Outdoor Holding Co quarterly report, Q2 FY2022

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Business context and reporting period

The supplied filing is AMMO, Inc.’s Form 10-Q, not a filing for Outdoor Holding Co. It covers the fiscal quarter and six months ended September 30, 2021 (fiscal Q2), with comparisons to the periods ended September 30, 2020. AMMO manufactures ammunition and casings and, following its April 30, 2021 acquisition of Gemini Direct Investments, operates GunBroker.com, an online marketplace.

Financial performance and position

  • Revenue: Q2 revenue was $61.0 million, up from $12.0 million; six-month revenue was $105.5 million, up from $21.7 million. Q2 included $16.8 million of marketplace revenue; six-month marketplace revenue was $29.0 million. The acquisition makes the year-over-year comparison materially different.
  • Profit and margins: Q2 net income was $14.1 million ($0.12 basic and $0.11 diluted per share), versus a $2.3 million loss. Six-month net income was $23.7 million ($0.21 basic and $0.20 diluted per share), versus a $5.4 million loss. Gross margin was 42.9% for Q2 and 42.8% for six months, compared with 10.7% and 10.9%, respectively, in 2020. Adjusted EBITDA, a non-GAAP measure, was $24.0 million for Q2 and $40.3 million for six months.
  • Cash flow: Operating activities used $7.1 million in the six months, despite reported net income, primarily reflecting higher inventory, deposits, and receivables. Investing activities used $55.7 million, including $50.5 million for the Gemini acquisition. Financing activities used $22.6 million. Cash fell by $85.4 million to $32.9 million.
  • Liquidity: Current assets were $111.0 million and current liabilities $43.0 million, for working capital of $68.0 million, down from $133.5 million at March 31, 2021. Inventory was $35.0 million and accounts receivable $39.6 million.
  • Debt and other obligations: The company repaid $50.0 million of Gemini-assumed debt and a separate $4.0 million note. At September 30, it reported $3.1 million of factoring liability, $0.2 million under its inventory credit facility, $1.2 million of related-party notes, and $3.1 million of operating lease liabilities. Contingent consideration payable was $11.3 million, mostly current. The filing also reports $1.1 million of insurance premium notes payable.

Material changes, outlook, and risks

  • Gemini acquisition consideration included $50.0 million cash, repayment of $50.0 million assumed debt, 18.5 million common shares issued, and $10.8 million contingent consideration tied to 1.5 million additional shares. The purchase-price allocation was preliminary; the company recorded $90.9 million goodwill and $143.1 million net other intangible assets.
  • Management attributed improved gross margins to increased sales absorbing fixed manufacturing costs and GunBroker.com’s higher-margin marketplace revenue. It aims to improve gross margins over the next 12–24 months through product mix, marketplace services, automation, and greater production scale. It expects administrative expenses to decline as a percentage of sales in fiscal 2022.
  • Management stated that cash on hand and anticipated alternative funding would be sufficient for operations and intended capital needs for at least 12 months, while cautioning that financing might not be available on acceptable terms or at all. No specific revenue or earnings guidance was provided.
  • The company announced U.S. Department of Defense development and manufacturing contracts for ballistically matched multi-purpose rounds and signature-on-target rounds. Management noted that military, law-enforcement, and international sales can have long sales cycles and exports require approvals.
  • Disclosure controls and procedures were concluded to be ineffective, citing limited accounting personnel, insufficient segregation of duties, and controls that may not be adequately designed or operating effectively. Management nevertheless stated it believed the reported financial information was materially correct.
  • Contingencies include a former employee’s DOL/OSHA administrative complaint and a separate lawsuit with a former employee and related counterclaim; management disputes the allegations. The company reported no other known contingencies at September 30.
  • Series A preferred stock carries an 8.75% cumulative dividend. The company recorded $782,639 of accumulated preferred dividends and paid $337,745 during the period. Subsequent to quarter-end, shareholders approved and the company issued 1.5 million additional acquisition-related shares.

Most important facts for investors to verify

  1. Confirm the filing applies to the intended company: the supplied document identifies AMMO, Inc., not Outdoor Holding Co.
  2. Review the final Gemini purchase-price allocation, acquired intangible valuations, goodwill, and contingent share consideration.
  3. Assess cash conversion and working-capital demands, especially receivables, inventory, deposits, and factoring use, against management’s liquidity outlook.
  4. Evaluate the disclosed ineffective controls and any subsequent remediation, as well as potential dilution and the ongoing preferred dividend burden.
  5. Check the status and potential financial impact of the disclosed employee-related legal matters and the timing and economics of defense-contract opportunities.