Outdoor Holding Co Q4 FY2023 earnings call

Management Statement and Operational Highlights

• Fred Wagenhals discussed transitioning the customer base to strategic clients and positioning as a long-term supplier of pistol and brass casings. He highlighted efforts to penetrate higher-margin niche markets with proprietary technology.
• Jared Smith emphasized balance sheet strength with $39.1 million in cash, eliminated debt, and $35.5 million in cash from operations over 12 months. He detailed process improvements in ammunition and GunBroker.com divisions, including sales and operating model enhancements. For GunBroker.com, initiatives included improved marketing campaigns (targeted personas, 1.5 million daily emails), proactive customer service, buy-now links for manufacturer sites, and a new podcast launching in July. Also, the addition of Alan Faulkner as Vice President of Public Relations and Brand Management.

Segment Performance

• Ammunition Segment: Fourth quarter revenues were approximately $43.7 million, a 37.7% decrease from the prior year quarter. Full fiscal year revenues were $191.4 million, a 20.3% decrease from the prior year. Cost of revenue for the quarter was approximately $31.8 million vs. $49 million in the prior year quarter, and full year cost of revenue was $136 million vs. $151.5 million in the prior year. Gross margin for the quarter was $11.9 million vs. $21.1 million in the prior year quarter, and full year gross margin was $55.4 million vs. $88.8 million in the prior fiscal year.
• GunBroker.com Segment: Revenue decreased 7% from the prior year quarter and 2% from the prior year. Despite top-line revenue fluctuations, operating performance remained strong with comparable margins.

Guidance

• Expect increased profitability through sales of brass casings and performance rifle ammunitions.
• Anticipate growth and profitability from GunBroker.com with the launch of payment processing suite, carting, and analytics.
• Common stock repurchase plan underway with approximately 1 million shares repurchased, $28 million remaining under the plan until February 2024.

Risks

• Macro economic conditions and inflation impacting sales volumes and margins.
• Competition in the ammunition and online marketplace sectors.
• Regulatory changes affecting operations and market access.
• Impact of industry layoffs on talent acquisition and retention.

Q: Regarding the AMMO manufacturing side, clarification on the transition to more profitable sales activity, including product mix and production transition completion.

A: Jared Smith stated the product mix is fully transitioned, focusing on premium brass and large caliber ammunition rounds, with capacity growth in medium and large rifle calibers.

Q: About GunBroker.com customer purchasing behavior, observations and trends for the rest of the year.

A: Jared Smith noted increased profitability post-COVID with higher ticket items, better use of listing options, and increased sales percentage since the start of the year.

Q: On take rate increases in GunBroker.com, preparation for expected improvements and take rate decline expectations.

A: Rob Wiley explained recent take rate increase relates to higher ticket sizes and ancillary options. Jared Smith mentioned no immediate take rate adjustment in 2023, with focus on growing user community and services like credit card processing.

Q: Big picture on consumer behavior updates from Q1, including GunBroker data and ammunition trends.

A: Jared Smith noted decreased ammunition demand, price erosion on commodities, and GunBroker.com users seeking better value and comparison pricing.

Q: Follow-up on manufacturing shift away from 9 mil and others to specialty calibers.

A: Jared Smith explained shifting to calibers like 38, 357, 44, 45 long colts due to ability to pivot quickly without dedicated lines in the factory.

Q: Update on commodities, labor, and inflationary pressures since quarter end.

A: Jared Smith mentioned copper prices backing off, primer supply slackening due to recession, and imports flooding in but AMMO not competing in those sectors.

Q: Color on cadence of gross margins in ammunition segment and inventory clearance.

A: Jared Smith stated margins improved by 10%-15% in pistol, with brass business seeing 30% margins and growth since January, working through slower-moving inventory.