BYRN — Q3 2026 Financial Report Analysis

Sales nearly halved, and a one-time tariff refund hid how wide the loss really was

Byrna Technologies, the maker of the Byrna SD, LE and CL CO2-powered launchers (handheld devices that fire pepper or kinetic rounds as a less-lethal alternative to a gun), reported net revenue of $15.3 million for its fiscal third quarter ended August 31, 2026. That is down 45.7% from $28.2 million a year earlier. Byrna's fiscal year ends November 30, so this is fiscal Q3 2026, covering June through August. The company swung from a $2.2 million profit to a $2.9 million net loss (-$0.13 per share versus +$0.09). The reported gross margin jumped to 79.5%, but that figure is misleading: about 15 percentage points of it came from a $2.3 million refund of tariffs paid in earlier periods, which the company booked as a reduction in cost of goods sold.

At a glance

• Revenue -45.7% to $15.3M: both channels fell sharply. Online sales (Amazon plus Byrna's own website) dropped 38.6%, and domestic dealer and distributor sales dropped 53.8%.
• Operating loss of $2.9M, or about $5.2M without the tariff refund: operating expenses rose 7% to $15.1M while revenue nearly halved, so expenses now nearly equal sales.
• Inventory of $30.0M, about twice the quarter's revenue: finished goods rose from $9.6M to $15.1M since November. The company says launcher unit sales fell about 28% over nine months and that products are selling through more slowly.

Key figures

Operating margin is the share of revenue left after running the business, before interest and tax. Adjusted EBITDA is the company's own profit measure: earnings before interest, tax, depreciation and amortization, also excluding stock compensation and severance or recruiting costs.

Where the revenue went

The 10-Q gives specific reasons for each channel's decline:

• Direct-to-consumer (website, Amazon, company stores, international DTC) fell to $11.1M from $17.4M, "primarily driven by a decline in online conversion rates," meaning fewer site visitors turned into buyers on both Amazon and Byrna's own site. Web sales alone fell $6.3M to $10.0M.
• Wholesale fell 61.1% to $4.2M. Sales to Byrna dealers, chain stores and distributors fell $4.3M. Part of that gap is a difficult comparison: the prior-year quarter included about $3.2M of August 2025 shipments to national chain stores that did not repeat this year. The press release adds that dealers and chains ordered less often after heavy restocking in fiscal Q1 and slower-than-expected sales to end customers.
• International fell from $2.9M to $1.1M. That includes a $1.0M drop in South Africa, where Byrna's local manufacturing stopped in 2025, and weaker distributor orders in Europe, South America and Asia. There was also no royalty revenue this quarter from Byrna LATAM, the licensed Latin American partner, compared with $0.3M a year ago.

Because wholesale fell faster than online sales, direct-to-consumer rose to 72.5% of revenue from 61.7%. That mix shift helps gross margin, because Byrna keeps more of each dollar when it sells directly than when it sells through a dealer.

The margin story: one refund, plus a real improvement

Management's own breakdown of the 19.4-point gross margin increase:

Strip out the refund and gross margin was about 64-65% (the company's adjusted figure is ~65% on $9.9M of adjusted gross profit). That is still up about 4-5 points from 60.1%, and the improvement is real. A large part of it comes from the decision in fiscal Q2 to stop making ammunition in-house at the Fort Wayne, Indiana plant and buy it from a contract manufacturer. The press release says ammunition gross margins improved by about 1,200 basis points (12 percentage points) this quarter.

Takeaway: Byrna's product margins are getting better, with gross margin up about 4-5 points even without the refund. The problem is demand. Revenue fell 46% while operating expenses rose to $15.1M, and $5.2M of that went to advertising. Without the one-time $2.3M tariff refund, the quarter's operating loss would have been about $5.2M on $15.3M of sales. The business only works if the new marketing push can lift online conversion, and fiscal Q4 (the holiday quarter) is the first real test.

What the headline numbers hide

• The refund that flatters the quarter won't repeat at this scale. The $2.3M tariff refund (plus $1.0M earlier in the year, $3.3M year to date) went straight into gross profit. The company may receive more refunds, but it says the amounts are "not yet determinable or realizable." The filing also notes a $0.2M gain from ending its Scottsdale, Arizona store lease. Without those items, the company says, adjusted EBITDA would have been a loss of about $3.8M for the quarter, not the reported -$1.4M.
• Some one-off costs went the other way. Operating expenses include $1.7M more bad-debt expense than last year. Most of it is full write-offs of the royalty receivable owed by Byrna LATAM and of two other customers' unpaid balances. There was also $0.5M of severance and executive-recruiting cost. These items pushed the quarter's results down.
• The bonus reversal flattered costs. The cash-flow discussion says the fiscal 2026 bonus accrual was reversed in Q3, which helped bring employee compensation costs down by $0.5M year over year. The filing does not say how much of the reversal fell in this quarter alone.
• No tax benefit on the loss. The effective tax rate was 0.0%, compared with 21.9% a year ago, because no tax benefit was recorded on the Q3 pre-tax loss. The net loss is therefore the same as the pre-tax loss.
• Cash flow looks better than it is. Over nine months, operating cash outflow was $3.5M, much smaller than the $12.2M net loss. Most of the gap is $10.5M of non-cash write-downs from the Fort Wayne shutdown in fiscal Q2. Cash was also helped by a $6.3M drop in receivables, as last year's Q4 chain-store and international shipments were collected, and by $3.3M of tariff refunds. The company says neither is "expected to recur at comparable levels." Cash and marketable securities were $9.4M at quarter end, down from $15.5M in November. The $5.0M credit line is undrawn, and Byrna was in compliance with its covenants, which are tested every quarter even with nothing borrowed.
• Inventory is the balance-sheet risk. Net inventory of $30.0M is about twice this quarter's revenue. Days in inventory, the average number of days stock sits before it is sold, rose to about 292 over nine months from about 228 a year earlier. Finished goods rose 57% since November to $15.1M as sales slowed. Byrna cut inventory purchases sharply in Q3, which shows up as a $5.7M drop in trade payables.
• Spending to win demand back. Advertising was $5.2M, about 34% of revenue, compared with $4.0M (about 14% of revenue) a year ago. The increase went to national TV, connected TV, audio and newly hired marketing agencies.

Other items in the quarter

• HERO Defense acquisition (August 6, 2026): $1.7M total consideration ($0.5M cash, $0.5M in stock, $0.6M expected royalty payments, $0.1M holdback). It adds products at other price points and formats; the filing says its results so far are not material.
• Fox Labs pepper-spray suspension (after quarter end): in late September Byrna found that some Fox Labs sprays made by its contract filler contain trichloroethylene, a solvent the EPA has banned for consumer use since June 2025. Shipments are suspended and the company disclosed the issue to the EPA on October 6. These products were 1.3% of nine-month revenue. Byrna says it cannot yet estimate reformulation costs, penalties or claims.
• Goodwill test: with the stock at $3.61 on August 31, market value ($84.5M) was about 53% above book equity ($55.1M), so no impairment was recorded. The company warns that further declines in results or share price could lead to one.
• Nine months: revenue $60.7M (-26.7%), net loss $12.2M (-$0.54 per share) versus net income of $6.3M a year earlier, including about $10.5M of impairment and inventory charges from the ammunition exit.

Outlook

Byrna gave no numeric guidance. CEO Conn Davis said the company expects results "to improve sequentially as we approach the end of our fiscal year." As early signs, he pointed to website sessions averaging more than 29,000 a day in August, the highest since March, and better website conversion from June to August. Management expects inventory to come down "more substantially during the upcoming holiday sales period," which would turn excess stock back into cash.

Our view: The improvement in product margins looks durable, because the ammunition outsourcing and freight savings are structural rather than one-time. On cost structure, though, Byrna is now spending close to $15M a quarter to sell about $15M of product. Fiscal Q4, the seasonally strongest quarter, needs to show three things: revenue at least stabilizing year over year, inventory falling toward the low-$20 millions, and operating cash flow turning positive without help from receivable collections or tariff refunds. If holiday sales stay weak, the $9.4M cash balance and quarterly covenant tests become the issue to watch, and the company has said it is already looking at other sources of liquidity, including a possible asset-based credit facility.