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

March 3, 2022
- Two-Year Compounded Sales Growth of more than 118%
- Gross Margin of 39.6%
- EPS of $0.65/Share and EBITDAS Margin of 29.2%
- 2.8 Million Shares Repurchased
- $107 million of Cash on Hand

SPRINGFIELD, Mass., March 3, 2022 /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 third quarter of fiscal 2022, ended January 31, 2022.  Unless otherwise indicated, any reference to income statement items refers to results from continuing operations.

Third Quarter Fiscal 2022 Financial Highlights

  • Net sales were $177.7 million, a decrease of $79.9 million, or 31.0%, from the comparable quarter last year, but $50.3 million, or 139.5%, higher than the third quarter in fiscal 2020.
  • Gross margin was 39.6% versus 42.6% in the comparable quarter last year and 28.0% in the third quarter in fiscal 2020.
  • Quarterly GAAP net income was $30.5 million, or $0.65 per diluted share, compared with $62.3 million, or $1.12 per diluted share, for the comparable quarter last year.
  • Quarterly non-GAAP net income was $32.9 million, or $0.69 per diluted share, compared with $62.4 million, or $1.12 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 $51.9 million, or 29.2% of net sales, compared with $89.8 million, or 34.9% of net sales, for the comparable quarter last year.
  • During the quarter, we purchased 2,788,152 shares of our common stock for $50.0 million, utilizing cash on hand.

Mark Smith, President and Chief Executive Officer, commented, "I am very proud of our team for demonstrating Smith & Wesson's ability to deliver meaningful profitability no matter the overall market conditions. Although the firearms market remains elevated and healthy with new entrants, it has cooled significantly from the height of the pandemic surge and seems to now be following pre-pandemic historical demand patterns. This macro demand pattern is very familiar to us, and is exactly what our business model is designed to accommodate. Our ability to ramp production aggressively to meet surging demand over the past couple of years fueled significant market share gains for Smith & Wesson and provided a demonstrable proof point for our flexible manufacturing strategy.  Our manufacturing team increased throughput by over 82% during the surge, which has enabled us to not only gain impressive market share, but also to set a very solid business foundation for long-term success. Since the demand surge began in March of 2020, we have paid down $160 million of debt and are now debt-free, bought back $200 million of stock, which reduced our outstanding shares by nearly 20%, paid nearly $20 million in dividends, invested nearly $40 million into our business, and today have a strong and healthy balance sheet with over $107 million in cash. Our long-term commitment is to continue to return value to stockholders through regular fixed dividends and share repurchases and, as a result of these accomplishments, we are well positioned to do so."

Deana McPherson, Executive Vice President and Chief Financial Officer, commented "Looking back to where we were during the same quarter in fiscal 2020, you can see how our response to the surge in demand over the last two years has strengthened our foundation, creating an agile business model that optimizes profitability to drive long-term value.  Revenue for our third quarter grew from $127.4 million in fiscal 2020 to $257.6 million in fiscal 2021, or a 202.6% increase, and is now at $177.7 million in fiscal 2022.  While this represents a 31% decrease from the historic levels recorded last year, it is truly remarkable that we were able to achieve a $50.3 million increase in revenue this quarter versus two years ago on nearly the same number of units shipped. Further, gross margin was 39.6% in the third quarter, which was 300 basis points below the 42.6% realized in the prior year comparable quarter, but 1,160 basis points above the 28% realized in the third quarter of fiscal 2020.  Our Board of Directors has again authorized our $0.08 per share quarterly dividend, which will be paid to stockholders of record on March 17, 2022 with payment to be made on March 31, 2022."

Conference Call and Webcast
The company will host a conference call and webcast on March 3, 2022, to discuss its third 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 2710778.  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, our belief that (i) the firearms market seems to now be following pre-pandemic historical demand patterns; (ii) the macro demand pattern is exactly what our business model is designed to accommodate; (iii) we have set a very solid business foundation for long-term success; (iv) that our long-term commitment is to continue to return value to stockholders through regular fixed dividends and share repurchases and, as a result of certain accomplishments, we are well positioned to do so; and (v) our response to the surge in demand over the last two years has strengthened our foundation, creating an agile business model that optimizes profitability to drive long-term value. 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 and our Quarterly Report on Form 10-Q for the fiscal quarter ended October 31, 2021

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

 

SMITH & WESSON BRANDS, INC. AND SUBSIDIARIES


CONDENSED CONSOLIDATED BALANCE SHEETS


(Unaudited)





As of:


January 31, 2022


April 30, 2021



(In thousands, except par value and share data)


 ASSETS


 Current assets:





Cash and cash equivalents

$              107,268


$              113,017


Accounts receivable, net of allowances for credit losses of $25 on January 31, 2022 and $107 on April 30, 2021

49,386


67,442


Inventories

134,268


78,477


Prepaid expenses and other current assets

7,521


8,408


Income tax receivable 

2,233


909


Total current assets

300,676


268,253


 Property, plant, and equipment, net

134,540


141,612


 Intangibles, net

4,257


4,417


 Goodwill

19,024


19,024


 Other assets

10,808


13,082


 Total assets

469,305


446,388


 LIABILITIES AND STOCKHOLDERS' EQUITY


 Current liabilities:





Accounts payable

$                 36,060


$                 57,337


Accrued expenses and deferred revenue

26,857


33,136


Accrued payroll and incentives

16,223


17,381


Accrued income taxes

362


1,157


Accrued profit sharing

11,502


14,445


Accrued warranty

2,040


2,199


Total current liabilities

93,044


125,655


 Deferred income taxes 

904


904


 Finance lease payable, net of current portion

37,930


38,786


Other non-current liabilities

11,118


14,659


Total liabilities

142,996


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, 74,550,885 issued and 45,510,515 shares outstanding on January 31, 2022 and 4,222,127 shares
   issued and 49,937,329 shares outstanding on April 30, 2021

75


74


Additional paid-in capital 

276,389


273,431


Retained earnings

472,147


325,181


Accumulated other comprehensive income

73


73


Treasury stock, at cost (29,040,370 shares on January 31, 2022 and 24,284,798 on April 30, 2021)

(422,375)


(332,375)


Total stockholders' equity

326,309


266,384


 Total liabilities and stockholders' equity

$              469,305


$              446,388


 

SMITH & WESSON BRANDS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)












For the Three Months Ended January 31,


For the Nine Months Ended January 31,



2022


2021


2022


2021



(In thousands, except per share data)

Net sales


$              177,738


$              257,634


$              682,826


$              736,247

Cost of sales


107,339


147,955


380,490


433,073

Gross profit


70,399


109,679


302,336


303,174

Operating expenses:









Research and development


1,716


1,757


5,269


5,518

Selling, marketing, and distribution


11,518


10,487


33,575


32,095

General and administrative


17,443


17,054


58,491


62,061

Total operating expenses


30,677


29,298


97,335


99,674

Operating income from continuing operations


39,722


80,381


205,001


203,500

Other income/(expense), net:









Other income/(expense), net 


751


952


2,244


1,711

Interest expense, net


(594)


(550)


(1,605)


(3,356)

Total other income/(expense), net


157


402


639


(1,645)

Income from operations before income taxes


39,879


80,783


205,640


201,855

Income tax expense


9,337


18,520


47,281


47,176

Income from continuing operations


$                 30,542


$                 62,263


$              158,359


$              154,679

Discontinued operations:









Income from discontinued operations, net of tax



127



8,334

Net income


$                 30,542


$                 62,390


$              158,359


$              163,013










Net income per share:









Basic - continuing operations


$                     0.65


$                     1.13


$                     3.32


$                     2.79

Basic - net income


$                     0.65


$                     1.13


$                     3.32


$                     2.94

Diluted - continuing operations


$                     0.65


$                     1.12


$                     3.28


$                     2.75

Diluted - net income


$                     0.65


$                     1.12


$                     3.28


$                     2.90

Weighted average number of common shares outstanding:









Basic


46,763


55,137


47,769


55,515

Diluted


47,175


55,702


48,307


56,258

 

SMITH & WESSON BRANDS, INC. AND SUBSIDIARIES


CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


(Unaudited)








For the Nine Months Ended



January 31, 2022


January 31, 2021



(In thousands)

Cash flows from operating activities:





Income from continuing operations

$                 158,359


$                 154,679


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





Depreciation and amortization 

22,413


24,133


Loss on sale/disposition of assets

31


148


Provision for losses/(recoveries) on notes and accounts receivable

678


(693)


Impairment of long-lived tangible assets

86



Deferred income taxes


316


Stock-based compensation expense

3,565


3,392


Changes in operating assets and liabilities:





     Accounts receivable

17,378


8


     Inventories

(55,791)


19,295


     Prepaid expenses and other current assets

887


(1,018)


     Income taxes

(2,119)


(12,831)


     Accounts payable

(21,209)


17,299


     Accrued payroll and incentives

(1,158)


2,040


     Accrued profit sharing

(2,943)


8,663


     Accrued expenses and deferred revenue

(6,322)


(19,950)


     Accrued warranty

(159)


421


     Other assets

2,188


1,226


     Other non-current liabilities

(3,609)


1,309


 Cash provided by operating activities - continuing operations

112,275


198,437


 Cash used in operating activities - discontinued operations


(2,129)


Net cash provided by operating activities

112,275


196,308


Cash flows from investing activities:





Refunds on machinery and equipment


310


Payments to acquire patents and software

(218)


(502)


Proceeds from sale of property and equipment

97



Payments to acquire property and equipment

(15,090)


(18,378)


Cash used in investing activities - continuing operations

(15,211)


(18,570)


Cash used in investing activities - discontinued operations


(1,143)


Net cash used in investing activities

(15,211)


(19,713)


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

(813)


(736)


Payments on notes and loans payable


(185,000)


Distribution to AOUT


(25,000)


Payments to acquire treasury stock

(90,000)


(50,000)


Dividend distribution

(11,393)


(5,594)


Proceeds from exercise of options to acquire common stock, including employee stock purchase plan

846


2,217


Payment of employee withholding tax related to restricted stock units

(1,453)


(2,201)


Cash used in by financial activities - continuing operations

(102,813)


(241,764)


Cash used in financial activities - discontinued operations


(166)


 Net cash used inprovided by financing activities

(102,813)


(241,930)


Net decrease in cash and cash equivalents

(5,749)


(65,335)


Cash and cash equivalents, beginning of period

113,017


125,011


Cash and cash equivalents, end of period

$                 107,268


$                   59,676


Supplemental disclosure of cash flow information





Cash paid for:





Interest

$                     1,670


$                     2,745


Income taxes

$                   49,402


$                   63,525


 


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 Nine Months Ended



January 31, 2022


January 31, 2021


January 31, 2022


January 31, 2021



$


% of Sales


$


% of Sales


$


% of Sales


$


% of Sales


GAAP gross profit

$    70,399


39.6%


$ 109,679


42.6%


$ 302,336


44.3%


$ 303,174


41.2%


Relocation expenses

1,243


0.7%




2,330


0.3%




COVID-19

1


0.0%


22


0.0%


32


0.0%


517


0.1%


Non-GAAP gross profit

$    71,643


40.3%


$ 109,701


42.6%


$ 304,698


44.6%


$ 303,691


41.2%



















GAAP operating expenses

$    30,677


17.3%


$    29,298


11.4%


$    97,335


14.3%


$    99,674


13.5%


Amortization of acquired intangible assets

(72)


0.0%


(83)


0.0%


(214)


0.0%


(248)


0.0%


Transition costs



(20)


0.0%


80


0.0%


(7,953)


-1.1%


COVID-19

(37)


0.0%


(58)


0.0%


(137)


0.0%


(617)


-0.1%


Spin related stock-based compensation

(43)


0.0%




(104)


0.0%


(442)


-0.1%


Relocation expenses

(1,737)


-1.0%




(6,198)


-0.9%




Non-GAAP operating expenses

$    28,788


16.2%


$    29,137


11.3%


$    90,762


13.3%


$    90,414


12.3%



















GAAP operating income

$    39,722


22.3%


$    80,381


31.2%


$ 205,001


30.0%


$ 203,500


27.6%


Amortization of acquired intangible assets

72


0.0%


83


0.0%


214


0.0%


248


0.0%


Transition costs



20


0.0%


(80)


0.0%


7,953


1.1%


COVID-19

38


0.0%


80


0.0%


169


0.0%


1,134


0.2%


Spin related stock-based compensation

43


0.0%




104


0.0%


442


0.1%


Relocation expenses

2,980


1.7%




8,528


1.2%




Non-GAAP operating income

$    42,855


24.1%


$    80,564


31.3%


$ 213,936


31.3%


$ 213,277


29.0%



















GAAP income from continuing operations

$    30,542


17.2%


$    62,263


24.2%


$ 158,359


23.2%


$ 154,679


21.0%


Amortization of acquired intangible assets

72


0.0%


83


0.0%


214


0.0%


248


0.0%


Transition costs


0.0%


20


0.0%


(80)


0.0%


7,953


1.1%


COVID-19

38


0.0%


80


0.0%


169


0.0%


1,134


0.2%


Spin related stock-based compensation

43


0.0%




104


0.0%


442


0.1%


Relocation expenses

2,980


1.7%




8,528


1.2%




Tax effect of non-GAAP adjustments

(733)


-0.4%


(46)


0.0%


(2,054)


-0.3%


(2,444)


-0.3%


Non-GAAP income from continuing operations

$    32,942


18.5%


$    62,400


24.2%


$ 165,240


24.2%


$ 162,012


22.0%



















GAAP income from continuing operations per share - diluted

$        0.65




$        1.12




$        3.28




$        2.75




Amortization of acquired intangible assets













Transition costs










0.14




COVID-19










0.02




Spin related stock-based compensation










0.01




Relocation expenses

0.06







0.18







Tax effect of non-GAAP adjustments

(0.02)







(0.04)




(0.04)




Non-GAAP income from continuing operations per share - diluted

$        0.69




$        1.12




$        3.42




$        2.88





















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

















Net Sales

177,738




257,634




682,826




736,247





-








-








Weighted average number of common shares outstanding - diluted

47,175




55,702




48,307




56,258




 

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 Nine Months Ended



January 31, 2022


January 31, 2021


January 31, 2022


January 31, 2021










GAAP income from continuing operations


$                  30,542


$                  62,263


$               158,359


$               154,679

Interest expense


639


592


1,740


3,471

Income tax expense


9,337


18,520


47,281


47,176

Depreciation and amortization


7,179


7,017


22,346


23,264

Stock-based compensation expense


1,199


1,317


3,565


3,392

COVID-19


38


80


169


1,134

Transition costs



20


(80)


7,953

Relocation expense


2,980



8,528


Non-GAAP Adjusted EBITDAS


$                  51,914


$                  89,809


$               241,908


$               241,069





















29.2%


34.9%





 

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 Nine Months Ended



January 31, 2022


January 31, 2021


January 31, 2022


January 31, 2021


Net cash (used in)/provided by operating activities

$                     6,911


$                60,349


$             112,275


$             198,437


Net cash used in investing activities

(5,012)


(3,256)


(15,211)


(18,570)


Free cash flow

$                     1,899


$                57,093


$               97,064


$             179,867


 

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SOURCE Smith & Wesson Brands, Inc.