Smith & Wesson Brands, Inc.

Good day, everyone, and welcome to Smith & Wesson Brands Inc. Third Quarter Fiscal 2024 Financial Results Conference Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star and then zero on your telephone keypad. This call is being recorded. At this time, I will turn the call over to Kevin Maxwell, Smith & Wesson's General Counsel, who will give us information about the 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 move of our headquarters and certain of our operations to Tennessee 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 EBITDAS is to adjusted EBITDAS. 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 to 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 Dena McPherson, our CFO. With that, I will turn the call over to Mark.

Thank you, Kevin, and thanks, everyone, for joining us today. Our team delivered another strong quarter on both the top and bottom line in Q3. We believe we gained market share as our shipments outpaced the overall firearms market, reflecting the continuing robust demand for our best-in-class, innovative new products and sustained momentum in our core product portfolios. On the bottom line, our persistent focus on cost discipline combined with increasing production rates and solid operational execution against key initiatives, including our Tennessee move, drove better than expected EPS of 17 cents. And consistent with our commitment to return value to our stockholders, we continued to buy back shares during the quarter and paid out $5.5 million in dividends. Top line revenue was up just under 7% over last year, whereas shipments were up almost 11%. This reflected mixed factors stemming from strong reception to the launch of our second-generation entry-level pistol, the SD 2.0, and holiday promotional activity. By category, our long gun shipments doubled versus the year-ago period, and our handgun shipments were largely flat, down less than 4%, while the overall market, as measured by NICS checks, was up only 5% in long guns and down 4% in handguns. This highlights the power of our new products, which made up over 20% of our sales in the quarter led by the FPC, which continues to be the top-selling product for many of our channel partners. As we've covered many times before, an important factor in comparing our shipments to Nick's is fluctuating inventory levels at retailers and distributors. Notably, channel inventory levels during the quarter remained healthy, with unit inventories at our distributor and strategic retail partners actually decreasing by about 12% throughout the quarter. This indicates strong consumer demand and pull-through at the retail counter for Smith & Wesson products and reinforces our belief that we gain market share in the quarter. And in spite of the mixed factors I mentioned earlier, ASPs also remained healthy during the quarter and continued to trend in line with our expectations. As expected and as Dina covered last quarter, handgun ASPs declined by about 6% versus a year ago, whereas longgun ASPs beat expectations by improving by about 7%. These strong ASPs, combined with excellent operational execution by our team in getting our new facility up and running, led to better than anticipated profitability as we were able to ramp production in the quarter and improve manufacturing absorption. This drove gross margins of nearly 29%, in spite of some continuing duplicate costs, which will abate as we enter FY25. Looking forward, With our internal inventory levels now at or below target in almost every category, we are continuing to increase production in Q4 to meet demand. As such, we fully expect our fourth quarter gross margins to further improve and return to levels consistent with our long-term model of 32% to 42%. We also anticipate these levels to be sustained into FY25 as the final remaining duplicate costs from the Tennessee move are phased out and we begin to fully realize the efficiency benefits of our new state-of-the-art facility. Finally, we attended SHOT Show in late January and used this industry event to announce a significant new product that I'd like to spend a few more minutes on. Our new 1854 lever action rifle has the potential to be a major contributor to growth for many years to come. We view it as a platform product for Smith & Wesson and believe we are well positioned to execute on this vision based on the rich heritage of our brand, loyal consumer base, and successful track record of building out other platform products, such as their M&P line. LeverAction has been a part of Smith & Wesson's DNA since the beginning. We owned the original lever gun patent that was granted 170 years ago in 1854 that led to the development of the Volcanic, one of the first repeating firearms. This is why we named our LeverAction rifle the 1854. As a category, we view lever action today as very underserved and believe that our heritage and authenticity give us a lot of brand permission to look broadly at potential opportunities that intersect with lever action, with new calibers, finishes, purpose-built extensions, and an entry into the broader hunting category. The 1854 represents a significant white space opportunity for Smith & Wesson, and we're very excited to put our award-winning new product development team to work in expanding into this new area. In summary, We are very pleased with our third quarter results and are looking forward to a strong finish to FY24. We continue to expect the firearms market to experience healthy demand throughout the 2024 election cycle, and with our deep pipeline of new products, leading brand, new state-of-the-art facility now operational, strong balance sheet, and most importantly, world-class dedicated employees, we are excited to continue delivering value for our stockholders. With that, I'll turn the call over to Dina to cover the financials.