Good morning. Welcome to Byrna’s 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 will open the call to questions. Earlier today, Byrna released results for its fiscal first quarter ended February 29, 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 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 would like to turn the call over to Byrna’s CEO, Bryan Ganz. Sir, please proceed.

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 29, 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, highlight our GAAP profitability, offer insights into our operations, and then discuss our go-forward strategy. Lastly, we'll open the call to questions from our publishing analysts. David?

Thank you, Bryan, and good morning everyone. So let's discuss our financial results for the first fiscal quarter ended February 29, 2024. Net revenue for Q1, 2024 was $16.7 million, which is up 98% from the $8.4 million we 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 of 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. This 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. On to the balance sheet, cash and cash equivalents on February 29, 2024, totaled $24.2 million compared to $20.5 million on November 30, 2023. Inventory on February 29, 2024, totaled $12.1 million compared to $13.9 million on November 30, 2023. The company has no current or long-term debt. That concludes my prepared remarks, and I'll now turn it back to Bryan.

Thank you, David. As you can tell from our financial results, the pivot we made in 2023 with respect to our advertising strategy is continuing 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 direct-to-customer business as byrna.com and amazon.com sales combined for over $12.7 million or 76% of our total sales for the quarter. Most of these direct-to-customer sales are directly attributable to customers that learned about Byrna through our four celebrity influencers, Sean Hannity, Judge Jeanine Pirro, Bill O'Reilly, and most recently, Glenn Beck, who we began working with in January. When we initially saw 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? Two, 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 ROAS, as we have proven with Glenn Beck, Bill O'Reilly, and Judge Jeanine. 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 Dan Bongino, who will be joining the Byrna roster of celebrity influencers in the third quarter of this year. As for the third question, is it sustainable? Well, 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 ROAS was 5.6x. So taking all of our ad spend across all of our direct-to-customer channels, sales were 5.6 times our ad spend. In March of this year, our ROAS climbed to a remarkable 6.5x. Similarly, our average daily web sessions, which were up 33% year-over-year to 33,500 in Q1 from 25,000 in Q1, 2023, continued to show an increase 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 efforts 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 increased our 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 launchers a month to 12,500, 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 closer look at our sales channels, direct-to-customer continues to be the primary focus of our business as our advertising strategy drives 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 launcher kit at a minimum. Our average order value for first-time customers is around $450 versus $110 average order value for returning customers. The increase in our first-time customer percentage then drove our overall average order value 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 these customers with follow-on offers of ammunition and accessories through our targeted email marketing campaigns. We also observed an interesting increase in conversion rate on byrna.com as we averaged 1.04% during Q1 2024 compared with 0.8% in the prior year period. These improvements in average order value and conversion rates, along with a 33% increase in sessions, combined to produce a 108% year-over-year increase in daily orders on Byrna.com in Q1 of 2024. As David mentioned, sales, however, were also up across all our other channels, with dealer sales posting a 44.7% increase, Fox Labs 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. A specific area of 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 Byrna franchisee. While we do not require a franchise fee to be a premier dealer, they can only sell non-lethal self-defense products and must derive more than 80% of their revenue from Byrna products. Additionally, the store must adhere to strict brand standards, including a firing range on premises, so that potential customers can test fire the Byrna launchers. In return, they receive geographic exclusivity, preferred pricing, a co-op advertising budget, training from our certified law enforcement training team, and an armory course for the service and repair of launchers and first dibs on our 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 graphics. Finally, we allow these dealers to use the Byrna name in the name of their store. Based on the success that we are seeing in the premier dealer program, we are considering 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 Byrna 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, who has already ordered more than $500,000 of inventory. Our initial work suggests that the U.S. and Canada could support more than 400 dedicated Byrna retail stores. We are in the process of engaging a consultant that specializes in franchising to assess the potential for a Byrna franchise program and to assist us in creating a business plan to implement such a program. In the meantime, we are planning on opening three new company-owned retail stores in Boston, Houston, and Fort Wayne. Currently, our Las Vegas retail store is generating around $800,000 to $1 million in sales a year. We want to see if we can replicate this in other demographically diverse markets. At the same time, we're looking at the potential to expand our law enforcement opportunity. When I joined the company in 2017, Byrna, then called Security Devices International, or SDI, manufactured and sold 40-millimeter impact rounds blunt impact projectiles that we referred to as BIPs, exclusively to law enforcement. Sales never exceeded $250,000 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 to penetrate. First, it is highly fragmented. There are over 18,000 agencies in the United States, and each makes its own procurement decisions. Moreover, no agency will purchase anything without a live fire demonstration. On top of that, there are political considerations, bureaucracy, and 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 Byrna's extremely successful line of handheld personal security devices. 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 have 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 Byrna's growing brand recognition, has led to a large number of law enforcement agencies reaching out to Byrna. As a result of this unsolicited interest, Byrna launchers 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 Argentinian subsidiary, Byrna LATAM, has taken orders for more than 15,000 Byrna SD launchers from a number of law enforcement agencies in Argentina, including Buenos Aires Provincial Police, Buenos Aires City Police, Lanus City Municipal Guards, Ezeiza City Municipal Guards, and the Córdoba Provincial Police, which recently committed to an additional 10,000 launcher order on top of the 5,000 launchers 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, Seychelles, Slovenia, Spain, and South Africa. These large law enforcement purchases provide confirmation of the efficacy of the Byrna launcher and serve to validate Byrna's 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. Now let me be clear, we have no interest in expanding our presence in law enforcement unless we can do so profitably. We recognize that many gun companies treat law enforcement as a loss leader, which is necessary to build brand awareness. We have no intention of treating law enforcement as a loss leader. If the current study, which we are undertaking, suggests that we can expand our law enforcement efforts profitably, we intend to commit the necessary resources to grow this market segment. We expect to have the study completed this quarter and presented to the Board, and we will keep the investing community apprised of our decision regarding the law enforcement market. I mentioned that right now, we're somewhat constrained by production. To meet the demand we've been experiencing both in the United States and beyond, at the start of February, we announced that we would be increasing our production from 10,000 units a month to 12,500 units a month. This is on a single shift. Since that announcement, we have brought in additional staff and are now raising our production targets to 18,000 launchers a month to keep up with the growing demand. During the month of March, we produced 14,400 launchers comprised of 8,900 SDs and 5,500 LEs. 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 U.S. This move aims at both strengthening our supply chain and reducing the risk of supply chain disruption, 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 ROAS numbers remain strong for all of our celebrity influencers. Sales on byrna.com also remain strong and are running above last quarter, while Amazon.com sales are accelerating at an even faster pace because they are advertising two-day shipping, whereas on byrna.com, we are advertising two-week shipping. We are confident that the continued success of our direct-to-customer sales, along with the growth in our dealer and international sales, will enable us to deliver strong performance across the board in 2024. As we get closer to 2025, we expect 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 Byrna 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 Byrna back in August of 2020, and honestly, joining a company when the world was 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, Byrna has achieved key milestones in its journey. He played a key part in our uplisting to NASDAQ in 2020. He shepherded a $60 million capital raise, which was essential for building the organization we are today. This then led to the acquisition of multiple businesses, Mission Less Lethal, Ballistipax, and Fox Labs, which have rounded out Byrna's strategic portfolio of less-lethal solutions. 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, which 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 also agreed to work with us as an outside consultant through the publication of our K1 next year. With that, I'll now turn the call over to the operator for questions.

Thank you. The company will now be taking questions from its publishing analysts. Our first question is from the line of Jeff Van Sinderen with B. Riley Securities. Please proceed with your questions.

Good morning everyone and let me start by congratulating you on the strong Q1 metrics. One thing that stood out to me was the gross margin percentage. I'm just wondering if you could touch on that and expectations for gross margin each year in Q2, and then as the year progresses to the order of magnitude?

Yes, sure. This is David. First of all, in comparison, most of our quarterly results usually compare to the same quarter a year earlier. In this case, it really isn’t a valid comparison this time around, because Q1 of 2023 was anomalous due to an adjustment to absorption, which led to an unusually high percentage last year. So that really isn't a good comparison point. But 58% is a significant improvement on trend. We were about 55% for the full year 2023 and that's also the same as what we were in Q4 of 2023. The 58% is higher for two reasons. First, of course, with higher volume, you better absorb your fixed costs. More importantly, the stronger effect is that our advertising campaigns are driving such success in sales growth. The sales growth is focused in our direct-to-customer channels, particularly website sales, which are our highest margin channels. I expect that the 58% is higher than what we had budgeted for Q1, but we have budgeted for continuing improvement. I expect this to stay around this level for the remainder of the year.

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

Yes. I think right now, we do not need to go to two shifts at this time. We can reach 18,000 units a month on one shift by fully utilizing the second production line that we have put into place. It will, of course, require 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. Automation that doesn't make sense when you're producing 5,000 units a month might make sense when you're doing 18,000 units a month. Currently, 18,000 units a month is slightly above our running sales. We need to get ourselves into a position where our shelves are stocked and we're not advertising a two-week delay in shipping. We anticipate that the growth trajectory will remain intact, especially with the fourth quarter approaching when we expect demand to be much stronger. Therefore, we hope that, although we don't expect to reach 18,000 units in April, we do expect to reach that pace in May and maintain that through the balance of the year, which will allow us to restock our shelves and be ready for Q4. Currently, the factory, as it's laid out, is capable of producing somewhere between 36,000 and 40,000 units a year, so we still have significant growth potential.

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 to show the new other products and so forth. And perhaps part of that is the ammo sales. So maybe you could just share what you're seeing in ammunition sales at this point?

Yes. Ammo sales combined with accessories constituted 22.6% of Q1 sales, significantly lower than the 25% that we've tended to trend at. The reason for this is the higher proportion of new customers.

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

Jeff, thank you very much.

Our next question is from the line of Jon Hickman with Ladenburg Thalmann. Please proceed with your questions.

Hi. It was a good quarter. Could you tell me how many premier dealers you have now? I may have missed it since you were speaking quickly.

We currently have 20 premier dealers.

And how many company-owned stores?

One, only the Las Vegas store, the original store. As we've been discussing the franchise program, it's essential for us to have several company-owned stores where we have full access to all of the data to present to potential franchisees. We're also eager to see how replicable this model is as a company-owned store. We plan to do one in Boston because it will be relatively easy for me to visit it and observe its performance and customer interactions regularly. We will also establish stores in Fort Wayne, where we have a factory, and in Houston, where we have our law enforcement training team, as I frequently visit these areas and so do other members of the team. This will allow us to maintain close contact with the performance of these new company-owned stores.

Okay. And then, can you talk about the shotgun?

Yes, the 12-gauge. 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 believe the success of the 12-gauge program will largely be driven by law enforcement. This is one of the reasons I initiated this study to determine whether we should allocate more resources to law enforcement. I think it's not a question of whether we should devote resources to law enforcement, but rather how much and what the program should look like because we clearly have law enforcement customers today. We receive between 50 and 100 inquiries a month from agencies that are reaching out to us looking to potentially buy Byrna products. Unfortunately, we do not have the resources at this time to respond to them as fully as we would like. So we will need to allocate some additional resources. We believe as we do that, we will have the opportunity to encourage law enforcement to adopt the 12-gauge, which will further help us transition to the consumer market.

Could you provide a percentage breakdown of what's being sold on your websites, LE versus SD?

The LE/SD breakdown is approximately 60% SD and 40% LE. There is a $100 difference in price between the LE and SD, so we expect some reduced demand for the LE. However, demand has been stronger than we initially anticipated. When we first launched the LE, we expected it to represent only 10% or 20% of sales for the premium product, but demand has been robust. We also don't know what that percentage will be once there are no more limitations on shipping. Our production of LE has taken longer, and its availability has not been as strong as the SD. So that 60/40 split could be a function of availability.

Do you have a price point for the compact devices?

We do not have a price set at this point. It is clearly a premium product and we are conducting a lot of market research, but we haven't made a decision yet.

And do you think that will be available later this year?

No, it will not be available in 2024. It is currently in preproduction. We have RFQs out for the components and we are testing preproduction models. Everything is proceeding according to plan, and our goal is to release it early in 2025.

And at SHOT Show?

Potentially at the SHOT Show, but based on the issues we encountered with the release of the LE, we will not launch the new compact launcher until we have more than 10,000 units on the shelf. Even if it is ready for production before SHOT Show, we need to ensure sufficient inventory and that the products are running through testing smoothly with a high first-pass yield to avoid undermining sales of the SD and LE during the holiday period. We expect a very strong Q4, even without the compact launcher. However, we hope the compact launcher will help us continue this growth trajectory into 2025.

Okay. Thanks. Appreciate it.

Thank you, Jon.

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

Thank you, Rob. In conclusion, I just want to again thank everybody for their support. I want to once again publicly thank David and say that I could not have done this without him. I look forward to speaking with all of you soon. Thank you very much.

Thank you for joining us today for Byrna's Fiscal First Quarter 2024 Conference Call. You may now disconnect at this time.