Smith & Wesson Brands, Inc.

Good day, everyone, and welcome to Smith & Wesson Brands, Inc. Fourth Quarter and Full 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 a gain from the sale of certain intangible assets costs related to an accrued legal settlement, relocation expense, 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 purchases. 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 Dean McPherson, our CFO. With that, I'll turn the call over to Mark.

Thank you, Kevin, and thanks, everyone, for joining us today. We are pleased to announce that Smith & Wesson delivered yet another strong quarter to close out fiscal 2024. I am very proud of the team's continuing discipline and execution against our strategic initiatives of strong brand messaging and marketing, best-in-class innovation, operational excellence, and business process efficiencies. Our results in FY24 again demonstrate that our relentless focus on these long-term strategies consistently reinforces our position as a market leader and deliver solid stockholder returns. Our Q4 top line revenue was up 10% versus last year, driven by unit growth in both handguns and long guns. We believe this reflects robust market share gains as our shipments once again outpace the overall firearms market driven, once again, by excellent consumer reception to our new product offerings as well as sustained demand for our core product portfolio. On a full year basis, Our revenue was up 12% year on year and our unit shipments were up 13%, outpacing the market where Nick's was down by 5.4%. On the bottom line, the team delivered solid non-gap EPS of 45 cents in Q4. This was driven by increased production rates to meet demand for our new products and to maintain target inventory levels on our core offerings, as we mentioned last quarter. We also benefited from continuing stabilization of the Tennessee operations and have begun realizing the associated efficiencies. Breaking those Q4 sales numbers down a little further, for the sporting goods channel, our long gun unit shipments increased by over 14% versus the year-ago period, and our handgun shipments were up almost 8%, while the overall market, as measured by NICS checks, was down 6% in long guns and down 7% in handguns. Innovation continued to be a key driver, with new products making up just under 30% of sales, led by the 1854 lever-action rifle, which I'll cover in some more detail in a moment. And despite the outperformance in our out-the-door unit shipments into the channel, inventory levels during the period at our distributor and strategic retail partners remained healthy. Another bright spot for the quarter was our overall ASPs. which continue to hold at healthy levels in spite of the competitive landscape. We believe this reflects the consumer's trust in the Smith & Wesson brand to deliver world-class quality firearms, innovation, and customer service. Handgun ASPs largely held steady, declining less than 2% versus the prior year quarter, mostly driven by mixed factors associated with the introduction of the very popular new entry-level priced SD 2.09mm. whereas long gun ASPs beat expectations by improving by nearly 11%. The long gun ASP increase was due to the highly successful launch of the 1854 lever action rifle, which has been hailed by the industry and consumers as an instant classic and is in high demand. As I covered last quarter, this successful launch creates an exciting new white space opportunity for Smith & Wessons. Our near-term category expansion plans include the introduction of new line extensions this summer and throughout the hunting season. We also expect to add significant new capacity this fall to support the strong demand for our new products, helping to propel our top line growth in the second half. Turning now to the overall firearms market. We continue to expect healthy demand for firearms in FY25, and Smith & Wesson is well-positioned to deliver another solid year of growth. At the same time, We are anticipating a much more competitive marketplace throughout the traditionally slower summer month this year, as consumer discretionary spending continues to be impacted by stubborn inflation, as you have likely seen from recent NICS results. This is consistent with normal seasonal patterns for firearms demand, and we do expect offsetting tailwinds during our typical busy season throughout the second half. As the presidential election campaign activity ramps up in the fall, and we benefit from new product introductions, and we bring online additional capacity targeted at some of our new products where we are currently constrained. Throughout the slow period this summer, we will be aggressively pursuing market share through promotions and marketing campaigns in addition to building inventory in preparation for the busy fall season and continuing our cadence of new product introductions. Specifically, with consumers increasingly price sensitive as inflation impacts discretionary spending, we will be focused on addressing this with new entry-level price launches this summer which we believe will provide tailwinds in Q2 and throughout the second half. Finally, I just want to take a moment to thank our employees, past and present, for delivering another successful year. In fiscal 2024, we launched over 100 brand new products, sales of which accounted for over 27% of our total revenue. As I mentioned earlier, we grew revenue and units shipped by nearly 12% and 13% respectively, outpacing NICs, which was down by 5.4%. We generated more than $106 million in cash from operations, ending the year with over $60 million in cash on hand and only $40 million in debt and reduced inventory by $16.6 million. We improved GAAP EPS by 6 cents, delivering 86 cents per share for the year with EBITDAs of over $94 million. We delivered significant value to our stockholders, including $22 million in dividend payments and $10.2 million in share repurchases. and all of this while successfully relocating our headquarters, distribution, and major portions of our operations into our new facility in Maryville, Tennessee. These accomplishments are only possible due to the commitment day in and day out of our amazing team, many of whom continue to show unwavering dedication even though they knew that their roles would be relocating and they would ultimately be moving on from the company. This exemplifies the Smith & Wesson way, and I am personally tremendously grateful for the impact of each employee past and present, on our great results this year and our bright future. As we covered earlier and as I said last quarter, we expect the firearms market to experience healthy demand through the 2024 election cycle and fiscal 25. 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 for another year of growth and to continue delivering value for our stockholders. With that, I'll turn the call over to Dena to cover the financials.