Greetings, and welcome to the Byrna Technologies Fiscal First Quarter 2021 Earnings Conference Call and Webcast. As a reminder, this conference call is being recorded and all participants are in listen-only mode. Before turning the call over to Bryan Ganz, Byrna Technologies Chief Executive Officer, I will read the Safe Harbor statement. Some discussions made today may include forward-looking statements. Actual results could differ materially for 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 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 section of our Web site ir.byrna.com for further information regarding forward-looking statements and reconciliations of non-GAAP results to GAAP results. I will now turn the call over to Mr. Bryan Ganz. Sir, please go ahead.

Thank you so much, Kevin. Good morning everyone and welcome to Byrna’s fiscal Q1 earnings call and in fact the first quarterly earnings call in company history. Last night, I left the office thinking that the earnings script I have for today’s call was final. And then, as is often the case, something unexpected occurs. A little after 9 pm last night, Sean Hannity mentioned the Byrna on his nightly television show on FOX. For those people that have been following Byrna, you know that this is not the first time Sean Hannity has featured the Byrna HD personal security device. Sean has always been passionate about providing police with more and better less lethal training at weapon systems. It is not surprising then that in the wake of renewed civil unrest that erupted in Minnesota last night stemming from the fatal police shooting of an unarmed motorist, Sean would once again bring up the need for the police to adopt additional less lethal tools and training, like the tools and training provided by Byrna. As a result of this unanticipated but very much appreciated feature of the Byrna HD, Web traffic and sales surged. Over the 12 hours from 9 pm Eastern Time last night through the start of this call at 9 am, Byrna logged approximately 100,000 e-commerce Web sessions and took over 1,800 orders totaling more than $850,000 in sales. To put that in perspective, for the first 11 days of April, prior to yesterday, we had just about the same 100,000 Web sessions and we booked 667,000 in e-commerce orders or approximately 60,000 a day. Unlike the first time, orders surged in the wake of Sean Hannity mention, this time we are completely prepared as we have dramatically increased our production capacity and we have built…

Thanks, Bryan, and thanks everyone for joining us today. Now I’d like to review the financial results for the first fiscal quarter of 2021, which concluded February 28. I’ll provide an update on the company’s liquidity position and then I’d like to discuss the company’s 2021 full year outlook. Revenues for the first quarter were $8.9 million compared to $149,000 in the first quarter of 2020, and the year-over-year increase was driven by strong demand for our Byrna HD personal security device, enhanced market awareness for our product, and improved production volume following the opening of our new manufacturing facility in Fort Wayne, Indiana. First quarter gross profit was $4.7 million, representing a 53.3% gross margin, a significant increase over the $29,000 gross loss that we incurred in the comparable period a year earlier. The increases in gross profit dollars and margins were driven by the substantially higher production volumes referred to earlier. Operating expenses for the first quarter totaled $5.2 million, or roughly 58% of revenues, compared to $1.6 million in the prior period. The year-over-year increase was driven largely by investments in corporate infrastructure necessary to support Byrna’s growth in sales and production. This includes building out the management team and administrative staff as well as operating expenses necessary to effectively and professionally manage a growing public company with sales and manufacturing operations in multiple countries. GAAP net loss for the first quarter of 2021 was $272,000 compared to a GAAP net loss of $2.3 million in the first quarter of 2020. Excluding non-cash stock compensation expense in the first quarter of 2021, non-GAAP adjusted net income was $339,000, representing our second consecutive quarter of non-GAAP profitability. Moving on to our backlog. As of November 30, 2020, Byrna had an order backlog including e-commerce and dealer orders of…

Thanks, David. As I indicated earlier, we have a number of exciting new product developments that we will be bringing to market over the balance of 2021 and into 2022. The first new launcher that we will be bringing to market is the Byrna HD XL, which will retail for $459. The Byrna XL boasts a 19 foot per second greater muzzle velocity than the standard Byrna HD and uses the more commonly available 12-gram CO2 as opposed to the 8-gram CO2 used in the standard Byrna HD. With the 12-gram CO2, the Byrna HD XL can fire at least two additional magazines on a single CO2, both increasing the capability of the launcher and bringing down the cost per round by at least 40%. Additionally, by using the more readily available 12-gram CO2, it will be easier to travel with the Byrna HD XL, as users can purchase the 12-gram CO2 in any Walmart or similar type store at their destination. We will also be offering the 12-gram adapter, which we are calling the Byrna Boost as an aftermarket option. The Byrna Boost retrofit kit will allow current owners of the Byrna HD to upgrade their launcher so that it can use the 12-gram CO2. Externally, it will look exactly like the Byrna HD XL although it will not have the internal modifications of the XL. That said, the Byrna Boost will provide many of the same benefits of the Byrna HD XL including more shots per CO2, a lower cost per shot fired, ease of travel and an increase in muzzle velocity, in this case 6 feet per second. The Byrna Boost, which will retail for $49.99, can be easily installed on any existing Byrna HD using two small wrenches provided in the Byrna Boost retrofit kit. Last…

Thank you. We’ll now be conducting a question-and-answer session. [Operator Instructions]. Our first question today is from Brian Gesuale from Raymond James. Your line is now live.

Hi. Good morning and congratulations on the really good results. Really do appreciate kind of the Live Safe mantra and appreciate the non-lethal firearm alternative here. If you can just – I have a few questions I wanted to kind of run through with you. Could you help us understand perhaps the rhythm of your revenue cadence this year? If I look at it, you've named a bunch of catalysts out there from joining up, getting on Amazon to a bunch of new products that seemed very promising. Can you just maybe help us understand how that progression might transfer to revenue?

Okay. So when we reported sales of 8.9 million for the first quarter, that included working through $4 million of backlog. So during the first quarter, we took in $5 million of additional orders. As we go into this quarter, we intend to work through the remaining $3 million of backlog. Although given our sales flow, there's probably always going to be several hundred thousand, maybe $0.5 million of backlog at the end of any reporting period. We are seeing sales continue to grow. As we mentioned, for the first 11 days of April, before the Hannity mention, we were running at about $60,000 a day in new e-commerce orders. In addition, we've been seen a significant pickup in dealer orders. We expect whatever seasonal factors there are, and there is some seasonality to this with Christmastide, Black Friday and the Christmas holidays being very strong for us, but we expect whatever seasonality there is to be overwhelmed by the continued growth in demand. So we see growth. As I said, it was $5 million in new orders in Q1. It will be substantially higher than that as we go into Q2, and we’ll continue to grow as we introduce these new products and new sales channels.

Great. Thank you. And then I guess if I could just follow up, again, sticking with the revenue line, can you -- it's my understanding you create a lot of recurring revenue with each launch or sale in the form of ammunition. Can you maybe talk about how that ammunition waterfall is beginning to build and how that kind of fits into your overall forecast?

If we look at the firearms industry, generally, most people will spend over the first 18 months that they own a firearm as much in ammo and accessories as they spend on firearm itself and the initial purchase, and we see no reason to think that we're going to be very different from that. Now that said, ammo and accessories has been a relatively small part of our revenues to date because so many people are just getting their Byrna launcher to start. But what we saw with this Byrna Boost program was that we were able to go back to our existing user base and generate several hundred thousand dollars in sales over a couple of days just by reaching out to them with an email. We do believe that over time as we have a larger and larger installed user base that we will start to look more like our competitors, specifically Mission Less Lethal in pepper ball. If you look at their sales mix, it's pretty close to 50-50. In other words, 50% is on launchers and 50% is on ammo and accessories. But based on our projections, we're still several years away from reaching that milestone.

Okay, terrific. And then if I could just maybe ask one last one and then I'll jump back into the queue. I wanted to focus now on gross margins. Can you help us understand maybe the impact of mix between launch reverse ammunition, your new products that are coming out and overall volumes and how that impacts gross margin and what we're thinking as we move through the next several quarters here? Thank you.

Sure. I like talking about gross margin because we like making money here at Byrna. But we've been seeing an improvement in gross margin every quarter and we are continuing to see an improvement in gross margin. Now that said, there's a couple of drivers of gross margin. One, of course, is product mix. And as we bring out these new products, they will be at higher prices and higher gross profit margins. The ammo has a higher gross profit margin than the launcher has. That is going to be offset to a certain extent, as we grow the dealer business. Nonetheless, we are looking at margin continually expanding throughout this year and throughout 2022. And we're looking at a terminal gross margin in the mid 60s.

That's great. And one last one if I could just sneak it in, sorry. How do you think about your manufacturing capacity?

We were caught flat footed with the first Hannity endorsements on June 10 of last year. At the time, we were producing 100 launchers a day and as I mentioned, we were quickly backordered 20,000 launchers and were forced to ramp up and frankly forced to ramp up in the middle of the pandemic. And that's why I wanted to thank all of our employees and partners who really did heroic work to get the production up from 100 a day to today we can produce over 1,000 a day. The biggest obstacle to growing production is not the manufacturing facilities themselves. We can currently produce more than 500 a day in each facility per shift. So we have the ability to produce 3,000 launchers a day, which frankly is far in excess of our projections over the next several years. The biggest obstacle to scaling up production is simply the componentry. We are -- we have 114 parts in a Byrna HD, 93 unique parts, 65 of those are custom made. Among the custom made parts, there are MIM parts, metal injection molded parts. There are plastic injection molded parts, but there are a lot of machine parts. And these machine parts, there's very little economies of scale. If it takes 10 minutes to make a valve body and it does frankly, it takes 100 minutes to make 10 valve bodies and 1,000 minutes to make 100 valve bodies. And you really don't get any economies of scale. And as you grow, you can quickly overwhelm the machine capacity of the machine shops that you're working with. So what our supply chain team has been doing is to create both redundancy and additional capacity by bringing on new vendors. Now this has been particularly hard during the pandemic, because we haven't been able to travel to the vendors. But as things are starting to free up, the supply chain team is getting their visas in order, ready to go all over the world to start expanding our production base. We are also in the process of developing what I refer to as an all trucks strategy. And frankly, that just means that we want to be able to supply Fort Wayne completely by truck. So in the event of another pandemic, in the event that the skies are shut down again, that we are not strapped that we can get things from either the U.S., Canada or Mexico into our Fort Wayne factory and we are very far along that path, that will certainly be accomplished during this fiscal year.

That's great. Thanks so much for fielding my questions. Appreciate it. Thank you, guys.

You’re welcome.

Thank you. Our next question is coming from Jeff Van Sinderen from B. Riley & Company. Your line is now live.

Hi. Good morning and congratulations. I know you touched on this topic but in light of the latest police incident in Minnesota and Sean Hannity's mention last night of Byrna, just wondering if you can speak more about what sort of trajectory in orders we might expect going forward based on Sean’s previous mention, just kind of what you saw there, maybe a reminder? And then it sounds like you have plenty of capacity to fill those orders. Maybe just confirm that. And then I think you mentioned that you've maintained prior guidance. And then any update on the company's relationship with Sean?

Okay. So first of, thanks Jeff. I appreciate the question. Sean is a big supporter of the company. I wouldn't go as far as to say that Sean and I are close personal friends, but we've developed a friendship over the last year that he's been supporting Byrna. He is honestly very, very passionate about getting law enforcement better tools and training and he strongly believes that Byrna is part of the solution. We have invited Sean to come to one of our law enforcement and/or school safety training programs and we hope he'll take us up on that. But the relationship between Sean and the company is just a -- frankly just a personal relationship. We don't pay Sean anything. We don't advertise on his show. We don't provide him with free product. It's just something that he believes in strongly. As I said, last night, we had $775,000 in orders. And as of this morning, we’re at $145,000. Now, I would expect today's sales to be around 300,000. And then it will start to tail off back to our normal trajectory pretty quickly after that. These things are like a shot of adrenaline and they wear off pretty quickly. We do have, as David mentioned, over 10,000 launchers in stock and we are able to fill all of these Hannity orders we’re saying within the seven-day lead time that we have on our Web site, but we're going to work very hard to try to get them all out this week. And I think the reason we want to push so hard to get them out this week is we did get a lot of negative feedback on social media with the long lead times and shipping times after the first Sean Hannity mention. And we think that if we can demonstrate to people that they put their order in last night or today that they're getting their launcher by the end of the week that we will get a lot of friends and family of these people. Friends and family referrals is our second largest means of getting new customers. So it's really important for us to be able to fill these orders quickly and I believe we will.

Okay, great. And then any other comments just in helping us understand approach in growing the dealer business?

So the dealer business -- my whole career has been in B2B. So I'm a big proponent of dealer business. That said, now that we're in the B2C business, there's nothing more gratifying than waking up in the morning and seeing that you sold $775,000 the night before. But that said, we recognize that there are three legs to our stool. One is the D2C business that we will do through our own e-commerce Web site through the Amazon site and perhaps other third party sites. The other is the brick and mortar business. And then finally is the large institutional business; in other words, law enforcement agencies, private security companies. We think that the dealer business is a very important part of that model because it is a very consistent business. We know -- and this was from the experience early in 2020, we know that each store that carries the Byrna is going to sell X number of Byrna a month on average. And it gives us a lot of ability to project what our sales are going to be, which is critical from a manufacturing standpoint. Right now, we have a little over 300 dealers; in other words stores. Some are part of change that we are selling to have anywhere from half a dozen to more than 100 locations. And some are just single mom and pop stores. We’re also selling through some large distributors, both Davidson's and Lipsey's, because it's difficult for us to just manage logistically shipping a store two more launchers to build the -- launchers they sold the prior week. But we see this as an important part of our go-to-market strategy.

Okay, great. Thanks for taking my questions and best of luck.

Thanks, Jeff.

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

Great. Thank you. Good morning. I think in your commentary when you were talking about OpEx, you might have said something like Q1’s OpEx is representative of what it's going to be the rest of the year. I'm just trying to understand what that means? Does that mean that it's flat on a dollar basis? That means it's flat as a percentage of sales? It's going to grow the same rate of sales? Help me understand what that means.

We're projecting, given the sales growth that will take us to the 33 million to 38 million annual number that the dollar value that we spent on in Q1 will be consistent for the remaining quarters of 2021. So even though sales will grow, the dollar value will remain consistent because we basically have put into place the infrastructure that we're going to carry going forward. Most of our positions are filled. We did -- David did mention though that where it could go up is if we go beyond the top end of that range. If we do more than 38 million, we'll likely see more in sales commissions, for example, more in customer freight out. But yes, we see the 5.2 million as being a very good number for you guys to use.

Yes. What we're really saying is that if you look at the past 12 months, the company obviously has exploded in growth. And so the growth in the OpEx number has gone along with it. But we're really saying structurally, we've got the infrastructure in place now. The number’s not going to stay exactly where it is. But for the most part, we've got a stable structure now that's not going to continue growing at that rate.

Understood. Thanks. And then on the law enforcement market, it's historically been a very difficult time consuming, expensive market to go after. And I'm just wondering what your thoughts are on how you're going to approach the law enforcement market?

Yes. Look, the irony is that when I came on board, SDI security devices, the market was exclusively law enforcement. And we wanted to pivot away from it for exactly the reasons that you state, Jim, which is a very fragmented market, it's a difficult market to break into. That said, we think it is an important market in terms of making us part of the conversation. We don't expect law enforcement to be anywhere near as large as our consumer market or frankly even as large as our private security market. But we do expect it to be a substantial part of our business. We created a law enforcement training program and basically our goal is to bring in law enforcement agencies through our training program. So it's -- I think our projections for law enforcement for the year are in the $1 million range. But that said, I think that it does give us the bona fide ease we need to go after the consumer market. When I was a kid, I used to go to these NASCAR races in Loudon, New Hampshire and they had a saying, Win on Sunday, Sell on Monday, because whatever brand won the race, you'd have everybody flocking to the dealership to buy that car. We think there's a certain analogy with law enforcement to the consumer market where if we can cite law enforcement agencies carrying our products, it will help us with our consumer market.

Okay, great. Thank you. And my last one on Amazon and e-commerce sites that you're working towards. I'm wondering if that has to get approval from Amazon corporate or -- Amazon's kind of odd sometimes or a lot of companies are odd sometimes with what they allow and what they don't allow. I'm just wondering how the conversations are going regarding your particular product and carrying it on Amazon.

Yes. The reason we're not live on Amazon today is that we're going through this approval process. That said, we don't see any issue as our competitors, our direct competitors, like Mission Less Lethal, is selling on Amazon currently. So we think it's just a process that we have to go through, but we don't see any reason why we wouldn't be approved to be on Amazon.

All right, great. Thanks a lot. Good luck with everything.

Thanks, Jim.

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

Thanks, Kevin. I appreciate everybody's attendance today. This is a very exciting time and we have our plates filled with trying to execute this year. But we're extremely encouraged about the prospects for 2021 and beyond. And I'm happy to speak with analysts’ offline if you'd like to and you can reach us through our Investor Relations firm, The Equity Group. Thank you very much.

Thank you. That does conclude today's teleconference and webcast. You may disconnect your lines at this time and have a wonderful day. We thank you for your participation today.