agencies in the United States and each makes its own procurement.
None: Worst no agency purchased anything.
None: Without a live fire demonstration on top of that.
None: A consideration.
None: <unk>.
None: Budgetary constraints.
None: Based on this at this time, we decided to pivot away from $40 million.
None: In law enforcement focus instead on the consumer market.
None: As part of this strategy, we commenced the development of Brian extremely successful line of <unk>.
None: Handheld personal security devices and as they say the rest is history. The result is that we now sell almost as much in one day as we sold in an entire year before shifting our focus to the consumer market.
None: In fact based on this morning's report for the first 35 days of Q2 through yesterday, we've averaged $253600 a day in sales, which is essentially equal to all that we sold in 2018.
None: Our success in the consumer space, coupled with burn is growing brand recognition has led to a larger number of law enforcement agencies, reaching out to burn off as a result of this unsolicited interest bra launches are now carried by more than 300 domestic law enforcement agencies on the federal state and.
None: Well level.
None: We have seen even greater success with international law enforcement agencies, where there are fewer but larger agencies and there is a greater acceptance of less lethal weapons.
None: As we have reported this year, our Argentina, Tinian subsidiary Burnell Latam has taken orders for more than 15000 burner SD launchers from a number of law enforcement agencies in Argentina, including Buenos Aires Provincial police wait I'm, sorry City police Llano City municipal Guards Aziza.
None: City municipal guards, and the Credo provincial police, which recently committed to an additional 10000 launch or order on top of the fast 5000, largely as they previously purchased.
None: 2023. This is on top of orders from agencies around the world, including law enforcement in Australia, Dubai, Hong Kong, Indonesia, Israel, Panama, Peru, Senegal, the Seychelles, Slovenia, Spain, and South Africa. These large law enforcement purchases provide.
None: The information as to the efficacy of the burn of launcher and serve to validate burns position as a global leader in less lethal solutions.
None: Based on our success with law enforcement, both domestically and internationally.
None: Determined it is now time for us to consider whether it makes sense to devote more resources to the domestic law enforcement market.
None: Be clear we have no interest in expanding our presence in law enforcement unless we can do so profitably we know that many <unk> companies treat law enforcement as a loss leader, which is necessary to build brand awareness. It is the same reason that the automobile companies have traditionally sponsored racing teams.
None: We have no interest in treating law enforcement as a loss leader.
None: If the current study, which we are undertaking suggests that we can expand our law enforcement presently spreads profitably, we intend to commit the necessary resources to grow this market segment.
We expect to have the study completed in this quarter and presented to the board and we will keep the investing community apprised of our decision.
None: With regard to the law enforcement market.
None: I mentioned that right now we are somewhat constrained by production.
None: To meet the demand we have been experienced both in the United States and beyond at the start of February we announced that we would be increasing our launch of production from 10000 units a month to 12500 units a month again. This is on a single shift.
None: Since that announcement, we have brought in additional staff and we are now raising our production production targets to 18000 launches a month to keep up with the growing demand during the month of March we produced 14400 launch.
None: Brian of 8900 <unk>.
And 5500.
None: And as we mentioned.
None: We are.
None: Focusing on increasing ammunition production.
None: By opening a second elimination production facility to be located here in the U S.
None: This is.
None: Both strengthening our supply chain and reducing the risk of supply chain disruption, thereby shall.
None: Sure.
None: So we can meet the forecasted demand.
None: Hi, Mark.
None: Products, even if internationally speaking.
None: Becoming more difficult for a reason.
Mark: As we look to the current quarter, we are on track to continue growing our business.
Mark: As I mentioned our March numbers.
Mark: <unk> remains strong.
Mark: Influencers.
Mark: On <unk> Dot Com also remained strong.
None: Thank you Bob.
None: Last quarter.
None: Amazon sales.
None: Sales are.
None: Everything at even faster pace.
None: Because their advertising two day shipping.
None: Brian we are.
Advertising too weak.
None: We are confident.
Of our DTC samples.
None: Along with the growth of our dealer in international sales will be will enable us to be able to deliver.
Performance.
None: The board in 2024.
None: Okay closer.
None: 45.
We expect to be able to share further.
None: Further updates and details about our contact.
None: This is expected to be instrumental in gaining further traction with both the general public.
None: Unfortunately agencies.
None: Yeah.
None: Luxury is progressing on schedule.
None: We are.
None: Our Influencer marketing program as well.
None: AD.
None: Mark.
None: Sorry.
None: Consistent but vegetables.
None: I would.
None: Now I'd like to address.
Address.
None: Something.
Our press release this morning.
None: As the CFO.
None: Yes.
None: We have an incredibly hard working team.
None: Uh huh.
None: It has helped us navigate.
None: Because we faced last year and his team.
None: And of course.
Is essential for building the organization we are today.
This then led to the acquisition of multiple businesses mission less lethal bullets to packs and Fox labs, which I've rounded out burn a strategic portfolio of less lethal solutions and most importantly, he has reshaped and built our finance and accounting team by implementing efficient processes and systems.
Internal controls are setting the foundation for future growth.
These are just some of the meaningful changes that David has been a large part of that ultimately took our sales from less than $1 million.
In 2019 to $16 7 million in Q1 of 2024, we are incredibly grateful for David's contributions and we wish him all the best in his well deserved retirement to ensure a seamless transition we have engaged a leading executive search firm to identify top two.
Your talent and David has agreed to remain with the company as CFO until a new CFO is properly on boarded.
He has been agreed further to work with us as an outside consultant through the publication of our K. One next year with that I'll now turn the call over to the operator for questions. Rob Please provide the appropriate instructions.
Thank you the company will now be taking question towards publishing analysts.
If you'd like to ask a question. Please press star one from your telephone keypad and a confirmation tone will indicate your line is in the question queue. You May Press Star two if you would like to withdraw your question from the queue.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
One moment, please we poll for questions and once again that is star one thank you.
Thank you and our first question is from the line of Jeff and syndrome with B Riley Securities. Please proceed with your question.
Hi, Good morning, everyone and let me say congratulations on the strong Q1 metrics.
One thing that stood out to me was the gross margin percentage and I'm just wondering.
Maybe you could just touch on that and expectations for gross margin here in Q2, and then as the year progresses, maybe order of magnitude.
Yeah sure this is Jim.
First of all I think in comparison most of our quarterly results, we usually compared to the same quarter a year earlier and in.
In this case, they just have to warn that that's.
Not really a valid comparison this time around Q1 of 2023 was anomalous because there wasn't adjustment too.
Absorption and which led to a unusually high percentage last year, so that really isn't a good comparison point, but 58%.
Is.
Really great improvement on trend, we were about 55% for the full year of 2023 and that's.
Also what we were in Q4, I believe 2023, 58% is higher.
For two reasons first of all of course, if you can have higher volume higher sales volume you absorb your fixed costs.
Better.
But more importantly, more stronger effect is that the advertising campaigns that are.
Really driving such success in sales growth.
Our sales growth is focused in our direct to customer channels.
Particularly website sales and these are our highest margin.
Channels, So I expect.
The 58% is higher than what we had budgeted for Q1, but we have budgeted for.
Yeah.
<unk> improvement.
I expect us to stay around this level for the remainder of the year.
None: Okay fair enough.
None: And then if we could circle back to the production increased plans for a minute.
None: I guess I would say you sort of have a high class problem.
None: <unk>, which we welcome frankly at this point.
None: But maybe you could just touch on how you're evolving production I know you said you are ramping up again.
Do you need to go to two shifts maybe you could just speak more about that.
None: Yes, I think right now we're.
None: We do not need to go to two shifts at this time.
None: Right now we can go to 18000 units a month on one shift by fully taking advantage of the second production line that we put into place it will of course.
None: Hiring additional personnel, we are undertaking a program to improve our efficiencies in the factory.
None: Which will involve certain basic steps as well as implementing some automation automation that doesn't make sense when youre doing 5000 units a month may.
None: May makes sense when you were doing 18000 units a month.
None: 18000 units a month is somewhat above where we are running today in terms of sales but.
None: But we have to get ourselves first to the position, where we where our shelves are full and that we're not advertising a two week delay in shipping.
None: Also anticipate that the growth trajectory will remain intact and we know that.
None: It will be fourth quarter will be upon us pretty shortly when we know that demand will be much stronger. So we're hoping that although we don't expect to be at 18000 units in April we do expect to be at 18000 units in may and to maintain that pace through the balance of the year.
None: <unk>, which will allow us to restock, our shelves and be ready for Q4 now. The factory is currently laid out is capable of doing somewhere between 36% and 40000 units a year. So we still have a potential for significant growth.
None: Okay great.
None: And then I know you mentioned you got a shift here with a lot of new customers.
Rob: But obviously you can go back to them, that's part of the benefit of that.
To.
None: So the new other products and so forth.
None: <unk> part of that is the ammo sales. So maybe you could just mention what youre seeing in ammunition sales at this point.
Yeah.
None: Ammo sales combined with accessories constituted 22, 6% of Q1 sales and obviously.
None: That is.
Significantly lower than the 25% that we've tended to trend down and the reason is.
None: As a higher proportion of new customers.
None: Okay great.
None: Terrific. Thanks for taking my questions I'll jump back in the queue.
None: Jeff Thank you very much.
None: Our next question is from the line of Jon Hickman with Ladenburg Thalmann. Please proceed with your question.
None: Hi.
Jon Robert Hickman: Nice quarter by the way can.
Jon Robert Hickman: Can you I might have missed this.
You were talking pretty fast, but how many.
None: Premium dealer you have now.
We currently have 20 premier dealers.
None: And how many company owned stores.
Burn: One only the Las Vegas store.
Burn: The only thing that store and I think as we've been talking with people regarding the franchise program. If we're serious about doing this we need to have a number of company owned stores, where we have full access to all of the data.
CEO: So that we could prevent present that the potential franchisees.
CEO: And we're also very anxious to see ourselves how replicable. This is as a company owned store.
None: We want to do one in Boston, because frankly be easy for me to visit it in.
None: See the performance and see the customers on a regular basis, but we're also going to do one in Fort Wayne, where we have a factory and in Houston, where we have our law enforcement training team as I get to these areas on a pretty regular basis as do other members of the team and this will allow us to stay in close contact with.
The performance of these new company owned stores.
None: Okay and then two.
None: Can you talk about.
The.
None: I can't remember the name.
David: Shotgun.
David: Yes.
<unk>, yes, the non lethal complication.
David: Yes, nothing has really changed since last quarter honestly with the strength in the demand for launchers.
David: We've really been focusing all of our efforts in that area. We do think that the success of the 12 gauge program is going to be largely driven by law enforcement.
David: Is one of the reasons that I've decided to.
David: Start this study to determine whether it makes sense for us to devote more resources to law enforcement and I think honestly, John it's not a question of whether it makes sense for us to devote resources to law enforcement, but rather how much resources and what the program should look like because clearly.
None: We have law enforcement customers today, we need to make sure that we're handling these customers appropriately we're getting a fair number of inbound law enforcement inquiries.
None: You know I would dare say somewhere between 50 and 100, a month of agencies that are reaching out to us.
None: Looking to potentially buy burner product and we simply do not have the resources at this time to be responding to them as we should so we're going to have to devote some incremental level of resources, we think as we do that.
We will have an opportunity to get law enforcement to adopt 12 gauge, which again will help us that makes the transition to consumer.
None: Hum.
None: And then.
None: Yes.
None: I don't know if you gave it.
None: Fair enough.
None: Can you give us a percentage of.
So on your.
None: Websites.
None: LTE versus <unk>.
None: The only SD breakdown is approximately 60% SD and 40% early again, there is a $100 difference in the price of the L. A and the D. So we would expect some reduced level of demand for the L. A.
None: But it is higher than we had expected when we first came out with the <unk>. We really thought it was going to be you know 10 or 20% for the premium product and the demand has been very strong and honestly, we don't know where it will be once there are no more limitations on shipping.
Brian: Right now the early production is taking longer or availability of law has not been as good as our availability of SD.
So part of that 60, 40 split maybe a function of availability.
None: And then one last quick.
Brian: Is.
Brian: As we.
Brian: Do you know where you're going to price the.
Brian: The compact.
None: We don't have a price for it at this point.
Brian: It is clearly a premium product.
Brian: And we're doing a lot of market research, but we have not made a decision yet.
Brian: And you think that will be available later this year.
Brian: So it will not be available in 2024.
Brian: It is in pre production currently.
Brian: We were actually have RF queues out for the components.
Brian: We are in testing of preproduction models. So as I mentioned everything is going according to plan and our plan would be to release it early in 2025.
Brian: The challenge.
Brian: Potentially at the shot show.
Brian: Based on the debacle, we had with the release of the <unk>, we are not going to release, the new compact launch or until we have more than 10000 units on the shelf.
Brian: So.
Brian: Even though it may be ready for production prior to shot show, we need to make sure that we're running it.
Brian: It's going through testing smoothly that we're getting a very high first pass yield and we got plenty of product on the shelf because we do think this is going to be somewhat transformative. The other thing that we don't want to do is we don't want to <unk>.
Brian: Under mind the sales of the SDN early during the holiday period. So we think we will have a very strong Q4, even without the early even without the compact launcher. What what we're hoping is that the comp pack launcher will help us continue this growth trajectory.
None: <unk> into 2025.
None: Okay.
None: Okay.
None: I appreciate it.
None: Thank you John.
None: At this time. This concludes our question and answer session I would now like to turn the call back over to Mr. Gans for his closing remarks.
Gans: Thank you Rob.
Gans: In conclusion I just want to again, thank everybody for their support I want to again publicly thank David and say that I could not have done this without him.
None: And.
None: We'll speak to you all of you soon thank you very much.
None: Thank you for joining us today for <unk> fiscal first quarter of 2024 conference call. You may now disconnect at this time.
None: Yeah.