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Ammo's Bad Quarter - Prescription For Next Steps
It was no front page news that this was going to be a bad quarter, not only did the President telegraph it at a recent investor conference, but also, it is not so easy to move equipment from one plant to a new facility and get the new facility operating smoothly. To compound the bad quarter, sentiment is at an all time low given the disastorous decision to seperate the e-commerce and manufacturing businesses, revelations of possible related party transactions, and a massive amount of allegations in the recently settled lawsuit (I noticed in the recent 10Q that another OSHA complaint has been filed). Here are my thoughts to regain investor confidence and fix the business.
Provide a bridge on how we got to 1% gross margins. The CFO’s explanation was unsatisfactory. If you want investors to believe the issues are transitory, then provide the bridge.
Stop being overly promotional. First, excise taxes are not an add-back to EBITDA - management was even called out for it on the call by a sellside analyst. I would like for management to report revenue on a net basis, as I’ve seen other companies do that have excise taxes (pst: your marings will go up!). Second, it was pretty silly to that your cash went up X percent. That could be a good thing, if it wasn’t explained by your debt going up ~$5mm.
Sell ammunition directly to consumers via gunbroker.com. I did a spot check for Ammo Inc. ammunition on gunbroker.com and found a lot of it, but it was all listed by third parties. This is particularly important to do if we may be seeing declining consumer demand. Open up a new, and high-margin, channel.
Adhere to the settlment agreement with Urvan. As per the agreement, Mr. Flynn was supposed to be terminated immediatley save for being able to serve as a consultant. At the beginning of the call, he was introduced as part of the senior management team, and he participated on the call as if he is one.
Accelerate the timing of the CEO Search Committee as well as the CEO transition. Fred has lost the faith of the shareholders.
Secure a proper credit facility, so that you can buy back shares at the current, and distressed, levels..
Disclose how much you will spend on both the proxy contest advisors and the spin advisors.
Make sure that all of your financial disclosures are correct. I did not see any disclosures in the recent 10Q regarding the VP of Finance and Larson Building.