Greetings, and welcome to the Byrna Technologies Fiscal Year-End 2021 Earnings Conference Call and Webcast. As a reminder, this conference call is being recorded and all participants are in a listen-only mode. Before turning the call over to Bryan Ganz, Byrna 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 Byrna’s most recent 10-K and 10-Q filings for a more complete description of risk factors that could affect these projections and assumptions. The company assumes no 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.byrna.com, for further information regarding forward-looking statements and reconciliations of non-GAAP results to GAAP results. I will now turn the call over to Mr. Bryan Ganz. Thank you, sir. Please go ahead.

Thank you very much. Good morning, everyone. Thank you for joining us for Byrna’s 2021 fourth quarterly and full year earnings call. David North, and I, will be discussing our Q4 and full year 2021 results. And I will also be taking this opportunity to update everyone on our progress to date this quarter. During 2021, Byrna achieved a number of significant milestones. We beat our quarterly and yearly guidance for fiscal year 2021, posting Q4 sales of $11.2 million, and full year 2021 sales of $42.2 million. While this was only slightly higher than the same period last year, up just 1.2%, orders received during the quarter increased by 57.4% to $12 million, up from $7.6 million in fiscal year 2020, as the Q4 2020 results included fulfillment of $3.4 million of orders received in prior quarters. This order flow was driven by increased brand awareness, as evidenced by the almost 2 million web sessions on Byrna.com during the fourth quarter, up from 1.6 million web sessions in Q3, and just 800,000 web sessions in Q4 2020. For the year, Byrna.com had 6.15 million total web visitors, resulting in 88,400 orders, totaling $29.5 million in e-commerce orders. E-commerce sales for the year were $31.7 million, as Byrna came into the year with several million dollars of backlog. Byrna started selling on amazon.com late in Q3. And for the year 187,000 people visited our store in Amazon, resulting in 3,600 orders and $875,000 in sales. In 2021, dealer sales totaled $5.5 million, as Byrna kicked off its dealer program in earnest. We also started selling to law enforcement in fiscal year 2021, training over 200 agencies, and booking over $550,000 in sales. On the new product development front, Byrna commenced in-house production of our payload ammunition, including Byrna Pepper, Byrna Max and Byrna Pro Training. This is a critical milestone, as this move significantly reduces the risk of supply chain disruption, and ensures the quality of the Byrna product. I also have to say, it was a major technical accomplishment, and without doubt, Byrna now produces the finest chemical irritant projectiles on the planet. In conjunction with the development of the Eco-Kinetic rounds in Q3 of last year, the only truly environmentally-friendly round in the market, Byrna has established itself as the premier innovator in this space. Now, I'd like to hand the call over to David to discuss our fourth quarter and full year financial performance, and then I'll come back on to discuss recent developments in more detail, and to take questions. David?

Thanks, Bryan, and thanks, everyone, for joining us today. Now, I'd like to review the financial results for the fiscal fourth quarter and for the full year ended November 30th, 2021. Revenues for the fourth quarter of 2021 were 11.2 million, a slight increase compared to the $11.0 million in last year's fourth quarter. However, as Bryan mentioned, orders received during the quarter increased substantially, up 57.4% to $12.0 million this quarter, from $7.6 million in the fourth quarter of 2020, when sales included the fulfillment of $3.4 million of back orders received in prior quarters. Gross profit increased by 16.4% to $5.7 million from $4.9 million. And last year's fourth quarter gross margin improved to 51.1% from 44.4% in last year's fourth quarter. However, while there was significant year-on-year improvement, this was lower than in the previous two quarters when gross margin was over 56%. Our cost of sales is negatively impacted by significant increases in international shipping costs, which reduced gross margin nearly 2%. Year-end holiday promotions and liquidation of Byrna HD inventory, reduced fourth quarter gross margin further, each by approximately 2%. Operating expenses rose to $8.8 million in the fourth quarter of 2021, from $6.2 million in the fourth quarter of 2020, and from $6.7 million in the third quarter of this year. Part of the increase over the third quarter, $0.25 million, was due to variable costs on higher sales volume. However, the main drivers of the increase in operating expenses this quarter were twofold. First, we incurred $1.3 million in one-time severance expenses, about $700,000 of that being non-cash stock compensation, to eliminate highly compensated positions. Second, as part of a strategic campaign to promote growth and brand awareness, advertising spending was increased by just over $1 million. For the combined result of the…

Thanks, David. Let me get right into the elephants in the room, which is the revision of our full year guidance and the reduction of our Q1 sales projections, which we announced in the press release this morning. As I'm sure everyone knows, in our earnings release, we reduced our Q1 guidance from $11 million to $11.5 million, down to $8.4 million to $9.2 million. And we reduced our full year guidance from $60 million to $65 million, down to $55 million to $60 million. First, why such a wide range for our Q1 numbers? After all, we were only three weeks out from the end of the quarter. The reason is simply that we have close to $700,000 in international orders where we’re waiting for export permits from the South African government. We hope that we will receive the necessary paperwork prior to the end of the quarter. However, it's beyond our control. Additionally, we have an initial stocking order of approximately $350,000 from a new chain store customer in the US, where we are waiting for shipping instructions. This is a large national chain with more than a hundred locations that we are extremely excited to get started with. However, we do not know if this order will ship this quarter or next quarter. And as soon as we get the go ahead to ship, we will be announcing the name of this new retail partner. Even at the top end of the range, however, we are $2 million below consensus. So, what happened? As everyone knows, the world is in the grips of a global supply chain crisis. And unfortunately, Byrna has not been exempt from the effects. As a result of production problems with suppliers and shipping delays exacerbated by lost shipments, damaged shipments, we have…

Thank you [Operator Instructions] Our first question today is coming from Brian Gesuale of Raymond James. Please go ahead.

Hey, good morning, and appreciate all the detail on the call. Bryan, I wanted to maybe flesh out the expenses and gross margins a little bit throughout the year. Can you talk about maybe the gross margin kind of entry point and exit point as we think about the year and some of the things that are transitory and maybe enduring from an expense side of things? And then - and also with that, can you talk about maybe OpEx dollars, what your run rate is you think going forward versus where you're kind of currently running at, and how much we should model that, up, flat, or down based on how you feel about the business right now?

Okay. Let me take the gross margin question first, and then I'll have David discuss the OpEx run rate. I've been very, very clear from the beginning that we think our terminal gross margin is going to be in the 65% to 70% range, and I see no reason to change that projection. We have - David said we had an increase of 2%, but that increase - for freight, but that increase was on top of what had already been very, very high freight costs. Just as a very quick example. We make certain products that cost us several pennies to produce, but we end up paying more than $0.15 to ship them by air freight to the US. This week, we actually put 500,000 rounds of ammunition in a container coming to the US by ocean freight. This will reduce our freight from more than $0.15 a round, to much less than $0.01 a round. So, a lot of the freight costs that we've been incurring are due to the fact that every single component and product that we've moved, has gone by air freight since the inception of the company. By being able to get ahead of production, and we've been able to get ahead of production on the ammo side, because we've now brought this in-house, but being able to get ahead of production, allows us to take much more efficient means of moving the product. So, that will - that alone is going to have a significant improvement on margins. The new product that we will be producing, will also have a significant improvement on margins. So, we believe that over the next, I don't know, 18 months, we will start to get closer to that 65% gross profit margin level. David, can you talk about what we're looking at for ongoing sort of structural OpEx?

Sure. And forgive me in that I want to be careful about giving forward-looking guidance that we haven't already given. So, I don't want to talk about specific quarterly numbers. But I would point out that this quarter’s operating expenses, had at $1.3 million in severance, which is a one-time kind of a cost that we don't expect to keep going forward. But it also had $1 million more than the prior quarter in discretionary marketing expenditure. And we do expect that to keep going forward. We expect to be investing about $1.5 million a quarter in discretionary marketing. And that would be an increase over the run rate that we've had this year. So, yes, I think that you can model from that, those are the main changes this quarter to what our run rate is.

Yes. And I think in terms of just what I think about as structural OpEx, we don't see any significant changes this year from the run rate in the second half of last year. As I said, we doubled the workforce in 2021 from 2020, but that didn't all happen on January 1. That happened over the course of the year. By the time we got to Q4, we were pretty much running at what we think is going to be a stabilized run rate. Now, keep in mind, there are certain expenses that are variable. As David mentioned, we probably had $300,000 of additional Q4 expenses related to credit card processing fees and freight and …

Volume based.

Yes, that are just volume based, and those will go up. But we have a pretty good management team now. We don't see any significant additions to that that would really drive overheads.

Yes. Those are the main factors I think you should take into account. What Bryan was really, I think, saying there structurally is, if you look at a company like us and our operating expenses, the real core of our structural costs is people related. it's our headcount and so on. And we aren't planning any significant changes there. We've got a crew that will take us through the coming year without big increases in that structure. And then underlying that, there are other kinds of service fees, consultants, and legal and so on. And we have increases that we expect will have - and then we also have cost-saving measures that we expect we’ll have in there that I think will even out. I think the main change that we're going to see, and we've been talking about this for quite some time, is the increase in discretionary spending and marketing that you have seen the full effects of in this fourth quarter.

Okay. That's real helpful. Maybe if I can just sneak in a quick follow up to that specifically, and then move on to another topic. The plant shutdowns, is there anything that we should think of from an uptick in manufacturing cost as you have the supply chain wrinkles figured out? And then I guess maybe if you could share on my next question, any lessons learned from marketing and maybe an update on how the billboard campaign is going.

In terms of the impact of the lower volumes on production costs, clearly, we expect to see some negative variances as a result of being below plan. That said, we also expect to see some savings from production efficiencies. So, I don't know where the variances will come out for this quarter, but wherever they are, I don't see that as an issue on forward-going quarters. And Brian, what was the second question, second part of your question?

Yes. I just wanted to get an update on maybe some lessons learned from marketing, things that are working specifically, and then also just thoughts on how the billboard campaign is going and what you've learned from that with a little bit more data.

We just started - we just rolled out also the television campaign, both linear, in other words, subscriber-based, and also what's called OTT, campaigns. And we look at that and the billboards kind of in the same way as very top of funnel campaigns to get the Byrna brand out to people that have not heard of it. I will tell you that both campaigns have been extraordinarily effective. We are doing these campaigns in test markets. And what we're finding is with both campaigns, that when we look at the number of web sessions, in other words, the number of people that are going to visit byrna.com, in the period of time that we're running either the billboards or the television campaigns, they are up markedly, hundreds of percent. So, we know that these campaigns are effective. The issue that we have right now is that they're also expensive. So, we’ve been talking to both the billboard company and the provider of the television advertising to see, how can we get the cost of these ads down? Because we know that they're working. Right now, of course, we're paying top dollar because we're in very few markets. we're not getting any sort of volume discounts. We're not getting any sort of discounts for longer-term commitments. We've been told that we can probably get the cost of these campaigns down by as much as 50%. If we can get the cost of these campaigns down by 50%, we'll be looking at ROAS numbers, return on advertising spend, well above our targets. Right now, despite what has been very effective, the campaigns are not showing ROAS numbers that meet our targets. But again, we're in the sort of early stages of understanding what works and what doesn't work. The print media campaign has been extremely effective. We're seeing ROAS numbers very far above our targets. But again, we're somewhat limited with where we can advertise. Not every periodical magazine will allow us to show a picture of the launcher. And that's, of course, the significant challenge with all of our advertising. We're on television channels and shows that will allow us to actually show the picture of the launcher. We're running the video that aired on the Hannity Show two years ago that shows the sort of an animated video of how the Byrna works, and that's been great. On the billboards, again, we can show the video, and that's been very effective. So, I think as we go down this road, we just need to figure out how we do this less expensively.

That's great. And last one, and then I'll jump back into the queue. Can you talk about the contributions, both in the quarter and how we should think about ‘22 for the acquisitions of Mission Less Lethal and Ballistipax?

Part of the issue that we have with production, rolls over to the Mission Less Lethal. We were selling 10 Mission 4s a day at $1,000. That was $10,000 a day every day, until we ran out of product. And we have an order in with Kore, who was the company that we bought Mission Less Lethal from, for 2,400 launchers, 400 a month, which has not been filled. Now, they're dealing with the same supply chain issues that we're dealing with, but that's certainly had a very negative impact on our sales in this quarter. And I think that will continue into Q2. The TCR, which we think is going to be the most significant shoulder-fired launcher, because it is a very easy point-to-shoot launcher, the first 200 of those, are being shipped to the Spokane Sheriff's department. Those will go out this month, but we only have enough parts to make, I think, another 100. And again, this is something where we're trying to produce, in my opinion, 1,000 a month. And this is going to retail at $699. So, we expect significant contribution from the Mission launchers, but again, you can't sell from an empty basket. So, we're dealing, and Kore is dealing with the same supply chain issues that we've been having. Now, we are taking over production of the TCR sales, but that means we have to build all of these molds, get vendors up to speed on all of the components. The TCR launcher has more than 150 components.

Great/ that's good. Yes, I appreciate that. Thanks for all the color.

Thank you [Operator instructions] Our next question is coming from Jeff Van Sinderen of B. Riley. Please go ahead.

Okay. Thanks for taking my question. Hi, everyone. So, a little bit of an oversimplification here, but Bryan, as you think about it, is it fair to say that the long-term picture for Byrna sales and margins really has not changed, but that the near-term metric outlook has changed predominantly due to supply chain?

Yes, I think that's very fair. Jeff, I remain convinced that we're just scratching the surface of the market. There are two sort of countervailing trends that both are working in Byrna’s favor. One is, despite the drop in NICS checks recently, there are still enormous number of first-time gun buyers. Over the last two years, 13.8 million people bought a firearm for the first time, meaning that there were 13.8 million people that were so concerned for the safety of themselves and their family and their community, that they were willing to purchase a lethal weapon to protect themselves. What percentage of those 13.8 would have bought a Byrna had they known about Byrna? At 10%, that's 1.38 million, or 10 times the total number of orders we've sold since inception. So, again, we're focused on advertising because we need to get people to know about this option. So, yes, I think that the growth narrative remains intact. We think that this is a billion plus dollar market. And it's just a question of, how long is it going to take to get there? So, we've got tailwinds in terms of people are concerned. there's also a tailwind because people are concerned about gun violence. So, they're looking to protect themselves, but at the same time, they're looking for a non-lethal way to do it. So, although it is an over-simplification, I do believe this is more an issue of timing rather than end result.

Okay, thanks for that. And then just if we can turn back to Amazon for a minute, and I understand it's tough to know on this, but is there anything you can point to that might explain Amazon potentially slower demand? Or do you think maybe it's simply more a result of lack of stock there and the Amazon algorithms? I guess, in other words, why would trends on Amazon diverge from trends you're currently experiencing on your own website, which, I think is kind of what you’re telegraphing is happening?

Yes. Look, we have some very, very capable people running the Amazon program for us at Byrna, that have been doing this for a long time. And I asked them the same question that you're asking me. specifically, what do you think we would have done if we didn't have any supply chain constraints? So, we had projected for the quarter, $1.7 million, and they came back and they said, look, we think the shortfall was essentially $300,000 in terms of lower demand, but the other $500,000 was in terms of being out of stock. They believed that we would have done $1.4 million had we been in stock. So, that's why we took the year of projection down from 9.9 to 7.5, because the growth is a little bit slower, but that would still be substantial growth over the less than $1 million we did last year.

Okay, that's helpful. And then just wanted to, I guess, sort of go back to the supply chain for a minute. in terms of the reasons your suppliers are giving you for the - I know everybody's got supply chain problems, it seems like these days, almost - seems like almost no one is unscathed. But just in terms of the reasons your suppliers have given you for lower production, we talked about the Christmas holidays, Chinese New Year. And then anything you can give us on kind of which components are impacted. Do you think this is - a lot of this is just due to the Omicron surge in early part of the year? And then maybe you could just touch on the plans to get to that 100% supply chain redundancy you kind of - I guess what the milestones are you're looking at for this year.

Okay. Look, I believe that this is more a freight and logistics issue than it is a production issue. So, just as we have been shut down because we don't have products, our suppliers have been shut down because they don't have product. So, it just rolls downhill. Now, one of the things that we were discussing here at Byrna the other day is, why are we having so many lost and damaged shipments? So, we're having lost and damaged shipments from first class carriers like UPS. We have shipments - it's sort of endemic how many lost and damaged shipments we have. And we think that this relates back to just the general worker shortage. So, you've got a lot of people in the freight system that are new, that don't know what they're doing, that are not taking the care in moving packages that historically well-trained employees did. So, to that extent, I do think that this is somewhat of an ongoing problem. I think it'll get better, but it's going to take some time for these newer employees to really get up to speed.

And then I think that the freight and shipping aspect of this crisis is also part of our cost problem. The costs, especially in the fourth quarter, and especially on international freight, have really gone up significantly. And that sort of touches back on an earlier question about, where do we see the gross margins and cost of sales going? I think - the other, I think, impression that I have of it is that it's not getting worse. It's a question of when it's going to get better.

Yes. And look, I don't think any of our suppliers are intentionally short-changing us. We like our suppliers. We think we have great suppliers. They're bemoaning the same issues that we're bemoaning, which is, they don't have supply of the inputs that they need. But as David said, I think it's getting better. Certainly, with the end of Omicron and getting past these Christmas and Chinese New Year shutdowns, will help. But I don't think it's going to be a V-shaped recovery. I think that the improvement in the supply chain will be a process.

Okay, that's helpful. And then if I could just squeeze in one more. I just wondered if it's possible, if you have any more color you could share in terms of projectile sales, kind of what you're seeing there.

The projectile sales remained very strong. I think the most interesting thing for us is the widespread acceptance of the Eco-Kinetic rounds. So, this was really honestly kind of a pet project for me. I was concerned, even in my own backyard, how many pieces of plastic I was leaving, and I really wanted to come up with a solution to this. We didn't know how it would be embraced. This was initially intended to be only for consumers practicing in their backyard. As it turns out, this is even being used now for law enforcement for their training programs. So, this has been a very big, big success. When I mentioned that we just put a half a million rounds on the market - on the ocean, that was a half a million Eco-Kinetic rounds, and we're producing these currently at the rate of a half a million a week. Now, that's a little bit ahead of our sales of Eco-Kinetics, but it will help us build up enough inventory so that we'll be able to meet demand. But the split between ammo and launchers this first quarter is skewing very heavily to ammo for one reason, we haven't had enough launchers. So, we're seeing AOVs, average order values, decline a little bit because we're getting a lot of return customers that are buying ammo. So, I would expect when we report Q1 numbers, that we'll see a larger percentage of ammo versus launchers than we've shown historically.

And I would point out, there's a really important implication to which - well, Bryan just said, about the acceptance and popularity of the Eco-Kinetic round. We have maintained that what we have is a razor, razorblade model, where you buy a launcher and then you come back for ammunition, and the ammunition is very high margin. And we have pointed out that ammunition accessories have been about 25% of our sales and have been fairly steady there, because sales are growing rapidly. The thing about the Eco-Kinetics is, you buy Eco-Kinetics for practice recreation and training. In other words, that is the razor - the disposable razor blade. That's what you're buying, not just to have it in your magazine for self-defense uses, but for ongoing consumption. And the fact that this is popular and selling well, shows that that yes, that is what people are doing. They are intending to continue consuming ammunition and for recreational purposes.

Thank you, David. That was a very good point.

Good point. Thanks for taking my questions and best of luck for the remainder of the quarter.

Thank you. ladies and gentlemen, this brings us to the end of our question-and-answer session. I would like to turn the floor back over to management for any additional or closing comments.

I just want to thank everybody for their support. Obviously, it's been tough the last couple of months, but I've been doing this for 40 years, and we know these things go in cycles. As we said to Jeff, we don't think anything has changed in terms of our long-term view of the opportunity. We do think that Byrna is benefiting from the fraying of the social fabric and the civil unrest and people being concerned, and at the same time, the sort of anti-gun violence movement. the market is extremely large, and we're looking at this over the long term. we're playing the long game. We think we're in the very early innings and that over time, we do see the opportunity to drive sales significantly north of where they are now as we gain greater brand recognition and get into new markets. In any event, I want to thank everybody for their support, and as always, happy to take questions and speak to analysts if they would like. So, thank you very much. And with that, we'll conclude the call.

Ladies and gentlemen, thank you for your participation and interest in Byrna Technologies. You may disconnect your lines or log off the webcast at this time and enjoy the rest of your day.