Greetings, and welcome to the Byrna Technologies Second Quarter 2022 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 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 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 Investors section of our website, ir.byrna.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.

Good morning, everyone, and thank you for joining us for Byrna's second quarter fiscal year 2022 earnings call. David North, our CFO, will be discussing our second quarter results after which I will provide some additional color on the quarter and discuss recent developments. So I'd like to start the call by turning it over to David so that he can discuss our second quarter financial performance. After my section, David and I will be taking questions. David?

Thanks, Bryan, and thanks, everyone, for joining us. Now I'll review the financial results for the second quarter ended May 31, 2022. Revenues were $11.6 million this quarter. This is a decrease of $1.8 million compared to the $13.4 million in last year's second quarter. That's because revenue in the second quarter of 2021 was unusually high due to a surge in sales after Byrna's product was featured on Fox News' Hannity Show, a nationally syndicated news program on April 3 of that year. This Hannity effect generated approximately $7.5 million in additional orders in the 3 weeks following Hannity's mention of the Byrna on national TV. Second quarter revenue of $11.6 million is in line with expectations and is $3.6 million higher than first quarter revenue of $8.0 million. Gross profit was $6.1 million or 52.7% of reported net revenue in the second quarter of fiscal 2022. This was down from 56.4% of net revenue in the second quarter of 2021. Reduction in gross profit margin was due to higher freight costs, which are a result of increased energy costs and the lingering effects of the supply chain disruption and a higher proportion of lower margin international sales in the current quarter. We estimate that higher freight costs account for about 1.9% of the difference from prior year gross margin percentage. And gross profit margin, as I said, also decreased due to an unusually high percentage of international sales this past quarter. International sales are made to distributors rather than direct to customer or the dealers and consequently have lower margins. In Q2 of 2022, international sales represented 23.3% of Byrna's total sales versus just 4.0% in Q2 of 2021. The higher proportion of international sales in 2022 accounted for 2.6% of the difference in Byrna's gross profit margin…

Thank you, David. Well, on the face of it, the second quarter fiscal year 2022 numbers appear to suggest that Byrna lost ground when compared to the second quarter of fiscal year '21. When we peel back the onion, it is clear that the company is continuing to make substantial progress as we laid the foundation for future growth. Organic order flow for the quarter was actually quite strong when compared to last year. As David mentioned, last year, we had what we call the Hannity effect, which added about $7.5 million of orders that we could trace directly to Hannity's mention. Excluding the impact of the Hannity effect, orders on byrna.com were up 79% this year over last year in Q2. If we include orders on Amazon.com, which we did not have in last year's second quarter, total e-commerce orders for the quarter were actually up 114% versus a normalized Q2 fiscal year '21. We also saw sequential quarter-over-quarter e-commerce growth that is second quarter of fiscal year '22 versus first quarter of fiscal year '22 of 14% or 17.5%, including Amazon.com, which equals a 90% CAGR, compound annual growth rate. We are continuing to see strong orders on Amazon.com. On the last earnings call, I mentioned that average daily sales on Amazon were $7,500 in January. In February, they climbed to $8,600. By March, average daily sales in Amazon were $10,000. I am pleased to report that this trend has continued this quarter with average daily sales on Amazon climbed to 12,600 in April, 16,800 in May and 20,800 in June. So we continue to see very, very strong order growth on Amazon.com as well as byrna.com. With regard to margins, while overall margins declined year-over-year from 56.4% to 52.7%. Margins on our critical domestic market were essentially…

[Operator Instructions] The first question comes from Jeff Van Sinderen from B. Riley Securities.

So a couple of things I wanted to touch on. You guys have a lot going on here for second half. I wanted to see if maybe you can speak to, I guess, how you're approaching. I know you've got training going on in the school segment for the Ballistipac. But just maybe give us a little more color on marketing around back-to-school for the Shield product, the kind of response you're getting from schools for the Ballistipac and so forth?

Yes. We've obviously invested a lot in terms of financial resources and human resources into the development of our School Safety initiative. Last quarter, we brought on board Andy Pollack, who famously wrote the book Why Meadow Died about his daughter who was killed in the Parkland shooting. We have gotten a lot of press with Andy being on numerous television and radio shows. We believe like all of the products that we released that it's going to take some time. We also, unfortunately, kicked this off at a point in time where nobody is in school. So we do think that when we get back to the back-to-school period, which really starts in early August, we'll start to see a significant increase. If you go to our School Safety website, you will see that there is an opportunity as a school or a school district to sign up for training and site evaluation. We've received quite a few inquiries. Obviously, we're not able to respond to all of them, but we are looking to provide training and evaluation, particularly for larger school districts. And again, as I mentioned, with the only requirement being that we're able to invite local news. So we think this is just a function of being able to get these products in front of people. One of the things, when we introduced the Byrna HD three years ago, I'd like to tell the story, the first day we went live with this, we sold one. And the next day, we sold one. And I think the third day we sold none. And it took some period of time before we start to gain traction with the Byrna. And there is a lot of -- one people -- one person tells two people who tell four people who tell eight people who tell 16 people. So it is important for us to start this process and gain -- to gain traction. So yes, we've not seen very strong orders yet. That's not to say that we're not selling shields, we're selling dozens of shields every day. But we're not selling hundreds or thousands of shields every day as we suspect that we will, once this becomes better known through our School Safety initiative and once we have a larger established user base.

Okay. That's helpful. And then if we could switch over to the Bad Guy spray for a minute. Just wondering, I guess, where you are, any update you can give us on discussions with potential brick-and-mortar retailers? How the process is going, building out the website with Amazon and so forth?

This is moving very, very quickly. We are trying to get to the point where you can begin to ship Bad Guy Repellant. We are in production on this. What's holding us up right are simply labels for the -- and packaging for the product, but that should be available over the next week to 10 days. We have begun taking preorders on our website. It's been extremely well received, and we've received significant interest from both our existing dealers and from very large national chains, many of which who cannot by the nature of what they sell, sell the Byrna launcher, but are very interested in the Byrna Bad Guy Repellants. We are also going to market with a two-brand strategy, where we're selling Fox Labs as more of a price point product and Bad Guy Repellant as a premium product, so that we can go after the premium locations and the price point locations, and we have received the first order for Fox Labs repellent from Walmart. But Walmart, we know it's obviously a price point retailer. So Fox Labs is ideal for them. This will not impact the MSRP of the Bad Guy Repellant, which is about 20% higher. And we've been going after some premium flagship stores. We expect to receive orders and to be able to report on those in the next several weeks.

Okay. Great. And then just one other, if I could squeeze it in. I'm sure this is a quick question, but at this point, I know you're trying to launch the 12-gauge in Q4. Just wondering what else needs to be done to stand that up and to start getting product actually out the door in Q4 and then the marketing launch plan around that?

Well, we've been -- as I mentioned in my discussion, this has been a multiyear multimillion dollar project. And it requires us to produce, obviously, the rounds, but also the casings to be -- and there has to be a tremendous amount of testing that goes along with this product. Obviously, this is now a pyrotechnic product that will not use CO2 propulsion. So we're in a completely different realm. We need to have 100% confidence that these are nonlethal rounds. More importantly, we have to have confidence that they are easily identifiable so that users will not confuse them with lethal rounds. So a lot of what we're doing now is just continuous testing. When you're in testing mode, it's very difficult to say at what point you're done with testing. The only thing I can say to you is, right now, testing is going extremely well. We're very encouraged by the results. Currently, we don't see any reason that this could not be released in Q4, and we're beginning to take all of the other necessary steps to release a new product, including production of the packaging, ordering of molds, building out of the facility in Redmond, Oregon, buying the equipment necessary. So there's a lot that goes into the introduction of a new product like this. This will be 100% produced in-house, including the casing itself, and it will be a U.S.-made product. So there's a lot that's going into this, but we're in the ninth inning of this, Jeff.

Okay. That's exciting. We're looking forward to that. Appreciate you taking my questions, continued success.

[Operator Instructions] Our next question is coming from Brian Gesuale from Raymond James.

I wanted to maybe just touch on a few things here. One, can you talk about the promotional activity in the back half of the year? It sounds like the spray product has some really good momentum, and we're looking to launch the 12-gauge. Can you talk about maybe some promotional activity around Prime Day, the holidays and maybe where you found some good return success in your marketing activities around some of the core products?

Yes. Brian, thank you so much for that question. I'd be very handy to talk about that. Over the last 12 or 18 months, we've discussed how we will get smarter every quarter as we try various approaches and see how they perform. When we evaluate marketing campaign, we do an ROI analysis, which basically means we look at what we refer to as ROAs or return on advertising spend. And as most of you on this call know, we worked with billboards. We worked with OTT and live TV. And while both of those were effective because of the very high costs associated with them, they were not really cost effective. And we have discontinued both billboards and OTT and linear TV. We have been putting most of our money into YouTube and social media. And what we found is most important is the creative itself. So we've been doing a lot of work building up our in-house capabilities to develop creative. One of the announcements we made last week, as I'm sure everybody on this call knows, was our partnership with Christine Chiu. Christine Chiu is the star and producer of Bling Empire, which is essentially a Netflix version of Crazy Rich Asians. She is extremely popular. But with an audience that we don't think we're really reaching today. With her video, we have seen a significant increase in our online sessions. So we've been averaging approximately 2 sessions a day on byrna.com. On Tuesday, we had 50,000 web sessions, which we attribute to her video. Yesterday, we had 40,000 web sessions, again, attributable to her video. So it is these types of creative that get shared that drive a lot of awareness and help introduce us to new audiences. And again, this very top of the funnel,…

Right. That's great color. If I could follow up maybe just on a couple of things. Can you remind us of how you're thinking of the addressable market of both the aerosol products and Ballistipacs and how that can develop into meaningful revenue streams for you guys in the future?

It's interesting. And again, this is -- we don't know what the total addressable market is even for Byrna. But let's just say for argument's sake that the addressable market of somebody who is going to carry something that looks like a firearm to use to protect themselves as maybe 10 million Americans. If the addressable market for the Byrna is $10 million, then the addressable market for sprays is $50 million. And the addressable market for backpack shields is essentially every parent in the U.S. So we look at these as being significantly larger addressable markets from Byrna than the Byrna launcher for itself. But what it does, particularly with the Bad Guy Repellant is it gets people into the Byrna ecosystem. So one of the issues that we've been facing from the very inception of the company is that the launcher is expensive. Right now, the Byrna SD retails for $399. By the time you get out of the store and you bought extra ammo, maybe a holster, maybe a laser, the average order value is around $500 for a first-time buyer. Okay? So there's a lot of people that come to our website that may be very interested in a Byrna SD, but cannot make that $500 purchase. We now have the ability for them to become part of the Byrna ecosystem for $25 with Bad Guy Repellants. And this allows them to now become part of the Byrna ecosystem and have as an aspiration acquisition of the Byrna launcher. So we're hoping that, number one, we can address a much larger market with Bad Guy Repellant and an even larger market with the Byrna Shield. And that once people into the Byrna ecosystem that they will graduate to the more expensive products and frankly, the more…

Yes, that's really interesting as a gateway product. Bryan, can you maybe just -- I want to talk -- 2 last questions and I'll jump out. One, can you maybe give us your thoughts on Bass Pro Shops and how that's developing? And then on the gross margin front, you've executed and mitigated a lot of rising costs this year. Can you maybe just remind us and talk about your long-term gross margin objectives and then I'm all set.

Bass Pro, as we've just started with Bass Pro, and where our sales are frankly nothing to write home about with Bass Pro. We're probably right at around $100,000 of sales to them to date. They have not rolled us out in every store. They've only started with 1 color. So -- but this is very similar to what we've seen with a lot of the brick-and-mortar. They're trying something because they don't want to miss out. They don't want to be late to the party. By the same token, we have to earn our stripes there. Things are going extremely well. They’ve put in several reorders in the very short period of time. They've been carrying Byrna, which moves products -- which means the products are moving. And we do think that these dealers are an important part of our overall channel mix. Obviously, we like direct-to-consumer sales the best because they are the highest margin sales, but there is a segment of the population that does not want to buy a product like this online. They want to hold it, feel it, see it they want to be able to have the immediate gratification of buying it and walking out the store with that day. So we do think that by having this available in Bass Pro, with sports bins and shields and front to our Justice that we're able to address that segment of the buying population. But there's also a lot of crossover between brick-and-mortar and DTC. So there are people that will walk into a brick-and-mortar store and probably people on this phone call that will look at something and then pick up their phone, go online and order it direct from the company ordered on Amazon. Similarly, there are people that will come on…

[Operator Instructions] At this time, we've reached the end of our question-and-answer session. I'd like to turn the floor back over to management for any closing remarks.

Thank you. I just want to thank everybody for your continued interest and support of Byrna. As I mentioned that we think that we're very well positioned to take advantage of future growth opportunities. We're excited for the second half of the year as we've got a lot of new products coming online, and we look forward to our Q3 earnings call, where we can give you an update on the performance of BGR and our new mission products in our School Safety initiative and very hopefully, our 12-gauge rounds. Thank you very much to everyone. Thank you.