AMMO, Inc. (NASDAQ:POWW) Q3 2024 Earnings Call Transcript

AMMO, Inc. (NASDAQ:POWW) Q3 2024 Earnings Call Transcript February 8, 2024

AMMO, Inc. misses on earnings expectations. Reported EPS is $-0.02 EPS, expectations were $0.02. POWW isn't one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Ladies and gentlemen, thank you for standing by, and good afternoon, and welcome to the AMMO Incorporated Third Quarter 2024 Earnings Call. All this time, all participants are in a listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Participants on this call are advised that the audio of this conference call is being broadcast live over the Internet and is also being recorded for playback purposes. I would now like to turn the conference over to Mr. Matt Blazei of CoreIR, the company's Investor Relations firm. Please go ahead, sir.

Matt Blazei: 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 AMMO'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 AMMO's most recently filed periodic reports on Form 10-K and Form 10-Q, the Form 8-K filed with the SEC today and the company's press release that accompanies this call, particularly the cautionary statements in it.

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. The content of this call contains time-sensitive information that is accurate only as of today, February 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. It is now my pleasure to turn the call over to AMMO's Chief Executive Officer, Jared Smith.

Jared Smith: Good afternoon, everyone. Calendar 2023 was a challenging year for our industry and for the U.S. economy. Despite this backdrop, AMMO continued to transition its business to a stronger and leaner operating model as we push through this very tough economic period. We have emerged from this time with an impeccable balance sheet, and we are encouraged about the significant opportunities we have before us here in the fourth quarter and going forward. We recently announced a $10-plus million brass contract with ZRODelta and continue to see increasing demand as the ammunition and firearms market recovers from the 2022 and 2023's post-pandemic slump. Now turning to our third quarter. We generated $5.1 million in cash this quarter, mostly through a reduction of inventories by $3.5 million.

We will continue to work through inventory reductions as the year progresses. Third quarter revenues were up $1.6 million sequentially, but net loss was dramatically improved to a loss of $1.6 million for the quarter compared to a loss of $7.5 million in the prior quarter and a loss of $4.1 million in the same quarter of the prior year. This improvement was primarily driven by a nearly 600 basis point sequential increase in gross margins due to decreases in tooling expenses, cost-cutting initiatives and higher traffic on the GunBroker.com marketplace. We are seeing a stronger pull-through here in January and are optimistic as we grow our capacities for rifle case production as we expect to return to profitability during the 2025 fiscal year.

In addition, our Marketplace division continues its upward trend with seasonal sales continuing to increase here in Q4. GunBroker.com successfully tested our centralized payment processing application this quarter, and we will take our multi-item cart live on or before April 1. The payment application for checkout will support credit card processing for over 80% of our business, and we will continue to onboard sellers throughout the year as we develop the rest of the platform to onboard the remaining 20% of our business. As we've said in the past, this is the first major step in our evolution and our transition from an eBay auction house to the Amazon eBay of the outdoor shooting sports industry. The launch of our cart will drive subsequent evolutions of the platform as we enable tiered category fees, cross-selling, shipping, financing, a better user experience, enhanced search functionality and much more.

Now I'd like to transition to the Ammunition division. We continue to see strong demand for our products and continue to bring on rifle capacity. While the transition has been slower than desired with our rifle brass production, we now have the lines in place to start seeing acceleration this quarter and into fiscal year 2025. We invested $3.6 million in CapEx projects this year, and our cost-out initiatives will result in a savings of $1.75 million, which will start to take effect this quarter, but with real effect in our 2025 fiscal year. We are well on our way into the rebranding of our Ammunition portfolio and have focused our efforts on premium pistol and rifle ammunition, repositioning our core brands, STREAK, Signature, StelTH and the launch of our HUNT line.

This rebranding will carry through to our packaging website, in-store and online displays with our new HUNT line hitting shelves in early summer, while STREAK, StelTH and Signature lines are hitting stores now. I'm also proud to announce we recently onboarded Paul Kosowski [ph], our new Chief Compliance and Transformation Officer. Paul will be helping us drive greater compliance and ensuring our business stays in the black as we maneuver in these regulated markets. As we look at opportunities going into fiscal 2025, we will focus on the transformation of our marketplace. We will also continue to transition our manufacturing model to one of pursuing higher margins and premium rifle and pistol ammunition opportunities as well as embracing the growing OEM business.

I will now hand the call off to Rob Wiley, our CFO, to walk us through our third quarter financials.

Rob Wiley: Thank you, Jared. Welcome, everyone. Let me now review the financials of the third quarter of our 2024 fiscal year in more detail. We experienced an improvement in the marginality of our Ammunition segment, while the margins of the GunBroker.com Marketplace segment remained strong. We continue to see positive demand trends building for our ammunition product and activity continued to increase on GunBroker.com as we enter into the final quarter of our fiscal year. We ended the third quarter with total revenues of approximately $36 million in comparison to $38.7 million in the prior year quarter. The decrease in revenue was related to a decrease in sales activity from our Ammunition segment as a result of a change in the U.S. commercial ammunition market from the comparable prior quarter.

Our casing sales, however, which afford us higher gross margins increased to $4.7 million, up from $3 million in the prior year period. Our marketplace revenue was $14 million for the reported quarter, compared to $15.4 million in the prior year quarter, which decreased as a result of the current macroeconomic environment impacting our industry as well as others. Cost of goods sold was approximately $25.1 million for the quarter compared to $26.2 million in the comparable prior year quarter. The decrease in cost of goods sold was related to the decrease in sales volume. Our gross margins for the quarter were $10.9 million or 30.3% compared to $12.5 million or 32.4% in the prior year period. The decrease in gross profit margin was related to the shift in our sales mix.

Our cost cutting measures are paying off. There was a 5.4% decrease in operating expenses as a percentage of sales from the prior year quarter adjusted to exclude non-recurring expenses. There are approximately $1.5 million of non-recurring expenses related to legal and professional fees, which we have included as an add-back to adjusted EBITDA. For the quarter, we recorded adjusted EBITDA of approximately $5.4 million compared to the prior year quarter adjusted EBITDA of $6.2 million. This resulted in a net loss per share of $0.02, or adjusted net income per share of $0.04 compared to the prior year quarter of net loss per share of $0.04 or adjusted net income per share of $0.04. Our improvement to our marketplace GunBroker.com progresses as our cart platform is on schedule to launch on April 1.

We purchased approximately 145,000 shares of our common stock under our repurchase plan in the reported quarter, bringing us to just over 1.3 million shares repurchased in total under the plan. That concludes our opening remarks. I will now turn the call over to the operator for questions. Thank you.

Operator: Thank you. [Operator Instructions] And the first question will come from Matt Koranda with Roth MKM. Please go ahead.

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