Byrna Technologies, Inc.

Greetings and welcome to the Berna Technologies fiscal first quarter 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, Berna 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 Berner'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 website, ir.berner.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 Berna'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 had for today's call was final. and then, as is often the case, something unexpected occurs. A little after 9 p.m. last night, Sean Hannity mentioned the Burna on his nightly television show on Fox. For those people that have been following Burna, you know that this is not the first time Sean Hannity has featured the Burna HD personal security device. Sean has always been passionate about providing police with more and better, less lethal training and 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, Chong 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 Berna. As a result of this unanticipated but very much appreciated feature of the Berna HD, web traffic and sales surged. Over the 12 hours from 9 p.m. Eastern time last night through the start of this call at 9 a.m., Berna 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 a Sean Hannity mention, this time we are completely prepared as we have dramatically increased our production capacity and we have built up our finished goods inventory so that we would be prepared for just this type of event. We currently have adequate laundry inventory on hand to ship these additional orders in a timely manner consistent with the seven-day shipping times posted on our website. Perhaps the most important thing about Sean's mention last night, however, is that it highlights the need for law enforcement agencies and the communities they serve to embrace more and better, less lethal weapons and training. When Sean first mentioned the burnout 10 months ago, we were not prepared to address this market. Today, BRNA has a robust law enforcement training program run by highly experienced former law enforcement officers. This training program is centered not only on how to use the BRNA, but where the BRNA falls on the continuum of force, when to use the BRNA, and how to use it to defuse and deescalate a potentially violent situation. Now that I have covered the publicity from last night, I would like to return to the material that I intended to cover on today's call. First, I'd like to recognize all the hardworking and dedicated Burna team members and partners that have gone above and beyond the call of duty over the last year to ensure that we successfully navigated our way through the challenges of hypergrowth. As you know, last year sales grew by 1,700% and our workforce also grew by approximately 1,700%. I also want to thank the investors that have supported the company over the last few years. Their confidence in the Burna team and belief in our mission is greatly appreciated. And finally, I'd like to recognize the more than 60,000 members of Burna Nation for their enthusiastic support of the Burna brand, our products and our mission. Only through their embrace of everything Burna have we been able to, in just two short years, establish Burna as a lifestyle brand and a leader in the non-lethal personal self-defense space. Speaking of lifestyle, at Burna, our tagline is Live Safe. You will see this on the signature line in every email. Live Safe is very different than the much overused homily Stay Safe. Stay safe is passive, implying the avoidance of risk. Live safe, by contrast, is strong and assertive, implying the taking of proactive measures to protect oneself and one's family. Burna's range of non-lethal personal security devices gives people that confidence and sense of security that can only come from taking responsibility for one's own safety. With Burna, anyone can live life unafraid, can live life to the fullest, can, as we say, live safe. At the same time, our products give consumers and law enforcement professionals a safe and effective alternative to firearms. In this sense, we see Burna as part of the solution to addressing the challenges of gun violence in America today. Joining me today is our CFO, David North. Before David gets into a discussion of our first quarter results, For the benefit of those who are less familiar with the Berna story, I'd like to give the group a brief history of our company and provide some background on what we do at Berna and what we believe are the opportunities that lie ahead of us. The company, now known as Berna Technologies, was incorporated in 2005 as Security Devices International, or SDI. SDI produced and sold 40-millimeter blunt impact projectiles used primarily by law enforcement. I was brought into the company as a consultant in 2016 to help turn the business around. The time that I was brought in, SDI had only a few hundred thousand dollars in annual sales and was losing millions of dollars each year as it struggled to develop the market for its 40-millimeter impact rounds. I quickly concluded that to succeed, the company needed to move beyond the highly fragmented and very difficult to crack law enforcement market. To do this, the company had to develop products that were not regulated by the ATF or State Department so it could access the consumer and private security markets. After presenting my conclusions to the board, I was asked to take the helm in 2017 to implement this corporate restructuring. After I accepted the position, my first job was to dramatically downsize the legacy SDI business and move the headquarters to a family office outside of Boston. With a small team of highly talented professionals, we began formulating a strategy for tapping into the consumer market by developing an unregulated, non-lethal personal security device that we could sell to consumers and private security companies alike. In our quest to develop a consumer product, we came across an inventor from South Africa by the name of Andre Baez. Andre had come up with some very interesting and innovative concepts in the non-lethal self-defense space. After a discussion in Boston, we agreed to purchase Andre's intellectual property portfolio, acquire his design studio, and hire him as our chief technology officer. This was in April of 2018, and it kicked off the development of our flagship product, the Burna HD. The resulting Burna HD is a personal security device that uses CO2 to fire both kinetic and chemical irritant projectiles at speeds up to 300 feet per second. The rounds are capable of deterring, disarming and disabling an assailant at standoff distances as great as 60 feet. Given the ability to safely and effectively neutralize a threat at a significant standout distance, we felt that the Burna HD would be ideal for both consumers and security professionals and would appeal to a large cross-section of the American public. We shipped our first Burna HD in the U.S. on May 31, 2019, the last day of our second quarter. Selling exclusively through Burna's own e-commerce website, Sales ramped from 250,000 in 2018 to 924,000 in 2019. As we entered the fiscal year 2020, web sessions and sales began to climb in tandem, starting with 500 web sessions a day in December and eclipsing 6,000 web sessions a day in early June of last year as the combination of the global pandemic and the civil unrest were sweeping across the United States, creating a collective unease that gripped the country. This in turn drove a surge in demand for all manner of self-defense products, including non-lethal solutions like the Burna HD. As I alluded to at the beginning of this earnings call, on June 10th of last year, Sean Hannity first featured the Burna HD during his nightly television show. With this unexpected endorsement from Sean Hannity, orders exploded. Despite putting a banner on our website saying 12 plus weeks for delivery, By the end of June, the company was backordered more than 20,000 launchers, far exceeding the pace at which we could produce the Burna HD launcher. To work through this backlog, we ramped up production at our existing manufacturing facility in South Africa, and we opened a second new manufacturing facility in Fort Wayne, Indiana, increasing production from 100 units a day last June to combined production of more than 850 units a day by year end. With the Hannity endorsement, Burna was rocketed onto the national stage as millions of consumers instantly became aware of our product. This sudden brand recognition drove interest both domestically and internationally from consumers, dealers, and law enforcement agencies. Currently, we sell our Burna HD launchers, ammo, and merchandise direct to consumer via our website and in over 300 brick and mortar locations, including gun shops, Outdoor Stores, and Sporting Goods Stores across the United States. Law enforcement agencies have also identified Berta as an effective option for dealing with the challenges law enforcement officers face every day when attempting to disable suspects at a distance in a non-lethal manner. Included in the law enforcement package is Berta's proprietary T3, that is Train the Trainer training program, which was developed by highly experienced former law enforcement officers. These specialized training seminars educate officers not only on how to operate the device, but also where it falls in the continuum of force and how to most effectively utilize it to deescalate dangerous situations in a variety of real world scenarios. To date, we have trained over 65 police departments and private security firms. Outside of the U.S., we have already delivered the Burna security device to law enforcement agencies in over 10 countries, including more than 1,100 Verna HD launchers to the Hong Kong police. We also received a slew of inquiries from companies across the globe that want to distribute our product in their home markets. To date, we have sold Verna's into more than a dozen international markets and have received serious inquiries from distributors in at least 20 additional countries. Based on the demand we have seen to date for the Burna HD and its related ammunition and accessories, it is clear that the addressable market is enormous. To put it in perspective, there are roughly 90 million gun owners in the United States. I myself have a concealed carry permit and own several handguns. To be completely honest, however, I was never sure how quick I would be to pull the trigger. Even if one is acting in self-defense, Pulling that trigger will change your life forever, legally, financially, and perhaps most importantly, psychologically. That said, if I hesitate, am I making a fatal mistake? And if I don't hesitate, am I making a fatal mistake? With the brna, there is no such thing as a fatal mistake, and as a result, no reason to ever hesitate. As a result, today, I rarely carry a lethal firearm but I don't go anywhere without my burnout. What portion of gun owners think like me? Is it 1%, 5%, 10%? Even at 5%, it represents 4.5 million potential customers just in the U.S. alone. To put that in perspective, to date we have sold just 63,000 burnout personal security devices in the United States. While our original target market was gun owners that, like myself, wanted a non-lethal option for their arsenal, we soon discovered that the Burna HD also has widespread appeal to people that are averse to gun ownership. While not ready to own a gun, these consumers also want a safe and effective way to protect themselves and their families. There are approximately 70 million households in the U.S. that do not own a firearm. What percentage of these can we capture? Again, if we penetrate just 5% of that market, we are looking at another 3.5 million potential customers in the U.S. alone. In addition to the 90 million U.S. gun owners and the 70 million U.S. households that do not own a firearm, there is enormous opportunity in law enforcement, private security, and school safety markets. In terms of law enforcement, there are more than 900,000 police officers in the U.S., and another 10 million police officers in the 30 largest countries in the world. Add to that more than 20 million private security officers worldwide, and the opportunity for BRDA is virtually boundless. In fiscal 2020, we generated revenues of more than $16.5 million, 17 times the $924,000 we reported in fiscal 2019. In the first quarter of this year, 2021, we reported revenues of $8.9 million. With demand for the Burna HD remaining robust, the new products we plan to introduce in the coming months, the new sales channels we plan to open, our increased manufacturing capabilities, and the intensification of our sales and marketing efforts, we believe we are well positioned for growth in 2021 and for the years to come. I will discuss some of these growth initiatives in more detail later in the call as we touch on new products, new markets and new sales channels. However, right now I'd like to turn the call over to David North to discuss our first quarter financials. David?

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 28th. 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. The year-over-year increase was driven by strong demand for our Verna HD personal security device, enhanced by market awareness of 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 increase 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. That year-over-year increase was driven largely by investments in corporate infrastructure necessary to support earnest growth in sales and production. This includes building out the management team, the 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 30th, 2020, Brna had an order backlog including e-commerce and dealer orders of approximately $7 million. As of February 28th, 2021, Brna had worked that backlog down to approximately $3 million. Before last night, our order backlog stood at $800,000. With the surge in orders resulting from the mention on the Hannity Show, our backlog stands this morning at approximately $1.7 million. However, we expect to work through this in short order. Currently, we're committing to shipping all orders for new launcher kits within seven days. With improvements in shipping times, we've also seen an increase in our conversion rates, that is, sales as a percentage of web sessions. Now, turning to the balance sheet, As of February 28, 2021, we had approximately $2 million of available cash and a further $2.2 million of restricted cash from orders that had been placed but not yet fulfilled. We ended the quarter with no current or long-term debt on our balance sheet. Total cash plus available cash under our revolving credit facility was approximately $10.6 million as of the end of the first quarter, and we believe that our current liquidity provides us with ample flexibility to execute on our strategic plan, quickly ramp up our marketing campaigns, and continue to invest in the research and development of new products. We've intentionally drawn down cash to build up inventory. We currently have more than 10,000 finished units in stock, and enough raw materials and componentry on hand to build another 25,000 launchers. With our plan of opening an Amazon e-commerce store this summer, and our desire to be able to handle any large dealer order or surge in sales like the one we saw last night. We believe that this has been the prudent approach, particularly considering the criticism we suffered on social media when we struggled to ship orders in the wake of the first Kennedy surge in sales. For the full fiscal year of 2021, which ends November 30th, we reaffirm our guidance of revenues between 33 and $38 million. With respect to our expectation for operating expenses, we believe that the level we just reported for the first fiscal quarter of 2021 is representative of the run rate we expect to see for the balance of fiscal 21 with the understanding that certain expense categories such as advertising, marketing, customer freight, and sales commissions are revenue related and an increase in sales beyond our current projections would result in a corresponding increase in operating expenses in those areas. I'll turn it back over to Bryan, who will discuss some of our new product and sales channel development initiatives. Thanks, David.