Smith & Wesson Brands, Inc.

Good day, everyone, and welcome to Smith & Wesson Brand's second 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 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 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 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 will turn the call over to Mark.

Thank you, Kevin, and thanks, everyone, for joining us today. Second quarter results came in below our expectations as overall demand for firearms normalized late in the quarter. Despite these headwinds, we continue to outperform the market and believe we gained share, led by our best-in-class innovation, with new products representing 44% of our sales in the period, which I'll cover in more detail in a few moments. From a profitability standpoint, as we've detailed many times before, our unique flexible manufacturing model is designed to quickly react to the volatility that is typical in the firearms industry. And as always, our team executed very well in response to the slowdown. enabling us to again deliver solid adjusted EBITDAs. Looking at the overall firearms market as measured by FBI background checks for firearms purchases, adjusted NICs was up 1.1% for our second quarter, but deteriorated significantly as the quarter progressed, including a 5% decline in October. Overall, for Smith & Wesson, our units shipped into the channel increased by 8.7%, while distributor and strategic retail account inventories largely held flat. with only a 2.7% increase, indicating strong share growth despite a challenging market. Breaking those numbers down by category, handgun mix was flat in Q2, while long gun mix was up 3.6%. For Smith & Wesson, our handgun shipments were up 19.2%, significantly outperforming the market due mostly to very strong demand for our new products, led by the entry-level price Bodyguard 2.0. On long guns, Our shipments were down 26.4%. However, I will note that this is largely due to timing associated with channel fill shipments and outperformance of new products in the comparable quarter last year. Removing these outliers, shipments of our core long gun line were down only 4.8%, which is typical of this quarter, which is the strongest quarter for hunting products. And since we are just beginning to enter the hunting category with our lever action rifles, the benefit was less impactful on our results. We believe that the primary driver of the demand pressure continues to be inflation. The consumer cautiousness with discretionary spend that we observed in recent quarters was more pronounced during Q2 than we anticipated. I will also note that this continued into November as evidenced by the recent NICS results. Lower or opening price point product is generally performing better, which is evidence of trade down activity. We are well positioned to navigate this challenging demand environment as we have many times before. By remaining focused on executing against our flexible manufacturing model, we expect to preserve profitability and a strong balance sheet. Additionally, we expect to maintain and gain share through innovation. Highlighting this point, our new Bodyguard 2.0 chambered in 380 ACP, which we launched in July, has quickly become one of the most sought after concealed carry pistols in the industry. And we are proud to have won Best New Handgun of 2024 from the National Association of Sporting Goods Wholesalers, which represents our largest channel customers And also, 2024 Handgun of the Year from Guns and Ammo Magazine, one of the most popular firearm consumer publications. Additionally, our 1854 lever action rifle continues to perform well. And with our planned expansion of this popular line throughout the second half of FY25, we expect this momentum to build even further as the year progresses. Smith & Wesson has proven to be a leader in innovation. With a very strong pipeline of new products, an award-winning engineering and design team, and core value of operational excellence in quality and manufacturing efficiency, innovation will continue to be a strong driver of success. Moving now to average selling prices. Overall ASPs were down 8% versus a year ago, driven by mixed factors, as well as increased promotional activity. Handgun ASPs declined 11%, reflecting strong sales of the Bodyguard 2.0, which has a retail price of around $400, combined with lower sales in revolvers. In contrast, long gun ASPs increased 11% due to the increased sales of lever action rifles relative to the remainder of the long gun line. Additionally, and as expected, the market has become increasingly competitive with substantial promotional activity across the board. With our strong balance sheet, we are able to carefully evaluate our participation in promotions and will continue to do so thoughtfully. But we do anticipate sustained pressure on ASPs throughout the remainder of the fiscal year from promotional spending. In summary, our disciplined approach to managing the business continues to deliver solid profitability and a strong balance sheet, no matter the market conditions. We remain committed to our capital allocation strategy of returning value to stockholders, as evidenced by our very healthy quarterly dividend and our repurchase of 1.6 million shares since the beginning of this fiscal year, with 754,000 of those shares purchased in Q2. Finally, and as always, I just want to thank our entire team of dedicated Smith & Wesson employees for tirelessly putting their skills to work every day to make us successful. With that, I'll turn the call over to Dina to cover the financials.