Outdoor Holding Company (POWW) Earnings Call Transcript & Summary

All right. Welcome back, everyone. Great morning so far. We've got some more fantastic companies to present to you today. Starting with AMMO, Inc. trades on the NASDAQ under the symbol POWW and designs and manufactures products for a variety of aptitudes, including law enforcement, military, sports shooting and self-defense. Joining us today is Rob Wiley, the CFO. Welcome, Rob.

Thank you very much.

All right. Whenever you're ready, the floor is yours.

Great. Hello, my name is Rob Wiley, and I'm the CFO of AMMO, Inc. and I will be presenting about our company today. Before I get started, I'm going to take a brief pause and let you take a look over our forward-looking statements we have posted here. Okay. Next, I'm going to give you a snapshot on our company. As you can see, Fred Wagenhals, our CEO is our largest shareholder. Today, we have approximately 93 million shares outstanding after the completion of our successful offering where we raised $115 million gross proceeds and issued 23 million shares. Next, I'm going to move on to our management team. I, myself, I'm Rob Wiley, I'm the CFO of the company. I'd like to go a little bit into Fred's background. He has a very successful pass in the public arena. Fred, in the early '90s, started the company called Action Performance, where he took the company from 3 individuals on a card table to $400 million in revenue in 8 short years. He uplisted the company to NASDAQ and then to the New York Stock Exchange and ended up selling the company to the NASCAR family. I mentioned this because they were in Fred's time with Action Performance. He became good friends with the NASCAR drivers. He became interested in sports shooting and hunting and he kind of fell in love with the firearm and ammunition industry business. So when we eventually started the company, he looked at a way of -- the industry felt a little antiquated, a lot of advancements in firearms, but not necessarily around ammunition itself, and how do we bring technology to the industry. So that was really the vision when Fred started this company. We also have John Flynn, Vice President of our company. He's another key member of our management team, who also heads our military sales. I'm just going to take a moment to let you know that there's a copy of this presentation on our website, if you'd like to review it. I'm going to be jumping around a bit, but just for your reference there, it will be on our website, and there's a few other slides in the appendix, which will give a little bit more detail about our company. Now before I move on to our financial highlights, I'm going to take you through our company history. So as I mentioned, Fred founded the company. This is around October of 2016 with the vision of how we can bring technology to the industry. So from there, we made our first technology-based acquisition when we acquired the STREAK technology. STREAK is a one-way luminescent noninflammable tracer round, which is safe for indoor use and a great training tool. I'll go in a little bit more detail about our IP later on in the slide, but I just wanted to give you a brief overview of our history. From there, we were looking to acquire a way to expand our military offerings. So we made an acquisition of a company called SW Kenetics research and development firm out of Arizona. And they had the patented technology to an armor piercing technology, which we felt would be great for -- to expand our military product offerings. From there, we were looking to expand on and vertically integrate our supply chain. So we made the acquisition of a company called Jagemann. They were -- or Jagemann brass casings. They were one of the largest independent brass manufacturers in the U.S. before we acquired them and really a way to lockdown our supply chain in times of high demand like we're seeing today at times of war when we would have -- could potentially been pushed out without being able to secure our components. From there, we were -- in March of 2020, we were looking to expand our manufacturing capabilities and continued to invest in our protection equipment to be able to produce more rounds to service our customers with quicker delivery times. And in April 2020, we established a call center, and that has been wildly successful and has helped grow our revenue base to what we see today. And I'll go a little bit more into detail on that later on in the slides. In December of 2020, the company was uplisted to NASDAQ. We're very pleased with that, came along with a very successful uplisting offering. And in January of 2021, we announced the construction of our new manufacturing facility in Manitowoc, Wisconsin that will come online in the summer of 2022 and will house all of our manufacturing capabilities. So that's a brief overview of our company history. I'm going to take a step back here in the slides and go over our financial highlights. Before I get started here, I just wanted to point out that we're a March 31 fiscal year-end. So our fiscal year 2021 recently ended and the guidance we originally gave of $58 million was an increase to $62 million recently. We have recently given guidance for our next fiscal year ending March 31, 2022, of $120 million. A few things I wanted to point out about our guidance is traditionally when we give guidance, we have beat our guidance every time. So we feel we're conservative with the guidance we put out. And also, I'd like to note that although $120 million seems like a big jump from $62 million, we have all the manufacturing capabilities to meet this guidance, and this guidance is only as a stand-alone company for our commercial ammunition sales. So there's upside on these numbers from military export and law enforcement sales, potential acquisitions as well as the bio AMMO opportunity, which I'll be discussing in a little bit. Throughout this period of time, as our sales have been increasing, our margins have been increasing. When we built the foundation of this company, we built it to scale, that included a heavy mix of noncash depreciation and amortization expenses included in our cost of goods sold. But as we've been -- our sales have been increasing and as we've been scaling our company, we've been able to realize the margins that we've built into our product pricing. Our adjusted EBITDA has also been increasing during this time and is a metric that the company values as it includes add-back for noncash expenses like stock compensation, for example. And we've given guidance for next year of $20 million in adjusted EBITDA for our fiscal year ending March 31, 2022. Next I'm going to move on to our financial highlights on a quarterly basis. So you can see over the past 12 months, how we've achieved incremental growth in our revenue and our path to the guidance of $58 million are now $62 million in revenue. Throughout this period of time, our margins have been increasing as well as our adjusted EBITDA. And I'd like to focus here on our most recent third quarter ended December 31, 2020. As you can see, a significant jump in our margins and our adjusted EBITDA as we're now achieving scale. I would like to point out the margins were moved up from the 11% range to the 20% range, and you can also see a significant jump in the adjusted EBITDA as well. I'd also like to point out in just our third quarter here that if you would add back the noncash expenses for that period, we would have ended up with positive net income of approximately $500,000. So these are all trends that we expect to see to continue looking into the future of this company. So taking a look at the markets we serve, we break our revenue into 2 categories: commercial sales as well as military and export sales. Our commercial sales have made up primarily all of our sales today and include sales to big box retailers, all the way down to mom-and-pop shops, also included in this category of sales of our brass casings, which has proven useful in high demand as we've been able to sell our brass casings to our competitor to trade for their components to better service our customers by locking down our supply chain. Our military and export sales are really what we built the foundation of this company to do and what we expect to be the majority of our sales looking into the future of this company, and this would include sales for the U.S. military, law enforcement as well as our foreign NATO allies. So we took -- I took you over our company history, so I'm going to skip that slide. But I'd just like to pause for a moment here and give you an opportunity to take a look over the remaining topics that we'll be covering today. I will not be going through each of these topics individually on this slide alone, but it kind of can give you an idea of the direction we'll be headed for the rest of this presentation. So I'm going to move on to our differentiated product. So as I mentioned, Fred expanded this company with the vision of bringing technology to the industry. So through our patented products, we're able to differentiate ourselves from our competitors by selling a premium product, which carries higher margin and also is attractive to young, new and active shooters. And this is different from the industry where it's more of a commoditized product and a more high-quality value type of product. And the way we do this is through our patented technology. So I touched on our STREAK technology earlier, but I'd like to go into a little bit more detail on that. So I mentioned the STREAK is a one-way luminescent technology, a nonflammable tracer round, which means that it's not on fire when you shoot it on range. It's safe for indoor use, and it's only visible to the shooter in about a 30-degree range, so 15 degrees off the east side. The feedback we received when we launched this product was very exciting. We heard comments that this is -- looks like -- this product looks like Star Wars in a box. And we ended up earning an award for the most innovative product at the 2018 SHOT Show when we launched the product and was a way that we were able to get into big box retailers like Bass Pro, Cabela's and Sportsman's Warehouse, early on. Our armor piercing ammunition, the patent we acquired from SW Kenetics is for military and law enforcement use and we're 1 of 3 companies in the world that are able to produce armor-piercing rounds and the only one that is located in the U.S. Our armor piercing technology outperforms our competition from distance by about 30%. So these are the main products in our IP portfolio today, but I'd also like to discuss another exciting opportunity that has come up recently. So in March of 2021, we entered into an exclusive distribution rights for -- with Bio AMMO. So Bio AMMO has created a biodegradable shotgun shell. We're very excited about this product and having the exclusive U.S. distribution rights. We sent it around to some of our friends in the industry, some of which who own hunting ranges and the feedback was phenomenal. We've received comments back like this product is a great game changer. The product itself is patented in about 50 countries around the world and the company is continuing to expand their R&D process, which we will be partnering with them -- with to create a bio bullet. So as I mentioned, this is more of a biodegradable shotgun shell, but the company is looking to make -- to take the next step and partner with Bio to create a BIOBULLET, which was great for hunting, shooting ranges and also has military application as well as this has been a long-standing general request for the military to create a biodegradable round. And you can imagine they are testing tons of rounds on an annual basis. And spend billions of dollars into the maintenance and the cleanup process of those ranges. So very exciting opportunity that the company is excited to work on moving forward. And it really fits in line with the vision that Fred had when he started this company. From here, I'm going to take it on to the markets we serve and kind of give you a current landscape of the current U.S. domestic commercial ammunition markets. But first, I'd like to touch on our addressable markets here. So as you can see here, there's really enormous commercial and military addressable markets available for the company to serve. And we're very pleased about our growth and where we've been, how we've achieved and executed our path to this date. But what we're more excited about is we really feel like we're just starting to scratch the surface in terms of addressing our market here. So I'm going to take that from here to the landscape of the current U.S. domestic ammunition markets. So this figure here shows the firearm background checks over the past through few years, and you can see there's been a significant growth over the past 12 months. And that really started with the COVID pandemic taking effect and the political uncertainty heading into the election and is continuing to this day with the social unrest that we're experiencing throughout the U.S. I think it's important to note that the February background checks for another record-setting numbers. So we still have to see demand continuing to grow to this date. Another -- I'd like to provide you with an example here, in the past year, there was 8 million new firearm owners in the U.S. alone. So if each individual when they purchase their firearm or buy a box of 250 rounds to break in their new firearm which we know it takes a little bit more ammo to do that. But just an example, that's over 2 billion rounds that we need to be serviced by the market. So there is high demand in the market today. This figure here just kind of shows you the headlines of the demand with the recent headlines continuing to this date. And next, I'm going to tie this back to our company's backlog and demand. So as you can see, over the past year or so, our backlog has grown significantly to approximately $180 million. Even as we've been scaling our production and adding production equipment to service our customers with quicker delivery times, our backlog continues to demand -- our backlog continues to grow, and we view this as a very dynamic figure as our customers once they receive their orders are constantly replacing new orders. And frankly, this is because our customers can't keep the products on their shelves. So we view that as an indication that there's no slowing in the industry, at least in the new -- sorry, no slowing in the industry for the U.S. domestic commercial markets for the foreseeable future. And the last thought I will give you with here is a large part of the growth in our backlog can be attributed to the success of our call center, which I mentioned, we implemented in April 2021. And I'll give you a few figures about our call center next. So our call center since it started has been wildly successful. In the first couple of months, they were able to generate so many orders. We ended up with over 80 million in booked orders at that point in time. We've added over 4,500 new customers with notable names like Rural King, Dick's Sporting Goods, and Big 5, just to name a few, and we're very pleased with their success to the state and the long-term view of this -- of their -- of having them with this company. So here, I'm going to move on to our vertically integrated model. Currently we have 2 manufacturing facilities, one in Payson, Arizona, and one in Manitowoc, Wisconsin, and we're able to produce over 750 million rounds on an annual basis. Although we currently have a high utilization rate, we continue to add production equipment and pieces to our manufacturing line to be able to ensure that we're servicing our customers with the quickest delivery times possible. I'd also like to note that we -- although our utilization rate is high, we don't view that as in any way limiting us for the guidance that we've currently set for this next fiscal year ending March 31, 2022. Another way that we're adding to our vertically integrated models through the construction of our new manufacturing facility in Manitowoc, Wisconsin. So this 160,000 square foot facility will house all of our manufacturing capabilities and will provide over $1 million of cost savings on an annual basis while also providing production facilities -- sorry, excuse me, production efficiencies as well. And as I mentioned earlier, although we're manufacturing this new facility, we view that we have -- we'll have no problem meeting the guidance that we've currently set for our next fiscal year. Lastly, I'd like to touch on -- sorry, I have a few more things. Our multichannel distribution. So currently, we service the U.S. commercial markets through 4 channels through big box retailers like Bass Pro, Cabela's, Sportsman's Warehouse and Camping World, just to name a few as well as prominent distributors, shooting ranges and buy groups throughout the nations. From here, I'm going to take it on to our military and law enforcement offerings. So as I mentioned, our STREAK or one-way luminescent or [ AL ] technology as we like to refer to it for military and law enforcement use and our armor piercing round of great applications in the U.S. military. We're very excited about where we're at in the process of beginning to sell to the U.S. military and our NATO allies. We've generated a lot of traction to date. We feel that we're very close on some of the items that we've been working on. We are a part of -- we are 1 of 4 companies that service the Arizona law enforcement market and this has expanded to other law enforcement jurisdictions around the U.S. that are not limited, but that are able to buy outside of approved contracts by their jurisdictions. Here, I just have a few more comments on our AP technology and our [ AL ] technology, which we're able to feel to the -- feel like we're able to differentiate from our competitors. So these products carry higher margins, which we're very excited about. And we're able to offer them to the market at a lower cost than our competitors, and we are able to execute with better market demand as well. The last side I'd like to touch on today before I open it up to questions is the potential GunBroker's transaction. So this potential transaction is something we're very excited about. We feel like GunBrokers is really the titan in the industry as far as an auction marketplace for firearms and ammunition. They have over 60 million registered users. They've been in business for over 20 years. And most recently, they did over -- did an approximately $60 million in revenue in excess of $40 million in EBITDA for the fiscal year ending December 31, 2020. We're very excited about this opportunity and to -- for Steve to join our team as we feel like we're able to further add efficiencies by able -- being able to list our products and accessories on our websites, which will in turn increase the margins on our ammunition by selling direct to consumers. So at this point, I'd be happy to open it up to questions.

All right, great presentation. And yes, we do have a few questions for you. So will AMMO indeed purchase GunBroker, you're just speaking about it. And if so, talk a little bit about the closing date for that transaction. It's still in due diligence, when does due diligence end?

So yes, we've announced that we expect to close towards the middle of April, and we feel like we're still on target for that. We've made it through the -- most of the regulatory approval process and expect to close in that period of time.

All right. Perfect. So talk a little bit how your ammo is priced versus other high-end ammo?

We feel our ammo is priced competitively. And although our products are higher premium, our customers like us because they're able to carry the higher margins that we built into our pricing as well. But we feel like we're very competitively priced in the industry.

And what percentage of your sales is each of your ammunition brands?

Percentage of sales of each ammunition brands is spread. As I mentioned, today, commercial sales make up primarily all of our sales, but we expect kind of that tied to shift looking into the future of our business and eventually the military and export business, taking over as the majority of our sales.

Talk a little bit about where your products are manufactured. Are they all manufactured in the U.S.A.?

Yes. So yes, as I mentioned, we have 2 manufacturing plants currently, one in Payson, Arizona and one in Manitowoc, Wisconsin and eventually, our new facility in Manitowoc, Wisconsin will contain all of our manufacturing processes.

Okay. Talk about your backlog. How long on average does it take to satisfy $180 million backlog? And do you anticipate the rolling backlog to be reduced over the next 12 months?

So our backlog -- we view our sales cycle -- when customers place new orders, they're obviously aware of the timing. And so we give them an indication that it's about a 120-day sales cycle to fill their orders. We feel that the way we have structured our orders that it doesn't necessarily encourage cancellations. And so we view that we're not necessarily concerned with that portion of our backlog.

Okay. When do you estimate showing a profitable quarter?

The company is currently in a hypergrowth mode. So we've been trying to service our customers with quicker delivery times and expand our revenue base. So that's something that we currently have not publicly announced but as we continue on these trends, we expect to achieve profitability in short order here.

And is your STREAK technology something you can license to other manufacturers?

Yes. Yes, we are able to license our STREAK technology to other manufacturers, but currently, we do not.

Okay. So what are the key attributes you deemed valuable that led you to looking at making a deal to acquire GunBroker.com?

Yes. We feel -- Steve has built a very successful business, and it kind of built in line with Fred's vision of bringing technology to the industry. Steve has built a titan tier, and we are very excited of the opportunity to have the company under the AMMO umbrella and have Steve and his team as part of our team and to be able to offer our products on GunBroker.com.

And any worries about Biden slowing your market flow up?

Currently, the company doesn't have any worries about selling in the market. We feel like the efforts that have been made not necessarily impact the ammunition industry in general. And with the Senate and that even split and some of those Democratic senators being in Southern regions, which support the second amendment, it may be harder to get through any legislative changes.

Talk a little bit about besides GunBroker, do more acquisitions play a part in the future growth besides GunBroker to support a vertical integration strategy?

Yes. I think the company would be interested in making any acquisitions that continue to expand its technological footprint while also providing -- being accretive investment to the company.

And with this new facility opening up, is there a plan to introduce more lower-cost target ammo? Or will you stay in the more specialty ammo market?

So I should say that we do provide what we call standard ammunition, which is a typical ball ammunition and our premium products are a way to differentiate us from our competitors. So it's something that we will continue to manufacture in the future.

And are you going to explore patented innovative technology beyond ammo in the firearms market moving forward?

Yes. I think so -- well, I should say if the technological advancement fits in line with our vision, then we would definitely look into something like that.

So is there interest in moving into firearms themselves?

I would not say there's interest into moving into firearms at this point in time. As Fred likes to say, we view ourselves as the razor blade, not the razor.

Okay. How will you mitigate the upline supply chain risks regarding components and raw goods when competing against larger competitors example, casings and primers.

So we actually manufacture our own casings, but as I mentioned earlier, our casings have kind of been a way for us to trade our casings for components just to secure our supply chain. So that's been an effective way for us to manage our supply chain to date.

Talk a little bit about some overseas sales.

Yes, we recently announced one of our first export orders. Unfortunately, I'm unable to go into not much more detail than that, but it's a side of the business that we're excited about looking into the future.

Is backlog mainly concentrated in the commercial area or in any Army law enforcement area?

Yes. But [indiscernible] log is primarily made up of -- in the commercial area.

And are gross margins similar for commercial sales and Army law enforcement sales?

So our commercial sales, as I mentioned, our premium products do carry higher margins, but we're excited about our military and law enforcement and export product offerings as they do carry a significant margin in that 50% to excess of 65% margin range.

So if an FFL dealer made in order today, what would be the expected time duration of delivery with your current backlog?

That's a good question. So as I mentioned, we view our process from when an order is input at about 120 days. So I would put it at that number.

Would you consider sponsoring any competitive shooters?

Yes. It's something that we have done in the past, and we're always looking to add to our footprint in the industry.

Do you currently have any military contracts to supply ammo?

I'm not able to answer that question at that time -- at this time.

Has there been any discussion of AMMO, Inc. being an acquisition target?

No, there has not.

What is your biggest hurdle over the next 6 to 12 months? And how are you going to get over it?

Consistently, our biggest problem is defining people. We have a key management team here, but it's not an issue with every manufacturer located throughout the U.S. is finding a good base of hourly wage worker base to expand our company.

And tell me a little bit about your future projection. What's your greatest challenge right now in sourcing these raw materials? Is the supply chain looking better or worse over the next 12 months?

I think we've been very successful about managing our supply chain, and I feel like we feel confident about where we're out looking towards the next 12, 24 months in terms of our supply chain.

Great. Would you like to say any closing remarks?

Yes, I'd just like to thank you for taking the time to listen to my presentation today. And we have an IR e-mail. If you were interested in asking any follow-up questions, we'd be happy to answer them for you.

Thank you so much, Rob. Great presentation, and we look forward to your updates.

Thank you very much.

All right, everyone. We're right at that midpoint today. We're going to take a quick break. As you know, we're going to transition to our next presentation. There's going to be black screen for a while as we prep for our next company coming up. So stay with us, please and we'll hop on very shortly. And if you're on that Apple device click the play button to launch the next live presentation. We'll be on soon.