Ladies and gentlemen, thank you for standing by. Good afternoon, and welcome to the AMMO Inc. First Quarter 2024 Earnings Conference Call. Participants of this call are advised that the audio of this conference call is being broadcast live over the Internet and is also being recorded for playback purposes. I would now like to turn the call over to Matt Blazei of CORE IR, the company's Investor Relations firm. Please go ahead, sir.

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 Wiley, Chief Financial Officer. During this call, management will be making forward-looking statements, including statements that address AMMO'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 AMMO’s most recently filed periodic reports on Form 10-K and Form 10-Q, the Form 8-K filed with the SEC today, and the company's press releases that accompany this call, particularly the cautionary statements in it. Today's conference call includes non-GAAP financial measures that AMMO believes can be useful 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 statement located in the company's earnings press release. The content of this call contains time-sensitive information that is accurate only as of today, August 9, 2023. Except as required by law, AMMO disclaims any obligation to publicly update or revise any information to reflect events or circumstances that occur after this call. It is now my pleasure to turn the call over to AMMO's Executive Chairman, Fred Wagenhals.

Thank you, and good afternoon. I appreciate everyone joining us for our first quarter 2024 earnings call. I would like to begin this call by welcoming Jared Smith as the new Chief Executive Officer of AMMO Inc. The Board, executive management team, and I believe that Jared's background and success in the ammunition industry combined with his strategic vision for our next phase of growth will be instrumental in building greater shareholder value. We look forward to working with him and are confident and energized that he will guide our future successes. As the company's original founder, I will continue to be engaged on a daily basis as the Executive Chairman of the Board and will work very closely with Jared to assist in this transition. As many of you on this call are aware, Jared has been with AMMO since January 2023 as President and Chief Operating Officer. Until his recent appointment as CEO, I look forward to remaining a strong voice in the execution of our strategic plan and will stay until the job is finished. I believe the markets are significantly undervaluing the opportunities in front of us. I am proud of what we've built since I founded this company just 7 years ago, and I will continue to ensure our stakeholders understand exactly what the vision of AMMO is and what we are working towards. I'm optimistic that our value has nowhere to go but up. Our Board, executive management team, and I are completely committed to making that happen. At this time, I would like to turn the call over to Jared Smith, AMMO's new Chief Executive Officer. He will discuss our first quarter in more detail, review the current state of operations, and what we believe the future has in store for AMMO, its team, and its shareholders.

Thank you, Fred, and good afternoon, everyone. This is my first earnings call as CEO, and I couldn't be more excited to be here. In the last 6 months, we've been rolling up our sleeves and making tremendous strides in creating real operational lift inside and outside the four walls. As I laid out in my letter to shareholders on July 31, we are driving the business through 3 major categories. The first category is that we're expanding Gunbroker.com's platform and reach through centralized payment processing, carding, and the addition of services to complement the products relevant to our community. The second category is that we're focusing the ammunition division on enhancing margins through the expansion of our rifle brass lines, continuous improvement measures, and vertical integration. Finally, and most importantly, we're aligning the goals, compensation, and incentives of the management team with shareholder interests. Our work and our strategic directions are starting to pay off, as we have already begun to see the positive effects here in the first quarter. Our gross margins were 40.9% compared to 27.3% in the prior quarter, with an adjusted EBITDA of $6.6 million, up from $3.8 million in Q4. Cash generated from operations was $13 million, up from $5.2 million in the same quarter last year. As we transition the business away from low-margin commodity ammunition sales to higher-margin OEM brass sales, we gave up top-line revenue and focused on bottom-line profitability. This was reflected in our sales for the quarter being down $34.3 million from $43.7 million in the prior quarter due to this transition in the business and overall market conditions. We had a total increase in cash of $8.4 million and repurchased 739,000 shares this last quarter through our buyback program. We will continue to focus on strengthening our balance sheet through capital allocation with strategic buybacks and credit purchases as we see opportunity in the quarters ahead. Now I'd like to speak specifically on Gunbroker.com. We moved $238.8 million in product on the platform this quarter, down from $281.2 million in the prior quarter. This follows industry seasonality and is only slightly lower than our internal projections for Gunbroker.com. While revenues decreased, our margins remained strong at 87% compared to 85.5% in the prior quarter. We also expect a lift on the platform starting in Q3 and Q4 as we roll out centralized payment processing and the multi-item cart. As we start the multi-item cart, we will be able to increase accessory sales and, over time, increase our final value fee across the higher-margin products and services. We believe high single digits are achievable compared to the 5% to 6% we currently earn today. We are rolling out beta testing for the payment processing and will continue to onboard new sellers through Q4. Our cart capabilities are in development, and we anticipate that platform coming online by the end of our fiscal year. Now I'd like to transition to the Ammunition division. The Ammunition division of AMMO has created positive margins for the first time since June of 2022. We reported $20.3 million in revenue with a 9.5% gross margin, up from negative 8.6% in the previous quarter. While this is a major win, we anticipate strong headwinds for loaded ammunition sales for the next 2 quarters. We continue to refocus the ammunition company on the most profitable segments of the market and will continue to monitor our margins during this very tough economic time. The OEM market for casings saw revenue increase to $6.2 million, up from $3.5 million in the previous quarter. This is a great result considering that we started this transition in January. I’d like to thank everybody for joining the call today, and I look forward to continued and robust communication with you as the year progresses. At this time, I would now like to turn it over to Rob Wiley to walk us through the financials.

Thank you, Jared. Welcome, everyone. Let me now review the financials of the first quarter of our 2024 fiscal year in more detail. Margins on our Marketplace segment remained strong, and our gross margins have increased on our ammunition segment as we begin to see the benefits of the transition to our leaner operating model with a higher focus on under sales. We remain confident with the progress we have made to date, but still face headwinds as we continue to see softening in the U.S. commercial ammunition markets. We have, however, continued to increase our cash position with $13 million in cash from operations generated in the quarter. We ended the first quarter with total revenues of approximately $34.3 million compared to $60.8 million in the prior year quarter. The decrease in revenue was primarily related to the decrease in sales activity from our ammunition segment as the U.S. commercial ammunition markets continue to soften. Our casing sales, however, which afford us higher gross margins, increased to $6.2 million, up from $3.3 million in the prior year period. Our Marketplace revenue was $13.9 million for the reporting quarter. Cost of goods sold was approximately $20.2 million for the quarter compared to $42.6 million in the comparable prior year quarter. The decrease in cost of goods sold was related to the decrease in sales volume but was also related to higher gross margins from our two segments. Our gross margin for the quarter was $14 million or 40.9% compared to $18.1 million or 29.8% in the prior year period. The increase in gross profit margin is related to the shift in our sales mix. There are approximately $2.8 million of nonrecurring legal expenses incurred in our first fiscal quarter, which we have included as an add back to adjusted EBITDA. Without the nonrecurring legal expenses, we would have generated a profit for the quarter. For the quarter, we recorded adjusted EBITDA of approximately $6.6 million compared to the prior year quarter adjusted EBITDA of $10.6 million. This resulted in a net loss per share of $0.02 or an adjusted net income per share of $0.05 compared to the prior year period of net income of $0.02 per share or adjusted net income per share of $0.07. We continue to push forward on the improvements to our marketplace, Gunbroker.com. We are currently in the process of rolling out beta testing for our payment platform with formal launch expected to begin by the end of this quarter. Our cart platform for the Gunbroker.com marketplace is on pace and is expected to launch by the end of this fiscal year. We feel confident in our financial position as we have reported $130.6 million in current assets, including $47.5 million of cash and cash equivalents compared to $23.9 million in current liabilities. We repurchased approximately 739,000 shares of common stock under our repurchase plan in the reported quarter, bringing us to over 1 million shares repurchased in total under the plan. We continue to look for opportunities to bolster our impressive balance sheet. That concludes our opening remarks. I will now turn the call over to the operator for questions. Thank you.

Our first question comes from Matt Koranda with Eros.

Mike Zebra speaking for Matt. Let's start with the casing aspect of the business. What percentage of our casings production are we currently selling to OEMs? In the past, you mentioned it was between 10% and 15%, but things have changed since then. So, what is our current status, and what goals do we have for this area as we work to expand the casing side of the business?

This is Jared. I see our business taking a turn for the positive over the next 2 quarters. The casings business is easily going to be 25% to 35% of our business going forward. It is a growing business. There's demand out there. There are strong margins to be captured there, certainly in this very tough economic time as ammunition sales continue to decline and margins compress across the board for the rest of the non-vertically-integrated players.

Got it. And given that loaded ammo demand is still relatively soft across the entire industry, how should we think about pricing for shell cases? Are we having to compete on price here at OEMs? Or is price relatively stable?

We reentered this market during a decline, but currently, prices are very stable and I expect that to continue. Our capacity is increasing with a new factory that started operations in August, and this is a significant advantage for us. I do not anticipate any further price erosion in casing demand.

Got it. Makes sense. Maybe switching to the loaded ammo side. Good to see loaded ammo margins kind of sequentially improve pretty meaningfully. I just wondering, do we have any remaining bulk-loaded ammo inventory to clear through? Or are we kind of done on that end?

For the most part, we're done. We will always have to manufacture some amount of range ammo to be relevant in this market, but it will play a much smaller role going forward than it has in the past in terms of clearing out our inventory. I think our inventory is healthy. There are still some slow-moving inventory items that sit there, but it's not a major factor. It's not a going concern for us.

Yes. Got it. That makes sense. Last one for me. Aside from any unforeseen discounting, if the demand environment gets worse, how should we think about the progression and timing of getting loaded ammo gross margins back to the 20% range? Do you think we can get there by year-end? Just how are we thinking about how that maybe just scales over time?

Yes. I think for our business, margins improve. We have more rifle brass capacity coming on in the 2 quarters ahead. That’s clearly where we can make margin. We can defer the non-vertically integrated piece of our production over a larger dollar value and margins increase. And once again, our focus is rifle ammunition and playing a much larger role in that rifle space, both domestically and internationally. Thank you, sir.

The next question comes from Mark Smith with Lake Street.

First question for me, kind of broadly within AMMO. Jared, can you give us any updates just as you talked about continued headwinds coming here? Maybe talk about kind of high demand calibers, 9-millimeter, 223556, kind of what you're seeing there? And then any changes that you're seeing in demand that we're pricing or kind of channel inventory in kind of everything else, primarily centerfire rifle.

Yes. So I think what's happened, Mark, is that a lot of the ammunition manufacturers have been holding on to inventory waiting for little shifts in the market for things to pop. I see 9-millimeter and 223. I really don't see any further price erosion out there from what's currently on the shelf. There will be some specials coming out for Black Friday. But I think for all intents and purposes, the market is fairly stable, and we bottomed out and we will stay at this for the next 2 quarters. Going forward, there are still fantastic pockets that we can tap into, especially in revolvers, there are still inventory levels that are lower than pre-pandemic levels in those areas, and that's where we plan to play.

Okay. And then maybe talk as much as you can or might be tough competitively, but walk us through kind of the margin on brass patent sales versus on loaded ammo.

Yes. I mean, today, our cost to produce ball ammo is somewhere between $2.20 to $2.40 per 1,000, and the price at retail was $2.05. We just can't compete there. Whereas I can sell a brass case, and I can still make 10% margins. So I sell brass casings anywhere between $75,000 up to $85,000, and there's space and demand there. We can help out the international market, we can help out our domestic players, and we can help out new brands wanting to enter this space. As for rifle ammunition, if we look at 223, it retails right now anywhere between 3.75% and 4.25% for ball ammo. There are too many factors influencing the cost for us to play in volume against larger vertically integrated players, but we can sell brass casings for a 20% to 35% margin. It's where we're going to stay and play until this market returns, and we're heading into an election year next year, so we're quite excited. There is no lack of international demand for rifle cases.

Okay. Yes. And then as we think broadly about you guys getting back more heavily into brass casing sales to OEMs, can you talk at all about maybe how much of this is on contract versus just kind of open to buy orders from OEMs?

Great question, Mark. Yes. We are signing large contracts today. I would say our contractual sales are now making up somewhere between 15% to 25% of our total capacity of that plant. All new contracts have been established in the last 6 months.

Okay. And then I think the last one for me, broadly speaking, I know it's a seasonally weaker quarter here for Gunbroker and the demand for some of these products. But talk about where you guys see the consumer primarily specific to Gunbroker, where is this consumer, and what's it going to take to kind of spur some more buying activity from these consumers? So maybe your outlook as we move into a more important hunting and holiday season.

Great question, first of all. Gunbroker is a perfect reflection of the market. What we're seeing for new guns is that new guns are available in retail locations, and they aren't needing to go to Gunbroker to find that ubiquitous Glock 17 or the Remington 870. Instead, they are going to Gunbroker for those unique items, and we are actually seeing that our margins improve on the platform because we are selling a higher mix of used guns. However, what's really going to drive Gunbroker users back to the platform is streamlining the checkout process, internalizing and providing credit card services, and the new cart item feature. It's really about the ease of use of that platform that we'll be delivering in Q3 or Q4 of this year. I just want to say thank you to everybody for tuning in today. We are extremely bullish about the future. We're heading into the fall season. We've had this factory now for a year there in Manitowoc, Wisconsin. Things are really starting to click for us as brass sales take off. From the Gunbroker side, the developments we are doing on the platform are exciting. You're going to be hearing more from us in the future. Stay tuned, and thank you for joining the call today.

The conference has now concluded. Thank you for attending today's presentation. You may all disconnect.