PR Newswire | Mar 4, 2021 04:06PM EST

03/04 15:05 CST

Smith & Wesson Brands, Inc. Reports Third Quarter Fiscal 2021 Financial Results- Record Quarterly Net Sales of $257.6 Million- Record Net Income of $62.3 Million- Record GAAP/non-GAAP EPS of $1.12/Share- $100M Share Buyback Program and $0.05/Share Quarterly Dividend SPRINGFIELD, Mass., March 4, 2021

SPRINGFIELD, Mass., March 4, 2021 /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 third quarter of fiscal 2021 ended January 31, 2021. On August 24, 2020, the company completed the previously announced spin-off of its outdoor products and accessories business. Therefore, as of the second quarter, all historical financial information for that business is reported as discontinued operations. Unless otherwise indicated, any reference to income statement items refers to results from continuing operations.

Third Quarter Fiscal 2021 Consolidated Financial Highlights

* Quarterly net sales were $257.6 million compared with $127.4 million for the comparable quarter last year, an increase of 102.2%. * Gross margin for the quarter was 42.6% compared with 28% for the comparable quarter last year. * Quarterly GAAP net income was a record $62.3 million, or $1.12 per diluted share, compared with $4.2 million, or $0.08 per diluted share, for the comparable quarter last year. * Quarterly non-GAAP net income was $62.4 million, or $1.12 per diluted share, compared with $7.8 million, or $0.14 per diluted share, for the comparable quarter last year. GAAP to non-GAAP adjustments for income exclude costs related to the spin-off of the outdoor products and accessories business, 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 $89.8 million, or 34.9% of net sales, compared with $15.0 million, or 11.8% of net sales, for the comparable quarter last year.

Mark Smith, President and Chief Executive Officer, commented, "I could not be more proud of our dedicated American workforce as, for the third time in a row, they delivered a record-breaking quarter for our great historic company. Over the past year, millions of our fellow Americans from all walks of life have chosen to empower themselves by exercising their 2nd Amendment rights for the first time, and our loyal employees have risen to the challenge - delivering over 1.8 million units in the first three quarters of our fiscal year alone, ensuring that these new members of the shooting sports community were able to choose the highest quality, innovative firearms that Smith & Wesson has been known for since 1852. All of this was accomplished while implementing and maintaining aggressive safety measures and process changes to keep safe in the midst of the COVID pandemic."

Deana McPherson, Executive Vice President and Chief Financial Officer, commented, "Smith & Wesson's record-breaking financial performance enabled us to generate $60 million of cash from operations during the quarter. This allowed us to complete a $50 million dollar share-repurchase program, pay our second quarter dividend, and continue to invest in capital, all while growing our cash on hand by $4.1 million during the quarter. I am pleased to announce that our Board has authorized a new $100 million dollar share repurchase program and a $0.05 per share dividend to stockholders of record as of March 17, 2021, with payment to be made on March 31, 2021."

The amount and timing of any repurchases will depend on a number of factors, including price, trading volume, general market conditions, legal requirements, and other factors. The repurchases may be made on the open market, in block trades, or in privately negotiated transactions. Any shares of common stock repurchased under the program will be considered issued but not outstanding shares of the company's common stock.

Conference Call and WebcastThe company will host a conference call and webcast on March 4, 2021, to discuss its third quarter fiscal 2021 financial and operational results. Speakers on the conference call will include Mark Smith, President and Chief Executive Officer, and Deana 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 1056738. 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) change in contingent consideration, (iv) CEO separation, (v) the tax effect of non-GAAP adjustments, (vi) COVID-19 expenses, (vii) net cash used in investing activities, (viii) interest expense, (ix) income tax expense, (x) depreciation and amortization, and (xi) 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.

SMITH & WESSON BRANDS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

As of:

January 31, 2021 April 30, 2020

(In thousands, except par value and share data)

ASSETS

Current assets:

Cash and cash equivalents $ 59,676 $ 125,011

Accounts receivable, net of allowances for credit losses 61,564 60,879of $151 on January 31, 2021 and $1,038 on April 30, 2020

Inventories 84,446 103,741

Prepaid expenses and other current assets 8,574 7,556

Current assets of discontinued operations - 94,673

Income tax receivable 9,277 1,595

Total current assets 223,537 393,455

Property, plant, and equipment, net 145,398 147,739

Intangibles, net 4,436 4,375

Goodwill 19,024 19,024

Other assets of discontinued operations - 148,485

Other assets 13,456 16,437

405,851 729,515

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Accounts payable $ 49,166 $ 31,476

Accrued expenses and deferred revenue 37,805 57,678

Accrued payroll and incentives 14,488 12,448

Accrued income taxes 337 5,503

Accrued profit sharing 10,860 2,197

Accrued warranty 3,718 3,297

Current liabilties of discontinued operations - 17,372

Total current liabilities 116,374 129,971

Deferred income taxes 773 457

Notes and loans payable, net of current portion - 159,171

Finance lease payable, net of current portion 39,060 39,873

Other non-current liabilities of discontinued operations - 2,299

Other non-current liabilities 11,935 10,626

Total liabilities 168,142 342,397

Commitments and contingencies

Stockholders' equity:

Preferred stock, $.001 par value, 20,000,000 shares - -authorized, no shares issued or outstanding

Common stock, $.001 par value, 100,000,000 sharesauthorized, 74,153,528 issued and 53,249,177 sharesoutstanding on January 31, 2021 and 73,526,790 shares 74 74issued and 55,359,928 shares outstanding on April 30,2020

Additional paid-in capital 271,222 267,630

Retained earnings 238,715 341,716

Accumulated other comprehensive income 73 73

Treasury stock, at cost (20,904,351 shares on January (272,375) (222,375)31, 2021 and April 30, 2020)

Total stockholders' equity 237,709 387,118

$ 405,851 $ 729,515

SMITH & WESSON BRANDS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME/(LOSS)

(Unaudited)

For the Three Months Ended January 31, For the Nine Months Ended January 31,

2021 2020 2021 2020

(In thousands, except per share data)

Net sales $257,634 $127,416 $736,247 $336,575

Cost of sales 147,955 91,729 433,073 232,989

Gross profit 109,679 35,687 303,174 103,586

Operating expenses:

Research and development 1,757 1,809 5,518 5,501

Selling, marketing, and distribution 10,487 10,465 32,095 30,839

General and administrative 17,054 14,603 62,061 47,915

Total operating expenses 29,298 26,877 99,674 84,255

Operating income from continuing operations 80,381 8,810 203,500 19,331

Other income/(expense), net:

Other income/(expense), net 952 (10) 1,711 80

Interest expense, net (550) (2,885) (3,356) (8,572)

Total other income/(expense), net 402 (2,895) (1,645) (8,492)

Income from operations before income taxes 80,783 5,915 201,855 10,839

Income tax expense 18,520 1,688 47,176 4,084

Income from continuing operations $ 62,263 $ 4,227 $154,679 $ 6,755

Discontinued operations:

Income/(loss) from discontinued operations 127 1,504 8,334 (1,839)

Net income $ 62,390 $ 5,731 $163,013 $ 4,916

Net income per share:

Basic - continuing operations $ 1.13 $ 0.08 $ 2.79 $ 0.12

Basic - net income $ 1.13 $ 0.10 $ 2.94 $ 0.09

Diluted - continuing operations $ 1.12 $ 0.08 $ 2.75 $ 0.12

Diluted - net income $ 1.12 $ 0.10 $ 2.90 $ 0.09

Weighted average number of common shares outstanding:

Basic 55,137 55,064 55,515 54,919

Diluted 55,702 55,744 56,258 55,641

SMITH & WESSON BRANDS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

For the Nine Months Ended

January 31, 2021 January 31, 2020

(In thousands)

Cash flows from operating activities:

Income from continuing operations $ 154,679 $ 6,755

Adjustments to reconcile net income to net cash provided by operatingactivities:

Depreciation and amortization 24,133 24,320

Loss on sale/disposition of assets 148 310

Provision for losses on notes and accounts receivable (693) (98)

Deferred income taxes 316 (18)

Change in fair value of contingent consideration - 100

Stock-based compensation expense 3,392 941

Changes in operating assets and liabilities:

Accounts receivable 8 (8,503)

Inventories 19,295 (31,687)

Prepaid expenses and other current assets (1,018) (3,797)

Income taxes (12,831) (2,196)

Accounts payable 17,299 (2,398)

Accrued payroll and incentives 2,040 (6,754)

Accrued profit sharing 8,663 (1,006)

Accrued expenses and deferred revenue (19,950) (1,584)

Accrued warranty 421 (526)

Other assets 1,226 1,281

Other non-current liabilities 1,309 (1,777)

Cash provided by/(used in) operating activities - continuing operations 198,437 (26,637)

Cash (used in)/provided by operating activities - discontinued operations (2,129) 1,804

Net cash provided by/(used in) operating activities 196,308 (24,833)

Cash flows from investing activities:

Refunds on machinery and equipment 310 -

Payments to acquire patents and software (502) (303)

Payments to acquire property and equipment (18,378) (10,504)

Cash used by investing activities - continuing operations (18,570) (10,807)

Cash used by investing activities - discontinued operations (1,143) (1,495)

Net cash used in investing activities (19,713) (12,302)

Cash flows from financing activities:

Proceeds from loans and notes payable 25,000 228,225

Cash paid for debt issuance costs (450) (875)

Payments on finance lease obligation (736) (663)

Payments on notes and loans payable (185,000) (184,600)

Distribution to AOUT (25,000) -

Payments to acquire treasury stock (50,000) -

Dividend distribution (5,594) -

Proceeds from exercise of options to acquire common stock 2,217 936

Payment of employee withholding tax related to restricted stock units (2,201) (594)

Cash (used in)/provided by financial activities - continuing operations (241,764) 42,429

Cash used in financial activities - discontinued operations (166) -

Net cash (used in)/provided by financing activities (241,930) 42,429

Net (decrease)/increase in cash and cash equivalents (65,335) 5,294

Cash and cash equivalents, beginning of period 125,011 40,853

Cash and cash equivalents, end of period $ 59,676 $ 46,147

Supplemental disclosure of cash flow information

Cash paid for:

Interest $ 2,745 $ 8,422

Income taxes $ 63,525 $ 5,755

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 For the Nine Months Ended

January 31, 2021 January 31, 2020 January 31, 2021 January 31, 2020

$ % of Sales $ % of Sales $ % of Sales $ % of Sales

GAAP gross profit $ 109,679 42.6% $ 35,687 28.0% $ 303,174 41.2% $ 103,586 30.8%

COVID-19 22 0.0% - - 517 0.1% - -

Non-GAAP gross profit $ 109,701 42.6% $ 35,687 28.0% $ 303,691 41.2% $ 103,586 30.8%

GAAP operating expenses $ 29,298 11.4% $ 26,877 21.1% $ 99,674 13.5% $ 84,255 25.0%

Amortization of acquired intangible assets (83) 0.0% (36) 0.0% (248) 0.0% (258) -0.1%

Transition costs (20) 0.0% (1,025) -0.8% (7,953) -1.1% (1,189) -0.4%

COVID-19 (58) 0.0% - - (617) -0.1% - -

Spin related stock-based compensation - - - - (442) -0.1% - -

CEO separation - - (3,844) -3.0% - - (3,844) -1.1%

Non-GAAP operating expenses $ 29,137 11.3% $ 21,972 17.2% $ 90,414 12.3% $ 78,964 23.5%

GAAP operating income $ 80,381 31.2% $ 8,810 6.9% $ 203,500 27.6% $ 19,331 5.7%

Amortization of acquired intangible assets 83 0.0% 36 0.0% 248 0.0% 258 0.1%

Transition costs 20 0.0% 1,025 0.8% 7,953 1.1% 1,189 0.4%

COVID-19 80 0.0% - - 1,134 0.2% - -

Spin related stock-based compensation - - - - 442 0.1% - -

CEO separation - - 3,844 3.0% - - 3,844 1.1%

Non-GAAP operating income $ 80,564 31.3% $ 13,715 10.8% $ 213,277 29.0% $ 24,622 7.3%

GAAP income from continuing operations $ 62,263 24.2% $ 4,227 3.3% $ 154,679 21.0% $ 6,755 2.0%

Amortization of acquired intangible assets 83 0.0% 36 0.0% 248 0.0% 258 0.1%

Transition costs 20 0.0% 1,025 0.8% 7,953 1.1% 1,189 0.4%

COVID-19 80 0.0% - - 1,134 0.2% - -

Change in contingent consideration - - - - - - (100) 0.0%

Spin related stock-based compensation - - - - 442 0.0% - -

CEO separation - - 3,844 3.0% - - 3,844 1.1%

Tax effect of non-GAAP adjustments (46) 0.0% (1,324) -1.0% (2,444) -0.3% (1,402) -0.4%

Non-GAAP income from continuing operations $ 62,400 24.2% $ 7,808 6.1% $ 162,012 22.0% $ 10,544 3.1%

GAAP income from continuing operations per share - diluted $ 1.12 $ 0.08 $ 2.75 $ 0.12

Amortization of acquired intangible assets - - - -

Transition costs - 0.02 0.14 0.02

COVID-19 - - 0.02 -

Change in contingent consideration - - - -

Spin related stock-based compensation - - 0.01 -

CEO separation - 0.07 - 0.07

Tax effect of non-GAAP adjustments - (0.02) (0.04) (0.03)

Non-GAAP income from continuing operations per share - diluted $ 1.12 $ 0.14 (a) $ 2.88 $ 0.19 (a)

(a) Non-GAAP net income per share does not foot due to rounding.

SMITH & WESSON BRANDS, INC. AND SUBSIDIARIES

RECONCILIATION OF OPERATING CASH FLOW FROM CONTINUING OPERATIONS TO FREE CASHFLOW(In thousands)(Unaudited)

For the Three Months Ended For the Nine Months Ended

January 31, 2021 January 31, 2020 January 31, 2021 January 31, 2020

Net cash (provided by)/used in operating activities $ 60,349 $ 2,047 $ 198,437 $ (26,637)

Net cash used in investing activities (3,256) (2,279) (18,570) (10,807)

Free cash flow $ 57,093 $ (232) $ 179,867 $ (37,444)

SMITH & WESSON BRANDS, INC. AND SUBSIDIARIES

RECONCILIATION OF GAAP INCOME FROM CONTINUING OPERATIONS TO NON-GAAP ADJUSTEDEBITDAS(In thousands)(Unaudited)

For the Three Months Ended For the Nine Months Ended

January 31, 2021 January 31, 2020 January 31, 2021 January 31, 2020

GAAP income from continuing operations $ 62,263 $ 4,227 $ 154,679 $ 6,755

Interest expense 592 2,869 3,471 8,919

Income tax expense 18,520 1,688 47,176 4,084

Depreciation and amortization 7,017 7,509 23,264 23,776

Stock-based compensation expense 1,317 1,554 3,392 4,375

Change in contingent consideration - - - (100)

COVID-19 80 - 1,134 -

Transition costs 20 1,025 7,953 1,189

CEO separation - (3,844) - (3,844)

Non-GAAP Adjusted EBITDAS $ 89,809 $ 15,028 $ 241,069 $ 45,154

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

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SOURCE Smith & Wesson Brands, Inc.