AMMO Q1 2024 Earnings Call Transcript

Quartr
Provided by Quartr
August 9, 2023

There are 7 speakers on the call.

Operator

Ladies and gentlemen, thank you for standing by. Good afternoon and welcome to the AMMO, Inc. First Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen only mode. After today's presentation, there will be an opportunity to ask 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.

Operator

I would now like to turn the call over to Matt Blasey of CORE IR, the company's Investor Relations firm. Please go ahead, sir.

Speaker 1

Good afternoon and thank you for participating in today's conference call. Joining me from AMMO's leadership team are Fred Wagenhals, Executive Chairman Jared Smith, Chief Executive Officer and Rob Wiley, Chief Financial Officer. During this call, management will be making forward looking statements, including statements that address Amo's 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. For more information about these risks, please refer to the risk factors described in Amel's most recently filed Periodic reports on Form 10 ks and Form 10 Q, the Form 8 ks filed with the SEC today and the company's press releases that accompany this call, particularly the cautionary statements in it.

Speaker 1

Today's conference call includes non GAAP financial measures that AMMO believes can be useful in evaluating its performance. You should not consider this additional information in isolation or as a substitute for results prepared in accordance with GAAP. For a reconciliation of this non GAAP financial measure to net loss, Its most directly comparable GAAP financial measure, please see the reconciliation table located in the company's earnings press release. As required by law, AMMO disclaims any obligation to publicly update or revise any information to reflect events or circumstances that occur after this call. It is now my pleasure to turn the call over to Amel's Executive Chairman, Fred Wagonholz.

Speaker 2

Thank you and good afternoon. I appreciate everyone joining us for our Q1 2024 earnings call. I would like to begin this call by welcoming Jared Smith, as the new Chief Executive Officer of AMMO Inc. The Board, Executive management team and I believe that Jared's background and success in the ammunition industry combined with his Strategic vision for our next phase of growth will be instrumental to build greater shareholder value. And future successes, as the company's original founder, I will continue Assist in this transition, as many of you on this call are aware, Jarrett has been with AMMO since January 2023 as President and Chief Operating Officer until his recent of our strategic plan and will stay until the job is finished.

Speaker 2

I believe the markets are significantly Undervalue the opportunities in front of us. I am proud of what we've built since I founded this company just 7 years ago and will continue to make sure our stakeholders understand exactly What the vision of ammo is and what we are working toward, I'm optimistic. Our value has nowhere but 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 Jared Smith, AMLO's new Chief Executive Officer, he will discuss our Q1 in more detail, review the current state of operations and what we believe the future has in store for AMMO, its team and its shareholders.

Speaker 3

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 6 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 31, we are driving the business through 3 major categories. 1st category, we're expanding gunbroker.com's platform and reach through centralized payment processing, carding and the addition of services to complement the products relevant to our community.

Speaker 3

The 2nd category is we're focusing the ammunition division on enhancing margins through expansion of our rifle brass lines, continuous improvement measures and vertical integration into projectile 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 Q1. Our gross margins were 40.9% compared to 27.3 percent in the prior quarter with an adjusted EBITDA of $6,600,000 up from $3,800,000 in Q4. Cash generated from operations was $13,000,000 up from $5,200,000 in the same quarter last year.

Speaker 3

As we transition the business away from low margin commodity ammunition sales to higher margin OEM brass sales, We gave up top line revenue and focused on bottom line profitability. This was reflected in our sales for the quarter being down $34,300,000 from $43,700,000 in the prior quarter due to this transition in the business and overall market conditions. We had a total increase in cash of $8,400,000 and repurchased 739,000 shares this last quarter through our buyback program. We will continue to focus on strengthening our balance sheet through capital allocation with strategic buybacks and accretive purchases as we see opportunity in the quarters ahead. I'd now like to speak specifically on gunbroker.com.

Speaker 3

We moved $238,800,000 in product on the this quarter, down from $281,200,000 in the prior quarter. This follows industry seasonality, was only slightly lower than our internal projections for gunbroker.com. While revenues decreased, our margins remained strong 87% compared to 85.5 percent in the prior quarter. We also expect a lift on the platform starting in Q3, Q4 as we roll out our centralized payment processing and multi item cart. As we start the multi item cart, we will be able increase accessory sales and over time increase our final value fee across the higher margin products and services.

Speaker 3

We believe high single digits are achievable compared to the 5% to 6% we currently earn today. We are rolling out beta testing the 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 Inc.

Speaker 3

Created positive margins for the first time since June of 2022. We reported $20,300,000 in revenue with a 9.5% gross margin, up from negative 8.6 percent in the previous quarter. While this is a major win, we anticipate strong headwinds for loaded ammunition sales for the next two quarters. We continue to refocus the ammunition company on the most profitable segments of the market and will continue to monitor our margins during this very tough Economic time. The OEM market for casings, brass casings, the revenue increased to $6,200,000 up from $3,500,000 in the previous quarter.

Speaker 3

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 I'd like to turn it over to Rob Wylie to walk us through the financials.

Speaker 4

Thank you, Jared. Welcome, everyone. Let me now review the financials of the Q1 of our 2024 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 benefits of the transition to our leaner operating model with a higher focus on brass sales. We remain confident with the progress we have made today, but still face headwinds as we continue to see softening in the U.

Speaker 4

S. Commercial ammunition markets. We have, however, continued to increase our cash position with $13,000,000 in cash from operations generated in the quarter. We ended the Q1 with total revenues of approximately $34,300,000 in comparison to $60,800,000 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.

Speaker 4

S. Commercial ammunition markets continue to soften. Orange casing sales, however, which afforded us higher gross margins increased to $6,200,000 up from $3,300,000 in the prior year period. Our marketplace revenue was $13,900,000 for the reported quarter. Cost of goods sold was Approximately $20,200,000 for the quarter compared to $42,600,000 in the comparable prior year quarter.

Speaker 4

The decrease in cost of goods sold was related to the decrease in sales volume, but was also related to higher gross margins from our 2 segments. Our gross margin for the quarter was $14,000,000 or 40.9 percent compared to $18,100,000 or 29.8 percent in the prior year period. The increase in gross profit margin is related to the shift in our sales mix. There are approximately $2,800,000 of non recurring legal expenses incurred in our 1st fiscal quarter, which we have included as an add back to adjusted EBITDA. Without the non recurring legal expenses, we would have generated a profit for the quarter.

Speaker 4

For the quarter, recorded adjusted EBITDA of approximately $6,600,000 compared to the prior year quarter adjusted EBITDA of $10,600,000 This resulted in a net loss per share of $0.02 or an adjusted net income per share of $0.05 compared to the prior year period of net income of $0.02 per share or adjusted net income per share of $0.07 We continue to push forward on the improvements to our marketplace, gunbroker.com. We are currently in the process of rolling out beta testing for our payment platform with formal launch expected to begin by the end of this quarter. Our car platform for the gunbroker.com marketplace is on pace and is expected to launch by the end of this fiscal year. We feel confident in our financial position as we have reported $130,600,000 in current assets, including $47,500,000 of cash and cash equivalents in comparison to $23,900,000 in current liabilities. We repurchased approximately 739,000 shares of common Under our repurchase plan in the reported quarter, bringing us to over 1,000,000 shares repurchased in total under the plan.

Speaker 4

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.

Operator

One moment please for the first question. Our first question comes from Matt Koranda with ROTH. Please go ahead.

Speaker 5

Hey, guys. Mike Zavrin on for Matt. Maybe just start on the casing side of the business. I guess just What percentage of caisson's production are we currently selling to OEMs? At some point in the past, you talked about It'd be 10% to 15%, but obviously the different business nowadays.

Speaker 5

So just where do we stand there and where does that need to go over time as we continue to scale

Speaker 3

This is Jared Smith. Thanks for joining the call. I see our business taking I turn for the positive over the next two quarters and the casings business is easily going to be 25% to 35% of our Going forward, it is a growing business. There's demand out there. There's strong margins to be captured there certainly in this very, very tough economic Time as ammunition sales continue to decline and margin compresses across the board for the rest of the non vertically integrated players.

Speaker 5

Got it. And given that loaded ammo demand is still relatively soft across the entire industry, how should we think about Pricing for Shell Case ins. Are we having to compete on price here to add OEMs or is price relatively stable for Case ins?

Speaker 3

Prices we reentered into this market In a declining market, so I would say right now and for the foreseeable future, price is very stable. Our capacities are increasing. More capacity comes online with a new factory that we brought online 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.

Speaker 5

Got it. Makes sense. Maybe switching to the loaded ammo side, good to see loaded ammo margins Sequentially improved pretty meaningfully. Just wondering, do we have any remaining bulk loaded ammo inventory to clear through or are we kind of done on that end?

Speaker 3

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 clearing out our inventory, I think our inventory is healthy. There are still some items, slow moving inventory that sit there, but it's not a major factor. Not a going concern for us.

Speaker 5

Yes, got it. That makes sense. Last one for me. Aside from any unforeseen discounting, if 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

Speaker 3

time? Yes. I think for our business margins improve. We have more rifle brass Coming on in the 2 quarters ahead, that's clearly where we can make margin. We can defer kind of The non vertically integrated piece of our production over a larger dollar value and margins increase and Once again, really our focus is rifle ammunition and playing a much, much larger role in that rifle space, both Domestically and

Speaker 5

internationally. Okay. I'll take the stop line. Thanks, guys. Thank

Operator

you, sir. The next question comes from Mark Smith with Lake Street. Please go ahead.

Speaker 6

Hi, guys. First 1st question for me kind of broadly within ammo. Jared, can you give us

Speaker 4

any updates just as you talked about

Speaker 6

Maybe talk about kind of high demand calibers 9 millimeter, 2,235, 5, 6, kind of what you're seeing there? And then any changes that you're seeing in demand or pricing or kind of channel inventory in Kind of everything else primarily Center Fire Rifle.

Speaker 3

Yes. So I think what's Tappan, Mark, is that a lot of the ammunition manufacturers have been holding on to inventory waiting for little shifts in the market for things to pop. See 9 millimeter in 2/23. I really don't see any further price erosion out there from what's currently on the shelf. There will be some specials coming out for Black Friday, but I think for all intents and purposes, the market is fairly stable and we bottomed out And we can stay at this for the next two quarters.

Speaker 3

Going forward, there are still Fantastic pockets that we can play in, in revolver. There's still inventory out there that is Lower than pre pandemic inventory levels in those areas and that's where we plan to play.

Speaker 6

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

Speaker 3

Yes. I mean, today, our cost to produce ball ammo is somewhere between 2.20 So $2.40 per 1,000 and the price at retail was $2.05 We just can't play there. Whereas I can sell a brass case and I can still make 10% So I sell brass casings anywhere between $75 a1000 up to $85 a 1,000 and there's 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 that are wanting to enter this space. So the rifle ammunition, if we looked at like 223, 22 Retail right now is going anywhere between $375,000,000 $425,000,000 for ball ammo.

Speaker 3

We're just the primer is too much 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 it's where we're going to play until this market 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 cases. Brass rifle cases.

Operator

Okay.

Speaker 6

Yes. And then as we think broadly about You guys get it back more heavily into brass casing 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?

Speaker 3

Great question, Mark. Yes, we are signing large 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 signed within the last 6 months.

Speaker 6

Okay. And then I think the last one from me. Broadly speak to I know it's a seasonally weaker Quarter here for Gun Broker and this kind of demand for some of these products. But talk about where you guys see the consumer, Primarily specific to Gunbroker, where is this consumer? What's it going to take to kind of maybe spur some more You are buying activity from these consumers, maybe your outlook as we move into more important hunting and holiday seasons?

Speaker 3

Great question, first of all. Gun broker is a perfect Reflection of the market and what we're seeing for new guns is that new guns are in the retail locations and they're not having to go to gun broker to And that ubiquitous Glock 17 or the Remington 870. What they are going to GunBroker for are those unique items and we're actually seeing 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 broker users back to the gun broker 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 we'll be delivering in Q3 and Q4 of this year.

Operator

This concludes our question and answer session, and I will turn the call over to Jared Smith for any closing comments.

Speaker 3

I just want 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 This factory now for a year there in Manitowoc, Wisconsin. Things are really starting to click for us as brass sales Taking on from the gun broker side, the developments that we're doing on the platform are

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Key Takeaways

  • Under new CEO Jared Smith, AMMO is pursuing three strategic pillars—expanding GunBroker.com, boosting ammunition division margins through vertical integration, and aligning management incentives with shareholders.
  • Q1 revenues fell to $34.3 million from $43.7 million as AMMO shifted away from low-margin commodity ammo, but gross margin jumped to 40.9% (from 27.3%) and adjusted EBITDA rose to $6.6 million.
  • GunBroker.com processed $238.8 million in GMV at an 87% margin, and is rolling out centralized payment processing and a multi-item cart to drive higher final value fees.
  • The ammunition division reported its first positive gross margin (9.5%) since June 2022, with OEM brass sales up to $6.2 million, though headwinds in loaded ammo are expected over the next two quarters.
  • Strong cash generation—$13 million from operations—and an $8.4 million increase in cash funded repurchases of 739,000 shares, leaving AMMO with $47.5 million in cash and equivalents.
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Earnings Conference Call
AMMO Q1 2024
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