Smith & Wesson Brands, Inc. Reports Second Quarter Fiscal 2021 Financial Results

December 3, 2020
PDF Version
- Record Quarterly Revenue of $249 Million
 
- GAAP EPS of $0.87/Share, non-GAAP EPS of $0.93/Share
 
- $0.05 per Share Dividend

SPRINGFIELD, Mass., Dec. 3, 2020 /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 year 2021, ended October 31, 2020.  On August 24, 2020, the company completed the previously announced spin-off of its outdoor products and accessories business.  Therefore, beginning with this quarter, all historical financial information for that business is reported as discontinued operations.  Unless otherwise indicated, any reference to income statement items refers to results from continuing operations.

Second Quarter Fiscal 2021 Consolidated Financial Highlights

  • Quarterly net sales were $248.7 million compared with $113.7 million for the comparable quarter last year, an increase of 118.7%. 
  • Gross margin for the quarter was 40.6% compared with 28.4% for the comparable quarter last year.
  • Quarterly GAAP income was $49.1 million, or $0.87 per diluted share, compared with $343,000, or $0.01 per diluted share, for the comparable quarter last year.
  • Quarterly non-GAAP income was $52.8 million, or $0.93 per diluted share, compared with $472,000, or $0.01 per diluted share, for the comparable quarter last year. GAAP to non-GAAP adjustments for income exclude costs related to the spin-off of the outdoor products and accessories business, 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 $78.9 million, or 31.7% of net sales, compared with $13.4 million, or 11.8% of net sales, for the comparable quarter last year.

Mark Smith, President and Chief Executive Officer, commented, "Today, I am pleased to report a second consecutive record-breaking quarter for our 168 year old company. These results are a testament to Smith & Wesson's devoted team of employees, and their ability to deliver strong performance in the face of any challenge.  Because of the hard work of our employees, who have been diligently following our safety protocols, we have been able to continue safely operating our business and, during these extremely difficult times when so many of our fellow Americans are out of work, we successfully created and filled 287 new jobs during our second quarter.  Along with our existing employees, our  new team members played a critical role in achieving these record-breaking numbers."

Deana McPherson, Executive Vice President and Chief Financial Officer, commented, "Smith & Wesson's record-breaking financial performance enabled us to generate $49.1 million in net income, seed the outdoor products and accessories business with $25 million of cash at the spin date, repay the final $25 million on our revolving loan, and left us with $55.5 million of cash on hand, and zero bank  debt, significantly sooner than our prior internal targets. Additionally, our Board again authorized a $0.05 per share dividend to shareholders of record as of December 17, 2020, with payment to be made on January 5, 2021."

Conference Call and Webcast
The company will host a conference call and webcast today, December 3, 2020 to discuss its second quarter fiscal 2021 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 8990013.  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, 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) transition costs, (iii) the tax effect of non-GAAP adjustments, (iv) COVID-19 expenses, (v) net cash used in investing activities, (vi) interest expense, (vii) income tax expense, (viii) depreciation and amortization, and (ix) stock-based compensation expenses; 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 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®, Thompson/Center Arms™, and Gemtech® brands.  The company also provides manufacturing services including forging, machining, and precision plastic injection molding services.  For more information call (844) 363-5386 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 ability to deliver strong performance in the face of any challenge.  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; speculation surrounding fears of terrorism and crime; our anticipated growth and growth opportunities; our ability to increase demand for our products in various markets, including consumer, law enforcement, and military channels, domestically and internationally; our penetration rates in new and existing markets; our strategies; our ability to maintain and enhance brand recognition and reputation; our ability to introduce new products; the success of new products; our ability to expand our markets; 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, 2020.

SMITH & WESSON BRANDS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)



As of:

October 31, 2020

April 30, 2020

(In thousands, except par value and share data)

 ASSETS

 Current assets:



Cash and cash equivalents

$                55,549

$             125,011

Accounts receivable, net of allowances for credit losses of $1,067 on
   October 31, 2020 and $1,038 on April 30, 2020

68,637

60,879

Inventories

78,889

103,741

Prepaid expenses and other current assets

7,599

7,556

Current assets of discontinued operations

—

94,673

Income tax receivable 

4,713

1,595

Total current assets

215,387

393,455

 Property, plant, and equipment, net

147,907

147,739

 Intangibles, net

4,458

4,375

 Goodwill

19,024

19,024

 Other assets of discontinued operations

—

148,485

 Other assets

14,309

16,437

401,085

729,515

 LIABILITIES AND STOCKHOLDERS' EQUITY

 Current liabilities:



Accounts payable

$                60,985

$                31,476

Accrued expenses and deferred revenue

41,254

57,678

Accrued payroll and incentives

11,405

12,448

Accrued income taxes

337

5,503

Accrued profit sharing

6,810

2,197

Accrued warranty

4,352

3,297

Current liabilties of discontinued operations

—

17,372

Total current liabilities

125,143

129,971

 Deferred income taxes 

457

457

 Notes and loans payable, net of current portion

—

159,171

 Finance lease payable, net of current portion

39,343

39,610

Other non-current liabilities of discontinued operations

—

2,299

Other non-current liabilities

9,264

10,889

Total liabilities

174,207

342,397

 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, 74,122,674 issued
   and 55,955,812 shares outstanding on October 31, 2020 and 73,526,790 shares
   issued and 55,359,928 shares outstanding on April 30, 2020

74

74

Additional paid-in capital 

269,911

267,630

Retained earnings

179,195

341,716

Accumulated other comprehensive income

73

73

Treasury stock, at cost (18,166,862 shares on October 31, 2020 and
   April 30, 2020)

(222,375)

(222,375)

Total stockholders' equity

226,878

387,118

$              401,085

$              729,515

 

SMITH & WESSON BRANDS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME/(LOSS)

(Unaudited)












For the Three Months Ended October 31,

For the Six Months Ended October 31,


2020

2019

2020

2019


(In thousands, except per share data)

Net sales

$             248,729

$             113,717

$             478,614

$             209,153

Cost of sales

147,656

81,405

285,117

141,254

Gross profit

101,073

32,312

193,497

67,899

Operating expenses:








Research and development

1,855

1,795

3,761

3,692

Selling, marketing, and distribution

11,614

10,841

21,609

20,374

General and administrative

23,224

16,103

45,007

33,312

Total operating expenses

36,693

28,739

70,377

57,378

Operating income from continuing operations

64,380

3,573

123,120

10,521

Other income/(expense), net:








Other income/(expense), net 

693

83

760

90

Interest expense, net

(1,490)

(3,046)

(2,806)

(5,687)

Total other (expense)/income, net

(797)

(2,963)

(2,046)

(5,597)

Income from operations before income taxes

63,583

610

121,074

4,924

Income tax expense

14,465

267

28,657

2,396

Income from continuing operations

$                49,118

$                     343

$                92,417

$                  2,528

Discontinued operations:








Income/(loss) from discontinued operations

3,123

950

8,209

(3,343)

Net income/(loss)

$                52,241

$                  1,293

$              100,626

$                    (815)










Net income/(loss) per share:








Basic - continuing operations

$                    0.88

$                    0.01

$                    1.66

$                    0.05

Basic - net income/(loss)

$                    0.93

$                    0.02

$                    1.81

$                   (0.01)

Diluted - continuing operations

$                    0.87

$                    0.01

$                    1.64

$                    0.05

Diluted - net income/(loss)

$                    0.92

$                    0.02

$                    1.78

$                   (0.01)

Weighted average number of common shares outstanding:








Basic

55,914

54,912

55,691

54,847

Diluted

56,531

55,424

56,475

54,847

 

SMITH & WESSON BRANDS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)






For the Six Months Ended

October 31, 2020

October 31, 2019

(In thousands)

Cash flows from operating activities:



Income from continuing operations

$                  92,417

$                    2,528

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



Depreciation and amortization 

17,129

16,483

Loss on sale/disposition of assets

3

15

Provision for losses on notes and accounts receivable

29

(219)

Change in fair value of contingent consideration

—

100

Stock-based compensation expense

2,075

2,826

Changes in operating assets and liabilities:



     Accounts receivable

(7,787)

(5,585)

     Inventories

24,852

(29,260)

     Prepaid expenses and other current assets

(43)

(2,979)

     Income taxes

(8,267)

(2,932)

     Accounts payable

28,331

3,486

     Accrued payroll and incentives

(1,043)

(9,510)

     Accrued profit sharing

4,613

(1,462)

     Accrued expenses and deferred revenue

(16,212)

(1,134)

     Accrued warranty

1,055

(436)

     Other assets

2,561

753

     Other non-current liabilities

(1,625)

(1,358)

 Cash provided by/(used in) operating activities - continuing operations

138,088

(28,684)

 Cash used in operating activities - discontinued operations

(2,225)

(6,187)

Net cash provided by/(used in) operating activities

135,863

(34,871)

Cash flows from investing activities:



Payments to acquire patents and software

(350)

(279)

Payments to acquire property and equipment

(14,964)

(8,249)

Cash used by investing activities - continuing operations

(15,314)

(8,528)

Cash used by investing activities - discontinued operations

(1,143)

(840)

Net cash used in investing activities

(16,457)

(9,368)

Cash flows from financing activities:



Proceeds from loans and notes payable

25,000

75,000

Cash paid for debt issuance costs

(450)

—

Payments on finance lease obligation

(479)

(431)

Payments on notes and loans payable

(185,000)

(28,150)

Distribution to AOUT

(25,000)

—

Dividend distribution

(2,795)

—

Proceeds from exercise of options to acquire common stock

2,195

936

Payment of employee withholding tax related to restricted stock units

(2,173)

(550)

Cash used in/(provided by) financial activities - continuing operations

(188,702)

46,805

Cash used in financial activities - discontinued operations

(166)

—

Net cash (used in)/provided by financing activities

(188,868)

46,805

Net decrease in cash and cash equivalents

(69,462)

2,566

Cash and cash equivalents, beginning of period

125,011

40,853

Cash and cash equivalents, end of period

$                  55,549

$                  43,419

Supplemental disclosure of cash flow information



Cash paid for:



Interest

$                    2,188

$                    5,767

Income taxes

$                  40,888

$                    4,184

 

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, 2020

October 31, 2019

October 31, 2020

October 31, 2019

$

% of Sales

$

% of Sales

$

% of Sales

$

% of Sales

GAAP gross profit

$ 101,073

40.6%

$  32,312

28.4%

$ 193,497

40.4%

$  67,899

32.5%

COVID-19

10

0.0%

—

—

896

0.2%

—

—

Non-GAAP gross profit

$ 101,083

40.6%

$  32,312

28.4%

$ 194,393

40.6%

$   67,899

32.5%

















GAAP operating expenses

$    36,693

14.8%

$    28,739

25.3%

$    70,377

14.7%

$   57,378

27.4%

Amortization of acquired intangible assets

(83)

0.0%

(113)

-0.1%

(166)

0.0%

(222)

-0.1%

Transition costs

(4,338)

-1.7%

(164)

-0.1%

(7,933)

-1.7%

(164)

-0.1%

COVID-19

(92)

0.0%

—

—

(159)

0.0%

—

—

Spin related stock-based compensation

(442)

-0.2%

—

—

(442)

-0.1%

—

—

Non-GAAP operating expenses

$  31,738

12.8%

$  28,462

25.0%

$  61,677

12.9%

$   56,992

27.2%

















GAAP operating income

$    64,380

25.9%

$      3,573

3.1%

$ 123,120

25.7%

$   10,521

5.0%

Amortization of acquired intangible assets

83

0.0%

113

0.1%

166

0.0%

222

0.1%

Transition costs

4,338

1.7%

164

0.1%

7,933

1.7%

164

0.1%

COVID-19

102

0.0%

—

—

1,055

0.2%

—

—

Spin related stock-based compensation

442

0.2%

—

—

442

0.1%

—

—

Non-GAAP operating income

$  69,345

27.9%

$    3,850

3.4%

$ 132,716

27.7%

$   10,907

5.2%

















GAAP income from continuing operations

$  49,118

19.7%

$        343

0.3%

$  92,417

19.3%

$     2,528

1.2%

Amortization of acquired intangible assets

83

0.0%

113

0.1%

166

0.0%

222

0.1%

Transition costs

4,338

1.7%

164

0.1%

7,933

1.7%

164

0.1%

COVID-19

102

0.0%

—

—

1,055

0.2%

—

—

Change in contingent consideration

—

—

(100)

-0.1%

—

—

(100)

0.0%

Spin related stock-based compensation

442

0.0%

—

—

442

0.0%

—

—

Tax effect of non-GAAP adjustments

(1,241)

-0.5%

(48)

0.0%

(2,399)

-0.5%

(77)

0.0%

Non-GAAP income from continuing operations

$  52,842

21.2%

$       472

0.4%

$  99,614

20.8%

$     2,737

1.3%

















GAAP income from continuing operations per share - diluted

$      0.87


$      0.01


$      1.64


$       0.05


Amortization of acquired intangible assets

—


—


—


—


Transition costs

0.08


—


0.14


—


COVID-19

—


—


0.02


—


Change in contingent consideration

—


—


—


—


Spin related stock-based compensation

0.01


—


0.01


—


Tax effect of non-GAAP adjustments

(0.02)


—


(0.04)


—


Non-GAAP income from continuing operations per share - diluted

$      0.93

 (a) 

$      0.01


$      1.76

 (a) 

$       0.05



















(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, 2020

October 31, 2019

October 31, 2020

October 31, 2019

Net cash provided by/(used in) operating activities

$                      55,265

$                 (3,544)

$              138,088

$               (28,684)

Net cash used in investing activities

(8,674)

(5,326)

(15,314)

(8,528)

Free cash flow

$                      46,591

$                 (8,870)

$              121,988

$               (35,514)

 

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, 2020

October 31, 2019

October 31, 2020

October 31, 2019









GAAP income from continuing operations

$                  49,118

$                       343

$                  92,417

$                    2,528

Interest expense

1,517

3,266

2,879

6,029

Income tax expense

14,465

267

28,657

2,396

Depreciation and amortization

8,145

8,137

16,282

16,267

Stock-based compensation expense

1,191

1,295

2,075

2,820

Change in contingent consideration

—

(100)

—

(100)

COVID-19

102

—

1,055

—

Transition costs

4,338

164

7,933

164

Non-GAAP Adjusted EBITDAS

$                  78,876

$                  13,372

$               151,298

$                  30,104

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

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SOURCE Smith & Wesson Brands, Inc.