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spk02: Good morning. Welcome to Berna's Fiscal First Quarter 2024 Earnings Conference Call. My name is Rob, and I'll be your operator for today's call. Joining us for today's presentation are the company's CEO, Brian Ganz, and CFO, David North. Following their remarks, we'll open the call to questions. Earlier today, Berna released results for its Fiscal First Quarter ended February 29, 2024. A copy of the press release is available on the company's website. Before turning the call over to Brian Ganz, Berna 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 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 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 investor section of our website, ir.berna.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 Berna's CEO, Brian Ganz.
spk00: Sir, please proceed. Thank you, Rob, and thank you, everyone, for joining us today. This morning, we filed our first quarter 10Q at the SEC and issued a press release providing financial results for the fiscal first quarter ended February 29, 2024, along with key business accomplishments we've made so far this year. I'll begin this morning by passing the call over to David North, our CFO, to discuss our financial results for Q1. Following that, I'll review what was a strong start to the year, highlighted by our GAAP profitability, offer insights into our operations, and then discuss our go-forward strategy. And then lastly, we'll open the call to questions from our publishing analysts. David? Thank you, Brian, and good morning, everyone.
spk01: So let's discuss our financial results for the first fiscal quarter ended February 29th, 2024. Net revenue for Q1 2024 was $16.7 million, and that's up 98% from the $8.4 million we reported in the first fiscal quarter of 2023. This $8.3 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 $6.7 million increase in direct-to-customer revenues through our website and Amazon compared to the prior year period. We also experienced year-over-year growth throughout all of our business segments. Gross profit for Q1 2024 was $9.6 million or 58% of net revenue compared to $5.2 million for Q1 of 2023. The increase in gross profit was a result of the increase in sales. Operating expenses for Q1 2024 were $9.8 million, compared to $7.2 million for Q1 2023. The increase in operating expenses was primarily driven by an increase in marketing spend as part of the company's new celebrity endorsement and television advertising strategy, and also, of course, by an increase in variable expenses, which increase with sales volume. This quarter was profitable. Net income for Q1 2024 was $17,000 compared to a net loss of approximately $2.2 million for Q1 2023. This very significant improvement in net income was primarily due to the increase in sales associated with the new marketing campaigns. Adjusted EBITDA, which is a non-GAAP metric for Q1 2024, totaled $1.2 million compared to negative EBITDA $0.6 million for Q1 of 2023. Under the balance sheet, cash and cash equivalents on February 29, 2024 totaled $24.2 million compared to $20.5 million on November 30, 2023. Inventory on February 29, 2024 totaled $12.1 million compared to $13.9 million on November 30, 2023. and the company has no current debt. That concludes my prepared remarks and I'll now turn it back to Brian.
spk00: Thank you, David. As you can tell from our financial results, the pivot we made in 2023 with respect to our advertising strategy is continuing to have an extremely positive impact on our business as we are seeing marked improvements across all segments of the business and across all key performance metrics. Specifically, as David mentioned, revenue for the quarter was up 98% year over year to a record $16.7 million. Digging a little deeper, we see that the majority of this growth came from our DTC business as Burna.com and Amazon.com sales combined for over 12.7 million or 76% of our total sales for the quarter. Most of these DTC sales are directly attributable to customers that learned about Burna through our four celebrity influencers, Sean Hannity, Judge Jeanine Pirro, Bill O'Reilly, and most recently, Glenn Beck, who we began working with in January. When we saw initially how successful we were with Sean Hannity back in September of 2023, we had three basic questions regarding our celebrity influencer strategy. One, was it replicable? Two, was it scalable? And three, was it sustainable? During our last earnings call, we answered the first two questions. First, yes, it is replicable, meaning we can use other influencers and achieve similarly strong return on advertising spend, or ROAS, as we have proven with Glenn Beck, Bill O'Reilly, and Judge Jeanine. Secondly, although it is not infinitely scalable for any single influencer, meaning at some point running more ads with the same influencer will not continue to dramatically increase sales, It is scalable to the extent that we can sign up additional influencers as we are continuing to do. In fact, we just signed Dan Bongino, who will be joining the burner roster of celebrity influencers in the third quarter of this year. As for the third question, is it sustainable? Well, the jury is still out. We are not seeing any signs that would indicate that the effectiveness of our ad spending is waning. In fact, we're seeing just the opposite. For the first quarter of 2024, ending in March, our ROAS was 5.6x. So taking all of our ad spend across all of our DTC channels, sales were 5.6 times our ad spend. In March of this year, our ROAS climbed 16% to 6.5x. Similarly, our average daily web sessions, which were up 33% year-over-year to 33,500 in Q1 from 25,000 in Q1-23, continued to climb in March up another 11% to 37,061. I attribute some of this increase to the effective management of our celebrity endorsement program as we eliminated or reduced our spending on some of the poor performing influencers and increased spending on some of the better performing endorsers. We also added television advertising into the mix, which is proving to be extremely effective. The success of our television advertising efforts is very encouraging, as there is a much greater opportunity for us to scale with TV. Keep in mind, we are achieving these strong metrics while keeping operating expenses in line. We have not yet dialed up the marketing spend as we remain concerned about outstripping our current production capacity. Even though we have already announced an increase in our capacity of 25% from 10,000 launches a month to 12,500, we are continuing, sales are continuing to outpace production as evidenced by our current two-week shipping times, which is posted on our website. As we increase our production capabilities, however, we will adjust our advertising spend as needed to maintain our current growth trajectory. Taking a closer look at our sales channels, our sales by channel, DTC continues to be the primary focus of our business as advertising strategy is driving new customers to our website. For a second consecutive quarter, we are noticing an elevated number of orders from new customers. First time customer rates were 70% of total orders in Q1 2024, up from 56% in Q1 2023, and up from 67% in the last quarter of 2023. Higher first-time customer rates mean higher average order values as first-time customers purchase a launcher kit at a minimum. Our AOV for first-time customers is around $450 versus $110 AOV for returning customers. The increase in our first time customer percentage then drove our overall AOV to $348.63 for the quarter versus $316.50 in the prior year period. Higher first time customer rates also give us the opportunity to go back to the well as we engage these customers with follow on offers of ammunition and accessories through our targeted email marketing campaigns for first-time buyers. We also, interestingly, saw an increase in conversion rate on Burna.com, as we averaged 1.04% during Q1 of 2024, compared with 0.8% in the prior year period. These improvements in AOV and conversion rates, along with a 33% increase in sessions, combined to produce a 108% year-over-year increase in daily orders on burner.com in Q1 of 2024. As David mentioned, sales, however, were also up across all our other channels, with dealer sales posting a 44.7% increase, Fox Labs posting a 62.8% increase, and our Canadian sales posting a 35.4% increase. Once again, we attribute these increases to greater brand recognition resulting from our celebrity endorsement and advertising efforts. Of specific importance is the increase in dealer sales and specifically the increase in premier dealer sales. Since we introduced our premier dealer program last year, this has become a consistent and growing segment of our business. As I previously explained, premier dealers operate much like a Berna franchisee. And while we do not require a franchise fee to be a premier dealer, premier dealers can only sell non-lethal self-defense products and must derive more than 80% of their revenue from Berna products. In addition, the store must adhere to strict brand standards, including a firing range on premises so that potential customers can test fire the Berna launchers. In return, they get geographic exclusivity, preferred pricing, a co-op advertising budget, training from our certified law enforcement training team, an armorer's course for the service and repair of launchers, and first dibs on new products and inventory that is in short supply. We also provide them with an operational plan and assist them with the design of the store, including signage and production graphics. Finally, we allow these dealers to use the Berna name in the name of their store. Based on the success that we are seeing in the premier dealer program, we are looking into the possibility of actually turning this into a franchise program with the goal of being able to rapidly roll out dozens, if not hundreds, of Berna retail stores on a nationwide basis. At the end of last year, we had 16 premier dealers. Since then, we have signed up another four premier dealers, including our first Canadian premier dealer that has already ordered more than $500,000 of inventory. Our initial work suggests that the U.S. and Canada could support more than 400 dedicated Berna retail stores. We are in the process of engaging a consultant that specializes in franchising to assess the potential for a Berna franchise program and to assist us in creating a business plan to put such a program in place. In the meantime, we are planning on opening three new company-owned retail stores in Boston, Houston, and Fort Wayne. Currently, our LV, Las Vegas retail store, is running at around $800,000 to $1 million in sales a year. We want to see if we can replicate this in other markets that are demographically diverse. At the same time, we're looking at the potential to expand our law enforcement opportunity. When I joined the company in 2017, Burna, then called Security Devices International, or SDI, manufactured and sold 40-millimeter impact rounds, blunt impact projectiles that we referred to as BIPs, exclusively to law enforcement. Sales never exceeded $250,000 a year. My job was to turn the company around. As I evaluated SDI's operation and business model, I quickly learned that law enforcement is a very difficult market crack. First, it is highly fragmented. There are over 18,000 agencies in the United States, and each makes its own procurement decisions. Worse, no agency will purchase anything without a live-fire demonstration. On top of that, you have political considerations, bureaucracy, budgetary constraints. Based on this, at the time, we decided to pivot away from 40 millimeter and law enforcement, focusing instead on the consumer market. As part of this strategy, we commenced the development of Berna's extremely successful line of handheld personal security devices. And as they say, the rest is history. The result is that we now sell almost as much in one day as we sold in an entire year before shifting our focus to the consumer market. In fact, based on this morning's report, for the first 35 days of Q2 through yesterday, we've averaged $253,600 a day in sales, which is essentially equal to all that we sold in 2018. Our success in the consumer space, coupled with Berna's growing brand recognition, has led to a large number of law enforcement agencies reaching out to Berna. As a result of this unsolicited interest, Berna launchers are now carried by more than 300 domestic law enforcement agencies on the federal, state, and municipal level. We have seen even greater success with international law enforcement agencies, where there are fewer but larger agencies and there is a greater acceptance of less lethal weapons. As we have reported this year, our Argentinian subsidiary, Berna LATAM, has taken orders for more than 15,000 Berna SD launchers from a number of law enforcement agencies in Argentina, including Buenos Aires Provincial Police, Buenos Aires City Police, Lanús City Municipal Guards, Aziza City Municipal Guards, and the Cordova Provincial Police, which recently committed to an additional 10,000 launcher order on top of the 5,000 launchers they previously purchased in 2023. This is on top of orders from agencies around the world, including law enforcement in Australia, Dubai, Hong Kong, Indonesia, Israel, Panama, Peru, Senegal, the Seychelles, Slovenia, Spain, and South Africa. These large law enforcement purchases provide confirmation as to the efficacy of the Berna Launcher and serve to validate Berna's position as a global leader in less lethal solutions. Based on our success with law enforcement, both domestically and internationally, we have determined it is now time for us to consider whether it makes sense to devote more resources to the domestic law enforcement market. Now let me be clear, we have no interest in expanding our presence in law enforcement unless we can do so profitably. We know that many gun companies treat law enforcement as a loss leader, which is necessary to build brand awareness. It is the same reason that automobile companies have traditionally sponsored racing teams. We have no interest in treating law enforcement as a loss leader. If the current study which we are undertaking suggests that we can expand our law enforcement presence profitably, We intend to commit the necessary resources to grow this market segment. We expect to have the study completed in this quarter and presented to the board, and we will keep the investing community apprised of our decision with regard to the law enforcement market. I mentioned that right now we're somewhat constrained by production. To meet the demand we've experienced both in the United States and beyond, at the start of February, we announced that we would be increasing our launcher production from 10,000 units a month to 12,500 units a month. Again, this is on a single shift. Since that announcement, we have brought in additional staff, and we are now raising our production targets to 18,000 launches a month to keep up with the growing demand. During the month of March, we produced 14,400 launchers comprised of 8,900 SDs and 5,500 LEs. As we mentioned during our last call, we are also focusing on increasing ammunition production by opening a second ammunition production facility to be located here in the U.S. This move is aimed at both strengthening our supply chain and reducing the risk of supply chain disruption, thereby ensuring that we can meet the forecasted demand for our high margin ammunition products, even if international shipments become more difficult for any reason. As we look to the current quarter, we are on track to continue growing our business. As I mentioned, our March ROAS numbers remain strong for all of our celebrity influencers. Sales on Burr.com also remain strong and are running above last quarter. And Amazon.com sales are accelerating at even a faster pace because they're advertising two-day shipping, whereas on Burr.com, we are advertising two-week shipping. We are confident that the continued success of our DTC sales, along with the growth in our dealer and international sales, will enable us to be able to deliver strong performance across the board in 2024. As we get closer to 2025, we expect to be able to share further updates and details about our compact launcher. This launcher is expected to be instrumental in gaining further traction with both the general public and law enforcement agencies. The development of the compact launcher is progressing on schedule. We will continue to assess our influencer marketing program as well and add additional partners as necessary to fuel consistent but manageable growth. I'd now like to address something we announced in our press release this morning, which is the CFO transition. We have an incredibly hardworking team here at Verna that has helped us navigate through the challenges we faced last year and has taken us over the course of the last five years from $250,000 a year in sales to $250,000 a day in sales. One of the most instrumental people in this process has been David North. Obviously, David has announced that he will be retiring later this year. David joined Berna back in August of 2020. And honestly, to join a company when the world is completely shut down is incredibly difficult. But David hit the ground running and immediately began making meaningful changes to our business. Under David's guidance as CFO, Berna has achieved key milestones in the journey. He played a key part in our uplisting to NASDAQ in 2020. He shepherded a $60 million capital raise, which was essential for building the organization we are today. This then led to the acquisition of multiple businesses, Mission Less Lethal, Ballista Packs, and Fox Labs, which have rounded out Berna's strategic portfolio of less lethal solutions. And most importantly, he has reshaped and built our finance and accounting team by implementing efficient processes and systems of internal controls, setting the foundation for future growth. These are just some of the meaningful changes that David has been a large part of that ultimately took our sales from less than 1 million in 2019 to 16.7 million in Q1 of 2024. We are incredibly grateful for David's contributions, and we wish him all the best in his well-deserved retirement. To ensure a seamless transition, we have engaged a leading executive search firm to identify top-tier talent. and David has agreed to remain with the company as CFO until a new CFO is properly onboarded. He has then agreed further to work with us as an outside consultant through the publication of our K1 next year. With that, I'll now turn the call over to the operator for questions. Rob, please provide the appropriate instructions.
spk02: Thank you. The company will now be taking questions from its publishing analysts. If you'd like to ask a question, please press star 1 from your telephone keypad, and a confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to withdraw your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. And once again, that is star 1. Thank you. Thank you. And our first question is from the line of Jeff Van Sinderen with B. Reilly Securities. Please proceed with your questions.
spk04: Good morning, everyone. And let me say congratulations on the strong Q1 metrics. One thing that stood out to me was the gross margin percentage. And I'm just wondering, maybe you could just touch on that and expectations for gross margin here in Q2, and then as the year progresses, the order of magnitude?
spk01: Yeah, sure. This is David. First of all, in comparison, most of quarterly results we usually compare to the same quarter a year earlier. And in this case, I just have to warn that that's not really a valid comparison this time around. one of 2023 was anomalous because there was an adjustment to absorption, which led to an unusually high percentage last year. So that really isn't a good comparison point. But 58% is really a great improvement on trend. We were about 55% for the full year of 2023, and that's also what we were in Q4, I believe, of 2023, 58% is higher for two reasons. First of all, of course, if you have higher volume, higher sales volume, you absorb your fixed costs better. But more importantly, the stronger effect is that the advertising campaigns that are really driving such success and sales growth the sales growth is focused in our direct-to-customer channels, particularly website sales, and these are our highest margin channels. So I expect that the 58% is higher than what we had budgeted for Q1, but we have budgeted for continuing improvement. I expect us to stay around this level for the remainder of the year.
spk04: Okay. Fair enough. And then if we could circle back to the production increase plans for a minute, I mean, I guess I would say you sort of have a high class problem, which we welcome, frankly, at this point. But maybe you could just touch on how you're evolving production. I know you said you're ramping up again. Do you need to go to two shifts? Maybe you could just speak more about that.
spk00: Yeah, I think right now we do not need to go to two shifts at this time. Right now we can go to 18,000 units a month on one shift by fully taking advantage of the second production line that we put into place. It will, of course, mean hiring additional personnel. We are undertaking a program to improve our efficiencies in the factory. which will involve certain basic steps as well as implementing some automation. Automation that doesn't make sense when you're doing 5,000 units a month may make sense when you're doing 18,000 units a month. 18,000 units a month is somewhat above where we are running today in terms of sales, but we have to get ourselves first to the position where our shelves are full. and that we're not advertising a two-week delay in shipping. We also anticipate that the growth trajectory will remain intact. And we know that, you know, it will be, fourth quarter will be upon us pretty shortly when we know that demand will be much stronger. So, we're hoping that, although we don't expect to be at 18,000 units in April, we do expect to be at 18,000 units in May. and to maintain that pace through the balance of the year, which will allow us to restock our shelves and be ready for Q4. Now, the factory, as it's currently laid out, is capable of doing somewhere between 36 and 40,000 units a year, so we still have a potential for significant growth.
spk04: Okay, great. And then I know you mentioned You know, you've got a shift here with a lot of new customers, but obviously you can go back to them. That's part of the benefit of that to, you know, show them new other products and so forth. And perhaps part of that is the ammo sales. So maybe you could just mention what you're seeing in ammunition sales at this point.
spk01: Yeah. Ammo sales combined with accessories constituted 22.6% of Q1 sales. And obviously, that is significantly lower than the 25% that we've tended to trend at. And the reason is the higher proportion of new customers.
spk04: Okay, great. Terrific. Thanks for taking my questions. I'll jump back in the queue.
spk00: Jeff, thank you very much.
spk02: Our next question is from the line of John Hickman with Leidenberg Thelman. Please proceed with your question.
spk03: Hi. Ninth quarter, by the way. I might have missed this. You were talking pretty fast. But how many premium dealers do you have now?
spk00: We currently have 20 premier dealers.
spk03: And how many company-owned stores?
spk00: One. Only the Las Vegas store, the original store. And I think, you know, as we've been talking with people regarding the franchise program, If we're serious about doing this, we need to have a number of company-owned stores where we have, you know, full access to all of the data so that we could present that to potential franchisees. And we're also very anxious to see, you know, ourselves how replicable this is as a company-owned store. We want to do one in Boston because it will, frankly, be easy for me to visit it and, you know, see the performance and see the customers on a regular basis. But we're also going to do ones in Fort Wayne, where we have a factory, and in Houston, where we have our law enforcement training team, as I get to these areas on a pretty regular basis, as do other members of the team. And this will allow us to stay in close contact with the performance of these new company-owned stores.
spk03: Okay. And then could you... Can you talk about the, oh, I can't remember the name, the shotgun?
spk00: Yeah, the 12-gauge.
spk03: Yeah, the nonlethal 12-gauge.
spk00: Yeah, nothing has really changed since last quarter. Honestly, you know, with the strength in the demand for launchers, we've really been focusing all of our efforts in that area. We do think that the success of the 12-gauge program is going to be largely driven by law enforcement. It is one of the reasons that I've decided to start this study to determine whether it makes sense for us to devote more resources to law enforcement. And I think, honestly, John, it's not a question of whether it makes sense for us to devote resources to law enforcement, but rather how much resources. and what the program should look like because clearly we have law enforcement customers today. We need to make sure that we're handling these customers appropriately. We're getting a fair number of inbound law enforcement inquiries. You know, I would dare say somewhere between 50 and 100 a month of agencies that are reaching out to us, you know, looking to potentially buy, burn a product, And we simply do not have the resources at this time to be responding to them as we should. So we're going to have to devote some incremental level of resources. We think as we do that, we will have an opportunity to get law enforcement to adopt 12 gauge, which again will help us then make the transition to consumer.
spk03: And then I've, I don't know if you gave us a statistic or not, but can you give us a percentage of what's being sold on your websites, LE versus SD?
spk00: The LE-SD breakdown is approximately 60% SD and 40% LE. Again, there's $100 difference in the price of the LE and the SD. So we would expect some reduced level of demand for the LE. But it's higher than we had expected. I mean, when we first came out with the LE, we really thought it was going to be, you know, 10 or 20% for the premium product. And the demand has been very strong. And honestly, we don't know where it will be once there are no more limitations on shipping. So right now the LE production has taken longer. Our availability of LE has not been as good as our availability of SD. So part of that 60-40 split may be a function of availability.
spk03: And then one last question is, do you know where you're going to price the compact?
spk00: We don't have a price for it at this point. It is clearly a premium product, and we're doing a lot of market research, but we have not made a decision yet.
spk03: And you think that will be available later this year?
spk00: No, it will not be available in 2024. It is in pre-production currently. We actually have RFQs out for the components. We are in testing of pre-production models. So, as I mentioned, everything is going according to plan, and our plan would be to release it early in 2025. At the SHOT Show? Potentially at the SHOT Show. Based on the debacle we had with the release of the LE, we are not going to release the new compact launcher until we have more than 10,000 units on the shelf. So, you know, even though it may be ready for production prior to SHOT Show, we need to make sure that we're running it, that it's going through testing smoothly, that we're getting a very high first pass yield, and we've got plenty of product on the shelf, because we do think this is going to be somewhat transformative. The other thing that we don't want to do is we don't want to undermine the sales of the SD and LE during the holiday period. So we think we'll have a very strong Q4 even without the LE, even without the Compact Launcher. What we are hoping is that the Compact Launcher will help us continue this growth trajectory into 2025. Okay, thanks.
spk03: Appreciate it.
spk00: Thank you, John.
spk02: At this time, this concludes our question and answer session. I'd now like to turn the call back over to Mr. Gans for his closing remarks.
spk00: Thank you, Rob. In conclusion, I just want to, again, thank everybody for their support. I want to, again, publicly thank David and say that, you know, I could not have done this without him. And we'll speak to all of you soon. Thank you very much.
spk02: Thank you for joining us today for Berna's fiscal first quarter 2024 conference call. You may now disconnect at this time.
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