American Outdoor Brands, Inc. (NASDAQ:AOUT) Q1 2023 Results Conference Call September 8, 2022 5:00 PM ET Company Participants Liz Sharp - VP, IR Brian Murphy - President & CEO Andy Fulmer - CFO Conference Call Participants Matt Koranda - ROTH Capital Eric Wold - B. Riley Securities Connor Jensen - Lake Street Capital John Kernan - Cowan Operator Good day everyone and welcome to American Outdoor Brands Inc. First Quarter Fiscal 2023 Financial Results Conference Call. This call is being recorded. At this time ...

PART I - FINANCIAL INFORMATION [Item 1. Financial Statements (Unaudited)](index=5&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) This section presents the unaudited condensed consolidated financial statements for the three months ended July 31, 2022 and 2021, detailing financial position, performance, and cash flows [Condensed Consolidated Financial Statements](index=5&type=section&id=Condensed%20Consolidated%20Financial%20Statements) The company reported a net loss of **$5.7 million** for Q1 FY2023, with net sales decreasing to **$43.7 million** and total equity falling to **$197.8 million** Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | July 31, 2022 | April 30, 2022 | | :--- | :--- | :--- | | **Total Current Assets** | $173,853 | $179,805 | | Inventories | $120,638 | $121,683 | | **Total Assets** | $270,669 | $277,840 | | **Total Current Liabilities** | $28,550 | $27,005 | | Notes and loans payable, net | $19,551 | $24,697 | | **Total Liabilities** | $72,871 | $74,809 | | **Total Equity** | $197,798 | $203,031 | Condensed Consolidated Statement of Operations (in thousands, except per share data) | Metric | Three Months Ended July 31, 2022 | Three Months Ended July 31, 2021 | | :--- | :--- | :--- | | Net sales | $43,676 | $60,768 | | Gross profit | $19,039 | $28,983 | | Operating (loss)/income | $(5,561) | $4,223 | | Net (loss)/income | $(5,695) | $3,457 | | Diluted (loss)/income per share | $(0.42) | $0.24 | Condensed Consolidated Statement of Cash Flows Highlights (in thousands) | Activity | Three Months Ended July 31, 2022 | Three Months Ended July 31, 2021 | | :--- | :--- | :--- | | Net cash provided by/(used in) operating activities | $5,068 | $(3,165) | | Net cash used in investing activities | $(1,610) | $(986) | | Net cash used in financing activities | $(5,510) | $(307) | | **Net decrease in cash** | **$(2,052)** | **$(4,458)** | | **Cash and cash equivalents, end of period** | **$17,469** | **$56,343** | [Notes to Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) Key notes detail the company's business structure, revenue recognition, the **$27 million** Grilla Grills acquisition, debt, and single-segment reporting - The company is a provider of outdoor lifestyle products and shooting sports accessories, organized into four consumer verticals: Adventurer, Harvester, Marksman, and Defender[27](index=27&type=chunk)[28](index=28&type=chunk) Disaggregation of Revenue by Channel (in thousands) | Channel | Q1 FY2023 (ended Jul 31, 2022) | Q1 FY2022 (ended Jul 31, 2021) | % Change | | :--- | :--- | :--- | :--- | | e-commerce channels | $20,545 | $16,608 | 23.7% | | Traditional channels | $23,131 | $44,160 | -47.6% | | **Total net sales** | **$43,676** | **$60,768** | **-28.1%** | - In fiscal year 2022, the company acquired Grilla Grills for **$27 million**, financed through cash and a **$25 million** draw on its revolving line of credit The acquisition added **$18.5 million** in tradename intangible assets[44](index=44&type=chunk)[49](index=49&type=chunk) - As of July 31, 2022, the company had **$20.0 million** of borrowings outstanding on its **$75 million** revolving line of credit, bearing interest at **2.85%**[71](index=71&type=chunk)[72](index=72&type=chunk) - The company has concluded it operates as one reportable segment, as the Chief Executive Officer reviews only consolidated financial information to allocate resources[93](index=93&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=20&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses a challenging Q1 FY2023, with net sales down **28.1%** to **$43.7 million**, a **$5.7 million** net loss, and Adjusted EBITDAS falling to **$1.4 million** [Results of Operations](index=20&type=section&id=Results%20of%20Operations) Net sales decreased **28.1%** to **$43.7 million** due to a **47.6%** drop in traditional channels, while e-commerce grew **23.7%**, leading to an operating loss Q1 FY2023 vs Q1 FY2022 Performance (in thousands) | Metric | Q1 FY2023 | Q1 FY2022 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Net Sales | $43,676 | $60,768 | $(17,092) | -28.1% | | Gross Profit | $19,039 | $28,983 | $(9,944) | -34.3% | | Operating (Loss)/Income | $(5,561) | $4,223 | $(9,784) | -231.7% | | Net (Loss)/Income | $(5,695) | $3,457 | $(9,152) | -264.7% | - The **47.6%** decrease in traditional channel sales was attributed to lower orders from retailers who were reducing inventory levels, lower foot traffic, and reduced sales to OEM customers[107](index=107&type=chunk) - E-commerce sales increased by **23.7%**, primarily due to a **234.8%** surge in direct-to-consumer net sales Brands sold only on direct-to-consumer websites, including the newly acquired business, represented **$6.9 million** in sales[106](index=106&type=chunk) - Gross margin decreased by **410 basis points** primarily due to lower sales volumes, increased freight expenses, promotional discounts, and inventory provisions, which were partially offset by price increases[108](index=108&type=chunk) [Non-GAAP Financial Measure](index=22&type=section&id=Non-GAAP%20Financial%20Measure) Adjusted EBITDAS, a non-GAAP measure, significantly decreased to **$1.4 million** for Q1 FY2023 from **$9.6 million** in the prior year Reconciliation of GAAP Net (Loss)/Income to Non-GAAP Adjusted EBITDAS (in thousands) | Line Item | Three Months Ended July 31, 2022 | Three Months Ended July 31, 2021 | | :--- | :--- | :--- | | GAAP net (loss)/income | $(5,695) | $3,457 | | Interest expense | 186 | 46 | | Income tax expense | 189 | 849 | | Depreciation and amortization | 4,162 | 4,179 | | Stock compensation | 714 | 752 | | Technology implementation | 769 | 272 | | Acquisition costs | 47 | — | | Shareholder cooperation agreement costs | 1,010 | — | | **Non-GAAP Adjusted EBITDAS** | **$1,382** | **$9,555** | [Liquidity and Capital Resources](index=23&type=section&id=Liquidity%20and%20Capital%20Resources) The company held **$17.5 million** in cash, generated **$5.1 million** from operations, and expects **$7.5 million to $8.0 million** in FY2023 capital expenditures Cash Flow Summary (in thousands) | Activity | Three Months Ended July 31, 2022 | Three Months Ended July 31, 2021 | | :--- | :--- | :--- | | Operating activities | $5,068 | $(3,165) | | Investing activities | $(1,610) | $(986) | | Financing activities | $(5,510) | $(307) | | **Total cash flow** | **$(2,052)** | **$(4,458)** | - The company expects to spend approximately **$7.5 million to $8.0 million** on capital expenditures in fiscal 2023, an increase from fiscal 2022, which includes spending on its independent IT infrastructure[123](index=123&type=chunk) - The company plans to continue investing cash flows in R&D, growth strategies, debt payments, and implementing its new enterprise resource planning (ERP) system[120](index=120&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=25&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) No material changes occurred in the company's market risk disclosures from the prior Annual Report on Form 10-K - There were no material changes to the company's market risk disclosures from those provided in the most recent Form 10-K[130](index=130&type=chunk) [Item 4. Controls and Procedures](index=25&type=section&id=Item%204.%20Controls%20and%20Procedures) Disclosure controls and procedures were effective as of July 31, 2022, with no material changes in internal control over financial reporting - Management concluded that the company's disclosure controls and procedures were effective as of the end of the period[131](index=131&type=chunk) - No changes in internal control over financial reporting occurred during the fiscal quarter that have materially affected, or are reasonably likely to materially affect, internal controls[132](index=132&type=chunk) PART II - OTHER INFORMATION [Item 1. Legal Proceedings](index=26&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in ordinary course legal proceedings, incurring no material product liability litigation expenses for the quarter - The company did not incur any material expenses in defense and administrative costs related to product liability litigation for the three months ended July 31, 2022 and 2021[89](index=89&type=chunk)[134](index=134&type=chunk) [Item 1A. Risk Factors](index=26&type=section&id=Item%201A.%20Risk%20Factors) No material changes occurred in the company's risk factors since those disclosed in the Annual Report on Form 10-K - There have been no material changes from the risk factors previously disclosed in the company's Annual Report on Form 10-K[135](index=135&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=26&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) As of July 31, 2022, the company had no authorized share repurchase programs - As of July 31, 2022, the company had no authorized share repurchase programs[136](index=136&type=chunk) [Item 6. Exhibits](index=27&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed with the Form 10-Q, including a Cooperation Agreement, officer certifications, and XBRL documents - Key exhibits filed include the Cooperation Agreement with the Engine Group, CEO and CFO certifications (Rule 13a-14(a)/15d-14(a) and Section 1350), and XBRL data files[138](index=138&type=chunk)[139](index=139&type=chunk)[140](index=140&type=chunk)

American Outdoor Brands, Inc. (NASDAQ:AOUT) Q4 2022 Earnings Conference Call July 14, 2022 5:00 PM ET Company Participants Liz Sharp - VP, IR Brian Murphy - President & CEO Andy Fulmer - CFO Conference Call Participants Mark Smith - Lake Street Capital Markets Operator Welcome to the Fourth Quarter and Full Fiscal Year 2022 American Outdoor Brands Earnings Conference Call. My name is Vanessa and I will be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we wil ...

Financial Performance - Net sales for fiscal 2022 were $247.5 million, a decrease of $29.2 million, or 10.5%, from the prior fiscal year[295]. - The net loss for fiscal 2022 was $64.9 million, or ($4.66) per diluted share, compared to net income of $18.4 million, or $1.29 per diluted share, for the prior fiscal year[295]. - Operating income for fiscal 2022 was $(56.5) million, a decrease of $80.0 million or -340.6% compared to fiscal 2021[310]. - Net loss for fiscal 2022 was $(64.9) million, a decrease of $83.3 million or -452.5% compared to a net income of $18.4 million in fiscal 2021[317]. - Adjusted EBITDAS for fiscal 2022 was $35.0 million, down from $47.3 million in fiscal 2021, indicating a decrease of $12.3 million[323]. Sales and Revenue - E-commerce channel net sales decreased by $11.3 million, or 10.4%, while direct-to-consumer sales increased by 73.0% over the prior year[303]. - Domestic net sales decreased by $32.8 million, or 12.2%, while international net sales increased by 39.6%[300]. - New products accounted for 25.8% of net sales for fiscal 2022, with approximately 250 to 350 new SKUs introduced each year[304]. Expenses and Costs - Total operating expenses for fiscal 2022 were $170.8 million, an increase of 65.3% compared to $103.3 million in fiscal 2021, primarily due to a non-cash goodwill impairment charge of $67.8 million[307]. - Excluding non-cash goodwill impairment, operating income was $11.3 million, down $12.2 million from the previous year due to lower sales volumes and gross profit[311]. - Cash used in operating activities was $(17.9) million in fiscal 2022, a decrease of $51.3 million or -153.9% from cash generated of $33.3 million in fiscal 2021[331]. - Cash used in investing activities was $33.6 million in fiscal 2022, significantly higher than $4.2 million in fiscal 2021, primarily due to the acquisition of Grilla Grills for $27.0 million[335]. Acquisitions and Investments - The company acquired Grilla Grills for $27 million in March 2022, with plans for full integration in fiscal 2023[294]. - The company plans to invest approximately $9.0 million in information technology infrastructure over fiscal 2022 and fiscal 2023[329]. Debt and Financing - The revolving line of credit was increased to $75.0 million in March 2022, maturing in March 2027, with interest rates based on SOFR plus an applicable margin ranging from 0.25% to 1.75%[338]. - As of April 30, 2022, the company had $25.2 million of borrowings outstanding on the revolving line of credit, which bore interest at 1.56%[339]. - Cash provided by financing activities was $10.3 million in fiscal 2022, a decrease from $31.4 million in the prior fiscal year, primarily due to $15.0 million used for stock repurchase[336]. Impairments and Valuation - The company recorded a non-cash impairment charge of $67.8 million for goodwill during the fourth quarter of fiscal 2022 due to a decline in stock price and market capitalization[346]. - The company established a full valuation allowance for deferred tax assets, indicating it is more likely than not that these assets will not be realized[353]. - The company evaluated the recoverability of long-lived assets and found no indications of impairment as of April 30, 2022[349]. Market Conditions and Risks - Inflationary factors, including increased labor and overhead costs, may negatively impact future gross margins and operating expenses[340]. - The company is exposed to variable interest rate risks associated with its $75.0 million revolving line of credit, with $25.2 million of borrowings outstanding as of April 30, 2022[361]. Contractual Obligations - Total contractual obligations as of April 30, 2022, amounted to $116.1 million, including long-term debt obligations of $25.2 million and operating lease obligations of $37.8 million[356]. - Purchase obligations totaled $50.8 million as of April 30, 2022, representing binding commitments to purchase raw materials and finished products[359].

Financial Data and Key Metrics Changes - Net sales for Q3 were $70.1 million, a decrease of 15.2% compared to $82.6 million in the prior year, following last year's record growth of 90% [19][30] - GAAP EPS for Q3 was $0.27, down from $0.56 last year, while non-GAAP EPS was $0.52 compared to $0.82 last year [23][30] - Adjusted EBITDAS for the quarter was $10.5 million, with a margin of 15%, compared to $15.8 million or a margin of 19.1% for the prior year [23] Business Line Data and Key Metrics Changes - Outdoor lifestyle category sales grew by 81% compared to two years ago, accounting for over 52% of total net sales in Q3, while shooting sports category sales were down 31% year-over-year [20][46] - The outdoor lifestyle category partially offset the decline in shooting sports, which saw a 45% increase compared to Q3 of fiscal 2020 [19][46] Market Data and Key Metrics Changes - The outdoor cooking market is valued at $7 billion, with the company entering this market through the acquisition of Grilla Grills for $27 million [6][16] - The shooting sports market has seen a long-term growth trend, with adjusted NICS checks up 32% in the trailing 12 months compared to two years ago [19] Company Strategy and Development Direction - The company aims for organic growth of 8% to 10% over the next four to five years, focusing on both organic growth and acquisitions [13][30] - The acquisition of Grilla Grills is expected to enhance the company's outdoor lifestyle category and expand its direct-to-consumer revenue base [16][17] Management's Comments on Operating Environment and Future Outlook - Management noted that the decline in shooting sports sales is primarily demand-driven, with a shift in consumer spending towards ammunition [39] - The company anticipates continued growth in the outdoor lifestyle category, while shooting sports sales are expected to be influenced by consumer firearm purchasing trends [30] Other Important Information - The company has maintained a strong balance sheet, ending Q3 with $22.8 million in cash and no borrowings on its line of credit [24] - The company plans to close the Grilla transaction with no impact on its cash reserves due to an increased borrowing capacity [27] Q&A Session Summary Question: Trends by outdoor activity - Management noted softness in shooting sports and personal protection, but strength in outdoor lifestyle activities such as hunting, fishing, and camping [33] Question: Material headwinds or drivers for Q4 - Management indicated that Q4 guidance is based on current trends in shooting sports and outdoor lifestyle, with too much uncertainty to provide a detailed outlook for next year [35] Question: Decline in shooting sports business - The decline is primarily due to demand-side issues, with inventory levels being adequate to meet future needs [39] Question: Margin difference between categories - Management did not provide specific margin breakdowns but indicated that overall margins are not significantly different between the two categories [41] Question: Guidance for fourth quarter profitability - Management expects a slight sequential margin decline, consistent with previous years, but with some savings in fixed and variable costs [43] Question: Year-over-year performance breakdown - Shooting sports were down 31% year-over-year, while outdoor lifestyle was up 7% [46] Question: Organic growth guidance and future outlook - Management emphasized the increasing share of outdoor lifestyle in the business and the long-term potential of shooting sports as new participants enter the market [50]

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)

Financial Data and Key Metrics Changes - The company reported Q1 net sales of $60.8 million, a 20% increase compared to $50.5 million in the prior year and an 83% increase over Q1 of fiscal 2020 [20] - Q1 gross margins were 47.7%, reflecting a 70 basis point increase over the prior year, driven by improved manufacturing efficiencies and favorable inventory adjustments [21] - GAAP EPS for Q1 was $0.24 compared to $0.13 last year, while non-GAAP EPS was $0.48 compared to $0.36 last year [23] Business Line Data and Key Metrics Changes - The company has four distinct brand lines: Defender, Marksman, Harvester, and Adventurer, with 16 of 20 brands showing growth over the same period in fiscal 2021 [8] - The top-selling products came from each brand line, indicating a diverse brand portfolio and strong performance across multiple consumer activity-driven markets [9] Market Data and Key Metrics Changes - International sales grew from 4% of Q1 net sales last year to 7% this year, with a remarkable growth of nearly 239% over two years [15] - The company noted a significant increase in participation in markets such as personal protection, shooting sports, camping, hunting, and fishing, contributing to an expanded consumer base [8] Company Strategy and Development Direction - The company aims to place its brands wherever consumers shop, whether online or in physical stores, which has proven effective as net sales in traditional channels grew 70% over the prior year [14] - The company is focused on expanding into larger addressable markets and leveraging its Dock & Unlock strategy to drive innovation and new product entries [19][11] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about future opportunities, citing a strong first quarter and the ongoing consumer interest in outdoor activities [19] - The company reaffirmed its fiscal '22 guidance, estimating net sales between $280 million and $295 million, representing growth of roughly 4% over the prior year [27] Other Important Information - The company ended the quarter with $56.3 million in cash and no borrowings, allowing for strategic investments in inventory to mitigate supply chain risks [24] - The company is actively seeking acquisition targets that can supplement organic growth and align with its strategic goals [27] Q&A Session Summary Question: Can you talk to the top line guidance embedded for the rest of the year? - Management indicated that the guidance reflects nearly 70% growth over a two-year period, with a mix of international and e-commerce contributing to this outlook [34] Question: What is the incremental headwind from supply chain for the remainder of the year? - Management acknowledged increased freight costs and emphasized their internal team's efforts to maximize profitability through various freight options [38] Question: Can you provide more detail on gross margin comparisons for the next couple of quarters? - Management expects year-over-year gross margin pressure, with Q2 likely lower than 47% and Q3 and Q4 around 44% to 45% [40] Question: What is your expectation for market share in the fishing equipment market? - Management expressed optimism about capturing market share, emphasizing the distinctive product design and strategic entry into the market [44] Question: Are you seeing conversion from new firearm owners to avid users? - Management confirmed that new customers are increasingly interested in accessories and higher-priced products, indicating a shift in consumer behavior [66]