Mplx Q3 2024 Earnings Call Transcript

Quartr
Provided by Quartr
February 8, 2024

There are 6 speakers on the call.

Operator

Ladies and gentlemen, thank you for standing by, and good afternoon, and welcome to the AMLO Incorporated Third participants on this call are advised that the audio of this conference call is being broadcast live over the Internet is also being recorded for playback purposes. I would now like to turn the conference over to Mr. Matt Blasey of CORE IR, the company's Investor Relations firm. Please go ahead, sir.

Speaker 1

Good afternoon, and thank you for participating in today's conference call. Joining me from AMMO's leadership team are Fred Wagenhals, Executive Chairman Jared Smith, Chief Executive Officer and Rob Wylie, Chief Financial Officer. During this call, management will be making forward looking statements, including statements that address Amo's expectations for future performance or operational results. Forward looking statements involve risks and other factors that may cause actual results to differ materially from those statements. For more information about these risks, please refer to the risk factors described in AML's most recently filed periodic reports on Form 10 ks and Form 10 Q, the Form 8 ks filed with the SEC today and the company's press release that accompanies this call, particularly the cautionary statements in it.

Speaker 1

Today's conference call includes non GAAP financial measures that in evaluating its performance. You should not consider this additional information in isolation or as a substitute for results prepared in accordance with GAAP. For a reconciliation of this non GAAP financial measure to net loss, its most directly comparable GAAP financial measure, please see the reconciliation table located in the company's earnings press release. The content of this call contains time sensitive information that is accurate only as of today, February 8, 2024. Except as required by law, Amla disclaims any obligation to publicly update or revise any information to reflect events or circumstances that occur after this call.

Speaker 1

It is now my pleasure to turn the call over to Enlist's Chief Executive Officer, Jared Smith.

Speaker 2

Good afternoon, everyone. Calendar 2023 was challenging year for our industry and for the U. S. Economy. Despite this backdrop, MO Inc.

Speaker 2

Continued to transition its business to a stronger and leaner operating model as we push through this very tough economic period. We have emerged from this time with an impeccable balance sheet and we are encouraged about the significant opportunities we have before us here in the Q4 and going forward. We recently announced a $10 plus 1,000,000 brass contract with 0 Delta continue to see increasing demand as the ammunition and firearms market recovers from the 2022 2023's post pandemic slump. Now turning to our Q3. We generated $5,100,000 in cash this quarter, mostly through a reduction of inventories by 3,500,000 We will continue to work through inventory reductions as the year progresses.

Speaker 2

3rd quarter revenues were up $1,600,000 sequentially, But net loss was dramatically improved to a loss of $1,600,000 for the quarter compared to a loss of $7,500,000 in the prior quarter and a loss of $4,100,000 in the same quarter of the prior year. This improvement was primarily driven by a nearly 600 basis point sequential increase in gross margins due to decreases in tooling expenses, cost cutting initiatives and higher traffic on the gunbroker.com marketplace. We are seeing a stronger pull through here in January and are optimistic as we grow our capacities for rifle case production as we expect to return to profitability during the 2025 fiscal year. In addition, our marketplace continues its upward trend with seasonal sales continuing to increase here in Q4. Gunbroker.com successfully tested our centralized payment processing application this quarter and we will take our multi item cart live on or before April 1st.

Speaker 2

The payment application for checkout will support credit card processing for over 80% of our business and we will continue to onboard sellers throughout the year as we develop the rest of the platform to onboard the remaining 20% of our business. As we've said in the past, this is the first major step in our evolution and our transition from an eBay auction house to the Amazon eBay of the outdoor shooting sports industry. The launch of our cart will drive subsequent evolutions of the platform as we enable tiered category fees, cross selling, shipping, financing, a better user experience, enhanced search functionality and much more. Now I'd like to transition to the ammunition division. We continue to see strong demand for our products and continue to bring on rifle capacity.

Speaker 2

While the transition has been slower than desired with our rifle brass production, We now have the lines in place to start seeing acceleration this quarter and into fiscal year 2025. We invested $3,600,000 in CapEx projects this year and our cost out initiatives will result in a savings of $1,750,000 which will start to take effect this quarter, but with real effect in our 2025 fiscal year. We are well on our way into the rebranding of our ammunition portfolio and have focused our efforts on premium pistol and rifle ammunition repositioning our core brands, Streak, Signature, Stealth and the launch of our hunt lines. This rebranding will carry through to our packaging website in store and online displays with our new hunt line hitting shelves in early summer, while streak, Stealth and Signature lines are hitting stores now. I'm also proud to announce we recently onboarded Paul Kozowski, our new Chief Compliance and Transformation Officer.

Speaker 2

Paul will be helping us drive greater compliance and ensuring our business stays in the black as we maneuver in these regulated markets. As we look at opportunities going into fiscal 2025, we will focus on the transformation of our marketplace. We will also continue to transition our manufacturing model one of pursuing higher margins and premium rifle and pistol ammunition opportunities as well as embracing the growing OEM business. I will now hand the call off to Rob Wiley, our CFO to walk us through our Q3 financials.

Speaker 3

Thank you, Jared. Welcome, everyone. Let me now review the financials of the Q3 of our 2024 fiscal year in more detail. We experienced an improvement in the marginality of our ammunition segment, while the margins of the gunbroker.com marketplace segment remained strong. We continue to see positive demand trends building for our ammunition product activity continued to increase on gunbroker.com as we enter into the final quarter of our fiscal year.

Speaker 3

We ended the 3rd quarter with total revenues of approximately 36 $1,000,000 in comparison to $38,700,000 in the prior year quarter. The decrease in revenue was related to a decrease in sales activity from our ammunition segment as a result of a change in the U. S. Commercial ammunition market from the comparable prior year quarter. Our casing sales, however, which afford us higher gross margins increased to $4,700,000 up from $3,000,000 in the prior year period.

Speaker 3

Our marketplace revenue was $14,000,000 for the reported quarter compared to $15,400,000 in the prior year quarter, which decreased as a result of the current macroeconomic environment impacting our industry as well as others. Cost of goods sold was approximately $25,100,000 for the quarter compared to $26,200,000 in the comparable prior year quarter. The decrease in cost of goods sold was related to the decrease in sales volume. Our gross margins for the quarter were 10,900,000 or 30.3% compared to $12,500,000 or 32.4% in the prior year period. The decrease in gross profit margin was related to the shift in our sales mix.

Speaker 3

Our cost cutting measures are paying off. There was a 5.4% decrease in operating expenses as a percentage of sales from the prior year quarter adjusted to exclude non recurring expenses. There are approximately $1,500,000 of non recurring expenses related to legal and professional fees, which we have included as an add back to adjusted EBITDA. For the quarter, we recorded adjusted EBITDA of approximately $5,400,000 compared to the prior year quarter adjusted EBITDA of 6,200,000 This resulted in a net loss per share of $0.02 or adjusted net income per share of $0.04 compared to the prior year quarter of net loss per share of $0.04 or adjusted net income per share of $0.04 Our improvement to our marketplace, gunbroker.com, progresses as our cart platform is on schedule to launch on April 1. We purchased approximately 145,000 shares of our common stock under our repurchase plan in the reported quarter, bringing us to just over 1,300,000 shares repurchased in total under the plan.

Speaker 3

That concludes our opening remarks. I will now turn the call over to the operator for questions. Thank you.

Operator

And the first question will come from Matt Koranda with ROTH MKM. Please go ahead.

Speaker 4

Hey, guys. Good afternoon. Maybe Just a few on the ammo business first and then we'll cover Gunbroker. But maybe just talk about the drivers of RAS revenue in the quarter, they fell off a bit sequentially, obviously, up a bunch year over year. Maybe just talk about sort of the puts and takes around why that fell on a quarter over quarter basis?

Speaker 4

And then where should that volume be headed in the 4th and beyond. I know you mentioned that as a meaningful driver, but just any additional color that we can kind of think about as it pertains to price volume?

Speaker 2

Absolutely. Thank you for the question, Matt. Our press came back online back in November, but really we held back Some brass for our own internal loading to meet future production as we launched our hotlines, and we're making sure that we've got some brass available that will pass through production over the course of the next quarter to 2 quarters. Brass cells are strong, great pipeline production, more capacity is coming online every day. It's still a great play for us, and it was really just holding back inventories for our own loading.

Speaker 4

Okay. And then maybe just talk about the levers, Jared, that you have at your disposal here to get that gross margin into the positive territory in the 4th quarter, Nice improvement on a sequential basis. I assume it's kind of a combination of mix of more brass sales, Pricing firming up in the loaded round side of things, but maybe just unpack a bit more for us in terms of you're thinking about getting to positive gross margins in the 4th quarter?

Speaker 2

Our brass production, Matt, is still less than 30% of the total capacity that we So it's really about continuing to build out those brass lines. We saw a sequential price decrease, reduction in tooling cost, reduction in material for our entire brass casings division as we push more into these larger calibers. As I just mentioned, we landed a very large contract in conjunction with 0 Delta On the 50 cal12.7x108 line, that's a further big margin play for us going into 2024. We'll continue to press on these larger calibers as more capacity comes online. We think Price out there on the market is fairly healthy.

Speaker 2

Inventories are healthy. We see positive trends ahead.

Speaker 4

Does that mean we can expect positive gross margins in the ammo business in the 4th quarter?

Speaker 2

I think we're going to be well on our way to breakeven our positive gross margins in the 4th quarter. We're super confident on our ability to start cranking out more and more brass. This 12.7 contract, it's really about making sure that those start dates are on target. But Yes, we're confident whether it's Q4 or our Q1 2025 fiscal year.

Speaker 4

Okay. All right. Helpful. And then just turning to Gunbroker. I guess I'm curious, the obvious question is GMV looks like it was down year over year despite if you look at NICS and sort of the surge in activity that we saw in terms of the primary firearms market, it was up At least in October November, I think kind of marginally positive in December even.

Speaker 4

So just any help on the differential there for you guys Why you didn't necessarily see as much of the pickup? It would just be helpful to kind of get the understanding for the business.

Speaker 2

So, what I think the question that you asked was why were we not up as high as mix. Is that the right way to look at it?

Speaker 4

Yes, yes, exactly.

Operator

Okay.

Speaker 2

Gun broker is a resource for this industry. And when there's an abundance of guns on the shelf, They're not necessarily running down and going to gun broker as often. We still saw positive trends. We continue to see positive trends going into Q4. And you've got to remember, we haven't really delivered to our marketplace enhanced checkout features, And we see that as a big upside for us going into Q1 of 2025 as we roll out the multi item cart and checkout process.

Speaker 4

Okay. All right. Got you. I guess just last one on Gunbroker. What are the last hurdles that you have to clear to get to The payments and carding initiative on April 1, I mean, it's coming up pretty fast here, a little over a month away.

Speaker 4

Maybe just discuss Any additional items that need to be tackled? And I did hear, I guess, if I heard you correctly, did you say on or before? What are some of the things that could happen to swing you before April 1 in terms of getting to karting?

Speaker 2

Honestly, we just need a few more weeks of testing. We'd like to see a couple Sundays of higher volume traffic. There's not really anything that's keeping us. It's just making sure that when we do roll it out, it rolls out successfully. I can't speak to really any one impediment that keeps us from going live.

Speaker 5

Okay, great.

Speaker 4

I'll turn it over. Thanks, guys.

Speaker 2

Thank you, Matt.

Operator

The next question will come from Mark Smith with Lake Street. Please go ahead.

Speaker 5

Hi, guys. First one for me, just wanted to ask about this recent contract. Jared, I don't know if you can give us any additional details Or if you can quantify maybe what margin or profitability on this contract business would be like kind of versus your typical ammo or typical brass KC, the business?

Speaker 2

Absolutely. Well, it's a little bit of a mixed bag on the margin because we're still seeing overheads across the entire ammunition business or across our entire factory a little higher than we would like. So with turning this line on, Based upon our estimates, there's a 40% margin, a plus 40% margin on this play. It's 6,000,000 pieces. We will be producing this well into the 1st part of 2025 calendar year.

Speaker 2

It's a strong 40% margin play just on those cases.

Speaker 5

Perfect. And then it looked like the proprietary ammo had a little better Sales during the quarter than I'd expected. Was that just some of the new branding and shipping some of maybe stuff in new boxes or things that look a little better in the quarter?

Speaker 2

It's a little bit of the rebranding. We're really hitting our stride on the rebranding just now. Shipments are going out in the black and yellow boxes that have a better presence. I would tell you that I think it's a big Part of market recovery, the sales team really hit its stride in Q4. We've got a really strong team that is out I think people are starting to recognize the ammo, Inc.

Speaker 2

Brand again. The pricing out there is healthier than it was in Q2 and Q3 or in Q1 and Q2.

Speaker 5

Okay. Next question for me is just looking at ammo margin Here, still tough, but I'm curious if you can dive into a little bit more. How much of that was maybe, We'll call it one time ish in nature with the press still being down versus just kind of headwinds that are out there in the industry, in For loaded ammo, what are you seeing for powder propellant and any other kind of costs that are hurting margin right now?

Speaker 2

There is certainly a constraint for propellant. I think the market is going to see that constrain more and more as the year goes on. I think that's going to impact some of the smaller players more than the bigger players. As we look into kind of the one time plays, I mean, once again, as I said earlier, we're still at less than 30% capacity still sitting there as we bring it on more and more capacity day by day. So that's really where our margin creation comes from.

Speaker 2

And then I think the inventory levels out there in the U. S. Market are relatively healthy. Despite it being an election year, I think people are coming off of this kind of post-twenty 2, 2023 slump. We came out of SHOT Show and talking to all the retailers and dealers out there, everybody's pretty confident about what we're seeing in the market.

Speaker 5

Okay. And the last question for me, this new contract is certainly a positive. Curious across the board for your business, Kind of how you feel about contract business. You've got, I think you got it, your signature on target, Happy and happy rounds. Just curious any update on kind of your outlook on military or global contract business?

Speaker 2

It's really, really solid and we've held off on taking large contracts We wanted real internal proof of performance before we go sign on to any larger deals. I mean, There's no lack of ability for us to go out and get multiyear contracts, but we really wanted to perform first. And I think some of our clients are waiting for us to first before they start sending in more orders. They know it's a new factory. They know we can produce premium rifle cases and cartridges.

Speaker 2

But once again, they want to see the proof before they bet the entire future of supply lines on us. And so I think we're gaining that confidence back day by day. And We'll start taking those larger contracts such as this 12.7x108 contract that we just took.

Speaker 5

Okay, great. Thank you.

Speaker 2

Thank you, Mark.

Operator

This concludes our question and answer session. I would like to turn the conference back over to Mr. Jared Smith for any closing remarks. Please go ahead.

Speaker 2

I want to thank you all for participating on today's and your interest in AMO Inc. We look forward to sharing our progress when we report our fiscal Q4 and full fiscal year 2024 results in June. Thanks and have a great day.

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