AMMO Q1 2025 Earnings Call Transcript

Quartr
Provided by Quartr
August 8, 2024

There are 8 speakers on the call.

Operator

Ladies and gentlemen, thank you for standing by. Good afternoon, and welcome to the AMMO, Inc. Fiscal First Quarter 2025 Earnings Call. At this time, all participants are in a listen only mode. 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 Jerry Smith, Chief Executive Officer Rob Wylie, Chief Financial Officer and Paul Kosowski, Chief Compliance and Transformation Officer. During this call, management will be making forward looking statements, including statements that address Amlo'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 these statements. For more information about these risks, please refer to the risk factors described in AMLO'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 release that accompanies this call, particularly the cautionary statements in it.

Speaker 1

Today's conference call includes non GAAP financial measures that ammo believes could 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. The content of this call contains time sensitive information that is accurate only as of today, August 8, 2024. Except as required by law, AMMO disclaims any obligation to publicly update or revise any information to reflect events or circumstances that occur after this call.

Speaker 1

It is now my pleasure to turn the call over to AMLO's Chief Executive Officer, Jared Smith.

Speaker 2

Good afternoon, everyone. Thank you for joining us for our Q1 fiscal 2025 earnings call. First, I want to take this opportunity to thank all of our employees for their commitment to this company, the mission and for their contributions to the massive transformation underway in our business. It takes true grit and perseverance to implement changes at this scale and at this level of quality. We have some extraordinary teams leading the way and I'm proud to be a part of this ongoing effort.

Speaker 2

In our Q1 of fiscal 2025, we continue to make progress on the primary core initiatives building long term shareholder value and strategically positioning this company for sustainable success. Despite the ongoing turbulence in our industry, we are confident that the company's recalibration is the shortest path to long term stability and reliability. As has been reported market wide, ammunition and firearms sales have been non attractive product segments due to low margins and propellant supply. We will continue to focus on strategic product categories that more heavily contribute to the bottom line. We've been building ammunition under our under our contractual obligations to 0 delta.

Speaker 2

Ammo is at a pivotal point as we start the Q2 of our 2025 fiscal year. We've been delivering and releasing code over the last month on gun broker that are starting to take noticeable effect. Changes that will positively affect both our 8,000,000 plus registered users and our monthly 13,000,000 unique visitors to the site. We launched our cart just 4 months ago and this last month began cross selling accessories for the firearms purchased through the cart. We will continue to cultivate the algorithms and analytics over the coming months and fine tune the recommended offerings across all categories as our environment accelerates its learnings.

Speaker 2

This will be an ongoing development now that we've pivoted away from the historic single seller, single item framework to a platform with the capability for buyers to buy from multiple sellers in one transaction and includes suggested placement of products at checkout. We are building out a solution that will create strong revenues for our shareholders in an e commerce industry with high barriers to entry and low market consolidation. This is an e commerce industry and a marketplace that is still in its infancy. While we've been around for 25 years, our transformation in fiscal year 2025 is game changing and will result in an evolution to the face of GunBroker and for our shareholders. As we communicated last quarter, GunBroker has been committed to growing its service offerings and increasing our take rate on the GMV we do through the site.

Speaker 2

In Q1, we increased our take rate by roughly 40 basis points, 6.2% versus 5.8% over last year. This was accomplished through category fee changes on non firearm sales, increases in advertising revenue, enhanced listing option fees and the launch of Collectors Elite. We see this take rate further increasing in the quarters ahead as we push ahead with our GearFire financing solution and an anticipated increase on non firearm accessory sales as we monetize the algorithms and tune our cross selling capabilities. Turning to the ammunition division, we are now laser focused on increasing rifle production at the plant and are strategically pulling back on all range training 9 millimeter and low to negative margin pistol production as rifle capacity increases. We will continue to shift our production away from high volumes and top line revenue and we'll continue to focus on streamlining our operations and creating bottom line profitability.

Speaker 2

This will negatively affect the top line revenue, but will create higher margins and higher profitability. The transition from pistol to rifle ammunition and their components is hard. The quantities, processes and teamwork required must be fine tuned and it has required us to cultivate talent and the resources to handle the transformation to manufacture this much anticipated rifle capacity. While we struggle with overhead absorption due to the lower capacity yields of a new factory, we continue to see opportunities for cost out initiatives. In conjunction with our manufacturing consulting partner, we will be working to eliminate inefficiencies in the coming months through continuous improvement initiatives to reduce our labor, scrap and quality issues.

Speaker 2

This extensive operations review will proceed for the next 20 weeks, focusing on improving financial results by removing critical constraints through continuous improvement initiatives and enhancing our engineering processes. We are excited to see the transformation underway and couldn't be more excited as we come into our 2nd and third quarter. Before I turn it over to our next speaker, I want to remind everyone of the progress we've made since our last earnings call. Just this last month, we delivered 211,000 pieces of 12.7x108 for 0 delta. We were clear to start production on our 6.5 Creedmoor IVAC and BMMPR rounds and we increased our take rate from 5.8% to 6.2% in less than a year.

Speaker 2

We've enabled cross selling of accessories with firearms inside the marketplace cart in the last 30 days. And this last quarter, we signed a financing agreement for with Gearfire with an anticipated Q2 rollout. And lastly, we executed share repurchases in excess of $1,000,000 this last quarter. One of the biggest initiatives we are now undertaking is streamlining of all corporate and divisional processes. In January, we brought on Paul Kozowski as our Chief Compliance and Transformation Officer to start identifying opportunities for savings throughout the company and making the changes necessary for improving returns.

Speaker 2

Paul has 21 years of experience in manufacturing in the consumer product goods space and has a firm handle on our opportunities for cost savings and process efficiencies. I will now turn it over to Paul Kozowski, our Chief Compliance and Transformation Officer.

Speaker 3

Thanks, Jared. This is an exciting time at ammo. We're executing on a strategy that will enable long term profitable growth for the ammunition division by focusing on rifle brass production, while positioning GunBroker as the most versatile online site for outdoor enthusiasts through increased functionality and diversified product offerings. Since joining the company, we've identified up to $15,000,000 in cost cutting and working capital opportunities in an effort to simplify our business model, improve visibility to costs and enable us to actively manage operating margins. We believe these opportunities can be realized over the next 18 to 24 months.

Speaker 3

Importantly, we now have the organizational alignment and the talent to execute these initiatives. This type of change takes time as we institutionalize a cultural mindset that emphasizes profitable growth. I will now turn it over to Rob Wiley, our CFO, to discuss our Q1 financial performance in further detail.

Speaker 4

Thank you, Paul. Welcome, everyone. Let me now review the financials for the Q1 of fiscal year 2025 in more detail. We ended the Q1 of our 2025 fiscal year with total revenues of approximately $31,000,000 in comparison to $34,300,000 in the prior year quarter. Our A and Munitions segment made up $18,700,000 of total revenues and our Marketplace segment generated the remaining $12,300,000 revenues.

Speaker 4

The decrease in revenue was primarily related to a decrease in activity across both our reporting segments, which we believe decreased as a result of the current macroeconomic environment impacting our industry as well as others. Cost of revenues was approximately $21,200,000 for the quarter compared to $20,200,000 in the comparable prior year quarter. Cost of revenues for our Marketplace segment was $1,800,000 and our Ammunition segment cost of revenues were $19,400,000 This resulted in a total gross margin for the quarter of $9,800,000 or 31.6 percent compared to $14,000,000 or 40.9 percent in the prior year period. Our Marketplace segment gross margin was $10,500,000 or 85.6 percent. The gross margin of our ammunition segment was negative $700,000 or negative 4%.

Speaker 4

The increase in cost of goods sold and decrease in gross profit margin was related to the shift in our sales mix and production inefficiencies in our ammunition segment in comparison to the prior year period. Although our margins decreased from the prior year period, the robust margins on Gun Broker continue to hold strong. And while the margins in our ammunition segment remain down as the plant ramp is still underway, we are beginning to see increased production throughput and expect that we will see increased product marginality in future periods if we are able to continue with this trend. There was approximately $6,300,000 of non recurring expenses in the quarter related to legal and professional fees, which we have included as an add back to adjusted EBITDA. The $6,300,000 non recurring expenses also included $3,200,000 expenses related to a contingency stemming from litigation Gunbroker was involved with prior to our acquisition.

Speaker 4

We expect to recover 2,900,000 shares of common stock as a result of this settlement, which will be canceled and returned to our authorized but unissued share pool. For the quarter, we recorded adjusted EBITDA of approximately $2,000,000 compared to the prior year quarter adjusted EBITDA of $6,500,000 This resulted in a loss per share of $0.07 for the quarter or adjusted net income per share of $0.01 in comparison to a loss per share of $0.02 in the prior year quarter or adjusted net income per share of $0.04 Looking forward, we are continuing to focus on streamlining our manufacturing processes, which should improve product throughput and marginality. For GunBroker, efforts to offer a flexible financing option to customers is well underway, as well as our cross selling solution, which provides our users with the ability to view and purchase compatible items when going through the checkout process. We expect these enhancements will drop sales growth through better functionality and enhanced purchasing power of buyers. Our financial position remains strong given our working capital position as we have reported $134,000,000 in current assets, including $50,800,000 of cash and cash equivalents along with $42,300,000 of current liabilities.

Speaker 4

We believe this strong position will continue to stimulate our transformation efforts. We repurchased approximately 580,000 shares of our common stock under our purchase plan in the reported quarter, bringing us to just over 1,900,000 total shares repurchased under the plan since December of 2022. That concludes our opening remarks. I will now turn the call over to the operator for questions. Thank you.

Operator

At this time, we will take our first question, which will come from Matt Koranda with ROTH Capital Partners. Please go ahead.

Speaker 5

Good afternoon. This is Joseph on for Matt. We just wanted to know how should we expect casing's revenues to ramp up from here? Can we assume to get back to growth in 2Q and beyond? And also regarding your comments on gross margins for the ammo segment, can we also expect a positive inflection for the Q2 and beyond?

Speaker 6

Joseph, great question. So last quarter we shipped an additional $1,000,000 in our Centerfire rifle brass casings business and yes, we expect steady progress with case production in the quarters ahead.

Speaker 5

And if I could get just one more in there. Anything you have observed in the recent months about firearms in the shooting sports consumer? Did you see any uptick in demand in July? And what about the recent weeks with the President election becoming more competitive? Is there any trends in AOV or financing attach rates?

Speaker 6

So what we saw in mix was a decline in Q1. Well, our Q4 into Q1, but we've seen a slight uptick in mix for July. We anticipate that to hold through the election period. But once again,

Speaker 2

I'm not an unfortunate teller when

Speaker 6

it comes to the election and to mix. But yes, what we're seeing today, the trend in July looks healthy compared to Q1 and Q4.

Operator

And our next question will come from Mark Smith with Lake Street. Please go ahead.

Speaker 7

Hi, guys. I want to start on Gunbroker and kind of the sales decline there. Jared, and this is maybe a big picture question. Is how much of this is maybe a function of channel inventory and supply as mom and pops and other gun stores can have everything in stock that they need and want? And if so, how in the future do you compete more in kind of steady markets with brick and mortar?

Speaker 2

Excellent question, Mark.

Speaker 6

There's definitely a steady inventory that we saw through the summer months with mix checks being down. Gun broker really has to compete in that premium space. We will continue to control the ability to shop and price. We own the used market. We are seeing an increase in firearms in the used market.

Speaker 6

So there are bright spots within our market segments and our ability to go after and be able to really leverage cross selling in the months ahead. But you're right, there is a tendency as wallet share shrinks due to a reduction in consumer discretionary spending that impacts the business. But at the end of the day, we own the premium side, we own the used market. And with us now turning over and turning on the ability to cross sell within the cart, we see a tremendous potential going forward.

Speaker 7

Okay. And that was kind of my next question. Just where are we at as far as cross selling? Are we still just kind of first inning here as far as kind of being able to directly market and show customers when they put a certain firearm in Where are we at in that process? And are you seeing any early signs of success?

Speaker 7

Where are we at in that process? And are you seeing any early signs of success?

Speaker 6

That functionality just came on in the last 25 days, Mark. And as our algorithms get better, as we categorize and prioritize what we're positioning in front of the customer, It's part of the answer to the take rate is that we're going to be able to promote products and be able to promote items where we have greater margins. And from a ability to grow the business, it's really about getting out in front of those consumers that are shopping these premium items and doing a better job of accessorizing those firearms before they

Speaker 7

check out. Okay. And then I think last for me, just shifting over to the ammo side of the business, any additional updates on kind of plant operations? I know you with Paul coming on, it sounds like there's a lot of places to kind of come in and pick up nickels and dimes. But just curious, are there any big headaches that are out there that are kind of remaining from the last couple of quarters, any equipment that's not running, things that need to be replaced?

Speaker 7

Maybe talk about kind of the any big things that are remaining that are kind of hurting operations within the plant in Manitowoc?

Speaker 6

Well, we just took delivery of an annealing oven that has been an issue for over a year, year and a half. And it will be starting up in late August, early September. So that's one hurdle that's been in the way. There are certainly issues as we bring on more capacity that we'll run into, but we've had a massive uptick in 50 cal production, a line item that we've not been able to lean into in the past. We have firm deliveries scheduled out for the next year, 1.5 years.

Speaker 6

Medium Action 2 is growing its capability. We've had some mechanical issues with another press. But at the end of the day, more and more rifle production comes on and we are making steady progress and you will continue to see steady progress in Q2 and Q3.

Operator

Okay, great. Thank you. And with no remaining questions, we will conclude our question and answer session. I'd like to turn the conference back over to Gerrit Smith for any closing remarks.

Speaker 6

I want to thank you for participating on today's call and for your interest in AMMO Inc. We look forward to sharing our ongoing progress and when we report our fiscal Q2 2025 results in November. Thanks and have a great day.

Powered by Quartr

Key Takeaways

  • AMMO is transforming GunBroker into a multi-seller e-commerce platform: it launched its cart four months ago, enabled cross-selling of accessories, and boosted its take rate by 40 bps to 6.2%, with GearFire financing set for Q2.
  • The ammunition division is shifting production from low-margin pistol ammo to higher-margin rifle ammunition, pausing certain lines and initiating a 20-week operational overhaul to cut inefficiencies and improve throughput.
  • Q1 fiscal 2025 revenues declined to $31 million (down from $34.3 million), gross margin fell to 31.6% (ammunition segment at –4%), and adjusted EBITDA was $2 million versus $6.5 million last year, though GunBroker’s segment margin stayed strong at 85.6%.
  • Management has identified up to $15 million in cost and working capital savings to be realized over the next 18–24 months and repurchased over $1 million of common stock in the quarter.
AI Generated. May Contain Errors.
Earnings Conference Call
AMMO Q1 2025
00:00 / 00:00