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

December, 07 2023 04:05 PM 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:
investorrelations@smith-wesson.com
(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

Company Name:	Smith & Wesson Brands Inc.
Stock Symbol:	SWBI
Market:	NASDAQ
Website:	smith-wesson.com

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