AMMO, Inc. — Form 10-Q Summary
Issuer and period: The supplied filing is for AMMO, Inc., not Outdoor Holding Co. It reports the three months ended June 30, 2021, AMMO’s fiscal first quarter of 2022; the comparable period is the three months ended June 30, 2020. The filing was signed August 16, 2021.
Business context and material developments
AMMO manufactures and sells ammunition and ammunition casings. On April 30, 2021, it acquired Gemini Direct Investments and its subsidiaries, including GunBroker.com, an online marketplace for firearms, hunting, shooting, and related products. Results include GunBroker.com from the acquisition date. The company reports Ammunition and Marketplace operating segments.
Financial results
| Metric | Three months ended June 30, 2021 | Three months ended June 30, 2020 |
|---|---|---|
| Revenue | $44.5 million | $9.7 million |
| Gross profit / margin | $19.0 million / 42.7% | $1.1 million / 11.1% |
| Operating income (loss) | $9.7 million | $(2.8) million |
| Net income (loss) | $9.5 million | $(3.1) million |
| Net income (loss) attributable to common shareholders | $9.2 million; $0.09 basic and $0.08 diluted per share | $(3.1) million; $(0.07) per share |
| Operating cash flow | $8.7 million provided | $1.8 million used |
| Investing cash flow | $52.2 million used | $0.5 million used |
| Financing cash flow | $23.8 million used | $2.4 million provided |
Revenue increased about 360% year over year, driven by approximately $12.3 million of Marketplace revenue and higher standard ammunition sales. Marketplace contributed $7.4 million of operating income, versus $2.3 million from Ammunition. Management attributed higher gross margin to increased sales and the Marketplace’s higher-margin business model. Reported Adjusted EBITDA, a non-GAAP measure, was $16.3 million, versus a loss of $0.3 million; it should be considered alongside GAAP results.
At June 30, cash was $51.0 million, down from $118.3 million at March 31. Current assets were $106.2 million and current liabilities $42.7 million, resulting in working capital of $63.5 million. Total liabilities were $45.8 million. The balance sheet showed $1.1 million of factoring liability, $0.3 million drawn on the inventory credit facility, related-party notes totaling approximately $1.3 million, and $2.8 million of operating lease liabilities. The $50 million of Gemini-assumed debt was repaid at acquisition closing.
Acquisition, funding, and other notable items
- Gemini consideration included $50 million cash, repayment of $50 million of assumed debt, 18.5 million common shares issued, and $10.8 million of contingent consideration for 1.5 million additional shares subject to stockholder approval. Preliminary purchase accounting recorded $91.0 million of goodwill and approximately $146.6 million of intangible assets; the allocation remains subject to change.
- The company raised $35 million gross from its Series A preferred-stock offerings. The preferred stock carries an 8.75% annual cumulative dividend, payable when declared, and ranks senior to common stock for dividends and liquidation distributions. Preferred dividends of $337,745 accumulated during the quarter.
- Common shares outstanding increased to 113.0 million from 93.1 million at March 31, principally reflecting acquisition-related issuance and other stock issuances.
- Inventory rose to $27.9 million from $15.9 million; accounts receivable rose to $23.8 million from $9.0 million. Operating cash generation was partly offset by inventory investment.
Outlook, risks, and contingencies
Management said its fiscal 2022 focus is growing sales through expanded distribution, new products, strategic relationships, and commercial, government, law-enforcement, and international markets. It aims to improve gross margins over the next 12–24 months through product mix, Marketplace services, automation, and higher production. Management expects administrative expenses to decline as a percentage of sales. These are directional statements, not quantified financial guidance. It noted that military, law-enforcement, and international sales can have long sales cycles and exports require regulatory approvals. Management stated that cash, operating cash flow, borrowings, and equity or debt financing should be sufficient for at least the next 12 months, but said future financing may not be available on acceptable terms or at all.
Disclosure controls and procedures were concluded to be ineffective due to limited accounting personnel, inadequate segregation of duties, and controls that may not be adequately designed or operating effectively. The filing describes a former employee’s DOL/OSHA investigation and related litigation, including a counterclaim; management disputes the allegations and intends to defend the company. No other known contingencies were reported at June 30. Customer concentration was notable: two customers represented 19.8% and 11.3% of quarterly revenue. The company also reported bank balances above FDIC-insured limits and approximately $22 million of tax net operating loss carryforwards subject to a full valuation allowance.
Important facts for investors to verify
- Confirm the issuer mismatch: the supplied filing is AMMO, Inc.’s 10-Q, not an Outdoor Holding Co filing.
- Track GunBroker.com’s post-acquisition revenue, operating contribution, cash generation, and integration costs; the quarter includes it only from April 30.
- Review final acquisition valuations and any changes to the preliminary goodwill, intangible-asset, and contingent-consideration amounts.
- Assess liquidity and working-capital needs, particularly inventory growth, factoring usage, and the substantial cash decline during the quarter.
- Monitor dilution and the preferred stock’s cumulative dividend obligations, as well as the company’s ability to remediate its ineffective controls.
- Follow the legal matters, customer concentration, and the timing and outcome of prospective government and export sales.