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

- Two-Year Compounded Sales Growth of over 140%
Published: Dec. 2, 2021 at 4:05 PM EST

SPRINGFIELD, Mass., Dec. 2, 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 second quarter of fiscal 2022, ended October 31, 2021.  Unless otherwise indicated, any reference to income statement items refers to results from continuing operations.

Smith & Wesson Logo (PRNewsFoto/Smith & Wesson)
Smith & Wesson Logo (PRNewsFoto/Smith & Wesson)

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."

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 4th."

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 (844) 309-6568 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 (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 (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.

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

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

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

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. 
















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

Contact:
investorrelations@smith-wesson.com
(413) 747-3448

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