Smith & Wesson Brands, Inc.

Good day, everyone, and welcome to the Smith & Wesson Brands, Inc. Third 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. Please go ahead.

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 proceeds from a sale of land, 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 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. Our top line revenue for the third quarter came in slightly below our target range. However, lower operating expenses and leveraging of our flexible manufacturing model, which is designed to ensure solid profitability regardless of demand conditions, allowed us to deliver on EPS and EBITS expectations. Our new products continue to perform very well, and we believe we gained share in those categories, with products introduced within the past year accounting for over 41% of our sales in the quarter. Innovation continues to be a core focus, with several exciting new products expected to be introduced during the final quarter of FY25 and throughout next year, and we expect to continue this strong momentum going forward. Looking at market share for the third quarter, adjusted NICs was down 4.5% as two months of year-over-year declines were followed by a small increase in January, while our shipments into the channel declined by 7.7% in the period. Breaking those numbers down, we believe we gained share in handguns, with overall handgun nicks down 4.1% in Q3, while our shipments into the sporting goods channel were only down 3%, driven by strong demand for the new Bodyguard 2.0. In long guns, nicks was down 3.9% in Q3, while our shipments declined 26.7%, due largely to outperformance in the prior year period of newly introduced products, specifically our FPC rifles. Additionally, the overall market for long guns in recent months has been driven by the seasonal hunting category, which currently only accounts for a small portion of our overall sales. While the introduction of our lever action rifle has been extremely positive and is helping with this dynamic, our product offerings in the category are still narrow and we expect this momentum to grow as we build out the line. It is also important to note that on a two-year basis, our Q3 long gone unit sales grew at a compounded annual rate of nearly 20%, well ahead of next. In our view, this provides a much better illustration of the momentum we have achieved and highlights the true long-term market share successes of our innovation strategy. Average selling prices, as expected, trended lower in Q3, with overall ASPs moderating to a 3.1% decline versus the prior year period. Mix was the primary factor in driving our overall ASPs. In handguns, our ASPs declined 7.8%, again reflecting strong demand for the new Bodyguard 2.0, which is priced at retail around $400, combined with lower revolver sales. In long guns, our ASPs increased 17.2% in Q3, driven by strong demand for our higher-priced lever-action rifles. Turning now to the overall firearms environment, macroeconomic conditions continue to bifurcate the market, with pressure on consumers' discretionary spend narrowing demand and heavily skewing to new products or lower price points. Our new product pipeline positions us very well in these conditions, with the success of our Bodyguard 2.0 as a great example, a unique, innovative product at a compelling price point. And as I mentioned earlier, we expect that our slate of introductions scheduled over the coming months will continue this momentum. Additionally, and also as mentioned earlier, our flexible manufacturing model allows us to participate in targeted promotions for our core products with two very successful promotions conducted during the holiday season on tactical rifles and revolvers and a current promotion active on our core line of pistols. Our balance sheet remains strong and we continue to be disciplined in managing our business and allocating capital to drive value for stockholders. Internal inventory levels are slightly elevated due to lower than anticipated Q3 sales combined with normal seasonality as we prepared for our typically busy fourth quarter. Through our robust monthly sales and operations planning process, which aligns production levels to sales forecasts, we expect to continue adjusting manufacturing to drive lower internal inventories throughout Q4. Channel inventory at distributors is very clean, currently at under nine weeks. Given these factors, we expect strong cash flows during Q4, and consistent with our capital allocation strategy, we expect to continue paying down our line of debt, pay our quarterly dividend of 13 cents per share, which Gina will cover in more detail in a moment, and continue to reinvest in innovation and manufacturing efficiencies. I'll also note that during the third quarter, we repurchased another 220,000 shares of our stock. With these purchases through the first nine months of fiscal 2025, we lowered our share count by more than 1.5 million shares net of dilution. And during the past 12 months, we have returned more than $49 million of capital to our stockholders through our stock repurchase program and strong dividend. Looking further forward, we anticipate that the firearms market will remain steady at current demand levels. And with our industry-leading innovation pipeline, continued disciplined cost control, state-of-the-art facilities, flexible manufacturing model, strong balance sheet, and our capital allocation model of returning value to stockholders, we believe we are well-positioned for continued success. Before I hand the call over, and as always, I just want to thank our entire team of talented Smith & Wesson employees for their tireless dedication in putting their skills to work each and every day to make us successful. With that, I'll turn the call over to Dina to cover the financials.