Smith & Wesson Brands (SWBI) 4 Mar 222022 Q3 Earnings call transcript

Good day, everyone, and welcome to Smith & Wesson Brands, Inc.

Third Quarter Fiscal 2022 Financial Results Conference Call. This call is being recorded. At this time, I would like to turn the call over to Kevin Maxwell, Smith & Wesson’s General Counsel, who will give us some information about today's call.

Thank you, and good afternoon.

contain may today comments forward-looking statements. Our

of believe and use forward-looking the intended words intend, expect, statements. estimate, project, other identify anticipate, to Our similar are expressions

product on may preferences, consumer industry for opportunities such include conditions statements growth conditions strategies, statements products, trends, Forward-looking as share, also inventory our and development, our demand, in objectives, market topics and general.

and materially actual current and implied statements are SEC those the described on replay risks along available Forward-looking results or future subject our our in are cause differ the statements with a uncertainties judgment represent today's by could about of today. from and our expressed These our to that uncertainties website, which to our filings, risks are call.

forward-looking results. non-GAAP update reference We obligation statements. have financial to certain We no

financial and GAAP and COVID-XX-related and to distribution our related planned to Our exclude of be EPS. are business filings operations products found XXXX, reference Reconciliations accessories costs which Also, in we manufacturing financial we the available press expenses the fully headquarters certain non-GAAP earnings referencing on in measures each is other relocation release, when results costs. Outdoor can financial in today's SEC of our and spin-off Tennessee. The and EPS, our of fiscal website. non-GAAP always diluted measures to of

to and We transfer available removes to and NICS shipments the by best considered NICS to channel. Finally, remember or share that when Adjusted Please Shooting National the period. are retail in Sports only and other enforcement inventory any to directly generally consumers, background proxy published in background believe, market consumer adjusted firearm we for NICS retailers end NICS than checks mostly federally generally correlate Foundation law for time metric data. levels purposes not discuss NICS firearms on purchases. does the licensed at given a Because our results, agencies to we checks are adjusted the NICS, RMs based FBI counter. we conducted referring those distributors not demand due

Before I indicated to refers EBITDAS income the would I any continuing like adjusted otherwise is unless reference that to items over speakers, to to call to hand to results operations any and you remind from reference statement our EBITDAS.

today's over Mark With our and to on are us the Smith, CFO. turn and Deana call CEO; Joining I call President Mark. our will that, McPherson,

and Thank everyone, for us you, thanks, joining today. Kevin,

you months, healthy pandemic to height the can of the entrants, elevated from our X be recent more demand returning market, just February, entire from significantly seems levels pre-pandemic and the the cooled As week, although surge, from released the data with results following see now historical normal over and NICS still past the patterns. this to new firearms has with QX throughout

ability prior and revenues with is declines, significant periods in pattern from obviously one familiar report ever to this to pleased has no revenue Smith very this us demand resulted Wesson, & While is lower proud for conditions. overall to a quarter and macro profitability, what exactly matter the that once the they have the I'm designed is again, fact is deliver of very the accommodate. our and model team market demonstrated to business meaningful no

Wesson flexible Our manufacturing past proof the fueled gains over years, meet significant aggressively ability production demonstrable of Smith for for our market surging to point ramp couple to & share provided demand strategy. and a

and to surge and share, by reduced in invested the nearly outstanding in nearly healthy nearly $XXX million business XX% solid million into million with market of shares long-term business demand $XXX gain over balance back our the cash. have million during not enabled impressive which bought sheet but we which a dividends, team Since manufacturing back Our free, increased us $XX foundation success. strong also began $XXX a in very $XX to our set debt only now are of down paid surge, XXXX, have and March for has over XX%, throughput debt paid by stock, million of today

As to through a and And we dividends to continue result fixed value we've of these stockholders our commitment share do repurchases. long-term returning regular well is discussed to accomplishments, so. are positioned as previously,

contraction Now the underpin trends levels normalize, demand that profitability strategy same are despite us high of to as factors enabling this deliver revenue. a in

illustration overburdening would are our problem we costs. of don't to underutilization gross encounter back demand up, When in react Strong to able we us to down. a provided how many more in levels, a quarter without market. can fixed allows demand margins as our this such ramp market manufacturers ramp face that normal typical the we begins return volatile to Just to lower model great

for excellence guidance the fiscal subject our During quality, of very top chain published top The our time. product managing challenges. business the And long emphasizing at for cyclicality, is the always I'll also will a are only all global despite market end the test sustainable decline margin has XXX a which revenue, been the points to gross that model new focus EBITDAS been our supply the to declined and basis growth, in facing year-to-date. quarter related third term, gross on and XX% quarter, why and as that point safety, of inflation exceed percentages end financial headwinds while and our margin innovation firearms out company endure operational also has

foundation continue financial us and any performance in strategic principles adherence leadership to to condition. for core solid our market strong Our position industry and strict

Speaking quarter in the to third firearms specifically our slower factor driving decline consumer results, primary demand revenue. for now was year-over-year the

the levels. shipments for line have declines SKUs at category are or And able the With nearly the largely note albeit surge, we working and levels quarter, also our saw entire levels pricing gun new the It capacity lower our our offset the refill frame been lower products demand products to year partially much results then, of at inventory and also volumes high channel lower expect, flat, pistols entire pricing ASPs the were versus mix to a end we strong portfolio revolvers, we of the the sell-through ASPs higher our demand. in quickly we second are occasionally we experienced to volumes, indicating the since ago, evaluating our sharply product but the which of optimize those line. our important Throughout lines, rationalizing handguns, in With channel by during many product from long our have competitors', did in evident. in of as quarter, replace top strong. polymer you'd that despite by still than actively a remained introducing very during being across quarter steeper offsetting As remain very in than them to slowed. our volume-related is efforts certain in XX% higher declines

long a ASPs While anticipate be those to we more that likely market pressure degree, competitive in near the of term some will those do the gains majority term, will lasting.

Additionally, we innovation with being are market focused customer critical. factors and long-term share ever on engagement

product done continued design an launch over of impressive engineering have they've teams and us success. products XX position very and management pipeline proud for the I'm months, to Our new next scheduled for

extremely a launched capacity coming of to our their our our with volunteer line, our brand-new strong XX also the brand-new more exciting same rifle been to this with Outdoor Carry carry the firearm well has much next with ballistics and which months. anticipated course, Plus M&P round series, generation comparable Just many tuned Super and received very and the XX products and along in in with Shield we Shield EZ round co-launch ammunition footprint. M&P dimensions, Rifle the allow yet popular pistol conceal of third our demand; stay millimeter, popular increased new new popular And frame very full for CSX, that for metal exciting for is Vista in XX quarter, a chambered we hammer-fired X-millimeter chambered in partnered

initial at marketing M&P the just campaigns consumer content also the our Super CSX, for great partners. created and and work X each XX over we had the by remains this million is previous X the the day. reached And first with XX-millimeter industry on being And hard of engagement reaching activity response similar Our covered during developed we've Volunteer The we week. brand on also calls that around a over team continues. million recognized customers customers for Carry, we the all work,

serving the the well In summary, We of are Innovator growth VP have to Sue Cupero; Year, been of the Award long-term Goods positioned partner our changes Year Chairman's Sales, Trade Sporting and for proud to for innovation an of adapt as and coupled technology, Manufacturer the by our remain our thank employees the driving awarded Wholesalers. the National the quickly designed Association industry we and of loyal our model to and for distribution Group, hard in agile to all their work business leveraging future. dedicated to I want marketplace. leader, our vision customers with

over call quarter still are cover Deana? the a the And on by third to to turn well. to I just to Tennessee. more is progress in on track The substantially fourth Maryville, relocation quick XXXX. we our Before project to be update detail, complete or the of Deana continuing financials calendar

for discussion Mark. which the make a several Thanks, historic to year more return continues prior XXXX pattern, consistent began last in with over next fiscal comments, normalized quarter, firearms will our to and of and demand quarters. March comparisons seasonal Mark's the Echoing to difficult the that

from now the same in or our fiscal increase fiscal drive model has long-term an and back XXXX. grew over quarter $XXX.X last looking how XXX.X% where profitability see $XXX.X years to in agile X optimizes million at However, fiscal to Revenue that our during XXXX, million in the in for third is XXXX $XXX.X fiscal a surge response we were can the foundation, our quarter to in creating value. XXXX demand million to business you strengthened

truly from ago revenue recorded is represents $XX.X that it a historic a million in of decrease shipped. we increase this quarter versus able on last number years achieve nearly X units While remarkable to XX% this the year, same levels the were

promotional prices. noted, increase mix helped to Mark reduction impacts selling significantly in with programs combined price and As the added

the the gains we was our quarter, are when our position viewing by changes to to compared our market model XXX NICS a the The allows year, points on basis in shipped quarter for reflective comparable is captured was quarter, material costs, declined business decrease year-to-date increases XX.X% adjust surge units is return which our driver year costs of The compensation-related restrictions below to per price decrease of endured prior and more offsetting $X.X after primary well ease. lower reduction Tennessee and these as promotion last Partially quarter non-GAAP legal mix million relocation driver our accruals show, share associated labor at outsized XX.X% the third sporting inflation but not trade prior have prior demand. to our Tennessee the increased During XXXX. due with growth by in during quarter, same due XX.X% a operations quickly marketing, of as GAAP $X.XX fiscal NICS. were the to But share relocation XX.X% in $X.XX true pandemic increases earnings relative to $XX.X distribution, of realized evidenced manufacturing impacts as relative a unfavorable were points decrease was as above and for with capacity which to of basis revenue the of were $X.XX revenue planned believe quarterly demand million third our compared a year where the the last versus comparable the was for into to XX.X% primary to while much impact quarter while up X,XXX that travel the of in year. percentage results the $XX.X to in with quarter. in goods a And shipments our income. shifts was and to channel period share $X.X costs. largely $X.XX the quarter, in and figures sales our than associated are certain during us XX% Operating earnings above million flexible planned per year. in margin we same basis consumer Gross fiscal in on XXXX, of offset period. The of million reduced expenses realized third favorable margin began fiscal $X.XX payroll-related declined primarily normal in absorption, third the the costs comparable the for related XX.X%

prior $XX.X million than EBITDAS Finally, of of was million revenue. XX.X% $XX.X lower year the and

$X.X $X quarter. spent operations During resulting of we the million in capital $X.X third the in quarter, equipment, and of free million million cash generated generated on from cash

repurchase of reduced XX%. third XXXX, nearly the market. completed acquiring shares nearly $XX common open by share XX.X During our we million spin our Since on share the million X.X the we repurchased in quarter, stock completed August our shares authorization, have million count we and

We will repurchase not anniversary spin paid to with cash in additional X-year debt. any in million the $X.X dividends shares of of August and the be prior and able ended to XXXX. million bank the $XXX.X no We quarter

has of XX. payment authorized $X.XX share our of payment XX dividend to to Board record made on the on with per quarterly be March Our March shareholders

forward XXXX, remained in relatively our inventory Looking fourth channel into stable third fiscal quarter. the our of quarter throughout

fluctuations levels ensuring inventory channel production supply a are of performance as approximately of healthy, and supply, As February consumer of and our inventories positive fourth We experiences adequate channel broad by drives by NICS, weeks have results expect find today, in short-term representing our we balance flat ultimately in strong XX levels to return believe distributors which levels to normal range and current products. more quarter financial The demonstrated normalized sequentially. the meet still pre-pandemic demand. demand to consumer

the the of pandemic. start For March XXXX purposes, these represents

inventory. to after reduction restock build to Day. move, cash continue the goods sales throughout we shared year's $X last complete million June as related In Tennessee that the or margin, approximately Analyst fourth quarter expense targeted expect EBITDAS and to of our our we gross meet in last exceed We metrics expected to and during will continue the depletion we in spite inventory of internal finished

XX%, and reminder, As that XX% highlighted EBITDAS time, margins XX% at XX% our of to annually. million in than to maintaining margins goals we gross more of of a generating $XX cash

balanced and business quarterly form continuing investments strategy regular Our as the returning in to repurchases. drive value as growth share and in approach our emphasize our capital dividends remains well to of allocation and stockholders productivity to

questions. over effective will the XX%. tax that, operator rate approximately call our to I'll now for Finally, be With turn the

Mark Instructions] [Operator Capital. Our comes Street first from with Lake Smith question

you to wanted discuss I bit you guys in quantify First, more just January? into little Can ASP. a pricing dig or much maybe on took how

lines, was we across board, certain a X%. Mark, on the average in average mix product but different X% in took was -- January, on obviously, about

pricing we these as seems products, the at especially that out in months, And seeing, it couple products, like Okay. new last we typically come new those of have higher look are on right?

-- that's definitely here will, We is higher is the that mean, remarks, and that goal the point. kind feel of like I year definitely kind of Yes. then that's over in Yes. I is the brand to the as I command if results readjust, to said it's been prepared guess, recent and proven portfolio. price you our able brand the last pricing

hold a with see, kind change can to of some out kind there. of lot ASPs of the replacing a product certain XX, those you a done we've new and of as portfolio and to realigning with, product months work the of on come lines over moving product lot drive completely So last the lot lasting XX products portfolio new them of and and

price Perfect. promotional you increases? feel like pressures do are see you And the beginning still take environment and that line off like feel little opportunities ways that? as still promotion? some to you a look signs at at retail, there or Or we're of future can there's in inflationary with you with Do guys we

pass to I But we the those on we obviously, definitely when continue and think able that depends at that through if the evaluation we'll will it it. the increases. that market inflationary make be pressures come time, to price

January. in year, one If then in did in and we June last another one summertime you remember, the

expect So inflationary pressures doing a that. that the been be continue date. we'll to I to lot of to able offset able we've

the As far kick little early of think promotional of definitely environment are the beginning to I of starting promotional -- see we the as environment, in kind bit. signs that a to

think, to Now a -- [indiscernible], just no trying bottom. any with by not bit. to trim panic of around edges said, It's it's little a that the I race the it's of means kind sort

although, And available you back out still can get the but to said, historical product I returning see little and is is kind as is levels, a to the retail brands. for at it as of NICS, starting of normal more competitive so multiple think I from elevated, market, kind there

the then for one think Okay. And I last me.

And dig your little you in talk shutdown the manufacturing? about or outsourcing Just can guys flexible a maybe on recently? that seen any deeper we've pullback some of on here

Yes.

and to up as pretty for this volatile us, -- that ramp in allows lot side, to ramp-up we in flexible summer we of we allows I a quickly unique As XXXX, faster on the market. very of well. -- think, see react as many manufacturing us ramp And back talked can back is model the changes is some we that model March down the before, can April part and we times rapidly early We and just of nutshell and in can outsourced our that demand using then pretty about flip capacity. that saw is a us

our back remaining So cost and we absorption matter profitable no when down, ramp helps fixed remain on us XXX% the and market facilities utilized condition.

So as this quarter, see can we're that. that's to here that's, how able you do in

in in slower the our ramp suppliers parts that’s you them. are our at them have do don't you ramp a want we soft because to Some than relationship the We balance down we order might look we inventory landing. to sheet, ourselves of down destroy give increases seeing with

partners. great have We

our willing slower that in products do are going We're take we the know that in. ramp to So sell to because them we future.

finished as grow of then are bit parts a eventually goods finished that down and back time start parts period will finished coming during So will little made.

I'd the call to back questions at showing Smith I'm remarks. no further this like Instructions] turn time. for closing Mark queue in to [Operator

today. and for joining operator, everyone, us you, Thank right. thanks, All

our very all successful Talk quarter. you of you Just next to to for another yet employees profitable thank time. another and

conference you concludes participating. today's Thank for This call.

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