Smith & Wesson Brands, Inc.

Good day, everyone, and welcome to Smith & Wesson Brands, Inc. First Quarter Fiscal 2022 Financial Results Conference Call. This call is being recorded. At this time, I would like to turn the call over to Chris Scott, Acting 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, market share demand, and consumer preference 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 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, 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, spin-related stock compensation, 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. Because 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 channels. Before I hand the call over to our speakers today, I want to remind everyone that 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, Chris, and thanks, everyone, for joining us. First, as always, I would like to thank the entire Smith & Wesson team for a tremendous start to FY22. Continuing on the momentum from the record-breaking FY21, the results for the first three months of the new year were the highest ever for our first quarter, both in terms of revenue and profitability, and marks the fifth straight record-breaking quarter. Even with the difficult comps versus the very strong results from last year, Increased manufacturing capacity due to our flexible model, combined with increased market share and consumer preference for our products, drove nearly a 20% increase in sales year over year. This is a great accomplishment, but more impressive is when we take a step back. The two-year compounded growth rate for the company at the end of our first quarter was nearly 170%, and really puts into perspective the market share gains that the team has been able to achieve over the last 18 months. But simply outproducing the competition during the surge periods that we experience in our industry will only lead to short-term share gains. In order to hold those gains long-term, we need to ensure that during these times, we are working just as hard, if not harder, in sales and marketing, developing marketing plans and programs to connect with the consumer, launching new products, strengthening channel partnerships, et cetera, so that we are ready and waiting when the supply inevitably catches up with the demand. We have heard time and again from our customers that we have earned the title of clear market leader throughout the past year and a half by outperforming the industry in delivery of our product. And we intend to hold that leadership position into the future regardless of market conditions. We continue to make significant investments in connecting with our consumers in new and unique ways for our industry, keeping ahead of trends, understanding and targeting drivers of purchase intent, and developing a feedback loop that ensures that our product portfolio, marketing message, and ultimately our brand always resonates with our loyal consumer and remains the number one firearm brand in the industry going forward. Here are just a few of the recent highlights. We've begun shipping interactive kiosks. to major retail locations across the country. These state-of-the-art touchscreen displays are a very unique and effective point-of-sale tool to connect with that consumer who is ready to make a purchase at a retail store. They prominently carry Smith & Wesson branding, and by using disabled inert product allows the user to safely physically handle and interact with Smith & Wesson firearms without having to request assistance from a retail associate. The interactive screens are remotely controlled, allowing our team to customize the content as needed and provide up-to-date relevant information on popular products, as well as video content designed to inform and entertain. Not only do these kiosks highlight the Smith & Wesson brand, they provide a very approachable and safe way for the first-time or newer consumer to learn about and handle firearms. We launched the next phase of our Gun Smarts program that we've highlighted on previous calls. The new content follows the natural evolution of the firearms ownership and proficiency journey by starting to include advanced concepts in the training videos. In addition to helping the new consumer gain confidence and skills, these new instructional videos are now broadening the reach of the program to include seasoned members of the firearms community while still keeping the millions of new firearm consumers engaged with our brands. Our Gunsmarts videos have been viewed nearly 4 million times and are widely hailed amongst our consumers and our industry partners as the gold standard for training and outreach to new consumers. In August, we launched a full-scale coordinated national advertising campaign across all media and advertising platforms, from billboards to radio to television and digital, with a goal to reach over 180 million impressions worldwide. with empowering messaging that will resonate with existing and potential firearms owners from all walks of life. And finally, the highly successful launch of the M&P 12 shotgun has opened up an entirely new category for the iconic Smith & Wesson brand, and we couldn't be more excited about the potential that this brings. This entry into the shotgun market generated nearly 3 million impressions and 300,000 engagements on social media and email in the first 24 hours, making this one of our most talked-about product launches ever. Within 48 hours of introduction, we had received orders reflecting 43% of our first-year forecast. The success of the launch and the buzz generated by Smith & Wesson reentering the shotgun market after more than a decade reaffirms our brand's loyal following and our ability to continuously wow our consumers and the marketplace. With an extremely healthy new product pipeline, Stay tuned for a steady cadence of exciting new products over the next 12 months. So, of course, the tangible results from all this hard work is measured by our ability to continue outperforming the competition when the inventory becomes available at the retail level. And as the country started opening up at the beginning of the summer, although the demand for firearms remained very strong, we did start to see a return to normal summer seasonality during our first quarter. which allowed our channel partners to be able to begin stocking some inventory again for the first time in over a year. As a result, many of the consumers who had been limited to only the products in stock now had the ability to choose from a wider selection of products and brands, and new consumers that entered the firearms community over the past year started to come back for subsequent purchases. And Smith & Wesson continued to be the brand of choice. Comparison of our unit sales in the quarter versus the NICS results in the same time frame show that even after adjusting for the estimated channel inventory build, we held our market share gains in handguns, matching the NICS number for the period nearly exactly. And we actually continued to gain market share in long guns, outperforming NICS in this category in spite of not participating in hunting with Thompson Center Arms during the period. Now, before I hand the call over to Dina to cover financials, I wanted to highlight one last thing from our financial statements. Our team has delivered nearly 170% two-year compounded growth, record revenues five straight quarters in a row, sustained market share growth, several major product launches, including entrance into a brand-new category, executed marketing campaigns, gun smarts, rebranding initiatives, consumer research studies, etc., all while not just holding operating costs flat, but actually reducing them, and not just in relative terms, in dollars spent. The restructuring of the business over the past year since the spin transaction and our subsequent commitment to a driving efficiency in all of our business functions and processes has created a nimble, efficient, and effective organization, which is flexible and profitable in any market condition. The results speak for themselves in our impressive operating and EBITDA margins, And combined with our capital allocation strategy of returning value to the shareholders positions us very well long-term for consistent delivery of healthy returns. With that, I'll turn the call over to Dena to cover financial results before we take questions.