Smith & Wesson Holding Corporation Reports First Quarter Fiscal 2017 Financial Results

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September 1, 2016
- Net Sales of $207.0 Million for First Quarter, up 40.1% Year-Over-Year
- First Quarter GAAP Net Income Per Diluted Share of $0.57
- First Quarter Non-GAAP Net Income Per Diluted Share of $0.62
- Company Increases Full Year Fiscal 2017 Financial Guidance

SPRINGFIELD, Mass., Sept. 1, 2016 /PRNewswire/ -- Smith & Wesson Holding Corporation (NASDAQ Global Select: SWHC), a leader in firearm manufacturing and design, today announced financial results for the fiscal first quarter 2017, ended July 31, 2016.

Smith & Wesson Logo

First Quarter Fiscal 2017 Financial Highlights

  • Quarterly net sales were $207.0 million compared with $147.8 million for the first quarter last year, an increase of 40.1%.
  • Gross margin for the quarter was 42.3% compared with 39.8% for the first quarter last year. 
  • Quarterly GAAP net income was $32.6 million, or $0.57 per diluted share, as compared with $14.4 million, or $0.26 per diluted share, for the comparable quarter last year.
  • Quarterly non-GAAP net income was $35.1 million, or $0.62 per diluted share compared with $17.7 million, or $0.32 per diluted share, for the comparable quarter last year. GAAP to non-GAAP adjustments in net income exclude amortization for acquisitions as well as one-time, acquisition-related transaction costs. For a detailed reconciliation, see the schedules that follow in this release.
  • Quarterly non-GAAP Adjusted EBITDAS was $65.8 million, or 31.8% of net sales.

James Debney, Smith & Wesson Holding Corporation President and Chief Executive Officer, said, "We are very pleased with our first quarter results, which exceeded our financial guidance. We believe that higher revenue was driven by strong consumer demand as reflected in adjusted background checks from the National Instant Criminal Background Check System (NICS) as well as our own market share gains.  During the quarter, we announced the acquisition of Taylor Brands and Crimson Trace, two accretive acquisitions, making strong in-roads on our strategy to become a leader in the market for shooting, hunting, and rugged outdoor enthusiasts. These acquisitions, which further expand our presence in the markets for outdoor products and accessories, were completed early in the second quarter.  Based upon that timing, as well as our performance for the first quarter and our revised outlook for the remainder of fiscal 2017, we are raising our full year revenue and net income guidance."

Crimson Trace Corporation Acquisition

  • The industry leader in laser sighting systems and tactical lighting for firearms
  • Trailing twelve months revenue of $44.7 million (including $10.8 million in sales to Smith & Wesson)
  • Key supplier to Smith & Wesson
  • Organic 10-year compound annual revenue growth rate of over 10%
  • Will form the foundation for Smith & Wesson's new Electro-Optics Division
  • $95.0 million purchase price, utilizing cash on hand
  • http://ir.smith-wesson.com/phoenix.zhtml?c=90977&p=irol-newsArticle&ID=2188000

Taylor Brands, LLC Acquisition

  • Industry leading provider of high quality knives and specialty tools
  • Trailing twelve months revenue of approximately $41.0 million
  • Organic 5-year compound annual revenue growth rate of over 12%
  • Long-standing licensee of Smith & Wesson
  • Other owned brands: Schrade, Uncle Henry, Old Timer, and Imperial
  • Tuck-in to accessories division; expands presence in hunting and rugged outdoor market
  • $85.0 million purchase price, utilizing cash on hand
  • http://ir.smith-wesson.com/phoenix.zhtml?c=90977&p=irol-newsArticle&ID=2186082

Jeffrey D. Buchanan, Executive Vice President, Chief Financial Officer, and Chief Administrative Officer, said, "In line with our expanding presence in the market for rugged outdoors products, we have made the decision to position our accessories division and our new electro-optics division under a segment named Outdoor Products & Accessories, in order to better reflect the large and growing addressable market for those offerings.  As a result, effective with the fiscal first quarter, we are now reporting results in the following two segments:  Firearms and Outdoor Products & Accessories."

Buchanan continued, "Strong gross margins in the quarter were driven by several factors, including increased production volumes in the firearms segment.  Operating cash flow was positive at $38.1 million despite our seasonal inventory build as we prepare for the upcoming fall hunting and holiday shopping seasons. As a result, cash during the quarter increased to $215.0 million, providing liquidity to fund the $180.0 million in strategic acquisitions that we closed early in the second quarter.  We ended the first quarter with total debt of $173.7 million and no borrowings on our $175.0 million revolving line of credit, thus affording us ample liquidity for any future acquisitions we may consider."

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 October 31, 2016


Range for the Year Ending April 30, 2017

Net sales (in thousands)

$  220,000


$  230,000


$  900,000


$  920,000









GAAP income per share - diluted

$        0.44


$        0.48


$        2.09


$        2.19

Acquisition costs

0.01


0.01


0.03


0.03

Amortization of acquired intangible assets

0.08


0.08


0.33


0.33

Fair value inventory step-up and backlog expense

0.03


0.03


0.07


0.07

Tax effect of non-GAAP adjustments

(0.03)


(0.03)


(0.14)


(0.14)

Non-GAAP income per share - diluted

$        0.53


$        0.57


$        2.38


$        2.48

 

Conference Call and Webcast

The company will host a conference call and webcast today, September 1, 2016, to discuss its first quarter fiscal 2017 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 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 code 59745084.  No RSVP is necessary.  The conference call audio webcast can also be accessed live and for replay on the company's website at www.smith-wesson.com, under the Investor Relations section. 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," "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) TCA accessories transition costs, (iii) discontinued operations, (iv) DOJ and SEC costs including insurance recovery costs, (v) acquisition-related costs, (vi) bond premium paid, (vii) debt extinguishment costs, (viii) the tax effect of non-GAAP adjustments, (ix) net cash provided by operating activities, (x) net cash used in investing activities, (xi) receipts from note receivable, (xii) interest expense (xiii) income tax expense, (xiv) depreciation and amortization, and (xv) stock-based compensation expense; 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 provider of quality products for shooting, hunting, and rugged outdoor enthusiasts in the global consumer and professional markets. The company reports two segments: Firearms and Outdoor Products & Accessories.  Firearms manufactures handgun and long gun products sold under the Smith & Wesson®, M&P®, and Thompson/Center Arms™ brands as well as providing forging, machining, and precision plastic injection molding services. Outdoor Products & Accessories provides shooting, hunting, and outdoor accessories, including reloading, gunsmithing, and gun cleaning supplies, tree saws, vault accessories, knives, laser sighting systems, and tactical lighting products. Brands in Outdoor Products & Accessories include Smith & Wesson®, M&P®, Thompson/Center Arms™, Crimson Trace, Caldwell® Shooting Supplies, Wheeler® Engineering, Tipton® Gun Cleaning Supplies, Frankford Arsenal® Reloading Tools, Lockdown® Vault Accessories, Hooyman® Premium Tree Saws, BOG POD®, and Golden Rod® Moisture Control as well as knives and specialty tools under Schrade, Old Timer, Uncle Henry, and Imperial.  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 higher revenue was driven by strong consumer demand as reflected in adjusted background checks from the NICS system as well as our own market share gains; our belief that the Taylor Brands and Crimson Trace acquisitions are accretive, making strong in-roads on our strategy to become a leader in the market for shooting, hunting, and rugged outdoor enthusiasts; our expanding presence in the markets for outdoor products and accessories; and our expectations for net sales, GAAP income per diluted share, acquisition costs, amortization of acquired intangible assets, fair value inventory step-up and backlog expense, tax effect of non-GAAP adjustments, and non-GAAP income per diluted share for the second quarter of fiscal 2017 and for fiscal 2017.  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 outdoor products and 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, 2016.

 

SMITH & WESSON HOLDING CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)




For the Three Months Ended



July 31, 2016 


July 31, 2015



(In thousands, except per share data)

Net sales


$ 206,951


$ 147,763

Cost of sales


119,382


88,893

Gross profit


87,569


58,870

Operating expenses:





Research and development


2,152


2,396

Selling and marketing


9,195


9,219

General and administrative


23,698


17,438

Total operating expenses


35,045


29,053

Operating income


52,524


29,817

Other (expense)/income:





Other (expense)/income, net



(6)

Interest (expense)/income


(2,012)


(7,200)

Total other (expense)/income, net


(2,012)


(7,206)

Income from operations before income taxes


50,512


22,611

Income tax expense


17,896


8,199

Net income


32,616


14,412

Net income per share:





Basic


$        0.58


$        0.27

Diluted


$        0.57


$        0.26

Weighted average number of common shares outstanding:





Basic


56,049


54,218

Diluted


56,883


55,477

 

SMITH & WESSON HOLDING CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)



As of


July 31, 2016


April 30, 2016


(In thousands, except par value and share data)

 ASSETS




 Current assets:




Cash and cash equivalents

$ 215,012


$   191,279

Accounts receivable, net of allowance for doubtful accounts of $606 on July 31, 2016 and $680 on April 30, 2016

55,711


57,792

Inventories

87,649


77,789

Prepaid expenses and other current assets

6,119


4,307

Income tax receivable 

1,298


2,064

Total current assets

365,789


333,231

 Property, plant, and equipment, net

145,254


135,405

 Intangibles, net

60,346


62,924

 Goodwill

76,357


76,357

 Other assets

6,937


11,586


$ 654,683


$   619,503

 LIABILITIES AND STOCKHOLDERS' EQUITY




 Current liabilities:




Accounts payable

$    46,753


$     45,513

Accrued expenses

30,252


28,447

Accrued payroll and incentives

9,180


18,784

Accrued income taxes

12,995


5,960

Accrued profit sharing

15,018


11,459

Accrued warranty

5,968


6,129

Current portion of notes payable

6,300


6,300

Total current liabilities

126,466


122,592

 Deferred income taxes 

12,010


12,161

 Notes payable, net of current portion

165,205


166,564

 Other non-current liabilities

10,641


10,370

Total liabilities

314,322


311,687

 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, 71,714,635 shares issued and 56,152,013 shares outstanding on July 31, 2016 and 71,558,633 shares issued and 55,996,011 shares outstanding on April 30, 2016

72


72

Additional paid-in capital 

239,691


239,505

Retained earnings

273,926


241,310

Accumulated other comprehensive loss

(1,005)


(748)

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

(172,323)


(172,323)

Total stockholders' equity

340,361


307,816


$ 654,683


$   619,503

 

SMITH & WESSON HOLDING CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)






For the Three Months Ended


July 31, 2016


July 31, 2015


(In thousands)

Cash flows from operating activities:




Net income

$       32,616


$       14,412

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




Depreciation and amortization 

10,320


11,030

Loss on sale/disposition of assets

14


63

Provision for losses on notes and accounts receivable

37


15

Stock-based compensation expense

1,792


1,545

Changes in operating assets and liabilities:




Accounts receivable

2,044


3,730

Inventories

(9,860)


(13,191)

Prepaid expenses and other current assets

(1,913)


(3,509)

Income taxes

7,801


669

Accounts payable

(240)


2,592

Accrued payroll and incentives

(9,604)


1,810

Accrued profit sharing

3,559


1,747

Accrued expenses

1,805


(4,820)

Accrued warranty

(161)


(246)

Other assets

(145)


698

Other non-current liabilities

12


80

Net cash provided by operating activities

38,077


16,625

Cash flows from investing activities:




Refunds on machinery and equipment

4,773


835

Receipts from note receivable

21


21

Payments to acquire patents and software

(133)


(66)

Payments to acquire property and equipment

(15,776)


(7,940)

Net cash used in investing activities

(11,115)


(7,150)

Cash flows from financing activities:




Proceeds from loans and notes payable


105,000

Cash paid for debt issuance costs


(918)

Payments on capital lease obligation

(149)


(149)

Payments on notes payable

(1,575)


(100,000)

Proceeds from Economic Development Incentive Program

101


Proceeds from exercise of options to acquire common stock


634

Payment of employee withholding tax related to restricted stock units

(4,139)


(1,661)

Excess tax benefit of stock-based compensation

2,533


814

Net cash (used in)/provided by financing activities

(3,229)


3,720

Net increase in cash and cash equivalents

23,733


13,195

Cash and cash equivalents, beginning of period

191,279


42,222

Cash and cash equivalents, end of period

$     215,012


$       55,417

Supplemental disclosure of cash flow information




Cash paid for:




Interest

$         2,755


$         8,253

Income taxes

7,685


6,816

 

RECONCILIATION OF GAAP FINANCIAL MEASURES TO NON-GAAP FINANCIAL MEASURES

(Dollars in thousands, except per share data)

(Unaudited)










For the Three Months Ended 


July 31, 2016


July 31, 2015


$


% of Sales


$


% of Sales

GAAP gross profit

$ 87,569


42.3%


$ 58,870


39.8%

Discontinued operations



52


0.1%

Non-GAAP gross profit

$ 87,569


42.3%


$ 58,922


39.9%









GAAP operating expenses

$ 35,045


16.9%


$ 29,053


19.7%

Amortization of acquired intangible assets

(2,544)


-1.2%


(2,073)


-1.4%

TCA accessories transition costs



(82)


-0.1%

Discontinued operations

(21)


0.0%


(20)


0.0%

DOJ/SEC costs including insurance recovery costs



1,772


1.2%

Acquisition-related costs

(1,333)


-0.6%



0.0%

Non-GAAP operating expenses

$ 31,147


15.1%


$ 28,650


19.4%









GAAP operating income

$ 52,524


25.4%


$ 29,817


20.2%

Amortization of acquired intangible assets

2,544


1.2%


2,073


1.4%

TCA accessories transition costs



82


0.1%

Discontinued operations

21


0.0%


72


0.0%

DOJ/SEC costs including insurance recovery costs



(1,772)


-1.2%

Acquisition-related costs

1,333


0.6%



Non-GAAP operating income

$ 56,422


27.3%


$ 30,272


20.5%









GAAP net income

$ 32,616


15.8%


$ 14,412


9.8%

Bond premium paid



2,938


2.0%

Amortization of acquired intangible assets

2,544


1.2%


2,073


1.4%

Debt extinguishment costs



1,723


1.2%

TCA accessories transition costs



82


0.1%

Discontinued operations

21


0.0%


72


0.0%

DOJ/SEC costs including insurance recovery costs



(1,772)


-1.2%

Acquisition-related costs

1,333


0.6%



Tax effect of non-GAAP adjustments

(1,380)


-0.7%


(1,857)


-1.3%

Non-GAAP net income

$ 35,134


17.0%


$ 17,671


12.0%









GAAP net income per share - diluted

$      0.57




$      0.26



Bond premium paid




0.05



Amortization of acquired intangible assets

0.04




0.04



Debt extinguishment costs




0.03



TCA accessories transition costs




0.00



Discontinued operations

0.00




0.00



DOJ/SEC costs including insurance recovery costs




(0.03)



Acquisition-related costs

0.02






Tax effect of non-GAAP adjustments

(0.02)




(0.03)



Non-GAAP net income per share - diluted

$      0.62

 (a) 



$      0.32




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

 

SMITH & WESSON HOLDING CORPORATION AND SUBSIDIARIES

RECONCILIATION OF NET OPERATING CASH FLOW TO FREE CASH FLOW

(In thousands)

(Unaudited)






For the Three Months Ended


July 31, 2016


July 31, 2015

Net cash provided by operating activities

$    38,077


$    16,625

Net cash used in investing activities

(11,115)


(7,150)

Receipts from note receivable

(21)


(21)

Free cash flow

$    26,941


$      9,454

 

SMITH & WESSON HOLDING CORPORATION AND SUBSIDIARIES

RECONCILIATION OF GAAP NET INCOME TO NON-GAAP ADJUSTED EBITDAS

(In thousands)

(Unaudited)








For the Three Months Ended



July 31, 2016



July 31, 2015







GAAP net income


$    32,616



$    14,412

Interest expense


2,054



7,200

Income tax expense


17,897



8,199

Depreciation and amortization


10,104



8,999

Stock-based compensation expense


1,792



1,545

Acquisition-related costs


1,333



Discontinued operations


21



72

TCA accessories transition costs




82

DOJ/SEC costs, including insurance recovery costs




(1,642)

Non-GAAP Adjusted EBITDAS


$    65,817



$    38,867

 

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

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SOURCE Smith & Wesson Holding Corporation