American Outdoor: Smith & Wesson Brands, Inc. Reports

The following excerpt is from the company's SEC filing.
Second Quarter Fiscal 2022 Financial Results
Two-Year
Compounded Sales Growth of over 140%
Gross Margin of 44.3%
EPS of $1.05/Share and EBITDAS of 34.9%
SPRINGFIELD, Mass., December
 2, 2021 – Smith
 & Wesson Brands, Inc. (NASDAQ Global Select: SWBI)
, a
U.S.-based leader in firearm manufacturing and design, today announced financial results for the second quarter of fiscal 2022, ended October 31, 2021. Unless otherwise indicated, any reference to income statement items refers to results from
continuing operations.
Second Quarter Fiscal 2022 Financial Highlights
Net sales were $230.5 million, a decrease of $18.3 million, or 7.3%, from the comparable quarter last
year.
Gross margin was 44.3%, compared with 40.6% for the comparable quarter last year.
Quarterly GAAP net income was $50.9 million, or $1.05 per diluted share, compared with $49.1 million,
or $0.87 per diluted share, for the comparable quarter last year.
non-GAAP
net income was $55.3 million, or $1.13 per
diluted share, compared with $52.8 million, or $0.93 per diluted share, for the comparable quarter last year. GAAP to
adjustments for income exclude costs related to the planned relocation of our
headquarters and certain manufacturing and distribution operations to Tennessee, the
spin-off
of the outdoor products and accessories business in fiscal 2021,
COVID-19

related expenses, and other costs. For a detailed reconciliation, see the schedules that follow in this release.
Adjusted EBITDAS was $80.4 million, or 34.9% of
net sales, compared with $78.9 million, or 31.7% of net sales, for the comparable quarter last year.
Mark Smith, President and
Chief Executive Officer, commented, “Throughout the past 18 months of unprecedented demand levels for our industry, our focus has continued to be on the long term – and our team has been hard at work positioning Smith & Wesson for
continued impressive operating results and maintaining our market leadership regardless of market conditions. During our second quarter, as demand levels eased from historical highs experienced during the height of the pandemic, the results of those
efforts and our flexible model were evident. Despite a year over year revenue decline, our operations team actually delivered higher gross profit, more than offsetting the decrease in the top line. Our sales, marketing, and new product teams
continued our steady cadence of new product introductions, with the most recent being our brand new M&P 10MM introduced last month and we have great confidence going forward to continue being the brand of choice at retail by connecting with both
the millions of new firearms owners and our loyal long time enthusiasts in new and innovative ways, continuing to introduce exciting new products, and leveraging our unique ability to adjust rapidly to market dynamics through our flexible
manufacturing model.”
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Smith continued, “Late last quarter, we announced our intention to relocate our headquarters and
certain of our operations to Maryville, Tennessee in 2023 and work on this project has begun in earnest. With a successful groundbreaking ceremony held on November 5th, we are excited about the opportunity to shape our company for generations to
come. The new
state-of-the-art
facility will serve as our headquarters and will be the new home for our plastic injection
molding, assembly, and logistics operations, and will solidify the future of Smith & Wesson – an innovative, nimble organization, whose dedicated employees leverage the latest technology to produce products that set the standard for
firearms enthusiasts around the globe. We would like to thank the state of Tennessee and the Blount County community for such a warm welcome, and we look forward to calling Maryville, Tennessee home.”
Deana McPherson, Executive Vice President and Chief Financial Officer, commented, “Our second quarter results continue to demonstrate our ability to
react to the changing needs of the market. We delivered a 370 basis point increase in gross margin that more than offset a 7.3% decrease in revenue compared with the prior year second quarter. Although below the prior year, the current
quarter’s revenue represents a
two-year
compounded growth rate of over 140% and is one of the many examples of how our flexible manufacturing model allows our business to return impressive financial
performance in both increasing and decreasing demand environments. Inventory in the channel has finally been restored in many of our product categories and we continue to replenish our internal inventories. We believe that our strong balance sheet,
impressive product array, and commitment to be the market leader will enable us to continue to invest in our business and capture market share, as we fulfill our commitment to return capital to our stockholders. Our Board of Directors has again
authorized our $0.08 per share quarterly dividend, which will be paid to stockholders of record on December 16th with payment to be made on January 3rd.”
Conference Call and Webcast
The company will host
a conference call and webcast on December 2, 2021, to discuss its second quarter fiscal 2022 financial and operational results. Speakers on the conference call will include Mark Smith, President and Chief Executive Officer, and Deana McPherson,
Executive Vice President and Chief Financial Officer. The conference call may include forward-looking statements. The conference call and webcast will begin at 5:00 p.m. Eastern Time (2:00 p.m. Pacific Time). Those interested in listening to the
conference call via telephone may call directly at (844)
309-6568
and reference conference identification number 9717968. No RSVP is necessary. The conference call audio webcast can also be accessed live on
the company’s website at www.smith-wesson.com, under the Investor Relations section.
Reconciliation of U.S. GAAP to
Non-GAAP
Financial Measures
In this press release, certain

financial measures, including
“non-GAAP
net income,” “Adjusted EBITDAS,” and “free cash flow” are presented. From

time-to-time,
we consider and use these supplemental measures of operating performance in order to provide the reader with an improved understanding of underlying
performance trends. We believe it is useful for us and the reader to review, as applicable, both (1) GAAP measures that include (i) interest expense, (ii) income tax expense, (iii) depreciation and amortization,
(iv) stock-based compensation expense,
(v) COVID-19
expenses, (vi) transition costs, (vii) amortization of acquired intangible assets, (viii) spin related stock compensation,
(ix) Relocation expense, and (x) the tax effect of
adjustments; and (2) the
measures that exclude such information. We present these
measures because we consider them an important supplemental measure of our performance. Our definition of these adjusted financial measures may differ from similarly named measures used by others. We
believe these measures facilitate operating performance comparisons from period to period by eliminating potential differences caused by the existence and timing of certain expense items that would not otherwise be apparent on a GAAP basis. These
measures have limitations as an analytical tool and should not be considered in isolation or as a substitute for our GAAP measures. The principal limitations of these measures are that they do not reflect
our actual expenses and may thus have the effect of inflating its financial measures on a GAAP basis.
About Smith & Wesson Brands, Inc.

Smith & Wesson Brands, Inc. (NASDAQ Global Select: SWBI) is a U.S.-based leader in firearm manufacturing and design, delivering a broad
portfolio of quality handgun, long gun, and suppressor products to the global consumer and professional markets under the iconic Smith & Wesson
, and Gemtech
brands. The company also provides manufacturing services including forging, machining, and precision plastic injection
molding services. For more information call (800)
331-0852
or visit
Page 2 of 8
Safe Harbor Statement
Certain statements contained in this press release may be deemed to be forward-looking statements under federal securities laws, and we intend that such
forward-looking statements be subject to the safe-harbor created thereby. Such forward-looking statements include, among others, that (i) we have great confidence going forward to continue being the brand of choice at retail by connecting with
both the millions of new firearms owners and our loyal long time enthusiasts in new and innovative ways, continuing to introduce exciting new products, and leveraging our unique ability to adjust rapidly to market dynamics through our flexible
manufacturing model; (ii) we intend to relocate our headquarters and certain of our operations to Maryville, Tennessee in 2023; (iii) the new

facility will serve as our headquarters and will be the new home for our plastic injection molding, assembly,
and logistics operations, and will solidify the future of Smith & Wesson – an innovative, nimble organization, whose dedicated employees leverage the latest technology to produce products that set the standard for firearms enthusiasts
around the globe; and (iv) we believe that our strong balance sheet, impressive product array, and commitment to be the market leader will enable us to continue to invest in our business and capture market share, as we fulfill our commitment to
return capital to our stockholders. We caution that these statements are qualified by important risks, uncertainties, and other factors that could cause actual results to differ materially from those reflected by such forward-looking statements.
Such factors include, among others, economic, social, political, legislative, and regulatory factors; the potential for increased regulation of firearms and firearm-related products; actions of social activists that could have an adverse effect on
our business; the impact of lawsuits; the demand for our products; the state of the U.S. economy in general and the firearm industry in particular; general economic conditions and consumer spending patterns; our competitive environment; the supply,
availability, and costs of raw materials and components; our anticipated growth and growth opportunities; our strategies; our ability to maintain and enhance brand recognition and reputation; our ability to effectively manage and execute the planned
relocation of our headquarters and certain of our operations to Tennessee; our ability to introduce new products; the success of new products; the potential for cancellation of orders from our backlog; and other risks detailed from time to time in
our reports filed with the Securities and Exchange Commission, including our Annual Report on Form
for the fiscal year ended April 30, 2021.
Page 3 of 8
SMITH & WESSON BRANDS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
As of:
October 31, 2021
April 30, 2021
(In thousands, except par value and share data)
ASSETS
Current assets:
Cash and cash equivalents
159,391
113,017
Accounts receivable, net of allowances for credit losses of $38 on October 31, 2021 and $107
on April 30, 2021
44,226
67,442
Inventories
120,277
78,477
Prepaid expenses and other current assets
Income tax receivable
Total current assets
333,932
268,253
Property, plant, and equipment, net
136,932
141,612
Intangibles, net
Goodwill
19,024
Other assets
10,966
13,082
505,176
446,388
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable
49,070
57,337
Accrued expenses and deferred revenue
31,958
33,136
Accrued payroll and incentives
11,068
17,381
Accrued income taxes
Accrued profit sharing
14,445
Accrued warranty
Total current liabilities
103,737
125,655
Deferred income taxes
Finance lease payable, net of current portion
38,228
38,786
non-current
13,999
14,659
Total liabilities
156,868
180,004
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $.001 par value, 20,000,000 shares authorized, no shares issued or
outstanding
Common stock, $.001 par value, 100,000,000 shares authorized, 74,546,592 issued and
48,294,374 shares outstanding on October 31, 2021 and 74,222,127 shares issued and 49,937,329 shares outstanding on April 30, 2021
Additional
paid-in
275,229
273,431
Retained earnings
445,306
325,181
Accumulated other comprehensive income
Treasury stock, at cost (26,252,218 shares on October 31, 2021 and 24,284,798 on
April 30, 2021)
(372,375
(332,375
Total stockholders’ equity
348,308
266,384
505,176
446,388
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CONDENSED CONSOLIDATED STATEMENTS OF INCOME
For the Three Months Ended October 31,
For the Six Months Ended October 31,
(In thousands, except per share data)
 230,479
 248,729
 505,088
 478,614
Cost of sales
128,484
147,656
273,151
285,117
Gross profit
101,995
101,073
231,937
193,497
Operating expenses:
Research and development
Selling, marketing, and distribution
11,423
11,614
22,057
21,609
General and administrative
23,436
23,224
41,049
45,007
Total operating expenses
36,603
36,693
66,658
70,377
Operating income from continuing operations
65,392
64,380
165,279
123,120
Other income/(expense), net:
Interest expense, net
(1,490
(1,011
(2,806
Total other income/(expense), net
(2,046
Income from operations before income taxes
65,759
63,583
165,761
121,074
Income tax expense
14,824
14,465
37,944
28,657
Income from continuing operations
50,935
49,118
127,817
92,417
Discontinued operations:
Income from discontinued operations, net of tax
Net income
52,241
100,626
Net income per share:
Basic—continuing operations
Basic—net income
Diluted—continuing operations
Diluted—net income
Weighted average number of common shares outstanding:
48,147
55,914
48,270
55,691
48,692
56,531
48,524
56,475
Page 5 of 8
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended
October 31, 2020
(In thousands)
Cash flows from operating activities:
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
15,210
17,129
Loss on sale/disposition of assets
Provision for losses on notes and accounts receivable
Impairment of long-lived tangible assets
Stock-based compensation expense
Changes in operating assets and liabilities:
22,435
(7,787
(41,800
24,852
Income taxes
(8,267
(8,514
28,331
(6,313
(1,043
(6,668
(1,206
(16,212
(1,625
Cash provided by operating activities—continuing operations
105,364
138,088
Cash used in operating activities—discontinued operations
(2,225
Net cash provided by operating activities
135,863
Cash flows from investing activities:
Payments to acquire patents and software
Proceeds from sale of property and equipment
Payments to acquire property and equipment
(10,113
(14,964
Cash used in investing activities—continuing operations
(10,199
(15,314
Cash used in investing activities—discontinued operations
(1,143
Net cash used in investing activities
(16,457
Cash flows from financing activities:
Proceeds from loans and notes payable
25,000
Cash paid for debt issuance costs
Payments on finance lease obligation
Payments on notes and loans payable
(185,000
Distribution to AOUT
(25,000
Payments to acquire treasury stock
(40,000
Dividend distribution
(7,692
(2,795
Proceeds from exercise of options to acquire common stock, including employee stock purchase
plan
Payment of employee withholding tax related to restricted stock units
(1,399
(2,173
Cash used in by financial activities—continuing operations
(48,791
(188,702
Cash used in financial activities—discontinued operations
Net cash used inprovided by financing activities
(188,868
Net increase/(decrease) in cash and cash equivalents
46,374
(69,462
Cash and cash equivalents, beginning of period
125,011
Cash and cash equivalents, end of period
55,549
Supplemental disclosure of cash flow information
Cash paid for:
38,186
40,888
Page 6 of 8
RECONCILIATION OF GAAP FINANCIAL MEASURES TO
NON-GAAP
(Dollars in thousands, except per share data)
For the Three Months Ended
October 31, 2020
% of Sales
GAAP gross profit
Relocation expenses
103,085
101,083
233,055
194,393
GAAP operating expenses
36,603
36,693
66,658
70,377
Amortization of acquired intangible assets
Transition costs
(4,338
(7,933
Spin related stock-based compensation
(4,461
32,110
31,738
61,973
61,677
GAAP operating income
70,975
69,345
171,082
132,716
GAAP income from continuing operations
Tax effect of
(1,258
(1,241
(1,328
(2,399
55,260
52,842
132,292
99,614
GAAP income from continuing operations per share—diluted
income from continuing operations per
share—diluted
Non-GAAP net income per share does not foot due to rounding.
Page 7 of 8
RECONCILIATION OF OPERATING CASH FLOW FROM CONTINUING OPERATIONS TO FREE CASH FLOW
(In thousands)
Net cash (used in)/provided by operating activities
(3,723
55,265
(4,431
(8,674
Free cash flow
(8,154
46,591
95,165
122,774
RECONCILIATION OF GAAP INCOME FROM CONTINUING OPERATIONS TO
ADJUSTED EBITDAS
(in thousands)
15,166
16,282
80,436
78,876
189,993
151,298
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The above information was disclosed in a filing to the SEC. To see the filing, click here.

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