POWW (2021 - Q4)

Good afternoon, and welcome to AMMO, Inc.’s 2021 Fiscal Year End Earnings Call. Please note this event is been recorded. I would now like to turn it over to John Flynn, AMMO's Vice President. Please go ahead, John. 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, the third quarter 2021 Form 10-Q and then our fiscal fourth quarter and full fiscal year 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 the 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, CFO. Fred will begin with some initial remarks and thereafter we'd be happy to take your questions. I will now turn it over to Fred.

Thanks, John, and hello to everyone. It is great to be able to talk for a few minutes about where our company stands today. And what we see moving forward in the next fiscal year. Last year was an exciting and challenging. I am pleased to note that our team rose to the occasion, making certain we met our lofty expectations, actually beating those expectations. When I spoke to you, the entire world was in the grips of the COVID pandemic. We were all also dealing with a even more volatile election season and troubling daily news resulting from the continuing civil unrest. The campaign is over. We now have a new President with the midterm election process is already starting to move a bit and civil unrest continues to rear its ugly head. We've all learned to go about our daily personal and business lives in this post-COVID environment, making certain we get the job done. And that is exactly what the AMMO team has done this past year. Let me take a few minutes to talk about what our incredible team of professionals have accomplished this past fiscal year. During our last earnings call, I talked about the incredible growth we have seen. Well, that growth pattern hasn't changed. In fact, it continues today. We have achieved over a year revenue growth of 300%. Our team achieved annual revenue of $62.5 million, up from $14.8 million for the prior year. We completed an additional capital raise early this calendar year, that was incredibly well-received by the markets, raising $150 million. While our manufacturing team worked around the clock to increase production and shipping capabilities to address the purchase orders stacked out into next year, our management team identified another key acquisition opportunity that we believe would further enhance our vertical-integration strategy, GunBroker.com. GunBroker.com is the world leading online marketplace for the legal sales of firearm, ammunition and accessories. We entered into a LOI and then our team worked hard to swiftly close the $240 million transaction, bringing GunBroker.com into the AMMO family of companies. We are integrating all of these operations at this time. By bringing GunBroker.com into our corporate family, we will be able to enjoy approximately $70 million in annual revenue, EBITDA margins in excess of 75%, while operating the largest online auction site for the legal sale of firearms, ammunition, and accessories. And we now have the ability to leverage our amazing technology at GunBroker.com to bring an assortment of additional product offerings to the market. With this transaction close, we are transforming the company from a pure manufacturer to a world-class marketplace. This will allow us to increase our consumer exposure, and enhance our customer experience. And we reasonably believe, this transaction will allow our shareholders to enjoy increased value. Our team has worked hard to answer the call of the United States Military. As a result, we have recently awarded a development contract by the U.S. Department of Defense to create ballistic match ammunition to place in the hands of the world's greatest war fighters. We closed on the purchase of a giant piece of land in Wisconsin around the corner from our current manufacturing plant. And we have now broken grounds on the construction of a new world-class state-of-the-art plant that will operational this time next year. That 160,000 square foot facility will allow us to continue to accelerate our production capabilities. Our new plant will place all of our operational assets under one roof, increasing revenue, margins and helping us to continue build value for our growing shareholder base. We were included within the Russell 2000 Index, a sign of strength of our financial performance. AMMO being included into the Russell 2000 is an incredible statement to the market's confidence in the company we have built and continue to grow each and every day. As you have heard me say before, we formed this company to disrupt the stagnant ammunition industry. Our focus has always been and remains on execution. We set goals, look for accretive business opportunities and worked tirelessly to develop new products, both the commercial and the military market needs, especially those service servicing the U.S. military and the service of our allied nations. We see the international markets starting to slowly open up and we remain hopeful that will continue in coming weeks and months. The team work day and night on other products for the military application, some requested by them and some we just are doing on our own to fill the needs. Our new plant will only enhance those R&D efforts into the coming years. We have always been on the leading edge, bringing technology to the ammunition industry through innovation, hard work and acquisitions. And to be clear, we're not finished. Through continued execution and expansion, we will forge ahead with our team working hard to create increased value for all of our shareholders. Speaking to you today, my goal is to make certain our shareholders and the market are informed and aware of all of our corporate developments and the amazing progress we've seen to date. With GunBroker.com transaction close, we have involved from an ammunition manufacturing to a world-class marketplace to be enjoyed by the firearm, shooting, hunting and consumers for years to come. I would again 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. COVID didn't stop us, political unrest didn't [disrail] us and failing second amendment attacks by certain politicians and special interest groups will only continue to motivate me and to do my job better as the leader of this company. Now, I would like to turn the call over to Rob Wiley, our CFO. Rob will provide additional color and detail on our company's financial performance through the past year. Thank you.

Thank you, Fred. As Fred referenced in his comments, the company continued to grow at an exceptional pace. First, I'd like to review our balance sheet. We have increased our total assets to $179 million since our fiscal 2020 year end. This is mainly due to an increase in cash on-hand resulting from the completion of our capital raise in March. Our cash receivable and inventory have more than doubled though the fiscal year. Accounts receivable increased $6 million and inventory increased by $11.5 million as our sales volume continues to increase. We continue to add production equipment to be able to service our customers with quicker delivery times. The company restructured debt since our prior year end to free up cash flow, to facilitate growth. Our fiscal fourth 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 $24.2 million, a 409% increase in comparison to the 2020 fiscal quarter. Sales for the year increased 300% to $62.5 million. We also experienced sales growth of 46% quarter-over-quarter, a $7.6 million increase from the previous fiscal quarter. This is a testament to the hard work of our diligent employees, the support of our shareholders, suppliers, and customers coupled with the strength of our expanding distribution channels. We've recently given guidance on our fiscal 2020 revenue of $190 million, with the addition of GunBroken.com, the world's leading marketplace for the outdoor sporting enthusiasts. Next, I'd like to talk about our gross margins. Along with our sales, our margins have also increased to approximately 23% or $7.1 million for our fourth fiscal quarter, a year-over-year increase of 179%. When depreciation and amortization are added back to the cost of goods sold, our gross profit margin increases to 27% for the quarter. Our margins continue to rapidly increase as we enjoy additions to our margins achieved from developing scale in our operations. We expect to see significant growth in our margins through the fiscal [2022] year with the addition of GunBroker.com. I would now like to discuss our operating expenses. Our operating expenses as a percentage of sales was 25% for the fourth quarter. This is a 58% decrease from the prior year quarter. For the year, our operating expenses as a percentage of sales was 27%, a 61% decrease from the prior year quarter. Net loss for the quarter was approximately $463,000; however, this included approximately $3.4 million of non-cash expenses. Net loss for the year was approximately $7.8 million. Again, this included non-cash expenses of approximately $10.1 million. Next, I would like to discuss a metric that the company values, adjusted EBITDA. Adjusted EBITDA is the EBITDA calculation with other non-cash or unusual expenses added back in. Adjusted EBITDA has grown to $4.8 million for the quarter, a 296% increase from the prior year. For the year, our adjusted EBITDA was $8.1 million, a 213% increase from the prior year. As I referenced when discussing margin improvement, the continuing adjusted EBITDA improvement shows the impact of the scaling we are continuing to see in our operational costs. It also bears noting, we expect our first half fiscal 2022 EBITDA to be better than the second half of fiscal 2021 as a standalone. Through a combination of improved adjusted EBITDA, the addition of GunBroker.com, disciplined capital expenditures and debt reduction, we expect our EBITDA to be in excess of $65 million within the next 12 months. I will now move on to adjusted earnings per share. Our adjusted earnings per share increased to $0.04 for our fiscal fourth quarter, a 167% increase from the prior year fourth quarter. For the year, adjusted earnings per share increased to $0.07, a 150% increase from the prior year. Adjusted earnings per share is a metric that the company values as we believe that is a better representation of the company's true operating performance. As we expand our view and look beyond fiscal 2021, we have the team, knowledge, operating model and assets necessary to generate at least $190 million in annual revenue, which would translate into excess of $65 million in adjusted EBITDA. Additionally, we have adjusted our core annual capital spend requirements to around $3 million, reflecting a better match the planned assets to our model. Demand fundamentals in the U.S. domestic and ammunition markets are exceedingly strong and we're seeing no indication of slowing. We believe that this will take us to higher sales levels, gross profit margins, and EBITDA. We see significant transactional volumes through our GunBroker.com marketplace to further support demand fundamentals for the market. The guidance for our fiscal fourth quarter is $41 million, and will include two months of operations from our newly acquired GunBroker.com assets. As previously announced, we expect to achieve profitability in this quarter. We look forward to speaking with you in the future about our [best] expanding business. So, that concludes my opening comments. We're now ready to take questions. So, I will pass it back to our moderator. Thank you.

Thank you. And ladies and gentlemen, at this time we will conduct our question-and-answer session. Answering questions today we have Fred Wagenhals, Chairman and CEO; Rob Wiley, CFO; and Rob Goodmanson, President and Director. [Operator instructions]. Our first question comes from Matt Koranda with ROTH Capital Partners, please state your question.

Hey, guys, thanks for taking the questions. Just wanted to start off with an update if you could on the commercial ammo demand environment. I think in the past you guys have typically provided sort of a backlog figure. Are you able to disclose sort of where the backlog stands right now? And then just maybe also if you could thread in, as we think about sort of how far off or booked for the year is? Does that create any deterrence in terms of new orders just given that you guys are likely even looking at the prior backlog, relatively booked up for the full-year for fiscal ‘22?

Yes, this Fred Wagenhals. We've seen no slowdown in the consumer demand following the election. If anything, our sales have increased. At this point in time we have about $200 million in back orders. And we've continued to buy more equipment to scale our capacity and fulfil our orders. And right now I see a big surge over the last two weeks since we've moved into everything from Payson into our facility in Manitowoc. We've had some record-breaking year or days over the last few weeks. So, we feel very comfortable that we're probably three to six months out. But when you look at that, you got to look at the caliber. And -- but I would say, we're close to three months out now on orders.

Okay. Got it. And then, since you've mentioned sort of the more recent surge Fred, it'd be helpful to understand where that specifically is coming from. And is that also just due to your capacity expansion, maybe you could also speak to, or quantify loaded ammo capacity at this current point in time. And then what we expect to add over the next quarter or two or however you want to kind of gate it out for us?

Well, I would say that, everything we've been building recently is loaded ammo, and we're scaled up right now where we're running about 700,000 rounds a day. And we want to scale-up to 1 million rounds per day. And it all depends on supply of a couple of items, but we feel very confident we've got that under control now. So, our goal was 1,000 rounds per day or 1 million rounds per day.

Okay. That makes sense. And since you mentioned supply as well, I did want to kind of touch on that if we could. I did notice it looks like inventory days kind of coming up a little bit this last quarter. And I would assume you guys are potentially trying to build some safety stock, and add inventory where you can just give them a strong demand environment. But could you speak to sort of, where you guys are still sort of scrambling, so to speak, to get additional components in the supply chain, what is still tight? How are we addressing tightness in that component of supply?

Fair. Matt, this is Rob Goodmanson. I'm going to answer that question. As a major brass case component, we do -- we feel -- we believe we’re in a very strong position. We have contracts with multiple large primer suppliers and suppliers of other necessary stuff. We just continue to manage the layered and the leveraged primer supplier relationships to make certain that. We achieved our goal of maintaining consistent and reliable supply across the whole supply chain, not just the primers. So, I think we've got a good...

So, it sounds like primer is still relatively tight though, don't want to put words in your mouth, but just want to make sure I put a fine point on it. Is that the case?

It is very tight. But again, there will be -- thankfully we don't use just one primer supplier. We have multiple contacts and contracts with them and just the primers across industry are a little bit scares.

Got it. Okay. Maybe one more from me, and then I'll turn it over to take turns here. But just in terms of GunBroker now that it's been brought online, wanted to get an update from you guys on sort of maybe priorities in terms of what you see as some of the first kind of add-on product lines you can bring to that? Obviously, I think in the past we've talked about the potential to be able to put ammunition through that platform, but there's also additional kind of low-hanging fruit that we've talked about as well in terms of payments and financing and whatnot. And you guys have put some press release you got around on that. But maybe you could just talk a little bit about the priority list and where you see that headed?

While we’re kind of talking, we're hitting some of the priorities right there. We are with GunBroker being the world's leading online marketplace. I mean we are going to leverage that marketplace. We got 6 million plus active users and we really want to enhance the customer experience. And I think one of the best ways to do that is really to host additional product offerings and additional lines. One of the things we'll do -- of course, we talked about ammunition seems like a low hanging fruit. But ammunition was only approximately 3% of their sales last year, GunBrokers. We feel that by going direct to the customer, we can really drive revenues for GunBroker. On top of that, I think you're going to see a number of financing options come available to our users. This conversion is going to help with the retention. I believe they're going to help us with retention. And it's also going to grow the average ticket size. A bunch of this point has been pretty much an ACH thing. So I think you're going to see the financing options are going to be well-received with that company.

Okay, got it. I lied, I’ll do one more and then I'll get back in queue, promising this one. But just wanted to get a quick update from you guys, just in terms of now that you have GunBroker under the umbrella so to speak, maybe talk a little bit about what you're seeing in terms of just consumer demand trends and how GMV is trended there. I know it's been running in a relatively elevated rate over the last several months, but just wanted to see has that changed in any material way in recent weeks or months and how do you see that trending for the rest of this fiscal year if you could?

Hey Matt, this is Rob Wiley. So GMV in 2020 was a record setting year. In 2021, we're seeing GMV actually outpacing prior your record setting year. For the remainder of the year, we're not seeing any indication of slowing in that. So very excited of the year to come.

Our next question comes from Mark Smith with Lake Street Capital Markets.

First on GunBroker and you guys have hit on it a little bit here, but just the integration. Do you feel like you've got kind of everything done that you need at this point now it's just kind of add-on to an improving service or is there still any work that needs to be done on bringing it fully online with you guys?

Mark, this is Fred Wagenhals. The integration is being going real well and as you expected probably, our team was working on the integration planning while we were working on closing the transaction, but GunBroker.com marketplace is -- their IT platform is second to none, which made the job much easier for us and people who we're working with, they're very cooperative. We're real happy where we are today with that.

And as we look at consumer behavior, I know you guys have talked about that you haven't seen any slowdown yet? Does GunBroker and having that in-house really gives you a much better lens on the consumer and what's happening on kind of day to day transactions or even price sensitivity, or is there things that you can learn from consumers now with GunBroker that you wouldn't have had the insights before?

I think it's a huge win for us to have that insight not only from the GunBroker side, but with that insight in the manufacturing side as well, which products are selling, which products are not, where to go with that? We have added people in that space directly for that space for a lot of the additional products that we can put-on on GunBroker’s that is not there yet. We're very excited and very optimistic of this coming year. It's going to be extremely bullish for us.

Excellent. And as we look at just pricing on ammunition, are you seeing any changes here or any pressure from peers or competitors or are you still in a situation where if you build it, they will come and they'll buy it at just about any price?

I'll take a quick stab at that. There are a few SKUs that ran up very fast and had slowed down a little bit. I think a lot of that possibly had to do with excessive importing of ammunition. The demand is still there, still very broad. And most of the SKUs that are out there, it truly is build it and they will come.

Okay. And I think the last one from me is just, as we look at kind of government military contracts, you've had some good announcements on that business. But how do you guys weigh kind of with your capacity a military contract versus consumer ammunition? What are the margins like, and do you have capacity to be able to take on new contracts this year?

Let's break that into a couple of different answers. We put a team together a few years ago who worked in the military and the allied and the import business. And prior to even getting anything, we started to actually acquire equipment that were MilSpec grade manufacturing. And that was before we had any of the contracts with the U.S. Department of Defense, I will say that, that probably helped us secure those contracts as far as their requirements for performance and volume. But when it comes to the capacity, with this team we've done a fabulous job in moving in within the military machine, if you will. But for this company, we're not going to go pursue or go under any contract with the U.S. Military or military branches of an allied nation, unless we're confident that we can perform and supply world-class levels in all respects. We're not going to be everything to everybody. But we do have a few products that we think that there's a lot of things we can't talk about, but some of the potential opportunities with the Armor Piercing and the STREAK applications. Yes, we think that future is very bright moving forward.

Okay. That's great. And I guess that kind of hits the point that you guys have always been focused more so on innovation and being differentiated rather than just selling plain ammunition. And as we look forward, is that still the goal? It sounds like as you guys are transitioning from just a manufacturer of ammunition to specialty ammunition, proprietary products, and really now more technology company, maybe more so than just manufacturer.

I mean, so far it’s working very well, for us. And we don't see any reason to change what we try to do. We want to be a disrupter. You can call us whatever you'd like. But it's antiquated need to change. And I think the ecommerce platform is a solid move that way, and top of our product line.

Mark, this is Fred. I don't think we're ever going to be a company that's going to be a little white box on the shelf for some red or blue lettering on it and selling at the cheapest price. It's not going to be us.

And our next question comes from Brandon Beylo with Macro Ops, please state your question.

I just had one quick question. Going way back to when you opened and built the call center that you guys did back in, I believe it was April 2020. And it was such an interesting move to, you're -- aggressively kind of at the start of the pandemic. And you're doing call centers, when a lot of people are just kind of moving towards a digital online only age. So, from an operational and kind of decision-making perspective, what went into deciding on building that call center, and I know it's done really well since. But take us through maybe the early days and kind of why you were thinking about doing it and why you decided to go through it?

Well in my previous experience and my partner Chris Larson's previous experience, we both wanted to do a call center, and had done it before. And we finally took us finding the right guy to run it. And we found a guy that had several years helping build a company from 100 million to 500 million with a call center. And we just happened to bring him in, in March. And it took off in April and with 10 employees, and it's continued that way. And right now they're doing more customer service than they are selling for 100 million or 200 million in backorder right now. So it was -- as I would say, timing is everything. And we've picked the right guy at the right time to do it.

Got it. And then one more question and I'll hop-off. When it comes to the revenue percentage split between your retail orders, and then your international, I’ll call it, military government, looking out over the next three to five years, what percentage do you think will comprise most of your revenue? Will it be from the military government which then there was probably a more lumpy revenue generation process? Or do you think that the revenue that you're seeing from the retail side higher and so maybe you'll get a higher percentage of a mix from retail?

Well, I'll take a stab at that. But I think we've always thought that retail might be a 40% to 50% some point in time. And I just know we got one of these orders that our team has been working on, but the worth the size of this company. So, hopefully someday -- I'm just speaking for myself. I'd like to see a 50-50 split, where we're done 50% of the military, and 50% to the consumer market.

And do you have any plans on disclosing, when or if those deals happen, the actual number? Because I know you guys have been bringing on or have been releasing some order releases in terms of signed deals and stuff like that, but in terms of actual dollar amounts do you have any plans on maybe disclosing those or not?

Well, from our standpoint, we're kind of at the mercy of the United States Government. So, we do with them, we have to run any press releases by them to get approval. And, as Rob said earlier, there is some things that we're working on that's very exciting that we'd love to talk to people about but we're not able to do that. So, we're at mercy of the United States Government.

And I know that was -- one more question. When it comes to the margin expansion, I know you guys are starting to see a lot of that operational leverage kick in now. On a percentage basis, where do you guys think you're at in terms of realizing full operational leverage capability? Are you at 70% of the way there, 60% of the way they, or is it too early to call at this point?

Brandon, this is Rob Wiley. I'm going to kind of answer this in a little bit of a roundabout way. But our margins are growing rapidly, as you can see from our financial statements and we expect them to do so in this next fiscal year, with the addition of GunBroker. Historically, they were kicking off gross margins at approximately 87%. And with the growth in the margins we've had just from the loading operations over the past year, we've been able to increase our margins by 170% in the next fiscal year. And to answer part two of your question, we really look at the revenue mix of our next fiscal year broken out one-third to GunBroker and two-thirds to our loaded ammo operations. And we previously announced guidance of $190 million.

Got it.

The other thing, right, that makes a big difference there. Now, that we've acquired GunBroker, we're not just a manufacturing company anymore making ammo. We're in the marketplace.

Do you think at some point, you guys are going to eventually see maybe the public market think of you and maybe even re-rate you as more of a marketplace business than just a commodity producer?

Yes, I think they are. Yes.

Our next question comes from Matt Koranda with ROTH Capital Partners. Please state your question.

Thanks for taking the follow-up. Just wanted to see if you could touch on cash balance post GunBroker acquisition and the preferred issuance. Maybe if you could just kind of give us an update on where that sits post those transactions? And then, interestingly, I guess, I think it was Fred mention sort of willingness to continue to transact and look at additional potential acquisitions. Any way to quantify the M&A pipeline and how that looks and sort of, could we see something happen this fiscal year. Would be really helpful to get your thought process around that?

Well, this was Fred. For me, and I think our Board of Directors, it has to be accretive, it has to be in our channels of marketing. We're not looking for a tent company or a flashlight company. We're looking for something that fits our game plan. And first thing we're looking at is, is it accretive to us? And by adding it to this family of companies, can 1 and 1 add up to 3 or 4.

And Matt, to answer your first question, we ended the year with approximately $120 million in cash to close the acquisition. It was a combination of cash stock and debt. So we closed with $50 million of cash. We took out the debt that GunBroker had on their books, which was approximately $50 million. And after that, as you had mentioned, we completed the preferred offering, which was in total of $35 million in gross proceeds.

Our next question comes from Jon Berman with Berman Capital.

I was wondering if you could give sort of a broader overview of your exposure to potential increases in commodity prices? And if you have long-term deals with suppliers, could you talk about the timeframe for the sales along the list?

Yes, we do have exposure to commodity increases, but consistent with the rest of the industry, we have passed on price increases through the increases of our product prices to our customers.

Our next question comes from Michael Dwyer with Raymond James.

Rob, where do you see gross profit margin over the coming fiscal year? And if you could give some color around the segmentation of that, that would be helpful?

Hi, Mike and thank you. So we could -- our gross margin is increasing rapidly. As I mentioned previously, GunBroker.com historically have kicked off margins of approximately 87% and with our margins continuing to grow due to our scale, I'm very excited that there’s potential increases that we expect to see throughout this next fiscal year.

I've heard the word marketplace mentioned a few times by Fred in your introductory comments. How do you see that going forward? And should the Street look at this from a re-rating standpoint?

Hi, Mike this is Rob Goodmanson and I think the Street will -- is starting to realize really what we're doing here. Part of our plan was not to be just a straight manufacturing company. The marketplace is the place to be. This is a new way to do it, and I think that they will actually see, as the numbers come out moving forward this year and next year, the year after that, that we will carry a different valuation than a manufacturing company.

Mike, this is Fred. I've been asked this question a lot, and I -- my answer is we did not buy GunBroker to just be GunBroker, we bought it because we knew we could put other stuff on that product line. And my past experience with Action Performance, you saw what I did there. We just didn't have a little die-cast car or T-shirt, we probably had 160 SKUs before it was over. So the plan is to grow GunBroker.

Could you see 160 SKUs on GunBroker's website?

Probably.

Our next question comes from Paul Carter with RBC. Please state your question.

Hi guys. Thank you very much. Great quarter, and big shooter. And I appreciate all the work that you guys are doing. I want to talk a little bit about the new facility that's going to be -- if I understood you correctly, it's going to be up and running in about 12 months. Is that correct?

Yes, this is Rob Goodmanson. Yes. We just broke ground here about a week ago in Manitowoc. It will be completed by June 1 and we're anxious to move everything in there. I'd like to send you a picture of what it looks like right now, but it's just a bunch of dirt being moved. Might we'll do it later.

Yes, that's right. So my question really surrounding that is, I didn't hear anything about the cost of that facility or how you plan on carrying the cost of that new operational facility?

I believe the cost of facility is about $18 million. The land, however, was -- or I think we paid a $1. There's TIF money involved, it's very beneficial. We'll just carry mortgage on it.

Okay. I appreciate the answer. So I want to ask one curiosity question, if you don't mind. I'm a shareholder of AMMO, Inc. Who developed the brilliant idea of the STREAK ammo?

It was developed by the University of Louisiana in Lafayette and it’s patented, and we own that patent forever. And we pay a very slight royalty to use that patent.

Thank you. Our next question comes from Brandon Beylo with Macro Ops. Please state your question.

Hey, guys. Sorry, I thought it was done, but I've just got one more question. So you guys are clearly fast growing, disrupting and otherwise super-boring industry as kind of Fred alluded to in his earlier comments. Have you seen any pushback or sort of attempted retaliation from the larger gun -- whether it's the gun manufacturers or the ammo manufacturers like Smith & Wesson or [Stone River]? Have you seen them trying to position themselves to adjust to what we're doing with the marketplace and with some of our differentiated products or do you just still see an industry that's, for lack of a better term, just lackadaisical, and just really doesn't care about the innovation that's going on?

This is Fred Wagenhals. About a year ago, we've had companies come to us and want to license our STREAK ammo and -- but we haven't given anybody wishes around, or I haven't seen anybody tried to copy what we've done. But I think there's licensing opportunities in the future for us, if we decide we'd like to license a street product.

Got it. And in terms of licensing, I assume, you turn you turn down that first offer that came to you for that. Is there a reason why you decided not to license at that time? Was it just a -- it wasn't a favorable deal for us? Or what was your thinking behind that?

But I just don't think we at that time, were able to produce what we had orders for. And we wanted to test the market first and made sure we had a good foothold in the market and before we ever went out and licensed the product.

And just a little to add on. This is Robert Goodmanson. You had mentioned that these companies, are they just being lackadaisical, I don't think it's lackadaisical. I just think it's very hard for them to change their business model. But they've had Winchester for 200 years Federal for 100. How do you change and without making everybody mad? So, we've just taken a different approach. And we didn't have anybody to make mad.

So it sounds like licensing would be something you guys would do once you're at capacity and you're comfortable in fulfilling all your orders. And not to say that you have room to add product, but you would add licensing, maybe if you're comfortable in what you're developing for your existing backlog, and you don't feel like you have more than enough work to do to kind of keep going?

Let's answer that with a solid maybe.

Thank you. And there are no further questions at this time. I'll turn it back to management for closing remarks. Thank you.

Well, thank you. We look forward to the next time we talk to you guys and have a good day and watch us grow.

Thank you. This concludes today's conference. All parties may disconnect. Have a great day.