Smith & Wesson Brands, Inc.

Good day, everyone, and welcome to Smith & Wesson Brands, Inc. Third 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 on our website at smith-wesson.com, along with a replay of today's call. Our actual results, level 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. We reference 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. Finally, when we discuss NICS results, we are referring to adjusted NICS, a metric published by the National Shooting Sports Foundation based on the FBI NICS data. Adjusted NICS removes those background checks conducted for purposes other than the purchase of a firearm. 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 in the channel. 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, 2020. 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, and thanks, everyone, for joining us. Before I cover the results and highlights of our third quarter, I just want to provide a quick update regarding our ongoing response to the COVID-19 pandemic. The decisive and immediate actions that we implemented at the beginning of the pandemic to ensure the health and safety of our employees, and that we've detailed on previous calls, are all still in effect. We closely monitor best practices and are always looking to make improvements to enhance our protocols. Thanks to the diligence of our employees, we have been able to safely operate our business through these difficult times. With that, let me cover the highlights of our third quarter. Our quarterly revenue of $257 million more than doubled the prior year period and marks a third consecutive record-breaking quarter. These impressive top-line numbers resulted in record net income of over $62 million, a 27 percent increase over the prior record set just last quarter, drove $1.12 of EPS for both GAAP and non-GAAP, and we generated over $60 million in cash from operations. Our manufacturing and logistics teams produced and shipped over 623,000 units during the three-month period, an increase of more than 250,000 units over the prior year period. These numbers are certainly impressive and a testament to the ability of our dedicated operations team to leverage our flexible manufacturing model and deliver results in any market conditions. However, as we've spoken about on previous calls, our key metric for the long term is our ability to take and hold market share by ensuring that our products are not only available at the retail counter, but that our brand is front of mind with the consumers and our product line is best in class for meeting their preferences. Our sales, marketing, and new product development teams have also been hard at work, ensuring the share gains that we've achieved over the last nine months are lasting. Our sales team has been meeting with retailers, ensuring their needs are met during these busy times, safely leading classes with consumers to ensure that beginners and experts alike are increasing their knowledge and skill, and even occasionally stepping behind the counter to help our retail partners manage the heavy influx of new consumers at their stores. Our marketing team is busy setting the stage for the next chapter of our iconic brand. As we've discussed on previous calls, They've developed and launched the Gun Smarts program to welcome into our community the millions of new consumers from all walks of life who purchased their first firearm in the past year. We've repositioned pricing to better align with our brand's value proposition, and they are thoroughly reviewing our entire product line to ensure any white space is addressed and the feature set of our existing line exceeds consumer expectations. Our new product development team is tirelessly working to ensure that in spite of the record demand levels and capacity constraints that the industry as a whole is facing, our new product pipeline is extremely healthy for the long term. And finally, we're thrilled to announce that we'll be hosting our first ever virtual show on March 15th. During this event, we'll be giving a behind-the-scenes look at our history, highlighting a few of our loyal consumers, and launching an exciting brand-new product. To register or RSVP for this event, please just visit our website at www.smith-wesson.com. The outcome of our collective team's efforts is that consumers are responding by choosing Smith & Wesson product at the retail counter. Smith & Wesson shipments into the channel continue to exceed overall NICs, and inventory of our product in the channel decreased, even with the impressive production numbers we highlighted earlier. So let's go over those numbers. In our fiscal Q3, NICS background checks for all firearms types increased 45% over the comparable timeframe last year. For Smith & Wesson, our total units shipped into the sporting goods channel during this time increased over 70% to 593,000 units, while meanwhile during the quarter, our SRA and distributor combined inventory levels declined by 28,000 units. Breaking those numbers down a little further, as compared to our fiscal Q3 of 2020, NICS checks for handguns increased nearly 49%, while our handgun units shift increased by 64% to 473,000 units. And finally, as compared to our fiscal Q3 of 2020, NICS checks for long guns increased 46% in the quarter, while our long gun units shift increased nearly 107% to 120,000 units. For both long guns and handguns, distributor inventory in the channel for our products remains at approximately one week of supply. Before I hand the call over to Dina, just a quick update on the overall firearms market. As we all know, calendar 2020 delivered tremendous growth for the industry with 21 million NICS checks, smashing the previous record set in 2016 by 34 percent, or 5.3 million. As we've discussed on previous calls, NSSF data indicates that an estimated 8.4 million Americans purchased their first firearm in the year, and the industry is not only growing but also diversifying, with women and minorities making up more than 40 percent of the overall purchases. This expanded base of new consumers And the increased general consumer interest in the outdoors and shooting sports bodes very well for the industry as we look forward. More recently, January of 2021 was the fifth largest NICS month ever on record. And the February results that were just released on Tuesday indicate that although the firearm sales decelerated sequentially, we believe due to a number of factors from severe weather disruptions to delayed stimulus and tax returns, interest in the shooting sports remains very strong. with daily rate of firearm permit checks flat sequentially and 35% above prior year for February. We do expect, as we lap the beginning of the pandemic in March, that NICS checks comparisons will become more difficult. But we also believe that the expanded consumer base has fundamentally increased the number of participants in the market. All of this, combined with an exciting new product launch coming up this month, healthy new product pipeline behind it, the most recognizable brand in the industry, a proven flexible manufacturing model ready and able to deliver impressive profitability in any market conditions, and comparison data showing Smith & Wesson is gaining market share, we couldn't be more excited about what the long-term future holds for our industry and our company. With that, I'll turn the call over to Dina to cover the financial highlights.