AMMO, Inc.

Gentlemen, thank you for standing by. Good afternoon and welcome to the AMO, Inc. fiscal third quarter 2023 earnings call. At this time, all participants are in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Participants of this call are advised that the audio of this conference call is being broadcast live over the internet and is also being recorded for playback purposes. I would now like to turn the call over to Scott Arnold of Core IR, the company's investor relations firm. Please go ahead, sir.

Good morning, and thank you for participating in today's conference call. Joining me from AMO's leadership team are Fred Wagenhals, Chairman and Chief Executive Officer, Rob Wiley, Chief Financial Officer, and Jared Smith, President and Chief Operating Officer. During this call, management will be making forward-looking statements, including statements that address AMO's expectations for future performance or operational results. Forward-looking statements involve risks and other factors that may cause actual results to differ materially from those statements. For more information about these risks, please refer to the risk factors described in AMO's most recently filed periodic reports on Form 10-K and Form 10-Q, the Form 8-K filed with the SEC today, and the company's press release that accompanies this call, particularly the cautionary statements in it. Today's conference call includes non-GAAP financial measures that AMA believes can be useful in evaluating its performance. You should not consider this additional information in isolation or as a substitute for results prepared in accordance with GAAP. For reconciliation of this non-GAAP financial measure to net loss, its most directly comparable GAAP financial measure, please see the reconciliation table located in the company's earnings press release. The content of this call contains time-sensitive information that is accurate only as of today, February 14, 2023. Except as required by law, AMO disclaims any obligation to publicly update or revise any information to reflect events or circumstances that occur after this call. It is now my pleasure to turn the call over to Fred Wagonhals.

Thank you, and I appreciate everyone joining us for our fiscal third quarter 2023 earnings call. I would like to start the call by saying how excited I am to introduce our newest management team member, President and COO, Jarrett Smith, to our shareholders. The management team spent a lot of focused time over the past year searching for the right person to join us to help us refine our operations as we moved into our new manufacturing facility in Manitowoc. Jarrett is the one, and from what I've seen in just the past month since he's came aboard, the board and our management team did a great job in finding someone who will be a integral piece to take this company to the next level of growth. Jarrett and Rob Wiley, our CFO, will discuss the market environment and our performance in detail across both the manufacturing and marketplace segment of our business. But I did want to comment on a few items before I hand the floor over to my colleagues. We started this company in 2016. with the vision and the mission to innovate and capture a meaningful share of the ammunition market, picking our spots for acquisitions, staying focused on always improving manufacturing operations, all while working to bring our customers the product they desire. We have grown by leaps and bounds in these short seven plus years And I am proud of what we've accomplished. But there is much work left to do. And we now have the team assembled to meet these challenges and are excited about the opportunities that lie before us. Regardless of the political spin we all hear coming out of Washington, the US is already in the throes of a recession and the inflationary drivers are hitting consumers hard in their pocketbooks. Those pressures are being felt across the market, both by AMO and its peers alike. However, we are responding to those challenges. And Jarrett will outline what we are doing to best position our company within the environment and will highlight a number of the positive changes we have already made and will continue to make in the face of these headwinds as we continue to increase capacity and operational efficiencies. I have spoken on a few occasions about the development at gunbroker.com, and we are excited that these enhancements are going to start rolling off this spring so that marketplace users, both buyers and sellers, can take advantage of these new opportunities. This enhanced platform will significantly leverage the amazing GunBroker.com platform, driving greater revenues and profitability to the M.O.' 's bottom line. We are continuing to explore the market for additional best-in-class folks to join our team. Jared is a prime example of the new leadership we are adding to the mix. bringing 17 years of very strategic and focused experience to the table. We have already spent a lot of time together speaking with both industry and marketplace about our plans going forward. At this time, and without further ado, I would like to turn the call over to Jared Smith, AMO's new president and COO, He will walk you through the current state of our operations and what we believe the future has in store for Ammo, its team, and our shareholders.

Thank you, Fred. Good morning, everyone. First, I want to thank the Ammo team for the opportunity to be here as president and COO. I joined the company on January 6th of this year, so I've been in the saddle for a mere 39 days. So bear with me because we've got quite a bit of ground to cover. I've spent the last 17 years in the firearm and ammunition sector, and I've always seen Ammo Inc's ammunition and marketplace businesses following the acquisition of GunBroker.com as best in class for their space and potential. What Fred and the team accomplished over the last seven years is truly remarkable. The transformative addition of the GunBroker.com marketplace to the ammo portfolio certainly made the entire market stand up and take notice. I ultimately joined this team because of the huge potential of the operations, opportunities to innovate, the ability to bring transformative change, and continue the growth trajectory of this company. I'm excited to share my vision for the company with you, but before we begin, one must understand the current state of the ammunition market, as well as Ammo Inc.' 's position in it. For the last two quarters, the industry has seen serious headwinds from its record highs in 2021 and early 22. Consumer confidence and increased inflation is causing erosion of the customer's wallet for other items such as gas, milk, and bread, while our costs for copper, zinc, lead, and labor are all up. And ammunition prices on the shelf are down in comparison. We've seen margin compression in almost every sector. The non-vertically integrated manufacturers, such as ammo, get squeezed in the middle. Ammo produces cases, loads, and manufactures some, but few of its projectiles and none of the primer component. The supply chain for gunpowder nitrocellulose is more difficult than ever. And the team has been sourcing European primers and powders at high prices at unpredictable volumes to sustain their production. All these issues lead to high cost in a time of a normalizing market, especially for 9 and 223 calibers. Our factories do not pivot overnight and we will continue to see an adverse effect in this last quarter as we continue to sell off higher price components, flushing out slower moving inventory and sell off commodities, which will have a negative impact on margins. However, our sales and operations are pivoting, but no large manufacturing operation is capable of pivoting at the rate Wall Street or our shareholders would like to see. To be blunt, As our earnings and forecast for this quarter reflect, we were not fully prepared as a manufacturer for this shift. Ammo spent 2021 and 2022 manufacturing commodity products to meet consumer demand. We manufactured commodity products because they were easier and higher throughputs with less cost than their counterparts. We manufactured commodity products as a larger percentage of sales because it simplified planning and logistics. Our purchasing and sourcing opportunities were based on this trend. Sales teams were oriented towards top line revenues like most growing companies, and we weren't sufficiently focused on our brand and margin maintenance during this time, which leaves us where we are today. I share this with you so everyone is aware of how we got here so you can see the trajectory of where we are going. It is important to note ammo's rifle and pistol brass manufacturing capability is truly unmatched for its open capacity and potential. In previous roles as an industrial buyer, supplier and consumer of ammo's products, I've always greatly appreciated the quality of the pistol and rifle brass that came off the lines, especially the uniqueness of the street technology that they brought to market. Behind the scenes, the ammo team was not stagnant and knew they must pivot. They were very busy constructing a manufacturing facility to produce a completely different offering while attending to never before seen consumer demand. In August of 2022, we moved into a new 185,000 square foot brass manufacturing, loading, and testing facility that can produce calibers that range from 25 auto up to 50 BMG and everything in between. This is where we refine and enhance the operations at all levels to position the company for a bright and profitable future. It is here where our skillset and core competencies are ready for the real demand that will thrive in strong markets and execute profitably and normalize markets. It is here where we will be positioned to react in a nimbler fashion to the market's macro trends. What are those trends and why do they matter? Well, in the last two years, 16 million new consumers purchased a firearm for the first time. Secondly, the shooting sports captured the fastest growing high school sport in the US, trap shooting. The third macro trend is conflicts in Europe, on the European continent. have resulted in an environment where those countries will be restocking their inventories for the next 10 to 15 years. This is important. The fourth macro trend that we're following is consumers are looking for longer range, flatter, heavier payloads with greater energy delivered to their targets than ever before across both pistol and rifle. That's both commercially and militarily. And the last trend is commercial LE and the military are looking for lead-free alternatives. So how do we take these macro trends and adjust our business model? Our consumers and industrial partners are wanting to shift their production to higher performance products that meet the needs of these macro trends. Our company is one of the only manufacturers with the open capacity and skill set to meet this demand today. Our state-of-the-art plant came online at an opportune time to position our organization to better meet those challenges. We will brand around and deliver new technology to this target market. And we will enable our industrial partners to meet those needs both domestically and internationally. This shift to brass manufacturing is a larger percentage of our business and loading high performance rifle ammunition manufacturing requires less working capital, enables higher margins and better cash flow. We will continue to leverage our relationships to diversify our supply chain, allowing us to better plan price and maintain margin and our loaded ammunition operations. We'll be freeing up cash currently stuck in inventory and streamlining our purchasing around new domestic supply lines. I'd report on the guidance for the next year, but we are knee deep into the re-forecasting and budgeting process. We are preparing a budget and a forecast around a new set of execution principles for this enhanced footprint. While I pause on our guidance, everyone should know that in the last 40 days, we've sold out of our entire current capacity for long action rifle brass. In the last 40 days, we've secured domestic gunpowder sources, which will free up cash flow, enabling us to sell off our high inventories of European powders and primers. Ammo Inc. will finally compete in the high performance, high margin categories that it hasn't effectively participated in due to a lack of premium powders. We are in a better position to execute and our outlook is healthier today than it's ever been. We are in a better position because we have a tool that we've not leveraged in the past. With the company's purchase of GunBroker, we have solidified a way to aggregate data and cultivate a wealth of opportunity. For example, a diverse group of participants from hunters to sportsmen to long-range shooting enthusiasts all flock to the website, and every search, purchase, or bid they initiate is captured for us. This priceless cultivation of data does not exist in this form for anyone else in the market. This allows us to make data-driven, market-oriented decisions that will fuel our investments. This will enable us to find the areas of real performance and demand on a real-time basis. This is the new trend line for the ammunition division. I've told this story 100 times over the last 40 days, and I will continue to tell the story every day for the next 180 days. For the investors on the phone listening or watching for the first time, Gun broker facilitates a legally compliant and thoroughly documented exchange between a buyer and a seller, either through an auction or the buy it now capability. One item, one transaction at a time. And this is incredibly important to understand. One item, one transaction at a time. Gun broker does all this while meeting every federal and state regulation for the exchange of firearms. It has no inventory and does not receive or ship anything. It merely facilitates the transaction. We are in the top 500 websites for traffic in the U.S., and over 5 million unique users come to our site in any given month. Under any objective metric, we are the 600-pound gorilla in this space, and we have been and remain in that position, notwithstanding the fact that GunBroker has not developed the ability to cart product, process credit card fees internally, or capture advertising revenue in any meaningful way. This all changes in 2023, 2024 calendar year. This 600 pound gorilla becomes the 900 pound gorilla that it was meant to be. GunBroker is transitioning from a one item per transaction platform to a cart based platform. The GunBroker team has been working around the clock since acquisition, testing, developing, and building relationships with the banking community, as well as the distribution dealer network across the country to make this next step a reality. When we go live this summer, we will be positioned to not only facilitate the sell or directly sell a firearm to the consumer, but also support and leverage that foundational transaction with the sale of the scope, sling, scope mounts, ammunition, camouflage, boots, water bottles, batteries. You get the picture. For any new hunting, shooting consumer, the gun is most likely the least expensive purchase you make. Certainly when you view and value the total aggregated transaction of all complimentary accessories required by the market to enjoy the shooting sports hunting experience. Hunting and shooting sports participants will have a user-friendly marketplace where the consumer can interact with new and used equipment dealers, distributors, and other enthusiasts reselling their equipment to kit out their next endeavor. In 2022, GunBroker facilitated $1.2 billion in exchange on our marketplace website. based on singular transactions between a buyer and seller with no ability to cart product. In the past, GunBroker has only received revenue based on a fee for processing that singular transaction. Going forward, we will have an incredibly robust and user-friendly platform before the market that presents GunBroker with multiple revenue sources. GunBroker operates in a federal and state regulated environment. Gun Broker is roughly 6% of the entire firearm trade in the US. You got to think about that. We ship to multiple locations, managing different state sales tax implications, all while managing different buyers and sellers. Our customers value data privacy, value in real terms and efficiency. We manage this value offering all while maintaining the largest auction and marketplace of its kind for this industry. This is the moat that protects us. The more complicated and intricate space we operate in, the higher the cost of entry is for our competition. We are the largest player in this space, and the security and the tech to make the operational efficiencies flow seamlessly keep us in this space. One might ask, why has this not already been done or communicated before now? The real answer is that this takes time and dedicated teams to execute at this scale. Many software houses don't want to have anything to do with this firearm-centric marketplace. Banking relationships had to be forged, transactional volumes secured, tested, and accounted for. Why have we not done a better job of communicating this story? Well, we failed to communicate the fundamentals of how buyers and sellers transact today versus the future. Secondly, our messaging is confusing. We are AMO, Inc. Our sticker is POW and when you hear the historic message, we've been focused on ammunition with ammunition themes based in an ammunition market that made front pages. Gun brokers messaging got lost. The buyer seller experience and the new user experience was not articulated until now. Within our portfolio, our messaging going forward must change. The look and feel of how we go to market must change. I hope you can tell how excited I am about the future of this company. I couldn't be more bullish about our future, and that is why I joined the team. While the industry is currently facing headwinds, we have been busy creating our own tailwinds. I can't express the energy and passion this team brings to the table every single day. We are constantly onboarding top talent to facilitate this new growth, and we're seeking talented engineers, accountants, analysts, and leaders to see how they can fit into the larger ecosystem that we are creating here. Thank you for taking the time, allowing me to come on board this team and listen to my thoughts today. At this time, I would like to turn it over to Rob Wiley to walk us through the financials.

Thank you, Jared. Welcome, everyone. Let me now review our third quarter financials in more detail. We are facing headwinds in the market today, along with the rest of the industry. but remain excited about the new direction of our two segments in upcoming quarters with our marketplace enhancements coming online in the first half of our next fiscal year and the shift in our manufacturing strategy, which will drive profitability. As is observed by the peers within our space, we continue to see margin compression on our ammunition segment. The U.S. commercial ammunition market continues to slow from the inflationary impact and global recessionary drivers being felt across most industries. The reduction in sales, higher commodity and freight costs, along with the increased operating expenses, such as the remainder of the one-time legal expenses related to the proxy contention, stock compensation, corporate insurance, and payroll have increased our cost of revenues and operating expenses, resulting in a net loss for the period. To address these increases, and as discussed earlier in the call, we plan to recoup cash tied up in our inventory in our quarter ending in March. and pivot the direction of our manufacturing operations to opportunities that provide enhanced profitability opportunities, such as premium rifle brass, including our expanded offerings of large caliber brass. Additionally, we continue to push forward on the improvements to our GunBroker.com marketplace, which represent great leveraging opportunities that spring from this incredibly robust site. In this regard, we are currently tracking for the payment suite and cart platform to launch in the first half of our next fiscal year, which we remain reasonably confident will drive growth and profitability to the site. We entered our third quarter with total revenues of approximately $38.7 million in comparison to approximately $64.7 million in the prior year period. This was a decrease of 40% from the prior year quarter. The decrease in revenue was mainly attributable for ammunition segment and the inflationary impacts that are currently affecting the market. These market conditions also impacted the revenue of our marketplace segment, affecting a 12% decrease from the prior year period. However, operating performance of our marketplace, GunBroker.com, still remains strong. And although our top line revenues wavered, our margins are still comparable to historical performance. Our cost of revenues were approximately $26.2 million for the quarter compared to $42.2 million in the comparable prior year quarter. This decrease was related to reduced sales volume and increased commodity costs. Accordingly, this resulted in a gross margin of $12.5 million compared to $22.5 million. As our sales volume fell in the reported quarter, we anticipate another quarter of margin compression due to these increased costs. but expect to swiftly transition to more profitable sales activity starting in the first quarter of our next fiscal year by shifting our focus to more sales of our premium brass and large caliber ammunition rounds. Our balance sheet remains strong with our total current liabilities decreasing by 21% since our year end and our total current assets virtually unchanged. We are revising our adjusted EBITDA and adjusted the income per share calculations moving forward. which we believe will provide the market with a more accurate representation of our operations. To transition to our new calculations, we are providing our historical adjusted EBITDA and adjusted net income per share calculations, as well as the calculations you can expect to see moving forward and incorporate it into our updated data guidance. For the quarter, using our historical adjusted EBITDA and adjusted net income per share calculations, we recorded adjusted EBITDA of approximately 7.9 million compared to the prior year quarter adjusted EBITDA of 20.1 million. Using our moving forward adjusted EBITDA calculation, we recorded 4.8 million in adjusted EBITDA for the period compared to 10.7 million in the prior year period. This resulted in a loss per share of 4 cents or historical adjusted net income per share of 5 cents in comparison to 14 cents in the prior year period. Using our updated calculation, adjusted net income per share was 5 cents in comparison to adjusted net income per share of 8 cents in the prior year period. Due to the decline in sales activity as a result of market shift, we are reducing our guidance for our 2023 fiscal year. We are updating guidance to revenues of $185 million adjusted EBITDA using our new calculation of $22 million and EBITDA of $17 million. Looking forward to our next fiscal year, we expect the new direction of our company to increase profitability through increased sales of our brass casings and of performance rifle ammunition that will increase the gross margins of our ammunition segment. Additionally, the launch of the payment processing suite, carding platform, and analytics offerings are anticipated to position our gunbroker.com marketplace to allow for increases in our gross merchandise volume and, as a result, increasing revenue and profitability. That concludes our opening remarks. I will now turn the call over to the operator for questions. Thank you.

Thank you. Ladies and gentlemen, if you wish to ask a question on today's call, you will need to press star then the number one on the telephone. If your question has been answered and you wish to withdraw your request, please press star then two. And if you're using a speakerphone, please pick up your handset before entering your request and speaking on the call. One moment, please, for our first question. And that first question is from Matt Caranda with Roth Capital. Please go ahead.

Hey guys, good afternoon. Just wanted to start out with the ammo business. Can you just disentangle for us sort of the embedded price declines versus volume in that segment in the third quarter? Just curious, like you mentioned demand seems to be an issue, but just also curious sort of how to think about production at the facility during the quarter and was there any supply disruption or was it all a demand issue that you're experiencing currently in terms of the decline?

Hey, Matt. This is Jarrett Smith. First of all, thank you for your question. I'm going to repeat the question back to you to make sure I heard it correctly. You're asking about in this past quarter the lack of demand or the lack of volume in sales. Was that related to production issues or just pure market issues? Is that the correct assumption of your question?

Yeah, that's the crux of it. Thanks, Jared.

Fantastic. So the reality is it's a mix of both. When you move into any new facility like this new 185,000 square foot facility, there's walls that have to go up. There is racking that has to go in place. Machines have to be set, laid, and turned back on. So is there an impact from the move? Absolutely. Was there an impact from the market? Absolutely. And sheer demand on 9 and 223, as I said in the prior recording, is the volumes of 9 and 223 in relation to our total capacity was affected by the market. But the real reality is that we didn't have the primers, we didn't have the powder, and we didn't have the fundamentals to shift to these other higher margin plays that we will be tuning our factory to over the next three to six months.

Okay, got it. That's helpful, Jared. Curious also if you could just maybe speak to the changeover that you've alluded to in terms of capacity. It sounds like you're going to be going after more center fire rifle rounds, more casings in the mix on a go-forward basis. Maybe just draw us a path, if you could, for the next couple of quarters in terms of how the capacity cuts over what to expect as we kind of, obviously you've embedded this into the fourth quarter, but I'm just curious over the next, call it two to three quarters, how we should expect capacity and production to trend within the MO business as you cut over to the sort of more differentiated rounds and some of the more casings having mixed that you've alluded to.

Well, you can't compare historic ammo production in its existing factory to what we have going forward. The other very interesting fact about this factory is that we have the ability to change over from nine millimeter to 300 blackout on almost every one of our lines. That is a unique capability that does not exist in this market. So our ability to draw off of and sell premium rifle cases in both short, long action is truly unique. And as I alluded to earlier, we already in the first 30 days sold out of our entire long rifle action capacity. So what you'll see in the course of April, May, I'm sorry, February, March, April, is that we will be moving off of our inventories that we have a heavy commodities products that have already been built and are in the process of being loaded. And then we'll shift that production capacity to selling brass. So instead of losing five, 10% margins, we'll be gaining 30% margins. You'll see a reduction in the top line, but you'll see a growth in the bottom line. And that's where the focus is.

Okay, got it. And then maybe just, could you just clarify how you guys think about market share, whether that be with OEMs or whether that be with retailers? Just curious how to think about You know, you guys have talked about retailers have lower purchase volumes. Have you lost any customers over the last couple of quarters, or are they just essentially downsizing volume across the board? How do you think about market share and what you're defending there currently and over the next couple of quarters?

They've downsized across the board. They've also realized that they are not profitable in these positions around commodity products. Our position on the U S market is less than 1% total market share for the ammunition we manufacture. There is this massive space out there and the trend line is for premium rifle, which is really what this factory was built around. The facility in Wisconsin is a rifle case manufacturer with the ability to produce pistol cases. And we match that brass capacity with loading capacity. But the beauty of our story going forward is that we don't have to produce the full capacity in ammo. Our goal is to support our industrial partners, the large OEM manufacturers out there. The goal is for us to find the niche products by following the trend lines that we see within Gun Broker to be able to orient our production facility around those opportunities. What are those opportunities? It's rimmed cartridges like .44 Mag and .45 Colt. It's Kalashnikov capacities that we're seeing trend very, very heavily right now due to impacts from the European theater. We are able to follow those because we don't have dedicated lines to 9 and 223. We have completely flexible lines dedicated to a range of calibers from 9 to 300 blackout. It's Our ability to meet that new demand, because we don't produce projectiles, and I don't have to turn on 9mm or turn off 9mm projectile machines that make up a third of our factory. When we can't sell ammo at high margins, we'll sell brass at high margins.

Okay, I got it. Super clear. And then just maybe if you could just finally stitch that together for us, either Jared or Rob. Just in the way we should be thinking about the path forward for gross margins, especially for the manufacturing business, it looks like gun brokers relatively rock steady on the margin front, so really curious about the core manufacturing business. How do we think about getting back to call it that mid to high 20%? Every time we sell a piece of brass, yes.

Every time we sell a piece of brass, we make anywhere between 20% and 40% margin, and even more. As you go up in caliber, the higher the margin it is. So 338 Norma Magnum, which we have capacity for, 3338 Lapua, 50 BMG. Those are 50% to 60% margin plays. So we don't have to load. We can sell brass. And when we see opportunities to load, we'll fill those niche opportunities through our existing shelves. The goal is that in the next 180 days, we will completely turn this ship over to focus on profitability, to focus on throughputs based around profitability. I go into next week with the team here, and we are putting down our new budget and our forecast, and I'll have a lot more to say on this in the following weeks, but we're Because I've only sat in this seat for 39 days, there's still a lot of work to be done.

Fair enough. I appreciate all the commentary, and I'll leave it there, guys. Thanks.

And the next question is from Edward Riley from EF Hutton. Please go ahead.

Hi, guys. Thanks for taking my question. Last quarter, you cited expectation of a stronger man from the export market. I'm wondering if this is still the case today.

It is. It's the case today that we're seeing stronger demand from the export market. And what it's doing, it's actually diverting the larger manufacturers in the space for small cow, especially Lake City, to focus on those export opportunities, which is freeing up capacity and space both domestically and internationally. Because their lines are focused on, once again, high-volume Uh, high output around five, five, six, seven, six, two by 51. And in some cases, 50.

Okay, great. Um, and then just on the comments around, um, the long rifle capacity, um, already being sold out over the past 30 days, wondering if you could maybe give us any details, um, around the customer mix there.

It's very, very heavy towards OEM. Large players that are now seeing the shift and are coming back to Jageman for the quality that they've known, that they've bought in the past. When we say long action, that's 270, 30-06, 338 Norma, 300 Win Mag, 7mm Rim Mag, things where we have tremendous margins. And those are players that come to this market. They want a strong partner, an industrial partner that can help them meet their demands year in, year out. So it's not a one-time customer with bad credit that is non-strategic to our business.

Okay. Got it.

Thank you. And the next question is from Mark Smith from Lake Street. Please go ahead.

Hi, guys. I've got a handful of questions here. Jared, just want to kind of stay on the ammo piece first. How are you looking at channel inventory domestically today? Obviously, we see issues in a lot of 9mm and .223, .556. Are you seeing the increase in other centerfire rifle even some of the specialty-type rounds today. Walk us through kind of where that channel inventory is and potentially how long it takes to clean up some of these calibers that have gotten too heavy.

I think the calibers that this market is overly focused on is 9 and 223, and they've been overly focused on it with every cyclical market that we've seen over the last 10 years. There is still a... There are still really bright spaces in the market, as I said earlier, for 44 Mag, 45 Long Colt, all your rimmed cartridges. You still see really strong demand in this new space of 6mm ARC, 6.5 PRC, 7mm PRC, 338 Norma Magnum. Those channels are yet to be filled, and that's where we'll end up tuning our factories and our capacities towards. When you say in terms of sitting inventories, Yes, there's inventory coming back on the shelf and that's due to an inflationary and recessionary effect of just total market share. But those total dollars in market share is once again, primarily in that high commodity space. And we're not too concerned about those volumes sitting in the retail space because we will divert our production elsewhere.

Okay. And as we think about shifting over to some of these other rounds, you know, walk us through kind of how you weigh, you know, just, you know, shifting purely over to brass and selling brass into other OEMs to kind of hit some of this demand versus, you know, shifting lines over to, you know, 6.5 PRC or whatever the calibers may be, you know, kind of how you weigh that decision-making.

You know, our decision-making is based upon, what we call strategic account management, is that we are going to segment the marketplace. We're going to find the clients that have been underserved in the last year that are high credit worthy clients that we have a direct relationship and we will continue to feed those clients time and time again. When we look at things like 6.5 Creedmoor and the trend line for 6.5 Creedmoor, there are six other calibers that are coming to the market. that we can then divert our focus away from these areas that are getting oversaturated. And that's how we look at this space. Did that answer your question?

That does. The other piece that I just want to look rear view mirror a little bit on maybe why some of the shift wasn't done sooner and walk me through, was it maybe just being slower on shift, some of it having the new plant, or was it that you couldn't get you know, perhaps some of the projectiles or powder that you needed to build some of these other rounds?

We couldn't get the powders to go after those other rounds. We couldn't get enough supply of primers to go after those opportunities. We couldn't get our factory up fast enough. And we did it in 13 months, by the way, but we couldn't get the factory up fast enough and tuned and the annealing lines set up and the operations and the staffing reorganized. It was done in record...

pace time but once again that's never fast enough but we're here now and we're shifting and we're pivoting okay um and then just as we think purely about you know brass casing manufacturing walk us through kind of added capacity in the new plant and and maybe where you're at today on you know, your, you know, what's your meeting as far as your capacity, just as we look purely at, at cases.

Well, historically in the past, the maximum cases that ever came out of any previous facility related to ammo within that 350 to 400 million space, the capacity that's available out of this plant exceeds 750 million in our current, uh, shift operation. So we can double the capacity of cases. We have ample manufacturing and loading space to go after these opportunities. It's not going to be for a lack of capacity going forward.

Okay. Great. And you guys talked about – oh, go ahead, Jared.

No, I was just saying the beauty of all this and what – I didn't realize until really coming in the door and sitting down with the analytics team is that we can tune our forecast on a weekly basis based upon the trend lines that we're seeing coming out of GunBroker. It is such a data-rich environment that allows us as manufacturers to make better decisions on where we're making our next investments.

And do you have more flexibility in shifting production within brass casing? Is that pretty easy? If you see, for instance, more demand on some straight wall brass casing from other OEMs, are you able to shift and hit that pretty quickly? Or is there maybe more tooling and dyes that are needed to shift some of that over?

There's always tooling and dyes that we need to invest in as new calibers evolve. but the breadth of the tooling and die sets are already there. There's not massive capex that we have to put into place to make this profitable. It's existing and we can go, like I said earlier, we can go from nine to 300 blackouts on the same machine. It's really unheard of in this industry.

Good. And then just, you know, Gun Broker sounds like continues to do well. Walk us through any more that you can in depth today on, you know, where you're at as far as, you know, learning from the demand trends that you're seeing at Gun Broker and shifting that over to, you know, some of the decision making in manufacturing ammunition.

Well, this is the piece that really baffles my mind as I came into this space. is the lack of awareness of where gun broker is today and where it's going within the next six months. This single transaction that's capped by a single transaction because of the way the development's been done and the ability to go to a cart is huge for a gun broker. And by that shift of seeing where not only people are buying a seven millimeter PRC rifle. We're seeing where they're also investing their dollars. So we can take that data, work with our industrial partners, work within our own factories, and build those relationships with those marketers and those people that are going to market to go, you know, I want to put a package together of seven millimeter PRC with the latest holster or the next firearm manufacturer. That's the kind of data and the ability for us to be able to leverage going forward.

I think the last question for me and maybe Rob, this might be best for you. Any breakdown you can give us as we look at your top line guidance? And I realize it's just one quarter, but any additional info you can give us on what the gun broker sales maybe are as a breakout within your guidance? as well as, you know, any shifts, even though they may be small within kind of case in sales, it's built into the guidance for March quarter.

Yeah. Thank you, Mark. This is Rob Wiley. And typically we don't give too granular on our guidance, but, you know, just for looking at the Q4, you know, I'm sure you can come up with the remainder of the revenue that we're forecasting there, but we really think of the split of 60% out of the ammunition casing side of the business and the remainder 40% from the gun broker platform.

Perfect. Thank you, guys.

Ladies and gentlemen, this concludes our question and answer session. I would like to turn the conference back over to Fred Wagonhals for any closing remarks.

Thank you. And, you know, I know the investors can't see it from where you're sitting, but there's been a big change in this company since Jarrett came on board. In 40 days, we've made a lot of progress. And just watch and see where we go over the next four to six months. Thank you very much. Have a good day, gentlemen.

And thank you, sir. The conference has now concluded. Thank you for attending today's presentation.

You may now disconnect.