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Thank you for joining us, and welcome to Outdoor Holding Company's First Quarter Earnings Call for Fiscal Year 2027. [Operator Instructions] Participants on this call are advised that the audio of this conference call is being broadcast live over the Internet and is also being recorded for playback purposes.

I would now like to turn the call over to Michael Bacal of Darrow Associates, the company's Investor Relations firm. Please go ahead, sir.

Good morning, and thank you for participating in today's conference call. Joining me from Outdoor Holding Company's leadership team are Steve Urvan, 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 within the meaning of the federal securities laws, including statements that address Outdoor Holding Company's expectations, strategy, future performance, operational results, margins, cost structure, legal matters, capital allocation and other matters. Forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results to differ materially from those expressed or implied by such statements.

For more information about these risks and uncertainties, please refer to the risk factors and other cautionary statements described in Outdoor Holding Company's most recently filed annual report on Form 10-K, quarterly report on Form 10-Q and the company's earnings press release issued in advance of this call.

Today's conference call includes non-GAAP financial measures that the company believes can be useful in evaluating its performance, including adjusted EBITDA. These measures should not be considered in isolation or as a substitute for results prepared in accordance with GAAP. For a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures, please see the reconciliation table located in the company's earnings press release and 10-Q and previously released financial reporting. The information discussed on this call is current as of today, August 10, 2026. 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.

It is now my pleasure to turn the call over to Outdoor Holding Company's Chairman and CEO, Steve Urvan.

Good morning, everyone, and thanks for joining us. Over the past year, we substantially stabilized and simplified the company and established a much leaner and more focused operating foundation. The stabilization phase is substantially behind us, but operational improvement is continuous. Our operating philosophy is simple, continuous improvement and disciplined growth. Continuous improvement means operating the business better every quarter, simplifying processes, improving efficiency, applying technology where it creates measurable value and allocating capital to its highest and best use.

Disciplined growth means investing in initiatives that strengthen the platform, expand monetization through value-added services and create durable long-term shareholder value, not simply by charging customers more, but by making the platform more valuable and monetizing more of each transaction. This quarter demonstrates the earnings power of that philosophy. Four numbers capture the quarter. Net revenues increased 22.1% to $14.5 million, marking our fourth consecutive quarter of year-over-year revenue growth. Net income from continuing operations improved by $9.4 million from a $5.9 million loss to income of $3.6 million. Adjusted EBITDA increased 152% to $7.9 million, and operating cash flow improved by $11.1 million from a deficit of $6.7 million last year to positive $4.4 million this year.

Just as importantly, improvement was broad-based. Traffic conversion, average order value and firearm unit sales all increased, while our leaner operating structure converted that growth into meaningful earnings and cash flow. Paul will walk through the financial bridge, so I will focus on the 3 principal operating drivers. First, marketplace productivity. Conversion improved and average item values rose with gains across both new and used products. Firearm units sold increased 11.6% against a 5.3% increase in adjusted NICS. Our FFL required units represented approximately 6.4% of adjusted NICS, an increase of 41 basis points year-over-year. That performance indicates that GunBroker grew faster than the broader market during the quarter.

Second, FFL transfer revenue. The FFL integration launched at the beginning of the fiscal year created a new revenue stream, expanded our dealer network, centralized verification and compliance and streamlined the transfer process. It contributed meaningfully to both revenue and take rate in its first quarter of operation. Paul will discuss the financial contribution and the initial implementation costs in more detail.

Third, Virginia provided a meaningful but temporary tailwind. Buying in Virginia, driven by proposed legislation banning high-capacity firearms, contributed to a meaningful portion of our year-over-year GMV increase. We are not assuming that demand pulled forward into the first quarter will repeat in the second quarter. Enforcement of the new law is currently subject to preliminary injunctions and litigation continues.

However, excluding Virginia, GMV still increased approximately $23 million year-over-year, supported by improvements in traffic, conversion and average order value. That broader marketplace performance is the more important indicator of the underlying health of the business despite a slowdown in June velocity.

One category worth highlighting before I turn the call over to Paul is silencers and suppressed firearms, where GMV increased approximately 71% year-over-year. Effective January 1, the federal making and transfer taxes were reduced to 0 for most NFA items, including silencers. While the application and registration requirements remained in place, we believe the lower transaction cost should support demand in this category, although quarterly growth may be uneven, and this remains smaller than firearms overall.

With that, let me turn it over to Paul.

Thanks, Steve. Good morning, everyone. I will walk through the revenue, gross profit, operating expense and cash flow bridges for the quarter. The results reflect both elements of our operating philosophy, continuous improvement in the way we run the business and disciplined growth through the marketplace expansion and new service offerings. Starting with revenue. Net revenues were $14.5 million, up $2.6 million or 22.1% from $11.9 million in last year's first quarter. That growth primarily came from 2 areas. About $1.7 million was driven by increased volume across the marketplace reflected in final value fees and marketplace service fees. An additional $0.9 million came from FFL transfer fees, which began in April and demonstrated our approach to disciplined growth. As a result, revenue outpaced GMV growth in the quarter.

The underlying marketplace metrics were also strong. GMV increased 18.1% to $223.7 million. Average order value rose $33 or 7.5% to $477. Conversion improved 11 basis points to 1.76% and first-party engaged sessions grew 2.9%. Our take rate was 6.47%, up from 6.26% a year ago, with FFL fees contributing 39 basis points. Our legacy take rate was 6.08%, down modestly from the prior year. The decrease primarily reflected a larger share of volume from our top sellers who qualify for discounted fee rates and an increased average item value, which carry a lower inherent take rate.

Growth concentrated amongst our most active sellers and high-value items is a healthy sign. More importantly, the FFL contribution demonstrates our ability to monetize useful services without increasing the base final value fee. Our gross profit was $12.2 million for the quarter, up 18.5%. Gross margin was 84.5% compared to 87.2% last year, a drop of about 260 basis points. The decline primarily reflected the launch of FFL transfer services, including start-up and implementation costs incurred early in the quarter that are not expected to recur. Those implementation activities were substantially completed in May, and we expect the margin contribution from FFL transfer services to improve as the service scales with total gross margin stabilizing above 85%.

As noted previously, new services may carry lower margin than the legacy marketplace while still providing highly attractive incremental revenue and profit. Operating expenses are where the continuous improvement side of the quarter is most visible. Total operating expenses were $8.9 million, down $7.4 million or about 45% from $16.3 million a year ago. Legal and professional fees fell $3.7 million, mostly because the Delaware litigation, SEC investigation, audit investigation and the restatement are behind us.

Salaries and related costs fell $2.7 million from corporate restructuring. Stock-based compensation was down $0.4 million and last year included $0.6 million in onetime sales tax audit expenses that didn't repeat. The decline reflects the elimination of substantial legacy costs and materially lower recurring operating expense. We do not view cost discipline as a onetime restructuring exercise as we continue reviewing our cost structure, simplifying workflows, improving productivity and reallocating resources towards the opportunities that offer the strongest long-term returns.

Putting those elements together, net income from continuing operations was $3.6 million compared with a loss of $5.9 million last year. This quarter realized over a $9 million improvement in a single year. After the $0.8 million preferred dividend, net income attributed to common shareholders was $2.8 million or $0.02 per diluted share compared with a loss of $0.06 per share in the prior year period.

Adjusted EBITDA was $7.9 million compared with $3.1 million last year, an increase of approximately 152%. Quarterly adjusted EBITDA has grown sequentially every quarter for the past year, $3.1 million, $4.9 million, $6.6 million, $7.7 million and now $7.9 million. On a trailing 12-month basis, we're at approximately $27 million, which is comfortably above the $25 million annualized run rate goal established last year. The quality of the result also improved beyond interest, taxes, depreciation and amortization. Our adjustments totaled approximately $0.9 million this quarter, which consisted of $0.6 million of SEC-related costs and $0.3 million of stock-based compensation. Comparable adjustments were approximately $5.6 million last year. The narrowing gap between reported and adjusted performance reflects the normalization of the business.

Turning to cash flow and the balance sheet. Operating activities provided $4.4 million of cash compared with $6.7 million use of cash last year, an $11.1 million year-over-year improvement. We funded $2 million of share repurchases, $0.8 million in preferred dividends and the scheduled $1 million payment of the related party note. Despite those uses of cash, we still managed to increase our cash position by $0.7 million to $68.8 million.

The business generated enough cash to invest in the platform, return capital to shareholders, meet its obligations and still strengthen the cash position. On share repurchases, we bought just over 1 million shares this quarter for $2 million. Since launching the program in January of 2026, we've repurchased about 1.5 million shares at an average of $1.97 per share, with $12 million still available under the $15 million authorization.

We continue to evaluate repurchases on the same basis as other capital allocation decisions and what generates the best risk-adjusted return for our common shareholders. These results reflect disciplined daily execution, managing costs, simplifying the organization, improving operating efficiency and investing selectively in the user experience. Operational improvement is not a project with an end date. It's an ongoing management responsibility. Our objective is not simply to operate at the lowest possible cost. It is to direct resources toward the uses that can generate the strongest long-term returns.

With that, I'll turn the call back over to Steve.

Thank you, Paul. Q1 demonstrates the earnings power of the model, but we are not extrapolating a single quarter. Virginia pulled some demand forward. More durable elements are our continually improving cost structure, stronger marketplace productivity and expanding revenue streams. Our focus is to build on the foundation established over the past year through our operating philosophy, continuous improvement, disciplined growth. I'll close with 3 areas of focus: the market, the platform and capital allocation.

First, the market. The broader consumer environment is still cautious, but firearms demand has been resilient with adjusted NICS positive year-over-year in nearly every month of calendar 2026 through the end of the first quarter. Our economics differ fundamentally from those of a manufacturer or retailer. We do not own firearm inventory, take product obsolescence risk or depend on any single brand or product cycle. We operate a national asset-light marketplace, spanning new and used products, thousands of sellers in a broad range of categories. The FFL transfer integration and our marketplace service fee also reflects an important competitive reality. Compliant commerce at scale is difficult and GunBroker has spent more than 25 years building a specialized marketplace, network and infrastructure to facilitate it.

Second, the platform. Our strategy is straightforward, remove friction from each step of the transaction and attach services that make e-commerce easier, safer and more efficient. That allows us to improve user experience and increase take rate without relying solely on increases to the base final value fee. The path includes FFL transfers, universal payments and premium programs such as Collector's Elite and over time, advertising. FFL transfer services contributed 39 basis points to take rate this quarter while providing a larger dealer network, centralized verification and compliance and a more streamlined transfer process.

We continue to advance universal payment processing.

Our AI listing tool is intended to reduce listing time, standardize product descriptions and improve marketplace searchability. We are also piloting an AI-supported customer service agent intended to improve response times and handle routine inquiries more efficiently while preserving human escalation for complex matters. We will deploy these tools only when they meet our quality and operational standards. Third, capital allocation. Our priorities are unchanged: keep the balance sheet strong, invest selectively in high-return platform enhancements and return excess cash to shareholders. We doubled our share repurchase activity this quarter versus last, and we intend to remain opportunistic under the share repurchase authorization subject to market conditions, liquidity and the needs of the business. Let me close with one thought.

Our operating philosophy is simple, continuous improvement, disciplined growth. Continuous improvement means operating the business better every quarter. We continually challenge our cost structure, simplify processes, improve the customer experience, apply technology where it creates measurable value and allocate capital to its highest and best use. Disciplined growth means investing in initiatives that strengthen the platform, expand monetization through value-added services and create durable long-term shareholder value. Every major decision we make fits within one of those two principles.

Our priorities for the balance of fiscal 2027 are, therefore, clear: grow marketplace activity and revenue, continue reducing costs and improving operating efficiency, scale new transaction services, convert technology investment into measurable productivity and turn earnings into cash and shareholder value. The stabilization phase is substantially behind us, but operating improvement is continuous.

Q1 demonstrates that we are executing against that philosophy, a growing marketplace, an exceptionally high-margin core business, a leaner cost structure, new monetization opportunities and a strong balance sheet. With gross margins in the mid-80s and a lean cost base, incremental GMV can produce substantial value for shareholders.

With that, operator, let's open it up for questions.

[Operator Instructions] And your first question comes from Mark Smith with Lake Street.

I wanted to ask first about the FFL transfer revenue. Can you give us just any thoughts around maybe growth in this business, how it trended during the quarter and kind of outlook as we go forward?

Yes. Thank you, Mark. So this quarter, in terms of growth, the FFL transfer revenue is only for firearms transactions, the only one that you need an FFL for. And therefore, it's going to move up and down as the actual fire -- really the counts, not necessarily the dollar value, but the count of firearms transactions moves up and down. The -- we had some additional costs for the implementation that kind of tailed out toward the end of this quarter. So we expect that to be kind of stabilized at this point and to provide meaningful revenue and meaningful profitability as we move forward.

Okay. And Paul, I apologize if I missed it. Did you break out kind of the impact on margin just from the addition of this FFL transfer business?

No. We talked about the combined new weighted average, the current and expected run rate versus the historical run rate.

I think we did say it contributed 39 basis points to our take rate. And so that can give you some sense of magnitude or what have you.

Yes. And I think the last question for me. I wanted to just ask about NFA items. Obviously, really solid year-over-year growth. Curious kind of sequential trends, if we've seen any slowdown in that business kind of after the initial surge in January with the change in the stamp tax on that. Any insights into NFA items and how they're trending would be great.

Yes. They're up quite a bit quarter-over-quarter. Let me pull it up. It was at right around 50% on NFA items, first and last quarter, the same year.

Your next question comes from the line of Matt Koranda with ROTH Capital.

It sounds like core GMV, even ex the Virginia benefits grew pretty nicely. So just wondering how demand trended into July on the marketplace, just given broader adjusted NICS still look pretty healthy and growing on a year-over-year basis. Any commentary on traffic conversion, marketplace mix, AOV, whatever you want to call out would be super helpful.

Yes. We saw -- go ahead, Steve.

Go ahead, Paul. No, you go.

No, I was just going to say we definitely saw -- we outpaced pretty heavy. You said kind of going into July. It's definitely our slower time of year. So we saw a little bit of a tail off typical as well. The other thing we saw with specific to Virginia and some other states is that as the legislation was going into effect, we saw a little bit of a dip off in people going back to brick-and-mortar more so than online just due to the timing of legislation going into effect.

So just in general, summer is the slowest time of year for us. People are outside, they're on vacation. They're not doing -- they're not sitting in front of their computer and shopping. And this is a pattern that's repeated since 1999 when I started this company. So not surprising. It's just a seasonal aspect of things. The Virginia thing was interesting just because you get a kind of a rush of demand because of a new law that's going to be implemented, then the courts put the law on hold. Let you go back to buying those items, demand fell off.

And it just shows you that in this business, there is a lot of factors that just aren't general marketplace factors. There's a lot of fear, uncertainty and doubt drivers, legislative changes, political changes can influence GMV and purchasing intent by our consumers.

Okay. All right. That's helpful, guys. And then on AI implementation, I guess you called it out in the prepared remarks around customer service. Is that fully rolled out now? Maybe just talk about the rollout there? And then any other initiatives, Steve, that you're excited about that might be helpful in terms of impacting GMV growth in the coming quarters?

I am extremely excited about AI. The customer service, we did implement it. It is up and running. It's very, very recent. And so I can't -- I don't have any kind of meaningful data on that as of yet. The sample size is just too small. So we can be talking about that down the road, but it is implemented and it is live. We are -- we hired an AI director. We've examined everything about the business. We're looking at everything we do and looking for ways that AI can make it better, make us more productive, cut costs and what have you. Just super excited about it.

So that the AI implementation is ongoing, and we expect that it's going to be a driver not only of GMV and revenue, but also something that will reduce costs and make us more efficient. In terms of headcount, given the kind of volumes we do, we don't have a lot of employees. And so we use technology to provide tremendous operational leverage, and AI is just a spectacular tool for doing that.

Okay. That makes sense. And maybe just that brings me to the last question, which is you've surpassed the $25 million adjusted EBITDA target that you initially set out to achieve. And it looks like if we look at the first quarter kind of core OpEx, maybe things are normalizing here in terms of expense. But maybe could you just talk about the next waypoints to look for, what we should be thinking about, maybe if Paul wants to talk about kind of core OpEx and what the pull forward for the rest of the year would be helpful.

I'll let Paul take it in a second. But when you look at -- one of the things I'm excited about is, obviously, the delta between adjusted EBITDA and EBITDA, it's closing. And so we're -- we said as we resolve these things, as we keep -- as we resolve issues, we -- our cash flow, our profitability, our adjusted EBITDA, these numbers are going to continue to converge. And this quarter, we had a lot less like in the prior quarter, we had the $4.4 million legal settlement. A lot of those things are in our -- in the historical past. They're not recurring going forward, and we continue to make progress on that. And so it's very exciting to see the cash flow of this business increasing, the profitability of this business increasing as we're putting these things behind us.

So I'll let Paul talk about this a little more.

Thanks, Steve. Yes, I think this quarter definitely reflects a better run rate for the normalized business. I think where it means, that include some items as where we're going to continue to invest in the business, but those investments should have kind of returns on them. So like Steve mentioned, areas like AI, where there's potentially growth and productivity investments we'd expect in the future as well.

That concludes our question-and-answer session. I will now turn the conference back over to Steve Urvan for closing remarks.

Thank you all for joining us today and for your interest in Outdoor Holding Company. This quarter is a credit to the entire GunBroker and Outdoor Holding team. We look forward to updating you on our progress when we report our fiscal second quarter results in November. Thank you, and have a great day.

This concludes today's conference call. You may now disconnect.

Good morning, and welcome to the Outdoor Holding Company's Fourth Quarter FY 2026 Earnings Call. [Operator Instructions] As a reminder, this conference call is being recorded.

I would now like to turn the call over to the company's Investor Relations representative, Michael Bacal. Thank you. Please go ahead.

Good morning, and thank you for participating in today's conference call. Joining me from Outdoor Holding Company's leadership team are Steve Urvan, 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 within the meaning of the federal securities laws, including statements that address Outdoor Holding companies' expectations, strategy, future performance, operational results, margins, cost structure, legal matters, capital allocation and other matters. Forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results to differ materially from those expressed or implied by such statements. For more information about these risks and uncertainties, please refer to the risk factors and other cautionary statements described in Outdoor Holding company's most recently filed annual report on Form 10-K and periodic reports on Form 10-Q and the company's earnings press release issued in advance of this call.

Today's conference call includes non-GAAP financial measures that Outdoor Holding company believes can be useful in evaluating its performance. These measures should not be considered in isolation or as a substitute for results prepared in accordance with GAAP. For a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures, please see the reconciliation table located in the company's earnings press release. The information discussed on this call is current as of today, June 22, 2026. 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.

Before we begin, please note that certain non-GAAP financial measures discussed on today's call including adjusted EBITDA are reconciled in the most directly comparable GAAP measures in the company's earnings materials. Reconciliations for the first, second and third quarters of the fiscal year are available in the applicable quarterly earnings releases posted on the Investor Relations section of the company's website.

It is now my pleasure to turn the call over to Outdoor Holding Company's Chairman and Chief Executive Officer, Steve Urvan.

Good morning, everyone. Thank you for joining us for our fiscal fourth quarter and full year 2026 earnings call. After just over a year as CEO, I'm excited to report that annual results reflect remarkable improvement for the company. I'm extremely proud of the tremendous progress we have made. Fiscal 2026 was a year of meaningful improvement across the business. And the fourth quarter gave us a strong finish with continued operating momentum, stronger cash generation, growing profitability and clear progress exceeding the profitability goals I laid out last August. First, I will review our quarterly results, then Paul will review our financial performance in greater detail before I recap our accomplishments in fiscal 2026 and our priorities for fiscal 2027.

In the fourth quarter, net sales were $13.9 million, an increase of over 10% or almost $1.3 million compared with the prior year period, despite the cautious consumer spending environment. Gross margin remained strong for the quarter at 87.6%. Gross merchandise value, or GMV, increased to $229 million from approximately $205 million in last year's period. Due to sales mix of increasing firearms GMV versus non-firearms GMV, we experienced a modest decline in our take rate to 6.06% from 6.15% in last year's period. We continue to execute our strategy of operating as a streamlined pure-play e-commerce marketplace.

In the fourth quarter, we made further progress reducing operating expenses. Total operating expenses declined significantly year-over-year to the tune of $23 million. During the quarter, the company resolved an open litigation item with a $4.4 million payment to fully and finally settled the DCP matter. We inherited numerous litigation matters and have been working hard to resolve these matters as evidenced by many successful resolutions in the fiscal 2026 year. We continue to demonstrate that GunBroker.com can be operated as effectively as a smaller, more streamlined organization by reducing redundancies and rightsizing our personnel to match the scope of our operations. Even after absorbing the onetime $4.4 million settlement expense in the DCP matter, we dramatically reduced our net loss from continuing operations in the quarter to $2.7 million compared to a loss of $27 million in the same period last year. This translated to a loss from continuing operations per share of $0.02 for the quarter versus a loss from continuing operations of $0.23 for the prior year period.

Importantly, significant cost improvements once again drove strong cash generation for the quarter despite the restructuring costs, share repurchases, legal expenses and other costs offsetting these cash gains for the quarter, which Paul will discuss in more detail. We view this continued recurring contribution of cash flow from operations is one of the clearest indicators of the underlying health of the business. The fourth quarter results reflect the continuation of the trends we've seen in the last few quarters. For fiscal 2026, net sales and gross margins grew from fiscal 2025 levels. More importantly, we have been executing on our cost reduction efforts and curtailment of legal expenses, resulting in a significantly lower year-over-year operating expenses. The net result was a dramatic reduction in operating losses from continuing operations and positive cash flow from operations for the year. That positive cash generation is a milestone worth underscoring, as it's a direct result of the concerted efforts our team has put in place to increase operational efficiency.

Before I turn things over to Paul, I would like to touch on a key metric we use to evaluate real-world performance, adjusted EBITDA. We believe this non-GAAP metric provides helpful insights into the underlying performance of the business given the level of nonrecurring items impacting reporting results. To help clarify our performance results and identify adjustments, we include a table detailing adjusted EBITDA in both our earnings release and Form 10-K. This quarter's adjusted EBITDA demonstrates our progress as we delivered more than double the adjusted EBITDA in the quarter of $7.7 million compared to $2.9 million in the fiscal 2025 fourth quarter.

Just as encouraging is the trajectory for the year, quarterly adjusted EBITDA grew from $3.1 million to $4.9 million to $6.6 million to $7.7 million from the first to fourth quarters, respectively. For the full year, adjusted EBITDA improved to $22.3 million from $15.3 million in fiscal 2025. We are outperforming the run rate of $25 million adjusted EBITDA that I set as a goal just 10 months ago. I'm especially proud of the tremendous work our team undertook during fiscal 2026 to overhaul and strengthen our financial reporting infrastructure, culminating in the successful remediation of all previously identified material weaknesses in our internal control over financial reporting by year-end.

I will now turn it over to Paul Kasowski, our Chief Financial Officer, to discuss the quarter and year's performance in greater detail.

Thanks, Steve. I'm pleased to share some highlights from our fourth quarter. Outdoor Holding Company's fourth quarter adjusted EBITDA was $7.7 million, a robust 55% of net sales. Q4 net revenue was $13.9 million, 10.1% higher than the fiscal 2025 fourth quarter. This marks the third consecutive quarter of sequential and year-over-year revenue growth. GMV was $229 million, 6.2% higher than Q3 and up 11.8% from Q4 of fiscal 2025. Firearm unit sales were up over 8.7% from last year's quarter, while adjusted mix increased 1.6%, resulting in an increased share of adjusted mix by 40 basis points. The significant increase in GMV was driven by firearms, while the non-firearms category showed a slight increase versus the prior year period.

In Q4, we saw sales growth in both pistols and rifles with sales of new units slightly outpacing sales in used. The overall change in sales mix resulted in a modest decrease in take rate for the quarter. The company completed its integration with a compliant FFL transfer platform to improve the transfer process for items subject to FFL regulations. This integration has reinforced our commitment to reducing transaction friction and improving the user experience while generating incremental revenue. Our overall strong adjusted EBITDA was driven by our continued improvements in operating efficiency, reduced expenses and increased GMV compared to last year's fourth quarter.

The company's strong operating model and continued positive cash flow from operations helped the decline in our quarterly cash position to $1.8 million. Even after spending $4.4 million to resolve the DCP matter, incurring continuing legal indemnification expenses, repurchasing $1 million in stock and resolving other legal disputes. After including $0.5 million of interest income, we ended the fiscal year with a cash balance of $68.1 million, a substantial increase from our closing fiscal '25 cash balance of $30.2 million. Regarding cash deployment, the company will continue returning cash to investors through the share repurchase program.

Looking at full year results for fiscal '26. Net sales increased 3.5% to $51.5 million as compared to $49.4 million of fiscal year '25. Fiscal '26 gross margins improved to 87.2% versus 86.9% in fiscal 2025. We expect our gross margins will continue to remain strong. A new revenue stream beginning of fiscal '27 for FFL services will be accretive to sales but not at the same 87% profitability rate. Full year GMV was $823.5 million, up 3.2% from fiscal 2025 GMV of $798 million. As a percentage of adjusted mix, GunBroker increased share of firearm sales by 41 basis points for the year. The take rate for the year improved modestly to 6.21% from 6.19% in fiscal '25. Reducing operating expenses and improving the user experience will continue to remain a focus.

For fiscal '26, our adjusted EBITDA was $22.3 million or $0.19 per share compared to $15.3 million or $0.13 per share in fiscal '25. Executing on this strategy and maintaining our focus on financial discipline has increased adjusted EBITDA by $7 million. This is a 46% improvement compared to fiscal year '25 and includes over $5 million in reductions across SG&A following the corporate restructuring, less legal expenses and lower bad debt expense. The net loss from continuing operations was $4.9 million for fiscal '26 or a loss of $0.04 per share, a significant improvement over the $65.2 million net loss or $0.55 per share in fiscal '25. Just as important as our positive financial results, the company also remediated all material weaknesses. This was a key priority for management, and we completed it well before our anticipated deadline. Management continues to emphasize the importance of executing on these controls effectively going forward.

Now I'd like to turn it over to Steve for some final remarks before we address your questions.

Thanks, Paul. This was our third consecutive quarter of improved reported financial performance since I became Chairman and CEO of the company, approximately 13 months ago. As this concludes our 2026 fiscal year, now it's a good time to look back and reflect on our progress in achieving the objectives I discussed in my shareholder letter last August. My biggest goals for the year were to substantially reduce the company's SG&A overhead cost structure and to increase adjusted EBITDA.

I'm thrilled to report that we delivered on both fronts. We have reduced corporate expenses, reduced our physical footprint and cut recurring ordinary course operating expenses by $5.4 million. Those actions translated directly into improved profitability with fourth quarter adjusted EBITDA more than double what we achieved in the first quarter of fiscal 2026. Importantly, the fourth quarter adjusted EBITDA also demonstrated that we passed the $25 million adjusted EBITDA annualized run rate that I identified as a goal last August. We are proud to achieve that milestone ahead of schedule, but we are not done. We still see opportunities to simplify the organization, improve efficiency and build on this momentum in fiscal 2027.

Paul also highlighted a major part of the story. Our operating model continued to generate positive cash from operations even while we work through legacy matters and other onetime costs, that positive cash generation give us capital allocation options. In the fourth quarter, we began to execute on our stock repurchase program, purchasing a little over 500,000 shares for over $1 million. And we expect to continue buying stock in a disciplined manner in the quarters ahead as trading permits. We have been disciplined in our capital allocation to support long-term shareholder value selectively investing in new features like streamlining FFL compliance to improve the user experience on GunBroker.com. We will continue to target similar select high-return enhancements to the platform with the goal of increasing traffic, transaction volume, conversion and ultimately, revenue.

We will continue to leverage AI to improve the experience for both buyers and sellers on the site. In March, we deployed an AI-powered listing tool to produce standardized and marketplace optimized product descriptions that we expect will reduce listing creation time, promote consistency and increased conversion rates. Within the next month or so, we expect to release AI-driven virtual customer service to improve our customer support by providing faster and more accurate resolution to customer issues. To further take advantage of AI, we recently announced the hiring of Erich Buerger as Director of AI Strategy and Implementation. Erich will lead the development, coordination and execution of AI initiatives across the company.

Finally, as we look ahead in fiscal 2027, I am optimistic with our strong margins, more efficient operations, positive cash generation from operations and platform improvements each incremental dollar of revenue has the potential to create meaningful profitability and shareholder value. This concludes our prepared remarks.

I will now turn the call over to the operator for questions. Thank you.

[Operator Instructions] Our first question comes from Matt Koranda from ROTH Capital.

I wondered if you could talk a little bit about sort of the shape of demand during the fourth quarter in terms of overall GMV and firearms units, the unit data that you shared was helpful. And then, I guess, since the quarter closed since we're kind of a couple of months now into the first quarter, any trends to call out on demand in sort of the April, May timeframe and maybe even a month to date in June in terms of what you're seeing on firearms demand?

Sure. Matt, thanks for the question. So we've continued to outperform the market. I think mix was up a little bit in the quarter. We were up substantially more. So that tells me that we're continuing to gain market share. And we're continuing to execute on our plan to basically make our sellers happy, make our buyers happy and make GunBroker a very seamless experience for both sides of the transaction, and that's leading to increases in market share. Obviously, we don't -- we're not going to preview kind of financial results for the time past the end of the quarter. But demand in the marketplace seems better this year.

I think that it's hard to -- it can be hard to predict exactly why, but you've got midterms coming up, you've got the elimination of the tax on silencers. And I think that, that's just the whole suppressor. There's a lot of built-up demand for suppressors and I think that's just kind of had a generally positive impact on the firearms market in general. And so demand seems to be continuing to be good. It's not 2020, 2021 good, but it's better than it's been in the last couple of years.

And then I wanted to hear a bit more about the AI strategy. I thought the hiring of a Director of AI strategy and implementation sounds interesting and it sounds like you see it as a large opportunity for the marketplace. So I wanted to hear a little bit, I guess, about where he's going to be focused around? Is it first around seller initiatives like the listing tools that you mentioned? Is it more around experience and buyer initiatives like the customer service initiative that you also talked about? Maybe just what the primary first areas of focus are going to be and where you see the sort of the biggest areas of opportunity?

It's a great question. So obviously, he's been on the job just since the first of June. So step one is kind of get your feet wet, meet with everybody and start understanding the organization and understanding behind the scenes, how we conduct business. To me, there's so much that AI can do. There's a lot of repetitive tasks that it can perform. There's a lot of things that it can do 24 hours a day, whereas people aren't working 24 hours a day. And so we're focused on -- we're not really focused on anything. We're kind of focused on figuring out where we should be focused. And some of the opportunities we've already seen, obviously, are we have vast amounts of data. The site has been around since 1999. We have pricing data. We have descriptive data. We have all kinds of information about firearms.

And using AI, we've -- in the past, we've used traditional data mining tools to kind of help us figure out pricing and certain other things. AI can do it so much more efficiently because it's capable of interpreting things a little more loosely. And so figuring out what we can do with that data, how we can better use that data, help our sellers sell things, help our buyers find things, marketing, AI is great at content generation. It's great at -- there's a lot of tasks that you can perform with AI. And so Erich's job is to really jump in and help us identify where we should be focused and then the next step would be specific -- putting specific implementations to solve specific problems.

The one that we've already -- we were pretty far down the road, we're actually very far down the road even before he joined as customer service. We're probably about a month away from launching that. And that one for me, I think, is huge, because questions come in 24 hours a day, and we don't have people working in customer service 24 hours a day. And so being able to get you kind of immediate answers and really good answers. I think, is going to be game changing for the organization.

Great. I appreciate all that detail, Steve. And maybe just the last one. There's still a little bit of residual noise, I guess, from some of the litigation matters. And so just trying to get my arms around how to think about core operating expenses now that you got the DCP litigation out of the way and the SEC matter is settled, maybe I don't know if Jordan is on and wants to talk about that or if Paul wants to take a crack at just how to think about core OpEx and the run rate going forward now that those matters are sort of mostly behind us.

I'll tell you, we have -- the only open litigation issues are the class action shareholder derivative lawsuit that were filed in Arizona. To the best of my knowledge, everything else has been resolved. And so we don't foresee -- we don't know what the end result of that will be. But aside from that, we don't have any visibility or knowledge of kind of any -- like $4.4 million settlements that we're going to have to make. Like everything else has been cleaned up. So the one -- really that one issue looked at the shareholder derivative matter in the class action, if you kind of look at it as kind of one interrelated issue.

Aside from that, we believe everything else has been settled. Now we still are paying indemnification to ex officers for the SEC charge them in Arizona, and that's ongoing. And that's going to kind of come and go in waves. You've got -- like when you go to trial, there's a -- there's a lot more expense. In other times, there's a lot less expense. It's definitely kind of chunky. But that ongoing cost is that in the class action really last 2 buckets of kind of onetime expenses or legacy litigation expenses that we foresee.

Okay. And the indemnification sort of expenses as they come will be called out, I guess, and sort of onetime items. I would assume...

Yes. We -- it ends up in our adjusted EBITDA bridge.

Our next question comes from Dave Kanen from Kanen Wealth Management.

First question is actually was posed by Matt, but I'm going to take a stab at it in a slightly different way, and it's in regards to any momentum. Did the momentum continue in fiscal Q1 and what you called out was the NICS data was slightly positive and how you outperformed it and grew share. So what is your confidence level? The question is, going forward, what is your confidence level of continued outperformance of the NICS and continued share gains?

So thank you, David. I feel very positive about the way we're trending right now.

Okay. And then in terms of the cost for indemnification of the former officers, is that -- just remind me, is that being pulled out? And does the adjusted EBITDA number exclude it or we're throwing that in there?

That is a cost that is pulled out for the purposes for adjusted EBITDA.

And then the last question is what are some of the opportunities that you see incrementally in order to grow the business organically?

Absolutely. So first of all, we continue to -- as you see from the outperformance relative to NICS, we continue to just basically capture market share. So that's one thing that we've been doing, and I believe will continue going forward. We brought the MasterFFL system online. That has now become a revenue source. In prior quarters, it was -- we were implementing it. So there was cost of no associated revenue. Now it's generating revenue.

As we go forward, advertising, I think I've spoken about advertising in the past. We -- our ad business, when I owned the company, it was private. Our ad business was substantially larger than it is at present. We're working on that. We want to drive more advertising sales. That's something that wouldn't affect take rate. It's kind of a completely separate but complementary business line, but it's something that we feel could be generate substantial revenue growth and substantial profitability as well.

And then we're continuing to make progress on universal payments. Again, some of our sellers don't accept credit cards, don't have the ability to accept credit cards. And we believe that, that is both a substantial revenue opportunity but also a very substantial potential driver of GMV, just eliminating the friction and having go to the bank and then go to the post office and get a money order and mail it off and what have you as opposed to just throwing down your credit card to make a purchase. We think that, that will drive substantial incremental GMV as well.

One more question I thought of as you were speaking. It's been quite -- things have been quite calm in the country, relatively speaking, in terms of civil unrest or catalysts that spur people to go out and buy guns and firearms. So could you give us like a reference point in the past, for example, when they were like during the George Floyd riots and other events like that. In terms of run rate, historically, what you've seen in the business in EBITDA in case something like that happens, so we can get a sense as to what the earnings power and EBITDA potential is?

I mean in early 2021, through 2020, you had kind of a triple whammy. You had COVID, then you had the Defund the police, you had protests and some riding and looting, and then you had an election. And so going into the first quarter -- first calendar quarter of 2021, we were on a run rate that was in excess of $100 million in EBITDA. And of course, at that time, we were private, this isn't -- it's -- I guess, we were under different accounting standards. So I don't want to get us in trouble or what have you, but we were in excess of $100 million in EBITDA as a run rate. And so when people -- when you have political events, like, for example, in 2008, 2 days before Barack Obama got elected, our sales like -- they literally doubled and then they doubled again.

During COVID, our sales again, we ended up on a run rate of in excess of $100 million. You can have -- the size of the spikes can be massive. It can be from a GMV standpoint, it could be double and triple and quadruple the GMV that you're currently doing in a kind of a calmer period. So any kind of political changes, what you were talking about, things like social unrest, these things could really drive massive increases in revenue and GMV.

I think, to add on to that, Steve. I mean, the big point is it's very scalable. Our operating expenses are pretty fixed. And when the top line grows, we don't need to invest a lot more in the business to support it. It's pretty scalable. So we were at 55% adjusted EBITDA as a percent of sales, and I think it would expand as that grows.

And we have no further questions. I would like to turn the call back over to Steve Urvan for any closing remarks.

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 first quarter results in August. Thank you all, and have a great day.

This concludes the conference call. Thank you for your participation. You may now disconnect.

Ladies and gentlemen, thank you for standing by. Good morning, and welcome to the Outdoor Holding Company's Fiscal Third Quarter 2026 Earnings Call. [Operator Instructions] Participants of this call are advised that the audio of this conference call is being broadcast live over the Internet and is also being recorded for playback purposes.

I would now like to turn the call over to Michael Bacal of Darrow Associates, the company's Investor Relations firm. Please go ahead, sir.

Good morning, and thank you for participating in today's conference call. Joining me from Outdoor Holding Company's leadership team are Steve Urvan, 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 a 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 press release. The information discussed on this call is current as of today, February 9, 2026. 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.

It is now my pleasure to turn the call over to Outdoor Holding Company's Chairman and Chief Executive Officer, Steve Urvan.

Good morning, everyone. Thank you for joining us for our third quarter fiscal 2026 earnings call. We believe these communications help me better understand our progress in moving and improving the company's performance. We look forward to this quarterly dialogue, and we remain committed to transparent and thoughtful communication with investors.

Turning to the quarterly results. Fiscal Q3 2026 was a strong period operationally and financially. I'm going to provide some initial thoughts, then we'll turn things over to Paul to discuss our financial performance. I will close things out with some thoughts on where we are headed.

Net sales were $13.4 million, an increase of 7% or about $900,000, outperforming broader trends in our strained consumer spending environment. Gross margin remained strong for the quarter at 87%. Gross merchandise value increased to nearly $216 million, and we experienced a modest improvement in our take rate to 6.2% from 6.17% in last year's period.

We continue to execute our strategy to operate as a streamlined pure-play and e-commerce marketplace. In the third quarter, we continued to make significant progress reducing operating expenses. Excluding depreciation and amortization, operating expenses declined significantly year-over-year, down about $22 million, with our operating expenses being the largest component with a reduction of approximately $21 million. A closer look at this expense reduction shows that a significant portion of this improvement reflects lower litigation-related costs. But importantly, recurring ordinary course corporate operating expenses declined by approximately $1.4 million, driven primarily by reductions in corporate headcount, legal spend and facilities cost.

As I've said before, GunBroker.com can be operated effectively with a smaller, more streamlined organization by reducing redundancies and rightsizing our personnel to match the scope of our operations. Our actions over the past several quarters reflect that view. These cost reductions contributed to net income before discontinued operations in the quarter of [ $1.465 million ] compared to a loss of [ $21.177 million ] in the same period last year. This translated to earnings per share of $0.01 for the quarter versus a loss of $0.18 from continuing operations in 2025's third quarter. The significant cost improvements drove strong cash generation of over $4 million from operations during the quarter, even after restructuring costs, legal costs, dividends and other costs, which Paul will discuss in more detail.

Before I turn things over to Paul, I would like to touch on our most important financial metric, adjusted EBITDA, which we believe provides helpful insights into the underlying performance of the business given the level of nonrecurring items impacting reporting results. 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 54% increase in adjusted EBITDA for the quarter to $6.5 million compared to $4.3 million in 2025's third quarter.

I will now turn it over to Paul Kasowski, our Chief Financial Officer, to discuss the quarter's performance in greater detail.

Thanks, Steve. I'm excited to share some highlights from our third quarter. Outdoor Holding Company reported net income for a second consecutive quarter at just under $1.5 million in Q3. Third quarter adjusted EBITDA was $6.5 million, a robust 49% of net sales. We reported an improvement in Q3 adjusting earnings per share from the previous year's $0.04 per share to $0.05 per share.

Q3 is seasonally one of our highest quarters for sales, and that remains consistent this year. GMV was $215.8 million and grew 6.4%, while net revenue was $13.4 million, an increase of 7% compared to the same period last year. Firearm unit sales were up over 8% from last quarter, while adjusted mix decreased by 3.7%, resulting in an increased share of adjusted mix by 56 basis points. The significant increase in firearm GMV was partially offset by a decline in the non-firearms category.

The company is committed to improving the user experience on GunBroker and recently announced a strategic partnership with Master FFL to improve the transfer process for products subject to FFL regulations. This partnership required an upfront investment in Q3 impacting COGS, but margins remained strong at 87.1%. We anticipate this continued expense until the implementation is complete.

Bottom line is that our strong adjusted EBITDA was driven by our improved operating efficiency, reduced expenses and increased GMV when compared to last year's third quarter. The strength of the company's operating model is also evidenced in the increased cash position of nearly $4.2 million from last quarter, including $0.5 million of interest income, bringing our current cash balance to $69.9 million. The company intends to deploy some of that cash through its share repurchase program as trading permits. Surplus cash generation continues to be impacted by legal costs, but we expect a larger percentage of cash from operations to gradually be retained by the company as these matters are resolved.

Looking at results for the first 9 months of fiscal 2026. Net sales were up slightly at $37.2 million compared to $36.8 million in fiscal year 2025. Year-to-date fiscal 2026 gross margins were 87.1% versus 86.7% in last year's period. Reducing operating expenses and improving the user experience will remain a focus. For the first 9 months of fiscal year 2026, our adjusted EBITDA per share is $0.12 compared to $0.10 per share for the first 9 months of fiscal 2025. We have reduced operating expenses by $28.9 million year-over-year, largely driven by legal resolutions and reduced corporate expenses. As a result, the net loss before discontinued operations was $4.5 million for the first 9 months of fiscal 2026 or $0.04 per share, a significant improvement over the $40.6 million net loss from continuing operations or $0.34 per share for the first 9 months of fiscal 2025.

We expect our financial performance to continue progressing on this positive trajectory, but results may be tempered by legal costs in the short term as we continue to resolve remaining issues. Now let me turn it over to Steve for some final remarks before we take your questions.

Thanks, Paul. Overall, we are pleased with the progress made this quarter. The results reflect the impact of the cost reduction initiatives implemented over the past several quarters, and we believe there remains additional opportunity to further improve operational efficiency. We have made such progress by relocating the headquarters and eliminating other redundant costs, but we will continue to evaluate and execute on additional opportunities to simplify the organization. Our near-term objective remains to achieve a $25 million adjusted EBITDA run rate before sales growth over the next 12 months.

Paul also pointed out our substantial cash position. In January, we announced a stock repurchase program. We have since spent an earnings-related blackout, but look forward to deploying the repurchase program when we are an open trading window over the next couple of months. We remain focused on disciplined capital allocation to support long-term shareholder value. Looking forward, expect continued cost optimization alongside targeted investments to improve the user experience on the GunBroker.com site with the goal of increasing traffic, increasing transaction volume conversion and ultimately, revenue. With our gross margins and disciplined operational efficiency, each dollar of incremental revenue will have a tremendous impact on profitability, driving improved shareholder value.

That concludes our opening remarks. I will now turn the call over to the operator for questions. Thank you.

[Operator Instructions] Our first question comes from Matt Koranda with ROTH Capital.

Good morning, and nice job on the quarter. Curious to hear a little bit more about what you think is driving the good performance in firearm sales for you versus NICS? You're well outpacing that. Wanted to hear a little bit more about maybe some of the enhanced seller tools that you put into place that might be helping that. How much is it used, the shift in the use in the industry in general that's helping you out there? Maybe just to unpack that a little bit for us.

Sure. Thank you. Let's see. So we -- our focus is on buyer experience. We have been working hard to basically streamline the process to make it as easy as possible for people to find things to make it as easy as possible for them to buy things, transact. And then we just did a release, as [ Sacha ] talked about Master FFL to streamline as much as possible, the kind of the fulfillment process on the back end with the transfer dealers and what have you.

So for us, it's all about buyer experience. And we are creating seller tools as well, but it's all about customer experience, making that experience as seamless as humanly possible. And I think that, in part, that is what's playing -- that's helping us drive growth. It is getting back to our fundamentals and focusing on the experience of the marketplace.

Additionally, yes, we -- used guns continue to be very strong. Although we've just -- guns in general were a great category for us over the last quarter. So our continued -- just continuing to focus on that customer experience. We're also continuing to work on universal payments. We're trying to just look at every aspect of the transaction process and just make it as seamless as humanly possible.

Okay. That makes sense. Curious on the universal payments implementation, Steve, maybe -- where are we, I guess, in terms of implementation there? When is it realistic to expect that might be rolled out across the platform? And what does that unlock for you in terms of incremental GMV that you can go after?

Sure. So in terms of what it means, right now, about 30% of our transactions are not done through credit card. And so what we look at is how many transactions are foregone because people don't want to have to send a check, go to the post office, go to the bank to get cash, go to -- then take it to the post office and get a money order. So to -- our way of thinking, that part of the process is not as definitely not as streamlined as it could be.

And so for us, universal payments, we could make money on that 30%, which increase our take rate. But we also can make that experience to the buyer more seamless by allowing them to just pull out their credit card for anything on the site, as opposed to certain transactions have to be paid for in a way that has a lot more friction. And so we consider that to be a very big opportunity for driving GMV, which in turn drives revenue.

In terms of time line, it's actually -- there's a lot of complexity in payments. There's licensing issues, there's compliance issues, KYC, AML. You're dealing with banks, banks are slow moving. It's not a super easy process. The technology isn't that hard, but just all the process around it is challenging. So I don't really want to put out a time line and miss it because I don't think we're quite close enough yet, but this is the highest priority for the engineering team, and we are working diligently every day to move the ball forward on that initiative.

Got it. And maybe just last one for me. I guess we just run rate -- which may be a little bit of a dumb way to do it -- but if we just run rate the adjusted EBITDA from the third quarter here for a full year, you're tracking ahead of the $25 million in adjusted EBITDA target that you set out. Maybe help us understand, maybe either Paul or Jordan, if he's on the call, you can help us understand sort of what to expect in terms of legal fees and professional fees over the next several quarters that might kind of touch that down that won't be adjusted? Any help on sort of where we are in the trajectory towards the -- putting up a full year of the $25 million that you set out several months ago?

Paul, do you want to take that one?

Sure. Certainly, Matt, there's still work to do. And I think the indication here is that there will still be some expenses for items that are not settled and won't be pulled in. It's hard to say on the pure trajectory. I think some of those costs were lower than expected in Q3. And so I just wanted to give you a heads up that, hey, it may not always trend that same direction.

Matt, this is Jordan. Just to add to that -- legal costs are never straight line. So we budget them straight line, but they ebb and they flow. And we, of course, hope that we resolve as many legal issues as quickly as we can because spending money on legal fees is not a value add to us whatsoever. So we're constantly trying to get these things resolved, but there may be quarters where it's higher than expected, and there may be quarters where it's lower than expected, but the overall goal is just to knock those things out as quickly as possible.

The next question comes from Mark Smith with Lake Street.

I wanted to ask, first off, just as we look at solid firearms sales and revenue across the board. Is there anything to call out, for instance, Florida with the tax holiday? Was that a driver of increased sales? Or anything else that you can point to that helped kind of the outperformance?

Paul, do you want to take that one?

Yes. We did look at that. It was up, but it was not a large driver of the overall performance. And it was a combination of new and used firearms, both that were up versus the same quarter a year ago. Used leading the way, but both categories were higher.

Okay. And looking forward, I would assume maybe similar thoughts around kind of NFA items with tax stamp going away, it sounds like this could be a positive for you here, especially in this next quarter. But is it big enough to really move the needle? If you have any thoughts on that.

So I think -- it's a good question. And obviously, requires me to dust off my crystal ball. But I think that there's no question just put out adjusted mix numbers. And obviously, a lot of people were just holding off on NFA items for the tax to go away. So there's been kind of a burst of activity around there. And I think that same burst of activity, specifically in NFA kind of drives interest in general in firearms. So I think that this isn't a -- I wouldn't say this is a 2020 COVID situation or whatever. But I think the market is a little better than it was since the first of the year than it has been prior.

Okay. And then I did just want to hit operating expenses again, a good step down in operating expenses this quarter. Does a lot of this feel like -- and I know Paul just talked about legal, some things that are still happening. But any thoughts as we look forward at when or where we get to kind of what we'll call normalized quarterly OpEx?

It's still off in the future. One of the biggest -- actually, let me delineate OpEx versus things that are adjusted. In terms of OpEx, we are working to reduce our OpEx every day. There were certain requirements in our settlement with the SEC. There were certain requirements that require us to -- and to require us to -- and also just -- we want to make sure that we're doing everything by the book because we're under additional scrutiny here, just from having been under the SEC's eyes for a long period of time. So we're really working hard to make sure that we do everything. We have a lot more -- we are looking at things a lot closer than -- everything we do, we're just looking at it, make sure that everything is right. We want to -- we're -- we don't want to make any mistakes.

And so that increases our costs. We have -- we're spending more money on legal. We're spending more money on compliance. We're spending more money on internal auditing. And so we're trying to kind of cost reduce that over time. But as we pointed out in the past, there's really -- it's 12 to 18 months out in the future. It's been a few months since then, was kind of the point at which we expect that stuff to drop off appreciably.

And then from an adjusted standpoint, from a cash flow standpoint, the indemnification of former officers is one of -- it's just -- we spend a lot of money on legal fees indemnifying former officers, and that won't end until such time as they settle with the SEC or that they go through their process with the SEC and there's some resolution on that. And so we see the light at the end of the tunnel, but we're not in control of when those things are going to occur.

Okay. And the last one for me is just as we think about cash generation and capital allocation. And Steve, you talked a little bit about this in your closing remarks. But you've got the buy back, the authorization stuff there now. Anything else that we think that we should be thinking about that maybe takes a more significant investments here in the near term? And then if you want to talk at all about your thoughts maybe around the preferred later this year.

Sure. So we invested in the company. We invest in our website every day. Most of what our engineering team does is really CapEx. We're developing new software. We're developing new features, developing new functionality, developing new processes. All of that is an investment. And so we have a substantial budget for investment in the platform. And we spend that money every day, and we've always done that.

In terms of new things outside of that, we are looking at a number of initiatives. Just -- AI has come on the scene in the last 3 years, and we're always looking at -- we use AI internally right now. We do a lot of things with AI, but we're always looking at ways to improve and streamline. And it like includes, again, the buying experience, improve the internal operations, what have you. And so we're looking at focused areas to potentially invest some money. But when you look at the -- at a pile of cash that we have, those investments would not be that significant compared to the amount of cash we generate and the amount of cash that we have on our balance sheet.

So right now, the -- I mentioned we were in a blackout period. Right now, we consider our shares highly undervalued, and we're going to be out executing on our repurchase plan now that the blackout has ended. And in terms of other things, we're just always looking at what we can do with that cash and trying to be smart about it, we don't want to squander the cash. It's not that easy to make. We want to make smart decisions, and we want to always drive shareholder value. And so we're always looking at ways to deploy that capital to achieve those goals.

And the next question comes from [ David Cannon ] with [ Cannon ] Wealth Management.

Congratulations. And thank you, Steve, and your entire team for your hard work and execution. One more thing because I know you're not going to highlight this is, you being so aligned with the shareholders is very welcome by myself and probably the majority of shareholders. Some may not know that you've forgone salary, that essentially, you're making $1 a year, and you're aligned with us with the stock to a very high magnitude. So thank you for that.

So first question is in regard to the investment that you're making in FFL and the impact that it had on COGS. If you could just quantify that for us for the quarter? And then also for the 12-month period, what do you anticipate that to be in total?

You mean Master FFL, correct?

Yes. You had said that you were investing -- my apologies. In the prepared remarks, you said that you were investing. And I guess it was a consultant or a vendor that was helping you there, and that there was a cost that impacted COGS?

Correct. I'll let Paul talk about the cost. But in terms of the Master FFL announcement, again, this is -- this is -- the Q streamline a point of friction in the buying process. Firearms have to be shipped to a licensed dealer in the U.S. You can't just ship a gun to your house. It has to be shipped to a licensed dealer, and the buyer has to pick it up from a licensed dealer. And so there's a whole -- there's paperwork that needs to change hands. There's things that need to be done to facilitate that. And we identified that as a point of friction. Again, with the goal of improving the buyer experience, we are making an investment in that area. And we expect it to be something that generates revenue over time, but there is a little bit of an initial investment. And I'll let Paul address that right now.

Yes. So it's about $60,000 to $120,000 a month here in terms of the nominal investment. And it's really intended to get all the plumbing working, coordination to make the tool really seamless in the long run, like Steve said, that we -- really a profit center and an opportunity to generate additional sales.

Paul, did you say $60,000 to $120,000 a month?

That's correct.

Okay. Okay. So probably maybe up to $400,000, $500,000 for the quarter was the impact, which at some point, we'll get back. And then also, as Steve mentioned, it should improve conversion.

Okay. And then on another subject, as it relates to the bank, could you give us an update on what you think is happening in terms of regulation and banks potentially offering traditional financing? So for -- the reason I'm asking is you're paying 8.75% on your preferred. With the strong cash generation, I mean we would -- if you were a regular company, banks would be lining up to give you $50 million at probably SOFR plus [ 2 ]. And we could [ or ] that, and we could also thoughtfully opportunistically deploy that into other initiatives like share buybacks or whatever increases shareholder value. So could you talk a little bit about that landscape and what's happening and if this is an opportunity in the forward 12 months?

Yes, I'll be happy to do that. So just in the last week or 2, JPMorgan sent a letter to the NSSF and basically rescinded their policies, prohibited them from doing business with the gun industry. I think it was kind of veiled in the modern sporting rifles category.

But -- the -- I think under Trump, the -- he signed an executive order, they've put out some additional requirements that -- they're prohibiting banks from discriminating against a number of categories of businesses, including fossil fuels and what have you, but firearms was kind of very high up the list. And I think that what that does, change the landscape in terms of being able to get bank debt, sizable amounts of bank debt at a reasonable price. In the past, if you look at the top 100 banks, maybe there were 5 or 6 that would do business with companies that were gun companies. We're not really a gun company. We're a technology company, but firearms are sold through our site. And I think that the executive orders and the change in attitude by the regulators is changing that attitude toward the gun industry and opening up avenues that were previously closed to us.

And so I do agree with your thesis that the company probably has the ability to raise a substantial amount of reasonably priced debt from banks if we care to do that. And then obviously, we could look at intelligent ways to deploy it, including potentially paying off the preferred, potentially share buybacks, whatever intelligent capital allocation strategies that we wish to pursue. So yes, I believe very much that, that avenue is much more accessible than it has been in the past.

Okay. Is that something that you're currently engaged in? Are you in conversations with banks at this present time to get reasonable debt?

We are not, but we're kicking -- I mean, we're always looking at capital allocation strategies. And I've done a number of debt deals in my life. I don't like to be overlevered, but a certain amount of leverage that we can easily service is a good thing. And so we are always looking at these things.

Okay. And then I see take was up about 10 basis points. Can you talk to some of the levers that you think you have? And is there opportunity to move take up a little bit more? And then my last question is in regards to the progress that you've made in used over the next 12 to 24 months. Do you guys have an internal target as to the percentage that you'd like to see in GMV for used?

So I think in terms of moving take rate around, I'll let Paul give you some more details here. But in terms of moving take rate around, things like the universal payments, potentially even the deal with Master FFL, these have the ability to increase our take rates over time. And we -- as these things roll in, we're always trying to drive that number to our best of our ability. We're trying to drive it through new services, as opposed to straight fee increases. And so we're trying to be very thoughtful and find ways to create more value and to be able to charge for it. And those -- the two examples I just gave are solid examples of that. Paul, do you want to talk some more about -- or kind of the other question David asked about the -- where we expect used to go?

Sorry. It was where we expect -- I missed the last part of the other question.

Just an internal target over the next 12 to 24 months that you'd like to see used to become as a percent of the overall revenue.

We have not set an internal target on used. I think, some of the marketing programs kind of address -- users on the site by kind of profile is the goal. So we did not set a target on used GMV sales.

We are continually -- we're always trying to -- we're always trying to drive more used product through the site. And we may not have quantified it, but that's a goal is to continue to get more used product on the site. Used product has a great sell-through rate, great margins to the person who's actually selling the product. So it's just always a push for us.

You know what, one more question. But you had mentioned that to start the year probably given what's happening with ICE and some of this protesting, you had implied that there was an increase in activity that the year started off more positively. Could you just touch on that a little bit and share with us what you're seeing? I mean we check the traffic, and we do see it improving, but we don't see anything like really meaningful, but I'd like to hear what you're saying.

Like I said, the NSSF does the adjusted mix. And obviously, the suppressor, the taxes going away on NFA items has driven activity. And I think probably more than -- the Minnesota occurrences, probably more so than that. It's just the -- as of January 1, no more NFA tax, and that's driving activity and that's driving interest not just in the restricted items, but across the board. I think that's probably your biggest driver is just the tax going away. It's caused renewed interest in the space.

Okay. That's helpful. Again, thank you for your hard work. Congrats to you and your entire team.

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

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 fourth quarter and full year 2026 results in June. Thank you, and have a good day.

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

Welcome to the Outdoor Holding Company Second Quarter Earnings Conference Call. [Operator Instructions] 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.

Good morning, and thank you for participating in today's conference call. Joining me from Outdoor Holding Company's leadership team are Steve Urvan, 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 a 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 10, 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 Urvan.

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 in 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 remains 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 close -- 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 rightsizing 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 million as compared to a loss of $5.868 million in last year's period. This translated to earnings per share of $0.01 for the quarter versus a loss of $0.05 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 restructuring 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 the volume of nonrecurring 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.

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 3 months in the prior year. Despite this metric, firearm sales on GunBroker 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 GunBroker 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 million versus prior year for the same 3 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 gross margin of 87.1% compared to 86.9% for the 3 months ended September 30, 2024. Operating expenses decreased by approximately $6.7 million for the 3 months ended September 30, 2025, compared to the 3 months ending September 30, 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 3 months ending September 30, 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 GunBroker 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 notes 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 GunBroker.

Now let me turn it over to Steve for some final remarks before we take your questions.

Thanks, Paul. As I said earlier, this was a very good quarter for the company. Financial results 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 Instructions] Our first question comes from Mark Smith with Lake Street Capital.

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.

Okay. Thank you, Mark. This is Steve Urvan. 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.

Okay. And then just as we think about things as far as changes in strategy, it's 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 GunBroker 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?

Well, in terms of the GunBroker 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. It's -- 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're -- we've got some initiatives in place. We've got -- 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 serve -- to allow credit card payments for 100% of the merchandise for sale on the site. So these things are in process, things that we're working on. And they'll continue to drive incremental GMV, which will drive incremental revenue.

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 onetime things could still come up. But I'm curious about anything that you could say around corporate G&A, your employee salaries and related expenses. Do you feel like this is a good sustainable level here? Do you think there's more to come?

I think there's a lot more to come. We -- 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 we -- 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.

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

I guess I wanted to pick up on some of the consumer trends that you saw during the quarter. So nice to see the outperformance versus mix. 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.

So my -- keeping in mind that, obviously, I've been running GunBroker except for the brief window from 2021 until 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 there's -- in the -- with new firearms, there's basically unlimited supply, right? Except in surge periods where there are 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. 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 you're selling a lot -- I mean, your sell-through rate on used is so high because every item is unique and 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.

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?

I think -- I mean people -- 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 couple of hundred items on GunBroker and 10,000 more sitting around their store. And it's -- 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.

Yes. 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?

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.

Yes. 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 for 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 savings side. Could we see that $25 million goal over time tick up? I 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.

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, we -- 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 to still do on the cost savings side. And so both of those will be a factor in driving that number higher.

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

So this is Steve Urvan. 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.

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