American Outdoor Brands, Inc. (NASDAQ:AOUT) Q3 2022 Earnings Conference Call March 10, 2022 5:00 PM ET Company Participants Liz Sharp - VP, IR Brian Murphy - President and CEO Andrew Fulmer - CFO Conference Call Participants Ryan Meyers - Lake Street Capital Markets Scott Stember - CL King Operator Good day everyone, and welcome to American Outdoor Brands Inc. Third Quarter Fiscal 2022 Financial Results Conference Call. This call is being recorded. At this time, I would like to turn the call over to Liz Sha ...

Financial Data and Key Metrics Changes - Net sales for Q2 were $70.8 million, a decrease of 10.5% compared to $79.1 million in the prior year [22] - Net sales for the first six months of fiscal 2022 were $131.5 million, representing a 1.5% increase over fiscal 2021 and over 62% increase compared to fiscal 2020 [23] - Gross margins in Q2 were 46.7%, a reduction of just 20 basis points from the previous year [24] - GAAP EPS for Q2 was $0.32 compared to $0.52 last year, while Non-GAAP EPS was $0.58 compared to $0.77 last year [25] Business Line Data and Key Metrics Changes - E-commerce net sales grew nearly 5% year over year and over 228% on a two-year basis, with a significant increase in direct-to-consumer business [8] - New products accounted for over 25% of revenue in Q2, driven by the Dock & Unlock strategy [16] - The MEAT! brand achieved trailing twelve-month net sales of just over $6 million, showcasing strong growth since its launch [12] Market Data and Key Metrics Changes - The outdoor market has seen increased participation in fishing, camping, hunting, and shooting sports, contributing to a broader consumer base [9] - Retail partners indicated strong point-of-sale (POS) trends, with positive year-over-year comparisons [34] Company Strategy and Development Direction - The company aims for a compound annual organic growth rate of 8% to 10% over the next four to five years, primarily driven by new products and distribution [11] - The Dock & Unlock strategy is central to the company's innovation and growth, allowing for the development of new brands and products [11][13] - The company is actively seeking acquisition targets that complement its current brand portfolio while maintaining a disciplined approach [32] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in navigating supply chain challenges and maintaining inventory levels to support customer demand [21] - The company anticipates a seasonal cash build in the second half of the year, strengthening its balance sheet [33] - Management expects net sales growth in the second half of fiscal 2022 to be approximately 15% over the first half [36] Other Important Information - The company completed a major milestone in migrating to its own independent IT infrastructure, which is crucial for future operations [29] - A share repurchase program of up to $15 million has been authorized by the Board through December 2023 [33] Q&A Session Summary Question: Can you help bridge your expectations for growth from 2% this year to 8-10% in the coming years? - Management stated that growth is not dependent on M&A but rather on organic growth driven by new products and distribution [40] Question: Where are you with retail inventory levels? - Management indicated that retailers accelerated purchases to mitigate supply chain challenges, leading to a mixed inventory situation [44] Question: Are POS trends positive year-over-year? - Management confirmed that POS trends were strong and positive compared to the previous year [46] Question: How do you see e-commerce contributing to future growth? - Management expects e-commerce to continue growing as a larger share of overall revenues, with direct-to-consumer sales playing a significant role [50] Question: What new products should we look out for in the back half of the year? - Management highlighted new product launches, particularly in the BUBBA brand, as exciting developments to watch [53] Question: How is the M&A environment looking? - Management noted that the M&A landscape remains active, with ongoing engagement with several targets [61]

[Form 10-Q Cover Page](index=1&type=section&id=Form%2010-Q%20Cover%20Page) American Outdoor Brands, Inc. filed its Quarterly Report on Form 10-Q for the period ended October 31, 2021, identifying as a non-accelerated filer and emerging growth company - American Outdoor Brands, Inc. filed its Quarterly Report on Form 10-Q for the period ended October 31, 2021. The company is a non-accelerated filer and an emerging growth company[1](index=1&type=chunk) Common Stock and Exchange Information | Metric | Value | | :----- | :---- | | Common Stock Outstanding (as of Dec 2, 2021) | 14,184,946 shares | | Trading Symbol | AOUT | | Exchange | Nasdaq Global Select Market | [Table of Contents](index=2&type=section&id=TABLE%20OF%20CONTENTS) This section provides an organized listing of all chapters and sub-sections contained within the Quarterly Report on Form 10-Q [Statement Regarding Forward-Looking Information](index=3&type=section&id=Statement%20Regarding%20Forward-Looking%20Information) This statement outlines the forward-looking nature of certain information in the report and the various factors that could cause actual results to differ materially - The report contains forward-looking statements regarding future operating results, financial position, business strategy, and objectives. Key forward-looking statements include expectations for capital expenditures, amortization expense, and the recognition of unrecognized compensation expense related to unvested RSUs and PSUs[5](index=5&type=chunk) - Factors that could cause actual results to differ materially include the effects of the COVID-19 pandemic (supply chain disruptions, lower consumer spending), ability to introduce new products, reliance on third-party manufacturers, cost increases, brand recognition, e-commerce expansion, competition, dependence on large customers, and regulatory changes[6](index=6&type=chunk)[7](index=7&type=chunk) - The company expects to spend approximately **$7.5 million to $8.5 million for capital expenditures** in fiscal 2022 and estimates its information technology infrastructure will cost approximately **$8.0 million over fiscal 2022 and 2023**[5](index=5&type=chunk) [PART I - FINANCIAL INFORMATION](index=5&type=section&id=PART%20I%20-%20FINANCIAL%20INFORMATION) This part presents the company's unaudited financial statements and management's discussion and analysis of financial condition and results of operations [Item 1. Financial Statements (Unaudited)](index=5&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) This section presents the unaudited consolidated and combined financial statements, including the balance sheets, statements of operations, equity, and cash flows, along with detailed notes explaining accounting policies, business background, and specific financial line items for the three and six months ended October 31, 2021 and 2020 [Consolidated Balance Sheets](index=5&type=section&id=Consolidated%20Balance%20Sheets) This section provides a snapshot of the company's assets, liabilities, and equity as of October 31, 2021, and April 30, 2021 Consolidated Balance Sheets (in thousands) | Metric (in thousands) | October 31, 2021 | April 30, 2021 | | :-------------------- | :--------------- | :------------- | | Total Assets | $354,438 | $341,263 | | Total Current Assets | $198,532 | $179,831 | | Cash and Cash Equivalents | $32,603 | $60,801 | | Inventories | $104,973 | $74,296 | | Accounts Receivable, net | $49,644 | $37,487 | | Total Liabilities | $65,169 | $61,358 | | Total Current Liabilities | $41,179 | $36,342 | | Total Equity | $289,269 | $279,905 | - Total assets increased by **$13.175 million** from April 30, 2021, to October 31, 2021, driven primarily by increases in inventories and accounts receivable, while cash and cash equivalents decreased significantly[11](index=11&type=chunk) [Consolidated and Combined Statements of Operations and Comprehensive Income](index=6&type=section&id=Consolidated%20and%20Combined%20Statements%20of%20Operations%20and%20Comprehensive%20Income) This section details the company's revenues, expenses, and net income for the three and six months ended October 31, 2021 and 2020 Consolidated and Combined Statements of Operations and Comprehensive Income (in thousands, except per share data) | Metric (in thousands, except per share data) | Three Months Ended Oct 31, 2021 | Three Months Ended Oct 31, 2020 | Six Months Ended Oct 31, 2021 | Six Months Ended Oct 31, 2020 | | :------------------------------------------- | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- | | Net Sales | $70,760 | $79,098 | $131,528 | $129,565 | | Gross Profit | $33,037 | $37,073 | $62,020 | $60,803 | | Operating Income | $5,301 | $9,564 | $9,525 | $12,028 | | Net Income | $4,583 | $7,339 | $8,040 | $9,128 | | Basic EPS | $0.32 | $0.52 | $0.57 | $0.65 | | Diluted EPS | $0.32 | $0.52 | $0.56 | $0.65 | - For the three months ended October 31, 2021, net sales decreased by **10.5%** and net income decreased by **37.6%** compared to the prior year. For the six months, net sales increased by **1.5%**, but net income decreased by **11.9%**[13](index=13&type=chunk) [Consolidated and Combined Statements of Equity](index=7&type=section&id=Consolidated%20and%20Combined%20Statements%20of%20Equity) This section outlines changes in the company's equity, including retained earnings and additional paid-in capital, for the periods presented Consolidated and Combined Statements of Equity (in thousands) | Metric (in thousands) | October 31, 2021 | October 31, 2020 | | :-------------------- | :--------------- | :--------------- | | Total Equity | $289,269 | $268,785 | | Retained Earnings | $22,569 | $5,252 | | Additional Paid-In Capital | $266,686 | $263,519 | | Common Stock Shares Outstanding | 14,183 | 13,992 | - Total equity increased from **$279.9 million** at April 30, 2021, to **$289.3 million** at October 31, 2021, primarily due to net income and stock-based compensation, partially offset by tax-related share issuances[16](index=16&type=chunk) [Consolidated and Combined Statements of Cash Flows](index=8&type=section&id=Consolidated%20and%20Combined%20Statements%20of%20Cash%20Flows) This section reports the cash inflows and outflows from operating, investing, and financing activities for the six months ended October 31, 2021 and 2020 Cash Flow Activities (in thousands) | Cash Flow Activity (in thousands) | Six Months Ended Oct 31, 2021 | Six Months Ended Oct 31, 2020 | | :-------------------------------- | :---------------------------- | :---------------------------- | | Net Cash (Used in)/Provided by Operating Activities | $(25,274) | $4,456 | | Net Cash Used in Investing Activities | $(2,832) | $(2,106) | | Net Cash (Used in)/Provided by Financing Activities | $(92) | $31,296 | | Net (Decrease)/Increase in Cash and Cash Equivalents | $(28,198) | $33,646 | | Cash and Cash Equivalents, End of Period | $32,603 | $33,880 | - The company experienced a significant shift from cash provided by operating activities (**$4.5 million**) in 2020 to cash used in operating activities (**$25.3 million**) in 2021, primarily due to increased inventory and accounts receivable[19](index=19&type=chunk)[149](index=149&type=chunk) [(1) Background, Description of Business, and Basis of Presentation](index=10&type=section&id=(1)%20Background,%20Description%20of%20Business,%20and%20Basis%20of%20Presentation) This note provides an overview of the company's spin-off, business operations, brand portfolio, and the basis for preparing its financial statements - American Outdoor Brands, Inc. was spun off from Smith & Wesson Brands, Inc. on **August 24, 2020**. Financial statements prior to this date were prepared on a 'carve-out' basis, including allocations of corporate expenses from the former parent[25](index=25&type=chunk)[27](index=27&type=chunk) - The company is a leading provider of outdoor products and accessories across hunting, fishing, camping, shooting, and personal security. It develops and markets products under owned brands like Caldwell, Wheeler, Hooyman, BOG, MEAT!, Uncle Henry, Old Timer, Imperial, Crimson Trace, LaserLyte, Lockdown, Ust, BUBBA, and Schrade, and licensed brands such as M&P and Smith & Wesson[29](index=29&type=chunk)[30](index=30&type=chunk) - The business is organized into four brand lanes: Marksman (shooting range, firearm maintenance), Defender (firearm aiming, security), Harvester (hunting preparation, processing), and Adventurer (fishing, camping)[30](index=30&type=chunk)[31](index=31&type=chunk) Net Sales Disaggregation (Three Months Ended October 31, in thousands) | Channel/Geography | 2021 Net Sales | 2020 Net Sales | Change | % Change | | :---------------- | :------------- | :------------- | :----- | :------- | | E-commerce Channels | $27,535 | $26,243 | $1,292 | 4.9% | | Traditional Channels | $43,225 | $52,855 | $(9,630) | -18.2% | | Domestic Net Sales | $67,458 | $76,525 | $(9,067) | -11.8% | | International Net Sales | $3,302 | $2,573 | $729 | 28.3% | Net Sales Disaggregation (Six Months Ended October 31, in thousands) | Channel/Geography | 2021 Net Sales | 2020 Net Sales | Change | % Change | | :---------------- | :------------- | :------------- | :----- | :------- | | E-commerce Channels | $44,143 | $50,791 | $(6,648) | -13.1% | | Traditional Channels | $87,385 | $78,774 | $8,611 | 10.9% | | Domestic Net Sales | $123,988 | $124,996 | $(1,008) | -0.8% | | International Net Sales | $7,540 | $4,569 | $2,971 | 65.0% | - For the three months ended October 31, 2021, two customers accounted for **29.9%** and **13.1%** of net sales, respectively. As of October 31, 2021, these two customers also represented **38.7%** and **10.1%** of accounts receivable[49](index=49&type=chunk) [(2) Recently Adopted and Issued Accounting Standards](index=13&type=section&id=(2)%20Recently%20Adopted%20and%20Issued%20Accounting%20Standards) This note discusses the impact of recently adopted and issued accounting standards on the company's financial statements - The company adopted ASU 2019-12 (Income Taxes) on May 1, 2021, with no material impact. ASU 2020-04 (Reference Rate Reform) is not expected to have a material impact[51](index=51&type=chunk) [(3) Leases](index=13&type=section&id=(3)%20Leases) This note provides details on the company's operating lease assets, liabilities, costs, and future payment obligations Operating Lease Metrics (in thousands) | Operating Lease Metric (in thousands) | October 31, 2021 | | :------------------------------------ | :--------------- | | Right-of-use assets, net | $24,722 | | Total operating lease liabilities | $25,819 | | Lease liabilities, current portion | $1,888 | | Lease liabilities, net of current portion | $23,931 | - Operating lease costs were **$920,000** for the three months and **$1.8 million** for the six months ended October 31, 2021. The weighted average lease term is **16.1 years** with a weighted average discount rate of **5.3%**[55](index=55&type=chunk) Future Operating Lease Payments (in thousands) | Fiscal Year | Amount | | :---------- | :----- | | 2022 | $1,606 | | 2023 | $3,081 | | 2024 | $2,055 | | 2025 | $2,059 | | 2026 | $2,005 | | 2027 | $2,033 | | Thereafter | $26,514 | | Total Future Lease Payments | $39,353 | | Present Value of Lease Payments | $25,819 | [(4) Goodwill and Intangible Assets, net](index=15&type=section&id=(4)%20Goodwill%20and%20Intangible%20Assets,%20net) This note details the company's goodwill and intangible assets, including their carrying amounts, amortization expense, and future amortization schedule Intangible Assets (in thousands) | Intangible Asset (in thousands) | October 31, 2021 Net Carrying Amount | April 30, 2021 Net Carrying Amount | | :------------------------------ | :----------------------------------- | :--------------------------------- | | Customer relationships | $25,829 | $29,633 | | Developed technology | $6,238 | $7,132 | | Patents, trademarks, and trade names | $13,455 | $15,699 | | Patents in progress | $1,026 | $749 | | Indefinite-lived intangible assets | $430 | $430 | | Total Intangible Assets | $46,978 | $53,643 | - Total intangible assets decreased from **$53.6 million** to **$47.0 million** between April 30, 2021, and October 31, 2021. Amortization expense was **$3.5 million** for the three months and **$7.0 million** for the six months ended October 31, 2021[60](index=60&type=chunk) Future Expected Amortization Expense (in thousands) | Fiscal Year | Amount | | :---------- | :----- | | 2022 | $6,851 | | 2023 | $11,433 | | 2024 | $9,695 | | 2025 | $6,050 | | 2026 | $4,958 | | 2027 | $2,966 | | Thereafter | $3,569 | | Total | $45,522 | - Goodwill remained at **$64.3 million** as of October 31, 2021, with no adjustments during the six-month period. The company has recorded **$109.3 million** in goodwill impairment charges since fiscal 2015[62](index=62&type=chunk) [(5) Fair Value Measurement](index=15&type=section&id=(5)%20Fair%20Value%20Measurement) This note describes the fair value measurement of the company's financial assets and liabilities, primarily cash and cash equivalents - Cash and cash equivalents, totaling **$32.6 million** as of October 31, 2021, are classified as Level 1 financial assets, measured at fair value based on unadjusted quoted prices in active markets[66](index=66&type=chunk) - The company did not have any Level 2 or Level 3 financial assets or liabilities as of October 31, 2021[68](index=68&type=chunk) [(6) Inventories](index=16&type=section&id=(6)%20Inventories) This note provides a breakdown of inventory types and explains the significant increase in total inventories during the period Inventory Types (in thousands) | Inventory Type (in thousands) | October 31, 2021 | April 30, 2021 | | :---------------------------- | :--------------- | :------------- | | Finished goods | $92,405 | $62,465 | | Finished parts | $5,720 | $4,629 | | Work in process | $337 | $445 | | Raw material | $6,511 | $6,757 | | Total Inventories | $104,973 | $74,296 | - Total inventories increased by **$30.7 million** from April 30, 2021, to October 31, 2021, primarily due to a planned inventory build for new product introductions, seasonality, and purchases to mitigate future price increases and supply chain disruptions[70](index=70&type=chunk) [(7) Debt](index=16&type=section&id=(7)%20Debt) This note details the company's revolving line of credit, including its maturity, availability, and applicable interest rates - The company has a **$50.0 million** revolving line of credit, maturing in five years, with no borrowings outstanding as of October 31, 2021. The entire **$50.0 million** was available[71](index=71&type=chunk) - The revolving line bears interest at a fluctuating rate (Base Rate or LIBOR plus applicable margin, ranging from **0.75% to 2.25%**). If borrowings existed at October 31, 2021, the interest rate would have been approximately **1.88%**[71](index=71&type=chunk) [(8) Equity](index=17&type=section&id=(8)%20Equity) This note presents information on basic and diluted earnings per share, stock-based compensation, and changes in total equity Basic and Diluted EPS (Three Months Ended October 31, in thousands, except per share data) | Metric | 2021 | 2020 | | :----- | :--- | :--- | | Basic EPS | $0.32 | $0.52 | | Diluted EPS | $0.32 | $0.52 | | Basic Shares Outstanding | 14,135 | 13,981 | | Diluted Shares Outstanding | 14,348 | 14,155 | Basic and Diluted EPS (Six Months Ended October 31, in thousands, except per share data) | Metric | 2021 | 2020 | | :----- | :--- | :--- | | Basic EPS | $0.57 | $0.65 | | Diluted EPS | $0.56 | $0.65 | | Basic Shares Outstanding | 14,109 | 13,978 | | Diluted Shares Outstanding | 14,369 | 14,125 | - Stock-based compensation expense was **$664,000** for the three months and **$1.4 million** for the six months ended October 31, 2021. Unrecognized compensation expense related to unvested RSUs and PSUs was **$3.7 million** as of October 31, 2021, to be recognized over a weighted average remaining contractual term of **1.7 years**[79](index=79&type=chunk)[80](index=80&type=chunk)[86](index=86&type=chunk) - During the six months ended October 31, 2021, the company granted **26,809 PSUs** and **73,248 RSUs**. **34,722 shares** were purchased by employees under the ESPP[84](index=84&type=chunk)[87](index=87&type=chunk) [(9) Accrued Expenses](index=20&type=section&id=(9)%20Accrued%20Expenses) This note provides a detailed breakdown of accrued expenses and explains the primary drivers behind their increase Accrued Expenses (in thousands) | Accrued Expense (in thousands) | October 31, 2021 | April 30, 2021 | | :----------------------------- | :--------------- | :------------- | | Accrued freight | $4,951 | $2,466 | | Accrued sales allowances | $4,930 | $2,931 | | Accrued commissions | $1,632 | $1,578 | | Accrued taxes other than income | $1,212 | $1,052 | | Accrued warranty | $671 | $717 | | Accrued professional fees | $643 | $701 | | Accrued other | $232 | $245 | | Accrued employee benefits | $209 | $153 | | Total Accrued Expenses | $14,480 | $9,843 | - Total accrued expenses increased by **$4.6 million** from April 30, 2021, to October 31, 2021, primarily driven by increases in accrued freight and sales allowances[92](index=92&type=chunk) [(10) Income Taxes](index=20&type=section&id=(10)%20Income%20Taxes) This note details the company's income tax expense and effective tax rates for the reported periods, highlighting influencing factors Income Tax Metrics (in thousands) | Income Tax Metric (in thousands) | Three Months Ended Oct 31, 2021 | Three Months Ended Oct 31, 2020 | Six Months Ended Oct 31, 2021 | Six Months Ended Oct 31, 2020 | | :------------------------------- | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- | | Income Tax Expense | $1,284 | $2,408 | $2,133 | $3,503 | | Effective Tax Rate | 21.9% | 24.7% | 21.0% | 27.7% | - Income tax expense decreased for both the three and six months ended October 31, 2021, compared to the prior year, with effective tax rates of **21.9%** and **21.0%** respectively. Discrete tax benefits related to stock-based compensation impacted the rates[93](index=93&type=chunk) [(11) Commitments and Contingencies](index=20&type=section&id=(11)%20Commitments%20and%20Contingencies) This note discusses the company's involvement in legal proceedings and its strategy for mitigating the impact of Section 301 tariffs - The company is involved in various lawsuits and claims in the ordinary course of business but incurred no material expenses or settlement fees related to product liability litigation for the reported periods[94](index=94&type=chunk) - The company is utilizing a duty drawback mechanism to offset the impact of Section 301 tariffs on goods imported from China, accounting for potential reimbursements as a gain contingency[95](index=95&type=chunk)[96](index=96&type=chunk) [(12) Segment Reporting](index=21&type=section&id=(12)%20Segment%20Reporting) This note clarifies that the company operates as a single reporting segment, with internal analysis by trade channel and brands - The company operates as one segment, with the CEO reviewing only consolidated financial information for resource allocation decisions. While revenue streams are analyzed by trade channel, brands, and customer channels, these do not constitute separate reporting units[97](index=97&type=chunk) - Brand lanes (Marksman, Defender, Harvester, Adventurer) are primarily focused on product development and marketing, not separate operating activities or expense accumulation[97](index=97&type=chunk) [(13) Subsequent Events](index=21&type=section&id=(13)%20Subsequent%20Events) This note discloses the Board of Directors' authorization of a share repurchase program after the reporting period - On December 6, 2021, the Board of Directors authorized a share repurchase program of up to **$15.0 million** of common stock, executable through December 2023. No purchases had been made as of December 9, 2021[99](index=99&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=22&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides a detailed discussion and analysis of the company's financial condition and results of operations for the three and six months ended October 31, 2021, compared to the prior year. It covers net sales, gross profit, operating expenses, net income, liquidity, and capital resources, including a reconciliation of non-GAAP Adjusted EBITDAS [Overview](index=22&type=section&id=Overview) This section serves as an introduction to the management discussion, emphasizing its forward-looking nature and reliance on prior annual reports - This section should be read in conjunction with the Annual Report on Form 10-K and the unaudited financial statements. It includes forward-looking statements subject to various risks and uncertainties[102](index=102&type=chunk)[103](index=103&type=chunk) [Background and Basis of Presentation](index=22&type=section&id=Background%20and%20Basis%20of%20Presentation) This section reiterates the company's spin-off from Smith & Wesson Brands, Inc. and the resulting basis of financial statement presentation - The company's financial statements prior to the **August 24, 2020** spin-off from Smith & Wesson Brands, Inc. were prepared on a 'carve-out' basis, including allocated corporate expenses. Post-spin-off statements are consolidated as a standalone company[104](index=104&type=chunk)[105](index=105&type=chunk)[106](index=106&type=chunk) [Second Quarter Fiscal 2022 Highlights](index=22&type=section&id=Second%20Quarter%20Fiscal%202022%20Highlights) This section summarizes key financial performance metrics for the second quarter and first half of fiscal year 2022, including net sales, gross margin, and net income Q2 Fiscal 2022 Highlights (Three Months Ended Oct 31, in millions, except per share data) | Metric | 2021 | 2020 | Change | | :----- | :--- | :--- | :----- | | Net Sales | $70.8 | $79.1 | $(8.3) (-10.5%) | | Gross Margin | 46.7% | 46.9% | -20 bps | | Net Income | $4.6 | $7.3 | $(2.7) (-37.6%) | | Diluted EPS | $0.32 | $0.52 | $(0.20) (-38.5%) | | Non-GAAP Adjusted EBITDAS | $11.7 | $15.8 | $(4.1) (-25.9%) | H1 Fiscal 2022 Highlights (Six Months Ended Oct 31, in millions, except per share data) | Metric | 2021 | 2020 | Change | | :----- | :--- | :--- | :----- | | Net Sales | $131.5 | $129.6 | $2.0 (1.5%) | | Gross Margin | 47.2% | 46.9% | +30 bps | | Net Income | $8.0 | $9.1 | $(1.1) (-11.9%) | | Diluted EPS | $0.56 | $0.65 | $(0.09) (-13.8%) | | Non-GAAP Adjusted EBITDAS | $21.3 | $24.5 | $(3.2) (-13.1%) | [Results of Operations](index=23&type=section&id=Results%20of%20Operations) This section provides a detailed analysis of the company's financial performance across various income statement line items [Net Sales and Gross Profit](index=23&type=section&id=Net%20Sales%20and%20Gross%20Profit) This section analyzes changes in net sales by channel and geography, along with the resulting impact on gross profit and margin Net Sales and Gross Profit (Three Months Ended Oct 31, in thousands) | Metric | 2021 | 2020 | Change | % Change | | :----- | :--- | :--- | :----- | :------- | | Net Sales | $70,760 | $79,098 | $(8,338) | -10.5% | | Cost of Sales | $37,723 | $42,025 | $(4,302) | -10.2% | | Gross Profit | $33,037 | $37,073 | $(4,036) | -10.9% | | Gross Margin | 46.7% | 46.9% | -20 bps | Net Sales and Gross Profit (Six Months Ended Oct 31, in thousands) | Metric | 2021 | 2020 | Change | % Change | | :----- | :--- | :--- | :----- | :------- | | Net Sales | $131,528 | $129,565 | $1,963 | 1.5% | | Cost of Sales | $69,508 | $68,762 | $746 | 1.1% | | Gross Profit | $62,020 | $60,803 | $1,217 | 2.0% | | Gross Margin | 47.2% | 46.9% | +30 bps | - For the three months, traditional channel net sales decreased **18.2%** due to inventory build-up and prior year COVID-19 related store reopening replenishment, partially offset by increased hunting product demand and price increases. E-commerce net sales increased **4.9%** due to direct-to-consumer sales and successful promotions[115](index=115&type=chunk)[116](index=116&type=chunk) - For the six months, traditional channel net sales increased **10.9%** due to hunting product demand and increased foot traffic. E-commerce net sales decreased **13.1%** compared to a heightened prior year period due to COVID-19 restrictions, though direct-to-consumer sales increased[121](index=121&type=chunk)[122](index=122&type=chunk) - New products (SKUs introduced over prior two fiscal years) represented **25.8%** of net sales for the three months and **24.5%** for the six months ended October 31, 2021[117](index=117&type=chunk)[123](index=123&type=chunk) [Operating Expenses](index=25&type=section&id=Operating%20Expenses) This section details the changes in research and development, selling, marketing, distribution, and general and administrative expenses Operating Expenses (Three Months Ended Oct 31, in thousands) | Expense Type | 2021 | 2020 | Change | % Change | | :----------- | :--- | :--- | :----- | :------- | | Research and development | $1,457 | $1,932 | $(475) | -24.6% | | Selling, marketing, and distribution | $15,664 | $15,679 | $(15) | -0.1% | | General and administrative | $10,615 | $9,898 | $717 | 7.2% | | Total Operating Expenses | $27,736 | $27,509 | $227 | 0.8% | | % of Net Sales | 39.2% | 34.8% | | | Operating Expenses (Six Months Ended Oct 31, in thousands) | Expense Type | 2021 | 2020 | Change | % Change | | :----------- | :--- | :--- | :----- | :------- | | Research and development | $2,977 | $3,162 | $(185) | -5.9% | | Selling, marketing, and distribution | $28,864 | $26,305 | $2,559 | 9.7% | | General and administrative | $20,654 | $19,308 | $1,346 | 7.0% | | Total Operating Expenses | $52,495 | $48,775 | $3,720 | 7.6% | | % of Net Sales | 39.9% | 37.6% | | | - For the three months, R&D decreased due to lower professional fees. G&A increased due to **$1.4 million** in standalone expenses (IT infrastructure, software, insurance) partially offset by lower intangible asset amortization[124](index=124&type=chunk) - For the six months, selling, marketing, and distribution expenses increased by **$2.6 million**, driven by higher freight costs (**$1.9 million**), advertising (**$1.2 million**), and compensation (**$818,000**). G&A increased by **$1.3 million** due to **$2.1 million** in standalone expenses, partially offset by lower intangible asset amortization[125](index=125&type=chunk) [Operating Income](index=25&type=section&id=Operating%20Income) This section analyzes the changes in operating income, attributing them to shifts in sales, gross profit, and operating expenses Operating Income (in thousands) | Period | 2021 | 2020 | Change | % Change | | :----- | :--- | :--- | :----- | :------- | | Three Months Ended Oct 31 | $5,301 | $9,564 | $(4,263) | -44.6% | | Six Months Ended Oct 31 | $9,525 | $12,028 | $(2,503) | -20.8% | - Operating income decreased by **44.6%** for the three months and **20.8%** for the six months ended October 31, 2021, primarily due to lower sales and gross profit (three months) and increased operating expenses (six months)[127](index=127&type=chunk)[130](index=130&type=chunk) [Total Other Income, Net](index=26&type=section&id=Total%20Other%20Income,%20Net) This section explains the fluctuations in other income, net, including contributions from sublease income and tax incentives Total Other Income, Net (in thousands) | Period | 2021 | 2020 | Change | % Change | | :----- | :--- | :--- | :----- | :------- | | Three Months Ended Oct 31 | $566 | $183 | $383 | 209.3% | | Six Months Ended Oct 31 | $648 | $603 | $45 | 7.5% | - Total other income, net, increased significantly for the three months ended October 31, 2021, primarily due to sublease income and an income tax incentive program related to the Columbia, MO headquarters lease[131](index=131&type=chunk) [Income Taxes](index=26&type=section&id=Income%20Taxes) This section discusses the company's income tax expense and effective tax rates, noting the impact of discrete tax benefits Income Tax Expense (in thousands) | Period | 2021 | 2020 | Change | % Change | | :----- | :--- | :--- | :----- | :------- | | Three Months Ended Oct 31 | $1,284 | $2,408 | $(1,124) | -46.7% | | Effective Tax Rate | 21.9% | 24.7% | -2.8% | | Six Months Ended Oct 31 | $2,133 | $3,503 | $(1,370) | -39.1% | | Effective Tax Rate | 21.0% | 27.7% | -6.8% | - The effective tax rates for the three and six months ended October 31, 2021, were **21.9%** and **21.0%** respectively, lower than the prior year, influenced by discrete items related to stock-based compensation[133](index=133&type=chunk)[135](index=135&type=chunk) [Net Income](index=26&type=section&id=Net%20Income) This section summarizes the changes in net income and diluted earnings per share, linking them to underlying operational performance Net Income (in thousands, except per share data) | Period | 2021 | 2020 | Change | % Change | | :----- | :--- | :--- | :----- | :------- | | Three Months Ended Oct 31 | $4,583 | $7,339 | $(2,756) | -37.6% | | Diluted EPS | $0.32 | $0.52 | $(0.20) | -38.5% | | Six Months Ended Oct 31 | $8,040 | $9,128 | $(1,088) | -11.9% | | Diluted EPS | $0.56 | $0.65 | $(0.09) | -13.8% | - Net income decreased for both periods, primarily due to lower sales volume and gross profit, and increased operating expenses[138](index=138&type=chunk)[139](index=139&type=chunk) [Non-GAAP Financial Measure](index=27&type=section&id=Non-GAAP%20Financial%20Measure) This section defines and reconciles the non-GAAP Adjusted EBITDAS metric, used by management to assess financial performance - The company uses Adjusted EBITDAS (GAAP net income before interest, taxes, depreciation, amortization, stock compensation, and certain non-routine items) as a supplemental non-GAAP measure to evaluate performance, capital requirements, and profitability[140](index=140&type=chunk) Non-GAAP Adjusted EBITDAS Reconciliation (in thousands) | Metric | Three Months Ended Oct 31, 2021 | Three Months Ended Oct 31, 2020 | Six Months Ended Oct 31, 2021 | Six Months Ended Oct 31, 2020 | | :----- | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- | | GAAP Net Income | $4,583 | $7,339 | $8,040 | $9,128 | | Interest expense | $53 | $0 | $99 | $0 | | Income tax expense | $1,284 | $2,408 | $2,133 | $3,503 | | Depreciation and amortization | $4,207 | $5,068 | $8,386 | $10,459 | | Related party interest income | $0 | $(88) | $0 | $(424) | | Stock compensation | $664 | $899 | $1,416 | $1,196 | | Transition costs | $0 | $13 | $0 | $264 | | Technology implementation | $887 | $0 | $1,159 | $0 | | COVID-19 costs | $0 | $0 | $0 | $223 | | Other | $18 | $125 | $18 | $125 | | **Non-GAAP Adjusted EBITDAS** | **$11,696** | **$15,764** | **$21,251** | **$24,474** | [Liquidity and Capital Resources](index=28&type=section&id=Liquidity%20and%20Capital%20Resources) This section discusses the company's cash position, planned capital allocation, and future funding requirements for growth and infrastructure - The company plans to use cash flows to invest in R&D, hire employees, fund growth strategies (including acquisitions), repay debt, and develop its independent IT infrastructure and ERP systems[145](index=145&type=chunk) - IT infrastructure development is estimated to cost **$8.0 million** over fiscal 2022 and 2023. Fiscal 2022 capital expenditures are projected at **$3.5 million**, with **$1.6 million** in one-time operating expenses and **$1.2 million** in duplicative expenses for system changeover[145](index=145&type=chunk) - Cash and cash equivalents were **$32.6 million** as of October 31, 2021, down from **$60.8 million** at April 30, 2021[154](index=154&type=chunk) [Operating Activities](index=28&type=section&id=Operating%20Activities) This section analyzes the significant shift in cash flow from operating activities, primarily driven by changes in inventory and accounts receivable - Cash used in operating activities was **$25.3 million** for the six months ended October 31, 2021, a significant change from **$4.5 million** provided in the prior year. This was primarily due to a **$30.7 million** increase in inventory (planned build, seasonality, mitigation of price increases/supply chain disruptions) and a **$12.2 million** increase in accounts receivable[149](index=149&type=chunk) - The increase in cash used was partially offset by a **$3.7 million** increase in accounts payable and **$4.6 million** higher accrued expenses[149](index=149&type=chunk) - Inventory is expected to decrease in the second half of fiscal 2022 due to holiday shopping season demand and new product introductions[150](index=150&type=chunk) [Investing Activities](index=29&type=section&id=Investing%20Activities) This section details cash used in investing activities and outlines projected capital expenditures for the fiscal year - Cash used in investing activities increased by **$726,000** for the six months ended October 31, 2021, compared to the prior year. The company expects **$7.5 million to $8.5 million** in capital expenditures for fiscal 2022, including IT infrastructure development[151](index=151&type=chunk) [Financing Activities](index=29&type=section&id=Financing%20Activities) This section explains the cash flows from financing activities, including stock-related transactions and the impact of the prior year's spin-off - Cash used in financing activities was **$92,000** for the six months ended October 31, 2021, primarily due to payments for employee withholding tax related to restricted stock issuances, offset by employee stock purchases. This contrasts with **$31.3 million** provided by financing activities in the prior year due to net transfers from the former parent company[152](index=152&type=chunk) - Future capital requirements depend on various factors, including net sales, product development, marketing expansion, new product introductions, and the costs of operating as an independent public company, including IT infrastructure[153](index=153&type=chunk) [Other Matters](index=29&type=section&id=Other%20Matters) This section confirms no material changes to critical accounting policies or recent accounting pronouncements since the last annual report - There have been no material changes to critical accounting policies or recent accounting pronouncements as discussed in the Annual Report on Form 10-K[155](index=155&type=chunk)[156](index=156&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=30&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section states that there have been no material changes to the company's quantitative and qualitative disclosures about market risk since its last Annual Report on Form 10-K - No material changes from the information provided in Quantitative and Qualitative Disclosures about Market Risk in the Form 10-K[158](index=158&type=chunk) [Item 4. Controls and Procedures](index=30&type=section&id=Item%204.%20Controls%20and%20Procedures) The company's CEO and CFO concluded that disclosure controls and procedures were effective as of October 31, 2021. There have been no material changes to internal control over financial reporting during the most recent fiscal quarter - As of October 31, 2021, the Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective[159](index=159&type=chunk) - There have been no material changes in the company's internal control over financial reporting during the fiscal quarter ended October 31, 2021[160](index=160&type=chunk) [PART II - OTHER INFORMATION](index=31&type=section&id=PART%20II%20-%20OTHER%20INFORMATION) This part includes additional information not covered in the financial statements, such as legal proceedings, risk factors, and exhibits [Item 1. Legal Proceedings](index=31&type=section&id=Item%201.%20Legal%20Proceedings) This section refers to Note 11 of the financial statements for details on legal proceedings, commitments, and contingencies - Information regarding the nature of legal proceedings is discussed in Note 11 — Commitments and Contingencies to the consolidated and combined financial statements[163](index=163&type=chunk) [Item 1A. Risk Factors](index=31&type=section&id=Item%201A.%20Risk%20Factors) This section states that there have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K - There have been no material changes from the risk factors previously disclosed in the Annual Report on Form 10-K filed on July 15, 2021[164](index=164&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=31&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) As of October 31, 2021, the company had no authorized share repurchase programs - As of October 31, 2021, the company had no authorized share repurchase programs[165](index=165&type=chunk) [Item 6. Exhibits](index=31&type=section&id=Item%206.%20Exhibits) This section lists the exhibits included with or incorporated by reference into the Quarterly Report on Form 10-Q - The exhibits listed on the Index to Exhibits are included or incorporated by reference[166](index=166&type=chunk)[167](index=167&type=chunk) [Signatures](index=32&type=section&id=Signatures) This section contains the official signatures of the company's principal executive and financial officers, certifying the report's accuracy - The report was signed on December 9, 2021, by Brian D. Murphy, President and Chief Executive Officer, and H. Andrew Fulmer, Executive Vice President, Chief Financial Officer, and Treasurer[170](index=170&type=chunk)[171](index=171&type=chunk)

American Outdoor Brands, Inc. (NASDAQ:AOUT) Q1 2022 Earnings Conference Call September 9, 2021 5:00 PM ET Company Participants Elizabeth Sharp - Vice President, Investor Relations Brian Murphy - President and Chief Executive Officer Andrew Fulmer - Chief Financial Officer Conference Call Participants John Kernan - Cowen Eric Wold - B. Riley Securities Scott Stember - CL King Mark Smith - Lake Street Capital Operator Thank you for standing by, and welcome to the American Outdoor Brands First Quarter 2022 Ear ...

American Outdoor Brands, Inc. (NASDAQ:AOUT) Q4 2021 Results Conference Call July 15, 2021 5:00 PM ET Company Participants Liz Sharp - Vice President, Investor Relations Brian Murphy - President and Chief Executive Officer Andy Fulmer - Chief Financial Officer Conference Call Participants Eric Wold - B. Riley Securities Scott Stember - CL King Mark Smith - Lake Street Krista Zuber - Cowen Operator Thank you for standing by, and welcome to the American Outdoor Brands Fourth Quarter 2021 Earnings Conference Ca ...

American Outdoor Brands Inc. (NASDAQ:AOUT) Q3 2021 Earnings Conference Call March 18, 2021 5:00 PM ET Company Participants Liz Sharp - Vice President, Investor Relations Brian Murphy - President and Chief Executive Officer Andy Fulmer - Chief Financial Officer Conference Call Participants John Kernan - Cowen Scott Stember - CL King Eric Wold - B. Riley Securities James Hardiman - Wedbush Securities Mark Smith - Lake Street Capital Markets Operator Good day, everyone. And welcome to American Outdoor Brands I ...