Good morning. Welcome to Byrna’s Fiscal Fourth Quarter and Full Year 2023 Earnings Conference Call. My name is Shamal 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, David North. Following their remarks, we will open the call to questions. Earlier today, Byrna released results for its fiscal fourth quarter and full year ended November 30, 2023. A copy of the press release is available on the company’s website. Before turning the call over to Bryan Ganz, Byrna Technologies’ 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. 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 Investors section of our website, ir.byrna.com for further information regarding forward-looking statements and reconciliations of non-GAAP results to GAAP results. Now, I would like to turn the call over to Byrna’s CEO, Bryan Ganz. Sir, please proceed.

Thank you, operator, and thank you, everyone, for joining us today. This morning, we issued a press release providing our financial results for the fiscal fourth quarter and full year ended November 30, 2023, along with key business accomplishments for 2023 and an update on Q1 performance 2024 performance. We will also be filing our 10-K with the SEC later today. I’m going to begin this morning by passing the call to David North, our CFO, to discuss our financial results for both the fourth quarter and the full year 2023. Following that, I’ll review what was a very eventful year and offer insights into our operations and go-forward strategy. Lastly, we’ll open the call to questions from our publishing analysts. David?

Thank you, Bryan, and good morning, everyone. Let’s discuss our financial results for the fiscal fourth quarter and full year of 2023 ended November 30, 2023. Net revenue for the fourth quarter in 2023 was $15.6 million compared to $16.0 million in the fiscal fourth quarter of 2022. The slightly lower net revenue is primarily attributed to exceptional international sales in Q4 of 2022, which included a $3.4 million stocking order for the company’s distributor in Argentina. Total international sales in Q4 of 2023 and were $225,000 compared to $4.3 million in the prior year. Without this one-time surge in international sales in the prior year, the fourth quarter displayed strong growth. Domestic revenue in the quarter totaled $15.4 million. That’s a 32% increase from Q4 of 2022, and it’s a quarterly record. Gross profit for Q4 2023 was $9.0 million, or 58% of net revenue compared to $8.7 million or 54% of net revenue for Q4 of 2022. The increase in gross margin primarily resulted from a much smaller percentage of lower-margin international sales. Operating expenses for Q4 2023 were $9.7 million compared to $8.8 million for Q4 of 2022. The increase in operating expenses was primarily driven by an increase in marketing spend as part of the company’s influencer partnership strategy. Net loss for Q4 2023 was negative $800,000 compared to a negative $100,000 for Q4 of 2022. And the increase in net loss was primarily due to the increase in marketing spend. Adjusted EBITDA, which is a non-GAAP metric for Q4 of 2023, totaled $0.4 million compared to $1.4 million for Q4 of 2022. Net revenue for the full year totaled $42.6 million compared to $48.0 million for the prior year. This decline was, again, largely due to a $7.6 million decrease in international sales from South…

Thanks, David. 2023 was a pivotal year for Byrna, and it was marked by both formidable challenges and, frankly, remarkable achievements. The year began with Byrna running headlong into 2 extremely challenging problems. The first was a number of unforeseen production problems related to the rollout of the new Byrna LE Launcher. The second was what was, in essence, a total ban on our ability to advertise on social media when we were deemed to be contraband product by Meta, Google and Twitter. First, the Byrna LE. We rolled out our new, much more powerful, Byrna LE launcher to great fanfare at SHOT Show in January 2023, where we gave industry insiders and the press the chance to test-fire the Byrna LE at Industry Day, better known as Range Day. The Byrna LE was tremendously well-received, and it generated a flood of orders in the wake of SHOT Show. However, as we ramped up production, we ran into a number of production problems and quality control issues that required us to halt production and stop taking orders. Not only was this a black eye for the company, it had a material negative impact on sales, as many customers wanted to wait for the more powerful Byrna LE after it was introduced at SHOT Show. The production problems stemmed from out-of-spec components received from our vendors as they transitioned from prototype production to serial production. This led to an unforeseen stack-up of tolerances that adversely affected the operational launcher. The team went into high gear as we worked closely with our vendors to improve DFM, or Design For Manufacturability. In fact, I personally spent 3 weeks essentially living at the factory. The incredible effort by the entire Byrna team in combination with our vendors paid off. And in May, we are…

Thank you. [Operator Instructions] Our first question comes from Jeff Van Sinderen with B. Riley Securities. Please proceed with your questions.

Hi, good morning, everyone. And thanks for taking our questions. I guess the first question I had is really just around marketing, realize that you’ve added a bunch of new folks to your influencer group. I’m just wondering what we should anticipate for the advertising budget in 2024.

The advertising budget in 2024 is currently around $7.5 million. That’s up from $5 million that we had when we were focused on social media advertising.

Okay. And then, since you were just mentioning the Universal Kit, maybe you can just touch on sales trend by product. Wondering if your new marketing is driving sales of any of the other products, maybe higher-velocity products versus lower-velocity products, and then which products you’re seeing ramping the most outside of the Universal Kit.

Well, again, the big surprise for us was the demand for the LE. So the LE has an MSRP of $479 versus an MSRP for the SD of $379. So for an extra $100, we thought that we’d only get about 10% of customers opting for the LE. That’s run as high as 40%. Right now, it’s averaging about 33%. So that’s been a little bit of a surprise. We’ve also seen some very strong interest in accessories. So again, one of the benefits of this new advertising campaign is that we’re bringing in a lot of new customers. And these new customers are then coming back buying things like our target tents, holsters, sites, etcetera. So, we have seen a pretty across the board interest. Where we have not seen significant strength, frankly, is in our 12 Gauge. That’s been disappointing. We are going to be looking to partner with a manufacturer of pump-action shotguns so that we can have the 12 Gauge sent out with each new shotgun. But that’s probably been the biggest disappointment is 12 Gauge.

Do you think that that 12 Gauge would be more something for law enforcement at this point, or do you think it’s still consumer?

No. We think there is a large law enforcement market. Keep in mind, our law enforcement sales in the U.S. are still relatively small. They represent 1% to 2% of our overall domestic sales. We do have interest in the 12 Gauge outside of the U.S., but again, there is issues with manufacturing and shipping and so forth. But I do think that ultimately, law enforcement will probably be the bigger market for 12 Gauge.

Okay. And then just as a final follow-on to that, maybe you can just touch on kind of the trend in ammo sales, and then what the outlook is for ammo sales given the increasing base of launchers?

Yes. Ammo sales have always bounced around about 25%. If we look at the full year, they are at 25%, ammo plus accessories. However, in the fourth quarter, it was down to 22%. And I think that that’s due to the fourth quarter real extreme growth and probably a lot of new customers.

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

Thanks Jeff.

Thank you. Our next question comes from the line of Jon Hickman with Ladenburg Thalmann. Please proceed with your question.

Hey Bryan, could you walk through what would happen on your income statement if you got another order from Latin America?

Again, the orders – what do you mean orders from Latin America?

Do you mean just in accounting terms how that works or…?

Yes.

Oh, sure. Yes. Basically, right now, we are using the equity method of accounting, which means that Latin America shows up simply as an investment on our balance sheet, and each quarter we give our 51% of their net loss or gain. So, if they have an order there locally, say the Córdoba Police order more launchers from them, you don’t see anything on our financial statements. You simply see that, okay, they are more profitable, so we have got better results from investment in joint venture. If they make an order from us right now, from Byrna Technologies, that does show up as an external sale.

But keep in mind that there is a manufacturing facility down in Buenos Aires, so hopefully they are not ordering too much directly from us. Right now, they are producing their own launchers at Byrna LATAM. They are buying parts directly, component parts directly from Byrna LATAM. So, the only sales that go from Byrna Technologies to Byrna LATAM are ammo. So, we are still supplying them with ammo because we don’t produce ammo in Latin America. But otherwise, there really are very little in the way of sales from Byrna Technologies to Byrna LATAM.

Okay. Thank you.

[Operator Instructions] Our next question comes from Jim McIlree with Dawson James. Please proceed with your question.

Thank you. Good morning. I am trying to understand the increase in operating expenses. And here is how I am looking at it. So, in Q4 of this year, your OpEx was $9.7 million, and that’s up about $1 million from the year ago quarter. And sales were down a little bit, and I understand all the puts and takes as to what’s going on with the sales. But you talk about your current marketing campaign being much more efficient than the prior one, but we are seeing similar sales and much higher OpEx, and you are talking about a meaningful increase in OpEx, going forward. So, I am just trying to figure out what’s going on there.

Yes. As we have said, in Q4 of 2022, $4.3 million in sales were international, with $3.4 million of that going directly to our partner in Argentina, Bersa. So, the real comparison is not $15.6 million versus $16 million, it’s $15.6 million versus $11 million. So, we had a significant sales growth accompanied by an increase in marketing spend. As I explained, with a 5x ROAS as a minimum, and as we described, our ROAS numbers have been running above 5x and with a 60% gross profit margin as a minimum with our online DTC, every advertising dollar we spend is quite accretive. David, is there anything you want to add to that?

Yes. I mean what you need to do is, if you are looking at the fourth quarter, yes, that advertising spend does make our breakeven point go up. But when we talk about efficiencies, if I go back to what I said in my remarks, that domestic revenue in the quarter totaled $15.4 million, and that’s a 32% increase from the same quarter a year ago. So, that’s where we are really seeing the effect of this. And those are our highest margin sales as well.

Okay. And then also, Bryan, you talked about – I just want to make sure I heard you properly. You said that increasing the frequency of advertising does not increase sales, is that true? And then, so what is the current frequency of advertising that you were referring to when you said increasing it doesn’t increase sales?

So, once we have reached kind of the threshold of around four days a week, going up to 5 ads a week, 10 ads a week with the same celebrity doesn’t have the same impact. You start to see a diminishing return in terms of ROAS. So, if we are spending, let’s just say, $2 million a year with Sean Hannity, spending $4 million a year with Sean Hannity would not double our return from Sean Hannity. So, you reach a point where you can’t just pour more money into the successful celebrity endorsers, but you have to add celebrity endorsers to the roster. This year, our intention is to add one more celebrity endorser, which will start next quarter in March. But beyond that, we do not intend to add any more celebrity endorsers to the roster because we feel that, with these five, we will be able to generate all the growth we can handle.

Okay. And just one other thing on this same issue. So, when you start with a new celebrity endorser, do you scale up to that, let’s call it that 4x a week baseline, or does it take – and does it take a little time to get that ROAS that you referred to, or do you get it somewhat instantaneously?

Our experience has been that we get it somewhat instantaneously. One of the things that we have discovered is if we can get on their show, in other words, if we can get an interview on their show, as we did with Sean, as we hope to do with Glenn Beck and Bill O’Reilly, it allows us to really jump-start the advertising effectiveness. But so far, we have not seen any delay in hitting our ROAS numbers. In fact, with Glenn Beck, the ROAS numbers were extraordinarily strong right out of the box, because in December, Glenn spoke about our product on his show, not as part of our advertising, but just as something that he was interested in. So, we are looking for those celebrity endorsers that really believe in our product, that are passionate about our product, that believe in less-lethal self-defense. And as a result, there is a tendency for them to talk about it beyond just the advertising that we are paying for.

The other thing is that, with all of these, we start out with a relatively short-term contract so that we can make sure that this is going to be effective before we commit to anything long-term.

Yes, that’s correct. So, for example, with Sean, we started with a 90-day contract, but then we have now committed to the full-year 2024, with Glenn Beck, the same thing, with Bill O’Reilly, the same thing.

Okay. Thank you. That’s it for me.

Thanks Jim.

Thank you. At this time, this concludes our question-and-answer session. I would now like to turn the call back over to Mr. Ganz for closing remarks.

Okay. Thank you, operator, and thank you everybody who participated today, and particularly our investors, I want to thank you for your continued support. Thank you.

And this concludes today’s conference. We thank you for joining us today for Byrna’s fiscal fourth quarter and full year 2023 conference call. You may now disconnect.