PR Newswire | Sep 3, 2020 04:06PM EDT

09/03 15:05 CDT

Smith & Wesson Brands, Inc. Reports First Quarter Fiscal 2021 Financial Results- Record Quarterly Revenue of $230 Million- Zero Net Debt at Quarter End- Initiating Regular, Quarterly Cash Dividend of $0.05 Per Share SPRINGFIELD, Mass., Sept. 3, 2020

SPRINGFIELD, Mass., Sept. 3, 2020 /PRNewswire/ -- Smith & Wesson Brands, Inc. (NASDAQ Global Select: SWBI), a U.S.-based leader in firearm manufacturing and design, today announced financial results for the first quarter fiscal 2021, ended July 31, 2020. The financial results for the period are reported in two segments: Firearms and Outdoor Products & Accessories. On August 24, 2020, the company announced that it had completed the previously announced spin-off of its Outdoor Products & Accessories segment. Therefore, first quarter fiscal 2021 represents the final period in which the Smith & Wesson Brands, Inc. financial results will include the financial results of the Outdoor Products & Accessories segment.

First Quarter Fiscal 2021 Consolidated Financial Highlights

* Quarterly net sales were $278.0 million compared with $123.7 million for the first quarter last year, an increase of 124.8%. Firearms segment gross sales were $229.9 million, which included $1.0 million of inter-segment revenue, an increase of $134.4 million, or 140.9%, over the comparable quarter last year. Outdoor Products & Accessories segment gross sales were $50.6 million, which included $1.5 million of inter-segment revenue, an increase of $17.4 million, or 52.3%, over the comparable quarter last year. * Gross margin for the quarter was 42.0% compared with 38.7% for the comparable quarter last year. * Quarterly GAAP net income was $48.4 million, or $0.86 per diluted share, compared with a GAAP net loss of $(2.1) million, or $(0.04) per diluted share, for the comparable quarter last year. * Quarterly non-GAAP net income was $54.9 million, or $0.97 per diluted share, compared with $1.7 million, or $0.03 per diluted share, for the comparable quarter last year. GAAP to non-GAAP adjustments for net income exclude costs related to the spin-off of the Outdoor Products & Accessories segment, COVID-19 related expenses, and other costs. For a detailed reconciliation, see the schedules that follow in this release. * Quarterly non-GAAP Adjusted EBITDAS was $84.2 million, or 30.3% of net sales, compared with $17.5 million, or 14.1% of net sales, for the comparable quarter last year.

Mark Smith, President and Chief Executive Officer, commented, "Today, I am pleased to report record-breaking first quarter financial results for Smith & Wesson Brands, Inc. These results could not have been possible without our dedicated employees, who not only worked diligently to manufacture and fulfill the strong flow of customer orders with a broad assortment of our highly sought-after firearms, but did so with a heightened commitment to the health and safety protocols that our operations management team put in place at the start of the pandemic. Our record revenue and unit sales during the quarter demonstrates our ability to rapidly respond to increased demand through our flexible manufacturing model and our state-of-the-art distribution facility, delivering outstanding products that resonate with the firearms consumer."

Smith continued, "With the successful spin-off of our Outdoor Products & Accessories segment last week, we have now returned to our heritage as a pure-play firearms company, with a focus on organic growth and returning excess capital to our stockholders. As such, our Board of Directors has authorized the company to declare a regular, quarterly cash dividend of $0.05 per share. Our first quarterly dividend will be payable on October 1, 2020 to shareholders of record as of the market close on September 17, 2020."

Deana McPherson, Executive Vice President and Chief Financial Officer, commented, "Our strong financial performance enabled us to generate operating cash flow of $83.5 million during the quarter, which, combined with our cash on hand, allowed us to pay down $135.0 million on our revolving line of credit and end the quarter with zero net debt. After the end of the first quarter, as part of the spin-off process, we restructured our credit facility for a new, five-year term that enables us to maintain an unsecured $100 million line of credit for the foreseeable future."

Conference Call and WebcastThe company will host a conference call and webcast today, September 3, 2020, to discuss its first quarter fiscal 2021 financial and operational results. Speakers on the conference call will include Mark Smith, President and Chief Executive Officer, and Deana L. McPherson, Executive Vice President and Chief Financial Officer. The conference call may include forward-looking statements. The conference call and webcast will begin at 5:00 p.m. Eastern Time (2:00 p.m. Pacific Time). Those interested in listening to the conference call via telephone may call directly at (844) 309-6568 and reference conference identification number 7047608. No RSVP is necessary. The conference call audio webcast can also be accessed live on the company's website at www.smith-wesson.com, under the Investor Relations section.

Reconciliation of U.S. GAAP to Non-GAAP Financial MeasuresIn this press release, certain non-GAAP financial measures, including "non-GAAP net income," "Adjusted EBITDAS," and "free cash flow" are presented. From time-to-time, the company considers and uses these supplemental measures of operating performance in order to provide the reader with an improved understanding of underlying performance trends. The company believes it is useful for itself and the reader to review, as applicable, both (1) GAAP measures that include (i) amortization of acquired intangible assets, (ii) transition costs, (iii) recall related expenses, (iv) the tax effect of non-GAAP adjustments, (v) COVID-19 expenses, (vi) net cash used in investing activities, (vii) interest expense, (viii) income tax expense, (ix) depreciation and amortization, and (x) stock-based compensation expenses; and (2) the non-GAAP measures that exclude such information. The company presents these non-GAAP measures because it considers them an important supplemental measure of its performance. The company's definition of these adjusted financial measures may differ from similarly named measures used by others. The company believes these measures facilitate operating performance comparisons from period to period by eliminating potential differences caused by the existence and timing of certain expense items that would not otherwise be apparent on a GAAP basis. These non-GAAP measures have limitations as an analytical tool and should not be considered in isolation or as a substitute for the company's GAAP measures. The principal limitations of these measures are that they do not reflect the company's actual expenses and may thus have the effect of inflating its financial measures on a GAAP basis.

About Smith & Wesson Brands, Inc.Smith & Wesson Brands, Inc. (NASDAQ Global Select: SWBI) is a U.S.-based leader in firearm manufacturing and design, delivering a broad portfolio of quality handgun, long gun, and suppressor products to the global consumer and professional markets under the iconic Smith & Wesson(r), M&P(r), Thompson/Center Arms(tm), and Gemtech(r) brands. The company also provides manufacturing services including forging, machining, and precision plastic injection molding services. For more information call (844) 363-5386 or visit www.smith-wesson.com.

Safe Harbor StatementCertain statements contained in this press release may be deemed to be forward-looking statements under federal securities laws, and we intend that such forward-looking statements be subject to the safe-harbor created thereby. Such forward-looking statements include, among others, our intent to pay a regular, quarterly cash dividend. We caution that these statements are qualified by important risks, uncertainties, and other factors that could cause actual results to differ materially from those reflected by such forward-looking statements. Such factors include, among others, economic, social, political, legislative, and regulatory factors; the potential for increased regulation of firearms and firearm-related products; actions of social activists that could have an adverse effect on our business; the impact of lawsuits; the demand for our products; the state of the U.S. economy in general and the firearm industry in particular; general economic conditions and consumer spending patterns; our competitive environment; the supply, availability, and costs of raw materials and components; the impact of protectionist tariffs and trade wars; speculation surrounding fears of terrorism and crime; our anticipated growth and growth opportunities; our ability to increase demand for our products in various markets, including consumer, law enforcement, and military channels, domestically and internationally; our penetration rates in new and existing markets; our strategies; our ability to maintain and enhance brand recognition and reputation; our ability to introduce new products; the success of new products; our ability to expand our markets; the potential for cancellation of orders from our backlog; and other risks detailed from time to time in our reports filed with the SEC, including our Annual Report on Form 10-K for the fiscal year ended April 30, 2020.

Contact:investorrelations@smith-wesson.com(413) 747-3448

SMITH & WESSON BRANDS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

As of:

July 31, 2020 April 30, 2020

(In thousands, except par value and share data)

ASSETS

Current assets:

Cash and cash equivalents $ 65,271 $ 125,398

Accounts receivable, net ofallowances for credit losses of 101,358 93,433$1,411 on July 31, 2020 and$1,438 on April 30, 2020

Inventories 149,567 164,191

Prepaid expenses and other 11,015 8,838current assets

Income tax receivable 656 1,595

Total current assets 327,867 393,455

Property, plant, and 156,785 157,417equipment, net

Intangibles, net 69,842 73,754

Goodwill 83,605 83,605

Deferred income taxes 2,396 2,396

Other assets 17,674 18,334

$ 658,169 $ 728,961

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Accounts payable $ 53,829 $ 39,196

Accrued expenses and deferred 49,987 64,602revenue

Accrued payroll and incentives 13,241 14,623

Accrued income taxes 18,905 5,503

Accrued profit sharing 5,877 2,414

Accrued warranty 3,462 3,633

Total current liabilities 145,301 129,971

Notes and loans payable, net 24,311 159,171of current portion

Finance lease payable, net of 39,610 39,873current portion

Other non-current liabilities 11,882 12,828

Total liabilities 221,104 341,843

Commitments and contingencies

Stockholders' equity:

Preferred stock, $.001 parvalue, 20,000,000 shares - -authorized, no shares issued oroutstanding

Common stock, $.001 par value,100,000,000 shares authorized,73,864,745 issued and55,697,883 shares outstanding 74 74on July 31, 2020 and72,526,790 shares issued and55,359,928 shares outstandingon April 30, 2020

Additional paid-in capital 269,192 267,630

Retained earnings 390,101 341,716

Accumulated other comprehensive 73 73income

Treasury stock, at cost(18,166,862 shares on July 31, (222,375) (222,375)2020 and April 30, 2020)

Total stockholders' equity 437,065 387,118

$ 658,169 $ 728,961

SMITH & WESSON BRANDS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME/(LOSS)

(Unaudited)

For the Three Months Ended

July 31, 2020 July 31, 2019

(In thousands, except per share data)

Net sales $ 277,965 $ 123,665

Cost of sales 161,199 75,811

Gross profit 116,766 47,854

Operating expenses:

Research and development 2,965 3,229

Selling, marketing, and distribution 19,269 16,773

General and administrative 29,080 26,709

Total operating expenses 51,314 46,711

Operating income 65,452 1,143

Other income/(expense), net:

Other income/(expense), net 151 5

Interest expense, net (1,316) (2,627)

Total other (expense)/income, net (1,165) (2,622)

Income/(loss) from operations before 64,287 (1,479)income taxes

Income tax expense 15,902 629

Net income/(loss) $ 48,385 $ (2,108)

Net income/(loss) per share:

Basic $ 0.87 $ (0.04)

Diluted $ 0.86 $ (0.04)

Weighted average number of common sharesoutstanding:

Basic 55,494 54,783

Diluted 56,277 54,783

SMITH & WESSON BRANDS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

For the Three Months Ended

July 31, 2020 July 31, 2019

(In thousands)

Cash flows from operating activities:

Net income/(loss) $ 48,385 $ (2,108)

Adjustments to reconcile net income/(loss) tonet cash provided by/(used in) operatingactivities:

Depreciation and amortization 12,888 14,346

Loss/(gain) on sale/disposition of assets 3 -

Provision for losses on notes and accounts 136 634receivable

Stock-based compensation expense 1,041 1,588

Changes in operating assets and liabilities:

Accounts receivable (6,811) 14,031

Inventories 14,624 (31,678)

Prepaid expenses and other current (2,177) (2,822)assets

Income taxes 14,341 397

Accounts payable 14,061 (6,015)

Accrued payroll and incentives (1,382) (10,875)

Accrued profit sharing 3,463 686

Accrued expenses and deferred revenue (14,640) (6,675)

Accrued warranty (171) (612)

Other assets 660 428

Other non-current liabilities (946) (463)

Net cash provided by/(used in) operating 83,475 (29,138)activities

Cash flows from investing activities:

Payments to acquire patents and software (292) (123)

Payments to acquire property and equipment (7,343) (3,695)

Net cash used in investing activities (7,635) (3,818)

Cash flows from financing activities:

Proceeds from loans and notes payable - 25,000

Payments on finance lease obligation (238) (214)

Payments on notes and loans payable (135,000) (1,575)

Proceeds from exercise of options to acquire 268 -common stock

Payment of employee withholding tax related (997) (538)to restricted stock units

Net cash (used in)/provided by financing (135,967) 22,673activities

Net decrease in cash and cash equivalents (60,127) (10,283)

Cash and cash equivalents, beginning of 125,398 41,015period

Cash and cash equivalents, end of period $ 65,271 $ 30,732

Supplemental disclosure of cash flowinformation

Cash paid for:

Interest $ 1,556 $ 1,690

Income taxes $ 1,689 $ 235

SMITH & WESSON BRANDS, INC. AND SUBSIDIARIESRECONCILIATION OF GAAP FINANCIAL MEASURES TO NON-GAAP FINANCIAL MEASURES(Dollars in thousands, except per share data)(Unaudited)

For the Three Months Ended

July 31, 2020 July 31, 2019

$ % of Sales $ % of Sales

GAAP gross profit $ 116,766 42.0% $ 47,854 38.7%

Diode recall - - (589) -0.5%

COVID-19 1,109 0.4% - -

Transition costs - - 620 0.5%

Non-GAAP gross profit $ 117,875 42.4% $ 47,885 38.7%

GAAP operating expenses $ 51,314 18.5% $ 46,711 37.8%

Amortization of acquired (4,094) -1.5% (4,770) -3.9%intangible assets

Transition costs (3,595) -1.3% (466) -0.4%

COVID-19 (67) 0.0% - -

Non-GAAP operating $ 43,558 15.7% $ 41,475 33.5%expenses

GAAP operating income $ 65,452 23.5% $ 1,143 0.9%

Diode recall - - (589) -0.5%

Amortization of acquired 4,094 1.5% 4,770 3.9%intangible assets

Transition costs 3,595 1.3% 1,086 0.9%

COVID-19 1,176 0.4% - -

Non-GAAP operating income $ 74,317 26.7% $ 6,410 5.2%

GAAP net income/(loss) $ 48,385 17.4% $ (2,108) -1.7%

Amortization of acquired 4,094 1.5% 4,770 3.9%intangible assets

Diode recall - - (589) -0.5%

Transition costs 3,595 1.3% 1,086 0.9%

COVID-19 1,176 0.4% - -

Tax effect of non-GAAP (2,394) -0.9% (1,422) -1.1%adjustments

Non-GAAP net income $ 54,856 19.7% $ 1,737 1.4%

GAAP net income/(loss) $ 0.86 $ (0.04)per share - diluted

Amortization of acquired 0.07 0.09intangible assets

Diode recall - (0.01)

Transition costs 0.06 0.02

COVID-19 0.02 -

Tax effect of non-GAAP (0.04) (0.03)adjustments

Non-GAAP net income per $ 0.97 $ 0.03share - diluted

SMITH & WESSON BRANDS, INC. AND SUBSIDIARIES

RECONCILIATION OF NET OPERATING CASH FLOW TO FREE CASH FLOW(In thousands)(Unaudited)

For the Three Months Ended

July 31, 2020 July 31, 2019

Net cash provided by/(used in) operating $ 83,475 $ (29,138)activities

Net cash used in investing activities (7,635) (3,818)

Free cash flow $ 75,840 $ (32,956)

SMITH & WESSON BRANDS, INC. AND SUBSIDIARIES

RECONCILIATION OF GAAP NET INCOME/(LOSS) TO NON-GAAP ADJUSTED EBITDAS(In thousands)(Unaudited)

For the Three Months Ended

July 31, 2020 July 31, 2019

GAAP net income/(loss) $ 48,385 $ (2,108)

Interest expense 1,357 2,763

Income tax expense 15,902 629

Depreciation and amortization 12,748 14,092

Stock-based compensation expense 1,041 1,588

COVID-19 1,176 -

Transition costs 3,595 1,086

Diode recall - (589)

Non-GAAP Adjusted EBITDAS $ 84,204 $ 17,461

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SOURCE Smith & Wesson Brands, Inc.