Smith & Wesson Brands, Inc.

Good day, everyone, and welcome to Smith & Wesson Brands Incorporated first quarter fiscal 2025 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 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 Dena McPherson, our CFO. With that, I will turn the call over to Mark.

Thank you, Kevin, and thanks, everyone, for joining us today. Overall firearms demand during our first fiscal quarter was softer than we anticipated, but our results once again proved the resiliency of our flexible manufacturing model, which allows us to adapt quickly to any market conditions and still deliver on bottom-line profitability targets. And importantly, while the usual summer seasonality was more pronounced this year, demand has already begun to rebound as we enter the busy fall season, and our outlook for the balance of fiscal 2025 has not changed. We continue to expect to grow sales and earnings over fiscal 2024. We believe continued inflationary pressure on consumer discretionary spending was the primary driver of the lower foot traffic reported by our channel partners throughout the summer. Yet, despite these headwinds, we still delivered nearly $10 million of EBITUS, which was in line with expectations and, again, proves the resiliency of our flexible manufacturing model. Profitability was aided by our disciplined cost management as well as gross margins, which improved 80 basis points versus a year ago, in part reflecting higher fixed cost absorption as we continued to ramp capacity and realize efficiencies in our Tennessee operations. On the revenue side, during our fourth quarter call, we shared our view that the firearms market was expected to be much more competitive over the near term. primarily due to pressure on consumer discretionary spending from factors like high inflation. While we were directionally accurate, the magnitude of the weakness was more pronounced than we anticipated. Adjusted NICs was down 3 percent during our first quarter from the comparable period last year. And while NICs was up 4 percent during July, this growth appears to have been driven mostly by the hunting category, where we are still early in establishing a foothold. We also continue to see heightened promotional activity across the industry, especially around lower-priced entry-level handguns. While the introduction of our entry-level price Bodyguard 2.0, which I will cover in a moment, has been a huge success, the launch occurred late in the quarter, resulting in somewhat limited shipments during Q1. On this note, we continue to be pleased with ASPs, which held overall and were up fractionally versus a year ago and up over 5% from Q4, despite a highly competitive market throughout the summer. This was consistent with the expectations we shared on the Q4 call, and we continue to believe it reflects our consumers' deep loyalty and trust in the Smith & Wesson brand. The success of the 1854 lever action rifle continued to be the key factor in driving the nearly 32% year-over-year increase in our long gun ASPs. In handguns, ASPs were down over 9% due to focused promotional activity in this category to stimulate demand, as well as mixed factors associated with the successful launches of several entry-level price products combined with the lower overall pistol shipments. On the innovation front, we continue to maintain a solid cadence of new product introductions. And in total, our new product portfolio continues to perform very well, accounting for over 41% of sales in the first quarter. As I mentioned earlier, in Q1, we introduced the Bodyguard 2.0, which is the next generation of the very popular bodyguard line that we introduced in 2010 and has been a huge success. Our product management and engineering teams pack this tiny pistol with all the features that our consumers desire in an everyday defensive concealed carry firearm. In addition, demand for our 1854 lever action rifle remains robust for the models we've launched so far, with many more introductions coming as we continue to build out this line throughout the remainder of the fiscal year. As a reminder, we view the lever action as a major platform opportunity with multi-year pipeline of potential growth drivers. Both the 1854 and the bodyguard production will also be supported by significant capacity expansion throughout the remainder of the fiscal year. Turning now to the balance sheet, as usual, we've been building inventories throughout the summer to support the strong demand for our new products and prepare for the busy fall season ahead. The nearly $30 million increase in internal inventory at the end of the first quarter was slightly elevated versus expectations, simply due to the softer market, but also reflects very clean channel inventories and is indicative of our confidence in the outlook for the balance of the year, as we still expect to end the year with inventory levels flat to last year, excluding new product launches. From a capital allocation standpoint, we accelerated our buyback activity in Q1 with the repurchase of nearly 871,000 shares for nearly $13 million in addition to paying our regular quarterly dividend. In total, for the past 12 months, we have repurchased nearly 1.7 million shares. With CapEx normalizing this year coupled with our strong profitability and cash generation outlook, Buybacks will remain a priority to drive long-term value for stockholders. As we announced earlier today, our Board of Directors has also just authorized a new $50 million buyback program to replace the program that is set to expire in mid-September. In summary, once again, I am very proud of our team's commitment and discipline to deliver on our key strategic initiatives around brand, marketing, innovation, operational excellence, and driving shareholder value. Despite a very challenging environment in Q1, we still delivered on our bottom line profitability targets. And as we look forward with new capacity coming online for our very popular new products, strong pipeline innovation, and typically busy firearms demand season now upon us, we expect to more than offset these temporary headwinds during the balance of the fiscal year and continue to expect top and bottom line growth for the full year. With that, I'll turn the call over to Dena to cover the financials.