Q4 2023 Byrna Technologies Inc Earnings Call

Participants

Bryan Ganz; CEO, President & Director; Byrna Technologies Inc.

David North; CFO; Byrna Technologies Inc.

Jeff Van Sinderen; Analyst; B. Riley Securities Inc.

Jon Hickman; Analyst; Ladenburg Thalmann & Co.

Jim McIlree; Analyst; Dawson James Securities Inc.

Presentation

Operator

Welcome to Werner's Fiscal Fourth Quarter and Full Year 2023 earnings conference call. My name is Cheryl and I will be your operator for today's call. Joining us for today's presentation are the company's CEO, Bryan Ganz, and CFO, David North. Following their remarks, we will open the call to questions earlier today, Werner released results for its fiscal fourth quarter and full year ended November 30th, 2023. A copy of the press release is available on the company's website.
Before turning the call over to Bryan Ganz, Byrna Technologies, Chief Executive Officer, I will read the Safe Harbor statement.
Discussions held today include forward-looking statements. Actual results could differ materially from the statements made today. Please refer to the various most recent 10 K and 10 Q filings for a more complete description of risk factors that could affect these projections and Essentis Company assumes no obligation to update forward-looking statements as a result of new information, future events or otherwise. As this call will include references to non-GAAP results. Please see the press release in the Investors section, ir dot Varian.com for further information regarding forward-looking statements and reconciliations of non-GAAP results to GAAP results.
Now I'd like to turn the call over to Byrna CEO, Bryan Ganz. Sir, please proceed.

Bryan Ganz

Thank you, operator, and thank you, everyone, for joining us today. This morning, we issued a press release providing our financial results for the fiscal fourth quarter and full year ended November 30th, 2023, along with key business accomplishments for 2023 and an update on Q1 2024 performance 2024 performance. We will also be filing our 10 K with the SEC later today.
I'm going to begin this morning by passing the call to David North, our CFO, to discuss our financial results for both the fourth quarter and the full year 2023. Following that, I'll review what was a very eventful year and offer insights into our operations and go-forward strategy.
And lastly, we'll open the call to questions from our publishing analyst. David?

David North

Thank you, Brian, and good morning, everyone. Let's discuss our financial results for the fiscal fourth quarter and full year of 2023 ended November 30th, 2023. Our net revenue for the fourth quarter in 2023 was $15.6 million compared to $16.0 million in the fiscal fourth quarter of 2022. The slightly lower net revenue is primarily attributed to exceptional international sales in Q4 of 2022, which included a $3.4 million stocking order for the company's distributor in Argentina.
Total international sales in Q4 of 2023 were 225,000 compared to $4.3 million in the prior year. Without this one-time surge in international sales in the prior year. The fourth quarter displayed strong growth. Domestic revenue in the quarter totaled $15.4 million, that's 32% and 30%, 32% increase from Q4 of 2022. And it's a quarterly record gross profit for Q4 2023 was $9.0 million or 58% of net revenue compared to $8.7 million or 54% of net revenue for Q4 of 2022. The increase in gross margin primarily resulted from a much smaller percentage of lower margin international sales.
Operating expenses for Q4 2023 were $9.7 million compared to $8.8 million for Q4 of 2022. The increase in operating expenses was primarily driven by an increase in marketing spend as part of the Company's influencer partnership strategy. Net loss for Q4 2023 was negative $800,000 compared to negative $100,000 for Q4 of 2022. And the increase in net loss was primarily due to the increase in marketing spend. Adjusted EBITDA, which is a non-GAAP metric for Q4 of 2023, totaled $0.4 million compared to $1.4 million for Q4 of 2022. Net revenue for the full year totaled $42.6 million compared to $48.0 million for the prior year. This decline was again largely due to a two $7.6 million. So in a decrease in international sales from South Africa, South America and Asia, which are characterized by large, but infrequent orders has experienced in the prior year. This impact was partially offset by $900,000 increase in sales on Amazon and a $400,000 increase in Fox lab sales, despite temporary headwinds from social media advertising bans, domestic dealer Internet and distributor sales, which are less dependent on online advertising, grew by $1.6 million. Gross profit for the full year ended 2023 was $23.6 million or 56% of net revenue compared to $26.3 million or 55% of net revenue for the prior year period. Gross margins remained stable as the increase in lower margin dealer and distributor sales was counterbalanced by the reduction in lower margin international sales for the full year, operating expenses were $31.4 million, which is a decrease from $33.7 million in the previous year. This $2.3 million decrease was largely achieved through strategic realignments and cost optimizations in key areas. Notably, sales and marketing expenses were reduced by approximately $920,000 due to lower advertising spend earlier in the year resulting from the social media advertising ban. Additionally, professional fees, including legal and accounting service fees, were reduced by $680,000, while insurance costs decreased by $510,000 due to renegotiated premiums. Payroll expenses decreased by $340,000, contributing to our overall more efficient cost structure looking ahead, we are focused on maintaining a balanced approach to managing our operating expenses. We are preparing for a measured uptick in these costs as part of our strategic investment to drive revenue growth.
Net loss for the full year $8.2 million compared to a loss of $7.9 million for the prior year. The slight increase in net loss was primarily due to the decrease in revenue, partly offset by a decrease in our and operating expenses. For the full year, adjusted EBITDA totaled negative $2.0 million compared to negative $1.0 million in the prior year. The decrease in adjusted EBITDA was primarily due to the increase in net loss previously noted cash and cash equivalents. Here I wanted to call attention to a complete reversal of the trend of declining cash balances that prevailed through the first quarter three quarters of the year due to declining sales and high inventory balances. The balance of cash and cash equivalent equivalents was $13.7 million at the end of the third quarter on August 31st, 2023 by year end. On November 30th, 2023, cash and cash equivalents had risen to $20.5 million due to the increase in sales and also to our ability to sell down high inventory levels. Inventory at November 30th, 2023 totaled $13.9 million compared to $16.7 million at August 31st, 2023. The Company currently has no current long-term debt.
And that concludes my prepared remarks. I will turn it back over to Brian.

Bryan Ganz

Thanks, David. 2023 was a pivotal year for Verona and it was marked by both formidable challenges and frankly, remarkable achievements as the year began with burner running headlong into two extremely challenging problems. First was a number of unforeseen production problems related to the rollout of the new burger LD launcher. The second was what was in essence a total ban on our ability to advertise on social media when we were deemed to be contraband product by metal, Meta, Google and Twitter.
First, the Barnett LOE, we rolled out our new much more powerful burner LE launcher to great fanfare fit fanfare at SHOT Show in January 2023, where we gave industry insiders and the press the chance to testify or the burner LOE at industry day of better known as range day, the burner LOE was tremendously well received and it generated a flood of orders in the wake of SHOT Show. However, as we ramped up production, we ran into a number of production problems and quality control issues that required us to halt production and stop taking orders. Not only was this a black eye for the Company. It had a material negative impact on sales as many customers wanted to wait for the more powerful burner LV after it was introduced at SHOT Show the production from stem from our spec components received from our vendors as they transitioned from prototype production to serial production. This led to an unforeseen stack-up of tolerances that adversely affected the operation. The launcher the team went into high gear as we work closely with our vendors to improve DFM or design for manufacturability. In fact, I personally spent three weeks essentially living at the factory of the incredible effort by the entire Barnett team in combination with our vendors paid off. And in May, we were able to relaunch the burner LE. Since then, production and demand for the LE have remained strong. And for the most part we've been able to keep up with the elevated demand for the early launch or even though he's it has proven to be much stronger than originally predicted prior to the launch of the LE., we forecasted 10% as the demand would be for the much more expensive burn LE. However, LED demand has been running more than a third of our total demand. And in the wake of this production problem and product launch, we terminated the VP of new product development and production, and we promoted our Chief Technology Officer, which ultimately led to his resignation. We have since replaced both these positions with two highly qualified individuals to replace our VP of new product development and production. We hired John Mercer as our Head of Product Development and Production. John joins Burnett with more than two decades of on-point experience, including more than 10 years as VP of Product Management at CAD6, a leading manufacturer of firearms. This gun industry experience has given John extremely good understanding of both the particular engineering issues we face as well as the nature of our markets. In addition, we just recently hired store boots as Director of design and manufacturing engineering storage, who will be starting later this month, brings more than 30 years of design and engineering experience to Byrna most recently start was Director of test and manufacturing engineering for Walmart, advanced systems and robotics, where he successfully led the development of internal and external manufacturing technology resources for the alpha bought warehouse micro fulfillment system. We are confident that the new policies, procedures and processes that we have put into place along with the addition of these two very senior and experienced managers that we've added to the engineering team will prevent a repeat of the mistakes made with the LTE rollout and will ensure a smooth introduction of the much bonded and highly anticipated burner contact launcher, which is due out next year, the second and frankly, much more serious challenge that we ran into in the early part of 2023. It was the almost total prohibition on advertising. Our products on the major social media platforms, including Facebook, Instagram, Google and Twitter. We have never been able to advertise on mainstream media, including both broadcast and cable TV due to the nature of our products. However, we had spent millions of dollars on social media advertising over the prior two years in trued up until just recently, social media advertising had been our primary means for both educating the public about less lethal self-defense and driving demand for burner products. When without warning, we were denied access to this advertising venue, the effect, frankly, was devastating. We saw an immediate 60% drop in web traffic from Q1 to Q2. Initially, sales were somewhat resilient due to the tail effect of our prior advertising. However, by Q. three, we saw a significant negative impact on sales, posting our worst quarter eight years at just $7.1 million of revenues as we averaged only $44,000 a day on brand.com and $11,000 a day on Amazon.com. This sharp decline in sales resulting from the social media advertising ban had the potential to be an existential threat to the company. If we could not find a way to manage around it, we simply could not cut expenses enough while maintaining our robust R&D efforts and new product development pipeline to be profitable at $7 million a quarter, while other industries such as firearms and tobacco, have also had to deal with what wide-ranging advertising bans. These were mature industries with well-known products and large well established markets and customer bases. By contrast, few Americans know what less lethal is and even fewer have ever heard of burner, we needed to find a way to both educate the general public as to the benefits of less lethal self-defense and drive demand for our products and we needed to find it quick. The management team worked around the clock, exploring every conceivable option to build brand awareness before settling on the celebrity endorsement model pioneered by Phil Knight at Nike. In September 2023, Burnett signed its first celebrity endorser, Sean Hannity and committed to a multimillion dollar advertising campaign on Sean's afternoon drive time radio show aired nationally on I Heart Radio. This shift in strategy not only helped us circle navigate around the mainstream and social media advertising bans, but at Propel propelled us to a record-breaking fourth quarter as our daily sales spiked to $120,000 a day on burberry.com and $35,000 a day on an Amazon.com posting $15.4 million in domestic sales. This represented a 182% increase from the third quarter. Our new marketing approach has significantly enhanced brand visibility and has driven a dramatic increase in website visits and sales. In the fourth quarter, daily Web sessions jumped to 32,500, an increase of 174% from the third quarter and a 22% increase from the same period in 2022 before the social media advertising ban, this surge in web traffic led to a 41.2% year-over-year increase in Q4 direct to consumer sales. Based on the initial success of our partnership with Sean Hannity, our network of celebrity partners has expanded over the past several months with the addition of Judge Jeanine, Piero, Glen back and Bill O'Reilly. These partners who is whose influence spans radio, TV and social media, have been instrumental in our success offering a substantial return on advertising spend or ROE as our ROE. As for the holiday fourth quarter reached 7.5 times. We are seeing a continuation of this momentum with a 5.9 x ROE as in the first two months of fiscal 2024, that's December January. These campaigns have been particularly effective in attracting new customers with first-time customer rates soaring to 66.5% of daily orders in Q4, an 11% increase from the prior year when our first time customer rate was 55.5% higher. First time customer rates means higher average order values or AOV, as first time customers purchase a larger kit at the very minimum for Q4, we saw a 15.2% increase in average order value. Higher first-time customer rates also give us the opportunity to go back to the well as we engage these customers with fall and offers of ammunition and accessories as we look to garner the lifetime value of these new customers. And I'm extremely proud of what the team at Burnett accomplished in dealing with these twin challenges. It's no secret that we were under tremendous pressure. Our stock price had fallen as low as $2.24 at the end of September, giving the mark the company, a market cap of less than one times sales as investors headed to the exits, analysts reduced both sales projections and price targets and some even downgraded the stock despite the already precipitous decline, some investors even question whether Byrna had enough cash to survive. This led to some middle level management employees giving notice in the face of these mounting pressures the senior leadership team at Burnett remain laser focused on finding a way around these problems. And as my dad always used to say when the going gets tough, the tough get going. I am proud to say that I am surrounded by a group of tough SOPs here at Bard. I do not know the word surrender and it was through their grit tenacity and determination that we were able to lift these twin challenges and frankly, come out the other side even stronger.
I'd now like to discuss our 2023 performance across the various sales channels.
First, let me start with international sales. As David mentioned, the primary reason for the dip in our full year revenue for 2023 was the $7.6 million decline year over year international sales, while the timing of large international orders is often sporadic and hard to predict, the real reason for the decline in international sales is that starting in 2023, our sales to South America no longer showed up in burner technologies numbers rather, they are reported in Brno Lat-Am numbers. And because we do not consolidate burden that TAM's results for financial statement reporting purposes. Their sales are not included in burns top line revenue number. For this reason, we expect that our reported international sales number in 2024 will remain depressed and will come in well below our 2022 record of $9 million. That said, we expect to see continued strong sales in South America, particularly in Argentina and with some luck, Brazil, if you remember in October, we announced two large sales in Argentina through burners, Argentina and Argentinean distributor and our Latin American partner versa. Notably, one of these was the landmark $6 million order from Cordoba provincial police, the largest single order for burner launchers in the Company's history. Since the launch are sold to the core Dova Blease by Bursa were part of the initial stocking order versus place last year in Q4. This sale wasn't reflected in our 2023 numbers, but rather was part of the $4.3 million in international sales we reported in Q4 of 2022. This year, we project that burner Lat Am will do $8 million in sales. And while these revenues will not show up as part of burner Technologies reported sales numbers, we will benefit as a 51% owner of Byrna Lat-Am More importantly, the breakthrough in Argentina with the core Dubai police as well as agencies and Pontus RAI's Santa Fe lot news highlights the products appeal to two police departments around the world as the demand for less lethal use force grows ever stronger. Orders like the one from the core Dova police can only serve to further validate burns suite of less lethal products and confirmed burns position as one of the leading less lethal companies globally with sales in South America.
Going through our burner Lat-Am joint venture subsidiary, our focus in 2024. As it pertains to international sales will be a heavily reliant on Mexico and Canada. In 2023, sales into Canada were slightly more than $1 million with most of this coming through our online DTC efforts, we expect to see significant growth in this market in 2024 with the opening of our first premier dealer in Canada, we're in a Toronto starting with only a $25,000 initial stocking order in January, Byrna Toronto sold out in just two days. The owner and operator of Berlin, Toronto, Emiliano month's reported that the second order for 100,000 place two days after selling out the initial stocking order was also sold out before the product even arrived. He is in place the third order, all in the span of less than two months. The overwhelming success in Barnett Toronto underscores the opportunity that exists in Canada as restrictive gun laws serve to drive the demand among Canadians looking for a means to be able to protect themselves and their families based on the success of Byrna dot c. a. and have Byrna Toronto, the company has made a decision to hire a person dedicated to the Canadian market with a particular emphasis on growing our online presence in Canada with both an online and dealer presence in this important market to our North, we expect to see our Canadian sales eclipsed $1.5 million in 2024 in 2023. Our sales into Mexico were de minimis in fact, they were so insignificant. We did not even bother to report our sales into Mexico as a separate line item as they amounted to less than $200,000 rather, we simply lump them in with dealer sales recently. However, Byrna has seen significant interest from Mexico and orders during the first two months of the year for Mexican dealers have already exceeded our full year 2023 Mexico's sales. We believe that Mexico offers an amazing opportunity for growth as we expand our presence into both law enforcement and military as well as the consumer market through dealers and a soon to be created online presence, we project 2024 sales into Mexico will be more than $1 million.
Turning to our domestic dealer channel dealer sales were one of the bright spots for 2023, with sales growth of $1.6 million or 21%. This was on the heels of $2.9 million in growth or 52% the prior year. We expect to see strong continued growth in the dealer segment, while dealer sales are less impacted by burn as Abbott advertising efforts, we have seen a recent spike in dealer sales, which can be attributed to increased brand recognition resulting from our celebrity endorsement program. In addition, to the growth we expect to see from our traditional brick-and-mortar dealers. We expect significant growth in our dealer, our premier dealer program. As we have previously explained, Premier dealers are essentially Byrna franchisees. While we do not require a franchise fee to become a premier dealer, Premier dealers must derive more than 50% of their revenue from Byrna Products and can only sell non-lethal self-defense products. The minimum annual purchase commitment for a premier dealer is 250,000, and the store must adhere to strict brand standards, including a firing range on premises so that potential customers can test fire the burner launchers in return. We assist with the design of the store, provide point-of-sale display materials and allow these dealers to use the burner name and nomenclature, for example, or in a Toronto-based, the undone bar in Breckenridge, Colorado. And of course, our original premier dealer live safe, Hawaii in Oahu, the premier dealer concept was developed in May of last year. And in just six short months, we opened 15 premier dealers in addition to the original premier dealer live Safeway, we look for potential premier dealer partners from the ranks of entrepreneurs who are committed to our mission of saving lives this year, we will be attending several franchise shows in the hopes of finding enough new premier dealer partners to double the size of our premier dealer program in 2024.
The big story of 2023, as I previously explained, was, of course, the turnaround of our online DTC program on both Burnett.com and Amazon.com.
If we look at full years, online sales through Berner.com and Amazon.com sales were relatively flat ending the year at $29.2 million, down less than 2% from 2022. That, of course, is very misleading as strong Q4 sales up 33% for the prior year, made up for a significant shortfall in Q3 before we had settled on a means to replace the sales driven by social media advertising well dealing with the social media advertising ban was extraordinarily stressful. It was a blessing in disguise with our social media advertising program was effective. Its effectiveness had been waning as consumers were becoming numb to the barrage of social media ads. Compounding the problem was the reduced effectiveness of ads on Facebook, Instagram, Google and Twitter due to the fact that the big tech companies were bound to public pressure when it came to capturing and selling personal data, making it more difficult for us and other businesses to micro target consumers. The net result is that our online growth had waned in terms of both sessions and sales in 2022. Prior to the advertising ban sessions, growth had gone from 95% in Q1 to 56% in Q2 to 35% in Q3 to 22% by Q4. This negative trend accelerated in 2023 once the advertising ban took effect for the first 10 months of 2022. The year over year sessions growth was 56.3%. By contrast, for the first 10 months of 2023 year over, say, year over year sessions growth was a negative 11% in the last two months of the year. However, once we had fully implemented the celebrity endorsement program sessions grew to 37,550 a day, up 41% from the 27,000 daily sessions for the last two months of 2022, demonstrating the effectiveness of the new celebrity endorsement program compared with the social media advertising program employed prior year.
What do we see when we look forward to 2024 and beyond how confident are we that we can maintain the current sales momentum and what is the risk of further production problems or supply chain disruptions?
First, let's talk about sales when we initiated the celebrity endorsement program, we had three questions. One, was it replicable to was it scalable and three, was it sustainable after almost six months?
We can answer the first two questions. First, it is replicable. After kicking off the program with Sean Hannity, we have been able to successfully add three additional celebrities to the mix. Judd, Janine, Glenn Beck and Bill O'Reilly, in each instance, we have seen very similar rollout numbers. Second, we've found out that it's not scalable, adding more money to these individual campaigns, results in diminishing returns once or average advertising three to four days a week, increasing the frequency does not yield a commensurate increase in revenue.
Third, with regards to sustainability, the simple answer is that we do not yet know how sustainable this program is. Will we see a drop in ROE as over time once we have saturated each celebrity endorsed market to date, we've not seen any material decline in effectiveness over time. However, it's still early and we will be closely monitoring role as numbers for any changes in the trend.
So what does that mean for growth. As we look ahead to the rest of the year, based on what we have seen to date, we are quite optimistic about the sustained impact of our celebrity endorsement demos for the month of December, the only month in 2024 where we've closed the books. Brand.com's preliminary revenue numbers were up 89% over last year, and Amazon.com's preliminary revenue numbers were up 98% over last year, while this torrid pace has slowed somewhat in the post-holiday selling season, the trend in January and February to date remains very strong. There is, of course, no assurance that these trends will continue. And given the fact that we are still in the early innings of our new celebrity endorsement program, we will not be giving guidance. However, it is safe to say, based on the first 11 weeks of Q1, we expect to see strong growth in our online business in Q1 and hopefully well beyond. Of course, strong sales requires significant ad expenditures, and we expect to see a significant increase in marketing expenses related to our celebrity endorsement program However, with a five times ROE as a 60% plus gross margin profit margin for our online sales, the return on marketing spend is very accretive. And at the same time, that we expect to see strong sustainable growth in DTC sales and also expect to see a marked increase in dealer sales driven largely by our premier dealer program.
As we look to double the number of participating dealers. We also expect to see strong double-digit growth from both Canada and Mexico this year. All told, we have every reason to expect strong yet manageable year over year growth in 2024. In 2025, we may look to add additional names to our roster of celebrity endorsers. However, that decision will depend largely upon the success of our new compact launcher, which we hope to debut early in 2025. This launcher will be the size of a micro compact pistol similar to the CP. six, our IP. three 65, the most popular handgun in the world. We believe that the contact larger will be a game changer for Byrna as the number one complaint we currently get about the of ST. is its size. For this reason. We believe that this new much smaller launcher will appeal to many of burns current customers and at the same time, expand our market to women. And those customers interested in easily conceivable nonlethal launch. If six our success with the introduction of their micro compact pistol is any indication we should see a dramatic increase in overall sales when we introduced this micro compact launch for 2024. We also expect to see improved operational efficiencies, reduce product costs and improved margins as a result of a number of initiatives that we are undertaking. One recent change we made is to simplify our product offering, recognizing the need for simplicity and ease in the purchasing process. Last month we introduced the burn a universal kit, a one-size fits all solution that is legal in all 50 states and Canada. This replaces the burn a pepper and burn a kinetic kits having two different configurations created a lot of confusion for first time customers. Now we have only one configuration. Customers are asked to choose between the burner SD., our most popular pistol and the burner LE, our most powerful pistol. They are then asked to choose their color, black or InterTAN. Every other color will be a special offering, for example, paint on Valentine's Day, which we're actually rolling out today.
Finally, customers will be asked if they want to launch with or without some safety. The configuration of each kid, however, will be the same one launcher one extra five round magazine, one GBP5 to of QinetiQ one five count to Veeco kinetic and one five count to the pro training chemical Aerogen rounds will be sold separately. This streamlines the checkout process and offers additional opportunities to upsell ammunition, making this a win-win for customers and burn. We anticipate that this change will lead to a slight increase in average order value over time as the universal kit is selling for the same price as the pepper kit was previously is selling for despite the fact that it does not come with chemical area in rounds. This change has also allowed us to reduce the number of project variance offered by more than 25 SKUs. This should allow us to both reduce inventory levels and improve factory efficiency, which in turn should bring down costs over time. This simplified offering coupled with our new expedited shipping offering option should allow should help improve both revenues and margins to be able to keep up with the anticipated growth this year.
We've recently initiated plan to scale up our manufacturing capabilities. This initiative includes increasing our production facility personnel by 25% and opening a second assembly line. These steps are designed to increase long-term production capacity from 10,000 units per month to 12,500 units per month. Since we are still operating on only one shift a day, we have significant excess capacity for expansion as needed.
In addition to the expansion of our production launch or production capacity, we are also focusing on increasing ammunition production by opening a second ammunition production facility, which will be located here in the US. This move is aimed at both strengthening our supply chain and reducing the risk of supply chain disruption, thereby ensuring that we can meet the forecasted demand for our high margin ammunition products, even if international shipments become more difficult for any reason, we expect these projects to be completed in the second half of 2020 for setting a strong foundation for burners, continued growth and operational efficiency. Fortunately, Bernie's strong financial footing provides the foundation to be able to undertake these projects and handle the expected growth in sales at the end of December, cash had actually climbed to $23 million. And as David mentioned, there is no debt on our books. So we are well positioned for growth.
In conclusion, we believe that 2023 demonstrated that this management team can react to whatever challenges are thrown our way safely navigating burn through troubled waters.
On the way to our charted destination.
Now let's open the call for your questions. Operator, please provide the appropriate instructions.

Question and Answer Session

Operator

Thank you. The Company will now be taking questions from as publishing analysts. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue For participants using speaker equipment, it may be necessary to pick up your handset pressing the start. Our first question will come from Jeff Van Sinderen with B. Riley Securities. Please proceed with your question is.

Jeff Van Sinderen

Good morning, everyone, and thanks for taking our questions on. I guess the first question I had is really just around marketing. And I realize that you've added a bunch of new folks here, influencer group on and just wondering what we should anticipate for the advertising budget in 2024.

Bryan Ganz

And the advertising budget in 2024 is currently around $7.5 million. That's up from $5 million that we had when we were focused on social media advertising.

Jeff Van Sinderen

Okay. And then since you were just mentioning the universal kit, maybe you can just touch on sales trend by product. Wondering, you know, if your new marketing is driving sales of any of the other products, maybe higher velocity products versus our velocity products and then which products you're seeing the ramp in the most outside of the Universal Care Well, again, the big surprise for us was the on the demand for the LE.

Bryan Ganz

So the only has a MSRP of $479 versus an MSRP for the SD. of $379. So for an extra $100, we thought that we'd only get about 10% of customers opting for the elderly and that's run as high as 40%. Right now, it's averaging about 33%. So that's been a little bit of a surprise. We've also seen some very strong interest in accessories. So again, one of the benefits of this new advertising campaign is that we're bringing in a lot of new customers and these new customers are then coming back buying things like ours, target tenants, whole stirs sites, et cetera. So we've seen a pre across the board interest where we've not seen a significant strength, frankly, is in our 12 gauge that's been disappointing. We are going to be looking to partner with a manufacturer of compaction of shotguns so that we can have the 12-gauge sent out with each new shotgun but that's probably been the biggest disappointment is 12 gauge.

Jeff Van Sinderen

Do you think that that a 12 gauge would be more something or law-enforcement at this point? Or do you think it's still consumer?

Bryan Ganz

No, we think there's a large law enforcement market. Keep in mind, our law-enforcement sales in the US are still relatively small. They represent 1% to 2% of our overall domestic sales. We do have interest in the 12 gauge outside of the US, but again, there's issues with it's manufacturing and shipping and so forth. But I do think that ultimately a law enforcement will probably be the bigger market for 12 gauge.

Jeff Van Sinderen

Okay. And then just as a final follow on to that, maybe you can just touch on kind of the trend in those sales? And then what the outlook is for ammo sales given the increasing pace of launches?

David North

Yes, ammo sales always bounce around about 25%. If we look at the full year on the they are at 25% ammo plus accessories. However, in the fourth quarter was down to 22%. And I think that that's due to the fourth quarter real IQstream growth and probably a lot of new customers.

Jeff Van Sinderen

Fair enough. Thanks for taking my questions and best of luck.

Bryan Ganz

Thanks, Jeff.

Operator

Thank you. Our next question comes from the line of Jon Hickman with Ladenburg Thalmann. Please proceed with your question.

Jon Hickman

And Brian, could you walk through what would happen on your income statement? If you got another order from Madam Chair. Well, again, the orders, what do you mean orders from Latin America?

David North

Do you mean just thinking in accounting terms how that works or Jan oh, sure, yes. Basically right now we're using the equity method of accounting, which means that Latin America shows up simply as and investment on our balance sheet. And each quarter we give our 51% of there a net loss or gain. So if they have an order there locally, say the Cordoba police order more launches from them and you don't see anything on our financial statements. You simply see that, okay, they're more profitable. So we've got better results from investment in joint venture. And if they make an order, if they make an order from us right now from burner technologies that does show up as an external sale.

Bryan Ganz

But keep in mind that there is a manufacturing facility down in Buenos Aires. So hopefully, they're not ordering too much directly from us right now. They're producing their own launchers and burner Lat-Am. They're buying parts directly components, parts directly from Berto Lat-Am. So the only sales that go from burner technologies to burn of that TAM, our ammo. So we're still supplying them with ammo because we don't produce ammo in Latin America, but otherwise there really are very little in the way of sales from burner technologies to burn a lot, Tim.

Jon Hickman

Okay.

Operator

Thank you. Thank you. And as a reminder, if anyone has any questions you may press star one on your telephone keypad to join the question and answer session. Our next question comes from Jim McIlree with Dawson James. Please proceed with your question.

Jim McIlree

Thank you. Good morning. I'm I'm trying to understand the increase in operating expenses and here's how I'm looking at it. So in Q4 of this year, your OpEx was $9.7 million, and that's up about $1 million from the from the year ago quarter. And sales were down a little bit. And I understand all the puts and takes is what's going on with the sales. But you talk about your current marketing campaign being much more efficient than the prior one, but we're seeing similar sales and much higher OpEx, and you're talking about a meaningful increase in OpEx going forward. So I'm just trying to figure out what's what's going on.

Bryan Ganz

Yes. As we said, in Q4 of 2022, $4.3 million in sales were international with $3.4 million of that going directly to our partner in Argentina, versa. So the real comparison is not 15.6 versus 16. It's a 15.6 versus 11. So we had a significant sales growth accompanied by an increase in an increase in marketing spend, as I explained with a five X roll as a minimum. And as you know, as we described, our ROE as numbers have been running above five times and with a 60% gross profit margin as a minimum with our online DTC, every advertising dollar we spend is quite accretive.
David, is there anything you want to add to that?

David North

I mean it what you need to do is if you're looking at the fourth quarter, yes, that advertising spend does make our breakeven point go up. But when we talk about efficiencies, I go back to what I said in my remarks that domestic revenue in the quarter totaled $15.4 million, and that's a 32% increase from the same quarter a year ago. So that's that's where we're really seeing the effect of this. And those are our highest margin sales as well.

Jim McIlree

Okay. And then also, Brian, you talked about I just want to make sure I heard you properly, you said that increasing the frequency of advertising does not increase sales. Is that is that true? And then so what is the current frequency of advertising that you were referring to when you said increasing it doesn't increase sales.

Bryan Ganz

So once we've reached kind of the threshold of around four days a week going up to, you know, five ads a week, 10 hours a week with the same celebrity doesn't have a have the same impact. You start to see a diminishing return in terms of ROE. As So if we're spending, let's just say $2 million a year with Sean Hannity spending $4 million a year was Sean Hannity would not double our return from Sean Hannity. So you reach a point where you can't just pour more money into successful celebrity endorsers, but you have to add celebrity endorsers to the roster. And this year, our intention is to add one more celebrity endorser, which will start next quarter in March. But beyond that, we do not intend to add any more celebrity endorsers to the roster because we feel that with these five, and we will be able to generate all the growth we can handle.

Jim McIlree

Okay. And just one other thing on the same issue. So when you start with a new celebrity endorser, do you do you scale up to that? Let's call it that four times a week baseline OR, does it take and does it take a little time to get that ROE as that you refer to or do you get it?

Bryan Ganz

It's somewhat instantaneous. Our experience has been that we get it somewhat instantaneously. One of the things that we've discovered is if we can get on their show. In other words, if we can get an interview on their show as we did with Sean, you know, as we hope to do with going back and Bill Reilly, it allows us to really jump-start the advertising effectiveness. But so far we've not seen any delay in hitting our ROE as numbers. In fact, with Glen back the ROE as numbers were extraordinarily strong right out of the box because in December, Glenn spoke about our product on his show, not as part of our advertising, but just as something that he was interested in. So we're looking for those and celebrity endorsers that really believe in our product that are passionate about our products that believe in less lethal self-defense. And as a result, there's a tendency for them to talk about it beyond just the advertising that we're paying for.

Jim McIlree

The other thing is that with all of these, we started out with a relatively short-term contract so that we can make sure that this is going to be a factor as before we commit to anything long term.

Bryan Ganz

Yes, that's correct. So for example, we Sean, we started with a 90-day contract, but then we have this year that we've now committed to the full year 2024 with Glen back the same thing with Bill Riley, the same thing.

Jim McIlree

Okay. Thank you. That's it for me.

Operator

Thank you. At this time, this concludes our question. And there I'd now like to turn the call back over to Mr. Ganz for closing.

Bryan Ganz

Okay. Thank you, operator, and thank you, everybody who participate today and particularly our investors. I want to thank you for your continued support. Thank you.

Operator

And this concludes today's conference, and we thank you for joining us today for various Fiscal Fourth Quarter and Full Year 2023 conference. You may now disconnect.