Smith & Wesson Brands, Inc. Reports First Quarter Fiscal 2022 Financial Results

SPRINGFIELD, Mass., Sept. 1, 2021 /PRNewswire/ — Smith & Wesson Brands, Inc. (NASDAQ Global Select: SWBI), a U.S.-based leader in firearm…

SPRINGFIELD, Mass., Sept. 1, 2021 /PRNewswire/ — Smith & Wesson Brands, Inc. (NASDAQ Global Select: SWBI), a U.S.-based leader in firearm manufacturing and design, today announced financial results for the first quarter of fiscal 2022, ended July 31, 2021.  Unless otherwise indicated, any reference to income statement items refers to results from continuing operations.

First Quarter Fiscal 2022 Financial Highlights

  • Net sales were $274.6 million, an increase of $44.7 million, or 19.5%, over the comparable quarter last year.
  • Gross margin was 47.3%, compared with gross margin of 40.2% for the comparable quarter last year.
  • Quarterly GAAP net income was $76.9 million, or $1.57 per diluted share, compared with $43.3 million, or $0.77 per diluted share, for the comparable quarter last year.
  • Quarterly non-GAAP net income was $77.1 million, or $1.57 per diluted share, compared with $46.8 million, or $0.83 per diluted share, for the comparable quarter last year. GAAP to non-GAAP adjustments for income exclude costs related to the spin-off of the outdoor products and accessories business, COVID-19 related expenses, and other costs. For a detailed reconciliation, see the schedules that follow in this release.
  • Quarterly non-GAAP Adjusted EBITDAS was $109.6 million, or 39.9% of net sales, compared with $72.5 million, or 31.5% of net sales, for the comparable quarter last year.

Mark Smith, President and Chief Executive Officer, commented, «Our flexible manufacturing model and strong consumer preference for our products at the retail counter combined to deliver the highest first quarter net revenue in the company’s history, marking the fifth consecutive quarter of top line records. Even more remarkable, our team has been able to deliver nearly 170% two-year compounded growth, significantly outpacing the competition, while simultaneously lowering operating costs over this same timeframe. This is a direct result of significant strides the team has made in executing our strategy to streamline business operations and increase flexibility, and has driven an incredible EBITDAS margin of nearly 40% in the quarter. But more importantly, we believe we are well positioned for the ever-changing market conditions in our industry, to maintain our leadership position in the industry, and  continue delivering impressive profitability in any environment.»

Smith continued, «We are also thrilled to introduce our new M&P12 shotgun, which marks our entry into a brand-new category for the iconic Smith & Wesson brand, and presents a significant opportunity to continue capitalizing on the momentum we’ve built over the past year with the consumer. Within the first 24 hours of the announcement, we had tallied over 3 million consumer impressions and 300,000 engagements on social media, already making this one of our most widely viewed and most successful launches to date. We are excited to continue innovating in this category and look forward to its growth potential.»

Deana McPherson, Executive Vice President and Chief Financial Officer, commented, «Our first quarter results continue to demonstrate our ability to react to the changing needs of the market, delivering a 19.5% increase over last year’s results and securing a two-year compounded growth rate of nearly 170%.  This increase in sales, combined with strong expense containment, resulted in a record gross margin of 47.3% for the quarter while also generating $109.1 million in cash. We believe our ability to grow our top line without adding significant fixed costs, while also leveraging synergies from the spin-off, have been key contributors to our profitability and position us well for the adjusting market.   As we begin to replenish inventory in the channel and in our warehouse, we believe the flexibility of our operations and the strength of our balance sheet, combined with the hard work and ingenuity of our R&D and marketing teams will enable us to continue to invest in our business and capture market share, while returning 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 September 14th with payment to be made on September 28th

Conference Call and Webcast

The company will host a conference call and webcast on September 1, 2021, to discuss its first 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 2176794.  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 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) COVID-19 expenses, (vi) transition costs, (vii) amortization of acquired intangible assets, (viii) spin related stock compensation, and (ix) 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®, M&P®, 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, our belief that consumers have a strong preference for our products at the retail counter; our belief that we are well positioned for the ever-changing market conditions in our industry, to maintain our leadership position in the industry, and  continue delivering impressive profitability in any environment; our significant opportunity to continue capitalizing on the momentum we’ve built over the past year with the consumer; our excitement to continue innovating in a new category and its growth potential; our belief that our ability to grow our top line without adding significant fixed costs, while also leveraging synergies from the spin-off, positions us well for the adjusting market; and our belief that as we begin to replenish inventory in the channel and in our warehouse, the flexibility of our operations and the strength of our balance sheet, combined with the hard work and ingenuity of our R&D and marketing teams will enable us to continue to invest in our business and capture market share, while returning 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 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, 2021.

SMITH & WESSON BRANDS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)



As of:


July 31, 2021


April 30, 2021


(In thousands, except par value and share data)

 ASSETS

 Current assets:




Cash and cash equivalents

$ 171,413


$   113,017

Accounts receivable, net of allowances for credit losses of $52 on

   July 31, 2021 and $107 on April 30, 2021

41,198


67,442

Inventories

97,140


78,477

Prepaid expenses and other current assets

8,504


8,408

Income tax receivable 


909

Total current assets

318,255


268,253

 Property, plant, and equipment, net

139,626


141,612

 Intangibles, net

4,360


4,417

 Goodwill

19,024


19,024

 Other assets

11,405


13,082


492,670


446,388

 LIABILITIES AND STOCKHOLDERS’ EQUITY

 Current liabilities:




Accounts payable

$    54,583


$     57,337

Accrued expenses and deferred revenue

33,554


33,136

Accrued payroll and incentives

8,267


17,381

Accrued income taxes

22,236


1,157

Accrued profit sharing

18,279


14,445

Accrued warranty

1,902


2,199

Total current liabilities

138,821


125,655

 Deferred income taxes 

904


904

 Finance lease payable, net of current portion

38,509


38,786

Other non-current liabilities

14,377


14,659

Total liabilities

192,611


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, 74,298,308 issued

   and 48,046,090 shares outstanding on July 31, 2021 and 74,222,127 shares

   issued and 49,937,329 shares outstanding on April 30, 2021

74


74

Additional paid-in capital 

274,068


273,431

Retained earnings

398,219


325,181

Accumulated other comprehensive income

73


73

Treasury stock, at cost (26,252,218 shares on July 31, 2021 and 24,284,798 on

   April 30, 2021)

(372,375)


(332,375)

Total stockholders’ equity

300,059


266,384


$ 492,670


$   446,388

 

SMITH & WESSON BRANDS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)






For the Three Months Ended July 31,


2021


2020


(In thousands, except per share data)

Net sales

$274,609


$229,885

Cost of sales

144,667


137,461

Gross profit

129,942


92,424

Operating expenses:




Research and development

1,808


1,906

Selling, marketing, and distribution

10,634


9,995

General and administrative

17,614


21,780

Total operating expenses

30,056


33,681

Operating income from continuing operations

99,886


58,743

Other income/(expense), net:




Other income/(expense), net 

660


67

Interest expense, net

(544)


(1,316)

Total other income/(expense), net

116


(1,249)

Income from operations before income taxes

100,002


57,494

Income tax expense

23,120


14,193

Income from continuing operations

$   76,882


$   43,301

Discontinued operations:




Income from discontinued operations, net of tax


5,084

Net income

$   76,882


$   48,385





Net income per share:




Basic – continuing operations

$       1.59


$       0.78

Basic – net income

$       1.59


$       0.87

Diluted – continuing operations

$       1.57


$       0.77

Diluted – net income

$       1.57


$       0.86

Weighted average number of common shares outstanding:




Basic

48,394


55,494

Diluted

49,050


56,277

 

SMITH & WESSON BRANDS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)






For the Three Months Ended


July 31, 2021


July 31, 2020


(In thousands)

Cash flows from operating activities:




Income from continuing operations

$       76,882


$       43,301

Adjustments to reconcile net income to net cash provided by operating activities:




Depreciation and amortization 

7,466


8,244

Loss on sale/disposition of assets

57


3

Provision for losses on notes and accounts receivable

(56)


38

Stock-based compensation expense

1,452


884

Changes in operating assets and liabilities:




     Accounts receivable

26,300


1,851

     Inventories

(18,663)


23,767

     Prepaid expenses and other current assets

(96)


(973)

     Income taxes

21,988


14,340

     Accounts payable

(2,443)


7,769

     Accrued payroll and incentives

(9,114)


(1,664)

     Accrued profit sharing

3,834


3,405

     Accrued expenses and deferred revenue

405


(18,638)

     Accrued warranty

(297)


(175)

     Other assets

1,677


796

     Other non-current liabilities

(305)


(1,225)

 Cash provided by operating activities – continuing operations

109,087


81,723

 Cash provided by operating activities – discontinued operations


2,507

Net cash provided by operating activities

109,087


84,230

Cash flows from investing activities:




Payments to acquire patents and software

(69)


(187)

Proceeds from sale of property and equipment

70


Payments to acquire property and equipment

(5,769)


(6,465)

Cash used by investing activities – continuing operations

(5,768)


(6,652)

Cash used by investing activities – discontinued operations


(995)

Net cash used in investing activities

(5,768)


(7,647)

Cash flows from financing activities:




Payments on finance lease obligation

(264)


(238)

Payments on notes and loans payable


(135,000)

Payments to acquire treasury stock

(40,000)


Dividend distribution

(3,844)


Proceeds from exercise of options to acquire common stock


268

Payment of employee withholding tax related to restricted stock units

(815)


(997)

Cash used in by financial activities – continuing operations

(44,923)


(135,967)

 Net cash used inprovided by financing activities

(44,923)


(135,967)

Net increase/(decrease) in cash and cash equivalents

58,396


(59,384)

Cash and cash equivalents, beginning of period

113,017


125,011

Cash and cash equivalents, end of period

$     171,413


$       65,627

Supplemental disclosure of cash flow information




Cash paid for:




Interest

$            538


$         1,556

Income taxes

$         1,131


$         1,689

 

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 


July 31, 2021


July 31, 2020


$


% of Sales


$


% of Sales

GAAP gross profit

$ 129,942


47.3%


$ 92,424


40.2%

COVID-19

28


0.0%


909


0.0%

Non-GAAP gross profit

$ 129,970


47.3%


$ 93,333


40.6%









GAAP operating expenses

$   30,056


10.9%


$ 33,681


14.7%

Amortization of acquired intangible assets

(72)


0.0%


(83)


0.0%

Transition costs



(3,595)


-1.6%

COVID-19

(48)


0.0%


(43)


0.0%

Spin related stock-based compensation

(72)


0.0%



Non-GAAP operating expenses

$   29,864


10.9%


$ 29,960


13.0%









GAAP operating income

$   99,886


36.4%


$ 58,743


25.6%

Amortization of acquired intangible assets

72


0.0%


83


0.0%

Transition costs



3,595


1.6%

COVID-19

76


0.0%


952


0.4%

Spin related stock-based compensation

72


0.0%



Non-GAAP operating income

$ 100,106


36.5%


$ 63,373


27.6%









GAAP income from continuing operations

$   76,882


28.0%


$ 43,301


18.8%

Amortization of acquired intangible assets

72


0.0%


83


0.0%

Transition costs



3,595


1.6%

COVID-19

76


0.0%


952


0.4%

Spin related stock-based compensation

72


0.0%



Tax effect of non-GAAP adjustments

(51)


0.0%


(1,144)


-0.5%

Non-GAAP income from continuing operations

$   77,051


28.1%


$ 46,787


20.4%









GAAP income from continuing operations per share – diluted

$        1.57




$      0.77



Amortization of acquired intangible assets






Transition costs




0.06



COVID-19




0.02



Spin related stock-based compensation






Tax effect of non-GAAP adjustments




(0.02)



Non-GAAP income from continuing operations per share – diluted

$        1.57




$      0.83



 

SMITH & WESSON BRANDS, INC. AND SUBSIDIARIES

RECONCILIATION OF OPERATING CASH FLOW FROM CONTINUING OPERATIONS TO FREE CASH FLOW

(In thousands)

(Unaudited)






For the Three Months Ended


July 31, 2021


July 31, 2020

Net cash provided in operating activities

$ 109,087


$    81,723

Net cash used in investing activities

(5,768)


(6,652)

Free cash flow

$ 103,319


$    75,071

 

SMITH & WESSON BRANDS, INC. AND SUBSIDIARIES

RECONCILIATION OF GAAP INCOME FROM CONTINUING OPERATIONS TO NON-GAAP ADJUSTED EBITDAS

(in thousands)

(Unaudited)






For the Three Months Ended


July 31, 2021


July 31, 2020





GAAP income from continuing operations

$          76,882


$          43,301

Interest expense

584


1,357

Income tax expense

23,120


14,193

Depreciation and amortization

7,443


8,244

Stock-based compensation expense

1,452


884

COVID-19

76


952

Transition costs


3,595

Non-GAAP Adjusted EBITDAS

$        109,557


$          72,526

 

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SOURCE Smith & Wesson Brands, Inc.