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spk01: Greetings and welcome to the Berna 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 Brian 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 Berna'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.berna.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. Brian Gantz. Sir, please go ahead.
spk04: Thank you. Good morning, everyone, and thank you for joining us for Berna'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.
spk02: Thanks, Brian. And thanks everyone for joining us. Now I'll review the financial results for the second quarter ended May 31st, 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 Burna's product was featured on Fox News' Hannity Show, a nationally syndicated news program, on April 3rd of that year. This Hannity effect generated approximately $7.5 million in additional orders in the three weeks following Hannity's mention of the Burna 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 to dealers and consequently have lower margins. In Q2 of 2022, international sales represented 23.3% of Burna'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 Burna's gross profit margin when compared to the same period in fiscal year 2021. Operating expenses rose to $8.7 million in the second quarter of 2022 from $5.5 million in the same quarter last year. Payroll and compensation related costs in operating expenses increased $1.8 million from $2.8 million last year to $4.6 million in the second quarter of this year. The increase is due primarily to Berta's investment in future growth of the company and the hiring of additional staff needed to support these growth initiatives. In addition to the investment in these growth initiatives, payroll and compensation related costs in the second quarter were also impacted by a $0.6 million non-cash accounting adjustment to reflect a modification of Berna's long-term equity incentive plans. The second quarter also included $0.4 million of one-time severance costs while there were no severance costs in the prior year period. Net loss for the second quarter of 2022 was $3.0 million or 13 cents per share compared to net income available to common stock shareholders of $1.0 million or 6 cents per share in the second quarter of 2021. For the six months ended May 31st, 2022, the company is reporting a net loss of $6.2 million, heading back certain non-cash and one-time expenses. Non-GAAP adjusted EBITDA for this quarter was a loss of $0.9 million, bringing year-to-date non-GAAP adjusted EBITDA to a loss of $2.4 million. Taking a look at the balance sheet, cash and cash equivalents decreased $30.5 million from $56.4 million at the end of last fiscal year on November 30th, 2021 to $25.8 million on May 31st, 2022. About half of this reduction or $15 million was used to repurchase 1,779,000 shares of common stock under a stock buyback plan announced earlier. $6.9 million of cash was used to build inventory balances, which rose from $6.6 million at the fiscal year end to $13.5 million at the end of the second quarter. The adjusted EBITDA loss accounts for about $3 million of cash use, while about $2 million was used for capital expenditure. We paid about $2 million to enter the self-defense aerosol spray market with the acquisition of Fox Labs International on May 25th towards the end of the quarter. Now I'll hand it back over to Brian.
spk04: Thank you, David. Well, on the face of it, the second quarter fiscal year 2022 numbers appear to suggest that Berna 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 lay 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 Burda.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 on Amazon were $10,000. I am pleased to report that this trend has continued this quarter with average daily sales on Amazon climbing 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 Berto.com. With regard to margins, well, overall margins declined year over year from 56.4 to 52.7. Margins on our critical domestic market were essentially unchanged from last year, despite incurring an additional 1.9% in higher freight costs and despite having a larger percentage of dealer sales. We expect freight costs to remain high for the balance of 2022. However, freight costs should start to come down significantly in 2023 as we start to be able to ship components and raw materials by ocean freight. Ocean freight is a fraction of the cost of air freight. David mentioned that we're building inventory so that we will have sufficient raw material and component inventory on hand to allow us to transition from air freight to ocean freight without risking an interruption in production. Gross margins also were negatively impacted by the unusually high percentage of international sales this past quarter, as David mentioned. International sales by their very nature are lower margin sales due to the fact that we're selling distributors rather than to dealers or direct to consumers. In Q2 of this year, international sales represented 23.3%. However, for the year, we are projecting international sales to be 11% of overall sales. Well, OPEX was up 3.2 million year over year from 5.5 million to 8.7 million this last quarter. It was in line with the last two quarters. More importantly, before the non-cash incentive comp expenses and one-time severance costs, OpEx for the quarter was 6.3 million down from the OpEx of last quarter of 6.45 million. Last quarter, we stated that we have begun to see a leveling off in Burna's operating expenses, and we further stated that OPEC should remain reasonably constant for the remainder of fiscal year 22, with the only increases coming from one-time charges or the additional variable operating expenses, such as credit card fees, Amazon fees, outbound, freight, etc. which all increase as revenues increase. This leveling off of our OPEX was apparent this quarter with OPEX before non-cash incentive comp and one-time severance coming in essentially 2.5% below last quarter. The reason that we've seen a significant increase in our optics, however, this year versus last year is due primarily to Berna's investment in the future growth of the company and the hiring of additional staff needed to support these growth initiatives. Consequently, the additional staffing is not in the administrative areas of the business, such as accounting or legal or supply chain, but rather additional staffing in sales and production, as we brought on new product managers and new sales and marketing personnel necessary to build out these market segments. While these new business segments have yet to show significant revenues, we do believe that they are critical to the future growth of the business. Specifically, over the last year, Burra has kicked off a major school safety initiative, hiring Parkland dad Andy Pollack to spearhead this effort and setting up a school safety facility in Melbourne, Florida, to support our school safety initiative. We are currently offering training and site evaluation to school districts free of charge in order to drive awareness of the Burna Ballista Pack, a backpack that converts into full body armor with a single motion. The Ballista Pack, which can stop six rounds from an AR-15, comes equipped with a stop-the-bleed kit and a molly, and is designed to give school resource officers, or SROs, the ability to engage an active shooter and to treat injured students. Burna has also invested in the development and marketing of the Burna Shield, a lightweight bulletproof shield designed to fit easily into a child's backpack that can stop six rounds from a .44 Magnum handgun. Well, we have not yet seen significant revenue from these product lines. Given the terrible tragedies of the last several months, we believe that as children head back to school in August, these products will start to gain traction with parents and administrators as they come to see the need to better outfit their SROs and better protect their students and teachers. And with regard to the on-site evaluation and training, we've been contacted by numerous school districts. We've begun to set up training sessions starting in August when children come back to school. Our only requirement when we give this free onsite training and evaluation is that we allow local news access to the training. We believe that these things will help us gain earned media and free publicity as we start to show schools what they can do to better protect their students and faculty. Last year, Berna also purchased Mission Less Lethal to gain access to the less lethal long gun technology that is necessary to penetrate the law enforcement market. We have spent significant resources redesigning these products and developing marketing campaign and law enforcement training materials for the Berna TCR and the Mission 4. Production of Berna's TCR and Mission 4 has just started. with the first TCRs reaching customers last month and the first burner-produced Mission 4 scheduled to ship later in July. The company expects that these products will add millions of dollars in additional revenue over the balance of fiscal year 22. Just last month, we acquired Fox Labs International. manufactured one of the strongest and most effective pepper sprays on the market. The company hired David Happy to head up Burna's aerosol spray division. And since the acquisition, Burna has been spending significant resources to launch its new Burna Bad Guy Repellent, or BGR, and upgrade the Fox Labs go-to-market strategy, including website redevelopment, updating of the marketing materials, and building out of the Fox Labs Amazon website. The company strongly believes that the ability to offer a best-in-class price point product will allow Burna to both increase its online conversion rate and penetrate a much broader array of brick and mortar retailers. Finally, Bernays opened a facility in Redmond, Oregon to produce its 12-gauge less lethal rounds. Berna has hired ballistics expert Brian Kinney to help with the final development and testing of Berna's new 12-gauge less lethal ammunition and to set up Berna's manufacturing operation in Oregon. Berna hopes to be able to release the first 12-gauge rounds to market in the fourth quarter of this year. This would be the culmination of a multi-year, multi-million dollar project that Berna believes could add tens of millions of dollars of incremental revenue. The 12-gauge round, which is accurate at distances in excess of 25 meters, has the potential to introduce Burna to the tens of millions of U.S. shotgun owners who, for the fraction of the cost of a launcher, could convert their existing 12-gauge shotguns into highly effective, less lethal launchers. In summary, we are extremely pleased with the progress we have made so far this year in terms of not only growing Burness brand awareness and driving our top line, but also in terms of putting in place the infrastructure and the products needed to drive Burness future growth. I want to close by providing a quick update on a few of the topics that we raised in our last earnings call. First off, the share repurchase program. As David mentioned on the last earnings call, we had just completed $10 million tranche in our share repurchase program. buying back over 1 million shares. This quarter, we were able to purchase another $5 million of Burna stock, bringing the total number of shares repurchased to 1,779,958 shares at an average price of just under $8.40. Keep in mind, we issued these shares at $21 last July, bringing in over $37 million to the company. Also, last quarter, we reiterated our 2022 guidance of 55 to 60 million. We remain confident that we can hit our numbers, and at this time, I want to reiterate our guidance. We recognize that this is a very back-end loaded forecast, however, because of both the traditionally strong holiday fourth quarter, but more importantly, the introduction of all of these new products we just discussed, including the Berna TCR, which we've already started to ship, the Mission 4, the Berna LE, the 7-Round Magazine, which we've just started taking pre-orders for, In the first few days of taking pre-orders in the seven-round magazine, we've sold or taken orders for over 3,000 magazines. And the 12-gauge round, which we are close to releasing in Q4 of this year, we feel confident that we'll be able to hit our forecasted numbers. Now, I'd like to turn it back over to the operator, and we'd be happy to take questions from our analysts.
spk01: At this time, we will be opening our question and answer portion of the conference call. Please select the raise hand action under the reactions button in your Zoom meeting to get into the Q&A queue. If you are on a mobile device, please select the more options button at the bottom of the screen to see the raise hand action. If you are dialing in, please press star nine to enter the queue. Give it a few seconds. The first question comes from Jeff Van Sideren from B Reilly Securities. Your line is now live. Sequoia operator, please assist.
spk05: Okay, can you guys hear me?
spk04: We can.
spk05: Okay, great. So a couple things I wanted to touch on. You guys have a lot going on here for second half. 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 Ballista Pack, 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 Ballista Pack and so forth.
spk04: Yeah, 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's in school. So we do think that when we get 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 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. You know, one of the things when we introduced the Burna HD three years ago, you know, I 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 started to gain traction with the burnout. And there is a lot of, you know, 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 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 soon. once this becomes better known through our school safety initiative and once we have a larger established user base.
spk05: 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, on how the process is going, building out the website with the Amazon and so forth?
spk04: This is moving very, very quickly. We are trying to get to the point where we can begin to ship bag dye repellent. We are in production on this. What's holding us up right now are simply labels. and packaging for the product, but that should be available the next week to 10 days. We have begun taking pre-orders 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 Berna launcher, but are very interested in the Berna bad guy repellent. 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 repellent 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 is obviously a price point retailer. So Fox Labs is ideal for them. This will not impact the MSRP of the bad guy repellent, 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.
spk05: Okay, great. And then just one other, if I could squeeze it in. I'm sure there's 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.
spk04: Well, we've been, as I mentioned in my discussion, this has been a multi-year, multi-million 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 non-lethal 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 your 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, you know, production of the packaging, you know, 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 US-made product. So there's a lot that's going into this, but we are in the ninth inning of this, Jeff.
spk05: Okay. That's exciting. We're looking forward to that. Appreciate you taking my questions. Continued success.
spk04: Thank you very much, Jeff.
spk01: Thank you. As a reminder, to enter the Q&A queue, select the raise hand action under the reactions button in your Zoom meeting if you are on desktop. If you are on a mobile device, please select the more options button at the bottom of the screen to see the raise hand action. If you are dialing in, you can press star nine. Our next question is coming from Brian Giswale from Raymond James. Sir, your line is now live.
spk03: Hey, good morning, Brian. 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?
spk04: Yeah, Brian, thank you so much for that question. Yeah, I'd be very happy to talk about that. You know, over the last 12 or 18 months, we've discussed how, you know, we will get smarter, you know, every quarter as we try various approaches and, you know, see how they perform. When we evaluate a 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 cost 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've 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 everyone in this call knows, was our partnership with Christine Chu. Christine Chu 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 22,000 sessions a day on Burna.com. on uh tuesday we had 50 000 web sessions which we attribute to uh her video uh yesterday we had 40 000 web sessions again attributable to her video so it is these types of creative that get shared uh that drive a lot of awareness and help introduce us to new audiences and again This very top of the funnel advertising is extremely important as we start to approach Prime Day, and more importantly, as we start to approach Q4. So you asked about what are we doing for Prime Day? We are participating in Prime Day. And as much as I hate giving up even a single margin point, Amazon has become such an important channel for us. that we recognized that we needed to participate in Prime Day. And we expect to see a significant increase in our Amazon sales for the several days of Prime Day and the few days following. But last year, we had an extraordinarily strong increase We saw sales go up when we would put out promotional specials to our burn a nation group. In other words, our email list sales went up 300%. This year, our email list is now 250,000 members strong. This is up about 250% from last year. And the importance of developing this top of funnel promotionals like the Christine Chu video, like the Tito Ortiz video, is that it gets us to access to a lot broader audience. These people come on board. They sign up for the email. They subscribe to our email list. And then when we have specials, we're able to directly market to them. So right now, we're building up our email list. We're hoping that we'll be well over 300,000, maybe 350,000 by the time we get to Black Friday specials, because this will be very important for us and, of course, for hitting our Q4 numbers.
spk03: Brian, 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 ballista packs and how that could develop into meaningful revenue streams for you guys in the future.
spk04: You know, it's interesting. And again, this is... We don't know what the total addressable market is even for the burner. 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 is maybe 10 million Americans. If the addressable market for the Burna SD 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 for Burna than than the Berna launcher itself. But what it does, particularly with the bad guy repellent, is it gets people into the Berna 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 Berna 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 Berna SD, but cannot make that $500 purchase. we now have the ability for them to become part of the Berna ecosystem for $25 with bad guy repellents. And this allows them to now become part of the Berna ecosystem and have as an aspiration acquisition of the Berna launcher. So we're hoping that number one, we could we can address a much larger market with bad guy repellents and an even larger market with the Burna Shield. And that once people into the Burna ecosystem, that they will graduate to the more expensive products and frankly, the more tactical products. So we think that these are very, very important for us, not just for the sales that they will bring to Burna, And we think that they will be substantial. We think we will sell, even this year, millions of dollars of bad guy repellent and Fox Lab sprays over the balance of the year. And we believe that we will sell millions of dollars of Burna shields between now and year end. But they're even more important for the fact that they bring into the Burna ecosystem these people that could not otherwise afford a Burna launch or might not otherwise be inclined to buy a Berna launcher. But once they're in the Berna ecosystem and once they're able to see what we have to offer, may be able to do so. And frankly, we look at the 12 gauge in much the same way. We think that there's an enormous market for the 12 gauge, but we also think it opens us up to a segment of the population that might not otherwise be inclined to buy a Berna. So you're looking at tens of millions, maybe as many as 50 million people that own a shotgun in the United States. If we can get 10% of these people, 5 million people to come to the website to buy a box of non-lethal 12 gauge rounds, At the same time, they're going to say, look, they've got a launcher that I could keep in my glove box, or they've got a shield that I could buy for my kid going to school, or they've got bad guy repellent that I could give to my daughter in college. So we think that all of these other products not only are important in and of their own right, but also for the fact that they will bring people into the Burda ecosystem.
spk03: Yeah, that's really interesting as a gateway product. Brian, can you maybe just – I want to talk – two last questions, then 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. Thanks so much. Great.
spk04: Bass Pro, as you know, we've just started with Bass Pro and 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 one color. 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 that they've been carrying Burna, 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 it that day. So we do think that by having this available in Bass Pro and Sportsman's and Shields and Frontier 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 or order it on Amazon. Similarly, there are people that will come onto our website, and we know this, and they go to our dealer locator, and they find a dealer near them. So we do think that, you know, Brick and mortar drives e-commerce business and e-commerce business drives brick and mortar business. And despite the fact that we have a somewhat lower margin, margins on the dealers is around 50%, just slightly below 50% margin versus, you know, very high 50s for e-commerce sales. It is worth it. In terms of our overall margin improvement, and we've been saying this for a long time, we think that we have a terminal margin in the 65% range. And the way we figure that is largely through cost reduction. Right now, we have a very significant part of our cost of goods sold is inbound freight. Frankly, inbound freight now represents probably TAB, Mark McIntyre, 25% of our raw material costs. TAB, Mark McIntyre, We had when when I started developing the business plan for this business, we have projected that the inbound freight would be 5% of our raw material costs we've run into two problems one. Because of the rapid growth in burnout, we've never been able to switch to ocean freight. We've been reliant on air freight from the very beginning, from day one. And then, of course, we're hit with the pandemic and energy crisis, which has made air freight phenomenally expensive. So right now, as we're building up our inventory and we anticipate being able to switch to ocean freight, we see a significant component of that margin improvement simply being the reduction in freight costs. Just to give an example, we have some of our projectiles. that we make for pennies, but that the freight may be 10 cents or more to ship the projectile. So the freight, in fact, is 300% the cost of the projectile itself. Once we can put these things on the water, we will see a significant improvement in margins. Secondly, we're seeing an improvement because of the shift in product mix. I was just talking with David this morning that we were actually very pleased with our margins this quarter because despite the fact that we have higher freight rates, our domestic margins were essentially unchanged. And that's unchanged with not only higher freight rates, but a significantly higher percentage to dealers. So the reason for that is the mix. We are seeing more and more Berna XLs, which have a much better gross profit margin than the standard SD. Interestingly, Berna XLs are about 22% of our online sales on Berna.com. On Amazon, they're almost 50% of our launcher sales. We've been scratching our heads a little bit on that one. We're thinking perhaps that the Amazon Prime buyer is a very well-to-do buyer, and for whom the price point difference doesn't make that big a difference in terms of their purchasing decision. But we're seeing because of the new product introductions, an increase in gross profit margin. So we remain completely convinced that, you know, we should be, you know, over the next 12 months, maybe 18 months at that 65% gross profit margin that we've been projecting for some time.
spk03: Great, Brian. Thanks so much.
spk01: Thank you. As a reminder, if you have any questions, please raise your hand and we will put you in the queue. Give it a couple of seconds. Okay. 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.
spk04: Thank you. I just want to thank everybody for your continued interest and support of a burner. 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 and our school safety initiative and very hopefully our 12 gauge rounds. Thank you very much to everyone. Thank you.
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