Greetings and welcome to the Byrna Technologies’ fiscal year end 2021 earnings conference call and webcast. As a reminder, this conference call is being recorded and all participants are in a listen-only mode. Before turning the call over to Bryan Ganz, Byrna Technologies’’ Chief Executive Officer, I’ll read the Safe Harbor statement. Some discussions made today may 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 Investor Relations section of our website, ir.bynra.com for further information regarding forward-looking statements and reconciliations of non-GAAP results to GAAP results. I’ll now turn the call over to Mr. Bryan Ganz. Sir, please go ahead.

Thank you very much. Good morning everyone. I just want to make one clarification. This is the first quarter fiscal year 2022 earnings call. David North will be discussing our Q1 fiscal year 2022 results, after which I will provide some additional color on the quarter and recent developments. I’d like to start by turning the call over to David so that he can discuss our first quarter financial performance. David and I will be taking questions at the conclusion of the presentation. David?

Thanks Bryan, and thanks everyone for joining us. Now I’ll review the financial results for the fiscal first quarter ended February 28, 2022. Revenues were $8.0 million this quarter, a decrease of $0.9 million compared to $8.9 million in last year’s first quarter. Orders received during the quarter increased substantially, however, up 45.6% to $8.9 million this quarter from $6.1 million in the first quarter of 2021, when sales included the fulfillment of $2.8 million of backorders received in prior quarters. Sales for the quarter were lower than expected due to a large $2.2 million order backlog that didn’t ship by month end. In addition to $1.6 million of international orders that were held pending export permits, part of the backlog was comprised of the initial Sportsman’s Warehouse order which shipped in March. Lower sales volume caused only a slight decrease in gross profit, which declined to $4.6 million compared to $4.7 million in the first quarter of last year. This was because gross profit margin has improved to 57.8% of revenue compared to 53.3% last year. The improvement in gross profit margin despite lower production volumes is due to improved operating efficiencies at the factories. These improvements were partially offset by higher inbound freight costs, which we believe peaked during this last quarter. We expect to see continued improvements in gross margins due to both increased production volumes and reduced per-unit freight costs. Operating expenses were $8.0 million in the first quarter of 2022, up from $5.2 million in the first quarter of last year, but lower than $8.8 million in the fourth quarter of 2021. The increase in comparison to the same quarter a year ago is due to corporate growth over the last year that drove up structural costs, primarily payroll-related and non-cash compensations, and also drove…

Thank you, David. While the first quarter of 2021 presented a number of challenges, on balance we were actually quite pleased with the continued improvements we are seeing in production, order flow and gross profit margins. Like many companies during the first quarter of this year, Byrna had to deal with supply chain disruptions and navigate logistics challenges, including greatly extended shipping times and dramatically higher freight rates. With many of our key suppliers not being able to keep up with their production schedules due to the cascading effect of their own supply chain problems, and many of our freight carriers taking much longer to ship componentry from our vendors to our factories, Byrna was perennially out of stock on a number of critical components required for the production of our flagship Byrna SD launcher. The problem became so acute early in Q1 of this year that our primary manufacturing facility in Fort Wayne was in operation only 36 days during the entire quarter. With limited production, Byrna produced just shy of 19,000 units during the first quarter compared to a production plan of 30,000 units. This resulted in many products being listed as out of stock on byrna.com, amazon.com, and at our dealers’ locations. I’m very pleased to report that the supply chain disruptions’ ensuing shortage of componentry and raw materials seems to be behind us. During the month of March, Byrna produced 14,000 launchers, a run rate of 42,000 per quarter. In our last earnings call on February 11, we projected that we would produce 6,500 launchers between the date of the earnings call and the end of February; in fact, we produced 6,544. We also projected that we would have enough componentry on hand by the end of February to produce 30,000 launchers. We achieved that goal…

[Operator instructions] Our first question today is coming from Jeff Van Sinderen from B. Riley. Your line is now live.

Great, thanks. Good morning everyone. First, let me say congratulations on the strong backlog, order trends, and managing the supply chain disruptions quickly and effectively. I guess my first question, just kind of to get it out of the way, you’ve got a pretty good sized backlog at this point. It sounds like a chunk of that is shipping in Q2. Based on that backlog and, I guess, the new product launches that are happening in Q3, would you expect a ramp from Q2 to Q3? I guess I’m trying to figure out what sort of revenue progression we might see from Q2 to Q3, especially as you get this backlog you’re shipping.

Well, we expect the entire backlog to ship out during this quarter; in fact, a significant portion of it has already shipped. That said, we do not have any significant new product introductions in Q2, with the exception of the TCR - Tactical Compact Rifle, which should go into production later in April and start shipping in May. We do see a reasonable ramp from Q1 to Q2. In Q3, we believe that the LE, the seven-round magazine and the 12-gauge will all enter production and enter the stream of commerce, so we see a pretty good ramp in Q3 for that, and then in Q4 we’ll have all of these products for the entire quarter plus we’ll have the holiday effect in Q4, so we do see a pretty sizeable ramp each quarter, quarter-over-quarter.

Okay, that’s helpful. Then just touching on supply chain with the new products slated to launch in Q3, are there any concerns around getting components for those new products or do you think that the supply chain issues for this year, unless something changes, are probably behind you?

We really do think that the supply chain issues are behind us. The supply chain problems we had in Q1 really resulted from a perfect storm of--or as they say, a series of unfortunate events, where we had Christmas, Chinese New Year, coupled with coming off an extremely strong Q4, and we just ended up with probably half a dozen components that we were quite short on, which caused production to shut down. As I said, for the SD we now have more than 20,000 of every one of the 114 components necessary to produce the launcher with good cash balance on the balance sheet. We are making the decision to err on the side of having too much rather than too little inventory, and we’re doing that also for the new products, so we don’t see, absent some significant world event that simply shuts down commerce, any further supply chain issues this year.

What we’re actually focused on is gaining the benefits of the strength that we’ve got in supply chain now, having sort of been a child born into brutality in this whole thing with the pandemic and huge surges in sales last year and so forth, so at this point our real focus is--my real focus is, hey, how can we get freight costs down, so I’m looking at potential improvements going forward.

As David alludes to, by having a lot of componentry and finished product on the shelf, we can now start to switch from moving product by air freight to moving it by ocean freight. We’re starting that this quarter with a few components, but that will ramp up through the balance of the year as we ship more and more of the componentry from our suppliers to our factories by ocean freight.

Okay, good to hear. Then if I could just squeeze in one more, if we could just turn to the outlook regarding M&A, any more color you can give us on what you’re seeing there, I guess any thinking you might share around timing or when we might see another acquisition?

We are continuing to explore opportunities. As I mentioned, we are suspending our own share repurchase program because there are a few interesting things, but nothing that we can speak about at this time.

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

Thank you.

Thank you. As a reminder, that’s star, one to be placed in the question queue. Our next question is coming from Jon Hickman from Ladenburg. Your line is now live.

Hi. Could you elaborate on the school safety products? Are they available right now for sale?

No, Jon. The school safety products are going to be kicked off on April 15, so right now what we’re doing is we’re building up inventory of the Byrna Shield and we’re constructing the school safety website. We have also, in addition to Andy, our head of law enforcement training, Josh Schirard is a highly decorated law enforcement professional who spent 10 years as an alert instructor training law enforcement professionals and civilians on active shooter response. He was the tactical commander of over 1,000 professionals in the response to the Santa Fe shooting and has spent a lot of time lecturing and writing about school safety. Between Josh and Andy, we’re trying to build a really robust school safety website that will allow people to make sure that their children are doing the right things. I’ll tell you, just as a quick example, one of the things that Andy explained to me is this issue of hard corners, where you can put students into a place that when the shooter walks by the classroom when the door is locked, they are unable to see the student. It seems like a very simple concept, but it’s not a concept that’s embraced yet by every school; in fact, as we visited schools, we’ve seen a lot of schools do not even know what the hard corners are. But in Sandy Hook, believe it or not, law enforcement thinks of that as a success, and the reason it was a success is that they did have the hard corners marked out, all of the classrooms that were locked down and the students were in hard corners, no student was killed. All the students were killed in one classroom that had a substitute teacher that was unfamiliar with the protocols, so we know that there are things that work, there are things that can save lives, and we’re spending time now building the website so that we can inform parents. But this program will kick off on April 15.

Okay. Then my additional question is, you talked last time about moving or adding suppliers so that you had more of your supply chain coming from maybe countries or locations that were closer to Fort Wayne. Can you talk about how that’s going?

That is progressing. We anticipate that we will have 85% of all of the components produced in the U.S. by the end of year, and 100% of all the components produced in the U.S. by the middle of next year. Again, a lot of this means building molds and moving molds, and I don’t want to give the impression that 100% of the products will be produced in the U.S. We will be able in an emergency to produce 100% of the products in the U.S., but we will still work with redundant suppliers, so if we have a supplier in the U.S., we will also have a secondary source either in the U.S. or somewhere else, and the 80/20 rule will apply, where 80% will be from our primary supplier, 20% will be from our backup supplier, and that decision will be based on lead times, pricing and quality. But we are continuing to pursue that. I think that with this recent outbreak of war in Ukraine, it just brings home the issue that you never know what can happen, you never know what factories may be embargoed or shut down, or even natural disasters like a fire or a strike, we need to be able to have redundant supply, so we are well on our way to achieving that goal.

Okay, thank you. That’s it for me.

Thank you, Jon.

Thank you. The next question today is coming from Ryan Rackley from Raymond James. Your line is now live.

Hey guys, thanks for taking my question. Very solid quarter given the backdrop, and I’m sorry if I missed this, I caught the commentary on opex and the top line, but really aside from the very strong backlog and orders, gross margins came in favorably relative to our expectations. Is it possible as we make our way through the year to bump up into that 60% range and get closer to the low end of your long-term target as the top line scales?

This is David. I’m going to jump in here. Lots of things are possible. I think it’s--you know, we are a young company, we’ve got a lot of potential things that we’re working on to improve those margins, but I think it’s too early to set guidance here and make promises of when we will get there. I think that when we look at something like 60%, it’s very realistic. It’s a question of how long it will take, and we are right now moving our Fort Wayne factory to a better facility, but that takes time. As Bryan said, we are well down the road of improving and increasing our supplier options that we can work on freight and we can work on prices, but there’s still road to be covered, and it’s a very big job. I think realistic? Yes. When? Not time to make promises on that.

Yes, of course that’s why David is the CFO and I’m the CEO - it’s like, don’t promise them too much, Bryan! But I think, look - things that are driving this, we recognize that if the mix, the customer mix remains the same, I would say that I would be highly confident that we would eclipse the 60% this year. But keep in mind, we’re also expecting large increases in international sales which occur at lower margins, we’re expecting significant growth in our dealer sales with the signing up of Sportsman’s and Scheels and frankly, others that are in the wings, so that of course has a negative impact on margins, and I think that’s why it’s hard for us to really project when this will happen, but we do expect the improving trend to continue.

Yes, and also just introduction of new products will improve it, but timing there matters, so quite a lot of variables there. That’s why it’s probably best to not set timing.

Great, that’s very helpful. Okay, so maybe dropping down to the OpEx line, can you provide an update of what you’re seeing with the marketing campaign? I know you’ve been doing some new things over the last quarter, maybe how your view of the efforts has evolved, where you’re seeing successes, where you’re seeing areas that you might move away from over the balance of the year.

Yes, look - when we started off with this, we had no idea what would work and what wouldn’t work. The promise that I made to you folks was that we would follow the data and we would closely analyze how everything is working. I would say that all of the campaigns are effective, not all of them are cost effective. We have ratcheted back the spend on billboards, not that billboards aren’t working. We see a spike in sales in every location that we put billboards, but it doesn’t seem to justify the cost of the billboard. That said, there are a few unique opportunities that do seem to be cost effective. We’ve been using mini billboards in L.A. - these are smaller billboards on city streets that only cost us $200 each, and those seem to be very effective. We also have been running an OTT and linear television campaign which, again, we’ve been doing in select cities. As we’ve done that, it’s been effective but ROAS has been, frankly, in the 2x range, and that’s not something we’ll stay with unless we can find some levels of improvement. We are modifying those programs slightly to run the ads for shorter periods of time. It does appear that they’re most effective the first week and then each subsequent week, they become less and less effective. I think the issue for us is we’re not necessarily trying to build brand awareness so that when you to the supermarket, you choose Coke versus Pepsi, but we’re trying to build product awareness, and I think people when they see this product, they either go to our website because they’re interested or they don’t, and seeing it more and more times doesn’t help. I would suspect that we will also probably be…

Great, that’s fantastic. I really appreciate the time. Thanks guys.

Thank you.

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 comments.

Thank you very much. Again, I just want to thank everybody for your continued support of Byrna. As we discussed, we think that despite the hiccups that we’ve had, that the trend remains very favorable. We’re really looking forward to bringing out these new products over the balance of the year and to really kicking off our Byrna school safety awareness program. Thank you very much.

Thank you, that does conclude today’s teleconference and webcast. You may disconnect your line at this time, and have a wonderful day. We thank you for your participation today.