Good morning and welcome to Byrna's Fiscal Second Quarter 2024 Earnings Conference Call. My name is Kevin and I'll be your operator for today's call. Joining us for today's presentation are the company's CEO, Bryan Ganz; CFO, David North; and CFO Designee, Lauri Kearnes. Following their remarks, we will open the call to questions. Earlier today, Byrna released results for its fiscal second quarter ended May 31st, 2024. 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'll 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, Kevin, and thank you everyone for joining us today. This morning, we filed our 10-Q with the SEC and issued a press release providing our financial results for the fiscal second quarter ended May 31st, 2024, as well as highlighting key business accomplishments from the year so far. I'll start by passing the call to David North, our CFO, who will discuss our financial results for Q2. Following his remarks, I'll review our record breaking quarter, highlighted by $20.3 million in revenue and continued GAAP profitability. I will then offer insights into our operation and discuss our go-forward strategy. Lastly, we'll open the call to questions from research analysts. David?

Thank you, Bryan, and good morning everyone. Let's discuss our financial results for the second fiscal quarter ended May 31st, 20 24. Net revenue for Q2 2024 was $20.3 million that's up 76% from the $11.5 million we reported in the fiscal second quarter of 2023. This $8.8 million increase is primarily due to the transformational pivot in our advertising strategy, which we kicked off in September of 2023. The success of our Celebrity Endorsement Strategy resulted in a $7.9 million increase in direct-to-consumer revenues through our website and Amazon compared to the prior year period. Gross profit for Q2 2024 was $12.6 million or 62% of net revenue compared to $6.2 million or 54% of net revenue for Q2 2023. The increase in gross profit margin is largely attributable to additional sales through our higher margin direct-to-consumer channels and was further improved by an intensive component cost reduction effort spearheaded by Byrna's engineering team, as well as the economies of scale resulting from increased production volumes. Operating expenses for Q2 2024 were $10.6 million compared to $7.2 million for Q2 2023. The increase in operating expenses was driven by an increase in variable selling costs, such as freight and sales transaction processing fees, an increase in marketing spend as part of the company's new advertising strategy and an increase in payroll primarily in marketing and engineering as the company improves its capabilities in these areas. Net income for Q2 2024 was $2.1 million, a $3.2 million improvement from a net loss of approximately $1.1 million for Q2 of 2023. Adjusted EBITDA, which is a non-GAAP metric for Q2 2024 totaled $2.9 million compared to negative $0.8 million for Q2 2023. Cash and cash equivalents at May 31st, 2024 totaled $24.8 million compared to $20.5 million at November 30th, 2023. And inventory at May 31st, 2024 totaled $15.5 million compared to $13.9 million at November 30th, 2023. The company continues to have no current or long-term debt. As mentioned during our last call, I'll be retiring at the end of this week. I am truly proud of the work we've done at Byrna and the financial milestones we've achieved. We took sales from less than $1 million in the entire fiscal year of 2019 to $20.3 million in this second quarter of 2024 and we've turned Byrna into a thoroughly profitable enterprise. I want to thank Bryan for the opportunity to be part of this incredible journey and for his leadership in driving Byrna's mission forward. As a shareholder, I am confident in the future of the company with Lauri Kearnes leading our financial department. Lauri has extensive experience as a public company executive and is well suited to help take Byrna to new heights. I'll be staying on as a consultant to ensure a smooth transition and supporting Lauri as needed. And now, Lauri, the floor is yours.

Thank you, David, and good morning, everyone. I'm quite honored to be joining Byrna at a time when the company is building such strong momentum. Byrna's recent performance, highlighted by leaps in year-over-year revenue growth, reflects the success of our strategic initiatives and operational efficiencies. I chose to join Byrna because I'm passionate about the company's mission to provide innovative, less lethal personal security solutions. My background as a public company CFO, particularly my experience driving financial strategy at consumer focused businesses, aligns well with Byrna's needs as we continue to scale and innovate. The transformational changes implemented by the team have laid a strong foundation for our future trajectory and I'm eager to leverage my background to further enhance our operations and drive sustained growth. We wish David all the best in his retirement and look forward to continuing to work with him as an advisor to Byrna. I'll now turn the call back over to Byrna.

Thanks, Laurie. Thank you, David. As you can see from the financial results with record sales, record gross profit margins, record net income, record adjusted EBITDA and record cash flow, Byrna is incredibly well positioned for continued financial success. The key to that success is, of course, continued top-line growth. For that reason, I'd now like to provide an update on Byrna's key growth initiatives and outline our plans for the year ahead and beyond, starting with our marketing strategy. As is plainly evident, our pivot last September to a new advertising strategy based on the power of celebrity endorsement is continuing to deliver strong year-over-year revenue growth. With the recent addition of more celebrity influencers, Byrna's brand recognition continues to grow, driving strong top line growth, particularly in our DTC channels. We are now working with more than 10 celebrity influencers, including Sean Hannity, Glenn Beck, Bill O'Reilly, Judge Jeanine Pirro, Dan Bongino, Jesse Kelly, Dana Loesch, Michael Berry, Howie Carr, and Mike Gallagher. Of our record $20.3 million in revenue in Q2, DTC sales on byrna.com and amazon.com accounted for $14.6 million, or 72% of that number as compared to $6.8 million, or 59% of total revenue in the same period last year. And keep in mind that the DTC sales channel is our highest margin sales channel, with a gross profit percentage for this past quarter of 69.5%. So the question, is this model sustainable? Simply put, yes. The current model is sustainable and we expect it to continue to drive impressive year-over-year growth. While we do not anticipate that we will see the extraordinary 6x to 7x ROAS levels or return on advertising spend that we achieved during the holiday selling season, we are confident that we can maintain a highly accretive 4x to 5x ROAS,…

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Our first question is coming from Jeff Van Sinderen from B. Riley Securities. Your line is now live.

Good morning, everyone. Let me say congratulations. Thanks for taking my questions. Wanted to circle back to the ROAS. And I'm wondering what sort of traction levels you're seeing as you add the newer or let's call it the latest influencers to your program? In other words, how do you think about adding more advertising influencers at this point and the ROAS that you're expecting to get from each new one?

Jeff, first off, thank you very much. I appreciate the question. As we stated, we are currently using a 5x ROAS as the threshold. So both the existing celebrity endorsers and the new celebrity endorsers must maintain that 5x ROAS for us to continue to support their efforts. Right now, that does not seem to be an issue and we anticipate as we go into the holiday season that the ROAS levels will increase. So, interestingly, you never know. We have brought on some celebrity endorsers, given them a 8-week or 12-week trial program and then determined that for whatever reason, they just are not resonating with their audience. They're getting ROAS levels that do not achieve our minimum threshold and we do not re-up. So, all of the new celebrity endorsers that we've mentioned are achieving the same ROAS levels as the original celebrity endorsers.

Okay. Great to hear. And then I'm curious on the -- I know you mentioned expanding into cable or just into television in general and more openness there, I think, on some of those platforms. Is there early traction you can point to there? And then also, what are your plans now for expansion there?

Well, we started off advertising on television with Newsmax. So, Newsmax approached us, said that they would be willing to run our ads. And we've had a very strong return on advertising spend with our advertising on Newsmax. Now, we have also been approached by several other slightly smaller networks than Newsmax. Some have worked. Some have not. And I think it's really dependent upon the audience. I think when we look at the audience, it breaks down really into two different groups of people. Those people that are willing to, protect themselves and their family if they were put in a position of needing to do so and those people that are not. And we don't do particularly well with the audience that is not willing to use pepper spray or a non-lethal launcher to protect themselves. So it is not every cable channel that will work for us. I think it is, again, very dependent on the particular audience that these news networks reach.

Okay. Fair enough. And then if I could just squeeze in one more. Thoughts on what we should expect for gross margins, operating expenses? Just kind of any sense you could give us there as we think about the next quarter or two, just wondering if we should see further expansion, leverage?

Yes. I'm going to actually turn this over to Lauri.

Hi, Jeff. Yes, I mean, I think on the gross margin, we've been doing a lot of work around designing for manufacturability. We've done some SKU rationalization. So, we're going to continue in that. And we just launched an initiative of lean manufacturing within our facilities. So I think all of those are going to continue to lead to slight increase in margin. And obviously, this is also the mix of the direct-to-consumer being in the 70% of our sales, 72%, 74% of our sales. That should lead to slight improvement in gross margins going forward. As far as operating expenses, Bryan mentioned the ROAS, we're looking at 5x. So, that's kind of where we see our marketing -- sales and marketing expenses. The variable expenses are about 10% of sales. So that's our Amazon fees, credit card fees, freight out. The rest of the operating expenses should remain fairly stable. I mean, as you grow, you'll see a little bit of incremental, some people costs in there, but fairly stable in the short term on those.

Okay. Great. Thanks, Lauri, and welcome to Byrna. I'll let someone else jump in.

Thank you.

Thank you. [Operator Instructions] Our next question is coming from Jon Hickman from Ladenburg Thalmann. Your line is now live.

Hi, Bryan.

Hey, Jon.

Could you elaborate a little more on the production side? I think you said you're doing 18,000 a month now. And what do you expect that to get to by the end of the year?

So, we hit 18,000 a month in May, and we expect to continue to run at the level of 18,000 a month for the balance of the year. We are not selling 18,000 launchers a month. We're selling closer to 12,000 or 13,000 launchers a month at this point. So by producing 18,000 launchers, it's allowed us, both to work through the backlog and to start building inventory for the Q4 period. We are now taking steps so that as we get into 2025, we will be able to once again increase our production. But each increase, it's not like turning a variable dial. It happens somewhat in plateaus because we have to add either another shift or another line or a bunch more workers. So we would expect that as we get into Q1 of next year, we'll probably start to ramp up from the current 18,000 units a month to some number above that. I don't know whether it's 22,000 or 25,000, but I wouldn't expect to see that increase prior to 2025.

Okay. And then, unless I missed it, you didn't mention the smaller launcher and when you like are you still planning on having that out by the end of this fiscal year?

No. It will not be out by the end of this fiscal year. First, we never really expected to hit that. I will say that the development is going according to plan. We're excited about this. We expect to see that out sometime in the second half of 2025.

The second half of the calendar year or the fiscal year?

Well, they're very close. So, yes, I was thinking second half of the calendar year, but, yes, somewhere around this time next year.

Okay. And then I have a question for Lauri. Your operating expenses are like over $10 million a year or $10 million a quarter. Is there any thought to breaking those out in the different categories, sales and marketing, that kind of thing?

Yes, I mean, I think it might be helpful, especially to see those variable expenses, sales and marketing. That's something that we could look at. I think that would be helpful for you all to understand the components a little bit better. So I'll take that down to look at going forward.

This analyst would appreciate that.

Okay.

And just, Jon, for back of the envelope, as Lauri said, the variable costs are -- and let's just use $10 million as a bogey for the quarterly OpEx. 10% of our sales or $20 million is variable. So that was $2 million of the $10 million. If you are at a 5x ROAS and we are expecting, let's say, $15 million in DTC business, that's going to be another $3 million of the $10 million. There's about $0.5 million of professional costs, public company costs. There's another $3.5 million of people costs and then there's $1 million of everything else. And that's sort of the bigger buckets. Lauri can give you more granular detail when you get on a private call with her. But that's sort of the 30,000 foot breakdown of the expenses.

Okay. Thank you.

Thank you. [Operator Instructions] If there are no further questions, I'd like to turn the floor back over to management for any further or closing comments.

Thank you, Kevin. Again, thank you, everyone. We appreciate your continued interest in Byrna. And to our investors, thank you for your continued support.

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.