BYRN - NASDAQ

Good morning. Welcome to Byrna Technologies Inc.'s Fiscal Fourth Quarter and Full Year 2024 Earnings Conference Call. My name is Kevin, and I will be your operator for today's call. Joining us for today's presentation are the company's CEO, Bryan Ganz, and CFO, Lauri Kearnes. Following the remarks, we will open the call to questions. Earlier today, Byrna Technologies Inc. released results for its fiscal fourth quarter and full year ended November 30, 2024. A copy of the press release is available on the company's website. Before turning the call over to Bryan Ganz, Byrna Technologies Inc.'s Chief Executive Officer, I will read the Safe Harbor statement. Some discussions held today include forward-looking statements. Actual results could differ materially from the statements made today. For a more complete description of risk factors that could affect these projections and assumptions, the company assumes no obligations 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 Investor Relations section of our website ir.byrna.com, for further information regarding forward statements and reconciliations of non-GAAP results to GAAP results. Now, I'd like to turn the call over to Byrna Technologies Inc.'s CEO, Bryan Ganz. Sir, please proceed.

Thank you, Kevin, and thank you everyone for joining us today. We will be filing our 10-Ks with the SEC today. We are not sure if it is going to get out before the open or after the close, but it is in for filing. And as Kevin mentioned, we have issued a press release providing our financial results and business highlights for the fiscal fourth quarter and for the full year ended November 30, 2024. I am going to start by turning the call over to our CFO, Lauri Kearnes, who will review our financial results for the period. Following her remarks, I will discuss the operational highlights that drove our record $28 million in revenue and continued GAAP and non-GAAP EBITDA profitability for the fourth quarter. I will then offer insights into our strategy moving forward, before we open the call to questions from our covering research analyst. Lauri.

Thank you, Bryan, and good morning, everyone. Let's review our financial results for the fiscal fourth quarter and the full year ended November 30, 2024. Net revenue for the fourth quarter was $28 million, a 79% increase from the $15.6 million reported in the fiscal fourth quarter of 2023. This $12.4 million increase is primarily due to the transformational shift in our advertising strategy we began in September 2023 and the resulting normalization of Byrna Technologies Inc. and the less lethal space generally. In Q4, direct-to-consumer revenues increased by $8.9 million through byrna.com and amazon.com, compared to the prior year period. For the full year 2024, net revenue totaled $85.8 million, up 101% from $42.6 million in 2023. The gross profit for Q4 2024 was $17.6 million or 62.8% of net revenue, compared to $9 million or 57.8% of net revenue for Q4 2023. For the full year 2024, gross profit was $52.8 million or 61.5% of net revenue, compared to $23.6 million or 55.5% of net revenue for the same period in 2023. The improvement in gross profit margin is largely attributable to additional sales through our higher margin DTC channels and intensive cost component reduction effort spearheaded by Byrna Technologies Inc.'s engineering team and the economies of scale resulting from increased production volumes. Operating expenses for Q4 2024 were $13.5 million compared to $9.7 million for Q4 2023. For the full year 2024, operating expenses were $46.1 million compared to $31.4 million for the same period in 2023, reflecting a 47% increase year over year. The increase in operating expenses was driven by an increase in our variable selling costs, such as freight and third-party processing fees, credit card fees, increased marketing spend, and higher payroll expenses in marketing and engineering. The net income for Q4 2024 was $9.7 million compared to a net loss of $0.8 million for Q4 2023, a $10.5 million improvement. This increase was driven by higher revenue and a $5.6 million income tax benefit. The tax benefit arose from the release of tax valuation allowances related to net operating loss carryforwards and other tax assets. For the full year 2024, net income was $12.8 million, a $21 million improvement from a net loss of $8.2 million in the prior year. The increase in net income was driven by higher revenue and included a $5.7 million income tax benefit due to the full release of US tax valuation allowances. Adjusted EBITDA, a non-GAAP metric, for Q4 2024 totaled $5.2 million compared to $400,000 for Q4 2023. This brings adjusted EBITDA for the full year 2024 to $11.5 million compared to a negative $2 million in the prior year. Cash and cash equivalents at November 30, 2024, totaled $16.8 million compared to $20.5 million at November 30, 2023. The change in cash and cash equivalents is primarily due to an $8.9 million investment into marketable securities. Cash and short-term marketable securities totaled $25.7 million, which is an increase of $5.2 million compared to November 30, 2023. Inventory at November 30, 2024, totaled $20 million compared to $13.9 million at November 30, 2021. The company has no current or long-term debt. I'll now turn it back to Bryan.

Thank you, Lauri. And just to remark on her last comment there, although the cash levels were down, cash and marketable securities were up significantly from the year before as we took some of our excess cash and put it into short-term paper. As our results demonstrate, 2024 was a standout year for Byrna Technologies Inc. For the last five quarters, we have grown revenue quarter over quarter, culminating in a $28 million quarter in Q4 of last year, totaling $85.8 million for the year, more than double our 2023 revenue. This growth reflects our team's ability to market our products effectively and to scale our production to meet demand. A key milestone which we announced earlier this year was hitting the 500,000 launcher sold mark, which we eclipsed in November. This reinforces our progress in normalizing less lethal alternatives and establishing them as a widely accepted category of personal self-defense. With 500,000 launchers sold, this is no longer just a flash in the pan. This is a real market. Since selling our first launcher in 2019, we've experienced remarkable growth and we are just getting started. Our marketing strategy continues to be anchored by our celebrity endorsement program. Since launching this initiative in September 2023, we've seen a remarkable increase in both orders and brand awareness. By carefully managing these partnerships, this year we achieved more than a five times ROAS or return on advertising spend across all advertising platforms. This highly accretive threshold has helped us achieve this record profitability and become a stable cash-flowing enterprise. We continue to refine our approach, testing new influencers and new platforms in different markets, starting with an initial trial period before making a long-term commitment. Unfortunately, we recently terminated a few relationships with several celebrity endorsers that were unable to achieve our minimum ROAS requirements. However, today, we have not had to terminate any of our celebrity endorsers that were initially successful. Rather, the celebrity endorsers that we've had to terminate were never able to achieve our minimum ROAS requirements during the initial trial period. Unfortunately, we did lose one very successful celebrity endorser, Governor Mike Huckabee, due to his appointment as ambassador to Israel. We are excited to be onboarding new prominent voices in media and politics, including Megyn Kelly, Charlie Kirk, and Lara Trump as new partners in Q1 of this year. With their strong, engaged audiences and influential platforms, we expect them to drive meaningful brand awareness and deliver strong results for the upcoming period. We are also expanding the platforms where we are running our advertisements. As more and more cable and Internet platforms are greenlighting our advertising campaigns. In the fourth quarter, most of the $21.3 million in web sales, our highest margin sales channel, were directly attributable to our current roster of influencers. These influencers spread the word about our mission to provide less lethal personal security solutions, and they have helped us successfully build a very strong brand awareness. This has also allowed us to build a more robust multichannel marketing strategy that now includes traditional media, such as cable and broadcast networks. Prior to our advertising pivot, we were not allowed to broadcast on traditional broadcast TV channels. Fast forward to now, and we are able to advertise regularly on new networks and we are also frequently featured in news stories as less lethal solutions become a larger part of the conversation. Yesterday, I just returned from Nashville where we had a retail store brand opening. And three of the four local affiliates covered the opening. Two of them came to the event, they took video of the shooting in the range. And that story played more than twenty times in the local market. This change from a year ago demonstrates that more and more people are becoming familiar with our products, and they are beginning to see us as the solution to the epidemic of gun violence. We also believe that the changes that have occurred in both public sentiment and the position of some of the social media platforms since the new administration was elected bode well for Byrna Technologies Inc. We have traditionally been banned from advertising on social media and on most of the mainstream media platforms, but with both social media and mainstream media relaxing their restrictions in the wake of the election, we are hopeful that a number of these channels will open up to us. We are already seeing some movement with a number of the cable TV networks we have started to take advantage of these channels. We believe that Byrna Technologies Inc.'s proven track record in saving lives coupled with the normalization of the product category and the shift in public sentiments will allow us to continue to expand our advertising efforts and in turn the size of the audience that we are able to reach. Additionally, we are building out our physical store presence to reach our customers in new ways. We have strong data from Las Vegas, our first store, which in 2024 did in excess of $1 million in sales at a gross margin of more than 65%. To support our thesis that when potential customers have the chance to fire the launcher and experience the less lethal difference, we have decided to open an additional four stores. As I mentioned, we just opened our Nashville store and I was there for the grand opening. We will be opening stores in the Scottsdale, Arizona and Salem, New Hampshire locations in the next few weeks. In fact, Scottsdale will have its grand opening on February 19th, and Salem, New Hampshire will have its grand opening on March 5th. Our Fort Wayne, Indiana store is expected to come online in the March-April time frame. While we had initially planned to open a store in Pasadena, California, we had to pause those plans while we evaluate the impacts of the recent wildfires. And in response to these wildfires, Byrna Technologies Inc. donated 10% of the sales from a designated week in January to support those affected. As our Chief Marketing Officer, Luan Fama, a Los Angeles native said, Byrna Technologies Inc.'s mission has always been about protecting people and that includes supporting them when they are in need of help. As previously mentioned, each of the stores we are opening will have a firing range, four to five Byrna Technologies Inc. employees, a simple slap wall design showcasing our less lethal products. With these brick-and-mortar investments, we do expect our capital expenditures to be elevated in the first quarter, but we expect them to provide immense value in the long term. Similarly to the store in Las Vegas, we expect contribution margins from each store once they are fully ramped up, which we expect to take four to six months after opening. If any of our investors are near a store location, I would urge you to go to the store and experience this firsthand. On our last call, I mentioned that we were upgraded by our national accounts at Bass Pro and Cabela's to all of their locations. Today, I am pleased to share that we recently signed a letter of intent to form a new partnership with Sportsman's Warehouse. Starting in the second quarter, we expect to be launching a Byrna Technologies Inc. store within a store model at eleven Sportsman's Warehouse locations across the United States. If this initial pilot program succeeds as we expect it will, we plan to expand into fifty additional locations by the end of 2025 and a hundred locations total by the end of 2026. This concept, modeled after the success of Ralph Lauren's store within a store program, is designed to roll out our brick-and-mortar experience more quickly than we would be able to do with our own retail presence. As part of this agreement, each Sportsman's Warehouse will convert its existing archery range into a Byrna Technologies Inc. firing range where customers can experience our launchers. We believe that this is a critical component to the program's success as the conversion rate in our brick-and-mortar stores is around 80% while our conversion rate online is a little over 1%. Byrna Technologies Inc. has agreed to fund 50% of the build-out of the store within a store locations in each of Sportsman's stores where they carry the store within a store model. Confidence in this initiative is supported by our Las Vegas store data and also by a case study by a traditional gun store last year, where we opened up a store within a store.

Thank you. The company will now be taking questions from sell-side analysts. Our first question is coming from Matthew Koranda from Roth Capital Partners. Your line is now live.

Hey. Good morning, team. Just curious if you could speak to any demand and sales trends in the first quarter to date. Curious specifically on January, I guess, since you probably have the full month of data there. And then any notable changes since the administration took office? Any context that you can provide around the loss of Huckabee as well would be helpful.

Yeah. Thank you very much, Matthew. We've been we've had five consecutive growth quarters. And I do not expect there to be a sixth consecutive growth quarter. As Q1 is traditionally a slower quarter for us. That said, Q1 will be a record quarter, but for Q4. So it is a very strong quarter. It will be well above the previous high watermarks that we had last year other than the fourth quarter. There has been nothing really remarkable since the change in administration other than the willingness of more and more platforms to accept our advertising. So we think that that shift is a very positive shift for us. Obviously, by signing up Lara Trump and Charlie Kirk, we're trying to go after more of that audience that voted for President Trump. But we don't see any significant change in demand as a result, one way or the other, as a result of the election. With regard to Governor Huckabee, while we're sorry to see Mike go, Mike was at TBN, which is a relatively small network. And although his ROAS was excellent, he was a relatively small endorser for us. Didn't you know, was certainly not on the scale of a Sean Hannity or Glenn Beck. So you know, while we'll miss him on a personal level, I don't see that there's gonna have any significant impact on our numbers.

Okay. Very helpful. And then the flow through on your EBITDA was pretty impressive. Coming from the good gross margin pull through that you guys have mentioned and sort of the production improvements. Curious also on the operating expense side. Where you guys are getting the most leverage because you mentioned leaning into marketing side of assume there's not really leverage on that front. Maybe just discuss how we can kinda think about incremental margins going forward as we head into fiscal 2025.

Sure, Matthew. Good to talk to you. You're right. We will continue to see our marketing increase throughout the year as we're leaning into the marketing. So I would expect to see that. Our variable selling expenses are remaining at 10% of sales. So that that's has been pretty consistent, and we'll continue. The rest of the expenses, we will have some leverage. The one call out I would say is as we open these retail stores, we do have operating expenses related to those. So you know, the people, you know, the labor costs associated with it, the lease costs associated with it, and we do expect some time before, you know, they really ramp up to full revenue. So you know, if you think about on a quarterly basis, that's probably a four or five hundred thousand dollar incremental expense that we have on the retail stores. And it's probably a six-month time frame before those get ramped up to full speed.

Yeah. If I could just add, I think the biggest issue is the store openings. So as I mentioned, I was just down in Nashville we just had the grand opening on Wednesday. We've had staff there for going on two months now. So, you know, we've had people that have been setting up the store, that have been training, that have been traveling to Las Vegas to train. And then sales just started this week. They started to have one to two launchers a day. You know, Las Vegas is up over ten launchers a day. So we expect we expect and but in the beginning, as with any new business, we expect these to be loss leaders, and that's gonna have some negative impact on our operating expense mark percentage.

Okay. Fair enough. Wondering if you could maybe just speak a little bit more to the Sportsman's partnership. Just in terms of the impact you expect on the P&L timing of the rollout? It sounds like Q2 is kinda when we start seeing the eleven initial stores. How quickly could we see the additional fifty that you mentioned? Bryan, in the prepared remarks? What do you need to see out of the partnership from the initial eleven to hit that next stage of the fifty? And then maybe just lastly, if you could touch on how this may impact your own store rollout. Going forward and how we should be thinking about that in light of the partnership.

The Sportsman's store rollout is very, very important to us. Because these are existing stores. So the thing that slows us down with rolling out the Byrna Technologies Inc. store is the amount of time it takes to secure a lease. To get approval from the police department, the fire department, to do the tenant improvements, to hire the personnel. So, you know, from the time we select a city to the time that we can open up a store, probably is six months. For Sportsman's Warehouse where there is already an existing location already customer flow, there's already space there, there's an archery range, and all that needs to be done is the conversion of this space from an archery range into a Byrna Technologies Inc. store. We're looking at, you know, three or four weeks to take a location and turn it into an active store. So that's one of the things that's very, very attractive about the deal with Sportsman's Warehouse is that for us to roll out a hundred stores could take us multiple years whereas Sportsman's could frankly roll them out as quickly as twelve months if the numbers are there. So that brings us down to the question of, you know, what is it gonna take to roll out additional stores? You know, we think that these stores like

Okay. Makes a lot of sense. I'll leave it there and great quarter guys.

Thank you. Thanks, Matthew. Thank you. Next question is coming from Jeff Van Sinderen from B. Riley Securities. Your line is now live.

Good morning, everyone. And just to follow-up on the Sportsman's Warehouse, have you thought about sort of a time frame when you can declare success hitting the targets there? Is it six months out? From now, nine months out? Any sense you can give us there?

We know from our own stores that we're looking at four to six months. To really get comfortable that these stores are hitting their stride. Sportsman's Warehouse may happen more quickly than that because we have to drive traffic to our stores. You know, I just set up a billboard campaign in the Greater Nashville area to make people aware of the store and to get them in. We're starting with coffee splitting with Sean Hannity, Glenn Beck to make people aware that there's a store in Nashville. With Sportsman's, you already have significant traffic. You already have customers in the store. So we would guess that it will happen more quickly. That said, it's not gonna happen overnight. I mean, there's gonna take some number of months. So I would be I'm hopeful that in the next three to four months, these stores will start to produce profits that would encourage Sportsman's Warehouse to roll them out to other locations.

Okay. Great to hear. And then if we could turn to production plans and targets that you have there for a moment. Also wondering if there are any shortages in components in your supply chain. And then maybe if you could touch on inventory levels, do you expect to maintain as you continue to grow?

Okay. Sure. So as far as production levels, you know, we mentioned that we're up to 24,000 a month, and we'll we plan to continue that. We don't have any shortage of parts, so we're keeping on top of that and getting parts in timely. We do expect to grow inventory through the first quarter, maybe partially into the second quarter until we get to the launch of our CL as we are starting production of our CL. As we've mentioned previously, we want to have 30,000 of those produced and ready to go before that product launch, which we expect to be in the summer of this year, some midyear this year. So that will increase our inventory in the neighborhood of about $5 million we expect.

Okay. Helpful to know. And that $5 million is just for the compact launcher?

Just for the compact launcher.

Okay. Fair enough. And then I know you guys generally don't provide guidance but wondering if there's if you wanna say anything about what level of revenue growth or gross margin seems attainable at 2025? And then maybe given some of your expenses to ramp retail, perhaps the level of EBITDA margin that seems feasible to aim for?

Yeah. We don't want to give any numerical guidance to the top line. But we can say that it's not going to be the same 100% growth we had in 2024, but it will be a very strong double-digit growth year. We're already seeing that in Q1, and we expect as we get into Q3 and Q4 with the implementation of the compact launcher that will see very, very strong growth. In terms of margins, as you could see, we've been seeing increasing margins all the way through last year, and we expect that to continue. We expect it to continue for a couple of reasons. As Lauri pointed out, we've been doing a lot of work to reduce costs. We've been benefiting from economies of scale as we grow the business, and frankly, as we bring out the compact launcher, we're gonna be bringing out a higher margin product. So as we get into, you know, the third and fourth quarter, we expect margins to exceed where we ended up at the end of 2024. You know, we had talked about just sort of EBITDA margins, you know, we historically said, you know, as we hit a hundred million, we should be in the mid-teens. As we hit, you know, a hundred and twenty-five million, we should be in the high teens as we get up to a hundred and fifty million. We should be in the, you know, low twenties and probably a terminal gross margin of somewhere close to 30% that we will hit, you know, when we're at the hundred and seventy-five, two hundred million dollar mark.

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

Thank you, Jeff. Thank you. Next question is coming from Jon Hickman from Ladenburg Thalmann. Your line is now live.

Hi. Nice results. Congratulations. Just one question about the Sportsman partnership. Are any of the employees in those stores in store gonna be Byrna Technologies Inc. employees, or are they all gonna be sportsmen? What kind of control do you have over their performance?

Yeah. That's a very good question, Jon. They are not going to be sportsmen's they're not going to be Byrna Technologies Inc. employees. They are going to be sportsmen's employees. And that's one of the benefits for us. Now we have committed to significant training and it is in our best interest to train. So we are involved in the design of the store, the look of the store, the feel of the store. We will train all the personnel and we will train them using what we call a T3 or train the trainer program, so that each of these employees that we train will then be able to train other employees in the store. Sportsman's Warehouse has committed to having many of their employees in the store be trained to operate the range and to sell Byrna Technologies Inc. products. So we're gonna be very involved. We have also agreed to having Byrna Technologies Inc. personnel on-site at least twice a year in each of the locations, and to provide demo days using our trailer and other ways to support sportsmen. But the real benefit here is that, you know, we're able to use the sportsmen's footprints and we're able to use the sportsmen's balance sheet to grow our business.

Okay. So back to the build-out there. It's I think you said that each of your, like, like, the Nashville store, etcetera. That's a four hundred, five hundred thousand dollar expense. What do you anticipate for the expense for the sportsman store within a store?

Hi, Jon. I'm sorry. So just one correction. Our build-out of our stores are in the two hundred to two hundred and fifty thousand dollar range. For most of our retail stores. Okay? For sportsmen, though, because they already have the store, all they're doing is reconfiguring the space and, you know, changing some of the fixtures and furniture and fixtures. And they're estimating that top to be about fifteen thousand, of which we're gonna pay half. So it's seventy-five hundred per store. This is not a large expense for us.

Okay. And then are they gonna carry all your products your rifles, all the ammo, that kind of thing?

Their agreement is as with the premier dealers to carry a full representative range of products. That may not mean every single product we carry in every single location, but very, very close. So the intention is to carry everything that sells. And this is part for sportsmen. They're creating a whole personal safety personal self-defense division. So, you know, they've been focused almost exclusively on hunting. Hunting is a, you know, five-month year season, personal safety is twelve months a year, three hundred and sixty-five days a year. And Byrna Technologies Inc. will sort of be the anchor for this personal safety segment of their marketing campaign. So they do want to carry everything personal safety related.

Okay. And alright. No. That's it for me. Thank you.

Thank you, Jon.

Thank you. We've reached the end of our question and session. I'd like to turn the floor back over for any further or closing comments.

Okay, Kevin, thank you. I appreciate your continued interest in Byrna Technologies Inc. And I want to thank all of our investors and customers for your continued support. Thank you very much.