Outdoor Holding Company (POWW) 2022 Q1 法說會逐字稿

Good day, ladies and gentlemen. Thank you for standing by. Welcome to today's conference call to discuss AMMO, Inc.'s financial results for the first fiscal quarter of 2022. (Operator Instructions) Hosting today's conference call will be Reed Anderson with ICR. As a reminder, today's conference is being recorded.

And now, I would like to turn the conference over to Mr. Anderson. Please go ahead, sir.

Thank you. Good afternoon, and welcome to AMMO, Inc.'s conference call to discuss results for the first fiscal quarter of 2022. On the call today from AMMO, Inc. with prepared remarks are Fred Wagenhals, Chairman and Chief Executive Officer; Rob Goodmanson, President; and Rob Wiley, Chief Financial Officer.

By now, everyone should have access to the earnings release, which went out this afternoon at approximately 4:10 p.m. Eastern Time. If you have not received the release, it is available on the Investor Relations portion of AMMO, Inc.'s website at www.ammoinc.com. This call is being webcast, and a replay will be available on the company's website as well.

Before we begin, we would like to remind everyone that our prepared remarks contain forward-looking statements, and management may make additional forward-looking statements in response to your questions. These statements do not guarantee future performance, and therefore, undue reliance should not be placed upon them. These statements are based on current expectations of the company's management and involve inherent risks and uncertainties, including those identified in the Risk Factors section of AMMO, Inc.'s most recently filed Forms 10-K and 10-Q.

Please note that during today's call, we will discuss non-GAAP financial measures, including results on an adjusted basis. Management believes these financial measures can facilitate a more complete analysis and greater transparency into AMMO, Inc.'s ongoing results of operations, particularly when comparing underlying operating results from period to period. We've included a reconciliation of these non-GAAP measures with today's release.

This call also contains time-sensitive information that is accurate only as of the date of this live broadcast, August 16, 2021. AMMO, Inc. assumes no obligation to update any forward-looking projections that may be made in today's release or call.

Now I will turn the call over to Fred Wagenhals, Chairman and Chief Executive Officer of AMMO, Inc.

Thanks, Reed. I would like to extend my personal appreciation to all of our great employees, customers and shareholders for continuing to support our company during these exciting times. I am pleased with our first quarter results, which showed significant growth in sales, along with substantially improved profitability.

The Ammunition segment was a key sales driver, reflecting strong demand for our core product and AMMO, Inc.'s leadership position in the market. Our Marketplace segment was the other significant factor behind our strong first quarter results as we had 2 months of high-margin revenue from GunBroker.com, which we acquired on April 30. The GunBroker.com acquisition was a big event for AMMO, Inc., and we are just in the early innings of realizing its true potential. Over the next 12 months, we expect to leverage this dominant Marketplace perform to significantly broaden our growth and increased margin.

I would like to bring you up to date and answer most of our questions that I get hit with weekly from investors. Our Board of Directors is a strong Board. As far as our team effort, Chris Larson and myself have put together a team that I feel very proud of to take this company to the next level. Our Vice President, John Flynn, did a great job in securing enough land from the City of Manitowoc to build our new factory on the room -- and room for expansion in the future. My son, Tod Wagenhals, Executive Vice President, is in charge of getting the building built on time and under budget. The move-in date is summer of 2022.

This will be a 165,000-square foot state-of-the-art manufacturing facility. Jim Mann, our plant manager, has done a remarkable job of integrating our Payson loading operation into Manitowoc's brass facility. Jim has had to rent 2 additional warehouses totaling 70,000 square foot to keep up with the production demand until we move into our new building. Mark Hanish, our President of Global Marketing; and John Flynn have been working due diligently on new product development for commercial use and government contracts.

At the present time, we have a DoD contract with the government. Rob Wiley, our CFO; and Susan Lokey, CFO of GunBroker.com, and their team have worked around the clock to bring our accounting team up to par with the growth of our company. We are fortunate to have our new accounting firm PKF in place. Matt Nicholson, our Vice President of Sales; and Anthony Tate, our Director of National Accounts, have done a tremendous job over the past 16 months, putting together an outstanding call center with current back orders over $200 million. This includes working with dealers, distributors and big-box retailers.

Also, Matt, Anthony and Nate Acord, Head of our Purchasing, have found primers and gunpowder throughout the world to keep our factories running. We also have signed a 5-year contract with [Vista Federal] to supply them with brass casings and they supply us with primers.

GunBroker.com. The acquisition allowed AMMO, Inc. to have a dominant Marketplace performance. Steve Urvan is on our Board and is also active in future growth for the GunBroker.com business. Steve [Bershka] is the man in charge of GunBroker.com on a daily basis and has been running GunBroker for the past 10 years. We have put together a team with Steve Bershka ; Beth Cross, Director of Purchasing; Matt Nicholson; and Anthony Tate. Beth is leading that team to secure ammunition and other items to put on GunBroker.com. This year, our goal is to put $25 million worth of items through GunBroker.com with high margins.

Rob Goodmanson, President and Board member. Rob was brought in to help me run the day-to-day operations of this company. Because of his financial background and his Wall Street background, he helped me line up with bankers for future growth of this company and to look at any acquisitions that might fit our wheelhouse. Any future acquisitions must be accretive before we even look at them.

The other thing that keeps coming up is my retirement. I don't plan on retiring. I plan on being here every day at 5:30 in the morning and conducting our 8:00 production meetings.

With that, I want to turn it over to Rob Goodmanson.

Thank you, Fred, and welcome to our earnings call. We couldn't be more proud of the incredible team that Fred has put together and the hard work everyone has put forth to create an outstanding quarter and all the successes we will have moving forward. Total sales rose 360% to almost $45 million, by the way, which only includes 2 months of our Marketplace, GunBrokers.com. Our gross margins of 42.7% compared to last year of 11.1%.

The demand trends in the U.S. domestic market and international ammunition markets remain extremely strong and show no signs of slowing. As most of you know, when Fred had the idea of AMMO, it was not just an ammunition company. It was to take an industry that is extremely antiquated and bring technology and patented ideas to the forefront. Our acquisition of GunBrokers has been transformative. The integration of the Marketplace business with AMMO, albeit in the early stages, has been wildly successful, even though we owned it for just over 90 days.

As a leading marketplace to firearms and shooting sports enthusiasts, we're very excited about the impact from this business in accelerating our sales and earnings in 2022 and beyond. The Marketplace is 70% of our profits, and AMMO is 78% of our revenues. This should show TheStreet who we are, that we're not just a manufacturing company. We've implemented many new initiatives that are focused on improving the overall experience in the marketplace.

For example, we've been adding personnel within customer service to speed up the process, whether it be the sale or any issues that come to life. We are adding new products, as Fred mentioned, to the site as we speak. We will provide easy access to third-party financing options along with loyalty programs to capture a broader share of potential transactions, while increasing our average ticket size and making the relationships we have with our customers stronger.

As Fred stated, this acquisition of GunBroker was truly transformational for our company. First quarter results give you an early glimpse of the significant long-term potential. This leading Marketplace platform is highly leverageable and complementary to our businesses.

With that, I will turn this over to our CFO, Rob Wiley. Rob?

Thank you, Rob. Welcome, everyone. Let me walk you through our first quarter financials in more detail. Total net revenue for the first quarter of fiscal '22 were $44.5 million, up 360% from the $9.7 million we reported in the year earlier period. Growth in Ammunition was the largest factor contributing to the year-over-year increase. For the quarter, Ammunition sales were $28.4 million compared to $6.4 million in the last year's first quarter. Our Marketplace segment had revenue of $12.3 million versus nothing a year earlier, reflecting the acquisition of GunBroker.com at the end of April 2021.

For perspective on the significant growth we are seeing in our Marketplace segment, note that the 2 months of GunBroker.com revenue we reported in the first quarter were 59% higher than the comparable 2-month period last year. Higher sales drove a significant increase in gross profit to $19.0 million in the first quarter versus $1.1 million in the year earlier period. The improvement in gross profit margin was equally impressive, reflecting the influence of our rapidly growing Marketplace revenues. For the quarter, gross profit margin rose to 42.7% from 11.1% in last year's first quarter due to the inclusion of Marketplace revenues, which had an 86.5% gross margin in the quarter.

First quarter operating expenses totaled $9.3 million, up from $3.9 million a year ago. Several factors accounted the increase, including the addition of Marketplace operations, higher commission payments stemming from the growth in our Ammunition sales, higher noncash stock-based compensation expense and professional fees related to the acquisition of GunBroker.com.

As a percentage of net sales, operating expenses declined to 20.9% in the first quarter of fiscal 2022, from 40% in the year earlier period, reflecting operating leverage, manufacturing scale and the mix shift in favor of higher-margin Marketplace revenues. Operating income was $9.7 million for our -- in the first quarter compared to an operating loss of $2.8 million in the year earlier period. As a percentage of net sales, operating income was 21.8%, driven by a 60.5% operating margin in the Marketplace segment.

Net income available to common shareholders for the first quarter of fiscal 2022 was $9.2 million or $0.08 per diluted share compared to a net loss of $3.1 million or a negative $0.07 loss per diluted share in the first quarter of fiscal 2021. Adjusted net income per share was $0.13 versus an adjusted per share loss of $0.01. Adjusted EBITDA was $16.3 million compared to adjusted EBITDA loss of $0.3 million in the year earlier period.

The significant improvement in adjusted EBITDA was due to the increased sales and improved gross margins, reflecting growth in the core ammunition segment plus the addition of our higher-margin Marketplace segment. Please note that adjusted EBITDA is a non-GAAP measure, and you should refer to the reconciliation of our GAAP to non-GAAP results in today's press release for additional details.

Our total assets have increased significantly following the acquisition of GunBroker.com from $170 million to $381 million. Notable increases in our assets include intangible assets and goodwill from the acquisition as well as accounts receivable, which increased $14.8 million; and inventories, which increased $12.1 million. We have built a backlog of $238 million even as we continue to increase our sales and deliver to our customers.

Now let me provide you an update on our guidance. Given the strong underlying demand and our better-than-expected results in the latest quarter, we are increasing our full year fiscal '22 revenue guidance from $190 million to $210 million. This includes reiterating our second quarter estimate of $51 million that we first shared with you on July 15. With the expectation that revenues will be approximately $60 million in the third fiscal quarter, our full year adjusted EBITDA estimate for fiscal 2022 is now $70 million, up from the prior forecast of $65 million, mostly reflecting higher expectations for revenue growth.

As we look toward the remainder of our fiscal 2022, we expect to be able to offset a significant portion of our potential tax liability with our $31 million in net operating losses generated through our prior fiscal year-end. This concludes our prepared remarks. We are now ready to take questions. So I'll pass it back to our moderator. Thank you.

(Operator Instructions) Our first questions come from the line of Matt Koranda with ROTH Capital.

Just wondering in the outlook that you provided, the $210 million for revenue, how to think about the split between GunBroker and the core Ammunition business? And then I guess if I plug your second quarter and third quarter guidance with the full year guide, it does seem to imply a sequential drop in the fourth quarter. And so I just wanted to see if you could speak to the seasonality that maybe you're betting in the outlook, or if there's just conservatism there.

Matt, this is Rob Wiley. Thank you for the question. So the way we look at our guidance increasing from $190 million to $210 million is really made up of an even split of the activity that will be generated through the GunBroker.com marketplace as well as our ammunition manufacturing operations. And we really don't view any sort of seasonality impacting that total guidance overall.

Okay. Got you. And then, I guess, the other piece of the outlook, if I just take sort of the remaining year worth of EBITDA and the remaining year worth of revenue, it does seem to imply margins tick down a little bit. And just wanted to get your thoughts on, we put up a 37% EBITDA margin, it looks like in the first quarter, with only a partial contribution from GunBroker. And so is there any reason we should expect any margin degradation for the remainder of the year?

No. We don't expect any margin degradation. In fact, looking on to our next quarter, with the full 3 months of GunBroker activity, coupled with our increasing Ammunition operations and leveraging that platform, we expect our margins to end up in approximately 45%, conservatively. And you mentioned just how our adjusted EBITDA may seem low in comparison to the increase in guidance. Historically, we feel like we've been conservative with our guidance, and we'll update TheStreet on potential updates on guidance as we feel necessary.

Okay. That's fair. And then I guess, a couple more on -- one on backlog. So the $238 million implies pretty strong order flow in the first quarter. So I just wondered if you guys could maybe just untangle and speak to what drove the order flow in the first quarter. Is there any of the military orders that you guys have press released within that backlog? Or is it all commercial? And then any sort of new customer orders that you can call out on the commercial side that maybe drove the backlog as well?

This is Fred Wagenhals. It's mostly commercial.

Okay. Guess I'll take the rest of that off-line. And then one more from me, and then I'll leave it to someone else here. But the $25 million goal of new goods through GunBroker.com, I think that was interesting and kind of incremental here. Is that all ammunition? Or are there other products that you can put through the platform? Any more detail you can provide on sort of tracking toward that $25 million goal for the year? Have we achieved any of it as of yet? Or is that all on the come for the rest of the year?

That's all on the come for the rest of the year, but it's not all ammunition. It's other items that we're going to be putting on, and you'll be seeing those other items probably within the next 30 days.

Our next questions come from the line of Mark Smith with Lake Street Capital.

A quick question from me. First on demand. And I think Rob Goodmanson, you might have talked about it a little bit in your commentary. But have you seen any change in demand primarily in Ammunition at this point?

We have not seen any change. As you think we could get rid of our backlog, as everything is shipped, more orders come in. The backlog keeps growing. And the manufacturing, as soon as it's completed, is shipped. That is what we're seeing. We have not seen -- really we've seen -- the only thing we've seen is a little price compression in some of the different rounds, but nothing significant. But the demand is still very strong internationally and domestically.

And any change in your production as we look at just different calibers and different ammunition. Is it safe to assume that still 9-millimeter, 223 continues to be high demand? Or have you started to mix in, too, maybe some other rounds of ammunition that may be kind of going back to them if we're starting to meet some of the demand for some of those high-demand rounds?

Sure. No, we -- the 223 and the 9-millimeter is always going to be there, but there has been a shift to more of the specialized rounds. Frankly, the margins are better. There's been no price compression at all, and the demand is out there for it. And oftentimes, see a lot of the manufacturers converting to doing virtually nothing but 9-millimeter. And rather than compete for lower prices, we'd rather compete at a higher margin.

Okay. And then I know you guys have had a lot of changes up in Manitowoc at your current facility. Can you talk about kind of during the quarter, any capacity increases, maybe within the footprint that you've got today, potential on increasing capacity? And kind of even if you can speak to kind of -- if you're pleased with the level of your operating out of that facility today?

I'm very pleased with what we're doing up there. And as I said earlier, Jim Mann has done a great job of -- when we shut down Payson, integrating Payson into the brass manufacturer, we found out real quickly, we couldn't put our whole operation in a 50,000 square foot building. John Flynn went out and helped us -- gave us 2 new buildings or 2 buildings that we rented, 70,000 square foot. And Jim has done a great job of getting those buildings up and running.

In today's world, you always have a people problem, but we seem to be toughening out and solving that problem on a daily basis. It's definitely going to be a lot better when we're in one building, and we have a new facility that's going to be the state-of-the-art ammunition facility in this country. But for right now, it's tough every day, but we're making our numbers. As I said earlier, we get on the call every morning at 8:00, and we focus on numbers, numbers, numbers.

And Fred, you talked a little bit about people and maybe some inflationary pressure in wages. Are there other places where you guys are maybe seeing some inflationary pressure? Any commodities or components that may be either, a, have seen price come up quite a bit; or b, that are just hard to get?

Well, I think it's not been easy, but we've kept the factory running, and we seem to find primers when we need them. We seem to find -- get past the brass increases. And as you can see from our margins, we've done a great job of raising prices when we had to, finding product when we had to, but it's -- nothing's easy today, but I think we've got a great team of people and especially in purchasing that's -- and we've had to go outside the United States to buy a lot of primers and gunpowder and whatever. But we feel comfortable with these numbers, and we feel comfortable every day that we've got the right mix of product and the right mix of inventory coming in to supply our customers.

(Operator Instructions) Our next questions come from the line of Brandon Beylo with Macro Ops.

Great quarter. I've got one shorter-term question and 2 long-term questions, and I'm not going to take up too much of your time. So the first question on the shorter term. When it comes to the GunBroker.com low-hanging fruit, and you guys mentioned you're going to push, I think, $25 million was the number, that's from ammunition and other products. On a UI/UX deal, how is that going to look on the site? Is it -- if I go to the ammo for sale, is it going to be AMMO's products right at the top, just kind of for buy now? How are you guys thinking of listing your products amongst others to create kind of what you think is the optimal experience for the user?

We've not -- I do not believe we're going to separate -- put them up at the top, but there will be additional products. We've taken -- really, we've started a fair amount of initiatives to coincide with the additional products that we are adding that we think are going to be beneficial to our customers. First of all, call it, maybe financial services, whether it be credit, gift cards, loyalty programs, short-term funding for the purchases. And if we came in with the cross-selling, it's a platform which is easily leveraged with new products and services. And we're just trying to create a very robust experience that maybe they've lacked a little bit in the past. Adding personnel in the service area. We're kind of changing, well, some of our promotional activities and being a little more surgical in the promotion and activities that we do with the existing clients. In other words, much what normally goes on.

Okay. Cool. Yes. And then the second -- so last 2 questions. You have $118 million in cash in the bank, more than double this time, from quarter-over-quarter. What are your guys' plans with that from the long-term view? Let's say, 3, 5, 10 years out, are there any other verticals that you're trying to pursue to maybe strap on like what you did with like Jagemann Stamping, something along those lines? Or are you just thinking about reinvesting back into the AMMO business? Or investing into the GunBroker marketplace? Where are you thinking in terms of allocating that $118 million in cash?

I think you see some of that money moving into another vertical, something that must be accretive. We do generate, frankly, a large amount of cash, but there are opportunities out there that we look at on a regular basis. And if they do match our -- what we require, some money would go there, could go to beefing up GunBroker with more machines. There's not one setting where we would spend our capital.

Got it. And then this might be something you don't have to -- you might not be able to answer too much, but when you say ideas and verticals that meet your requirements, is that some sort of internal rate of return that you guys are shooting for? Or is it more of a qualitative, just kind of -- it's got a strap on better than -- what is not currently better?

I don't think there's a black or white answer to that. It's part of the things that we've always done, whether it be the armor piercing or the STREAK, everything has had a unique, let's call it, just technology bend to it. So it possibly would not be accretive to the point where it could be, if they had the capital and the market behind it. Then again, it could be something as simple as unique projectiles.

Got it. Okay. Cool. And then last question, Fred. I know you said that you had no plans of retiring, which is very comforting to hear as a long-term shareholder. You said that you wake up at 5:30 every day, and it sounds like you're excited to go into work. So maybe if you could just give us kind of some reasons why you're so excited about what you're doing. I mean obviously, given your history and your background, you could just be relaxing on a beach. So it is fascinating to see someone at your age engaged in this type of business.

I like business. I like the sound of this. And I guess when my partner (inaudible) stepped down (inaudible) a few years, 3 years ago, we said, I think we can build a nice little ammunition company that's profitable. Now we sit here and say, I think we can build a big ammunition that's very profitable. So it's the thrill of the deal. I like the deal. I like what I'm doing. I think we've got a great staff of people. I think this company -- I did $407 million a year in sales one time with my old company, I think we can beat that in the next 2 years. So my goal is record-setting and beating records. So I'm excited to be here.

There are no further questions at this time. I'd like to turn the call back over to management for any closing comments.

Yes. So thank you, everybody, for joining us today. A parting comment we'd like to leave you guys with is that we're very excited about this fiscal year with us raising guidance. The point we'd like to make is that we have over $31.5 million in net operating losses coming out of our previous fiscal year, and we expect to utilize these by the end of our current fiscal year. So once again, thank you very much for joining us on the call today. I'll pass it over to Rob for some additional comments.

Just in closing, and then I'll throw it to Fred. I just want to reiterate that the acquisition of the GunBroker platform transformed AMMO from a commodity-focused product manufacturer to a marketplace. Over 6 million registered users and the structural competitive advantages. And most of the investors see commodity-linked businesses like a straight ammunition business benefiting from short-term supply constraints, high geopolitical insight demand. Those who do miss the point, they miss this opportunity, I think, to invest in the company to disrupt one of America's most boring industries. Fred?

Yes. Thank you. Well, I want to thank everybody for participating in the call and watching our company grow. I firmly believe we've got a company here that's got a lot of excitement to it, especially the GunBroker thing, it puts us not in just the manufacturing and selling ammo, but we're a company now that in the marketplace and just happens to sell ammo and other items, so we're going to put on that site. And I just hope everybody watches to see what we're going to do over the next several months with our marketplace company. Thank you very much.

Thank you. This does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time. Have a great day.