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Smith & Wesson Holding Corporation Reports Third Quarter Fiscal 2016 Financial Results
- Net Sales of $210.8 Million for Third Quarter, up 61.5% Year-Over-Year
- Third Quarter GAAP Net Income Per Diluted Share of $0.56
- Third Quarter Non-GAAP Net Income Per Diluted Share of $0.59
- Company Raises Full Year Fiscal 2016 Revenue and Net Income Outlook

SPRINGFIELD, Mass., March 3, 2016 /PRNewswire/ -- Smith & Wesson Holding Corporation (NASDAQ Global Select: SWHC), a leader in firearm manufacturing and design, today announced financial results for the fiscal third quarter ended January 31, 2016.

Smith & Wesson Logo

Third Quarter Fiscal 2016 Financial Highlights

  • Quarterly net sales were $210.8 million, an increase of 61.5% over the third quarter last year.  Firearms division net sales of $194.7 million increased by 56.4% over the comparable quarter last year.  Accessories division net sales were $16.1 million, compared with $6.1 million for the comparable quarter last year, a period in which the company acquired Battenfeld Technologies, Inc. (BTI) and therefore reported only six weeks of accessories division sales.
  • Gross margin for the quarter was 41.1% compared with 33.6% for the comparable quarter last year. 
  • Quarterly GAAP net income was $31.4 million, or $0.56 per diluted share, compared with $8.1 million, or $0.15 per diluted share, for the comparable quarter last year. Third quarter 2016 GAAP net income per diluted share included an expense of $1.7 million for amortization, net of tax, related to the BTI acquisition.  The increase in net income over the comparable quarter last year was a result of increased revenue, favorable fixed-cost absorption, and lower acquisition related expenses, partially offset by increased profit related compensation accruals and additional intangible amortization expense as a result of the BTI acquisition.
  • Quarterly non-GAAP net income was $33.2 million, or $0.59 per diluted share, compared with $11.2 million, or $0.20 per diluted share, for the comparable quarter last year.
  • Quarterly non-GAAP Adjusted EBITDAS was $61.5 million, or 29.2% of net sales.

James Debney, Smith & Wesson Holding Corporation President and Chief Executive Officer, said, "The combined strength of our firearms and accessories businesses delivered an exceptional performance, driven by healthy consumer demand across our growing portfolio of firearm and outdoor lifestyle offerings. During the third quarter, the Adjusted National Instant Criminal Background Check System (NICS) data, which serves as an indicator of consumer purchases, reported a significant increase in growth versus the prior year, especially in handguns. In addition, our product sell-through at distribution was much stronger than we had anticipated.  Our flexible manufacturing model, combined with our ability to successfully utilize the internal inventories we had built in anticipation of potential sell-through strength, allowed us to capture incremental sales in the third quarter.  Despite the fact that we entered our fourth quarter with lower inventories, we are focused on increasing the production rates of our key products during the fourth quarter and we are therefore increasing our guidance for the full fiscal year."

Jeff Buchanan, Executive Vice President, Chief Financial Officer, and Chief Administrative Officer, said, "Our gross margin performance was strong in the third quarter, driven by the favorable impact of increased production volumes in our firearms division and by strong gross margins in our accessories division.  We generated $51.0 million in operating cash flow and $46.3 million in free cash flow in the third quarter, and our balance sheet remains healthy as we ended the quarter with cash of $105.2 million and no borrowings on our $175.0 million revolving line of credit."

Financial Outlook

 

SMITH & WESSON HOLDING CORPORATION

NET SALES AND EARNINGS PER SHARE GUIDANCE, INCLUDING GAAP TO NON-GAAP RECONCILIATION
(Unaudited)











Range for the Three Months Ending April 30, 2016


Range for the Year Ending April 30, 2016


Net sales (in thousands)

$                    210,000


$              215,000


$              712,000


$              717,000











GAAP income per share - diluted

$                           0.48


$                     0.50


$                     1.53


$                     1.55


Amortization of acquired intangible assets

0.05


0.05


0.19


0.19


Debt extinguishment costs



0.03


0.03


Bond premium paid



0.05


0.05


Insurance recovery costs



(0.03)


(0.03)


Tax effect of non-GAAP adjustments

(0.02)


(0.02)


(0.09)


(0.09)


Non-GAAP income per share - diluted

$                           0.51


$                     0.53


$                     1.68


$                     1.70











 

Conference Call and Webcast

The company will host a conference call and webcast today, March 3, 2016, to discuss its third quarter fiscal 2016 financial and operational results. Speakers on the conference call will include James Debney, President and Chief Executive Officer, and Jeffrey D. Buchanan, Executive Vice President, Chief Financial Officer, and Chief Administrative Officer. The conference call may include forward-looking statements.  The conference call will be webcast live and is scheduled to begin at 5:00 p.m. Eastern Time. The live audio broadcast and replay of the conference call can be accessed on Smith & Wesson's website at www.smith-wesson.com (Windows Media is required). Those interested in listening to the conference call via telephone may call directly at 877-356-0534 and reference conference code 47260807.  No RSVP is necessary.  The company will maintain an audio replay of this conference call on its website for a period of time after the call. No other audio replay will be available. 

Reconciliation of U.S. GAAP to Non-GAAP Financial Measures

In this press release, certain non-GAAP financial measures, including "non-GAAP net income," "non-GAAP net income per diluted share," and "Adjusted EBITDAS" are presented. From time-to-time, the company considers and uses these supplemental measures of operating performance in order to provide the reader with an improved understanding of underlying performance trends.  The company believes it is useful for itself and the reader to review, as applicable, both (1) GAAP measures that include (i) amortization of acquired intangible assets, (ii) TCA accessories transition costs, (iii) discontinued operations, (iv) DOJ and SEC costs including insurance recovery costs, (v) acquisition-related costs, (vi) fair value inventory step-up and backlog expense, (vii) bond premium paid, (viii) debt extinguishment costs, (ix) the tax effect of non-GAAP adjustments, (x) interest expense, (xi) income tax expense, (xii) depreciation and amortization, (xiii) stock-based compensation expense, (xiv) payments for acquisitions, and (xv) receipts from note receivable; and (2) the non-GAAP measures that exclude such information.  The company presents these non-GAAP measures because it considers them an important supplemental measure of its performance. The company's definition of these adjusted financial measures may differ from similarly named measures used by others. The company believes 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 the company's GAAP measures.  The principal limitations of these measures are that they do not reflect the company's actual expenses and may thus have the effect of inflating its financial measures on a GAAP basis.

About Smith & Wesson

Smith & Wesson Holding Corporation (NASDAQ Global Select: SWHC) is a U.S.-based leader in firearm manufacturing and design, delivering a broad portfolio of quality firearms, related products, and training to the global military, law enforcement, and consumer markets. The company's firearms division brands include Smith & Wesson®, M&P®, and Thompson/Center Arms™. As a leading provider of shooting, reloading, gunsmithing, and gun cleaning supplies, the company's accessories division produces innovative, high-quality products under several brands, including Caldwell® Shooting Supplies, Wheeler® Engineering, Tipton® Gun Cleaning Supplies, Frankford Arsenal® Reloading Tools, Lockdown® Vault Accessories, and Hooyman® Premium Tree Saws. Smith & Wesson facilities are located in Massachusetts, Maine, Connecticut, and Missouri. For more information on Smith & Wesson, call (800) 331-0852 or log on to 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 our belief that the combined strength of our firearms and accessories businesses delivered an exceptional performance, driven by healthy consumer demand across our growing portfolio of firearm and outdoor lifestyle offerings; our focus on increasing the production rates of our key products during the fourth quarter; our belief that our balance sheet remains healthy; and our expectations for net sales, GAAP net income per diluted share, amortization of acquired intangible assets, debt extinguishment costs, bond premium paid, insurance recovery costs, tax effect of non-GAAP adjustments, and non-GAAP net income per diluted share for the fourth quarter of fiscal 2016 as well as for full year fiscal 2016.  We caution that these statements are qualified by important factors that could cause actual results to differ materially from those reflected by such forward-looking statements.  Such factors include the demand for our products; the costs and ultimate conclusion of certain legal matters; the state of the U.S. economy in general and the firearm industry in particular; general economic conditions and consumer spending patterns; the potential for increased regulation of firearms and firearm-related products; speculation surrounding fears of terrorism and crime; our growth opportunities; our anticipated growth; our ability to increase demand for our products in various markets, including consumer, law enforcement, and military channels, domestically and internationally; the position of our hunting products in the consumer discretionary marketplace and distribution channel; our penetration rates in new and existing markets; our strategies; our ability to introduce new products; the success of new products; our ability to expand our markets; our ability to integrate acquired businesses in a successful manner; the general growth of our firearm accessories business; the potential for cancellation of orders from our backlog; and other risks detailed from time to time in our reports filed with the SEC, including our Annual Report on Form 10-K for the fiscal year ended April 30, 2015.

Contact: Liz Sharp, VP Investor Relations
Smith & Wesson Holding Corp.
(413) 747-6284
lsharp@smith-wesson.com         

 

SMITH & WESSON HOLDING CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)







For the Three Months Ended


For the Nine Months Ended



January 31, 2016


January 31, 2015


January 31, 2016


January 31, 2015



(In thousands, except per share data)

Net sales


$              210,786


$              130,550


$              501,791


$              370,865

Cost of sales


124,128


86,726


300,048


243,083

Gross profit


86,658


43,824


201,743


127,782

Operating expenses:









Research and development


2,521


1,901


7,612


4,830

Selling and marketing


11,505


10,088


33,260


26,884

General and administrative


22,484


16,224


59,124


44,010

Total operating expenses


36,510


28,213


99,996


75,724

Operating income


50,148


15,611


101,747


52,058

Other (expense)/income:









Other (expense)/income, net


(5)


16


(17)


(1)

Interest income


61


240


139


284

Interest expense


(2,140)


(3,192)


(11,714)


(8,090)

Total other (expense)/income, net


(2,084)


(2,936)


(11,592)


(7,807)

Income before income taxes


48,064


12,675


90,155


44,251

Income tax expense


16,630


4,554


31,844


16,526

Net income


31,434


8,121


58,311


27,725

Net income per share:









Basic 


$                     0.57


$                     0.15


$                     1.07


$                     0.51

Diluted 


$                     0.56


$                     0.15


$                     1.05


$                     0.50

Weighted average number of common shares outstanding:









Basic


54,857


53,724


54,508


54,033

Diluted


55,981


54,859


55,784


55,258

 

SMITH & WESSON HOLDING CORPORATION AND SUBSIDIARIES


CONSOLIDATED BALANCE SHEETS


(Unaudited)



As of


January 31, 2016


April 30, 2015



(In thousands, except par value and share data)


 ASSETS


 Current assets:





Cash and cash equivalents

$              105,220


$                 42,222


Accounts receivable, net of allowance for doubtful accounts of $709 on January 31, 2016 and $722 on April 30, 2015

89,814


55,280


Inventories

75,542


76,895


Prepaid expenses and other current assets

5,981


6,306


Deferred income taxes 

16,441


16,373


Total current assets

292,998


197,076


 Property, plant, and equipment, net

136,202


133,844


 Intangibles, net

65,014


73,768


 Goodwill

76,164


75,426


 Other assets

6,652


10,811



$              577,030


$              490,925


 LIABILITIES AND STOCKHOLDERS' EQUITY


 Current liabilities:





Accounts payable

$                 35,288


$                 32,360


Accrued expenses

20,723


19,021


Accrued payroll

15,430


7,556


Accrued income taxes

1,413


4,224


Accrued taxes other than income

7,704


5,281


Accrued profit sharing

7,875


6,165


Accrued warranty

6,156


6,404


Current portion of notes payable

6,300



Total current liabilities

100,889


81,011


 Deferred income taxes 

33,311


33,905


 Notes payable, net of current portion

167,923


170,933


 Other non-current liabilities

10,396


10,706


Total liabilities

312,519


296,555


 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, 70,671,290 shares issued and 55,108,668 shares outstanding on January 31, 2016 and 69,625,081 shares issued and 54,062,459 shares outstanding on April 30, 2015

71


70


Additional paid-in capital 

231,800


219,198


Retained earnings

205,663


147,352


Accumulated other comprehensive (loss)/income

(700)


73


Treasury stock, at cost (15,562,622  shares on January 31, 2016 and April 30, 2015)

(172,323)


(172,323)


Total stockholders' equity

264,511


194,370



$              577,030


$              490,925


 

SMITH & WESSON HOLDING CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


For the Nine Months Ended


January 31, 2016


January 31, 2015


(In thousands)

Cash flows from operating activities:




Net income

$                   58,311


$                   27,725

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




Depreciation and amortization 

30,836


21,196

Loss/(gain) on sale/disposition of assets

138


(54)

Provisions for losses on accounts receivable

2


213

Deferred income taxes

244


1,363

Stock-based compensation expense

4,885


4,249

Changes in operating assets and liabilities (net effect of acquisitions):




Accounts receivable

(34,536)


5,139

Inventories

1,244


5,430

Prepaid expenses and other current assets

325


(1,787)

Income tax payable

(2,811)


3,186

Accounts payable

2,931


(18,839)

Accrued payroll

7,874


(10,078)

Accrued taxes other than income

2,423


(496)

Accrued profit sharing

1,710


(7,310)

Accrued expenses

1,621


43

Accrued warranty

(248)


(420)

Other assets

(119)


(84)

Other non-current liabilities

(1,087)


471

Net cash provided by operating activities

73,743


29,947

Cash flows from investing activities:




Payments for the net assets of Tri-Town Precision Plastics, Inc.


(23,805)

Payments to acquire Battenfeld Technologies, Inc., net of cash acquired


(136,152)

Refunds of deposits on machinery and equipment

4,222


1,398

Receipts from note receivable

56


60

Payments to acquire patents and software

(248)


(171)

Proceeds from sale of property and equipment

61


263

Payments to acquire property and equipment

(22,933)


(24,240)

Net cash used in investing activities

(18,842)


(182,647)

Cash flows from financing activities:




Proceeds from loans and notes payable

105,000


175,000

Cash paid for debt issue costs

(1,024)


(2,483)

Payments on capital lease obligation

(447)


(447)

Payments on notes payable

(103,150)


Payments to acquire treasury stock


(30,040)

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

6,668


1,664

Payroll taxes paid as a result of restricted stock unit withholdings

(2,073)


(1,124)

Excess tax benefit of stock-based compensation

3,123


280

Net cash provided by financing activities

8,097


142,850

Net increase/(decrease) in cash and cash equivalents

62,998


(9,850)

Cash and cash equivalents, beginning of period

42,222


68,860

Cash and cash equivalents, end of period

$                 105,220


$                   59,010

Supplemental disclosure of cash flow information




Cash paid for:




Interest

$                   12,118


$                     8,139

Income taxes

31,484


12,000

 

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, 2016


January 31, 2015


January 31, 2016


January 31, 2015



$


% of Sales


$


% of Sales


$


% of Sales


$


% of Sales


GAAP gross profit

$    86,658


41.1%


$    43,824


33.6%


$ 201,743


40.2%


$ 127,782


34.5%


Fair value inventory step-up and backlog expense



1,865


1.4%




1,983


0.5%


Discontinued operations





52


0.0%




Non-GAAP gross profit

$    86,658


41.1%


$    45,689


35.0%


$ 201,795


40.2%


$ 129,765


35.0%



















GAAP operating expenses

$    36,510


17.3%


$    28,213


21.6%


$    99,996


19.9%


$    75,724


20.4%


Amortization of acquired intangible assets

(2,652)


-1.3%


(1,327)


-1.0%


(7,381)


-1.5%


(1,424)


-0.4%


TCA accessories transition costs

(10)


0.0%




(161)


0.0%




Discontinued operations

(21)


0.0%


(88)


-0.1%


(65)


0.0%


(245)


-0.1%


DOJ/SEC costs including insurance recovery costs

(9)


0.0%




1,781


0.4%




Acquisition-related costs

(27)


0.0%


(1,584)


-1.2%


(27)


0.0%


(2,042)


-0.6%


Non-GAAP operating expenses

$    33,791


16.0%


$    25,214


19.3%


$    94,143


18.8%


$    72,013


19.4%



















GAAP operating income

$    50,148


23.8%


$    15,611


12.0%


$ 101,747


20.3%


$    52,058


14.0%


Fair value inventory step-up and backlog expense



1,865


1.4%




1,983


0.5%


Amortization of acquired intangible assets

2,652


1.3%


1,327


1.0%


7,381


1.5%


1,424


0.4%


TCA accessories transition costs

10


0.0%




161


0.0%




Discontinued operations

21


0.0%


88


0.1%


117


0.0%


245


0.1%


DOJ/SEC costs including insurance recovery costs

9


0.0%




(1,781)


-0.4%




Acquisition-related costs

27


0.0%


1,584


1.2%


27


0.0%


2,042


0.6%


Non-GAAP operating income

$    52,867


25.1%


$    20,475


15.7%


$ 107,652


21.5%


$    57,752


15.6%



















GAAP net income

$    31,434


14.9%


$      8,121


6.2%


$    58,311


11.6%


$    27,725


7.5%


Bond premium paid





2,938


0.6%




Fair value inventory step-up and backlog expense



1,865


1.4%




1,983


0.5%


Amortization of acquired intangible assets

2,652


1.3%


1,327


1.0%


7,381


1.5%


1,424


0.4%


Debt extinguishment costs





1,723


0.3%




TCA accessories transition costs

10


0.0%




161


0.0%




Discontinued operations

21


0.0%


88


0.1%


117


0.0%


245


0.1%


DOJ/SEC costs including insurance recovery costs

9


0.0%




(1,781)


-0.4%




Acquisition-related costs

27


0.0%


1,584


1.2%


27


0.0%


2,042


0.6%


Tax effect of non-GAAP adjustments

(941)


-0.4%


(1,798)


-1.4%


(3,889)


-0.8%


(2,101)


-0.6%


Non-GAAP net income

$    33,212


15.8%


$    11,187


8.6%


$    64,988


13.0%


$    31,318


8.4%



















GAAP net income per share - diluted

$        0.56




$        0.15




$        1.05




$        0.50




Bond premium paid







0.05







Fair value inventory step-up and backlog expense




0.03







0.04




Amortization of acquired intangible assets

0.05




0.02




0.13




0.03




Debt extinguishment costs







0.03







TCA accessories transition costs

0.00







0.00







Discontinued operations

0.00




0.00




0.00




0.00




DOJ/SEC costs including insurance recovery costs

0.00







(0.03)







Acquisition-related costs

0.00




0.03




0.00




0.04




Tax effect of non-GAAP adjustments

(0.02)




(0.03)




(0.07)




(0.04)




Non-GAAP net income per share - diluted

$        0.59




$        0.20




$        1.16




$        0.57




 

SMITH & WESSON HOLDING CORPORATION AND SUBSIDIARIES

RECONCILIATION OF NET OPERATING CASH FLOW TO FREE CASH FLOW
(In thousands)
(Unaudited)











For the Three Months Ended


For the Nine Months Ended



January 31, 2016


January 31, 2015


January 31, 2016


January 31, 2015


Net cash provided by operating activities

$                      50,982


$                 33,375


$                 73,743


$                 29,947


Net cash used in investing activities

(4,678)


(138,737)


(18,842)


(182,647)


Payments for the net assets of Tri-Town Precision Plastics, Inc.


290



23,805


Payments to acquire Battenfeld Technologies, Inc., net of cash acquired


136,152



136,152


Receipts from note receivable

(15)


(20)


(56)


(60)


Free cash flow

$                      46,289


$                 31,060


$                 54,845


$                   7,197


 

SMITH & WESSON HOLDING CORPORATION AND SUBSIDIARIES

RECONCILIATION OF GAAP NET INCOME TO NON-GAAP ADJUSTED EBITDAS
(In thousands)
(Unaudited)



For the Three Months Ended


January 31, 2016


January 31, 2015





GAAP net income

$               31,434


$                  8,121

Interest expense

2,140


3,192

Income tax expense

16,630


4,554

Depreciation and amortization

9,555


7,819

Stock-based compensation expense

1,639


1,448

Fair value inventory step-up and backlog expense


1,865

TCA accessories transition costs

10


Discontinued operations

21


88

DOJ/SEC costs

9


13

Acquisition-related costs

27


1,584

Non-GAAP Adjusted EBITDAS

$               61,465


$               28,684













SMITH & WESSON HOLDING CORPORATION AND SUBSIDIARIES

RECONCILIATION OF GAAP NET INCOME TO NON-GAAP ADJUSTED EBITDAS
(In thousands)
(Unaudited)






For the Nine Months Ended


January 31, 2016


January 31, 2015





GAAP net income

$               58,311


$               27,725

Interest expense

11,714


8,090

Income tax expense

31,844


16,526

Depreciation and amortization

28,372


20,139

Stock-based compensation expense

4,885


4,248

Fair value inventory step-up and backlog expense


1,983

TCA Accessories transition costs

161


Discontinued operations

117


245

DOJ/SEC costs, including insurance recovery costs

(1,781)


708

Acquisition-related costs

27


2,042

Non-GAAP Adjusted EBITDAS

$             133,650


$               81,706

 

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