Byrna Technologies Inc. Q2 FY2023 Earnings Call

Good morning. Welcome to Byrna's Fiscal Second Quarter 2023 Earnings Conference Call. My name is Kevin, 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 for questions. Earlier today, Byrna released results for its fiscal second quarter ended May 31, 2023. 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 discussions held today include forward-looking statements. Actual results could differ materially from the statements made today. Please refer to Byrna's most recent 10-K and 10-Q filings for a more complete description of risk factors that could affect these projections and assumptions. The 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.byrna.com, for further information regarding forward-looking statements and reconciliations of non-GAAP results to GAAP results. Now, I'd like to turn the call over to Byrna's CEO, Bryan Ganz. Sir, please proceed.

Thank you, Kevin, and thank you everyone for joining us today. This morning we filed our 10-Q with the SEC and issued a press release detailing our financial results for the second quarter ended May 31, 2023, along with key business accomplishments. I will begin by highlighting a few key developments before handing the call over to David North for a more detailed look at our financial results. After that, I'll return to discuss our performance, addressing both our successes and the areas needing improvement. We will then open the floor to questions from our publishing analysts. To start, I am pleased to report that during the quarter, we began serial production of the new, enhanced Byrna LE Launcher and successfully worked through a backlog of 5,800 units reported at the end of the first quarter, shipping a total of 6,235 Byrna LE Kits during Q2. Byrna is ramping up production of the Byrna LE and plans to release it on Amazon this week. While we see opportunities for improvement in manufacturing efficiency, we believe that the challenges faced during the rollout of the Byrna LE are behind us. We also began production and shipment of our new revolutionary 12-gauge less-lethal round during the quarter. This round was voted Best of SHOT Show 2023 and received positive reviews from Firearms News. The accolades seem well deserved according to Biokinetics, a third-party testing lab, which conducted extensive testing of Byrna's round against NATO's AEP-99 Standards and judged it “extremely safe.” This testing concluded that Byrna's 12-gauge rounds are highly unlikely to cause serious injury or death even at close range. Due to the favorable report validating the safety of this innovative shotgun round, we are seeing significant interest from law enforcement agencies both domestically and internationally. I expect to announce the adoption of Byrna's 12-gauge kinetic round by several large law enforcement agencies in our next quarter's earnings call. Regarding Premier Dealers, we saw strong growth in dealer sales during Q2, with a 47% year-over-year increase in revenue. This was partly due to our efforts in developing Premier Dealers, which are owner-operated stores deriving over 50% of their revenue from Byrna products. Following the success of Byrna's own retail store and our Dealer of the Year, Live Safe Hawaii, we launched a new Premier Dealer program for entrepreneurs who share our passion for non-lethal solutions. In the first 90 days of this program, we signed three new Premier Dealers, generating over $180,000 in new business. Byrna also secured three significant law enforcement accounts in Argentina, totaling approximately $5 million in orders. Although these transactions won't reflect in Byrna's immediate revenue figures, they bolster our credibility with law enforcement. Additionally, the political climate in Argentina has helped promote Byrna, with leading presidential candidates endorsing our non-lethal handguns to address police violence and street crime. Building on our success in Argentina, our Head of Law Enforcement Training, Wayne Moody, is invited to speak at the Brazilian Congress of Municipal Guards, discussing less-lethal devices as a means to address public threats. Anticipating this, Brazilian police officers previously visited our Fort Wayne facility to inspect operations and test our launchers. While these sales may not be reflected in our numbers yet, they highlight the growing significance of our Argentinian operations and the long-term opportunity in the Latin American market. Lastly, in Q2, we achieved our first law enforcement contract in Australia with the New South Wales correctional facility, marking a significant step for Byrna's regional expansion. Now, I’d like to turn the call back over to David to delve into our financial results for the quarter. David?

Thank you, Bryan, and good morning, everyone. Let's discuss our financial results for fiscal Q2. Net revenue for the second quarter of 2023 declined slightly by 1% year-over-year to $11.5 million from $11.6 million in Q2 of 2022. The slight decrease in sales was primarily due to a decline in international orders, specifically a one-time $1.1 million order from South Africa, which was recorded last year in Q2, as well as a temporary drop in online sales due to production delays affecting Byrna LE products. The decrease in sales was offset by a $900,000 increase in sales to domestic dealers, which were up 47% year-over-year. Gross profit for the second quarter of 2023 increased to $6.2 million from $6.1 million in the prior-year period. Gross profit margin for the second quarter of 2023 improved to 53.9% from 52.7% in the same period last year. The improvement in gross profit and gross margin was primarily due to the decrease in the proportion of sales to lower-margin international channels. Gross margin improvements were slightly offset by challenges in production and supply chain disruptions early in the quarter. On a sequential basis, gross margin declined due to both customer mix, a larger percentage of lower-margin dealer and international sales in Q2, as well as unfavorable manufacturing variances resulting from lower production volumes and resulting scrap as the factory worked to get the Byrna LE into serial production. Operating expenses were $7.0 million. That's a 20% decrease from $8.7 million in Q2 of 2022. This reduction primarily resulted from a $600,000 decrease in payroll cost, a reduction in marketing spend of $600,000, and lower professional fees and insurance costs of $400,000. Turning to our profitability measures. We recorded a net loss of $1.1 million, marking a 64% improvement from $3.0 million in the prior-year period. The improvement was the result of reduction in operating expenses that I just mentioned. Adjusted EBITDA, which is a non-GAAP metric, improved by $1.6 million to $700,000 in the second quarter of 2023 compared to a $900,000 loss in the second quarter of 2022. The improvement in EBITDA primarily stems from slightly higher margins, coupled with the decrease in operating expenses, as previously mentioned. Onto the balance sheet. As of May 31, 2023, we had $15.4 million in cash and cash equivalents, which was up from $14.4 million at the end of the fiscal first quarter on February 28, 2023. At quarter-end, we also held $17.5 million in inventory compared to $18.0 million at the end of the first quarter. We're also continuing to maintain a debt-free balance sheet. That concludes my prepared remarks. I'll now turn it back to Bryan.

Thank you, David. I would now like to provide some color on the results outlined by David. First, let me repeat that I believe that the production and supply chain problems that we grappled with in Q1 and the beginning of Q2 are behind us. We do not see production issues negatively impacting sales in the foreseeable future. Second, the structural changes and management reorganization that we have implemented at Byrna this year, which has resulted in a lower operating expense run rate, we believe will continue at the current pace. While we will be adding some new positions in product development and sales and marketing, we'll also be consolidating some positions in other areas of the company so that the net effect should be neutral. So that brings me to what I really want to talk about. Sales. While net revenue for Q2 2023 was essentially flat year-over-year, that doesn't begin to tell the whole story. As I will explain, there are segments of the business that have surprised to the upside. There are other segments of the business that, while they appear to be underperforming, are in fact in line with expectations. And finally, there are still other segments of the business that were appearing to be keeping pace with last year are areas of concern for management. On the positive side, we have dealer sales, which were up 47% or $900,000 compared to Q2 2022. As we discussed, this is being driven by several factors, including our Premier Dealer program, as well as our new Inside Sales initiative. Until this year, Byrna relied primarily on a handful of manufacturers' rep groups to open new dealer accounts. This approach was advantageous for Byrna, given our smaller size and relatively limited human resources. These manufacturer rep groups, with their well-established customer bases and a roster of on-the-road sales reps, facilitated Byrna's quick entry into a number of marquee retail chains such as Bass Pro, Cabela's, Sportsman's Warehouse, Shields, and Bi-Mart. These four chains alone represent more than 400 brick-and-mortar locations for Byrna. More importantly, they give Byrna the credibility that comes with being associated with such iconic brand names. What they do not do, however, is drive significant sales. While Bass Pro, Sportsman's, and Bi-Mart are all in our top 10 dealer list, sales on a per store basis at these big chain stores rank near the bottom of our dealer list. The reason is simple: Byrnas need to be sold, not simply placed on the shelf, because less-lethal is a new category for most consumers. And because Byrna is a relatively new brand, we cannot sell our launchers, ammo, and accessories in the same manner as the well-known, long-established weapons companies like Smith & Wesson, Glock, or SIG Sauer. When someone wants to purchase a firearm, they generally know exactly what they want. The sales associate merely needs to point them in the right direction: Glocks to the left, SIGs to the right. The same cannot be said for selling Byrna. Selling Byrna's less-lethal launchers and ammo requires a passionate, well-trained sales associate that not only believes in the mission but can explain in detail how Byrna launchers work and can provide performance information and product specifications. At the big box stores, we rely on sales associates who typically have a high turnover rate and are compensated at relatively lower levels. As a result, the performance of these big box stores on a per store or per square foot basis is underwhelming. Conversely, at our Premier Dealers, where we have owner operators that are passionate about Byrna's mission and are intimately familiar with the product, sales are in an order of magnitude better than these big chain stores. The purpose of our newly formed Inside Sales team is to focus on the development of more smaller owner-operated dealers. These may include gun stores, outdoor stores, sporting goods stores, as well as boat dealers, trucking companies, and private security companies, as we just saw with our latest three Premier Dealers. Any place that caters to well-heeled customers that are open to having a weapon to protect themselves and their family is a potential Byrna dealer. We kicked off this program in early 2023 and have now expanded it to three Inside Sales people. Our goal over the next 12 months is to increase the Inside Sales force to 10 salespeople, each averaging $1 million or more in annual sales. The Inside Sales team's efforts are geographically focused on areas of the country where our dealer coverage is limited, ensuring that dealer sales are not cannibalized. In addition to looking for new Byrna dealers, the Inside Sales team has been tasked with growing our Side Hustle business. Side Hustle dealers are individuals that do not have a brick-and-mortar location but are interested in selling Byrna’s at gun shows, boat shows, state fairs, RV and camping shows, and other events. They generally come from the ranks of passionate Byrna customers. We advertise our Side Hustle opportunity to our customer base periodically. The Inside Sales team then calls back those individuals that have expressed interest. Last year, our Side Hustle dealers generated $1.2 million in business at our best dealer margins. Most pay with a credit card, so we don't need to carry receivables. This year, two of our top 10 dealers are Side Hustle dealers. To put this in perspective, they are both running ahead of Bass Pro Shops in terms of purchases from Byrna. The other benefit of the Side Hustle program is that it is, in essence, a farm team for Premier Dealers. As these dealers see firsthand the interest in Byrna's products by selling at gun shows, boat shows, and other events, they develop the confidence to invest in a brick-and-mortar location. Our largest dealer, Live Safe Hawaii, started off as a Side Hustle dealer. This quarter, we converted another Side Hustle dealer, Greener Motors, the trucking company I referred to earlier, into a Premier Dealer. As a result of our inside sales effort, our new focus on developing Premier Dealers and a renewed effort to grow our Side Hustle business, we expect our dealer sales division to continue to outperform expectations. In the category of not as bad as it looks, is international sales. International sales were down 53% or $1.4 million when compared to Q2 of last year, it is, in fact, really in line with expectations. First, it is important to remember that international sales, by their very nature, are episodic. These are generally large sales, often more than $1 million in a single sale. As a result, a small delay in shipping out an order can significantly impact our results for any given quarter. This makes it difficult to project international sales quarter-by-quarter. And it is easy for a shipment to get pushed into the next quarter as we grapple with import permits, export permits, non-proliferation approvals. Accordingly, while this quarter, we were $1.4 million behind last year, we expect that we will make up this shortfall in Q3. The other reason why international sales appear to be lagging behind this year versus last year is that this year, sales of Byrna products in Latin America do not show up as revenue on our income statement as we account for Byrna LATAM on the equity method of accounting. In comparison, sales into South and Central America did contribute to revenue last year. Specifically, they contributed $4.5 million to revenue. As I discussed earlier, we are having far greater success introducing Byrna into Argentina than we could have possibly imagined as several candidates for the presidency of Argentina are promoting Byrna as part of the solution to the wave of street crime in Argentina and police shootings in response to this crime. Based on orders received by our distributor and RFQs specifically naming Byrna, we believe that in the next 90 days, more than $5 million of Byrna products will be sold into Argentina by our dealer Bersa as they fulfill those orders from the police departments in Cordoba, Lanus, and Buenos Aires. None of these sales, however, will show up in Byrna's numbers as they are being filled with products sold to Bersa last year. For these reasons, we believe that our international sales effort, while lumpier than we would like it to be, is in line with expectations. Okay, that brings us to DTC sales, which is currently an area that requires focused effort and strategic navigation from Byrna's management team. So on the face of it, sales for the quarter at byrna.com and amazon.com were off less than 1% and 6%, respectively, these declines portend to trends that we are actively addressing. In late March, Meta and Google simultaneously implemented a ban on any advertising by Byrna on their platforms, classifying Byrna as a contraband product. Google has since backed off its position slightly, allowing Byrna to run ads on YouTube, but not on Google. Meta, however, has been unrelenting in its advertising ban of all Byrna products on Facebook and Instagram. We have been kicked off of Facebook in the past. But when this happened, we had been able to speak to a person to get the ban lifted. This time, we are unable to even get Meta to engage with us. Clearly, there has been a change in policy at the corporate level. This inability to advertise on these large social media sites has resulted in an immediate falloff in web traffic on byrna.com, byrna.ca, Byrna Canada, and amazon.com. On byrna.com, daily web traffic fell from an average of 26,000 sessions a day in the first three months of calendar 2023 to an average of about 12,000 sessions a day in the second three months of calendar 2023, a 55% decline. Amazon sessions declined by 10.4% during the same period. Most concerning of all is Byrna Canada, where sessions are down 80% from the beginning of the year as we don't have the installed user base in Canada that can drive engagement. Despite the significant decline in sessions, sales on byrna.com for the quarter were off less than 1% compared to the same period last year, while Amazon sales were off just 5.5% compared to the same period last year. Canada shows an improvement year-over-year, but that's primarily because we were not selling in Canada in Q2 of last year. Though we are pleased with the resilience of our ecommerce sales, we recognize that over time fewer sessions will result in lower sales. We do now know when or if Meta's ban on advertising of Byrna's products will be lifted. Accordingly, we are working around the clock to find effective alternatives to the large social media sites as we look to get the Byrna story out to the public. Over the next several months, we will be expanding sales efforts to include other ecommerce sites such as Target and Walmart. We will be redirecting our advertising spend to Twitter and smaller niche market websites that cater to Byrna's key demographics, in other words, boaters, campers, RVers, hikers, motorcyclists, car enthusiasts, private pilots, liquor store owners, convenience store owners, security guards, etc. We also plan to increase our print media advertising budget and place a greater emphasis on being a gun shows, trade shows, and other events through our Side Hustle dealers. We are extremely disappointed that Meta and Google have taken this step to ban Byrna from advertising on their platforms. We firmly believe that Byrna provides a solution to America's epidemic of gun violence. We are actively working to overturn these existing bans on advertising, marketing, and frankly, even the discussion of less lethal weapons on social media. We believe it is crucial that we educate consumers as to the viable non-lethal alternatives to traditional firearms. So anytime someone uses a non-lethal device rather than a traditional firearm to defend themselves, a potential tragedy is averted. Towards this end, on July 6, Byrna kicked off a campaign using email, billboards, print media, and social media sites such as Twitter to try to get Meta to reconsider their position. You can find this campaign on Byrna's website. Our goal is to convince Meta that their decision to ban advertising by less-lethal weapons companies robs consumers of the opportunity to learn about less-lethal alternatives to traditional firearms. In this case, free speech saves lives. We urge all of you to go to our website and support our efforts to drive awareness of the benefits of less-lethal options to traditional firearms. While this ban is a challenge that Byrna must overcome, fortunately, we are well-positioned to meet this challenge. Byrna is currently cash flow positive, with over $15.4 million of cash and cash equivalents with no debt. We are in a strong working capital position. In the coming quarters, we expect to work through our sizable inventory, which will free up still additional cash, providing an ample cushion. Byrna will remain vigilant in its cost-control efforts to remain profitable, while the company works to develop alternate ways to get its message out to consumers. This solid financial foundation provides us with the ability to navigate the current challenges while we position ourselves to invest in key areas of the business and still maintain a robust cash flow trajectory. Before we hand the call over to questions, I'd like to take a moment to provide an update on our outlook. As you may have seen from this morning's press release, we have made the strategic decision to withdraw our previously communicated guidance for fiscal 2023. We have not taken this decision lightly, which is why we're taking the time to review it right now. In short, due to the uncertainty created by the ban on advertising of our products on various social media platforms, but particularly Meta, we feel that it is extremely difficult to forecast DTC sales until we are able to redeploy our advertising funds and redirect our marketing efforts to new venues and new approaches. Once we have a better understanding of the effectiveness of these advertising platforms and the impact of our direct social media engagement, we will be in a better position to forecast ecommerce revenues. Nonetheless, we remain optimistic about our ability to enhance both our top and bottom-line performance in fiscal 2023. We will provide regular updates on our progress in rebuilding our web sessions and ecommerce sales. We remain committed to making Byrna the premier provider of non-lethal personal security solutions. We believe the actions we are taking today will position our company for sustainable future growth and greater long-term cash generation. Now, let's open the call for your questions. Operator, please provide the appropriate instructions.

Certainly. The company will now be taking questions from its publishing analysts. Our first question is from Jeff Van Sinderen from B. Riley. Your line is now live.

Good morning, everyone. I have a conceptual question regarding Meta. I'm quite surprised they are not responding at all; that seems unusual to me. Do you think Meta is aware that their ban might actually be contributing to injury and possibly death related to firearms by not allowing people to learn about non-lethal options? It just seems like such a strange stance for them to have.

Yes. Look, I think that this is not intentional. I don't think Meta is clearly looking for people to get injured. On the other hand, every time somebody complains about a website that shows something that looks like a gun, they have to deal with it. So I think they've taken the easy way out and just say, 'It's easier for us not to deal with this and we'll just ban Byrna's products from the website.' Our efforts to engage with them include taking out billboards right across from their office to get them to understand that less-lethal weapons are part of the solution to the epidemic of gun violence in America. We're hopeful that over time these efforts will be successful. I think this was a knee-jerk reaction. This happened in the wake of the Nashville school shooting where all of the websites just basically cracked down on any advertising of any weapon on their platforms. But I think over time, Jeff, we should be able to convince them that it is important. If you look at Meta's historic mission, their mission is to educate the public. Their mission is to provide a forum for the transfer of knowledge. So, we are hopeful that we can get this message across to them. And that's also why we are urging all of our customers. We've got an email subscriber list of almost 300,000 people. We're trying to engage on social media, in various chat rooms, and so forth. But we would like people to start engaging with Meta and carrying this story forward because it is an important story to tell.

That's helpful. I think it's important to recognize that this might just be a knee-jerk reaction and that Meta needs to explore this issue more thoroughly. They have a powerful platform that can actually do good and help prevent harm in the world. Now, even though you've already discussed guidance, I’m curious about your thoughts on revenue progression for the remainder of this year, considering year-over-year comparisons and some episodic elements in your businesses. Also, given the increasing penetration in dealer sales, could you provide some insight on the expected gross margin progression over the next few quarters?

Well, in terms of gross margin progression, we think that we'll be improving over the next couple of quarters. As we said, there was a relatively large negative manufacturing variance due to the difficulties we faced early in the quarter. David, you want to...

Yes. I think part of it is, over the long term, I expect gross margin to be improving to be more like what we saw in last quarter. But one of the drivers of where we are right now is simply that we've a lot of inventory and it's FIFO. And that means that we've got to sell out this inventory that we built at the old costs. So, I expect slight improvement in the next two quarters, probably not much improvement in Q3, slight improvement in Q4, and then probably as we get into Q1, we'll start to see the more modern costs coming in. But I would say over the next two quarters, only slight improvement.

Okay. And then just if we could turn to the 12-gauge for a minute. I realize we're still early in the process there, I know that you're in some dealers; maybe just kind of update us on where we stand there? How many dealers we're in at this point? And then any data on early sell-throughs, which I'm sure is also being impacted by the marketing challenges?

Yes, we had a lot of success with the 12-gauge at SHOT Show, and we had taken orders for the first 250,000 rounds with dealers. Our goal was to get those rounds out, which we have done. We have seen a little bit of reordering, but it's still too early. I think it's important to keep in mind that this is a completely new product category. So 12-gauge less-lethal is really not a thing. There are some bean bag rounds and other rounds that have been used by law enforcement, but it's not really a consumer product. So, we still have a lot of education that we need to do. I will say to you, we are extraordinarily encouraged because nobody has used it and had anything negative to say about it. So we know it is extremely well received and it's just a matter of word-of-mouth of getting it out there. What I think has been more interesting for us is the number of law enforcement agencies that have expressed an interest in it. And I can't discuss the specific agencies, but some of the very largest agencies in the U.S. Less lethal, of course, is an important part of policing. The 12-gauge rounds that they use currently carry between 70 and 110 joules of energy. There was just a story a couple of weeks ago about a bean bag round that was deployed and broke somebody's jaw and seriously injured the individual. And that agency is particularly looking at Byrna because rather than 70 to 110 joules of energy, we're at 19 joules of energy. So I think that with the combination of the Biokinetics' report validating that these rounds are extremely safe, and with the level of accuracy and effectiveness that we've been able to demonstrate that we will continue to see growth. It is a little difficult, Jeff, for us to gauge how quick this growth will come, but we are very encouraged that there is a real market for this and that, over time, this will become an important part of Byrna's revenue stream.

Okay. Thanks for taking my questions. I'll take the rest offline.

Thank you.

Thank you. Our next question is coming from Jim McIlree from Dawson James. Your line is now live.

Thank you. Good morning. I'm hoping that you can help me understand the cost differences in advertising through the alternative websites that you discussed versus Meta as well as preliminarily what you think the take rate would be? So, if you have to make up numbers, about 10,000 at Meta in order to get 1,000 in sales, how many would you have to put out on alternative websites? So I'm just trying to again understand the response rates and costs of switching...

Honestly, we don't have enough information yet. We did not react immediately when Meta banned us because, as I mentioned earlier, this situation has occurred probably about six times in the past, and we were usually able to contact someone at Meta and get reinstated on Facebook and Instagram within a month. We began to take this more seriously two months into the situation, realizing it was different from our previous experiences. We are currently working on finding alternative sources for advertising and have not yet connected with these different platforms. To give you an idea, there are around a dozen car magazines that send out emails to their subscribers, which include advertising. When these emails are clicked, they lead to websites that also have ads. We have initiated contact with these outlets and are hiring a digital advertising specialist to oversee this effort, as it will require significantly more work than simply giving Facebook $200,000. Rather than just giving Facebook that amount, we will need to allocate $5,000 to 40 different platforms to generate business, ensuring we are targeting the right demographics. Interestingly, Facebook was like an addictive substance, easy and somewhat effective, making it difficult for us to move away from it. However, we realized over time that it was becoming less effective. Even when our sessions fell sharply from 26,000 to 12,000, our sales did not decline significantly. Our sales for the quarter were down less than 1%, and we are still achieving a much higher conversion rate compared to when we advertised on Meta. We observed that Meta's effectiveness was decreasing for two main reasons. First, we weren't able to target our ads as precisely as before, partly due to Apple providing less personal data about its customers, making it harder to segment our audience demographically. By focusing on specific platforms that cater to our customer base, we believe we can achieve two things: replicate the total number of views and target the specific demographics interested in Byrna. We'll keep everyone updated on our progress, but we still lack sufficient information at this time.

Yes. This is the main reason for our withdrawing guidance, because this is uncharted territory. And really what you're asking about is what will the results be, what will the uptick in sales be, and what would the return on advertising dollars be? We don't know. We'll tell you as it goes.

But we'll know soon.

And as far as David, your discussion about gross margin, that obviously assumes some mix shift away from direct to consumer. Does that have a big impact on your prediction that gross margin will improve modestly over the next couple of quarters? Or are we seeing two things happen: one, we're getting rid of the old inventory, but we're getting hit by the change in the mix?

The main thing I'm focused on is the cost of the old inventory. I haven't made significant predictions about how the mix might change, which is also why we aren't providing guidance. It's challenging to forecast what the mix will look like in the upcoming quarters. However, in the long term, I anticipate that dealer sales will gradually account for a larger share of our total revenues. Yes, this trend will likely dampen our gross margin percentage over time. That's a long-term consideration.

David, if I can just interrupt. But not as much as you would think. So with these Side Hustle dealers and with these Premier Dealers, we are not working through rep groups, so we are not building in the margin of the reps. We are not working through distributors, so we're not building in the margin of the distributors. These are the highest margin dealer sales, the Side Hustle business and the premier dealers. So we think that, yes, the change in mix will have some impact, but not as great as just substituting our current dealer margins for our current DTC margins.

Got it. Okay. Thank you. That's it from me. Thanks.

Thank you.

Again, I want to thank everybody for participating in this call. I'd like to take this opportunity to just share a little bit of sad news. Michael Wager, who was our Chief Strategy Officer, passed away this last weekend after a very difficult battle with cancer. He was a really good friend and colleague and was very important over the last several years in Byrna's growth and development, and we'll miss him. Anyways, thank you very much for joining us, and we'll look forward to taking other questions offline. Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time, and have a wonderful day. We thank you for your participation today.