American Outdoor Brands, Inc.

Good day, everyone, and welcome to American Outdoor Brands, Inc. Second Quarter Fiscal 2021 Financial Results Conference Call. This call is being recorded. At this time, I would like to turn the call over to Liz Sharp, Vice President of Investor Relations, for some information about today's call.

Thank you, and good afternoon. Our comments today may contain predictions, estimates, and other forward looking statements. Our use of words like anticipate, project, estimate, expect, intend, should, indicate, suggest, believe, and other similar expressions is intended to identify those forward looking statements. Forward looking statements also include statements regarding our product development, focus, objectives, strategies, and vision, our strategic evolution, our market share and market demand for our products, market and inventory conditions related to our products and in our industry in general, and growth opportunities and trends. Our forward-looking statements represent our current judgment about the future, and they are subject to various risks and uncertainties. Risk factors and other considerations that could cause our actual results to be materially different are described in our securities filings. You can find those documents as well as a replay of this call on our website at AOB.com. Today's call contains time-sensitive information that is accurate only as of this time, and we assume no obligation to update any forward-looking statements. Our actual results could differ materially from our statements today. I have a few important items to note about our comments today. First, we referenced certain non-GAAP financial measures. Our non-GAAP results exclude amortization of acquired intangible assets, stock compensation, transition costs, COVID-19 expenses, related party interest income, and the tax effect related to all of those adjustments. The reconciliations of GAAP financial measures to non-GAAP financial measures, whether or not they are discussed on today's call, can be found in our filings as well as today's earnings press release, which are posted on our websites. Also, when we reference EPS, we are always referencing fully diluted EPS. Joining us on today's call is Brian Murphy, President and CEO, and Andy Fulmer, Chief Financial Officer. And with that, I'll turn it over to Brian.

Thanks, Liz. I'm excited to join you on today's call and share what we believe are exceptional results for our second quarter. We believe our financial performance demonstrates the diversity and innovation of our brand portfolio as it continues to capture the attention of consumers. As a result, we deliver net sales growth of over 65% and our gross margins expanded by 690 basis points to nearly 47%. Based on our performance this quarter and our outlook for the second half, today we are raising our guidance for fiscal 2021. I want to especially thank our employees who helped us deliver outstanding results this quarter while positioning us for an exciting, groundbreaking first year as a public company. Their hard work and commitment to the health of their coworkers, combined with our award-winning products, made it possible for consumers to continue exploring their connection with the outdoors during these challenging times. To kick things off, I think it would be helpful to share with you some of the trends we're seeing across markets impacting our business. In general, we believe we're witnessing a new, higher foundational level of consumer participation in outdoor activities, responsible firearms ownership, and adjacent home-based hobbies that surround outdoor adventure. So what do I mean by that? Put simply, because of restrictions surrounding COVID-19, more people have been going outside. Data suggests that there's been a meaningful shift in the number of people engaging in outdoor activities, which we believe has driven a new, higher baseline, adding to a larger installed base of long-term participants when compared to 2019. We believe American Outdoor Brands, in particular, is uniquely positioned to benefit from this shift. Let me share some market information with you to further illustrate my point. First, camping participation has been on the rise in recent years. and saw further acceleration in 2020. According to a KOA study released in October, nearly 50% of campers surveyed said they went camping for the first time ever in 2020, or for the first time in recent years. In addition, a separate study by the Outdoor Industry Association in 2019 estimated that there were 42 million campers in the U.S., This, combined with the KOA survey outlining new camper trends in 2020, suggests that overall participation this year has been extraordinary compared to prior years. Further, KOA estimates that 82% of first-time campers have children in their household, which data suggests increases the likelihood that these new young entrants will be in the market for some time to come. Second, There is strong participation in firearms ownership and shooting sports, with a record number of new entrants this year. Background check data gathered by the FBI indicates that a record number of firearms have been purchased in calendar 2020, with background checks through November 30th numbering 19 million. The National Shooting Sports Foundation estimates that 40% of those checks represent individuals who purchased a firearm for the first time. suggesting about 8 million new consumers entered the market this year. This new and larger installed base of owners suggests strong future participation in shooting sports and the need for accessories. Third, hunting has also been on the rise this year, and many states across the U.S. have seen meaningful increases in the number of new hunters. A review of two recent Wall Street Journal articles indicates that hunting license sales are up more than 12% nationwide from last year, according to the National Shooting Sports Foundation. If the trend continues through the end of the year, they say, those licensed sales translate to one million more hunters this year than last. Michigan alone has seen a 67% year-over-year increase in new hunters through the end of November, with hunters under the age of 17 increasing nearly 100% during the same period. The introduction of new hunters is critical to the long-term growth and participation of hunting. Lastly, fishing has seen similar trends. According to the same Wall Street Journal article, the Recreational Boating and Fishing Foundation stated that there were 3 million more licenses sold nationwide this year than last, a 14% increase. In Louisiana alone, between March and July of this year, the Louisiana Department of Wildlife and Fisheries sold approximately 60% more basic fishing and saltwater licenses than for the same period in the prior year. In addition to creating a larger market for many of our brands, growth in hunting and fishing also has the benefit of generating more money for fish and wildlife agencies in support of wildlife management and sustainability. This, in turn, creates a more sustainable future for hunting and fishing in as participants return to these activities year after year. Whether measured by the record number of new firearm owners or by the extraordinary number of consumers who have taken their first camping trip this year, the data indicates to us that an outdoor renaissance is underway and that its effects may be long-lasting. Our four brand lanes, Defender, Marksman, Harvester, and Adventurer, positioned us well to capitalize on this increased participation in shooting sports, hunting, fishing, and camping, as well as address personal protection and home security needs. The sales momentum that began during our first quarter continued and remained steady throughout the second quarter. Net sales of over 79 million represented exceptional growth as we benefited from the activities I just outlined, combined with the normal seasonality, namely, the fall hunting and holiday seasons, which occur in our second quarter each year. We believe that sales growth across both our traditional and e-commerce channels in the quarter demonstrates that the investments we've made over time are paying off, and we continue to achieve our objective to place our brands wherever the consumer expects to find us, whether in a store or online. This strength is especially important in times like this, where consumer spending patterns are continually changing. In the second quarter, sales in our e-commerce channels grew over 213% compared to the prior year and included a notable increase in our direct-to-consumer sales. Net sales in our traditional channels grew as well, increasing by over 34% year-over-year. Turning to profitability, our adjusted EBITDAs performance for the quarter was also extremely strong. In addition to higher gross margins year over year, we delivered a greater percentage of profitability that fell to the bottom line, demonstrating, we believe, just how leverageable our business is, thanks to the unique structure of our brand lanes. I'm happy to report that during the quarter, we experienced growth across nearly all of our 20 brands and within each of the major activities we serve. In fact, nearly half of our brands experienced triple-digit sales growth in the quarter, Furthermore, of our top four selling products in the quarter, each came from one of our four brand lanes, demonstrating the diversity that we have built across our business. Our brand lanes provide us with what we believe is an ideal competitive advantage for developing exciting, on-trend, and highly innovative new products year after year that turn new consumers into lasting advocates as we take our brands from niche to known. In fact, it's not uncommon for us to launch over 300 new products annually. And as I've shared before, that process is rooted in our dock and unlock strategy. Once a brand is docked into one of four brand lanes, we can then begin to unlock a brand's true potential by leveraging the respective lane's resources, including brand marketing, product development, sourcing, and e-commerce. Our dock and unlock process is proprietary, was developed internally and we believe provides a meaningful moat for our brands as they grow. Our continued entry into new, larger, addressable markets utilizing this strategy continues to bear fruit as our brands progress along their transformation. Today I want to provide you with some examples, starting with a homegrown favorite, one where we believe that best growth is yet to come. In March of this year, we launched our newest brand, Meet Your Maker. This is a bold, fun, and contemporary brand that offers an innovative and affordable line of meat processing equipment, such as grinders, slicers, and dehydrators, sold direct to consumer at meetyourmaker.com. While the entire product line was conceived within our Harvester brand lane to address the meat processing needs of hunters, we are excited to share that these products are finding their way into home kitchens as well. Following the field of table trend and the desire of consumers to control every aspect of processing the food they harvest. Developed organically, completely in-house, and launched just nine months ago, Meet Your Maker has gone from literally non-existent to self-sufficient, quickly becoming a multi-million dollar brand in our portfolio, and it's just getting started. We believe we have several brands in-house that harbor the same exciting potential. In fact, Based on our research and consumer studies, we believe that most of our brands remain in their infancy and have yet to be fully explored. Specifically, this translates into three distinct priorities. First, expanding our brands by growing into new product categories. Second, entering new customer channels of distribution. And third, entering entirely new and larger addressable markets. We believe this strategy provides our brands with significant runway for long-term growth, and the Dock and Unlock strategy is designed to unleash that growth. Situated within our harvester brand lane is BOG, a brand with its origins in shooting sticks and rests used in hunting. That is well on its way to becoming a broader lifestyle hunting brand with versatile products that are engineered for the unknown. One of our newest product launches, which also enters us into the large game camera product category, demonstrates this evolution perfectly. For those of you who are unfamiliar with game cameras, these devices allow the user to monitor wildlife activity in a hunting area, and they represent a significant dollar investment for most hunters. Introduced in 2020, our Blood Moon game camera recently received a top-rated ranking from TrailCamPro.com. which is considered by many to be one of the leading reviewers of game camera performance and testing. Here's what they like, and I quote, excellent photos and videos, 20-plus months of battery life, and insanely fast detection capability, end quote. And we didn't just create a game camera for the sake of it. We built ours from the ground up to include a patent-pending removable viewing screen that allows the user to quickly adjust camera settings and flip through pictures on the fly without logging into their computer. Next up is an example from our Defender brand lane. Our LockDown brand began as a line of vault accessories, such as dehumidifying rods and vault organizers. Today, it is in the process of expanding beyond the vault with products that help consumers secure their lifestyle. Our new patent-pending LockDown puck recently received the Guns and Ammo Gun Tech of the Year Award for 2020. With built-in Wi-Fi, the puck pairs with a free logic app that allows the user to remotely monitor the humidity, temperature, and security status of any safe, cabinet, or other storage area. The puck allows the consumer to know that their firearms, jewelry, or other valuables are safe and secure from anywhere in the world. Lastly, In our adventurer lane, we are excited to include our UST brand, which provides another example of taking one of our brands from niche to known. UST has recently undergone a major brand relaunch. With its origins in camp accessories, such as lanterns and fire starters, we rebranded UST to expand into a broader offering that includes new, innovative, and higher ASP items geared around the camp lifestyle, such as tents, sleeping bags, and mattress pads. Let me highlight one of our especially exciting new products, the Monarch sleeping bag. The cocoon-like Monarch lends itself to a wide variety of environmental conditions with patent-pending wing sections that allow the user to transition from a 17-degree bag to a 37-degree bag. The wings can also be detached and used as a pillow. This fall, Backpacker.com listed our UST Monarch sleeping bag as the number one item on their list of the 27 best gifts for backpackers of 2020. These awards not only demonstrate the level of innovation that exists as a result of our brand-name structure, but they punctuate the very exciting path that these brands travel as they evolve from niche to known. And with that, I'll ask Andy to cover the financial results. Andy?