Outdoor Holding Company - Earnings Call - Q2 2026

Executive Summary

• Returned to profitability: Net income from continuing operations reached $1.40M and diluted EPS was $0.01, versus a loss of ($5.87M) and ($0.06) a year ago; Adjusted EBITDA rose to $4.91M with margin of ~41% of revenue.
• Outperformed industry demand despite soft market: revenue was $11.98M (flat YoY) on 87.1% gross margin; total GMV was $189M (-1.2% YoY) with firearm GMV +1.2% and used firearms +7.8%; take rate increased to 6.34% from 6.27%.
• Beat consensus: revenue beat S&P Global consensus by ~3.0% ($11.98M vs. $11.63M*) and EPS beat by $0.05 ($0.01 vs. -$0.04*) on leaner opex and better monetization (2-estimate coverage)*. Values retrieved from S&P Global.
• Cost actions and balance sheet strength: operating expenses fell $6.71M YoY; cash rose to $65.67M from $63.36M in Q1; management intends to repurchase shares; HQ relocation to Atlanta reduces footprint.
• Legal/compliance overhang easing: regained full Nasdaq compliance; favorable federal court ruling affirmed marketplace status; management still flags variability from ongoing indemnification/legal matters as a near-term swing factor.

What Went Well and What Went Wrong

• What Went Well

  • Adjusted EBITDA inflected higher with strong margin: $4.91M (+24% YoY) and ~41% of net revenue, reflecting cost reductions and monetization improvements.
  • Share gains vs industry: adjusted NICS down >5% YoY while firearm sales on GunBroker rose >3%; firearm GMV +1.2%, used firearms +7.8%.
  • Take rate and gross margin expanded: take rate to 6.34% (from 6.27%) and gross margin to 87.1% (from 86.9%).
  • Management tone constructive on profitability trajectory: “we can beat [the $25M adjusted EBITDA run-rate goal] over time” as cost actions and revenue initiatives scale.

• What Went Wrong

  • Top-line still soft in aggregate: total GMV -1.2% YoY despite mix strength in used firearms; net revenues essentially flat YoY at $11.98M.
  • Non-recurring/legal costs persist: $1.8M settlement contingency tied to ammunition sale; management expects overall performance to be “uneven” until litigation and indemnification obligations subside.
  • Limited estimate coverage and visibility: only two Street estimates, no formal numeric guidance provided; continuing legal/SEC matters remain a watch item [GetEstimates: Q2 2026 coverage=2].

Transcript

Operator (participant)

Welcome to the Outdoor Holding Company Second Quarter Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your telephone keypad. To withdraw your question, please press star, then two. Please note this event is being recorded. I would now like to turn the conference over to Michael Bacal with Darrow Associates, the company's investor relations firm. Please go ahead.

Michael Bacal (Managing Director of Invester Relations)

Good morning, and thank you for participating in today's conference call. Joining me from Outdoor Holding Company's leadership team are Steve Irvin, Chairman and Chief Executive Officer; Paul Kasowski, Chief Financial Officer; and Jordan Christensen, Chief Legal Officer and Corporate Secretary. During this call, management will be making forward-looking statements, including statements that address Outdoor Holding Company's expectations for future performance or operational results. Forward-looking statements involve risks and other factors that may cause actual results to differ materially from those statements. For more information about these risks, please refer to the risk factors described in Outdoor Holding Company's most recently filed periodic reports on Form 10-K and Form 10-Q, the Form 8-K filed with the SEC today, and the company's press release that accompanies this call, particularly the cautionary statements in it.

Today's conference call includes non-GAAP financial measures that Outdoor Holding Company believes can be useful in evaluating its performance. You should not consider this additional information in isolation or as a substitute for results prepared in accordance with GAAP. For reconciliation of this non-GAAP financial measure to net income or loss, its most directly comparable GAAP financial measure, please see the reconciliation table located in the company's earnings release. The content of this call contains time-sensitive information that is accurate only as of today, November 10th, 2025. Except as required by law, Outdoor Holding Company disclaims any obligation to publicly update or revise any information to reflect events or circumstances that occur after this call. With that said, it is now my pleasure to turn the call over to Outdoor Holding Company's Chairman and Chief Executive Officer, Steve Irvin.

Steve Irvin (Chairman and CEO)

Good morning, everyone. Thank you for joining us for our second quarter fiscal 2026 earnings call. I'm pleased to reinstate quarterly calls with our shareholders and hope that these communications help you better understand our progress in improving Outdoor Holding Company. As you are aware, there were some regulatory issues that necessitated suspension of our periodic reporting and these earnings calls. Once we filed our restated and delinquent financials and held an annual meeting, we regained full NASDAQ compliance and are prepared to resume discussing our operating performance. I look forward to these calls being a regular part of our dialogue with our investors. While there remain certain legal matters that we are unable to discuss at this time, we are committed to transparent and thoughtful communication with investors. With that being said, let's discuss what was a promising second quarter of fiscal 2026.

I'm going to provide some initial thoughts, then we'll turn things over to Paul to discuss our financial performance. I'll close things out with some thoughts on where we are heading. In the quarter, net sales of just under $12 million were essentially flat year-over-year, outperforming broader trends in the firearm market and overall consumer spending. Our gross margin remained strong for the quarter and increased by 22 basis points to 87.1%. Gross merchandise value was relatively close to last year's quarter at almost $189 million, but we saw an improvement in our take rate, which rose to 6.34% as compared to 6.27% in last year's period. When I wrote my letter to shareholders back in August, I said our goal was to focus on being fully a streamlined e-commerce marketplace operator. In the second quarter, we began to show results from those operating expense reduction efforts.

Operating expenses, except depreciation and amortization, declined significantly year on year by approximately $6.7 million. Some of this improvement was the result of settling litigation and reducing ongoing litigation costs, but another component was the reduction in compensation-related expenses of over $1 million. We can operate GunBroker.com with a smaller, more streamlined team by reducing redundancies and right-sizing our headcount to match the scope of our operations. Our improved cost structure contributed to reporting net income from continuing operations in the quarter of $1,405,000 as compared to a loss of $5,868,000 in last year's period. This translated to earnings per share of one penny for the quarter versus a loss of five cents from continuing operations in fiscal 2025's second quarter. These cost improvement efforts also led OHC to generating $2.3 million in cash, primarily from operations, during the quarter.

This is even after structuring costs, legal costs, dividends, and other costs, which Paul will discuss in more detail. Generating positive cash flow in the quarter was a remarkable improvement, which we hope to continue improving on in future quarters. Before I turn things over to Paul, I would like to touch on an important financial metric, adjusted EBITDA. The company has been experiencing a volume of non-recurring costs that tend to mask our underlying business performance. To help clarify our performance, we include a table detailing adjusted EBITDA in both our earnings release and 10-Q. This quarter's adjusted EBITDA number confirms our progress, as we delivered a 24% improvement in adjusted EBITDA for the quarter at $4.9 million as opposed to $3.9 million in fiscal 2025's second quarter. I will now turn it over to Paul Kasowski, our Chief Financial Officer, to discuss the quarter's performance in greater detail.

Paul Kasowski (CFO)

Thanks, Steve, and good morning. Let's dive deeper into our financial performance for Q2. We use adjusted NICS checks data from the NSSF to provide context on trends for the firearm industry. Adjusted NICS were down over 5% in Q2 versus the same three months in a prior year. Despite this metric, firearm sales on gun broker were up over 3%, and our adjusted share of NICS increased 50 basis points to 6% for the same period. GMV for firearms increased 1.2%, driven by a 7.8% increase in used firearms. This represents enthusiasm from the buyer and seller community who have established gun broker as the marketplace leader for firearms. While total GMV decreased by 1.2% to $189 million, total revenue for the quarter was slightly up at $11,984,000 versus prior year for the same three months. In addition, net revenue was 1.1% higher than Q1 for fiscal year '26.

Take rate increased 7 basis points to 6.34% with improved platform monetization and high-margin seller services. This also resulted in a gross margin of 87.1% compared to 86.9% for the three months ended September 30th, 2024. Operating expenses decreased by approximately $6.7 million for the three months ended September 30th, 2025, compared to the three months ending September 30th of 2024. The lower operating expenses were driven by a decrease in legal fees, a reduction of stock-based compensation, and salaries related to reduced headcount. We recorded a $400,000 reduction in bad debt expense due to increased collection efforts. These decreases were partially offset by a $1.8 million expense related to a settlement contingency with a vendor as part of the sale of the ammunition manufacturing business. The result is a net income of $1.4 million for three months ending September 30th, 2025.

Adjusted EBITDA was $4.9 million, which is 41% of net revenue, compared to $3.9 million in adjusted EBITDA for the prior year. As Steve mentioned earlier, cash increased $2.3 million for the quarter. This was driven by the high operating margin of the gun broker business model. We ended the second quarter with cash on hand of approximately $65.7 million. The company intends to use part of this cash balance to repurchase shares. In September of 2025, independent and disinterested members of the board of directors approved the exercise of the second note's prepayment option, upon which the company issued 13 million warrants in satisfaction with the second note. This event resulted in an extinguishment of debt and a gain of approximately $801,000, which was recognized in the quarter.

Finally, at the end of the second quarter, Outdoor Holding Company qualified as a smaller reporting company due to the value of our public float, which will affect how our internal controls are audited and the scope of our financial reporting disclosures. Despite this change, we remain committed to continually improving internal controls and disclosure practices. We are pleased with the current trends of the business and beginning to realize the benefits of a more efficient operating model and the strategy Steve is defining for the business, which emphasizes cost efficiencies and improving the user experience on gun broker. Now, let me turn it over to Steve for some final remarks before we take your questions.

Steve Irvin (Chairman and CEO)

Thanks, Paul. As I said earlier, this was a very good quarter for the company, financial results of which demonstrate the effect of our initiatives over the last quarter, but we have room to continue improving. We've made progress in reducing overhead and redundant costs in the organization, but there's more work to do. Just after our quarter ended, we announced the relocation of our corporate headquarters back to the Atlanta area. This action has resulted in a modest reduction in headcount and will eventually eliminate our Arizona physical footprint. Additionally, we will continue to have highly variable expenses tied to advancement and indemnification of former officers and directors and the costs of ongoing litigation. Despite our expectation that operating results will remain stable, our overall financial performance will be uneven until the litigation is resolved and the company's indemnification obligations are extinguished.

Paul also talked about our substantial cash position. While we are earning interest on those cash balances today, we believe there are other actions that can provide better returns for our shareholders. We remain committed to exploring all methods of increasing shareholder value, both through continued cost reduction and by improving user experience on the GunBroker.com website to increase traffic, transaction volume, and ultimately revenue. This concludes the presentation portion of our call. I will now turn the call over to the operator for questions. Thank you.

Operator (participant)

We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star and then two. Our first question comes from Mark Smith with Lake Street Capital. Please go ahead.

Mark Smith (Analyst)

Hi, guys. I wanted to ask first just about kind of market share and how you felt about your performance during the quarter relative to peers, both brick and mortar as well as online retailers.

Steve Irvin (Chairman and CEO)

Okay. Thank you, Mark. This is Steve Irvin. I think in the presentation, we said that adjusted NICS were down 5%, while our firearm sales increased 3%. So our view is that we are gaining market share and not losing market share and that we're doing well compared to the industry trends.

Mark Smith (Analyst)

Okay. And then just as we think about things as far as changes in strategy, it's the first conference call in a while. Anything that you can discuss or want to around changes in strategy or even potential changes to kind of the gun broker site and how users will see that? Is there anything that we should look forward to coming up, or do you feel like you've got kind of the right platform and everything in place today that you need?

Steve Irvin (Chairman and CEO)

Well, in terms of the gun broker site, we're improving the site every day. We're improving the buyer experience every day. I'm focused on buyer experience. I want our buyers to go in and have a very convenient experience, make it really easy to purchase things, make it as consistent across the entire site as humanly possible. And we do that day in, day out. Our development process basically improves the software in little bite sizes every couple of few weeks. And so we're always making changes. We're always driving that user experience. We have been focusing from the seller side on helping sellers sell more product. That, too, is not a new initiative. It's just something we do every single day. I think we're just more focused on it under my leadership than we've potentially been in the past. We've got some initiatives in place.

We've been using a lot of AI throughout the organization to improve things. We are making it easier to list items. We're working on universal payments to allow credit card payments for 100% of the merchandise that's for sale on the site. So these things are in process of things that we're working on. And they'll continue to drive incremental GMV, which will drive incremental revenue.

Mark Smith (Analyst)

Okay. And the last question for me was just around operating expenses. You guys have done a great job on gross profit margin and maintaining and even improving a little bit on those margins. But just as we think about operating expenses, it sounds like it's hard to say what kind of one-time things could still come up. But I'm curious about anything that you can say around corporate G&A, your employee salaries, related expenses. Do you feel like this is a good sustainable level here? Do you think there's more to come?

Steve Irvin (Chairman and CEO)

Oh, I think there's a lot more to come. I think there's a lot more to come. This is the tip of the iceberg. We have expenses that we're in control of and expenses we're not in control of, legacy things from the past. And every single day, we look at every dollar we spend and say, "Do we need to spend this? Is it required? Is it generating revenue? Is it something we can live without?" And we cut where we can. But there are certain expenses, for example, the indemnifications that we just are not in control of. And that's going to kind of ebb and flow as those people move through their processes. And so we're laser-focused on continuing to make cuts. And we've made some, and there's more to go. This is still early innings.

Mark Smith (Analyst)

Okay. Great. Thank you.

Operator (participant)

And the next question comes from Matt Koranda with ROTH Capital. Please go ahead.

Matt Koranda (Managing Director and Senior Research Analyst)

Hey, guys. Good morning. I guess we wanted to pick up on some of the consumer trends that you saw during the quarter. So nice to see the outperformance versus NICS. And I think you guys called out used firearms as particularly strong. I guess in my mind, that might indicate there's a little bit of consumer trade down that's happening. But then I think you also called out AOVs are higher. So maybe just wanted to hear you talk about some of the trends that you saw during the quarter in firearms demand and particularly used.

Steve Irvin (Chairman and CEO)

So keeping in mind that obviously I've been running gun broker except for the brief window from 2021 till this year for 26 years. And I've seen a lot of these trends. On the used side, used items that are fairly priced have a near 100% sell-through rate. I mean, with new firearms, there's basically unlimited supply, right? Except in surge periods where there's shortages, there's basically unlimited supply. And so you can end up with a glut of new, but you basically don't ever end up with a glut of used products sell-through at a very efficient, at a very high rate, very efficiently. And so the challenge is getting people to list more of those used items for us to sell.

So I don't really think of it as a consumer trend, like a trade down or what have you. I think it's just in general, there's less supply than there is demand. And so I think that is just something that has been the case since I started this site.

Matt Koranda (Managing Director and Senior Research Analyst)

Okay. That's fair, Steve. Maybe just then the follow-on to that is, how do you incentivize more used listings and make sure that your sellers are bringing the right used supply onto the marketplace?

Steve Irvin (Chairman and CEO)

I think, I mean, it's amazing what people buy. People buy a rusted-out gun that doesn't even work if the price is right. It's not necessarily the right gun. It's literally just getting that supply. And the vast majority of our transactions are done by gun shops. And I mean, there'll be gun shops that have a couple hundred items on gun broker and 10,000 more sitting around their store. And a lot of the difficulty is just the time it takes to list each one. Because with a new gun, you use a stock picture, you take a picture of it, you can buy thousands of them through distribution, and it's the exact same thing.

With a used gun, if it's got a scratch or whatever, I mean, you basically have to take a picture of the item you're selling. And so there's a little more process, well, there's a lot more process behind it. And so what we're always trying to do is streamline that process.

Matt Koranda (Managing Director and Senior Research Analyst)

Yeah. Okay. Are there new tools available to sellers, or do you envision in sort of the product pipeline for sellers, maybe some AI-enabled tools that would help with listings, maybe to unlock some more of that supply?

Steve Irvin (Chairman and CEO)

Absolutely. And I mean, we do so much behind the scenes with APIs and connectivity to point-of-sale systems and a bunch of other things that you just don't see unless you're in that business. But absolutely, we're working on those tools every single day, trying to make that process, that listing process, more streamlined. And really, the entire selling process, the keeping track of who paid, shipping. We're doing our best to streamline and make that entire selling process more efficient for our sellers.

Matt Koranda (Managing Director and Senior Research Analyst)

Yeah. Okay. All right. Got it. And then I guess last one is more focused on the profitability side. It looks like if I just annualize what you did in the second quarter, we're already pretty far along toward the target of the 25 million in EBITDA that you put out there in the shareholder letter, Steve. And it sounds like you got a lot more to come on sort of the cost-saving side. Could we see that 25 million goal over time tick up? Just wanted to hear a little bit more about sort of the potential for profitability to kind of return to the historical levels that you have achieved before.

Steve Irvin (Chairman and CEO)

So yes, I believe that we can beat that number over time. That was sort of a goal that was set kind of at the end of, for example, the indemnification of officers and certain other things. So kind of a shorter-term goal. But yes, our intention is to continue to drive our adjusted EBITDA number higher and higher and higher. Revenue growth will certainly help that, but there's a lot of there's a lot to still do on the cost-saving side. And so both of those will be a factor in driving that number higher.

Matt Koranda (Managing Director and Senior Research Analyst)

Okay. I'll turn it over. Thanks, guys.

Steve Irvin (Chairman and CEO)

Thank you.

Operator (participant)

This concludes our question and answer session. I would like to turn the conference back over to management for closing remarks.

Steve Irvin (Chairman and CEO)

So this is Steve Irvin. I want to thank you for participating in today's call and for your interest in Outdoor Holding Company. We look forward to sharing our ongoing progress when we report our fiscal third quarter 2026 results in February. Thank you all and have a great day.

Operator (participant)

Conference has now concluded. Thank you for attending today's presentation. You may now disconnect.