POWW (2021 - Q3)

Good afternoon, and welcome to AMMO, Inc.'s Fiscal Third Quarter 2021 Earnings Call. Please note, this event is being recorded. I'd now like to turn this conference over to Mr. John Flynn, AMMO's Vice President. Please go ahead, John. You may begin. John Fly

Thank you, operator. Good afternoon, everyone, and thank you for joining us today. Before we begin, please let me remind you that this discussion, along with the question-and-answer session that follows, will include statements regarding estimates or expectations of future performance. Please note that these are forward-looking statements and that actual results could differ materially from those projected. Some of the factors that could cause actual results to differ from our projections are described without limitations in the Risk Factors section of our most recent Form 10-K and in our third quarter earnings press release. A copy of today's transcript will be available on our website in the Investor Relations section. Our earnings press release and other financial data and information are also available under Investor Relations. With me this morning are Fred Wagenhals, AMMO's Chairman and CEO; and Rob Wiley, our CFO. Fred will begin with some initial remarks; and then Rob Wiley, our CFO, will follow. And thereafter, we'll be happy to take some questions. And with that, I will now turn it over to Fred.

Thanks, John, and hello to everyone. I would like to open my comments by saying how incredibly proud I am of our entire AMMO team. Everyone was working hard before the COVID pandemic, civil unrest and political uncertainty. All came together to turn the world upside down last March. And since that time, and each and every day, I'm truly amazed at the effort, attention to detail and the drive our entire team has demonstrated, which has driven AMMO to the financial performance we now enjoy. Without this cohesive, all-star team of professionals, we wouldn't have been -- ever been able to achieve the impressive results I will touch on momentarily. Our company has seen tremendous and really unprecedented growth over the last 12 months. As our team continues to strive to reach higher goals, we feel it is important to provide an update to our investors in order to keep everyone abreast of the execution on a daily commitment to enhance shareholder value and growth for this company. So today's update is meant as a progress report regarding where we are today and where we hope to be by the end of 2021 fiscal year as of March 31, 2021. While nearly everyone has been impacted in some way from COVID, we have seen significant growth during this time of economic dislocation. We have seen demand and the resulting of our sales products increased by 278% over the last 12 months and expect to see the growth tend to continue throughout the calendar years of 2021 and 2022. Now let me touch on some of AMMO team's accomplishments over the past 12 months. We expanded our distribution network to 4,500-plus retailers across the United States. We expanded our product offering and retail shelf space across all big-box retailers. We have a backlog of nearly $180 million in purchase orders, the largest in this company's history. To address the backlog and continue to gain market share, we expanded our manufacturing and production capabilities by 300% to meet increasing U.S. domestic market demand. We have experienced approximately 291% growth in the sales of our patented STREAK ammunition throughout the U.S. domestic market. We expanded international product sales. We expanded law enforcement product offerings. We completed our acquisition of our brass case division with Jagemann Stamping. We raised over $20 million in a significantly oversubscribed public offering. We uplisted from the OTC markets to the Nasdaq Capital Market. We negotiated a strong, incentive-based land acquisition in Wisconsin to acquire the raw land and announced our planned construction of a $12 million-plus state-of-the-art loaded ammunition and brass case manufacturing plant, which we'll estimate will triple our manufacturing output through enormous operational efficiencies while decreasing operational costs by approximately $1 million a year. We closed on the purchase of a 1 million shares of our common stock for $1.50 per share from Jagemann Stamping, which lowers the company's float. We strengthened our Board of Directors by adding Richard Childress to our team. And as we have announced, we entered into a letter of intent on February 9 to acquire GunBroker.com at an enterprise value of $240 million. GunBroker.com is the world's leading online marketplace for legal sales of firearm, ammunition and accessories with over 6 million registered users. GunBroker.com estimated 2020 revenue is approximately $60 million with over $40 million of EBITDA, positive income and strong cash flow. The negotiated purchase price of approximately $240 million represents a purchase price to EBITDA multiple of less than 6x. This transaction further expands upon AMMO's vertical integration strategy. And fiscal 2022 is another pivotal year for our company as we focus on expanding our growth in all of our sales channels, including commercial, law enforcement, military and export. We have always been at the forefront of bringing technology to the ammo space through acquisitions. We will continue to look to invest capital in cutting-edge technology. The AMMO story is one of execution. And through that continuous execution and expansion, we look forward to forging ahead as our team works hard to create substantial value for all of our shareholders. I trust today's update is indicative of our desire to keep our shareholders and the markets informed and aware of all of our corporate development, and we will continue to do so in order that everyone can build their own clear picture of the opportunities. I really would like to extend my personal appreciation to all of our employees, customers and shareholders for continuing to support our company during these exciting times. Now I would like to turn the call over to Rob Wiley, our CFO, so he can provide some additional color and details on our company's financial performance.

Thank you, Fred. The company is positioned for exceptional growth, setting a new standard in fiscal 2021. First, I would like to review our balance sheet. We have increased our total assets to $67 million since our fiscal 2020 year-end. This is mainly due to an increase on cash on hand resulting from the completion of our capital raise in December, which was concurrent with a successful uplisting to the Nasdaq Capital Markets. Our accounts receivable and inventory have more than doubled through the 9-month period. Accounts receivable increased to $6.9 million and inventory increased to $9.5 million as we diligently work to supply our customers. We continue to add production equipment to be able to service our customers with quicker delivery times. The company restructured our debt since year-end to help facilitate the growth by freeing up cash flow. We are ever cognizant of opportunities that may arise to improve our operations and the future direction of our business. Fiscal third quarter delivered the best quarterly performance in company history with even better quarters expected throughout fiscal 2022. Now I'd like to move on and talk about sales. Our sales for the quarter were $16.6 million, a 500% increase in comparison to the 2019 quarter. Sales for the 9 months increased 282% to $38.3 million. Additionally, we experienced sales growth of 38% quarter-over-quarter, a $4.6 million increase from the previous fiscal quarter. This is a testament to the hard work of our diligent employees, the support of our shareholders, the buyers and customers, coupled with the strength of our expanding channels of distribution. Next, I would like to talk about our gross margins. Along with our sales, our margins have increased to approximately 20% for our third fiscal quarter, an increase of 163% or $4.2 million year-over-year. When depreciation and amortization are added back to the cost of goods sold, our gross profit margin increases to 25% for the quarter. Our margins are rapidly increasing as we have achieved scale and are now realizing the efforts we put into building the foundation of the company. We expect growth in our margins throughout the fiscal 2022 year. I would now like to discuss our operating expenses. Our operating expenses as a percentage of sales was 23% to the 28% decrease from the prior year quarter. For the 9-month period, our operating expenses as a percentage of sales, 28%, a 34% decrease in the prior year period. Net loss for the quarter was approximately $1.9 million. However, this included approximately $2.4 million of noncash expenses. Net loss for the 9 months was approximately $7.3 million. Again, this also included noncash expenses of $7.1 million. Next, I would like to discuss the metrics that the company values, adjusted EBITDA. Adjusted EBITDA is the EBITDA calculation with other noncash or unusual expenses added back in. Adjusted EBITDA has grown to $2.4 million for the quarter, a 295% increase from the prior year. For the 9-month period, our adjusted EBITDA was $3.3 million, a 170% increase from the prior year. The adjusted EBITDA improvement shows the impact of the scaling we are beginning to see in our operational costs. We expect our first half fiscal 2022 EBITDA to be better than the second half of fiscal 2021 as a stand-alone. Through a combination of improved adjusted EBITDA, disciplined capital expenditures and debt reduction, we expect our EBITDA to improve significantly within the next 12 months. Looking out just a bit beyond fiscal year 2021, we have the team, skills, the operating model and the assets necessary to generate at least $100 million in annual revenue, which would translate to $15 million to $20 million in adjusted EBITDA. Additionally, we have adjusted our forward annual capital spend requirements to around $3 million, reflecting a better match of plan assets to our model. Demand fundamentals in the U.S. domestic ammunition markets are exceedingly strong, and we are seeing no indication of slowing. We believe that will take us to higher sales levels, gross profit margin and EBITDA. The guidance for our fiscal fourth quarter as a stand-alone company is $20 million and $58 million for our fiscal year. We will be updating guidance if the GunBroker.com transaction comes into focus and such that it has an impact on our fourth quarter results. We will look forward to speaking with you in the future about our fast-expanding business. That concludes my opening comments. We are now ready to take questions, so I'll pass it back to our moderator.

[Operator Instructions] Our first question comes from the line of Trey Kidd with Raymond James.

Congrats on the quarter. I just had a 2-part question here. Can you explain adjusted EBITDA? And can you also expand on the net loss?

Yes. Thank you, Trey. Adjusted EBITDA is an EBITDA calculation which includes add-backs for other noncash expenses or nonrecurring items. We ended the quarter with positive adjusted EBITDA of approximately $2.4 million; and for the 9-month period, positive adjusted EBITDA of $3.3 million. Moving on to your question about our net loss, we ended the quarter with net loss of approximately $1.9 million, which included $2.4 million of noncash expenses. If excluded, this would translate into positive net income of approximately $500,000. I think this is a great question because it's important for our shareholders to understand that noncash expenses like depreciation, amortization and others are added back and resulted in a positive net income of $500,000. Also, we expect this number to grow rapidly in upcoming quarters.

Our next question comes from the line of [ Lisa Kay ], private investor.

Guys, I wanted to congratulate you on the great job you did this quarter. And also wanted to ask if you could shed some light on the increased margin.

Yes. Thank you, Lisa. Our margins for the third quarter of the fiscal year were approximately 20%. If noncash depreciation and amortization are added back, our margins for the quarter would be approximately 25%. As a stand-alone, the margin for the quarter was an 88% increase quarter-over-quarter. Our margins are dramatically increasing as our sales are increasing.

Our next question comes from the line of Gene Webb with Paulson Investment Company.

Guys, again, congrats on the great quarter for you and all the team. You've done a great job of growing this company. My question is, when do you expect the GunBroker.com transaction to close and what that means to us going forward for revenues?

Thank you, Gene. So right now, we're working diligently through the definitive agreement, and we have antitrust laws we have to abide by. Our working close date as of now is March 31, but we are working hard to close the transaction prior to our year-end. Upon closing the transaction, this will be highly accretive for us, which will allow us to generate significant free cash flows and positive earnings per share.

Our next question comes from the line of [ Len Combs ], private investor.

You previously went over combining your 2 manufacturing locations into 1 state-of-the-art plant, what's the timing on that and, again, the potential cost?

Thanks, Len. We anticipate moving into our new facility by May of 2022. And more importantly, we estimate annual cost savings of approximately $1 million.

Our next question comes from the line of Thomas Forte with D.A. Davidson.

So Fred, you touched on this in the prepared remarks. First off, congrats on the letter of intent for the GunBroker.com acquisition. I want to ask you if you could provide a few more strategic rationale for the deal. And then second, I wanted to know what the potential benefits to AMMO, Inc. are from combining the 2 companies.

Well, first of all, as you know, GunBroker is a company that's Internet-based. We'd have no inventory, no risk of inventory, and it allows us to get to the customer face-to-face. And we feel there's a lot of items that once they married a GunBroker or a gun salesman to a customer, there's other items that we can sell that customer, holsters, bullets, different items. And so we think we can grow our business through this acquisition. And we feel that we've got a good team of people that they brought with them. So Steve is going to be an intricate part of our company and in helping us grow this business for the next several years.

Ladies and gentlemen, we have reached the end of today's question-and-answer session. I would like to turn this call back over to Fred for closing remarks.

First of all, I'd like to thank everybody for participating in today's call. And we've got a great team of people here that have helped build this company. And from my standpoint, I got a great Board of Directors who are very active in helping us on a daily basis. I can reach out to my Board at any time, and they're helping us make decisions and help growing this company. So with that, I'd like to say I hope you join us for our year-end call. We're excited about where we're going to be at the end of this year, and we're really excited about where we're heading for the future. Thank you. Have a good day.

Thank you for joining us today. This concludes today's conference. You may disconnect your lines at this time.