Smith & Wesson Brands : Reports Second Quarter Fiscal 2022 Financial Results - Form 8-K/A

Smith & Wesson Brands, Inc. Reports

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.

•

Quarterly 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 non-GAAP 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.

•

Quarterly non-GAAP 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."

Page 1 of 8

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 [phone] 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 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, (ix) Relocation expense, and (x) 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 [phone] or visit www.smith-wesson.com.

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 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; 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 10-K 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			8,321				8,408
Income tax receivable			1,717				909
Total current assets			333,932				268,253
Property, plant, and equipment, net			136,932				141,612
Intangibles, net			4,322				4,417
Goodwill			19,024				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			1,722				1,157
Accrued profit sharing			7,777				14,445
Accrued warranty			2,142				2,199
Total current liabilities			103,737				125,655
Deferred income taxes			904				904
Finance lease payable, net of current portion			38,228				38,786
Other non-current liabilities			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			75				74
Additional paid-in capital			275,229				273,431
Retained earnings			445,306				325,181
Accumulated other comprehensive income			73				73
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

Page 4 of 8

SMITH & WESSON BRANDS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

		For the Three Months Ended October 31,			For the Six Months Ended October 31,
		2021			2020			2021			2020
		(In thousands, except per share data)
Net sales		$	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			1,744				1,855				3,552				3,761
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:
Other income/(expense), net			833				693				1,493				760
Interest expense, net			(466	)			(1,490	)			(1,011	)			(2,806	)
Total other income/(expense), net			367				(797	)			482				(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			-				3,123				-				8,209
Net income		$	50,935			$	52,241			$	127,817			$	100,626
Net income per share:
Basic-continuing operations		$	1.06			$	0.88			$	2.65			$	1.66
Basic-net income		$	1.06			$	0.93			$	2.65			$	1.81
Diluted-continuing operations		$	1.05			$	0.87			$	2.63			$	1.64
Diluted-net income		$	1.05			$	0.92			$	2.63			$	1.78
Weighted average number of common shares outstanding:
Basic			48,147				55,914				48,270				55,691
Diluted			48,692				56,531				48,524				56,475

Page 5 of 8

SMITH & WESSON BRANDS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

		For the Six Months Ended
		October 31, 2021			October 31, 2020
		(In thousands)
Cash flows from operating activities:
Income from continuing operations		$	127,817			$	92,417
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			57				3
Provision for losses on notes and accounts receivable			781				29
Impairment of long-lived tangible assets			86				-
Stock-based compensation expense			2,366				2,075
Changes in operating assets and liabilities:
Accounts receivable			22,435				(7,787	)
Inventories			(41,800	)			24,852
Prepaid expenses and other current assets			87				(43	)
Income taxes			(242	)			(8,267	)
Accounts payable			(8,514	)			28,331
Accrued payroll and incentives			(6,313	)			(1,043	)
Accrued profit sharing			(6,668	)			4,613
Accrued expenses and deferred revenue			(1,206	)			(16,212	)
Accrued warranty			(57	)			1,055
Other assets			2,030				2,561
Other non-current liabilities			(705	)			(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			105,364				135,863
Cash flows from investing activities:
Payments to acquire patents and software			(156	)			(350	)
Proceeds from sale of property and equipment			70				-
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			(10,199	)			(16,457	)
Cash flows from financing activities:
Proceeds from loans and notes payable			-				25,000
Cash paid for debt issuance costs			-				(450	)
Payments on finance lease obligation			(531	)			(479	)
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			831				2,195
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			-				(166	)
Net cash used inprovided by financing activities			(48,791	)			(188,868	)
Net increase/(decrease) in cash and cash equivalents			46,374				(69,462	)
Cash and cash equivalents, beginning of period			113,017				125,011
Cash and cash equivalents, end of period		$	159,391			$	55,549
Supplemental disclosure of cash flow information
Cash paid for:
Interest		$	1,116			$	2,188
Income taxes		$	38,186			$	40,888

Page 6 of 8

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, 2021			October 31, 2020			October 31, 2021			October 31, 2020
		$			% of Sales			$			% of Sales			$			% of Sales			$			% of Sales
GAAP gross profit		$	101,995				44.3	%		$	101,073				40.6	%		$	231,937				45.9	%		$	193,497				40.4	%
Relocation expenses			1,087				0.5	%			-				-				1,087				0.2	%			-				-
COVID-19			3				0.0	%			10				0.0	%			31				0.0	%			896				0.2	%
Non-GAAP gross profit		$	103,085				44.7	%		$	101,083				40.6	%		$	233,055				46.1	%		$	194,393				40.6	%
GAAP operating expenses		$	36,603				15.9	%		$	36,693				14.8	%		$	66,658				13.2	%		$	70,377				14.7	%
Amortization of acquired intangible assets			(70	)			0.0	%			(83	)			0.0	%			(142	)			0.0	%			(166	)			0.0	%
Transition costs			80				0.0	%			(4,338	)			-1.7	%			80				0.0	%			(7,933	)			-1.7	%
COVID-19			(52	)			0.0	%			(92	)			0.0	%			(100	)			0.0	%			(159	)			0.0	%
Spin related stock-based compensation			10				0.0	%			(442	)			-0.2	%			(62	)			0.0	%			(442	)			-0.1	%
Relocation expenses			(4,461	)			-1.9	%			-				-				(4,461	)			-0.9	%			-				-
Non-GAAP operating expenses		$	32,110				13.9	%		$	31,738				12.8	%		$	61,973				12.3	%		$	61,677				12.9	%
GAAP operating income		$	65,392				28.4	%		$	64,380				25.9	%		$	165,279				32.7	%		$	123,120				25.7	%
Amortization of acquired intangible assets			70				0.0	%			83				0.0	%			142				0.0	%			166				0.0	%
Transition costs			(80	)			0.0	%			4,338				1.7	%			(80	)			0.0	%			7,933				1.7	%
COVID-19			55				0.0	%			102				0.0	%			131				0.0	%			1,055				0.2	%
Spin related stock-based compensation			(10	)			0.0	%			442				0.2	%			62				0.0	%			442				0.1	%
Relocation expenses			5,548				2.4	%			-				-				5,548				1.1	%			-				-
Non-GAAP operating income		$	70,975				30.8	%		$	69,345				27.9	%		$	171,082				33.9	%		$	132,716				27.7	%
GAAP income from continuing operations		$	50,935				22.1	%		$	49,118				19.7	%		$	127,817				25.3	%		$	92,417				19.3	%
Amortization of acquired intangible assets			70				0.0	%			83				0.0	%			142				0.0	%			166				0.0	%
Transition costs			(80	)			0.0	%			4,338				1.7	%			(80	)			0.0	%			7,933				1.7	%
COVID-19			55				0.0	%			102				0.0	%			131				0.0	%			1,055				0.2	%
Spin related stock-based compensation			(10	)			0.0	%			442				0.2	%			62				0.0	%			442				0.1	%
Relocation expenses			5,548				2.4	%			-				-				5,548				1.1	%			-				-
Tax effect of non-GAAP adjustments			(1,258	)			-0.5	%			(1,241	)			-0.5	%			(1,328	)			-0.3	%			(2,399	)			-0.5	%
Non-GAAP income from continuing operations		$	55,260				24.0	%		$	52,842				21.2	%		$	132,292				26.2	%		$	99,614				20.8	%
GAAP income from continuing operations per share-diluted		$	1.05				$	0.87				$	2.63				$	1.64
Amortization of acquired intangible assets			-					-					-					-
Transition costs			-					0.08					-					0.14
COVID-19			-					-					-					0.02
Spin related stock-based compensation			-					0.01					-					0.01
Relocation expenses			0.11					-					0.11					-
Tax effect of non-GAAP adjustments			(0.03	)				(0.02	)				(0.03	)				(0.04	)
Non-GAAP income from continuing operations per share-diluted		$	1.13				$	0.93	(a)			$	2.73	(a)			$	1.76	(a)

(a)	Non-GAAP net income per share does not foot due to rounding.

Page 7 of 8

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			For the Six Months Ended
		October 31, 2021			October 31, 2020			October 31, 2021			October 31, 2020
Net cash (used in)/provided by operating activities		$	(3,723	)		$	55,265			$	105,364			$	138,088
Net cash used in investing activities			(4,431	)			(8,674	)			(10,199	)			(15,314	)
Free cash flow		$	(8,154	)		$	46,591			$	95,165			$	122,774

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			For the Six Months Ended
		October 31, 2021			October 31, 2020			October 31, 2021			October 31, 2020
GAAP income from continuing operations		$	50,935			$	49,118			$	127,817			$	92,417
Interest expense			516				1,517				1,101				2,879
Income tax expense			14,824				14,465				37,944				28,657
Depreciation and amortization			7,724				8,145				15,166				16,282
Stock-based compensation expense			914				1,191				2,366				2,075
COVID-19			55				102				131				1,055
Transition costs			(80	)			4,338				(80	)			7,933
Relocation expense			5,548				-				5,548				-
Non-GAAP Adjusted EBITDAS		$	80,436			$	78,876			$	189,993			$	151,298

Page 8 of 8