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Smith & Wesson Holding Corporation Reports Second Quarter Fiscal 2017 Financial Results

Donnerstag, 01.12.2016 22:10 von

PR Newswire

SPRINGFIELD, Mass., Dec. 1, 2016 /PRNewswire/ -- Smith & Wesson Holding Corporation (NASDAQ Global Select: SWHC), one of the world's leading providers of firearms and quality products for the shooting, hunting, and rugged outdoor enthusiast, today announced financial results for the fiscal second quarter 2017, ended October 31, 2016.

Second Quarter Fiscal 2017 Financial Highlights

  • Quarterly net sales were $233.5 million compared with $143.2 million for the second quarter last year, an increase of 63.0%.
  • Gross margin for the quarter was 41.8% compared with 39.2% for the second quarter last year. 
  • Quarterly GAAP net income was $32.5 million, or $0.57 per diluted share, compared with $12.5 million, or $0.22 per diluted share, for the comparable quarter last year.
  • Quarterly non-GAAP net income was $39.1 million, or $0.68 per diluted share, compared with $14.2 million, or $0.25 per diluted share, for the comparable quarter last year. GAAP to non-GAAP adjustments in net income exclude a number of acquisition-related costs, including amortization, one-time transaction costs, and inventory valuation adjustments.  For a detailed reconciliation, see the schedules that follow in this release.
  • Quarterly non-GAAP Adjusted EBITDAS was $72.4 million, or 31.0% of net sales.
  • The company acquired substantially all of the net assets of Taylor Brands, LLC ("Taylor Brands") and all of the issued and outstanding stock of Crimson Trace Corporation ("Crimson Trace") for an aggregate of $178.1 million, subject to certain adjustments, utilizing cash on hand.
  • The company's unsecured revolving credit line commitment was increased to $500 million from $225 million.

James Debney, Smith & Wesson Holding Corporation President and Chief Executive Officer, said, "We are very pleased with our second quarter results, which exceeded our financial guidance. In our Firearms Segment, we believe higher revenue was driven by strong consumer demand as reflected in adjusted background checks from the National Instant Criminal Background Check System (NICS) as well as our own market share gains.  In our Outdoor Products & Accessories Segment, we completed the acquisitions of Taylor Brands and Crimson Trace, both of which were accretive to our non-GAAP earnings."

"Subsequent to the end of the quarter, we completed the acquisition of substantially all of the net assets of Ultimate Survival Technologies, Inc. ("UST"), a provider of high-quality survival and camping products. UST delivered compound annual revenue growth of 49% from 2012 through 2015, maintained healthy gross margins, and developed hundreds of high quality products.  We believe the UST distribution network will create incremental opportunities for our existing accessory product lines." 

"Overall, we are well on our way to achieving our vision of being a leading provider of high-quality products for the shooting, hunting, and rugged outdoor enthusiast.  By executing our strategy, we have successfully grown from a single operating division to four operating divisions that serve a large addressable market and represent more than 18 respected consumer brands.  Accordingly, on January 1, 2017, our holding corporation will become American Outdoor Brands Corporation, pending shareholder approval.  We believe this name better represents our broad range of product offerings and our plan to continue building upon our portfolio of strong American brands.  American Outdoor Brands Corporation will serve as the holding corporation for Smith & Wesson Corp., Battenfeld Technologies, Inc., and Crimson Trace Corporation, which represent our company's firearms, manufacturing services, accessories, and electro-optics divisions.  With a commitment to creating, preserving, and acquiring strong brands, we remain committed to our future growth, focusing on brands and products that best meet the needs and lifestyle of our target consumers," concluded Debney.

Jeffrey D. Buchanan, Executive Vice President, Chief Financial Officer, and Chief Administrative Officer, said, "During the quarter, we secured a commitment to increase our revolving line of credit to $500 million from $225 million.  This expansion of our unsecured credit line provides us with greater opportunities to invest in our future growth, both organically and through strategic acquisitions. Our increased access to capital is a clear reflection of the confidence our bankers have in our company as well as the overall strength of our business."

Financial Outlook


SMITH & WESSON HOLDING CORPORATION

NET SALES AND EARNINGS PER SHARE GUIDANCE, INCLUDING GAAP TO NON-GAAP RECONCILIATION
(Unaudited)



Range for the Three Months Ending January 31, 2017


Range for the Year Ending April 30, 2017


Net sales (in thousands)

$

230,000


$

240,000


$

920,000


$

930,000











GAAP income per share - diluted

$

0.44


$

0.49


$

2.11


$

2.16


Acquisition-related costs



0.06


0.06


Amortization of acquired intangible assets

0.10


0.10


0.32


0.32


Fair value inventory step-up and backlog expense

0.01


0.01


0.08


0.08


Transition costs

0.01


0.01


0.02


0.02


Tax effect of non-GAAP adjustments

(0.04)


(0.04)


(0.17)


(0.17)


Non-GAAP income per share - diluted

$

0.52


$

0.57


$

2.42


$

2.47



Conference Call and Webcast

The company will host a conference call and webcast today, December 1, 2016, to discuss its second quarter fiscal 2017 financial and operational results. Speakers on the conference call will include James Debney, President and Chief Executive Officer, and Jeffrey D. Buchanan, Executive Vice President, Chief Financial Officer, and Chief Administrative 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 code 22558234.  No RSVP is necessary.  The conference call audio webcast can also be accessed live and for replay on the company's website at www.smith-wesson.com, under the Investor Relations section. The company will maintain an audio replay of this conference call on its website for a period of time after the call. No other audio replay will be available.

Reconciliation of U.S. GAAP to Non-GAAP Financial Measures

In 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) TCA accessories transition costs, (iii) discontinued operations, (iv) DOJ and SEC costs including insurance recovery costs, (v) acquisition-related costs, (vi) fair value inventory step-up and backlog expense, (vii) bond premium paid, (viii) debt extinguishment costs, (ix) the tax effect of non-GAAP adjustments, (x) net cash provided by operating activities, (xi) net cash used in investing activities, (xii) acquisition of businesses, net of cash acquired, (xiii) receipts from note receivable, (xiv) interest expense (xv) income tax expense, (xvi) depreciation and amortization, and (xvii) stock-based compensation expense; 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

Smith & Wesson Holding Corporation (NASDAQ Global Select: SWHC) is a provider of quality products for shooting, hunting, and rugged outdoor enthusiasts in the global consumer and professional markets. The Company reports two segments: Firearms and Outdoor Products & Accessories.  Firearms manufactures handgun and long gun products sold under the Smith & Wesson®, M&P®, and Thompson/Center Arms™ brands as well as providing forging, machining, and precision plastic injection molding services. Outdoor Products & Accessories provides shooting, hunting, and outdoor accessories, including reloading, gunsmithing, and gun cleaning supplies, tree saws, vault accessories, knives, laser sighting systems, tactical lighting products, and survival and camping equipment. Brands in Outdoor Products & Accessories include Smith & Wesson®, M&P®, Thompson/Center Arms™, Crimson Trace®, Caldwell® Shooting Supplies, Wheeler® Engineering, Tipton® Gun Cleaning Supplies, Frankford Arsenal® Reloading Tools, Lockdown® Vault Accessories, Hooyman® Premium Tree Saws, BOG POD®, Golden Rod® Moisture Control, Schrade®, Old Timer®, Uncle Henry®, UST®, and Imperial™.  For more information on Smith & Wesson, call (800) 331-0852 or log on to www.smith-wesson.com

Safe Harbor Statement

Certain 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 our belief that higher revenue was driven by strong consumer demand as reflected in adjusted background checks from the NICS system as well as our own market share gains; our belief that the Taylor Brands and Crimson Trace acquisitions were accretive to our non-GAAP earnings; our belief that the UST distribution network will create incremental opportunities for our existing accessory product lines; our belief that we are well on our way to achieving our vision of being a leading provider of high-quality products for the shooting, hunting, and rugged outdoor enthusiast; our expectation that our holding corporation will become American Outdoor Brands Corporation, pending shareholder approval; our belief that this name better represents our broad range of product offerings and our plan to continue building upon our portfolio of strong American brands; our commitment to creating, preserving, and acquiring strong brands and our commitment to our future growth, focusing on brands and products that best meet the needs and lifestyle of our target consumers; our belief that the expansion of our unsecured credit line provides us with greater opportunities to invest in our future growth, both organically and through strategic acquisitions; our belief that our increased access to capital is a clear reflection of the confidence our bankers have in our company as well as the overall strength of our business; and our expectations for net sales, GAAP income per diluted share, acquisition-related costs, amortization of acquired intangible assets, fair value inventory step-up and backlog expense, tax effect of non-GAAP adjustments, and non-GAAP income per diluted share for the third quarter of fiscal 2017 and for fiscal 2017.  We caution that these statements are qualified by important factors that could cause actual results to differ materially from those reflected by such forward-looking statements.  Such factors include the demand for our products; the costs and ultimate conclusion of certain legal matters; the state of the U.S. economy in general and the firearm industry in particular; general economic conditions and consumer spending patterns; the potential for increased regulation of firearms and firearm-related products; speculation surrounding fears of terrorism and crime; our growth opportunities; our anticipated growth; our ability to increase demand for our products in various markets, including consumer, law enforcement, and military channels, domestically and internationally; the position of our hunting products in the consumer discretionary marketplace and distribution channel; our penetration rates in new and existing markets; our strategies; our ability to introduce new products; the success of new products; our ability to expand our markets; our ability to integrate acquired businesses in a successful manner; the general growth of our outdoor products and accessories business; 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, 2016.

 

SMITH & WESSON HOLDING CORPORATION AND SUBSIDIARIES


CONDENSED CONSOLIDATED STATEMENTS OF INCOME


(Unaudited)





For the Three Months Ended


For the Six Months Ended 



October 31, 2016


October 31, 2015


October 31, 2016


October 31, 2015




(In thousands, except per share data)

Net sales


$        233,528


$        143,242


$        440,479


$        291,005


Cost of sales


135,923


87,027


255,305


175,920


Gross profit


97,605


56,215


185,174


115,085


Operating expenses:










Research and development


2,698


2,695


4,851


5,091


Selling and marketing


12,527


12,536


21,721


21,754


General and administrative


30,229


19,202


53,926


36,640


Total operating expenses


45,454


34,433


80,498


63,485


Operating income


52,151


21,782


104,676


51,600


Other (expense)/income:










Other (expense)/income


(30)


(5)


(30)


(12)


Interest (expense)/income


(2,175)


(2,296)


(4,188)


(9,496)


Total other (expense)/income, net


(2,205)


(2,301)


(4,218)


(9,508)


Income from operations before income taxes


49,946


19,481


100,458


42,092


Income tax expense


17,463


7,015


32,752


15,214


Net income


32,483


12,466


67,706


26,878


Net income per share:










Basic


$               0.58


$               0.23


$               1.21


$               0.49


Diluted


$               0.57


$               0.22


$               1.18


$               0.48


Weighted average number of common shares outstanding:










Basic


56,231


54,447


56,140


54,333


Diluted


57,136


55,668


57,145


55,621


 

SMITH & WESSON HOLDING CORPORATION AND SUBSIDIARIES


CONDENSED CONSOLIDATED BALANCE SHEETS


(Unaudited)





As of


October 31, 2016


April 30, 2016



(In thousands, except par value and share data)


 ASSETS


 Current assets:





Cash and cash equivalents

$          73,896


$   191,279


Accounts receivable, net of allowance for doubtful accounts of $805 on October 31, 2016 and $680 on April 30, 2016

69,959


57,792


Inventories

116,497


77,789


Prepaid expenses and other current assets

7,360


4,307


Income tax receivable 

6,000


2,064


Total current assets

273,712


333,231


 Property, plant, and equipment, net

151,499


135,405


 Intangibles, net

139,152


62,924


 Goodwill

157,250


76,357


 Other assets

6,643


11,586



$        728,256


$   619,503


 LIABILITIES AND STOCKHOLDERS' EQUITY


 Current liabilities:





Accounts payable

$          52,767


$     45,513


Accrued expenses

33,627


28,447


Accrued payroll and incentives

14,745


18,784


Accrued income taxes

223


5,960


Accrued profit sharing

6,760


11,459


Accrued warranty

6,343


6,129


Current portion of notes payable

6,300


6,300


Total current liabilities

120,765


122,592


 Deferred income taxes 

32,953


12,161


 Notes payable, net of current portion

188,323


166,564


 Other non-current liabilities

9,718


10,370


Total liabilities

351,759


311,687


 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 shares authorized, 71,839,096 shares issued and 56,276,463 shares outstanding on October 31, 2016 and 71,558,633 shares issued and 55,996,011 shares outstanding on April 30, 2016

72


72


Additional paid-in capital 

240,208


239,505


Retained earnings

309,016


241,310


Accumulated other comprehensive loss

(476)


(748)


Treasury stock, at cost (15,562,622 shares on October 31, 2016 and April 30, 2016)

(172,323)


(172,323)


Total stockholders' equity

376,497


307,816



$        728,256


$   619,503


 

SMITH & WESSON HOLDING CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)






For the Six Months Ended


October 31, 2016


October 31, 2015


(In thousands)

Cash flows from operating activities:




Net income

$              67,706


$              26,878

Adjustments to reconcile net income to net cash provided by operating activities:




Depreciation and amortization 

23,772


21,066

Loss on sale/disposition of assets

104


19

Provision for/(recoveries of) losses on notes and accounts receivable

308


(72)

Stock-based compensation expense

3,918


3,247

Changes in operating assets and liabilities:




Accounts receivable

(3,538)


5,199

Inventories

(14,349)


(24,002)

Prepaid expenses and other current assets

(2,775)


(587)

Income taxes

(9,676)


(10,700)

Accounts payable

1,111


(1,022)

Accrued payroll and incentives

(4,728)


5,872

Accrued profit sharing

(4,699)


(2,513)

Accrued expenses

4,235


989

Accrued warranty

116


(184)

Other assets

(183)


(156)

Other non-current liabilities

52


(1,273)

Net cash provided by operating activities

61,374


22,761

Cash flows from investing activities:




Acquisition of businesses, net of cash acquired

(178,059)


Refunds on machinery and equipment

5,083


4,222

Receipts from note receivable

43


41

Payments to acquire patents and software

(425)


(136)

Proceeds from sale of property and equipment


61

Payments to acquire property and equipment

(23,312)


(18,352)

Net cash used in investing activities

(196,670)


(14,164)

Cash flows from financing activities:




Proceeds from loans and notes payable

50,000


105,000

Cash paid for debt issuance costs

(525)


(1,024)

Payments on capital lease obligation

(298)


(298)

Payments on notes payable

(28,150)


(101,575)

Proceeds from Economic Development Incentive Program

101


Proceeds from exercise of options to acquire common stock

948


1,758

Payment of employee withholding tax related to restricted stock units

(4,163)


(1,690)

Excess tax benefit of stock-based compensation

-


1,074

Net cash (used in)/provided by financing activities

17,913


3,245

Net increase/(decrease)  in cash and cash equivalents

(117,383)


11,842

Cash and cash equivalents, beginning of period

191,279


42,222

Cash and cash equivalents, end of period

$              73,896


$              54,064

Supplemental disclosure of cash flow information




Cash paid for:




Interest

$                3,802


$                9,271

Income taxes

42,609


24,936

 

RECONCILIATION OF GAAP FINANCIAL MEASURES TO NON-GAAP FINANCIAL MEASURES
(Dollars in thousands, except per share data)
(Unaudited)



For the Three Months Ended 


For the Six Months Ended



October 31, 2016


October 31, 2015


October 31, 2016


October 31, 2015



$


% of Sales


$


% of Sales


$


% of Sales


$


% of Sales


GAAP gross profit

$  97,605


41.8%


$56,215


39.2%


$185,174


42.0%


$115,085


39.5%


Fair value inventory step-up and backlog expense

3,824


1.6%




3,824


0.9%




Discontinued operations







52


0.0%


Non-GAAP gross profit

$101,429


43.4%


$56,215


39.2%


$188,998


42.9%


$115,137


39.6%



















GAAP operating expenses

$  45,454


19.5%


$34,433


24.0%


$  80,498


18.3%


$  63,485


21.8%


Amortization of acquired intangible assets

(4,566)


-2.0%


(2,656)


-1.9%


(7,110)


-1.6%


(4,729)


-1.6%


TCA accessories transition costs



(70)


0.0%




(151)


-0.1%


Discontinued operations

(23)


0.0%


(24)


0.0%


(44)


0.0%


(45)


0.0%


DOJ/SEC costs including insurance recovery costs







1,791


0.6%


Acquisition-related costs

(1,824)


-0.8%




(3,156)


-0.7%




Non-GAAP operating expenses

$  39,041


16.7%


$31,683


22.1%


$  70,188


15.9%


$  60,351


20.7%



















GAAP operating income

$  52,151


22.3%


$21,782


15.2%


$104,676


23.8%


$  51,600


17.7%


Fair value inventory step-up and backlog expense

3,824


1.6%




3,824


0.9%




Amortization of acquired intangible assets

4,566


2.0%


2,656


1.9%


7,110


1.6%


4,729


1.6%


TCA accessories transition costs



70


0.0%




151


0.1%


Discontinued operations

23


0.0%


24


0.0%


44


0.0%


97


0.0%


DOJ/SEC costs including insurance recovery costs







(1,791)


-0.6%


Acquisition-related costs

1,824


0.8%




3,156


0.7%




Non-GAAP operating income

$  62,388


26.7%


$24,532


17.1%


$118,810


27.0%


$  54,786


18.8%



















GAAP net income

$  32,483


13.9%


$12,466


8.7%


$  67,706


15.4%


$  26,878


9.2%


Bond premium paid







2,938


1.0%


Fair value inventory step-up and backlog expense

3,824


1.6%




3,824


0.9%




Amortization of acquired intangible assets

4,566


2.0%


2,656


1.9%


7,110


1.6%


4,729


1.6%


Debt extinguishment costs







1,723


0.6%


TCA accessories transition costs



70


0.0%




151


0.1%


Discontinued operations

23


0.0%


24


0.0%


44


0.0%


97


0.0%


DOJ/SEC costs including insurance recovery costs







(1,791)


-0.6%


Acquisition-related costs

1,824


0.8%




3,156


0.7%




Tax effect of non-GAAP adjustments

(3,583)


-1.5%


(1,021)


-0.7%


(4,611)


-1.0%


(2,903)


-1.0%


Non-GAAP net income

$  39,137


16.8%


$14,195


9.9%


$  77,229


17.5%


$  31,822


10.9%



















GAAP net income per share - diluted

$ 0.57




$ 0.22




$ 1.18




$ 0.48




Bond premium paid










0.05




Fair value inventory step-up and backlog expense

0.07







0.07







Amortization of acquired intangible assets

0.08




0.05




0.12




0.09




Debt extinguishment costs










0.03




TCA accessories transition costs













Discontinued operations













DOJ/SEC costs including insurance recovery costs










(0.03)




Acquisition-related costs

0.03







0.06







Tax effect of non-GAAP adjustments

(0.06)




(0.02)




(0.08)




(0.05)




Non-GAAP net income per share - diluted

$ 0.68

 (a) 


$ 0.25




$ 1.35




$ 0.57






(a)

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

 

SMITH & WESSON HOLDING CORPORATION AND SUBSIDIARIES

RECONCILIATION OF NET OPERATING CASH FLOW TO FREE CASH FLOW

(In thousands)

(Unaudited)



For the Three Months Ended


For the  Six Months Ended



October 31, 2016


October 31, 2015


October 31, 2016


October 31, 2015


Net cash provided by operating activities

$          20,764


$             6,136


$          61,374


$          22,761


Net cash used in investing activities

(185,555)


(7,075)


(196,670)


(14,164)


Acquisition of businesses, net of cash acquired

178,059



178,059



Receipts from note receivable

(22)


(20)


(43)


(41)


Free cash flow

$          13,246


$              (959)


$          42,720


$             8,556


 

SMITH & WESSON HOLDING CORPORATION AND SUBSIDIARIES

RECONCILIATION OF GAAP NET INCOME TO NON-GAAP ADJUSTED EBITDAS

(In thousands)

(Unaudited)



For the Three Months Ended



October 31, 2016



October 31, 2015







GAAP net income


$          32,483



$          12,466

Interest expense


2,313



2,323

Income tax expense


17,463



7,015

Depreciation and amortization


12,384



9,818

Stock-based compensation expense


2,126



1,702

Fair value inventory step-up and backlog expense


3,824



Acquisition-related costs


1,824



Discontinued operations


23



24

TCA accessories transition costs




70

DOJ/SEC costs, including insurance recovery costs




(20)

Non-GAAP Adjusted EBITDAS


$          72,440



$          33,398













SMITH & WESSON HOLDING CORPORATION AND SUBSIDIARIES

RECONCILIATION OF GAAP NET INCOME TO NON-GAAP ADJUSTED EBITDAS

(In thousands)

(Unaudited)



For Six Months Ended



October 31, 2016



October 31, 2015







GAAP net income


$          67,706



$          26,878

Interest expense


4,367



9,573

Income tax expense


32,752



15,214

Depreciation and amortization


22,488



18,817

Stock-based compensation expense


3,918



3,247

Fair value inventory step-up and backlog expense


3,824



Acquisition-related costs


3,156



151

Discontinued operations


44



97

TCA accessories transition costs




DOJ/SEC costs, including insurance recovery costs




(1,791)

Non-GAAP Adjusted EBITDAS


$        138,255



$          72,186







 

Contact: Liz Sharp, VP Investor Relations
Smith & Wesson Holding Corp.
(413) 747-6284
lsharp@smith-wesson.com  

 

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SOURCE Smith & Wesson Holding Corporation