Business Overview and History

AMMO, Inc., the owner of the leading online firearms and outdoor gear marketplace GunBroker.com, has been undergoing a profound transformation in recent years. Initially known as a vertically integrated producer of high-performance ammunition and components, the company has strategically pivoted its focus towards strengthening its e-commerce presence and diversifying its revenue streams.

Incorporated in 1990 under the name Retrospettiva, Inc., the company was initially formed to manufacture and import textile products, including both finished garments and fabrics. However, it remained largely inactive until December 2016 when its current majority shareholder, Fred W. Wagenhals, acquired a controlling stake. This change in control led to several significant changes, including the company doing business under the name AMMO, Inc. and implementing a 1-for-25 reverse stock split.

The following year, in March 2017, AMMO made a transformative move by acquiring AMMO Munitions, Inc. (formerly PRIVCO), marking the company's transition into its current business operations as a vertically integrated producer of high-performance ammunition and components. This acquisition set the stage for AMMO's growth in the ammunition industry.

Over the next several years, AMMO continued to expand its ammunition production capabilities, adding new manufacturing facilities and developing proprietary ammunition lines such as STREAK VISUAL AMMUNITION and stelTH. The company's revenue grew steadily, reaching $191.4 million in the fiscal year ended March 31, 2023, up from just $62.5 million in fiscal 2021.

In April 2021, AMMO took a major step towards diversifying its business model by acquiring Gemini Direct Investments, LLC, which owned GunBroker.com, the largest online marketplace serving the firearms and shooting sports industries. This strategic move transformed AMMO into a hybrid company, with both a manufacturing segment and a thriving e-commerce platform.

Throughout its history, AMMO has faced various challenges, including navigating the highly regulated ammunition and firearms industries, addressing equipment and production issues at its manufacturing facilities, and integrating and optimizing its diverse business segments. The company has also dealt with legal proceedings, such as a lawsuit filed by one of its directors in 2023 alleging fraudulent inducement in the GunBroker acquisition.

Financial Performance and Key Metrics

AMMO's financial performance in recent years has been marked by both successes and challenges. In the fiscal year ended March 31, 2024, the company reported total revenues of $145.1 million, a 24.2% decrease from the prior year. This decline was largely attributed to changes in market conditions, including decreased demand for ammunition across various segments.

Despite the revenue decrease, AMMO maintained a relatively healthy gross profit margin of approximately 29.4% in fiscal 2024. The company's adjusted EBITDA, a key metric for its profitability, stood at $15.4 million, down from $26.4 million in the previous fiscal year.

On a quarterly basis, AMMO's first quarter of fiscal 2025 (ended June 30, 2024) saw total revenues of $31.0 million, a 9.6% decrease from the same period in the prior year. Gross profit margin for the quarter was 31.6%, compared to 40.9% in the first quarter of fiscal 2024. Adjusted EBITDA for the quarter was $2.0 million, down from $6.6 million in the same period a year earlier.

Navigating Market Challenges and Operational Improvements

AMMO's shift in focus from ammunition manufacturing to e-commerce has not been without its challenges. The company has faced headwinds in its ammunition segment, including decreased demand, production inefficiencies, and rising costs.

To address these issues, AMMO has implemented a series of strategic initiatives. The company has streamlined its ammunition production, prioritizing higher-margin rifle and pistol ammunition while reducing output of lower-margin products. Additionally, AMMO has worked to improve operational efficiency at its manufacturing facilities, with a focus on reducing labor costs, scrap, and quality-related problems.

On the e-commerce front, AMMO has been actively enhancing the functionality and monetization of its GunBroker.com platform. The company has introduced new features such as a multi-item cart, payment processing solutions, and cross-selling capabilities, all aimed at improving the user experience and driving increased sales and revenue.

Furthermore, AMMO has been diversifying its revenue streams within the GunBroker.com ecosystem, expanding into areas such as advertising, financing partnerships, and shipping services. These initiatives are expected to contribute to the platform's growth and profitability in the coming quarters and years.

Risks and Outlook

AMMO's transition from a pure-play ammunition manufacturer to a hybrid e-commerce and manufacturing company has exposed the company to a unique set of risks. The highly regulated nature of the firearms industry, the cyclical nature of ammunition demand, and the challenges of managing both manufacturing and e-commerce operations simultaneously all pose potential risks to the company's future performance.

Despite these challenges, AMMO's management team remains optimistic about the company's long-term prospects. The continued growth and monetization of the GunBroker.com platform, coupled with the company's efforts to streamline its ammunition production, are expected to drive improved financial results in the coming years.

AMMO's guidance for the fiscal year 2025 indicates that the company is focused on strengthening its cash flow, earnings, and value creation trajectory. The recent $75 million sale of its ammunition manufacturing assets to Olin Winchester is expected to accelerate the company's transition towards a more profitable, e-commerce-focused business model.

Financials

AMMO's financial performance has been mixed in recent years. The company's revenue decreased from $191.4 million in fiscal 2023 to $145.1 million in fiscal 2024. Despite this decline, AMMO maintained a gross profit margin of 29.4% in fiscal 2024. The company's adjusted EBITDA for fiscal 2024 was $15.4 million, down from $26.4 million in the previous year.

For the fiscal year 2024, AMMO reported a net loss of $15.6 million. The company's annual operating cash flow was $32.6 million, while free cash flow stood at $24.6 million.

In the most recent quarter (Q1 2025), AMMO reported revenue of $31.0 million, a 9.6% decrease compared to Q1 2024. The company attributed this decline to changes in market conditions and a shift in operational strategy to focus more on higher-margin rifle brass production. Net loss for the quarter was $7.1 million, compared to a net loss of $1.1 million in the same period last year.

Segment Performance

AMMO operates in two main business segments: Ammunition and Marketplace.

The Ammunition segment, which focuses on the design, production, and marketing of ammunition and related products, generated $18.7 million in net revenues for Q1 2025, an 8.2% decrease compared to the prior year period. This decline was primarily driven by a $1 million decrease in sales of bulk pistol and rifle ammunition, as well as a $1 million decrease in ammunition casing sales. Gross margin for this segment decreased to 33.5% in Q1 2025, down from 40.4% in the prior year quarter, due to increased costs for materials, labor, and overhead in the manufacturing process.

The Marketplace segment, which consists of the GunBroker.com online auction platform, recorded $12.3 million in net revenues for Q1 2025, an 11.7% decrease year-over-year. This decline was primarily due to a $1.6 million reduction in auction revenue, payment processing revenue, and shipping income. Despite the revenue decrease, the Marketplace segment maintained a strong gross margin of approximately 85-90%.

Liquidity

As of June 30, 2024, AMMO reported cash and cash equivalents of $50.8 million. The company's recent sale of its ammunition manufacturing assets for $75 million is expected to significantly improve its liquidity position and provide additional resources for its e-commerce initiatives.

AMMO's debt-to-equity ratio stands at 0.041, indicating a low level of debt relative to equity. The company has a $20 million revolving loan facility obtained in December 2023, which has not been utilized as of the reporting date. AMMO's current ratio of 3.17 and quick ratio of 1.87 suggest a strong short-term liquidity position.

Legal Proceedings and Industry Trends

AMMO is currently facing two significant legal challenges. On April 30, 2023, director and shareholder Steve Urvan filed a lawsuit against the company and certain individuals, alleging fraudulent inducement in the sale of GunBroker.com to AMMO. The company plans to vigorously defend against this lawsuit.

Additionally, on January 18, 2024, Innovative Computer Professionals, Inc. dba Digital Cash Processing (DCP) filed a civil action against Outdoors Online, LLC dba GunBroker.com, alleging breach of contract. GunBroker.com denies these allegations and intends to defend against the claims.

The ammunition and firearms industry has faced some volatility, with overall sales declining across the commercial market in recent months, in line with historic seasonality. However, AMMO sees opportunities for growth in certain premium product categories and government/military sales.

Conclusion

AMMO, Inc. has embarked on a transformative journey, transitioning from a traditional ammunition manufacturer to a leading player in the e-commerce space for the firearms and outdoor gear industries. While the company has faced challenges in its manufacturing operations and recent legal proceedings, its strategic pivot towards GunBroker.com and the diversification of its revenue streams have positioned AMMO for potential long-term success.

As AMMO continues to navigate the evolving market landscape, its ability to effectively integrate its e-commerce and manufacturing capabilities, while addressing operational inefficiencies and legal challenges, will be crucial in determining the company's future trajectory. The company's strong liquidity position and focus on higher-margin products provide a foundation for potential growth. Investors will likely keep a close eye on AMMO's progress in executing its strategic initiatives and delivering sustainable financial performance in the quarters and years ahead.