Smith & Wesson Brands, Inc.

today's conference will begin momentarily please continue to stand by thank you for your patience Thank you. Thank you. Thank you. Thank you. Good day, everyone, and welcome to Smith & Wesson Brands, Inc. Third Quarter Fiscal 2022 Financial Results Conference Call. This call is being recorded. At this time, I would like to turn the call over to Kevin Maxwell, Smith & Wesson's General Counsel, who will give us some information about today's call.

Thank you, and good afternoon. Our comments today may contain forward-looking statements. Our use of the words anticipate, project, estimate, expect, intend, believe, and other similar expressions are intended to identify forward-looking statements. Forward-looking statements may also include statements on topics such as our product development, objectives, strategies, market share, demand, consumer preferences, inventory conditions for our products, growth opportunities and trends, and industry conditions in general. Forward-looking statements represent our current judgment about the future and are subject to the risks and uncertainties that could cause our actual results to differ materially from those expressed or implied by our statements today. These risks and uncertainties are described in our SEC filings, which are available on our website, along with a replay of today's call. We have no obligation to update forward-looking statements. We reference certain non-GAAP financial results. Our non-GAAP financial results exclude costs related to the planned relocation of our headquarters and certain manufacturing and distribution operations to Tennessee, the spinoff of the outdoor products and accessories business in fiscal 2021, COVID-19 related expenses, and other costs. Reconciliations of GAAP financial measures to non-GAAP financial measures can be found in our SEC filings and in today's earnings press release, each of which is available 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 FBI NICS data. Adjusted NICS removes those background checks conducted for purposes other than firearms purchases, please remember that adjusted NICS background checks are generally considered 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 channel. Before I hand the call over to our speakers, I would like to remind you that any reference to income statement items refers to results from continuing operations unless otherwise indicated, and any reference to EBITDA is to adjusted EBITDA. Joining us on today's call are Mark Smith, our president and CEO, and Dena McPherson, our CFO. With that, I will turn the call over to Mark.

Thank you, Kevin, and thanks, everyone, for joining us today. As you can see from the NICS data over the past three months, the firearms market, although still elevated and healthy with new entrants, has cooled significantly from the height of the pandemic surge. Returning to more normal levels throughout our entire Q3, and with recent results from February just released this week, now seems to be following the pre-pandemic historical demand patterns. While this obviously has resulted in lower revenues from prior periods for Smith & Wesson, and no one is ever pleased to report a quarter with significant revenue declines, this macro demand pattern is very familiar to us and is exactly what our business model is designed to accommodate. I'm very proud of the team and the fact that, once again, they have demonstrated the ability to deliver meaningful profitability no matter the overall market conditions. Our ability to ramp production aggressively to meet surging demand over the past couple of years fueled significant market share gains for Smith & Wesson and provided a demonstrable proof point for our flexible manufacturing strategy. Our manufacturing team increased throughput by over 82% during the surge, which has enabled us to not only gain impressive market share, but also to set a very solid business foundation for long-term success. Since the demand surge began in March of 2020, we have paid down $160 million of debt and are now debt-free, bought back $200 million of stock, which reduced our outstanding shares by nearly 20%, paid nearly $20 million in dividends, invested nearly $40 million back into our business, and today have a strong and healthy balance sheet with over $107 million in cash. As we've discussed previously, Our long-term commitment is to continue returning value to stockholders through regular fixed dividends and share repurchases. And as a result of these accomplishments, we are well positioned to do so. Now, as demand trends normalize, the same factors that underpin this strategy are enabling us to deliver high levels of profitability despite a contraction in revenue. Just as we can ramp up, our model allows us to ramp back down. Strong gross margins in this quarter provided a great illustration of how we are able to react to lowered market demand without overburdening our fixed costs. When demand begins to return to more normal levels, we don't encounter the typical underutilization problem that many manufacturers would face in such a volatile market. During the third quarter, our gross margin only declined 300 basis points despite a 31% decline in revenue. all while also facing global headwinds related to inflation and supply chain challenges. And I'll also point out that gross margin and EBITDA percentages for the quarter are at the very top end of our published financial guidance model and exceed the top end fiscal year to date. The firearms market has always been subject to cyclicality, which is why our focus as a company has been on managing our business for the long term. Sustainable growth, emphasizing safety, quality, new product innovation, and operational excellence that will endure the test of time. Our solid foundation and strict adherence to our core strategic principles continue to position us for strong financial performance and industry leadership in any market condition. Speaking now specifically to our third quarter results, slower consumer demand for firearms was the primary factor driving the year-over-year decline in revenue. As you'd expect, We experienced steeper declines in the long gun category than we did in handguns, but we also saw sharply lower volumes in polymer frame pistols versus a year ago, partially offset by our revolvers, which are still in high demand. With our top end capacity levels being much higher than many of our competitors, we were able to refill the channel very quickly during our second quarter as demand slowed. And since then, the inventory levels in the channel for our products have remained largely flat. indicating a strong sell-through of our shipments during the quarter, albeit at lower levels. It is also important to note that despite lower volumes, our ASPs remain very strong. Throughout the surge, we have been actively working to optimize our product line portfolio by rationalizing certain SKUs or occasionally entire product lines, introducing new products to replace them, and evaluating pricing across the entire line. With higher ASPs from pricing and mix offsetting nearly at 22% of the volume related declines in the quarter, the results of those efforts are evident. While a more competitive market in the near term will likely pressure those ASPs to some degree, we do anticipate that long-term, the majority of those gains will be lasting. Additionally, we are focused on long-term market share factors, with innovation and customer engagement being ever critical. Our product management and design engineering teams have an impressive pipeline of new products scheduled for launch over the next 12 months. And I'm very proud of the work that they've done to position us for continued success. Just in our third quarter, we launched our much anticipated M&P chambered in 10 millimeter, a brand new CSX, a hammer fired full metal frame concealed carry pistol that has been very well received and is in strong demand. Our volunteer rifle series, the next generation of our popular M&P 15 rifle line. And we also partnered with Vista Outdoor to co-launch their brand new 30 Super Carry ammunition, along with our very popular Shield Easy and Shield Plus, chambered for this exciting new round, with ballistics comparable to the extremely popular 9mm, yet with dimensions which allow for increased round capacity in the same firearm footprint. And of course, stay tuned for many more exciting new products in the coming months. Our marketing team also remains hard at work, and the consumer engagement activity that we've covered on previous calls continues. The brand campaigns we developed around the 10 millimeter M&P reached over 3 million customers just on the first day. And we had a similar response for the content we created for the CSX, Volunteer, and 30 Super Carry, with each reaching over 3 million customers during the initial week. And all of this great work is also being recognized by our industry partners. We are proud to have been awarded Innovator of the Year, Chairman's Award to our VP of Sales, Sue Capero, and Manufacturer of the Year by our distribution partner trade group, the National Association of Sporting Goods Wholesalers. In summary, we remain well-positioned for the long-term growth as the industry leader, leveraging innovation and technology coupled with an agile business model designed to quickly adapt to changes in the marketplace. I want to thank our loyal and dedicated employees for all their hard work serving our customers and driving our vision for the future. Before I turn the call over to Dena to cover the financials in more detail, just a quick update on our relocation to Maryville, Tennessee. The project is continuing to progress well, and we are still on track to be substantially complete by the third or fourth quarter of calendar 2023. Dena? Thanks, Mark.