Filing summary
Entity mismatch: The request identifies Outdoor Holding Co, but the supplied Form 10-Q is for AMMO, Inc. (Nasdaq: POWW/POWWP). The summary below covers AMMO, Inc.; verify that this is the intended filing.
Business context and reporting period
This unaudited Form 10-Q covers the quarter and nine months ended December 31, 2021. AMMO’s fiscal year ends March 31, making this fiscal 2022 third quarter. The business combines ammunition and casing manufacturing with GunBroker.com, an online firearms and related-products marketplace acquired on April 30, 2021.
Key financial metrics
| Metric | Three months ended Dec. 31, 2021 | Three months ended Dec. 31, 2020 | Nine months ended Dec. 31, 2021 | Nine months ended Dec. 31, 2020 |
|---|---|---|---|---|
| Revenue | $64.7 million | $16.6 million | $170.2 million | $38.3 million |
| Gross profit | $22.5 million | $3.3 million | $67.7 million | $5.7 million |
| Gross margin | 34.8% | 20.1% | 39.8% | 14.9% |
| Operating income/(loss) | $10.6 million | $(0.4) million | $34.5 million | $(4.9) million |
| Net income/(loss) | $9.1 million | $(1.9) million | $32.7 million | $(7.3) million |
| Net income/(loss) attributable to common shareholders | $8.3 million | $(1.9) million | $30.8 million | $(7.3) million |
| Basic EPS | $0.07 | $(0.04) | $0.28 | $(0.15) |
- Revenue mix: For the quarter, ammunition sales were $44.1 million, marketplace revenue was $17.6 million, and casing sales were $3.0 million. For the nine months, the respective amounts were $112.6 million, $46.6 million, and $10.9 million.
- Cash flow: Nine-month operating cash use was $3.6 million, investing cash use was $63.3 million, and financing cash use was $24.0 million. Cash fell by $90.9 million from March 31 to $27.4 million at December 31.
- Liquidity: Current assets were $123.5 million and current liabilities were $35.6 million, giving working capital of $87.9 million. The filing reports working capital of $133.5 million at March 31, 2021.
- Debt and obligations: Reported balances included $4.1 million of factoring liability, $0.2 million under the inventory credit facility, about $1.0 million of related-party notes, and $2.8 million of operating lease liabilities. Total liabilities were $40.1 million. The $4.0 million note payable outstanding at March 31 was repaid during the period.
- Capital and assets: Total assets were $411.2 million, including $90.9 million of goodwill and $139.7 million of other intangible assets, largely associated with the Gemini acquisition. Shareholders’ equity was $371.1 million. AMMO had issued 1.4 million Series A preferred shares carrying an 8.75% cumulative dividend.
- Non-GAAP measure: Adjusted EBITDA was $20.1 million for the quarter and $60.5 million for the nine months, compared with $2.4 million and $3.3 million, respectively, in the prior-year periods. The filing cautions that this measure is supplemental and excludes, among other items, stock compensation, depreciation and amortization, and working-capital requirements.
Material changes versus prior comparable periods
- Revenue increased 289% for the quarter and 344% for the nine months, reflecting higher ammunition sales and the addition of GunBroker.com, which contributed $17.6 million and $46.6 million of revenue in the respective periods.
- AMMO moved from operating and net losses to profit. Management attributed improved gross margins to increased sales covering more fixed manufacturing costs and to the marketplace’s higher-margin contribution.
- Operating expenses rose to $11.9 million for the quarter and $33.2 million for the nine months. Management attributed the increase primarily to Gemini-related costs, including additional depreciation and amortization, as well as higher commissions, payroll, insurance, and professional fees.
- Working-capital investment increased substantially: at December 31, accounts receivable were $45.7 million and inventory was $46.5 million, compared with $9.0 million and $15.9 million, respectively, at March 31.
- AMMO acquired Gemini for a mix of cash, assumed debt, stock, and contingent consideration. The preliminary purchase-price allocation included $90.9 million of goodwill and $146.6 million of acquired intangible assets; management said the allocation remained subject to change.
Outlook, risks, contingencies, and unusual items
- Management said it aims to grow sales through expanded distribution, new products, and commercial, law-enforcement, military, and international markets. It cited a goal of improving gross margins over the next 12 to 24 months, with proprietary ammunition, marketplace services, automation, and higher production among the planned drivers. No specific revenue or earnings guidance was provided.
- Management expects existing working capital, cash, financing, and equity-market access to fund operations for at least the next 12 months, but cautioned that financing may not be available on acceptable terms or at all.
- Military, law-enforcement, and international opportunities may involve long sales cycles. Export sales require U.S. regulatory licenses and approvals. The company disclosed two U.S. Department of Defense development/manufacturing contracts announced in 2021.
- Disclosure controls and procedures were deemed ineffective because of limited staffing, inadequate segregation of duties, and controls that may not be adequately designed or operating effectively. Management nevertheless stated that it believed the reported financial information was materially correct and fairly presented.
- A former employee’s Department of Labor/OSHA matter remained under administrative investigation; AMMO disputed the allegations. A separate lawsuit with a former employee was resolved confidentially in December 2021 and dismissed with prejudice. Management reported no other known contingencies at December 31.
- Customer concentration was notable: for the nine months, two customers each represented more than 10% of revenue; at December 31, two customers represented 30.1% and 12.2% of accounts receivable, respectively. The filing also disclosed that bank balances exceeded FDIC-insured limits.
- The board authorized a common-stock repurchase program of up to $30 million, expected to commence after the report’s disclosure and filing. The filing states an authorization date of February 7, 2021; verify that date and the program’s current status.
Most important facts for investors to verify
- Confirm the issuer identity: this filing is AMMO, Inc., not Outdoor Holding Co.
- Assess whether operating cash generation can improve as receivables, inventory, and deposits absorb cash; reconcile reported earnings with negative operating cash flow.
- Review the final Gemini purchase-price allocation, acquired intangible valuations, goodwill, and related amortization burden.
- Verify the status and terms of factoring and other credit facilities, preferred dividends, construction financing, and the announced $30 million repurchase program.
- Evaluate the remediation plan and progress for the disclosed ineffective disclosure controls, alongside customer concentration and pending legal matters.