Outdoor Holding Company Common Stock 2027 Q1 Earnings Call

Please go ahead, sir. Good morning, thank you for participating in today's conference call.

Joining me from Outdoor Holding Company's leadership team are Steve Urvan, Chairman and Chief Executive Officer, Paul Kasowski, Chief Financial Officer, and Jordan Christensen, Chief Legal Officer and Corporate Secretary. During this call, management will be making forward-looking statements within the meaning of the federal securities laws, including statements that address Outdoor Holding Company's expectations, strategy, future performance, operational results, margins, cost structure, legal matters, capital allocation, and other matters. Forward-looking statements are subject to risks, uncertainties, and other factors that could cause actual results to differ materially from those expressed or implied by such statements.

For more information about these risks and uncertainties, please refer to the risk factors and other cautionary statements described in Outdoor Holding Company's most recently filed annual report on Form 10-K, quarterly report on Form 10-Q, and the company's earnings press release issued in advance of this call. Today's call includes non-GAAP financial measures that the company believes can be useful in evaluating its performance, including adjusted EBITDA. These measures should not be considered in isolation or as a substitute for results prepared in accordance with GAAP. For a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures, please see the reconciliation table located in the company's earnings press release and 10-Q and previously released financial reporting. The information discussed on this call is current as of today, August 10th, 2026.

Except as required by law, Outdoor Holding Company disclaims any obligation to publicly update or revise any information to reflect events or circumstances that occur after this call. It is now my pleasure to turn the call over to Outdoor Holding Company's Chairman and CEO, Steve Urvan.

Good morning, everyone, and thanks for joining us. Over the past year, we substantially stabilized and simplified the company and established a much leaner and more focused operating foundation. The stabilization phase is substantially behind us, but operational improvement is continuous. Our operating philosophy is simple, continuous improvement and disciplined growth. Continuous improvement means operating the business better every quarter, simplifying processes, improving efficiency, applying technology where it creates measurable value, and allocating capital to its highest and best use. Disciplined growth means investing in initiatives that strengthen the platform, expand monetization through value-added services, and create durable long-term shareholder value, not simply by charging customers more, but by making the platform more valuable and monetizing more of each transaction. This quarter demonstrates the earnings power of that philosophy. Four numbers capture the quarter. Net revenues increased 22.1% to $14.5 million, marking our fourth consecutive quarter of year-over-year revenue growth.

Net income from continuing operations improved by $9.4 million, from a $5.9 million loss to income of $3.6 million. Adjusted EBITDA increased 152% to $7.9 million, and operating cash flow improved by $11.1 million, from a deficit of $6.7 million last year to positive $4.4 million this year. Just as importantly, improvement was broad-based. Traffic conversion, average order value, and firearm unit sales all increased while our leaner operating structure converted that growth into meaningful earnings and cash flow. Paul will walk through the financial bridge. I will focus on the three principal operating drivers. First, marketplace productivity. Conversion improved and average item values rose with gains across both new and used products. Firearm units sold increased 11.6% against a 5.3% increase in adjusted NICS. Our FFL-required units represented approximately 6.4% of adjusted NICS, an increase of 41 basis points year-over-year.

That performance indicates that GunBroker.com grew faster than the broader market during the quarter. Second, FFL transfer revenue. The FFL integration launched at the beginning of the fiscal year created a new revenue stream, expanded our dealer network, centralized verification and compliance, and streamlined the transfer process. It contributed meaningfully to both revenue and take rate in its first quarter of operation. Paul will discuss the financial contribution and the initial implementation cost in more detail. Third, Virginia provided a meaningful but temporary tailwind. Buying in Virginia, driven by proposed legislation banning high-capacity firearms, contributed to a meaningful portion of our year-over-year GMV increase. We are not assuming that demand pulled forward into the first quarter will repeat in the second quarter. Enforcement of the new law is currently subject to preliminary injunctions. The litigation continues. Excluding Virginia, GMV still increased approximately $23 million year-over-year, supported by improvements in traffic, conversion, and average order value.

That broader marketplace performance is the more important indicator of the underlying health of the business, despite a slowdown in June velocity. One category worth highlighting before I turn the call over to Paul is silencers and suppressed firearms, where GMV increased approximately 71% year-over-year. Effective January 1, the federal making and transfer taxes were reduced to zero for most NFA items, including silencers, while the application and registration requirements remained in place. We believe the lower transaction cost should support demand in this category, although quarterly growth may be uneven. This remains smaller than firearms overall. With that, let me turn it over to Paul.

Thanks, Steve Irvin. Good morning, everyone. I will walk through the revenue, gross profit, operating expense, and cash flow bridges for the quarter. The results reflect both elements of our operating philosophy, continuous improvement in the way we run the business, and disciplined growth through the marketplace expansion and new service offerings. Starting with revenue, net revenues were $14.5 million, up $2.6 million or 22.1% from $11.9 million in last year's first quarter. That growth primarily came from two areas. About $1.7 million was driven by increased volume across the marketplace, reflected in final value fees and marketplace service fees. An additional $0.9 million came from FFL transfer fees, which began in April and demonstrated our approach to disciplined growth. As a result, revenue outpaced GMV growth in the quarter. The underlying marketplace metrics were also strong. GMV increased 18.1% to $223.7 million.

Average order value rose $33, or 7.5%, to $477. Conversion improved 11 basis points to 1.76%, and first-party engaged sessions grew 2.9%. Our take rate was 6.47%, up from 6.26% a year ago, with FFL fees contributing 39 basis points. Our legacy take rate was 6.08%, down modestly from the prior year. The decrease primarily reflected a larger share of value from our top sellers who qualify for discounted fee rates and an increased average item value, which carry a lower inherent take rate. Growth concentrated amongst our most active sellers and high-value items is a healthy sign. Importantly, the FFL contribution demonstrates our ability to monetize useful services without increasing the base final value fee. Our gross profit was $12.2 million for the quarter, up 18.5%. Gross margin was 84.5% compared to 87.2% last year, a drop of about 260 basis points.

The decline primarily reflected launch of FFL transfer services, including startup and implementation costs incurred early in the quarter that are not expected to recur. Those implementation activities were substantially completed in May. We expect the margin contribution from FFL transfer services to improve as the service scales, with total gross margin stabilizing above 85%. Noted previously, new services may carry lower margin than the legacy marketplace while still providing highly attractive incremental revenue and profit. Operating expenses are where the continuous improvement side of the quarter is most visible. Total operating expenses were $8.9 million, down $7.4 million or about 45% from $16.3 million a year ago. Legal and professional fees fell $3.7 million, mostly because the Delaware litigation, SEC investigation, audit investigation, and the restatement are behind us. Salaries and related costs fell $2.7 million from corporate restructuring.

Stock-based compensation was down $0.4 million. Last year included $0.6 million in one-time sales tax audit expenses that didn't repeat. The decline reflects the elimination of substantial legacy costs and materially lower recurring operating expense. We do not view cost discipline as a one-time restructuring exercise as we continue reviewing our cost structure, simplifying workflows, improving productivity, and reallocating resources towards the opportunities that offer the strongest long-term returns. Putting those elements together, net income from continuing operations was $3.6 million, compared with a loss of $5.9 million last year. This quarter realized over a $9 million improvement in a single year. After the $0.8 million preferred dividend, net income attributed to common shareholders was $2.8 million, or $0.02 per diluted share, compared with a loss of $0.06 per share in the prior year period.

Adjusted EBITDA was $7.9 million compared with $3.1 million last year, an increase of approximately 152%. Quarterly Adjusted EBITDA has grown sequentially every quarter for the past year. $3.1 million, $4.9 million, $6.6 million, $7.7 million, and now $7.9 million. On a trailing 12-month basis, we're at approximately $27 million, which is comfortably above the $25 million annualized run rate goal established last year. The quality of the result also improved. Beyond interest taxes, depreciation, and amortization, our adjustments totaled approximately $0.9 million this quarter, which consisted of $0.6 million of SEC-related costs and $0.3 million of stock-based compensation. Comparable adjustments were approximately $5.6 million last year. The narrowing gap between reported and adjusted performance reflects the normalization of the business. Turning to cash flow and the balance sheet, operating activities provided $4.4 million of cash compared with $6.7 million use of cash last year, an $11.1 million year-over-year improvement.