IPO Preview: AMMO Starts $14 Million U.S. IPO Effort
AMMO (POWW) intends to raise $14 million in an IPO of its common stock, according to an S-1 registration statement.
Scottsdale, Arizona-based AMMO was founded to design, produce and market ammunition and related casings to consumers and agencies in the U.S.
Management is headed by president, Chairman and CEO Mr. Fred Wagenhals, who has been with the firm since December 2016 and was previously president, Chairman and CEO of Action Performance Companies, a publicly held distributor of licensed motorsports merchandise.
Below is a brief overview video of how ammunition is made:
AMMO has received at least $55 million from investors.
The firm acquires customers through direct sales methods and sells through distributors and direct to larger retailers and law enforcement agencies.
Two customers accounted for 15% and 11% of net sales for the three months ended June 30, 2020, a reduction in concentration from 26% and 11% in the same period in 2019.
Selling and Marketing expenses as a percentage of total revenue have been dropping as revenues have increased sharply.
The Selling and Marketing efficiency rate, defined as how many dollars of additional new revenue are generated by each dollar of Selling and Marketing spend, rose to a strong 14.5x in the most recent reporting period.
According to a 2020 market research report by Grand View Research, the global ammunition market was approximately $20.4 billion in 2019.
This represents a forecast CAGR of 3.9% from 2020 to 2027.
The main drivers for this expected growth are an increase in demand for small caliber ammunition for sports shooting activities with pistols and rifles.
Also, firms are continuing to produce innovative products for specialty markets.
The chart below shows the historical and forecast market trajectory for the U.S. by caliber size:
Major competitive or other industry participants include:
- Federal Premium Ammunition
- Remington Arms
- Winchester Ammunition [Olin]
- Black-Hills Ammunition
- CBC Group
- Fiocchi Ammunition
- Hornady Manufacturing
- Rio Ammunition
AMMO’s recent financial results can be summarized as follows:
- Sharp growth in topline revenue
- Increasing gross profit and gross margin
- Reduced operating loss and lowered negative operating margin
- Uneven cash used in operations
Below are relevant financial results derived from the firm’s registration statement:
Source: Company registration statement
As of June 30, 2020, AMMO had $1 million in cash and $25.4 million in total liabilities.
Free cash flow during the twelve months ended June 30, 2020, was negative ($6.1 million).
AMMO intends to raise $14 million in gross proceeds from an IPO of its common stock, although the final figure may vary.
The firm’s stock is currently quoted on the OTCQB and the last trade price, on September 10, 2020, was $2.39 per share.
Management says it will use the net proceeds from the IPO as follows:
for repayment of the JSC Notes
for capital expenditures and working capital;
for research and development for new products and improvements to existing products including, but not limited to, hiring of key personnel, and material costs for research activities;
to upgrade sales and marketing capabilities, including but not limited to public relations, advertising, software implementation and adding additional staff; and
the remainder for other general corporate purposes, and possibly acquisitions of other companies, products or technologies, though no such acquisitions are currently contemplated.
Management’s presentation of the company roadshow isn’t available.
The sole listed bookrunner of the IPO is Joseph Gunnar & Co.
AMMO is seeking public capital market funding to pay down debt and provide expansion capital.
The company’s financials show strong topline revenue growth, a swing to positive gross margin but increased cash used in operations.
Its negative operating margin has dropped considerably as the firm appears to be making progress at the operating level.
Selling and Marketing expenses as a percentage of total revenue have been dropping; its Selling and Marketing efficiency rate has increased sharply
The market opportunity for ammunition is growing at a moderate rate. Notably the highest growth potential appears to be in specialty markets such as sports shooting in which AMMO is active.
Joseph Gunnar & Co. is the sole underwriter and the firm hasn’t led any IPOs over the last 12-month period.
POWW appears to be on a strong growth track. When we learn more IPO details from management, I’ll provide a final opinion.
Expected IPO Pricing Date: To be announced.
(I have no position in any stocks mentioned as of the article date, no plans to initiate any positions within the next 48 hours, and no business relationship with any company whose stock is mentioned in this article. IPO stocks can be very volatile in the days immediately after an IPO. Information provided is for educational purposes only, may be in error, incomplete or out of date, and does not constitute financial, legal, or investment advice.)
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