Smith & Wesson Brands, Inc.

Good day, everyone, and welcome to Smith & Wesson Brands, Inc., second quarter, fiscal 2024 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 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, 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, and any reference to EBITDA is to adjusted EBITDA. Before I hand the call over to our speakers, I would like to remind you that 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 purchase. Adjusted NICS is 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 for our shipments or market share in any given time period. We believe mostly due to inventory levels in the channel. Joining us on today's call are Mark Smith, our president and CEO, and Dina McPherson, our CFO. With that, I will turn the call over to Mark.

Thank you, Kevin, and thanks everyone for joining us today. We were very pleased with our second quarter results, which continued to reflect our innovative new product introductions and our consumers' enduring loyalty to the Smith & Wesson brand. Top line revenue and unit shipments were both up just over 3% versus last year, while distributor inventories actually decreased slightly in the period by about 4,000 units during a time that traditionally sees channel inventory build in preparation for the busy holiday season. This robust sell-through, combined with our shipment's outperforming mix in the quarter by over 7%, underscores our belief that our strong performance was due to share gains at the retail counter. Our new product portfolio and reputation for quality continue to be key differentiators, and we are proud to have been the recipient of the 2023 Innovator of the Year Awards from two major industry partners, Guns & Ammo Magazine and the NASGW. the trade association representing our distribution partners. New products remain an important driver and accounted for 29% of our overall revenue mix in the quarter. Recently introduced products, including the M&P 5.7, the FPC, and the Response, have all been very well received by the market. In the first half of the fiscal year, new products accounted for 31% of our sales, and we expect this momentum to continue. We have some very exciting launches planned for SHOT Show next month, which I look forward to discussing in more detail very soon. Accordingly, ASPs remain strong in Q2 as we continue to maintain a healthy balance between new products and core products, up slightly versus last year and down mid-single digits sequentially. All of this is consistent with what we shared with you on the Q1 call. where we noted that the return to normal seasonal trends and associated fall promotional activity would result in some moderation in our overall ASPs throughout fiscal 2024, but our strong product portfolio would offset most of those headwinds. Looking forward, as evidenced by strong mixed results in the last 60 days, the overall market has rebounded nicely from the summer slowdown and is following normal seasonal demand patterns. Promotional activity in the industry is expected to continue, But while we will be participating with targeted promotions, with return to strong overall demand, we are confident that our pricing strategy, product mix, and award-winning innovation will continue to keep our ASPs healthy throughout the second half. We are also very pleased with our core profitability metrics. Although it is important to note that a couple of discrete one-time items negatively impacted our GAAP earnings in the quarter by more than $3 million and our adjusted EBITDA by more than $4 million, which Dena will cover in more detail in a moment. Absent these one-time items, our margins in the quarter were well within our expectations and should further improve in the second half as we move past the temporary impacts of unfavorable absorption from lower production rates as we reduced internal inventories throughout the first half of the year, and some dual costs associated with the current move to Tennessee. The major components of the Tennessee move are either complete or scheduled to be complete within the next few weeks, and with demand increasing and inventories at healthy levels, we are currently in the process of ramping up several production lines in order to meet orders. Therefore, while we anticipate these headwinds will continue through Q3, they likely will have abated as we enter Q4. Turning now to our capital allocation strategy, we are pleased to announce that we made purchases under the recently authorized stock buyback program during our second quarter, and the Board once again authorized payment of our quarterly dividends. underscoring our commitment to maximizing stockholder value through a balanced approach. The strong balance sheet and significant reduction in CapEx on the horizon as we wind down the major investment in our new facility in Tennessee, we expect to be in a very strong position to drive returns for our stockholders throughout the second half and FY25. I'll close with an update on the Tennessee relocation, which continues to progress as planned. The initial shipments from the facility commenced in August, and manufacturing activity has begun and is in the process of ramping. It is still early stages for the assembly and plastic injection molding, which will continue through the balance of our fiscal 2024. But we already have 300 employees working at the site, and our grand opening celebration and fall festival was a huge success with over 5,000 attendees and great media coverage. We also raised $170,000 for local charities at the event. I want to again thank our entire team of loyal, dedicated employees for their tireless efforts to ensure we consistently deliver on our commitment to excellence, upholding the legacy of the Smith & Wesson brand and driving value for our stockholders. With that, I'll turn the call over to Dina to cover the financials.