Smith & Wesson Brands, Inc. Reports Second Quarter Fiscal 2024 Financial Results

About this update from Smith & Wesson Brands, Inc.

Q2 Net Sales of $125.0 Million Q2 Gross Margin of 25.4%; Non-GAAP Gross Margin of 28.3% Q2 EPS of $0.05 /Share; Q2 Adjusted EPS of $0.14 /Share Q2 Adjusted EBITDAS Margin of 15.5% Maryville, Tennessee --( Newsfile Corp. - December 7, 2023 ) - Smith & Wesson Brands, Inc. (NASDAQ: SWBI) , a U.S. -based leader in firearm manufacturing and design, today announced financial results for the second quarter of fiscal 2024, ended October 31, 2023 . Second Quarter Fiscal 2024 Financial Highlights Net sales were $125.0 million , an increase of $3.9 million , or 3.2%, over the comparable quarter last year. Gross margin was 25.4% compared with 32.4% in the comparable quarter last year. GAAP net income was $2.5 million , or $0.05 per diluted share, compared with $9.6 million , or $0.21 per diluted share, for the comparable quarter last year. Non-GAAP net income was $6.5 million , or $0.14 per diluted share, compared with $12.0 million , or $0.26 per diluted share, for the comparable quarter last year. GAAP to non-GAAP adjustments for income exclude costs related to an accrued legal settlement, the relocation, and other costs. For a detailed reconciliation, see the schedules that follow in this release. Non-GAAP Adjusted EBITDAS was $19.3 million , or 15.5% of net sales, compared with $25.6 million , or 21.1% of net sales, for the comparable quarter last year. Mark Smith , President and Chief Executive Officer, commented, "We were very pleased with our second quarter results, which continued to reflect our innovative new product introductions and our consumers' enduring loyalty to the Smith & Wesson brand. Top line revenue and unit shipments were both up versus last year, while channel inventories actually decreased slightly in the period. This robust sell through, combined with our shipments outperforming NICS in the quarter by over 7%, underscores our belief that our strong performance was due to share gains at the retail counter. With demand levels expected to remain elevated through our traditionally busy season, a strong balance sheet, and a significant reduction in capex on the horizon as we wind down the major investment in our new facility in Tennessee , we expect to be in a very strong position to drive returns for our stockholders throughout the second half of fiscal 2024 and in fiscal 2025." Deana McPherson , Executive Vice President and Chief Financial Officer, commented, "Although our gross margin continues to be temporarily pressured by fixed-cost absorption, inflationary factors, and inventory reserve adjustments, we strengthened our working capital position by reducing production to drive internal inventory levels down and we anticipate that the temporary margin headwinds will abate in the fourth quarter. We repurchased nearly 646,000 shares during the third quarter, utilizing $8.2 million of our $50 million authorization, and paid $5.5 million in dividends. Consistent with our capital allocation strategy, our board of directors has authorized a $0.12 per share quarterly dividend, which will be paid to stockholders of record on December 21, 2023 with payment to be made on January 4, 2024 ." Conference Call and Webcast The company will host a conference call and webcast on December 7, 2023 to discuss its second quarter fiscal 2024 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 ). Interested parties in North America are invited to participate by dialing 1-877-704-4453. Interested parties from outside North America are invited to participate by dialing 1-201-389-0920. Participants should dial in at least 10 minutes prior to the start of the call. 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 non-GAAP 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) spin related stock-based compensation, (vi) an accrued legal settlement, (vii) relocation expense, and (viii) the tax effect of non-GAAP adjustments; and (2) the non-GAAP measures that exclude such information. We present these non-GAAP 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 non-GAAP 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 www.smith-wesson.com . 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 we expect to be in a very strong position to drive returns for our stockholders throughout the second half of fiscal 2024 and in fiscal 2025 and we anticipate that the temporary margin headwinds will abate in the fourth quarter. 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 relocation; 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 10-K for the fiscal year ended April 30, 2023 . Contact: [email protected] (413) 747-3448 SMITH & WESSON BRANDS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS As of: October 31, 2023 April 30, 2023 (In thousands, except par value and share data) ASSETS Current assets: Cash and cash equivalents $ 44,192 $ 53,556 Accounts receivable, net of allowances for credit losses of $22 on October 31, 2023 and $23 on April 30, 2023 59,773 55,153 Inventories 163,291 177,118 Prepaid expenses and other current assets 9,870 4,917 Income tax receivable 4,713 1,176 Total current assets 281,839 291,920 Property, plant, and equipment, net 253,253 210,330 Intangibles, net 2,823 3,588 Goodwill 19,024 19,024 Deferred income taxes 8,085 8,085 Other assets 7,949 8,347 Total assets $ 572,973 $ 541,294 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 44,536 $ 36,795 Accrued expenses and deferred revenue 23,197 20,149 Accrued payroll and incentives 19,889 18,565 Accrued income taxes 190 1,831 Accrued profit sharing 1,504 8,203 Accrued warranty 1,578 1,670 Total current liabilities 90,894 87,213 Notes and loans payable, net of current portion 64,836 24,790 Finance lease payable, net of current portion 36,209 36,961 Other non-current liabilities 7,532 7,707 Total liabilities 199,471 156,671 Commitments and contingencies Stockholders’ equity: Preferred stock, $0.001 par value, 20,000,000 shares authorized, no shares issued or outstanding — — Common stock, $0.001 par value, 100,000,000 shares authorized, 75,322,622 shares issued and 46,636,482 shares outstanding on October 31, 2023 and 75,029,300 shares issued and 45,988,930 shares outstanding on April 30, 2023 75 75 Additional paid-in capital 286,341 283,666 Retained earnings 517,682 523,184 Accumulated other comprehensive income 73 73 Treasury stock, at cost (29,686,140 shares on October 31, 2023 and 29,040,370 shares on April 30, 2023 ) (430,669 ) (422,375 ) Total stockholders’ equity 373,502 384,623 Total liabilities and stockholders' equity $ 572,973 $ 541,294 SMITH & WESSON BRANDS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME For the Three Months Ended October 31 , For the Six Months Ended October 31 , 2023 2022 2023 2022 (In thousands, except per share data) Net sales $ 124,958 $ 121,035 $ 239,201 $ 205,429 Cost of sales 93,192 81,773 177,034 134,696 Gross profit 31,766 39,262 62,167 70,733 Operating expenses: Research and development 1,724 1,869 3,522 3,542 Selling, marketing, and distribution 10,952 9,431 20,993 17,458 General and administrative 15,322 15,435 29,536 33,288 Total operating expenses 27,998 26,735 54,051 54,288 Operating income 3,768 12,527 8,116 16,445 Other income/(expense), net: Other income(expense), net 141 790 188 1,463 Interest (expense)/income, net (646 ) (420 ) (492 ) (854 ) Total other (expense)/income, net (505 ) 370 (304 ) 609 Income from operations before income taxes 3,263 12,897 7,812 17,054 Income tax expense 765 3,249 2,196 4,094 Net income $ 2,498 $ 9,648 $ 5,616 $ 12,960 Net income per share: Basic - net income $ 0.05 $ 0.21 $ 0.12 $ 0.28 Diluted - net income $ 0.05 $ 0.21 $ 0.12 $ 0.28 Weighted average number of common shares outstanding: Basic 45,977 45,815 46,042 45,777 Diluted 46,361 46,106 46,458 46,104 SMITH & WESSON BRANDS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS For the Six Months Ended October 31 , 2023 2022 (In thousands) Cash flows from operating activities: Net income $ 5,616 $ 12,960 Adjustments to reconcile net income to net cash provided by/(used in) operating activities: Depreciation and amortization 17,327 15,171 Loss/(gain) on sale/disposition of assets 682 (43 ) Provision for recoveries on notes and accounts receivable (1 ) (13 ) Stock-based compensation expense 2,759 2,605 Changes in operating assets and liabilities: Accounts receivable (4,619 ) 18,324 Inventories 13,827 (59,814 ) Prepaid expenses and other current assets (4,953 ) (2,493 ) Income taxes (5,178 ) (11,555 ) Accounts payable 14,682 5,889 Accrued payroll and incentives 1,324 (329 ) Accrued profit sharing (6,699 ) (7,915 ) Accrued expenses and deferred revenue 2,859 307 Accrued warranty (92 ) (130 ) Other assets 397 521 Other non-current liabilities (175 ) (1,650 ) Net cash provided by/(used in) operating activities 37,756 (28,165 ) Cash flows from investing activities: Payments to acquire patents and software (125 ) (256 ) Proceeds from sale of property and equipment 45 85 Payments to acquire property and equipment (66,983 ) (39,419 ) Net cash used in investing activities (67,063 ) (39,590 ) Cash flows from financing activities: Proceeds from loans and notes payable 50,000 — Payments on notes and loans payable (10,000 ) — Payments on finance lease obligation (681 ) (559 ) Payments to acquire treasury stock (8,212 ) — Dividend distribution (11,080 ) (9,153 ) Proceeds to acquire common stock from employee stock purchase plan 722 753 Payment of employee withholding tax related to restricted stock units (806 ) (1,039 ) Net cash provided by/(used in) financing activities 19,943 (9,998 ) Net decrease in cash and cash equivalents (9,364 ) (77,753 ) Cash and cash equivalents, beginning of period 53,556 120,728 Cash and cash equivalents, end of period $ 44,192 $ 42,975 Supplemental disclosure of cash flow information Cash paid for: Interest, net of amounts capitalized $ 1,725 $ 1,089 Income taxes $ 7,353 $ 15,721 SMITH & WESSON BRANDS, INC. AND SUBSIDIARIES RECONCILIATION OF GAAP FINANCIAL MEASURES TO NON-GAAP FINANCIAL MEASURES (Dollars in thousands, except per share data) (Unaudited) For the Three Months Ended For the Six Months Ended October 31, 2023 October 31, 2022 October 31, 2023 October 31, 2022 $ % of Sales $ % of Sales $ % of Sales $ % of Sales GAAP gross profit $ 31,766 25.4% $ 39,262 32.4% $ 62,167 26.0% $ 70,733 34.4% Relocation expenses 409 0.3% 1,735 1.4% 1,312 0.5% 2,978 1.4% Settlement 3,200 2.6% — 0.0% 3,200 1% — 0.0% Non-GAAP gross profit $ 35,375 28.3% $ 40,997 33.9% $ 66,679 27.9% $ 73,711 35.9% GAAP operating expenses $ 27,998 22.4% $ 26,735 22.1% $ 54,051 22.6% $ 54,288 26.4% Spin related stock-based compensation (3 ) 0.0% (25 ) 0.0% (7 ) 0.0% (54 ) 0.0% Relocation expenses (1,652 ) -1.3% (1,354 ) -1.1% (4,661 ) -1.9% (2,330 ) -1.1% Non-GAAP operating expenses $ 26,343 21.1% $ 25,356 20.9% $ 49,383 20.6% $ 51,904 25.3% GAAP operating income $ 3,768 3.0% $ 12,527 10.3% $ 8,116 3.4% $ 16,445 8.0% Settlement 3,200 2.6% — 0.0% 3,200 — — 0.0% Spin related stock-based compensation 3 0.0% 25 0.0% 7 0.0% 54 0.0% Relocation expenses 2,061 1.6% 3,088 2.6% 5,973 2.5% 5,308 2.6% Non-GAAP operating income $ 9,032 7.2% $ 15,640 12.9% $ 17,296 7.2% $ 21,807 10.6% GAAP net income $ 2,498 2.0% $ 9,648 8.0% $ 5,616 2.3% $ 12,960 6.3% Settlement 3,200 2.6% — 0.0% 3,200 1.3% — 0.0% Spin related stock-based compensation 3 0.0% 25 0.0% 7 0.0% 54 0.0% Relocation expenses 2,061 1.6% 3,088 2.6% 5,973 2.5% 5,308 2.6% Tax effect of non-GAAP adjustments (1,234 ) -1.0% (778 ) -0.6% (2,580 ) -1.1% (1,287 ) -0.6% Non-GAAP net income $ 6,528 5.2% $ 11,983 9.9% $ 12,216 5.1% $ 17,035 8.3% GAAP net income per share - diluted $ 0.05 $ 0.21 $ 0.12 $ 0.28 Settlement 0.07 — 0.07 — Relocation expenses 0.04 0.07 0.13 0.12 Tax effect of non-GAAP adjustments (0.03 ) (0.02 ) (0.06 ) (0.03 ) Non-GAAP net income per share - diluted $ 0.14 (a) $ 0.26 $ 0.26 $ 0.37 (a) Non-GAAP net income per share does not foot due to rounding. SMITH & WESSON BRANDS, INC. AND SUBSIDIARIES RECONCILIATION OF GAAP INCOME FROM OPERATIONS TO NON-GAAP ADJUSTED EBITDAS (In thousands) (Unaudited) For the Three Months Ended For the Six Months Ended October 31, 2023 October 31, 2022 October 31, 2023 October 31, 2022 GAAP net income $ 2,498 $ 9,648 $ 5,616 $ 12,960 Interest expense 1,233 566 1,788 1,135 Income tax expense 765 3,249 2,196 4,094 Depreciation and amortization 7,972 7,599 17,203 15,126 Stock-based compensation expense 1,484 1,428 2,759 2,605 Settlement 3,200 — 3,200 — Relocation expense 2,195 3,088 4,113 5,308 Non-GAAP Adjusted EBITDAS $ 19,347 $ 25,578 $ 36,875 $ 41,228 15.5% 21.1% 15.4% 20.1% SMITH & WESSON BRANDS, INC. AND SUBSIDIARIES RECONCILIATION OF OPERATING CASH FLOW FROM OPERATIONS TO FREE CASH FLOW (In thousands) (Unaudited) For the Three Months Ended For the Six Months Ended October 31, 2023 October 31, 2022 October 31, 2023 October 31, 2022 Net cash provided by/(used in) operating activities $ (2,874 ) $ (35,310 ) $ 37,756 $ (28,165 ) Net cash used in investing activities (34,996 ) (28,004 ) (67,063 ) (39,590 ) Free cash flow $ (37,870 ) $ (63,314 ) $ (29,307 ) $ (67,755 ) To view the source version of this press release, please visit https://www.newsfilecorp.com/release/190149 SOURCE Smith & Wesson Brands, Inc

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