AXIL Brands (AMEX:AXIL) released first-quarter financial results and hosted an earnings call on Tuesday. Read the complete transcript below.

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Full Transcript

OPERATOR

Greetings and welcome to the AXIL Brands first quarter 2027 financial results. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press Star-0 on your telephone keypad. As a reminder, this conference is being recorded. I'll now turn the conference over to Peter Seltzberg, VP Investor Relations. Thank you, Peter.

You may begin.

Peter Seltzberg, VP Investor Relations

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 Taherai, 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 investorsoaxle.com and we will add them to the queue. With that, I'll turn the call over to Jeff Taherai, AXIL's Chairman and Chief Executive Officer.

Jeff Taherai, Chairman and Chief Executive Officer

Good afternoon and thank you for joining us. I am pleased to discuss our results for the three 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 a strong 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 XCORE 2 launch. For those less familiar with the product, XCORE 2 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 XCORE 2 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 a shift from XCORE 1 to XCORE 2. During the quarter, XCORE 1 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. XCORE 2 has produced the strongest early demand of any AXIL product to date and demand remains healthy across retail and 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.

Jeff Brown, Chief Financial Officer

Thanks, Jeff. I will cover revenue and mix, gross margin and the CBP refunds, operating expenses and profitability, a brief Revive 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%. Revive 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 U.S. 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 refund claims remain outstanding. Excluding the $551,000 cost of revenues benefit, gross profit would have 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, $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 buildout and marketing of XCORE 2 and because of a non-cash expense related to the issuance of Revive shares, which I will discuss shortly. R&D expense reflects employees and contractors who are focused on specific product development projects like XCORE 2 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 XCORE 2 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 Revive share issuance.

Non-cash stock-based compensation in operating expenses was $322,000, up from $199,000, with the Revive 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 XCORE 2 launch and the Revive 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 $0.05 per diluted share compared with $334,000 or $0.04 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 have been approximately $276,000. The reconciliation of adjusted EBITDA to net income is in today's release. On August 25, Revive 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 noncontrolling interest was adjusted to the partners' share of Revive 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. Revive and AXIL stockholders were not diluted. What the partners received is a minority stake in Revive, not a claim on AXIL.

Revive does not currently intend to pay dividends and any distributions are at the discretion of Revive's Board, which AXIL controls. As a result, we expect the partners to realize the value of their interest principally upon a sale of Revive 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 XCORE 2 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 Taherai.

Jeff Taherai, Chairman and Chief Executive Officer

Thanks, Jeff. We expect fiscal 2027 to be a year of top line and bottom line growth, with results more visible from Q2 onward. That view rests on three things we are executing now. The first is XCORE 2. The product became available on September 15. By month end we had fulfilled the majority of the preorders and backlog and demand remains healthy in wholesale, retail and direct to consumer. The launch is no longer ahead of us; it is on the market and it is converting.

The second is fuller retail coverage. The work now is to deepen that footprint so quarterly performance is less exposed to swings from any one order. The third is Revive. We brought highly experienced operators into the subsidiary ahead of the global relaunch without spending significant cash or issuing actual stock. The team expects to start onboarding new distributors and retailers in the U.S. and overseas as early as next quarter. This concludes our prepared remarks.

We are happy to take any questions.

Peter Seltzberg, VP Investor Relations

Thank you. Management has received questions in advance of the call and we will now respond to as many as time will allow. Go ahead, Peter, and start the Q&A session. Thank you. Your quarterly sales seem to fluctuate. Would you please describe the seasonality in the business? Specifically, will Q1 generally be the lowest of the four quarters and will fiscal Q2 generally be the highest? Thank you.

Jeff Taherai, Chairman and Chief Executive Officer

Well, Q2 has been a strong quarter because of the proximity to the holiday, but that dynamic is skewed when large orders from big retailers, and for example Q4 was our high last fiscal year and I think it was the softest. So it really depends on when these big-box orders come in, and that is essentially what creates the fluctuations. Also, particular to Q4, impacted revenues. But I want to emphasize that we are more than that shortfall in XCORE 2 sales in Q2.

Next question.

Peter Seltzberg, VP Investor Relations

Okay, thank you. Another question is, how do you envision getting to $10 million per quarter in sales?

Jeff Taherai, Chairman and Chief Executive Officer

Well, we're pretty close to $10 million now. We did $8.6 million in Q4. Any given quarter can get us to $10 million. Moving forward, I think if the question is getting consistently over $10 million every quarter, it's a function of how many doors, how many new doors are we able to open and how many SKUs are we able to put in existing doors. And, you know, that's been our primary focus since 2025, and we're making excellent progress on that front.

Next question.

Peter Seltzberg, VP Investor Relations

We have: What has been the range of your quarterly gross margin for the past three years?

Jeff Taherai, Chairman and Chief Executive Officer

You want to take that, Jeff?

Jeff Brown, Chief Financial Officer

Yeah, I can jump in for this. Over the last three years, AXIL Brands' quarterly gross margin has been in a pretty tight range. It's been approximately 67% to 74%. Of course, that excludes this quarter, which was an outlier of 82.6% due to the customs and duties that were refunded. But if you remove that, it would have been a gross margin of 73.6%, which is in that range. And we expect to maintain that range going forward through fiscal '27. Next question.

Peter Seltzberg, VP Investor Relations

Okay, next is, can you describe the credit quality of your receivables?

Jeff Brown, Chief Financial Officer

Yeah, the credit quality of our receivables remains high. Over the last year, we've reserved and expensed about half a percent of our accounts receivable, which is a low loss rate. This quarterly provision was actually a gain. Under our policy, we expense receivables that are more than 90 days past due. So the gain came from recoveries of amounts that had already been written off under the rule.

Peter Seltzberg, VP Investor Relations

Okay, next question is, what business could AXIL acquire to get this company to a level of $100 million in annual sales?

Jeff Taherai, Chairman and Chief Executive Officer

$100 million in annual sales is completely achievable. I don't think we need to acquire a business to get to $100 million. If you look at the global hearing protection market, it's $3 billion, and we're a little over 1% of that a year. I would argue that our customers are using our systems for more than just hearing protection, but either way, I think there's plenty of runway to get to $100 million a year, and it's quite achievable without acquisitions.

Next question.

Peter Seltzberg, VP Investor Relations

Okay, we have a final question. Why is there a health and beauty care business in AXIL?

Jeff Taherai, Chairman and Chief Executive Officer

I can take that. So Revive is a small part of the company — 4% of the revenues last year. Where we find the business attractive is we believe this deal gives us the ability to market and scale the brand globally. And we'll have indications how well we're executing by next quarter. But I think it's important for us to point out to AXIL shareholders that, at this stage, Revive is essentially running entirely independent. There are no—we're not drawing on AXIL people or AXIL resources to help out the Revive team.

There isn't a drag as far as talent or time. Whatever the AXIL team is doing in order to help Revive, the Revive team is extremely capable at this point. It's fully operational, and we have a lot of confidence that they're going to do great. Ultimately, it's a pretty straightforward equation for us. If this plan executes, AXIL can achieve a very meaningful upside. If it doesn't for any other reason, something is wrong. It's more or less neutral for us.

So we see this as a high-reward, low-risk opportunity for AXIL. Makes a lot of sense to us, and we'll know soon enough. We'll have early indications how well we're doing, and we'll keep everyone updated. Is there another question?

Peter Seltzberg, VP Investor Relations

No, we're all set. Awesome. Thank you, everyone, for submitting. We'll see you early today.

OPERATOR

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company's SEC filings and official press releases. Corporate participants' and analysts' statements reflect their views as of the date of this call and are subject to change without notice.