Q1 2024 Byrna Technologies Inc Earnings Call

Participants

Bryan Ganz; Chief Executive Officer, President and Director; Byrna Technologies Inc

David North; CFO; Byrna Technologies Inc

Jeff Sinderen; Analyts; B. Riley Securities

Jon Hickman; Analyst; Ladenburg Thalmann

Presentation

Operator

Good morning. Welcome to Byrna Fiscal First Quarter 2024 earnings conference call. My name is Rob, and I'll be your operator for today's call. Joining us for today's presentation are the company's CEO, Bryan Ganz; and CFO, David North; Following their remarks, we'll open the call to questions. Earlier today, Bryan released results for its fiscal first quarter ended February 29th, 2024, a copy of the press release is available on the company's website.
Before turning the call over to Bryan Ganz, Byrna Technologies, Chief Executive Officer, I'll read the Safe Harbor statement. Some discussion held today include forward-looking statements. Actual results could differ materially from the statements made today.
Please refer to Burnison most recent 10-K and 10-Q filings for a more complete description of risk factors that could affect these projections and assumptions. Company assumes no obligation to update forward-looking statements as a result of new information, future events or otherwise As this call will include references to non-GAAP results. Please see the press release in the Investors section of our website, IR dot Vernon.com, for further information regarding forward-looking statements.
And reconciliations of non-GAAP results, it non-GAAP results to GAAP results. Now I would like to turn the call over to Byrna CEO, Brian Ganz. Sir, please proceed.

Bryan Ganz

Thank you, Rob, and thank you, everyone, for joining us today. This morning, we filed our first quarter 10-Q with the SEC and issued a press release providing financial results for the fiscal first quarter ended February 29th, 2024, along with key business accomplishments we've made so far this year.
I'll begin this morning by passing the call over to David North, our CFO, to discuss our financial results for Q1. Following that, I'll review what was a strong start to the year, highlighted by our GAAP profitability, offer insights into our operations and then discuss our go-forward strategy. And then lastly, we'll open the call to questions from our publishing analyst. David?

David North

Thank you, Brian, and good morning, everyone. So let's discuss our financial results for the first fiscal quarter ended February 29th, 2024. Net revenue for Q1 2024 was $16.7 million, and that's up 98% from the $8.4 million reported in the first fiscal quarter of 2023.
This $8.3 million increase is primarily due to the transformational pivot in our advertising strategy, which we kicked off in September of 2023. The success of our celebrity endorsement strategy resulted in a $6.7 million increase in direct to customer revenues through our website and Amazon compared to the prior year period. We also experienced year-over-year growth throughout all of our business segments.
Gross profit for Q1 2024 was $9.6 million or 58% of net revenue compared to $5.2 million for Q1 2023. The increase in gross profit was a result of the increase in sales operating expenses for Q1 2024 were $9.8 million compared to $7.2 million for Q1 2023. The increase in operating expenses was primarily driven by an increase in marketing spend as part of the Company's new celebrity endorsement and television advertising strategy, and also, of course, by an increase in variable expenses, which increased with sales volume.
This quarter was profitable. Net income for Q1 2024 was $17,000 compared to a net loss of approximately $2.2 million for Q1 2023. Very significant improvement in net income was primarily due to the increase in sales associated with the new marketing campaigns. Adjusted EBITDA, which is a non-GAAP metric for Q1 2024, totaled $1.2 million compared to negative $0.6 million for Q1 of 2023.
Onto the balance sheet, cash and cash equivalents on February 29th, 2024, totaled $24.2 million compared to $20.5 million on November 30th, 2023. Inventory on February 29th, 2024, totaled $12.1 million compared to $13.9 million on November 30th, 2023, and the Company has no current debt.
That concludes my prepared remarks, and I'll now turn it back to Bryan.

Bryan Ganz

Thank you, David. As you can tell from our financial results, the pivot we made in 2023 with respect to our advertising strategies, continued to have an extremely positive impact on our business as we are seeing marked improvements across all segments of the business and across all key performance metrics. Specifically, as David mentioned, revenue for the quarter was up 98% year over year to a record $16.7 million.
Digging a little deeper, we see that the majority of this growth came from our DTC business as Bryan.com and Amazon.com sales combined for over $12.7 million or 76% of our total sales for the quarter. Most of these DTCC. sales are directly attributable to customers that learned about Barnett through ours for celebrity influencers, Sean Hannity, Judge and a PRO Bill O'Reilly and most recently, Glenn back who we began working with in January.
And when we saw initially how successful we were with Sean Hannity back in September of 2023, we had three basic questions regarding our celebrity influencer strategy. One was it replicable to was it scalable? And three, was it sustainable during our last earnings call?
We answered the first two questions. First, yes, it is replicable, meaning we can use other influencers and achieve similarly strong return on advertising spend or ROE as we have proven with Glen back below Reilly and just Janine.
Secondly, although it is not infinitely scalable for any single influencer, meaning at some point running more ads with the same influencer will not continue to dramatically increase sales. It is scalable to the extent that we can sign up additional influencers as we are continuing to do. In fact, we just signed a Dan bond, Gino, who will be joining the Berna roster of celebrity influencers in the third quarter of this year.
As for the third question, is it sustainable, while the jury is still out, we are not seeing any signs that would indicate that the effectiveness of our ad spending is waning. In fact, we're seeing just the opposite for the first quarter of 2024 ending in March, our ROE as was 5.6 times. So, taking all of our ad spend across all of our DTC channels. Sales were 5.6 times our ad spend in March.
In March of this year, our ROE has climbed to 16% to 6.5 times. Similarly, our average daily Web sessions, which were up 33% year over year to 33,500 in Q1 from 25,000 in Q1 23, continued decline in March, up another 11% to 37,061. I attribute some of this increase to the effective management of our celebrity endorsement program as we eliminated or reduced our spending on some of the poor performing influencers and increased spending on some of the better performing endorsers.
We also added television advertising into the mix, which is proving to be extremely effective. The success of our television advertising effort is very encouraging as there is a much greater opportunity for us to scale with TV Keep in mind, we are achieving these strong metrics while keeping operating expenses in line.
We have not yet dialed up the marketing spend as we remain concerned about outstripping our current production capacity, even though we have already announced an increase in our capacity of 25% from 10,000 launches a month to 12,500.
We are continuing sales are continuing to outpace production as evidenced by our current two-week shipping times, which is posted on our website as we increase our production capabilities. However, we will adjust our advertising spend as needed to maintain our current growth trajectory.
Taking a look, a closer look at our sales channels. Our sales by channel DTC continues to be the primary focus of our business as advertising strategy is driving new customers to our website for a second consecutive quarter, we are noticing an elevated number of orders from new customers.
First time customer rates were 70% of total orders in Q1 2024, up from 56% in Q1 2023 and up from 67% in the last quarter of 2023 higher first-time customer rates mean higher average order values as first-time customers purchase a larger kit at a minimum, our AOV for first time customers is around $450 versus [$110] AOB. for returning customers.
The increase in our first-time customer percentage then drove our overall AOV to $348.63 for the quarter versus $316.50 in the prior year period. Higher first-time customer rates also give us the opportunity to go back to the well as we engage these customers with follow-on offers of ammunition and accessories through our targeted email marketing campaigns for first time buyers.
We also interestingly saw an increase in conversion rate on Bernie.com as we averaged 1.04% during Q1 of 2024 compared with 0.8% in the prior year period. These improvements in AOV and conversion rates, along with a 33% increase in sessions combined to produce a 108% year-over-year increase in daily orders on burner.com in Q1 of 2024.
As David mentioned, sales, however, were also up across all our other channels with Deere dealer sales posting a 44.7% increase. Fox laps posting a 62.8% increase and our Canadian sales posting a 35.4% increase. Once again, we attribute these increases to greater brand recognition resulting from our celebrity endorsement and advertising efforts of specific importance is the increase in dealer sales and specifically the increase in Premier dealer sales.
Since we introduced our premier dealer program last year. This has become a consistent and growing segment of our business. As I previously explained, Premier dealers operate much like a burner franchisee and well, we do not require a franchise fee to be a premier dealer.
Premier dealers can only sell non-lethal self-defense products and must derive more than 80% of their revenue from Berna Products in addition to store must adhere to strict brand standards, including a firing range on premises so that potential customers can test fire the burner launchers and in return they get geographic exclusivity preferred pricing, a co-op advertising budget training from our certified Law Enforcement Training team and armored course for the service and repair of launchers, and first, dibs on new products and inventory that is in short supply.
We also provide them with an operational plan and assist them with the design of the store, including signage and production graphs.
Finally, we allow these dealers to use the burn, a name in the name of their store. Based on the success that we are seeing in the premier dealer program, we are looking into the possibility of actually turning this into a franchise program with the goal of being able to rapidly roll out dozens if not hundreds of burn or retail stores on a nationwide basis at the end of last year, we had 16 premier dealers.
Since then, we have signed up another four premier dealers, including our first Canadian premier dealer that has already ordered more than $500,000 of inventory. Our initial work suggests that the US and Canada could support more than 400 dedicated burner retail stores.
We are in the process of engaging a consultant that specializes in franchising to assess the potential for a burner franchise program and to assist us in creating a business plan to put such a program in place in the meantime, we are planning on opening three new company owned retail stores in Boston, Houston and Fort Wayne. Currently,
Our LV Las Vegas retail store is running at around $800,000 to $1 million in sales a year. We want to see if we can replicate this in other markets that are demographically diverse. And at the same time, we're looking at the potential to evaluate to expand our law enforcement opportunity.
When I joined the company in 2017, Bryan then called security devices, international or SDI. manufactured and sold 40-millimeter impact rounds blunt impact project that we referred to as beeps exclusively to law enforcement sales never exceeded $200,000 a year.
My job was to turn the Company around as I evaluated SDI.'s operation and business model, I quickly learned that law enforcement is a very difficult market crack. First, it is highly fragmented. There are over 18,000 agencies in the United States and each makes its own procurement decisions worse, no agency will purchase anything without a live fire demonstration.
On top of that, you have political considerations, bureaucracy budgetary constraints. Based on this at the time, we decided to pivot away from 40 millimeter and law enforcement focusing instead on the consumer market. As part of this strategy, we commenced the development of burners, extremely successful line of handheld personal security devices.
And as they say, the rest is history, the result is that we now sell almost as much in one day as we sold in an entire year before shifting our focus to the consumer market. In fact, based on this morning's report for the first 35 days of Q2 through yesterday, we've averaged $253,600 a day in sales, which is essentially equal to all that we sold in 2018.
Our success in the consumer space, coupled with Bryan's growing brand recognition, has led to a larger number of law enforcement agencies reaching out to Bryan . As a result of this, unsolicited interest for launches are now carried by more than 300 domestic law enforcement agencies on the federal state and municipal level.
We have seen even greater success with international law enforcement agencies where there are fewer but larger agencies, and there is a greater acceptance of less lethal weapons. As we have reported this year, our Argentinean subsidiary, burner LatAm, has taken orders for more than 15,000 burner SD. launchers from a number of law enforcement agencies in Argentina, including Bryan Aires, provincial police, Bryan Aires, city, police law, new city, municipal guards, Visa city, municipal Guard and the per Dover provincial police, which recently committed to an additional 10,000 launcher order on top of the FAST 5,000 lawyers they previously purchased in 2023.
This is on top of orders from agencies around the world, including law enforcement in Australia, Dubai, Hong Kong, Indonesia, Israel, Panama, Peru, Senegal, the Seychelles, Slovenia, Spain and South Africa. These large law enforcement purchases provide confirmation as to the efficacy of the burner launcher and served to validate burns position as a global leader in less lethal solutions.
Based on our success with law enforcement, both domestically and internationally. We have determined it is now time for us to consider whether it makes sense to devote more resources to the domestic law enforcement market.
Let me be clear, we have no interest in expanding our presence in law enforcement unless we can do so profitably. We know that many gun companies treat law-enforcement as a loss leader which is necessary to build brand awareness. It is the same reason that automobile companies have traditionally sponsored racing teams.
We have no interest in treating law enforcement as a loss leader if the current study, which we are undertaking suggests that we can expand our law enforcement presently spread as profitably. We intend to commit the necessary resources to grow this market segment we expect to have the study completed in this quarter and presented to the Board, and we will keep the investing community apprised of our decision with regard to the law enforcement market.
I mentioned that right now we're somewhat constrained by production to meet the demand we've been experienced both in the United States and beyond. At the start of February, we announced that we would be increasing our launcher production from 10,000 units a month to 12,500 units a month.
Again, this is on a single ship since that announcement we have brought in additional staff and we are now raising our production targets to 18,000 launches a month to keep up with the growing demand during the month of March, we produced 14,400 launchers, comprised of [8,900 SD.s and 5,500 LEDs].
As we mentioned during our last call, we are also focusing on increasing ammunition production by opening a second ammunition production facility to be located here in the US. This move is aimed at both strengthening our supply chain and reducing the risk of supply chain disruptions, thereby ensuring that we can meet the forecasted demand for our high margin ammunition products, even if international shipments become more difficult for any reason.
As we look to the current quarter, we are on track to continue growing our business. As I mentioned, our March as numbers remain strong for all of our celebrity influencers. Sales on bird.com also remained strong and are running above last quarter. And Amazon.com sales are accelerating at even a faster pace because they're advertising two day shipping, whereas on Bryan.com.
We are advertising two-week shipping. We are confident that the continued success of our DTC. sales, along with the growth in our dealer and international sales will be will enable us to be able to deliver strong performance across the board in 2024.
As we get closer to 2025, we expect to be able to share further updates and details about our compact launcher. This launcher is expected to be instrumental in gaining further traction with both the general public and law enforcement agencies. The development of the compact launcher is progressing on schedule. We will continue to assess our influencer marketing program as well and add additional partners as necessary to fuel consistent but manageable growth.
I'd now like to address something we announced in our press release this morning, which is the CFO transition. We have an incredibly hard-working team here at Bryan that has helped us navigate through the challenges we faced last year and has taken us over the course of the last five years from $250,000 a year in sales to $250,000 a day in sales.
One of the most instrumental people in this process has been David North OBVIOUSLY. David has announced that he will be retiring later this year. David joined Bryan back in August of 2020 and honestly, to join a company when the world is completely shut down is incredibly difficult, but David hit the ground running and immediately began making meaningful changes to our business under David's guidance as CFO, Bryan has achieved key milestones in the journey.
He played a key part in our uplisting to NASDAQ in 2020, the Shepherd, a $600 million capital raise, which was essential for building the organization we are today. And this then led to the acquisition of multiple businesses, Mission less lethal blister packs and Fox labs, which have rounded out Bryan's strategic portfolio of less lethal solutions.
And most importantly, he has reshaped and built our finance and accounting team by implementing efficient processes and systems of internal controls, setting the foundation for future growth. These are just some of the meaningful changes that David has been a large part of that ultimately took our sales from less than $1 million in 2019 to $16.7 million in Q1 of 2024.
We are incredibly grateful for David's contributions, and we wish him all the best in his well-deserved retirement to ensure a seamless transition. We have engaged a leading executive search firm to identify top-tier talent, and David has agreed to remain with the Company as CFO until a new CFO is properly onboarded. He has been agreed a further to work with us as an outside consultant through the publication of our [K. one next year].
With that, I'll now turn the call over to the operator for questions. Rob, please provide the appropriate instructions.

Question and Answer Session

Operator

(Operator Instructions)
Jeff Sinderen with B. Riley Securities

Jeff Sinderen

Good morning, everyone. And let me say congratulations on the strong Q1 metrics on one thing that stood out to me was the gross margin percentage. And I'm just wondering, maybe you could just touch on that and expectation for gross margin here in Q2 and then as the year progresses, maybe order of magnitude?

David North

Yes. Sure. This is first of all, if the in comparison most of quarterly results, we usually compare to the same quarter a year earlier. And in this case, they just stepped up warn that that's not really a valid comparison. This time round to one of 2023 was normalized because there was an adjustment to on absorption, which led to it unusually high percentage last year.
So that really isn't a good comparison point, but 58% on is really in great improvement on trend. We were about 55% for the full year 2023. And that's also what we were in Q2 for, I believe 2023, 58% is higher for two reasons. First of all, of course, if you have higher volume, higher sales volume, you absorb your fixed costs better.
But more importantly, the more stronger effect is that the advertising campaigns that are really driving such success and sales growth on our sales growth is focused in our direct to customer channels on particularly website sales, and these are our highest margin channels. So I expect and that the 58% is higher than what we had budgeted for Q1, but we have budgeted for in continuing improvement. I expect us to stay around this level for the remainder of the year.

Jeff Sinderen

Okay. Fair enough. And then if we could circle back to the production increase plans for a minute. I mean, I guess I would say you sort of have a high-class problem and which we welcome, frankly, at this point. But maybe you could just touch on how you're evolving production. I know you said you're ramping up again, some do you need to go to two shifts? Maybe you could just speak more about that?

Bryan Ganz

Yeah, I think right now where we do not need to go to two shifts at this time right now, we can go to 18,000 units a month on one shift by fully taking advantage of the second production line that we put into place. It will, of course, mean hiring additional personnel. We are undertaking a program to improve our efficiencies in the factory, which will involve certain basic steps as well as implementing some automation that doesn't make sense when you're doing 5,000 units a month, may make sense when you're doing 18,000 units a month, is somewhat above where we are running today in terms of sales.
But we have to get ourselves first to the position where we where our shelves are full and that we're not advertising a two-week delay in shipping. And we also anticipate that the growth trajectory will remain intact and we know that it will be fourth quarter will be upon us pretty shortly when we know that demand will be much stronger.
So we're hoping that, although we don't expect to be at 18,000 units in April, we do expect to be at 18,000 units in May and to maintain that pace through the balance of the year, which will allow us to restock our shelves and be ready for Q4.
Now the factory, as it's currently laid out, is capable of doing somewhere between 36,000 and 40,000 units a year. So, we still have a potential for significant growth.

Jeff Sinderen

Okay, great. And then I know you mentioned you've got a shift here with a lot of new customers, but obviously you can go back to them. That's part of the benefit of that odd to show them new other products and so forth and perhaps part of that is the ammo sales. So maybe you could just mention what you're seeing in ammunition sales at this?

David North

Yeah, Ammo sales combined with accessories constituted 22.6% of Q1 sales. And obviously, that is significantly lower than the 25% that we've tended to trend at. And the reason is it is a higher proportion of new customers.

Jeff Sinderen

Okay, great.
Terrific. Thanks for taking my questions. I'll jump back in the queue, Jeff.

Bryan Ganz

Thank you very much.

Operator

- Ladenburg Thalmann

Jon Hickman

Hi. Nice quarter by the way. Can you I might have missed this, and you were touching pretty fast, but how many premium dealers do you have now?

David North

We currently have 20 premier dealers.

Jon Hickman

And how many company-owned stores?

David North

One only the Las Vegas store, the relocated store. And I think you know, as we've been talking with people regarding the franchise program. If we're serious about doing this, we need to have a number of company-owned stores where we have full access to all of the data so that we can prevent present that the potential franchisees.
And we are also very anxious to see ourselves how replicable this is as a company-owned store. We want to do one in Boston because it will frankly be easy for me to visited. And I see the performance and see the customers on a regular basis. But we're also going to do ones in Fort Wayne, where we have a factory in Houston, where we have our law enforcement training team as I get to these areas on a pretty regular basis as to other members of the team. And this will allow us to stay in close contact with the performance of these new company-owned stores.

Jon Hickman

Okay. And then two, I'm can you talk about the I can't remember the name,

David North

the shock and the other 12 to 12 gauge,

Jon Hickman

You have a non-lethal target?

Bryan Ganz

Yeah, nothing has really changed since last quarter. Honestly, with the strength in the demand for launchers. We've really been focusing all of our efforts in that area. We do think that the success of the 12 gauge program is going to be largely driven by law enforcement. It is one of the reasons that I've decided to start this study to determine whether it makes sense for us to devote more resources to law enforcement. I think honestly, John, it's not a question of whether it makes sense for us to devote resources to law enforcement, but rather how much resources and what the program should look like because clearly, we have law enforcement customers today.
We need to make sure that we're handling these customers appropriately. We're getting a fair number of inbound law-enforcement inquiries, and I would dare say somewhere between 50 and 100 a month of agencies that are reaching out to us looking to potentially buy burner products. And we simply do not have the resources at this time to be responding to them as we should. So we're going to have to devote some incremental level of resources. We think as we do that, we will have an opportunity to get law enforcement to adopt 12 gauge, which again will help us then make the transition too consumer.

Jon Hickman

And then I don't know if you gave us that to figure it out, but can you give us a percentage of what's being sold on your websites tele. versus?

Bryan Ganz

Yes, the LOE as the breakdown is approximately 60% SD. and 40% LOE. Again, there's $100 difference in the price of the LOE in the SD. So we would expect some reduced level of demand for the LE but up, it's higher than we had expected. I mean, when we first came out with the early, we really thought it was going to be, you know, 10% or 20% for the premium product and the demand has been very strong.
And honestly, we don't know where it will be once there are no more limitations on shipping. So right now, the LED production has taken longer. Our availability of LTE has not been as good as our availability of SD. So part of that 60, 40 split may be a function of availability.

Jon Hickman

And then one last question is we do you know where you're going to price the and the back?

Bryan Ganz

We don't have a price for it at this point. It is clearly a premium product and we're doing a lot of market research, but we have not made a decision yet

Jon Hickman

And uses that will be available later this year?

Bryan Ganz

No. So, it will not be available in 2024 and is in preproduction. Currently, we actually have RFQs out for the components we are in testing of pre-production models. So, as I mentioned everything is going according to plan and our plan would be to release it early in 2025. The challenge, what potentially at the SHOT Show based on the debacle we had with the release of the LV, we are not going to release the new compact launcher until we have more than 10,000 units on the shelf.
So even though it may be ready for production prior to SHOT Show. We need to make sure that we're running it that it's going through testing smoothly that we're getting a very high first pass yield and we've got plenty of product on the shelf because we do think this is going to be somewhat transformative.
The other thing that we don't want to do is we don't want to undermine the sales of the SD. and LE. during the holiday period. So we think we'll have a very strong Q4 even without the LOE, even without the contact launcher. What we are hoping is that the compact launcher will help us continue this growth trajectory into 2025 for the hotel opening.

Jon Hickman

Appreciate it.

David North

Thank you, John.

Operator

At this time. This concludes our question-and-answer session. I'd now like to turn the call back over to Mr. Bryan Ganz for his closing remarks.

Bryan Ganz

Thank you, Rob. In conclusion, I just want to again thank everybody for their support. I want to again publicly thank David and say that, you know, I could not have done this without him and we'll speak to all of you soon. Thank you very much.

Operator

Thank you for joining us today for Bryan Fiscal First Quarter 2024 conference call. You may now disconnect.