Smith & Wesson Brands, Inc.

Good day, everyone, and welcome to Smith & Wesson 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 Rob Cicero, General Counsel, who will give us 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 the words anticipate, project, estimate, expect, intend, believe, and other similar expressions are intended to identify those forward-looking statements. Forward-looking statements also include statements regarding our product development, focus, objectives, strategies, strategic evolution, market share, and demand for our products, as well as inventory conditions related to our products, growth opportunities and trends, and conditions in our industry in general. Our forward-looking statements represent our current judgment about the future, and they are subject to various risks and uncertainties that could cause our actual results, levels of activity, performance, or achievements to be materially different from those expressed or implied by our statements today. These risks and uncertainties are described in detail in our securities filings, including our periodic reports on forms 8K, 10K, and 10Q, which you can find in our website at smith-wesson.com, along with a replay of today's call. Our actual results, levels of activity, performance, and achievements could differ materially from those expressed or implied by our statements today, and we expressly disclaim any obligation to update any forward-looking statements. I have a few important items to note about our comments on the call today. First, we referenced certain non-GAAP financial results on this call. Our non-GAAP financial results exclude acquisition-related amortization, one-time transition costs, COVID-19 expenses, and the tax effect related to each of these exclusions. 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 securities filings and also in today's earnings press release. Our securities filings and today's earnings press release can be found on our website. Also, when we reference EPS, we are always referencing fully diluted EPS. Before I hand the call over to our speakers today, I want to remind everyone that we completed the spinoff of our outdoor products and accessories business on August 24th As such, we are now reporting all historical financial information for that business as discontinued operations. Unless otherwise indicated, any reference to income statement items during this call refers to results from continuing operations. Joining us on today's call are Mark Smith, President and Chief Executive Officer, and Dena McPherson, Chief Financial Officer. With that, I will turn the call over to Mark.

Thank you, Rob. Thanks everyone for joining us. Before I cover the results and highlights of our second quarter, just a quick update regarding our response to the ongoing COVID-19 pandemic. The aggressive and decisive actions that we took at the start of the year to ensure the health and safety of our employees, and that I detailed on our last call, are all still in effect. Because of the hard work and dedication of our employees, who have been extremely diligent in following our safety protocols, we have been able to continue safely operating our business in this challenging environment. Turning now to our financial performance during the second quarter, our quarterly revenue of $249 million more than doubled the prior year period and marks a second consecutive record-breaking quarter for our 168-year-old company. Q2 net income of over $49 million drove 87 cents of GAAP EPS and 93 cents of non-GAAP EPS, generated over $55 million in cash from operations, and has allowed us to end the quarter with zero net debt. Our operations and logistics teams produced and shipped over 626,000 units during the three-month period, exceeding last quarter's record numbers by 43,000 units, and demonstrating once again the power of our unique, flexible manufacturing model, and more importantly, our dedicated team's ability to deliver strong performance in the face of any challenge. We are also proud to say that during these extremely difficult times when so many of our fellow Americans are out of work, Smith & Wesson created and filled 287 new jobs just in our second quarter. And along with our existing employees, each of these new team members played a critical role in achieving our record-breaking numbers. Our success in the quarter is a direct representation of the trust that our loyal consumers have placed in the iconic Smith & Wesson brand and bodes very well for the long-term success of the company as we continue to gain significant market share as measured by our performance against Nick's. But before I go through those numbers, as always, two quick notes. First, please remember that adjusted NICS background checks are generally considered to be the best available proxy for consumer firearm demand at the retail counter. But since we transfer firearms only to law enforcement agencies and federally licensed distributors and retailers and not to end consumers, NICS generally does not directly correlate to our shipments or market share in any given time period. we believe mostly due to inventory levels. That said, given the continued lack of inventory in the channel throughout our second quarter, we believe that NICS is currently more correlated to our shipments than it would be during periods when the inventories are not so depleted. Secondly, as you may recall, we are providing more insight into our business and specifically market share trends by sharing with you the quarterly channel inventory levels at our strategic retailer accounts and distributors. Please remember that we have three main consumer channels, and the inventory levels I will discuss do not include buying groups. So with that, let's go into the market share numbers. In our fiscal Q2, overall NICS background checks for all firearm types increased 57.5% over the comparable timeframe last year. For Smith & Wesson, our total units shipped into the sporting goods channel during this time increased 93.4% to 586,000 units, while simultaneously our SRA and distributor combined inventory levels declined by over 208,000 units. Breaking those numbers down a little further, NICS checks for handguns increased 75.6% during the quarter, while our handgun units shipped increased by 74.3% to 420,000 units. Simultaneously, our handgun channel inventory dropped by 178,000 units. And finally, NICS checks for long guns increased 48.8% in the quarter, while our long gun unit shift increased 167.7% to 166,000 units. Simultaneously, our long gun channel inventory dropped by 30,000 units. So, in addition to our terrific financial results, these numbers indicate very robust market share gains as well, which, as we've discussed previously, is the key metric in our focus on long-term growth. Our shipments into the channel significantly exceeded Nick's overall, while inventory of our products in the channel actually decreased significantly. reflecting our ability to deliver and a strong preference for our product at the retail level. Before I hand the call over to Dena, I just want to provide a longer-term perspective on the overall firearm market dynamics that we've all seen this past year. Including the recent November NICS results released this week, in calendar 2020 through November 30th, there have been approximately 19.2 million background checks for firearm purchases. This represents a year-to-date growth of 65% over the prior year and the largest 11-month period on record since FBI began tracking NICs in 1998. With NSSF predicting that 40% of the firearms purchases in 2020 are coming from first-time firearm owners, we can estimate that there were nearly 8 million Americans who made the decision in 2020, so far, to exercise their Second Amendment rights for the first time. Additionally, these new consumers are broadening and diversifying our consumer base with NSSF survey data indicating that women are making up 40% of new buyers and overall firearm purchases by African Americans are outpacing all other demographics with 58% growth in the first half of the year alone through June. So what does this mean for our company and our industry? In October, we conducted an attitude and usage study of over 1,200 law-abiding firearm owners with the goal of gaining a better understanding of today's firearm consumer. The research indicated that for those people who own firearms, the average number of firearms possessed was eight. And according to research conducted by NSSF in 2013, at that time, approximately one in four new firearm owners went on to purchase additional firearms. with the subsequent purchase at a higher sales price than their initial purchase. Therefore, this expanded consumer base of new firearm owners represents a healthy, long-term opportunity for the industry as a whole, but specifically for Smith & Wesson. The ANU study also concluded that, once again, the iconic Smith & Wesson brand was number one in unaided awareness in the handgun and MSR categories, and again, number one in aided awareness, with 84 percent of respondents recognizing our brand. Most encouraging, however, was that 85 percent of respondents would recommend Smith & Wesson to others, an endorsement that we do not take for granted and one that, combined with our results in the first half of our fiscal year, positions us very favorably within the marketplace long term. Finally, and as I mentioned on the last call, We have taken a leadership position in welcoming these new consumers to our community through our Smith & Wesson Gun Smarts program. We continue to produce instructional videos and distribute free safety kits. And to date, we have donated over 47,000 Gun Smarts kits, complete with hearing and eye protection, basic safety and storage instructions, as well as links for the consumer to find our YouTube channel. where we share roughly 40 videos with content ranging from shooting fundamentals, responsible gun ownership, safety, storage, and enjoyment of the shooting sports. In just four months since its inception, we have received over 24 million impressions on this program. Please visit www.smith-wesson.com forward slash gunsmarts to see the program tools for yourself. And with that, I'll turn the call over to Dina to deliver the financial results.