AXIL Brands, Inc. 2027 Q1 Earnings Call

Good afternoon, and thank you for joining us for AXIL Brands' first quarter 2027 financial update and earnings conference call. I'm Peter Seltzberg, working with the team here at AXIL, and we're excited to get back in front of our shareholders with the first quarter 2027 update. Before we begin, I'd like to remind everyone that certain statements made during today's call may constitute forward-looking statements and are subject to risks and uncertainties that could cause actual results to differ materially from those projected. Please refer to our filings with the Securities and Exchange Commission for a discussion of these risks and other important factors, as well as an explanation of any non-GAAP items that we may refer to in today's press release and on this call. Presenting on behalf of management today are Jeff Toghraie, AXIL's Chief Executive Officer, and Jeff Brown, AXIL's Chief Financial Officer.

We will begin with prepared remarks and then open the line for Q&A. Thank you for the questions submitted in advance. You can continue to send questions during the call to investors@goaxil.com and we will add them to the queue. With that, I'll turn the call over to Jeff Toghraie, AXIL's Chairman and Chief Executive Officer.

Good afternoon, and thank you for joining us. I am pleased to discuss our results for the 3 months ended August 31, 2026, and the direction we see in AXIL's business at the start of the new fiscal year. We are more constructive on the business than we have been at any point. We see several milestones ahead that we believe will serve shareholders well. In the first quarter, we remained profitable, continued to fund the business from operations, and ended the quarter in the strongest cash position in our history. Operations provided $3.8 million, compared with the use of $739,000 a year ago. We closed August 31 with $7.9 million of cash, or approximately $0.96 per diluted share, up from $4.5 million on May 31, and remain debt-free.

That is the position from which we intend to fund the next phase of growth, including the XCOR II launch. For those less familiar with the product, XCOR II is our next-generation flagship wireless platform. It carries our most advanced active noise reduction and our most immersive soundstage to date. The transition to XCOR II is the context for the quarter. Turning to the quarterly results, sales were $6.1 million, down 11.2% from $6.9 million a year ago. Two items explain the comparison. The first is the shift from XCOR I to XCOR II. During the quarter, XCOR I orders slowed while customers prepared for the next-generation launch. Direct-to-consumer in hearing was down less than 1%. The other side of that transition is already visible.

XCOR II has produced the strongest early demand of any AXIL product to date, and demand remains healthy across retail, distribution, and direct to consumer. Those figures are orders, not revenue. On August 26, we announced initial orders of more than $2.8 million. By September 30, that order book had grown to more than $3.6 million. Those figures are orders, not revenue. The product became available on September 15, and the majority of those orders have shipped and will be recognized in the second quarter, with the remainder expected to ship in October. Although orders can be canceled or returned, and this is not a guarantee of revenue, we expect that demand to begin showing up in revenue this quarter and in the periods that follow. The larger factor is the timing of orders from our retail partners.

Last year's first quarter included a significant big box order that did not repeat this quarter. Our relationships with major retail chains continue to expand, and follow-on purchase orders have continued to come in. Those partners buy on their own shelf and promo calendars, so the timing of any one order sits outside our control. As we said in August, retail coverage is still early, and one order can move a quarter. We expect that effect to moderate as the footprint deepens. That is a coverage issue, not a demand issue. In our observation, this channel is better judged over two to four quarters than by any single quarter comparison. Jeff Brown will now take you through the financials.

Thanks, Jeff. I will cover revenue and mix, gross margin, and the IEEPA refunds, operating expenses and profitability, a brief Reviv3 accounting note, then cash flow and the balance sheet. Consolidated retail and wholesale revenue was $2.2 million, or 35.5% of net revenues, compared with $2.9 million, or 42.5% a year ago. Direct to consumer was $3.9 million, or 64.2%, compared with 57.5%. The Hearing Enhancement and Protection segment generated $5.8 million, down 12.4%. Within that, retail and wholesale were $1.9 million, down 29.2% from $2.7 million, and direct to consumer was $3.85 million, down less than 1%. Reviv3 and Sharper Vision marketing together generated $328,000, or roughly 5% of net revenues. No customer represented more than 10% of net sales or more than 10% of gross receivables at quarter end. Gross profit was $5 million, up 8.6%. Reported gross margin was 82.6%, compared with 67.6% a year ago.

We collected $907,000 from US Customs and Border Protection, including interest. Of that, $551,000 related to duties on goods already sold and was recognized as a reduction of cost of revenues. $321,000 related to goods still in inventory and reduced inventory on the balance sheet. The remaining $35,000 was interest and is in other income. No IEEPA refund claims remain outstanding. Excluding the $551,000 cost of revenues benefit, gross profit would've been $4.48 million and gross margin 73.6%, still above last year's 67.6%. On operating expenses, we reclassified certain prior period amounts to match the current presentation. Stock-based compensation previously included in sales and marketing and professional fees is now in compensation and related taxes. Other professional and consulting costs relating to consulting fees are now in general and administrative. The reclassifications did not change total operating expenses or income from operations.

Total operating expenses were $4.6 million, up $372,000 or 8.8%. As a percentage of revenue, they rose from 61.6% to 75.4%, primarily because of increased charges related to our build-out and marketing of XCOR II and because of a non-cash expense related to the issuance of Reviv3 shares, which I will discuss shortly. R&D expense reflects employees and contractors who are focused on specific product development projects like XCOR II during the quarter. Under GAAP, that work is recorded as research and development rather than compensation or contractor costs. Sales and marketing was $2.84 million, up about $78,000 or 2.8%. Advertising was essentially flat at $1.53 million versus $1.55 million. About $360,000 of that spend went to XCOR II branding and launch and did not produce revenue in the first quarter. Those shipments began in September at the start of the second quarter.

Compensation and related taxes were $374,000 compared with $397,000. General and administrative expenses were $0.9 million compared with $1.1 million and include the one-time non-cash charge of $138,000 related to the Reviv3 share issuance. Non-cash stock-based compensation and operating expenses was $322,000, up from $199,000, with the Reviv3 charge accounting for most of the increase. Income from operations was $437,000 compared with $412,000, up 6.1%. That increase primarily reflects the customs refunds, partially offset by lower revenue and higher operating expenses, including the XCOR II launch and the Reviv3 charge. The tax provision was $100,000, an effective rate of about 19%, compared with $115,000 or about 26% a year ago. Net income was approximately $420,000, or five cents per diluted share, compared with $334,000 or four cents per diluted share. Adjusted EBITDA, a non-GAAP measure, was $827,000 compared with $674,000. That figure includes the $551,000 refund benefit.

Excluding this, Adjusted EBITDA would've been approximately $276,000. The reconciliation of Adjusted EBITDA to net income is in today's release. On August 25th, Reviv3 issued 12,501 of its own common shares to three strategic partners for services at $11 per share or $137,511 in total. We expensed that amount at issuance. It is a non-cash charge. Because we kept control, the ownership change was recorded in equity. The non-controlling interest was adjusted to the partner's share of Reviv3 net assets, and the difference went to additional paid-in capital. That equity adjustment did not affect net income or cash. AXIL still owns about 75% and still consolidates Reviv3, and AXIL stockholders were not diluted. What the partners received is a minority stake in Reviv3, not a claim on AXIL. Reviv3 does not currently intend to pay dividends, and any distributions are at the discretion of Reviv3's board, which AXIL controls.

As a result, we expect the partners to realize the value of their interest principally upon a sale of Reviv3 or another liquidity event. Net cash provided by operating activities was $3.8 million compared with $739,000 used in the first quarter last year. The largest driver was collections. Accounts receivable fell from $4.7 million on May 31 to $1.3 million. Cash was strong this quarter, in large part because we collected on the retail and wholesale shipments that were outstanding at year-end. That is the other side of the model we leaned into last year, a mix of offline retail and direct-to-consumer. That mix is what allows us to fund our growth from operations. Inventory was $4.4 million, flat with year-end, and included $1 million in transit. Prepayments to vendors for inventory rose to $558,000 from $145,000.

We used the quarter to pre-market and stage XCOR II so shipments could start when the product went live in September. We invested $165,000 in intangibles and equipment, including product certification testing. We ended the quarter with $7.9 million of cash and cash equivalents, working capital of $10.3 million, and no outstanding borrowings. Based on current cash and anticipated operating cash flows, we believe we have sufficient liquidity to meet working capital needs. We intend to use that liquidity to fund inventory and the launch and do not see a need for outside capital. I will turn the call back to Jeff Toghraie.