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

March 4, 2021

 

- Record Quarterly Net Sales of $257.6 Million
- Record Net Income of $62.3 Million
- Record GAAP/non-GAAP EPS of $1.12/Share
- $100M Share Buyback Program and $0.05/Share Quarterly Dividend

 

SPRINGFIELD, Mass., March 4, 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 third quarter of fiscal 2021 ended January 31, 2021.  On August 24, 2020, the company completed the previously announced spin-off of its outdoor products and accessories business.  Therefore, as of the second 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.

Third Quarter Fiscal 2021 Consolidated Financial Highlights

  • Quarterly net sales were $257.6 million compared with $127.4 million for the comparable quarter last year, an increase of 102.2%. 
  • Gross margin for the quarter was 42.6% compared with 28% for the comparable quarter last year.
  • Quarterly GAAP net income was a record $62.3 million, or $1.12 per diluted share, compared with $4.2 million, or $0.08 per diluted share, for the comparable quarter last year.
  • Quarterly non-GAAP net income was $62.4 million, or $1.12 per diluted share, compared with $7.8 million, or $0.14 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 $89.8 million, or 34.9% of net sales, compared with $15.0 million, or 11.8% of net sales, for the comparable quarter last year.

Mark Smith, President and Chief Executive Officer, commented, "I could not be more proud of our dedicated American workforce as, for the third time in a row, they delivered a record-breaking quarter for our great historic company. Over the past year, millions of our fellow Americans from all walks of life have chosen to empower themselves by exercising their 2nd Amendment rights for the first time, and our loyal employees have risen to the challenge – delivering over 1.8 million units in the first three quarters of our fiscal year alone, ensuring that these new members of the shooting sports community were able to choose the highest quality, innovative firearms that Smith & Wesson has been known for since 1852. All of this was accomplished while implementing and maintaining aggressive safety measures and process changes to keep safe in the midst of the COVID pandemic."

Deana McPherson, Executive Vice President and Chief Financial Officer, commented, "Smith & Wesson's record-breaking financial performance enabled us to generate $60 million of cash from operations during the quarter. This allowed us to complete a $50 million dollar share-repurchase program, pay our second quarter dividend, and continue to invest in capital, all while growing our cash on hand by $4.1 million during the quarter. I am pleased to announce that our Board has authorized a new $100 million dollar share repurchase program and a $0.05 per share dividend to stockholders of record as of March 17, 2021, with payment to be made on March 31, 2021."

The amount and timing of any repurchases will depend on a number of factors, including price, trading volume, general market conditions, legal requirements, and other factors.  The repurchases may be made on the open market, in block trades, or in privately negotiated transactions. Any shares of common stock repurchased under the program will be considered issued but not outstanding shares of the company's common stock. 

Conference Call and Webcast
The company will host a conference call and webcast on March 4, 2021, to discuss its third 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 1056738.  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) change in contingent consideration, (iv) CEO separation, (v) the tax effect of non-GAAP adjustments, (vi) COVID-19 expenses, (vii) net cash used in investing activities, (viii) interest expense, (ix) income tax expense, (x) depreciation and amortization, and (xi) 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.

 

SMITH & WESSON BRANDS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)
 
 

As of:
 

January 31, 2021

  

April 30, 2020
 

(In thousands, except par value and share data)

 ASSETS

 Current assets:

      

Cash and cash equivalents

$         59,676

  

$   125,011

Accounts receivable, net of allowances for credit losses of $151 on January 31, 2021 and $1,038 on April 30, 2020

61,564

  

60,879

Inventories

84,446

  

103,741

Prepaid expenses and other current assets

8,574

  

7,556

Current assets of discontinued operations

—

  

94,673

Income tax receivable 

9,277

  

1,595

Total current assets

223,537

  

393,455

 Property, plant, and equipment, net

145,398

  

147,739

 Intangibles, net

4,436

  

4,375

 Goodwill

19,024

  

19,024

 Other assets of discontinued operations

—

  

148,485

 Other assets

13,456

  

16,437
 

405,851

  

729,515

 LIABILITIES AND STOCKHOLDERS' EQUITY

 Current liabilities:

      

Accounts payable

$         49,166

  

$     31,476

Accrued expenses and deferred revenue

37,805

  

57,678

Accrued payroll and incentives

14,488

  

12,448

Accrued income taxes

337

  

5,503

Accrued profit sharing

10,860

  

2,197

Accrued warranty

3,718

  

3,297

Current liabilties of discontinued operations

—

  

17,372

Total current liabilities

116,374

  

129,971

 Deferred income taxes 

773

  

457

 Notes and loans payable, net of current portion

—

  

159,171

 Finance lease payable, net of current portion

39,060

  

39,873

Other non-current liabilities of discontinued operations

—

  

2,299

Other non-current liabilities

11,935

  

10,626

Total liabilities

168,142

  

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, 74,153,528 issued and 53,249,177 shares outstanding on January 31, 2021 and 73,526,790 shares issued and 55,359,928 shares outstanding on April 30, 2020

74

  

74

Additional paid-in capital 

271,222

  

267,630

Retained earnings

238,715

  

341,716

Accumulated other comprehensive income

73

  

73

Treasury stock, at cost (20,904,351 shares on January 31, 2021 and April 30, 2020)

(272,375)

  

(222,375)

Total stockholders' equity

237,709

  

387,118
 

$       405,851

  

$   729,515

 

SMITH & WESSON BRANDS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME/(LOSS)

(Unaudited)
                 
   

For the Three Months Ended January 31,

  

For the Nine Months Ended January 31,
   

2021

  

2020

  

2021

  

2020
   

(In thousands, except per share data)

Net sales

  

$257,634

  

$127,416

  

$736,247

  

$336,575

Cost of sales

  

147,955

  

91,729

  

433,073

  

232,989

Gross profit

  

109,679

  

35,687

  

303,174

  

103,586

Operating expenses:

                

Research and development

  

1,757

  

1,809

  

5,518

  

5,501

Selling, marketing, and distribution

  

10,487

  

10,465

  

32,095

  

30,839

General and administrative

  

17,054

  

14,603

  

62,061

  

47,915

Total operating expenses

  

29,298

  

26,877

  

99,674

  

84,255

Operating income from continuing operations

  

80,381

  

8,810

  

203,500

  

19,331

Other income/(expense), net:

                

Other income/(expense), net 

  

952

  

(10)

  

1,711

  

80

Interest expense, net

  

(550)

  

(2,885)

  

(3,356)

  

(8,572)

Total other income/(expense), net

  

402

  

(2,895)

  

(1,645)

  

(8,492)

Income from operations before income taxes

  

80,783

  

5,915

  

201,855

  

10,839

Income tax expense

  

18,520

  

1,688

  

47,176

  

4,084

Income from continuing operations

  

$   62,263

  

$     4,227

  

$154,679

  

$     6,755

Discontinued operations:

                

Income/(loss) from discontinued operations

  

127

  

1,504

  

8,334

  

(1,839)

Net income

  

$   62,390

  

$     5,731

  

$163,013

  

$     4,916
                 

Net income per share:

                

Basic - continuing operations

  

$       1.13

  

$       0.08

  

$       2.79

  

$       0.12

Basic - net income

  

$       1.13

  

$       0.10

  

$       2.94

  

$       0.09

Diluted - continuing operations

  

$       1.12

  

$       0.08

  

$       2.75

  

$       0.12

Diluted - net income

  

$       1.12

  

$       0.10

  

$       2.90

  

$       0.09

Weighted average number of common shares outstanding:

                

Basic

  

55,137

  

55,064

  

55,515

  

54,919

Diluted

  

55,702

  

55,744

  

56,258

  

55,641

 

SMITH & WESSON BRANDS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)
       
 

For the Nine Months Ended
 

January 31, 2021

  

January 31, 2020
 

(In thousands)

Cash flows from operating activities:

      

Income from continuing operations

$           154,679

  

$               6,755

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

      

Depreciation and amortization 

24,133

  

24,320

Loss on sale/disposition of assets

148

  

310

Provision for losses on notes and accounts receivable

(693)

  

(98)

Deferred income taxes

316

  

(18)

Change in fair value of contingent consideration

—

  

100

Stock-based compensation expense

3,392

  

941

Changes in operating assets and liabilities:

      

     Accounts receivable

8

  

(8,503)

     Inventories

19,295

  

(31,687)

     Prepaid expenses and other current assets

(1,018)

  

(3,797)

     Income taxes

(12,831)

  

(2,196)

     Accounts payable

17,299

  

(2,398)

     Accrued payroll and incentives

2,040

  

(6,754)

     Accrued profit sharing

8,663

  

(1,006)

     Accrued expenses and deferred revenue

(19,950)

  

(1,584)

     Accrued warranty

421

  

(526)

     Other assets

1,226

  

1,281

     Other non-current liabilities

1,309

  

(1,777)

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

198,437

  

(26,637)

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

(2,129)

  

1,804

Net cash provided by/(used in) operating activities

196,308

  

(24,833)

Cash flows from investing activities:

      

Refunds on machinery and equipment

310

  

—

Payments to acquire patents and software

(502)

  

(303)

Payments to acquire property and equipment

(18,378)

  

(10,504)

Cash used by investing activities - continuing operations

(18,570)

  

(10,807)

Cash used by investing activities - discontinued operations

(1,143)

  

(1,495)

Net cash used in investing activities

(19,713)

  

(12,302)

Cash flows from financing activities:

      

Proceeds from loans and notes payable

25,000

  

228,225

Cash paid for debt issuance costs

(450)

  

(875)

Payments on finance lease obligation

(736)

  

(663)

Payments on notes and loans payable

(185,000)

  

(184,600)

Distribution to AOUT

(25,000)

  

—

Payments to acquire treasury stock

(50,000)

  

—

Dividend distribution

(5,594)

  

—

Proceeds from exercise of options to acquire common stock

2,217

  

936

Payment of employee withholding tax related to restricted stock units

(2,201)

  

(594)

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

(241,764)

  

42,429

Cash used in financial activities - discontinued operations

(166)

  

—

Net cash (used in)/provided by financing activities

(241,930)

  

42,429

Net (decrease)/increase in cash and cash equivalents

(65,335)

  

5,294

Cash and cash equivalents, beginning of period

125,011

  

40,853

Cash and cash equivalents, end of period

$             59,676

  

$             46,147

Supplemental disclosure of cash flow information

      

Cash paid for:

      

Interest

$               2,745

  

$               8,422

Income taxes

$             63,525

  

$               5,755

 

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, 2021

  

January 31, 2020

  

January 31, 2021

  

January 31, 2020
 

$

  

% of Sales

  

$

  

% of Sales

  

$

  

% of Sales

  

$

  

% of Sales

GAAP gross profit

$ 109,679

  

42.6%

  

$ 35,687

  

28.0%

  

$ 303,174

  

41.2%

  

$ 103,586

  

30.8%

COVID-19

22

  

0.0%

  

—

  

—

  

517

  

0.1%

  

—

  

—

Non-GAAP gross profit

$ 109,701

  

42.6%

  

$ 35,687

  

28.0%

  

$ 303,691

  

41.2%

  

$ 103,586

  

30.8%
                               

GAAP operating expenses

$   29,298

  

11.4%

  

$ 26,877

  

21.1%

  

$   99,674

  

13.5%

  

$   84,255

  

25.0%

Amortization of acquired intangible assets

(83)

  

0.0%

  

(36)

  

0.0%

  

(248)

  

0.0%

  

(258)

  

-0.1%

Transition costs

(20)

  

0.0%

  

(1,025)

  

-0.8%

  

(7,953)

  

-1.1%

  

(1,189)

  

-0.4%

COVID-19

(58)

  

0.0%

  

—

  

—

  

(617)

  

-0.1%

  

—

  

—

Spin related stock-based compensation

—

  

—

  

—

  

—

  

(442)

  

-0.1%

  

—

  

—

CEO separation

—

  

—

  

(3,844)

  

-3.0%

  

—

  

—

  

(3,844)

  

-1.1%

Non-GAAP operating expenses

$   29,137

  

11.3%

  

$ 21,972

  

17.2%

  

$   90,414

  

12.3%

  

$   78,964

  

23.5%
                               

GAAP operating income

$   80,381

  

31.2%

  

$   8,810

  

6.9%

  

$ 203,500

  

27.6%

  

$   19,331

  

5.7%

Amortization of acquired intangible assets

83

  

0.0%

  

36

  

0.0%

  

248

  

0.0%

  

258

  

0.1%

Transition costs

20

  

0.0%

  

1,025

  

0.8%

  

7,953

  

1.1%

  

1,189

  

0.4%

COVID-19

80

  

0.0%

  

—

  

—

  

1,134

  

0.2%

  

—

  

—

Spin related stock-based compensation

—

  

—

  

—

  

—

  

442

  

0.1%

  

—

  

—

CEO separation

—

  

—

  

3,844

  

3.0%

  

—

  

—

  

3,844

  

1.1%

Non-GAAP operating income

$   80,564

  

31.3%

  

$ 13,715

  

10.8%

  

$ 213,277

  

29.0%

  

$   24,622

  

7.3%
                               

GAAP income from continuing operations

$   62,263

  

24.2%

  

$   4,227

  

3.3%

  

$ 154,679

  

21.0%

  

$      6,755

  

2.0%

Amortization of acquired intangible assets

83

  

0.0%

  

36

  

0.0%

  

248

  

0.0%

  

258

  

0.1%

Transition costs

20

  

0.0%

  

1,025

  

0.8%

  

7,953

  

1.1%

  

1,189

  

0.4%

COVID-19

80

  

0.0%

  

—

  

—

  

1,134

  

0.2%

  

—

  

—

Change in contingent consideration

—

  

—

  

—

  

—

  

—

  

—

  

(100)

  

0.0%

Spin related stock-based compensation

—

  

—

  

—

  

—

  

442

  

0.0%

  

—

  

—

CEO separation

—

  

—

  

3,844

  

3.0%

  

—

  

—

  

3,844

  

1.1%

Tax effect of non-GAAP adjustments

(46)

  

0.0%

  

(1,324)

  

-1.0%

  

(2,444)

  

-0.3%

  

(1,402)

  

-0.4%

Non-GAAP income from continuing operations

$   62,400

  

24.2%

  

$   7,808

  

6.1%

  

$ 162,012

  

22.0%

  

$   10,544

  

3.1%
                               

GAAP income from continuing operations per share - diluted

$        1.12

      

$      0.08

      

$        2.75

      

$        0.12

    

Amortization of acquired intangible assets

—

      

—

      

—

      

—

    

Transition costs

—

      

0.02

      

0.14

      

0.02

    

COVID-19

—

      

—

      

0.02

      

—

    

Change in contingent consideration

—

      

—

      

—

      

—

    

Spin related stock-based compensation

—

      

—

      

0.01

      

—

    

CEO separation

—

      

0.07

      

—

      

0.07

    

Tax effect of non-GAAP adjustments

—

      

(0.02)

      

(0.04)

      

(0.03)

    

Non-GAAP income from continuing operations per share - diluted

$        1.12

      

$      0.14

 (a) 

    

$        2.88

      

$        0.19

 (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 Nine Months Ended
 

January 31, 2021

  

January 31, 2020

  

January 31, 2021

  

January 31, 2020

Net cash (provided by)/used in operating activities

$         60,349

  

$            2,047

  

$       198,437

  

$        (26,637)

Net cash used in investing activities

(3,256)

  

(2,279)

  

(18,570)

  

(10,807)

Free cash flow

$         57,093

  

$             (232)

  

$       179,867

  

$        (37,444)

 

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, 2021

  

January 31, 2020

  

January 31, 2021

  

January 31, 2020
                 

GAAP income from continuing operations

  

$          62,263

  

$             4,227

  

$       154,679

  

$            6,755

Interest expense

  

592

  

2,869

  

3,471

  

8,919

Income tax expense

  

18,520

  

1,688

  

47,176

  

4,084

Depreciation and amortization

  

7,017

  

7,509

  

23,264

  

23,776

Stock-based compensation expense

  

1,317

  

1,554

  

3,392

  

4,375

Change in contingent consideration

  

—

  

—

  

—

  

(100)

COVID-19

  

80

  

—

  

1,134

  

—

Transition costs

  

20

  

1,025

  

7,953

  

1,189

CEO separation

  

—

  

(3,844)

  

—

  

(3,844)

Non-GAAP Adjusted EBITDAS

  

$          89,809

  

$          15,028

  

$       241,069

  

$         45,154

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

 

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SOURCE Smith & Wesson Brands, Inc.