Prepared remarks
Good morning. Welcome to Byrna's Fiscal Second Quarter 26 Earnings Conference Call. My name is Rob, and I will be your operator for today's call. With us for today's presentation are the company's CEO, Conn Davis and CFO, Laurilee Kearnes. Following their remarks, we will open the call to questions. Earlier today, Byrna released results for its fiscal second quarter ended May 31, 2026. A copy of the press release is available on the company's website. Before turning the call over to Conn Davis, Byrna Technologies' Chief Executive Officer, I will read the Safe Harbor statement. Some discussions held today include forward-looking statements. Actual results could differ materially from the statements made today. Please refer to Byrna's most recent 10-Ks and 10-Q filings for a more complete description of risk factors that could affect these projections and assumptions. The company assumes no obligation to update forward-looking statements as a result of new information, future events or otherwise. As this call will include references to non-GAAP results, please see the press release in the investor relations section of our website ir.byrna.com for further information regarding forward-looking statements and reconciliations of non-GAAP results to GAAP results. Now I would like to turn the call over to Byrna's CEO, Conn Davis. Sir, please proceed.
Thank you, operator. And thank you, everyone, for joining us today. Q2 came in below our expectations with revenue of $16.4 million and did not reflect the level of performance we believe Byrna can deliver. We entered the quarter knowing it would represent the beginning of a transition period as we worked to improve direct-to-consumer conversion, retail productivity, and the discipline and structure of our operations. The quarter ultimately became a steeper reset than we originally expected and the results reinforced why the transformation underway is necessary and why we are moving with urgency. These results were driven by two things. First, the e-commerce pressure we discussed on our Q1 call continued, with website traffic down 13% through the quarter year over year. Second, in retail, many partners entered the quarter with elevated inventory levels following meaningful post-holiday restocking in Q1, and sell-through during that quarter did not support the level of reorders we had incorporated into our plan. Those challenges came together during the quarter and drove revenue below our expectations. Q2 sharpened our priorities and accelerated decisions. The results are important, but they do not tell the full story of Byrna or the work underway across the business. During the quarter, we started implementing tactical changes to demand generation and our cost structure with more in motion as we transition the Byrna brand more fully during the balance of fiscal 2026. These changes will take time to show up in revenue, but we believe they are the right ones that will allow us to return to growth. A few weeks ago, I issued my first 100-day shareholder letter. The letter, which is available in the investor relations section of our website, established a reference point for where Byrna stands today, where execution has fallen short, and what we are changing to position Byrna to capture the opportunity ahead in less-lethal personal safety. Today, I want to build on the letter by connecting our three key near-term priorities directly to what Q2 showed us and detailing the work now underway against each. Our first priority is consumer conversion and retail productivity. Byrna has created a solid base of awareness with the core audience, and our products were available in roughly 1.5 thousand retailer and dealer locations nationwide at quarter end. Our focus now is on turning our expanding reach into purchases, repeat engagement, and consumer advocacy. We know that the strongest results come when consumers understand the product, are able to compare options, and experience Byrna directly. So our work under this priority is to make the consumer journey easier and more consistent online and in stores. The second priority is changing how Byrna builds demand. The narrow reach behind our Q2 traffic softness reflects a structural issue. Historically, Byrna has relied too heavily on a relatively narrow audience and lacked the visibility into which messages, media channels, and partnerships actually produced consumers. We are actively changing our message to consumers and the way sales and marketing operate, with the goal of reaching more people without losing the core consumer. We are building a systematic approach to demand generation that will allow us to better attribute traffic, conversion, and retail sell-through over time. The third priority is connecting demand more tightly to production, inventory, and cash generation. We are building a rolling financial and operating model that brings together elements such as website trends, retail sell-through, partner inventory, confirmed orders, and manufacturing capacity to help us produce and purchase against visible demand trends. As the business returns to growth, our disciplined model should drive margin expansion, lower working capital, and better cash conversion. These priorities are all connected. Better marketing brings more qualified consumers into the funnel. Better online and retail execution turns new interests into sales more effectively. And more refined forecasting and production lets those sales flow through to the bottom line more efficiently. When these pieces work together, Byrna becomes a more predictable and scalable business. Before getting into our progress against these priorities in greater detail, I will turn it over to Laurilee to walk through the financial results. Laurilee.
Thank you, Conn, and good morning, everyone. Let's review our financial results for the fiscal second quarter ended May 31, 2026. Net revenue for Q2 26 was $16.4 million compared to $28.5 million in the prior year period. E-commerce sales through our website and Amazon decreased by $5.8 million, or 35%, compared to the prior year due to a reduction in traffic and lower conversion rates. Our domestic dealer channel, including dealers, distributors, and chain stores, decreased $3.5 million, or 47%. This was mainly due to the slower reorder activity following substantial restocking in fiscal Q1 and slower-than-expected sell-through. Product sales through our international dealer and distributor channel decreased $1.2 million, or 43%, due to large orders last year that were not repeated in the current year. Gross profit for Q2 26 was $1.8 million, or 11% of net revenue, compared to $17.6 million, or 62% of net revenue for Q2 25. The reported gross margin included a one-time $3.6 million inventory write-down, a $3.5 million impairment loss on manufacturing equipment, and a $2.3 million inventory reserve due to strategic project rationalization. These were partially offset by a $1.1 million tariff refund recorded in cost of goods sold. Excluding these items, adjusted gross profit was $10.1 million, representing adjusted gross margin of approximately 62%. We expect our adjusted gross margin to remain near or above this level through the balance of the year. The inventory write-down of $3.6 million and the $3.5 million impairment loss were directly related to the closure of our Fort Wayne ammunition manufacturing facility. The additional $2.3 million inventory reserve was a combination of finished goods and raw materials that will either end of life or will not be used due to engineering process changes. Operating expenses for Q2 26 were $14.6 million compared to $14.2 million for Q2 25, an increase of 3%. The increase primarily reflected an impairment charge of $1 million as well as continued investment in marketing, partially offset by the change in variable selling expenses associated with a decrease in sales. During the second half, we expect incremental expense as our new commercial and consumer acquisition programs ramp. Those investments will precede their full potential revenue contributions, and outside of those targeted areas, we are managing spending against the current revenue base and continuing to evaluate costs. Net loss for Q2 26 was $10.1 million compared to net income of $2.4 million for Q2 25. Net loss included non-cash impairment and inventory down charges of $10.4 million related to the shutdown of our ammunition manufacturing facility in Fort Wayne and product rationalization. A tax benefit of $2.7 million was also recorded for the quarter. Adjusted EBITDA, a non-GAAP metric, for Q2 26 was negative $600 thousand compared to $4.3 million for Q2 25. Cash, cash equivalents, and marketable securities at May 31, 2026 totaled $10.4 million compared to $9.6 million at February 28, 2026, and $15.5 million at November 30, 2025. Collections of accounts receivable supported cash during the quarter, and we ended the quarter with no debt. Inventory on May 31, 2026 totaled $30.4 million compared with $33.1 million at February 28, 2026 and $32.7 million at November 30, 2025. The decline in reported inventory primarily reflected the write-down discussed earlier. We remain focused on reducing physical inventory and improving working capital efficiently. We continue to expect inventory turns to approach 2x by year end. I will now pass the call back to Conn to discuss what we learned during the quarter and the actions underway across the business. Conn?
Thank you, Laurilee. At the time of our Q1 call, website traffic was generally holding and conversion was the primary issue. During Q2, traffic weakened as well. byrna.com generated approximately 2.6 million sessions, down 13% year over year. Conversion averaged 0.59% compared with 1% in Q2 25. And average order value declined 19% to approximately $322. byrna.com sessions declined from approximately 1.1 million in March to roughly 783 thousand in April and 779 thousand in May. During the quarter, we continued to spend through many of our historical media and influencer relationships, but those channels generated less traffic and fewer purchases. The performance reinforced our need to address both sides of the funnel: how we bring people to byrna.com and what happens after they arrive. Our 'find the right launcher' experience online shows the positive impact of better education. More than 150 thousand responses have been completed, and those consumers continue to convert at approximately twice the rate of the overall website. The quiz responses are also telling us why consumers are considering Byrna, which products fit their needs, and where the website might be leaving questions unanswered. Just over 7% of all byrna.com visitors are engaging with and completing our 'find the right launcher' experience, and we are working to highlight the experience better across the site. More importantly, we are now using the data gained from this experience to improve product comparisons, landing pages, consumer onboarding, and follow-up communications. Within the next two weeks, we will be launching personalized experiences and guided product selection across byrna.com. These are the first steps in an ongoing process to improve our digital experience and conversion using our proprietary data. Our limited 'try before you buy' program addresses the same education gap through direct product experience. A consumer pays $50 to receive a demonstration unit, training, ammunition, CO2, and educational materials for a two-week trial. This fee covers the principal program costs, and becomes a $50 purchase credit. The program has generated strong conversion near 30%. Most participants are new to Byrna, and purchasers are generally adding ammunition and accessories at healthy rates. The test has been small, and has not yet meaningfully contributed to revenue, but we are currently evaluating the processes and economics required to expand it responsibly. Given the success of the program, we are expanding it beyond an initial test so that eight times the number of consumers will be able to participate in the next phase of the program. The same core principle of improving education applies in our retail channel as well. Byrna performs better when consumers are able to understand the differences across the product lineup and receive useful guidance from store associates. During the quarter, we worked with one of our premier chain partners to move from basic shelf placements to dedicated Byrna end caps across more than 20 stores. Before the change, the partner averaged approximately $81 thousand in monthly purchases. Purchases increased to approximately $200 thousand in April, the first full month after the rollout and expanded product assortment. Every location with this chain partner has placed a stocking order since the new program began. These results do not mean every retail store will produce these same increases, but they show how we can materially support partner load-ins and revenue. We are applying our learnings across the footprint now and working more closely with our partners on inventory planning and improving sell-through. The CL platform continued to gain share during Q2 and represented more than 40% of launcher sales in retail. The CL accounted for an even greater share in Byrna-owned stores and at some of our higher-performing partners. Looking at overall unit sales, the CL share grew by 11% from our fiscal second quarter of last year to this year. This mix shift supports our margin profile and provides another example of the value of focusing on and investing in product education. As more consumers understand the advantages of the CL platform, we believe it will continue to gain share. The work we are doing inside the sales funnel only matters if we are bringing the right people into it. Q2 showed that Byrna cannot reach its full potential by repeatedly targeting the same audience with the same message. Our core consumer is important, but we have still only reached a small portion of our addressable market in the United States. With HLK support, we have identified several priority consumer segments with a strong potential fit for Byrna, including personal safety-minded urban professionals, security-minded suburban homeowners, and preparedness-focused outdoor enthusiasts. Together, these segments represent more than 50 million likely buyers that Byrna has not historically addressed in a focused way. Reaching those consumers requires more than simply placing Byrna in front of a larger audience. We need to explain where the product fits into their lives and communicate through the media channels with marketing campaigns that are relevant to them. And that is why we are shifting towards safety- and use-case-first messaging across areas such as home protection, outdoor activity, travel, and small business activity. In June, we made organizational moves to transform the marketing and sales functions, separating the two areas so that we can build them back stronger with more accountability, focus, and ownership. Q2 showed our prior organizational structure did not create enough accountability within each function and channel. As performance fell short, the old system made it too difficult to isolate root causes and move quickly to address the changing demand environment. The teams will remain closely connected, but there will be a clearer division of responsibility allowing us to respond more quickly and allocate resources more effectively. The separation should make problems easier to identify and faster to address. Our recent agency and media appointments support different parts of this new operating model. HLK is helping us define and refine our audiences, main use cases, and creative expression to broaden Byrna's relevance. Acceleration Partners is building a more measurable creator and affiliate program in a way that will allow us to link individual partners and campaigns to traffic, conversion, and revenue. We also announced the Fox Sports activation, which kicked off in recent weeks and was funded by reallocating dollars from relationships that were underperforming rather than adding incremental media expense. We are still on schedule to deliver the core brand repositioning work for the 2026 holiday season, followed by the complete brand and website experience in Q1 27. We are already busy testing and implementing shorter-cycle improvements in our creative, media allocations, and owned channels. This broader approach to consumer acquisition is also supported by our definitive agreement to acquire Hero Defense Systems. HERO adds a complementary less-lethal self-defense product family that sits below and adjacent to our core Byrna launcher platform. Today, our launchers serve consumers looking for a more robust, less-lethal launcher solution. HERO would add smaller, more discreet everyday-carry options, including the HERO 20 launcher and ARO pepper gel platform, which can appeal to consumers who are interested in personal safety but may not yet be ready to purchase a full launcher system. Strategically, this gives us a fuller product ladder. We can meet consumers earlier in their personal safety journey, introduce them to the less-lethal categories through a more accessible form factor and price point, and then use our evolving marketing platform to support long-term engagement across our product ecosystem. Hero fits directly with our marketing redesign. As we move towards more targeted, use-case-driven messaging, Hero gives us another product family to match against specific consumer needs. Over time, this should allow us to build more relevant creative in a more effective consumer journey across channels. The transaction is structured on a debt-free basis with consideration consisting of $625 thousand in cash and $125 thousand in restricted shares of Byrna common stock, and a performance-based royalty tied to future net sales of Hero products and derivative products. We expect the transaction to close within approximately 30 days, subject to customary closing conditions. Because these changes will influence revenue gradually over the coming quarters, we also acted during Q2 to align production with the current demand trends we see today. In May, we reduced launcher assembly from four production lines to two. We are now producing below the current sales rate, which should allow physical inventory to decline while preserving the ability to add capacity as demand improves. We also stopped manufacturing ammunition in-house because sourcing it from qualified external suppliers costs less. We completed a make-versus-buy analysis of ammunition production and qualified external suppliers that can produce the required ammunition at a lower fully loaded cost than our previous internal operation. The change does not affect our quality standards or ability to meet anticipated consumer demand. These decisions relate to the larger planning change that I discussed earlier. We are rolling out a model that connects e-commerce trends and retail sell-through to production and inventory by product. We will be reviewing this model on a monthly cadence, allowing us to purchase components and plan manufacturing against real-time dynamic data rather than against a static assumption. The changes in our launcher production lines in May were a direct result of this process, and we expect our inventory level to work its way down, especially as the holiday season load-ins begin this fall. We are applying the same discipline to production as well. We improved the CL's first-pass yield by 6.5% from May to the end of June, with the expectation we can move it north of 90% in Q4. As Laurilee mentioned, we had an inventory write-down this quarter. Some of that was connected to the parts we are now using with the CL. Instead of continuing to use parts that produce inconsistent results in our process, we went back to core manufacturing principles and evaluated what was causing the issues. After a thorough assessment, we focused on remedying the top causes of fallout and made targeted improvements that led to major production improvements immediately. While there is still more work to be done, the higher first-pass yield reduces rework, increases effective production capacity, and lowers the cost required to produce each unit. As we think about longer-term product development, we have moved from a hardware-first development process towards one that starts with a consumer need and aligns R&D, marketing, and operations before a product reaches launch. Further, we are including design for manufacturing as a core component of our product development process so products are launched with higher quality at a lower manufacturing cost. The refined process has begun now in the development stage, and we are looking forward to demonstrating how a successful product launch can perform with this more modern approach. Turning to the remainder of the year: based on current expectations, fiscal 26 will not be a revenue growth year. Q2 reset the revenue baseline and we are continuing to execute our strategic transition against current demand signals and expanding the long-term opportunity rather than assuming a quick return to prior growth rates. We expect improvement from the first half of the fiscal year to the second half results as retailers prepare for the holidays and more of the new marketing and consumer acquisition initiatives enter the market. The improvement will build in stages. Q3 remains a transition quarter as these initiatives ramp, while we expect Q4 to improve with the holiday season and the work we are doing across marketing, conversion, and retail activation more fully deployed in the market. We are building from a more realistic baseline, with the opportunity to outperform as the new initiatives begin to contribute. Our current focus and initiatives are centered around improving website traffic and conversion through the second half, along with retail sell-through and reorder cadence to support a return to revenue growth in the near term. We still expect to exit fiscal 26 with gross margins of approximately 62% and we are continuing to reduce inventory levels and improve cash flow. We move into the second half of the year with a stronger organizational structure, a production base aligned more closely with current demand, and several consumer conversion and demand generation initiatives that are already producing encouraging signs. The opportunity ahead remains as important as ever and we are now bringing the operating discipline required to continue leading the charge in less-lethal personal safety. We believe this reset positions us to finish fiscal 26 on a stronger footing and enter fiscal 27 with a business capable of delivering more consistent growth. We know confidence will grow from results, and our focus is now on executing against our three-point plan and showing progress from here. With that operator, we are ready to take questions.
Questions and answers
Thank you. We will now be conducting a question-and-answer session. Please press the star key. Our first question is from the line of Jeremy Hamblin with Craig Hallum. Please proceed with your question.
Thanks for taking our question. So in terms of looking at the reorganization that is happening, and obviously a significant amount of change, can you talk to how you are looking at your operating expense structure, obviously with lower expectations on revenue for the back half of the year, and then starting to build off that into 2027? How should we be thinking about your operating expense structure given the amount of heavy lift that you need to do in reformulating your marketing and realigning the organization as a whole? Should we assume that the operating expense run rate that we saw in Q2 is kind of where things might fall in Q3 and Q4? Or how are you addressing rightsizing your cost base?
Hi, Jeremy. Thanks for the question. When we look at operating expenses for the back half of the year, you can kind of start with Q2 as a baseline, but we are going to be making some investments that we talked about with some of the marketing agencies as we move forward in this new plan. So some of those expenses are going to come ahead of when the revenue comes, so we will have some investment there to the tune of, you know, roughly $250 thousand or so a month, so $750 thousand maybe a quarter. As you know, we have variable selling expenses, so those will fluctuate in OpEx as roughly 10% of sales. So as sales increase, especially in Q4 with the holiday, that piece will go up. The rest of the OpEx we are trying to hold as much as possible. We do obviously have some investments in some of these new positions that we are trying to hire to support sales and marketing. But I think if you use Q2 as a baseline and make those adjustments, that should be good for the back half of the year.
Got it. And then just looking at top line and relationships, so a little bit surprised certainly with where the wholesale revenue was in Q2. I know you signed a deal with Academy to roll out and they have got roughly 300 locations across the U.S. Can you provide us with an update on the rollout with that large partner and in terms of building back the wholesale business, which seems like the area of potential growth on a go-forward basis. What other feedback are you getting from your retail partners when you talk about the kind of retail sell-through that disappointed in the quarter? What else are they sharing that you feel needs to change and be addressed to really drive that channel of business going forward?
Thanks, Jeremy. As you know, we do not have the same level of visibility into conversion at the retail side as we do on byrna.com or our own retail stores. But what we do know is that our product sells better when consumers can engage with it directly and there is strong education at the retail point of sale. So that is where we are focused from a sell-through point of view: really ramping our education and the ability for the consumer to learn about the product on their own in that retail experience as they discover it. Similarly, we have moved to more of an end-cap environment, more of an easy-to-discover environment than being in the gun case where it is a little more hidden. I spent some time in the quarter talking with all of our major retail partners, and frankly, all of them remain very excited about Byrna, what we can deliver, and where we are going together. I will tell you that in the quarter, we really did enter with pretty high inventories in the retail channel following really strong demand through the holiday period last year. There were just really large restocks that occurred, and throughout the quarter we just did not see the sell-through at that high of a level to generate reordering as quickly as we had hoped. Reordering and sell-through remained consistent but just not quite at a level to drive what we had anticipated. As far as Academy, that particular load-in shifted from Q2 into Q3 from a timing perspective on their side.
Okay. Got it. And then in terms of the HERO acquisition, taking that, I wanted to see what type of annual revenues the business was doing prior to acquisition? And their launchers are a little bit less expensive than the Byrna launchers. In terms of thinking about the fit with the business and where Byrna goes from here, is part of the issue with burn simply the price points being too high for broadening the marketing to a different audience than your traditional customer base? Thanks.
I am really excited about the Hero opportunity and what that represents for the business. For me, it really goes back to the four Ps of marketing and where we are going. HLK is really leaning in to help us from a promotion point of view: how we talk about Byrna, the customers we are targeting, and the media channels we are moving through. Similarly, what we are doing from a retail point of view in the door expansion is driving our placement and making Byrna much more accessible. Where Hero comes in is really on the product and price-point side. We are a very tactical brand today in the way we show up in the marketplace. The product form factor of Hero is a different, less 'gun-forward' product, which really opens up a new consumer opportunity for us from a product point of view. From a pricing perspective, they come in slightly below where we are today. Frankly, there is a pretty big gap in our portfolio from the sprays business at the roughly $20 price point up to our higher-end launchers in the $400 price point range. What is nice about Hero is we have been able to dig into their product pretty deeply, and we believe there is an opportunity to significantly reduce the build cost of that product and provide a solution for consumers in the roughly $250 range that will open up a new consumer opportunity for us.
Okay, great. Thanks for taking my questions and best wishes.
Our next questions are from the line of Matt Koranda with ROTH Capital Partners. Please proceed with your questions.
Hey guys, good morning. Maybe just attacking this from a different angle on channel. Wanted to hear a little bit more about the e-comm channel and how traffic and conversion has trended in June and July. I know you mentioned some of the trends in April and May, Conn, but just any help with what that looked like quarter to date? Any improvement that we have seen in terms of traffic or conversion metrics? And how much of the HLK messaging has been rolled out, or when do you expect that to roll out and start to impact traffic on a broader basis?
Thanks, Matt. From an HLK messaging point of view, we are still very much in the early stages of that and almost none of that is live at this point in time. That will be ramping throughout Q3 as we do the work to really understand what messages will resonate across the core and the new audiences that we are targeting. So I expect to really ramp through Q3 both from a Byrna-owned channel point of view and what we are doing from social media partnership point of view with Acceleration Partners. Throughout Q2, we relied on some of our traditional media partnerships. You saw us launch the Fox Sports partnership a couple of weeks ago by reallocating previously committed dollars from one partner to a different outlet. I expect that to continue to ramp as we go through Q3 and to have a lot of that messaging and new targeting in place as we enter the holiday period in Q4. From an e-commerce performance perspective, traffic has still been fairly consistent from the end of Q2 into the start of Q3, and conversion roughly the same as well. We are seeing increased engagement on our 'find the right launcher' quiz and our 'try before you buy' program, so those are tailwinds that have been ramping at the end of last month and through July that we believe will meaningfully move the needle throughout the quarter. We are also ramping up our TV advertising as a driver of traffic. During the World Cup it was more expensive, but now it is more cost effective for us to do so and we started that in the last couple of days.
Okay, appreciate that. And then maybe on HERO integration, when should we expect that to be integrated into the Byrna website? Will it be under Byrna branding? Will you start with the legacy Hero product and eventually add your branding once you reengineer the product? How should we think about how that unfolds over time?
Once we close the transaction, we will focus on the existing Hero product line as it is and promote that and drive it forward. We will work to integrate the Hero product line into byrna.com so that we can sell it through that channel towards the end of Q3 and Q4, and you will see us more tightly tie it to the Byrna brand and positioning with a unified experience in Q1.
Okay. And then maybe last one for me: sounds like with sales trends continuing from the second quarter and a seasonal ramp in the fourth quarter, but ramping marketing expense, EBITDA is going to be challenging for the rest of the year. Laurilee, can you address how much you think you can flush from inventory for the remainder of the year, how the cash balance looks toward the end of the year in light of that, and how we should think about those trends?
Sure. We really expect cash to hold through Q3. Q4 is when you will really see us reduce inventory and have the holiday sales. We are targeting a $5 million reduction in inventory to really generate cash. So we expect to end the year with more cash than we have at the moment, and to keep cash steady through Q3. We typically burn cash in the first part of the year, but I think cash-wise we are in good shape and we still have no debt.
Okay. I will leave it there. Thank you, guys.
Our next question comes from the line of Jeff Van Sinderen with B. Riley Securities. Please proceed with your questions.
Hi, everyone. Just to follow up on the line of thinking with sales trends or engagement running pretty similar so far this quarter, is your thought that Q3 will look something similar to Q2? Or do you think it will be down another notch from Q2? I realize it is tough to predict here, but any directional thoughts around the sequential progression in Q3?
Yes. I mean, Q3 is always a challenge from a seasonality perspective. The summer tends to be slower months for us anyway, but we do expect to see some load-ins for holiday start at the end of Q3. And as Conn mentioned, there are actions we are taking that are fairly new: the Fox Sports initiative, Acceleration Partners, getting influencers up online, some of those smaller influencers to target, website changes, and then the new TV advertising that literally just started in the last couple of days to ramp up. So those are the things we are doing and we expect to see some improvement. There is certainly seasonality, so we will continue to work all of those channels through Q3. Q4 is when we really expect to see revenue increase.
Okay. And then if we could turn back to the HERO acquisition for a minute. Just curious, having looked at some of their product, are you thinking product rationalization there? Is there overlap? I see they have a product price now that is arguably a little bit similar to Byrna. It only fires two rounds and then you have to put in a new cartridge. Thoughts on the overall product line and if you are planning to rationalize how you position that versus the entry-level Byrna product?
If you think about the Hero product line, it will be a more basic, straightforward, lower-feature product line than core Byrna launchers. You will not be able to upgrade them like you can the SD, the CL, and the LE. However, they will fit in well below our current offering from a price point and open access to a more accessible marketplace. The Arrow product in their line, for example, will require work to bring its build cost down, but it gets you to a form factor that is less like a gun and a more accessible price point. I believe these will be positioned as a different part of the product portfolio below the core Byrna launcher: more simple and straightforward, less capable in some ways, but still an effective personal safety solution.
Okay. And then anything you can share about the revenue that Hero currently generates? Were they profitable? Are the gross margins similar? And how do you expect the consumable part of that business to behave since there are consumables in that product line?
From a margin perspective, it is similar to where Byrna is today. As Conn mentioned, we are going to do things to take cost out as we bring the consumer price down. They have been profitable; it was a small company and the founders did not invest enough in marketing. We think there is a great opportunity with the Byrna brand behind it and with our marketing engine to get that out through our retail partners as well. We are excited about the opportunity, especially in 2026. The consumables are more of a cartridge rather than Byrna ammunition, but I would expect consumables to perform similarly to Byrna in terms of percentage of sales.
Okay. Thanks for taking my questions. I will take the rest offline.
Next question is from the line of Eric Wold with Texas Capital. Please proceed with your question.
Thanks. Good morning. A couple questions. First, following up on HERO: how do you plan to market those products to consumers? Will they be marketed completely separately to different target customers, or do you expect to market a holistic portfolio of options including Byrna and Hero simultaneously, to give consumers choice up and down the scale?
Hero will likely appeal to consumers outside the majority of our current core Byrna consumer. That said, we want to set up byrna.com so that consumers can find the product regardless of which launcher they are looking for. When people come to byrna.com and potentially abandon carts with a core launcher product, Hero gives us the opportunity to retarget them at a lower price point with a still-capable product and pull them into the Byrna ecosystem, where we believe there is a clear upgrade path over time across these products.
Helpful. Then a multipart question on the ammunition manufacturing change: is the expectation that this shift to third-party manufacturing is the long-term permanent solution given you found a lower all-in cost? What do you expect the improvement in margins to be from this change versus manufacturing in-house? Are the third-party suppliers still U.S.-based so you can keep a 'Made in USA' positioning? And lastly, was the ammo inventory write-down related to impairment such that the inventory cannot be sold, or is that ammo inventory that could still be sold in the future?
When you think about where we are going from an ammo point of view, we believe this is the long-term solution. Over the first part of the year, new supply options came online that were not available when the original Fort Wayne facility decision was made. Those suppliers allow us to source at a lower cost while maintaining quality standards. Currently the sourcing is international, and we expect that to continue, which offers an opportunity to lower the overall cost of the ammunition portfolio while maintaining required quality. I will turn to Laurilee on the specifics of the impairment.
Hi Eric. The write-down was primarily related to raw materials that we had on hand and do not plan to use because we will not manufacture internally anymore. The finished goods we have will continue to sell through and were not the primary items impaired. On the margin delta, based on the costs we are seeing now and where we can buy the ammunition, we expect to see improvement in gross margin. That was one of the items that was hurting gross margin previously, and the targets we provided for overall gross margin of roughly 62% we expect to be at or above for the rest of the year.
Perfect. Thank you both.
Thank you. At this time, this concludes our question-and-answer session. I would now like to turn the call back over to Mr. Davis for closing remarks.
Thank you all very much for joining us today. That concludes our call.
Thank you for joining us for Byrna's fiscal second quarter 26 conference call. You may now disconnect.