• Net sales were $535.8 million, an increase of $56.6 million, or 11.8%, over the prior fiscal year. • Gross margin was 29.5% compared with 32.2% in the prior fiscal year. • GAAP net income was $39.6 million, or $0.86 per diluted share, compared with $36.9 million, or $0.80 per diluted share, for the prior fiscal year. • Non-GAAP net income was $42.6 million, or $0.92 per diluted share, compared with $43.3 million, or $0.94 per diluted share, for the prior fiscal year. GAAP to non-GAAP adjustments for incom ...

Core Viewpoint - Smith & Wesson Brands, Inc. reported strong financial results for the fourth quarter and full fiscal year 2024, highlighting significant increases in net sales, gross margin, and net income compared to the previous year [27][28][19]. Financial Performance - For the fourth quarter ended April 30, 2024, net sales were $159.1 million, an increase of $14.4 million, or 9.9%, compared to the same quarter last year [28]. - Gross margin for the fourth quarter was 35.5%, up from 29.0% in the comparable quarter last year [26]. - Full year net sales reached $535.8 million, an increase of $56.6 million, or 11.8%, over the prior fiscal year [14]. - GAAP net income for the fourth quarter was $26.1 million, or $0.57 per diluted share, compared to $12.8 million, or $0.28 per diluted share, for the same quarter last year [11][12]. - Non-GAAP net income for the fourth quarter was $20.9 million, or $0.45 per diluted share, compared to $14.6 million, or $0.32 per diluted share, for the same quarter last year [12][16]. Operational Highlights - The company generated operating cash of $43.6 million during the fourth quarter and $106.7 million for the full year [19]. - The board of directors authorized an 8.3% increase in the quarterly dividend, reflecting the company's strong financial position [19]. - Smith & Wesson repurchased 793,551 shares, utilizing $10.2 million of its $50 million authorization during fiscal 2024 [19]. Strategic Outlook - The company expects healthy demand for firearms in fiscal 2025, supported by a deep pipeline of new products and a new state-of-the-art facility now fully operational [18]. - Despite a competitive marketplace and inflationary impacts, Smith & Wesson anticipates growth in both net sales and gross margin in fiscal 2025 [19].

Group 1 - Smith & Wesson Brands, Inc. is expected to report fourth-quarter earnings of 34 cents per share, an increase from 28 cents per share in the same period last year [1] - The company anticipates revenue of $156.8 million for the quarter, compared to $144.78 million in the year-ago quarter [1] - Smith & Wesson Brands reported better-than-expected third-quarter financial results on March 7 [2] Group 2 - The company offers an annual dividend yield of 2.94%, translating to a quarterly dividend of 12 cents per share, or 48 cents annually [2] - To earn $500 monthly from dividends, an investment of approximately $204,250 or around 12,500 shares is required [2] - For a more modest income of $100 per month, an investment of $40,850 or around 2,500 shares is needed [2] Group 3 - The dividend yield is calculated by dividing the annual dividend payment by the stock's current price, which can fluctuate based on stock price changes [4] - Changes in dividend payments also impact the yield; an increase in dividends raises the yield if the stock price remains constant [5] - Smith & Wesson Brands' shares gained 1.1% to close at $16.34 on Tuesday [5]

Interested parties in North America are invited to participate by dialing 1-877-704-4453. Interested parties from outside North America are invited to participate by dialing 1-201-389-0920. Participants should dial in at least 10 minutes prior to the start of the call. A live and archived webcast of the event will be available on the company's website at www.smith-wesson.com under the Investor Relations section. Maryville, Tennessee--(Newsfile Corp. - June 6, 2024) - Smith & Wesson Brands, Inc. (NASDAQ: SWB ...

Financial Data and Key Metrics Changes - Net sales for Q3 were $137.5 million, an increase of $8.4 million or 6.5% compared to the prior year [6] - Gross margin was 28.7%, which was better than anticipated, but 3.7% lower than the comparable quarter last year [75] - EPS was $0.17, driven by cost discipline and increased production rates [50] Business Line Data and Key Metrics Changes - Long gun shipments doubled compared to the year-ago period, while handgun shipments were largely flat, down less than 4% [71] - ASPs for handguns declined by about 6% year-over-year, while long gun ASPs improved by about 7% [51][53] - New products accounted for over 20% of sales in the quarter, with the FPC being the top-selling product [71] Market Data and Key Metrics Changes - The overall firearms market, as measured by NICS checks, was up only 5% in long guns and down 4% in handguns [71] - Channel inventory levels remained healthy, with a decline of about 12% in distributor inventories during the quarter [4] Company Strategy and Development Direction - The company is focused on gaining market share in firearms, particularly through innovative new products [3][15] - The new 1854 lever-action rifle is viewed as a significant growth opportunity and a platform product for the company [5][27] - The company plans to maintain a debt-free balance sheet and continue returning cash to stockholders [30][56] Management's Comments on Operating Environment and Future Outlook - Management expects healthy demand in the firearms market throughout the 2024 election cycle [73] - The company anticipates Q4 sales to grow at a slightly higher rate than last year, with stable demand and low channel inventory [29] - Operating expenses are expected to be 5% to 7% higher than in Q3, primarily due to increased profit sharing [9] Other Important Information - The company paid $5.5 million in dividends and ended the quarter with $47.4 million in cash [8] - Capital spending for the quarter was $18.2 million, primarily related to the relocation [76] Q&A Session Summary Question: What are the early wins or challenges encountered since the move to the Tennessee facility? - Management noted some start-up inefficiencies but expressed optimism about improvements as operations stabilize [10] Question: How is the new product pipeline looking for FY '25? - The new product pipeline remains robust, with expectations for increased ASPs driven by long guns [11] Question: Can you provide granularity on market share gains in long guns and handguns? - The company is gaining share in long guns, primarily due to the performance of the FPC, while maintaining a focus on handguns [15][37] Question: What are the expectations for operating expenses next year? - Operating expenses are expected to remain flat, with no significant changes anticipated [43][65] Question: How is the promotional activity in the market? - The company noted that promotional activity has been rational, with no panic promotions observed among competitors [43]

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended January 31, 2024 Commission File No. 001-31552 Smith & Wesson Brands, Inc. (Exact name of registrant as specified in its charter) Nevada 87-0543688 (State or other jurisdiction of incorporation or organization) 2100 Ro ...

Financial Performance - Q3 net sales reached $137.5 million, an increase of $8.4 million or 6.5% compared to the same quarter last year[5] - Q3 gross margin was 28.7%, down from 32.4% in the comparable quarter last year[5] - GAAP net income for Q3 was $7.9 million, or $0.17 per diluted share, compared to $11.1 million, or $0.24 per diluted share, in the same quarter last year[5] - Non-GAAP net income for Q3 was $8.7 million, or $0.19 per diluted share, compared to $11.6 million, or $0.25 per diluted share, in the same quarter last year[5] - For the nine months ended January 31, 2024, net income decreased to $13,499,000 from $24,039,000 in the same period last year, representing a decline of 43.5%[16] - Non-GAAP net income for the nine months ended January 31, 2024, was $21,309,000, down from $28,627,000 in the same period last year, a decrease of 25.7%[17] - GAAP operating income for the nine months ended January 31, 2024, was $19,400,000, down from $30,579,000 in the same period last year, a decrease of 36.3%[17] - Non-GAAP Adjusted EBITDAS for the nine months ended January 31, 2024, was $58,327,000, down from $66,372,000 in the same period last year, a decrease of 12.1%[18] Cash Flow and Assets - Cash generated by operations was $25.4 million, an increase of $18.5 million from the previous year, primarily due to a $9.8 million decline in inventory[4] - The company reported a net cash provided by operating activities of $63,123,000 for the nine months ended January 31, 2024, compared to a net cash used of $(21,248,000) in the prior year[19] - Free cash flow for the nine months ended January 31, 2024, was $(22,065,000), a significant decline from $(86,000) in the same period last year[19] - Cash and cash equivalents at the end of the period were $47,367,000, compared to $44,596,000 at the end of the previous year[16] - The company reported a net decrease in cash and cash equivalents of $(6,189,000) for the nine months ended January 31, 2024, compared to $(76,132,000) in the prior year[16] - The company incurred $85,188,000 in payments to acquire property and equipment for the nine months ended January 31, 2024, an increase from $64,586,000 in the prior year[16] Shareholder Returns - The company repurchased nearly 71,000 shares during Q3, utilizing $916,000 of its $50 million authorization[4] - The board of directors authorized a quarterly dividend of $0.12 per share, payable on April 4, 2024[4] Market Outlook - The company expects healthy demand in the firearm market through the 2024 election cycle, supported by a deep pipeline of new products[9] Balance Sheet - Total assets as of January 31, 2024, were $570.6 million, an increase from $541.3 million as of April 30, 2023[12] - Total liabilities increased to $194.1 million as of January 31, 2024, compared to $156.7 million as of April 30, 2023[12] Gross Profit - GAAP gross profit for the three months ended January 31, 2024, was $39,424,000, accounting for 28.7% of sales, compared to $41,841,000 or 32.4% of sales in the prior year[17]

Financial Data and Key Metrics Changes - The company reported net sales of $125 million for the second quarter, which is $3.9 million or 3.2% above the prior-year comparable quarter [32] - Gross margin was 25.4%, negatively impacted by a $3.2 million legal settlement accrual; excluding this charge, gross margin would have been 28% [8] - Cash used in operations was $2.9 million, reflecting a $32.4 million improvement compared to the previous year [33] - The company expects margins to rebound into the low-30% range in the fourth quarter due to increased production [22] Business Line Data and Key Metrics Changes - New products accounted for 29% of overall revenue in the quarter, with strong performance from recently introduced products [7][28] - ASPs remained strong, slightly up compared to last year but down mid-single-digits sequentially [16] - The company anticipates a 5% drop in ASPs due to increased promotions and a shift in product mix [34] Market Data and Key Metrics Changes - Distributor inventories decreased slightly by about 4,000 units during the quarter, indicating strong sell-through [27] - The overall market has rebounded from the summer slowdown, following normal seasonal demand patterns [29] - NICS data showed an increase in demand, particularly in October and November, suggesting a sustainable growth trend [38] Company Strategy and Development Direction - The company is focused on maximizing stockholder value through a balanced approach, including stock buybacks and dividends [18] - The relocation to Tennessee is progressing as planned, with initial shipments commencing in August and manufacturing activity ramping up [53] - The company aims to maintain a healthy balance between new product introductions and core products to offset promotional pressures [29] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the sustainability of demand, particularly with the upcoming election year expected to elevate firearms industry demand [60] - The company anticipates continued promotional activity but does not foresee a return to heavy promotions seen in previous years [59] - Management expects to be debt-free by the end of the next fiscal year, with a strong cash position anticipated [57] Other Important Information - The company repurchased nearly 646,000 shares at an average price of $12.70 during the quarter, utilizing $8.2 million of the authorized buyback program [21] - Operating expenses for the second quarter were $28 million, primarily due to one-time costs associated with the grand opening of the new facility [55] Q&A Session Summary Question: Insights on the promotional environment and ASP outlook - Management noted that while promotional activity has increased, it is not expected to escalate to previous high levels, maintaining a balanced approach [59] Question: Demand environment and NICS data - Management confirmed that demand has picked up since October, with NICS data remaining steady, indicating a positive outlook [38] Question: Pipeline for new products and SHOT Show - Management indicated confidence in the new product pipeline, with significant launches planned for the upcoming SHOT Show [40] Question: Capital allocation and share repurchases - Management stated that while share repurchases are being considered, the focus remains on maintaining a healthy balance sheet and being cautious with capital allocation [64] Question: Sustainability of gross margin targets - Management confirmed that the anticipated gross margin in Q4 is sustainable, despite some headwinds [75]

Part I - Financial Information [Item 1. Financial Statements (Unaudited)](index=4&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) This section presents Smith & Wesson's unaudited condensed consolidated financial statements, covering balance sheets, income, equity, cash flows, and detailed notes [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Total assets and liabilities slightly increased, while stockholders' equity decreased, driven by lower cash and inventories, and a rise in notes payable | Metric | October 31, 2023 (in thousands) | April 30, 2023 (in thousands) | Change (in thousands) | % Change | | :-------------------------------- | :------------------------------ | :---------------------------- | :-------------------- | :------- | | Cash and cash equivalents | $44,192 | $53,556 | $(9,364) | -17.5% | | Accounts receivable, net | $59,773 | $55,153 | $4,620 | 8.4% | | Inventories | $163,291 | $177,118 | $(13,827) | -7.8% | | Total current assets | $281,839 | $291,920 | $(10,081) | -3.5% | | Property, plant, and equipment, net | $253,253 | $210,330 | $42,923 | 20.4% | | Total assets | $572,973 | $541,294 | $31,679 | 5.8% | | Total current liabilities | $90,894 | $87,213 | $3,681 | 4.2% | | Notes and loans payable | $64,836 | $24,790 | $40,046 | 161.6% | | Total liabilities | $199,471 | $156,671 | $42,800 | 27.3% | | Total stockholders' equity | $373,502 | $384,623 | $(11,121) | -2.9% | [Condensed Consolidated Statements of Income](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income) Net income and gross profit decreased for both three and six-month periods, despite increased net sales, due to higher cost of sales and operating expenses | Metric (in thousands, except per share data) | 3 Months Ended Oct 31, 2023 | 3 Months Ended Oct 31, 2022 | % Change (3 Months) | 6 Months Ended Oct 31, 2023 | 6 Months Ended Oct 31, 2022 | % Change (6 Months) | | :------------------------------------------- | :-------------------------- | :-------------------------- | :------------------ | :-------------------------- | :-------------------------- | :------------------ | | Net sales | $124,958 | $121,035 | 3.2% | $239,201 | $205,429 | 16.4% | | Cost of sales | $93,192 | $81,773 | 14.0% | $177,034 | $134,696 | 31.4% | | Gross profit | $31,766 | $39,262 | -19.1% | $62,167 | $70,733 | -12.1% | | Operating income | $3,768 | $12,527 | -69.9% | $8,116 | $16,445 | -50.6% | | Net income | $2,498 | $9,648 | -74.1% | $5,616 | $12,960 | -56.7% | | Basic - net income per share | $0.05 | $0.21 | -76.2% | $0.12 | $0.28 | -57.1% | | Diluted - net income per share | $0.05 | $0.21 | -76.2% | $0.12 | $0.28 | -57.1% | [Condensed Consolidated Statements of Changes in Stockholders' Equity](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Changes%20in%20Stockholders'%20Equity) Stockholders' equity decreased due to treasury stock repurchases and dividend distributions, partially offset by net income and stock-based compensation | Metric (in thousands) | Balance at April 30, 2023 | Balance at October 31, 2023 | Change | | :-------------------- | :------------------------ | :-------------------------- | :----- | | Common Stock | $75 | $75 | $0 | | Additional Paid-In Capital | $283,666 | $286,341 | $2,675 | | Retained Earnings | $523,184 | $517,682 | $(5,502) | | Treasury Stock | $(422,375) | $(430,669) | $(8,294) | | Total Stockholders' Equity | $384,623 | $373,502 | $(11,121) | - During the six months ended October 31, 2023, the company repurchased **$8.2 million** in treasury stock and distributed **$11.08 million** in dividends[16](index=16&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Operating cash flow improved significantly, but increased investing activities for relocation and financing activities led to a net decrease in cash | Cash Flow Activity (in thousands) | 6 Months Ended Oct 31, 2023 | 6 Months Ended Oct 31, 2022 | Change | | :-------------------------------- | :-------------------------- | :-------------------------- | :----- | | Net cash provided by/(used in) operating activities | $37,756 | $(28,165) | $65,921 | | Net cash used in investing activities | $(67,063) | $(39,590) | $(27,473) | | Net cash provided by/(used in) financing activities | $19,943 | $(9,998) | $29,941 | | Net decrease in cash and cash equivalents | $(9,364) | $(77,753) | $68,389 | | Cash and cash equivalents, end of period | $44,192 | $42,975 | $1,217 | - Operating cash flow was favorably impacted by a **$13.8 million** decrease in inventory in 2023, contrasting with a **$59.8 million** increase in inventory in the prior comparable period[102](index=102&type=chunk) - Investing activities saw a **$27.6 million** increase in capital expenditures, primarily due to payments related to the Maryville, Tennessee Relocation[103](index=103&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) These notes provide detailed context for financial statements, covering operations, accounting principles, leases, debt, fair value, inventories, liabilities, equity, litigation, relocation, and restructuring [(1) Organization](index=9&type=section&id=(1)%20Organization) Smith & Wesson Brands, Inc. manufactures firearms under Smith & Wesson and Gemtech brands, and recently began operations at its new Maryville, Tennessee facility - Smith & Wesson manufactures handguns, long guns, handcuffs, firearm suppressors, and other firearm-related products under the Smith & Wesson and Gemtech brands[21](index=21&type=chunk) - The company serves firearm enthusiasts, collectors, hunters, sportsmen, competitive shooters, individuals seeking home/personal protection, law enforcement, security agencies, and military agencies[21](index=21&type=chunk) - Manufacturing facilities are located in Springfield, Massachusetts; Houlton, Maine; Deep River, Connecticut; and the new Maryville, Tennessee facility, which began manufacturing and distribution activities during the quarter ended October 31, 2023[21](index=21&type=chunk) [(2) Basis of Presentation](index=9&type=section&id=(2)%20Basis%20of%20Presentation) Interim financial statements are unaudited, prepared under GAAP, and should be read with the Fiscal 2023 Form 10-K, as interim results may not predict full fiscal year performance - Interim financial statements are unaudited and include only normal recurring adjustments necessary for fair presentation[22](index=22&type=chunk) - Certain GAAP information and footnote disclosures have been condensed or omitted, requiring these statements to be read with the Fiscal 2023 Form 10-K[23](index=23&type=chunk) - Results for the three and six months ended October 31, 2023, may not be indicative of the full fiscal year ending April 30, 2024[23](index=23&type=chunk) [(3) Leases](index=9&type=section&id=(3)%20Leases) The company leases real estate and equipment under operating and finance leases, plans to terminate the Missouri Sublease, and anticipates no right-of-use asset impairment | Lease Type | Balance Sheet Caption | October 31, 2023 (in thousands) | | :----------- | :-------------------- | :------------------------------ | | Operating Leases | Right-of-use assets, net | $1,207 | | | Total operating lease liabilities | $1,405 | | Finance Leases | Right-of-use assets, net | $31,051 | | | Total finance lease liabilities | $37,707 | | Fiscal Year | Future Sublease Receipts (in thousands) | Future Lease Payments (in thousands) | | :---------- | :------------------------------------ | :----------------------------------- | | 2024 | $1,399 | $2,325 | | 2025 | $3,180 | $3,702 | | 2026 | $3,235 | $3,734 | | 2027 | $3,292 | $3,762 | | 2028 | $3,350 | $3,549 | | Thereafter | $38,906 | $38,906 | | Total | $53,362 | $55,978 | - The company intends to terminate the Missouri Sublease around January 1, 2024, and may extend the Connecticut facility lease through the end of calendar 2024[28](index=28&type=chunk) [(4) Notes, Loans Payable, and Financing Arrangements](index=11&type=section&id=(4)%20Notes,%20Loans%20Payable,%20and%20Financing%20Arrangements) The company has a **$100.0 million** revolving line of credit, with **$65.0 million** outstanding at **7.17%** interest, amended to SOFR, and remains compliant with covenants - The company has a **$100.0 million** revolving line of credit, with **$65.0 million** outstanding as of October 31, 2023, at an average interest rate of **7.17%**[31](index=31&type=chunk)[32](index=32&type=chunk) - The credit agreement was amended on April 28, 2023, to replace LIBOR with SOFR as the interest rate benchmark and to exclude unfinanced capital expenditures related to the Relocation from the 'Consolidated Fixed Charge Coverage Ratio'[31](index=31&type=chunk) - As of October 31, 2023, the company was compliant with all required financial covenants, including minimum consolidated fixed charge coverage ratio and maximum consolidated leverage ratio[33](index=33&type=chunk) [(5) Fair Value Measurement](index=12&type=section&id=(5)%20Fair%20Value%20Measurement) The company measures financial assets and liabilities at fair value, with **$44.2 million** in Level 1 cash and cash equivalents, and no Level 2 or Level 3 financial assets or liabilities | Asset/Liability | October 31, 2023 (in thousands) | April 30, 2023 (in thousands) | Fair Value Hierarchy Level | | :---------------- | :------------------------------ | :---------------------------- | :------------------------- | | Cash and cash equivalents | $44,192 | $53,556 | Level 1 | - The company had no Level 2 or Level 3 financial assets or liabilities as of October 31, 2023[39](index=39&type=chunk) [(6) Inventories](index=13&type=section&id=(6)%20Inventories) Total inventories decreased by **7.8%**, driven by a reduction in finished parts, partially offset by increases in finished goods and raw materials | Inventory Category (in thousands) | October 31, 2023 | April 30, 2023 | Change | | :-------------------------------- | :--------------- | :------------- | :----- | | Finished goods | $95,646 | $93,705 | $1,941 | | Finished parts | $47,980 | $65,460 | $(17,480) | | Work in process | $7,026 | $6,821 | $205 | | Raw material | $12,639 | $11,132 | $1,507 | | Total inventories | $163,291 | $177,118 | $(13,827) | [(7) Accrued Expenses and Deferred Revenue](index=13&type=section&id=(7)%20Accrued%20Expenses%20and%20Deferred%20Revenue) Total accrued expenses and deferred revenue increased by **15.1%**, primarily due to a new accrued settlement, higher accrued taxes, and distributor incentives | Accrued Expense Category (in thousands) | October 31, 2023 | April 30, 2023 | Change | | :-------------------------------------- | :--------------- | :------------- | :----- | | Accrued taxes other than income | $5,250 | $3,703 | $1,547 | | Accrued employee benefits | $3,339 | $3,256 | $83 | | Accrued settlement | $3,200 | $0 | $3,200 | | Accrued distributor incentives | $2,931 | $1,640 | $1,291 | | Accrued other | $2,494 | $4,597 | $(2,103) | | Total accrued expenses and deferred revenue | $23,197 | $20,149 | $3,048 | [(8) Stockholders' Equity](index=13&type=section&id=(8)%20Stockholders'%20Equity) The Board authorized a **$50.0 million** stock repurchase program, with **$8.2 million** utilized, while diluted EPS significantly decreased, and stock-based compensation increased - On September 19, 2023, the Board authorized a **$50.0 million** common stock repurchase program. Through October 31, 2023, **645,770** shares were repurchased for **$8.2 million**[42](index=42&type=chunk)[109](index=109&type=chunk) | EPS Metric | 3 Months Ended Oct 31, 2023 | 3 Months Ended Oct 31, 2022 | % Change | 6 Months Ended Oct 31, 2023 | 6 Months Ended Oct 31, 2022 | % Change | | :--------- | :-------------------------- | :-------------------------- | :------- | :-------------------------- | :-------------------------- | :------- | | Basic EPS | $0.05 | $0.21 | -76.2% | $0.12 | $0.28 | -57.1% | | Diluted EPS | $0.05 | $0.21 | -76.2% | $0.12 | $0.28 | -57.1% | - Total stock-based compensation expense was **$2.8 million** for the six months ended October 31, 2023, up from **$2.6 million** in the prior year. The company granted **357,357** RSUs and **176,583** PSUs during this period[47](index=47&type=chunk)[50](index=50&type=chunk) [(9) Commitments and Contingencies](index=15&type=section&id=(9)%20Commitments%20and%20Contingencies) The company faces various legal proceedings and is committed to the Maryville, Tennessee Relocation, involving substantial capital expenditures, job creation, and asset impairments [Litigation](index=15&type=section&id=Litigation) Smith & Wesson actively defends against multiple lawsuits, including product liability, class actions, and a new stockholder derivative lawsuit, unable to estimate potential adverse judgment losses - The company settled indemnity and counterclaims with Gemini Technologies, Incorporated, but continues to defend remaining claims in the lawsuit[55](index=55&type=chunk) - Smith & Wesson is a defendant in five product liability cases and is aware of five other claims, primarily alleging defective product design, manufacturing, or inadequate warnings[56](index=56&type=chunk) - The company is defending against multiple class action lawsuits and government actions, including cases in Canada, California (Poway synagogue shooting), by the Mexican Government, in Illinois (Highland Park shooting), and by the cities of Buffalo and Rochester, New York, all related to firearm misuse or alleged negligence[57](index=57&type=chunk)[58](index=58&type=chunk)[59](index=59&type=chunk)[60](index=60&type=chunk)[61](index=61&type=chunk) - A proposed class action for non-payment of wages at the Springfield facility was settled on September 21, 2023. A new stockholder derivative lawsuit was filed on December 5, 2023, alleging breach of fiduciary duties related to AR-15 style rifle sales[63](index=63&type=chunk)[66](index=66&type=chunk) [Commitments](index=17&type=section&id=Commitments) The company is relocating to Maryville, Tennessee, committing to at least **$120.0 million** in capital expenditures and 620 new jobs, with total expected spending of **$160.0-$170.0 million** and **$1.9 million** in asset impairment - The company plans to move its headquarters and significant operations to Maryville, Tennessee, by 2023, committing to at least **$120.0 million** in capital expenditures and creating no less than **620** new jobs by December 31, 2025[70](index=70&type=chunk)[72](index=72&type=chunk) - The construction contract for the new facility has a guaranteed maximum price of **$114.5 million**, with total expected spending between **$160.0 million** and **$170.0 million** through the end of fiscal 2024, including machinery and equipment[73](index=73&type=chunk) - An impairment of **$1.9 million** was recorded as of October 31, 2023, for distribution equipment not expected to be utilized in the Tennessee facility or recovered through sale[74](index=74&type=chunk) [(10) Restructuring](index=19&type=section&id=(10)%20Restructuring) Relocation-related restructuring charges totaled **$2.1 million** for three months and **$6.0 million** for six months, primarily for public relations, employee relations, and office expenses | Restructuring Charges (in thousands) | 3 Months Ended Oct 31, 2023 | 3 Months Ended Oct 31, 2022 | 6 Months Ended Oct 31, 2023 | 6 Months Ended Oct 31, 2022 | | :----------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Cost of sales | $409 | $1,735 | $1,312 | $2,978 | | Selling, marketing, and distribution | $774 | $270 | $2,969 | $707 | | General and administrative | $878 | $1,106 | $1,692 | $1,620 | | Total restructuring charges | $2,061 | $3,110 | $5,973 | $5,308 | | Component of Restructuring Charges (in thousands) | 3 Months Ended Oct 31, 2023 | 3 Months Ended Oct 31, 2022 | 6 Months Ended Oct 31, 2023 | 6 Months Ended Oct 31, 2022 | | :------------------------------------------------ | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Severance and employee-related benefits | $(49) | $2,505 | $881 | $3,658 | | Relocation | $210 | $179 | $447 | $1,062 | | Public relations | $922 | $0 | $922 | $0 | | Office rent and equipment | $64 | $86 | $2,142 | $92 | - The accrual for severance and employee-related benefits and relocation totaled **$10.8 million** as of October 31, 2023, with **$1.3 million** in charges and **$2.3 million** in cash payments/settlements during the six months[78](index=78&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=21&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section analyzes the company's financial performance and condition, covering key results, sales, gross profit, operating expenses, income, liquidity, capital, and relocation efforts [Overview](index=21&type=section&id=Overview) This overview refers readers to the Fiscal 2023 Annual Report for a comprehensive discussion of financial condition, operations, objectives, performance indicators, and industry data - The section refers to the Management's Discussion and Analysis in the Fiscal 2023 Annual Report for key objectives, performance indicators, and industry data[80](index=80&type=chunk) [Second Quarter Fiscal 2024 Highlights](index=21&type=section&id=Second%20Quarter%20Fiscal%202024%20Highlights) Net sales increased for both three and six-month periods, but gross margin declined, leading to significant decreases in net income to **$2.5 million** (three months) and **$5.6 million** (six months), with **$8.2 million** in stock repurchases | Metric | 3 Months Ended Oct 31, 2023 | 3 Months Ended Oct 31, 2022 | % Change | 6 Months Ended Oct 31, 2023 | 6 Months Ended Oct 31, 2022 | % Change | | :----- | :-------------------------- | :-------------------------- | :------- | :-------------------------- | :-------------------------- | :------- | | Net sales | $125.0 million | $121.0 million | 3.2% | $239.2 million | $205.4 million | 16.4% | | Gross margin | 25.4% | 32.4% | -7.0 pp | 26.0% | 34.4% | -8.4 pp | | Net income | $2.5 million | $9.6 million | -74.1% | $5.6 million | $13.0 million | -56.7% | | Diluted EPS | $0.05 | $0.21 | -76.2% | $0.12 | $0.28 | -57.1% | - During the six months ended October 31, 2023, the company purchased **645,770** shares of common stock for **$8.2 million**[81](index=81&type=chunk) [Results of Operations](index=21&type=section&id=Results%20of%20Operations) Net sales increased, but gross profit and net income significantly declined due to higher cost of sales, unfavorable fixed-cost absorption, legal settlements, and inflation, with mixed operating expense changes [Net Sales and Gross Profit – For the Three Months Ended October 31, 2023](index=21&type=section&id=Net%20Sales%20and%20Gross%20Profit%20%E2%80%93%20For%20the%20Three%20Months%20Ended%20October%2031,%202023) Net sales increased by **3.2%** to **$125.0 million**, driven by long gun sales, while gross profit fell by **19.1%** to **$31.8 million**, with gross margin at **25.4%**, due to fixed-cost absorption, a **$3.2 million** legal settlement, and inflation | Product Category (in thousands) | 2023 Net Sales | 2022 Net Sales | $ Change | % Change | | :------------------------------ | :------------- | :------------- | :------- | :------- | | Handguns | $88,347 | $93,037 | $(4,690) | -5.0% | | Long Guns | $28,120 | $16,999 | $11,121 | 65.4% | | Other Products & Services | $8,491 | $10,999 | $(2,508) | -22.8% | | Total net sales | $124,958 | $121,035 | $3,923 | 3.2% | | Gross profit | $31,766 | $39,262 | $(7,496) | -19.1% | | Gross margin | 25.4% | 32.4% | -7.0 pp | | | Unit Shipments (in thousands) | 2023 | 2022 | Change | % Change | | :---------------------------- | :--- | :--- | :------- | :------- | | Handguns (Total) | 191 | 209 | (18) | -8.6% | | Long Guns (Total) | 56 | 31 | 25 | 80.6% | | Handguns (Sporting Goods) | 177 | 191 | (14) | -7.3% | | Long Guns (Sporting Goods) | 53 | 27 | 26 | 96.3% | - New products represented **29.0%** of sales for the quarter, including two new pistols and one new long gun. Inventory levels are expected to decline by fiscal year-end due to the operational transition to the new Tennessee facility and alignment of production capacity with demand[85](index=85&type=chunk)[87](index=87&type=chunk) [Net Sales and Gross Profit – For the Six Months Ended October 31, 2023](index=22&type=section&id=Net%20Sales%20and%20Gross%20Profit%20%E2%80%93%20For%20the%20Six%20Months%20Ended%20October%2031,%202023) Net sales increased by **16.4%** to **$239.2 million**, driven by handgun and long gun sales, while gross profit declined by **12.1%** to **$62.2 million**, with gross margin at **26.0%**, due to similar factors as the three-month period | Product Category (in thousands) | 2023 Net Sales | 2022 Net Sales | $ Change | % Change | | :------------------------------ | :------------- | :------------- | :------- | :------- | | Handguns | $174,452 | $152,403 | $22,049 | 14.5% | | Long Guns | $46,903 | $31,105 | $15,798 | 50.8% | | Other Products & Services | $17,846 | $21,921 | $(4,075) | -18.6% | | Total net sales | $239,201 | $205,429 | $33,772 | 16.4% | | Gross profit | $62,167 | $70,733 | $(8,566) | -12.1% | | Gross margin | 26.0% | 34.4% | -8.4 pp | | | Unit Shipments (in thousands) | 2023 | 2022 | Change | % Change | | :---------------------------- | :--- | :--- | :------- | :------- | | Handguns (Total) | 365 | 337 | 28 | 8.3% | | Long Guns (Total) | 95 | 58 | 37 | 63.8% | | Handguns (Sporting Goods) | 339 | 307 | 32 | 10.4% | | Long Guns (Sporting Goods) | 86 | 51 | 35 | 68.6% | - New products accounted for **30.8%** of sales for the six months, including five new pistols and two new long guns[91](index=91&type=chunk) [Operating Expenses](index=23&type=section&id=Operating%20Expenses) Total operating expenses increased by **4.7%** for three months and decreased by **0.4%** for six months, with selling, marketing, and distribution rising due to relocation costs, and general and administrative decreasing from lower profit sharing and legal expenses | Operating Expense (in thousands) | 3 Months Ended Oct 31, 2023 | 3 Months Ended Oct 31, 2022 | % Change | 6 Months Ended Oct 31, 2023 | 6 Months Ended Oct 31, 2022 | % Change | | :------------------------------- | :-------------------------- | :-------------------------- | :------- | :-------------------------- | :-------------------------- | :------- | | Research and development | $1,724 | $1,869 | -7.8% | $3,522 | $3,542 | -0.6% | | Selling, marketing, and distribution | $10,952 | $9,431 | 16.1% | $20,993 | $17,458 | 20.2% | | General and administrative | $15,322 | $15,435 | -0.7% | $29,536 | $33,288 | -11.3% | | Total operating expenses | $27,998 | $26,735 | 4.7% | $54,051 | $54,288 | -0.4% | - Selling, marketing, and distribution expenses increased due to one-time grand opening costs for the new Maryville, Tennessee facility, increased compensation, and targeted customer promotions[93](index=93&type=chunk)[94](index=94&type=chunk) - General and administrative expenses decreased primarily due to a **$3.8 million** decrease in profit sharing expense and a **$1.0 million** decrease in legal-related expenses for the six-month period[94](index=94&type=chunk) [Operating Income](index=24&type=section&id=Operating%20Income) Operating income significantly decreased by **69.9%** to **$3.8 million** (three months) and **50.6%** to **$8.1 million** (six months), driven by unfavorable fixed-cost absorption, inventory adjustments, a legal settlement, and relocation costs | Operating Income (in thousands) | 3 Months Ended Oct 31, 2023 | 3 Months Ended Oct 31, 2022 | % Change | 6 Months Ended Oct 31, 2023 | 6 Months Ended Oct 31, 2022 | % Change | | :------------------------------ | :-------------------------- | :-------------------------- | :------- | :-------------------------- | :-------------------------- | :------- | | Operating income | $3,768 | $12,527 | -69.9% | $8,116 | $16,445 | -50.6% | | Operating margin | 3.0% | 10.3% | -7.3 pp | 3.4% | 8.0% | -4.6 pp | - The decrease in operating income was primarily due to unfavorable fixed-cost absorption, inventory reserve adjustments, an accrued legal settlement, increased compensation, and costs related to the grand opening of the new Maryville, Tennessee facility[95](index=95&type=chunk) [Income Taxes](index=24&type=section&id=Income%20Taxes) Income tax expense decreased by **76.5%** to **$0.8 million** (three months) and **46.4%** to **$2.2 million** (six months) due to lower operating income, while the effective tax rate increased to **28.1%** | Income Tax Metric (in thousands) | 3 Months Ended Oct 31, 2023 | 3 Months Ended Oct 31, 2022 | % Change | 6 Months Ended Oct 31, 2023 | 6 Months Ended Oct 31, 2022 | % Change | | :------------------------------- | :-------------------------- | :-------------------------- | :------- | :-------------------------- | :-------------------------- | :------- | | Income tax expense | $765 | $3,249 | -76.5% | $2,196 | $4,094 | -46.4% | | Effective tax rate | 23.4% | 25.2% | -1.8 pp | 28.1% | 24.0% | 4.1 pp | - The decrease in income tax expense was a direct result of lower operating income[98](index=98&type=chunk) [Net Income](index=25&type=section&id=Net%20Income) Net income decreased by **74.1%** to **$2.5 million** (three months) and **56.7%** to **$5.6 million** (six months), primarily due to factors affecting gross profit and operating expenses | Net Income Metric (in thousands, except per share data) | 3 Months Ended Oct 31, 2023 | 3 Months Ended Oct 31, 2022 | % Change | 6 Months Ended Oct 31, 2023 | 6 Months Ended Oct 31, 2022 | % Change | | :------------------------------------------------------ | :-------------------------- | :-------------------------- | :------- | :-------------------------- | :-------------------------- | :------- | | Net income | $2,498 | $9,648 | -74.1% | $5,616 | $12,960 | -56.7% | | Basic EPS | $0.05 | $0.21 | -76.2% | $0.12 | $0.28 | -57.1% | | Diluted EPS | $0.05 | $0.21 | -76.2% | $0.12 | $0.28 | -57.1% | [Liquidity and Capital Resources](index=25&type=section&id=Liquidity%20and%20Capital%20Resources) Cash requirements include operations, relocation capital expenditures, and stockholder returns. Operating cash flow improved to **$37.8 million**, while investing activities increased cash usage, and financing provided **$19.9 million** from borrowings, with adequate resources for the next 12 months - Principal cash requirements include financing operations growth (working capital, capital expenditures), funding the Maryville, Tennessee Relocation, and returning capital to stockholders[101](index=101&type=chunk) | Cash Flow Activity (in thousands) | 6 Months Ended Oct 31, 2023 | 6 Months Ended Oct 31, 2022 | $ Change | % Change | | :-------------------------------- | :-------------------------- | :-------------------------- | :------- | :------- | | Operating activities | $37,756 | $(28,165) | $65,921 | -234.1% | | Investing activities | $(67,063) | $(39,590) | $(27,473) | -69.4% | | Financing activities | $19,943 | $(9,998) | $29,941 | 299.5% | | Total cash flow | $(9,364) | $(77,753) | $68,389 | -88.0% | - Cash provided by operating activities was **$37.8 million**, favorably impacted by a **$13.8 million** decrease in inventory. Cash used in investing activities increased by **$27.5 million**, primarily due to **$67.0 million** in capital expenditures, with **$50.0 million** to **$55.0 million** expected for facility construction in fiscal 2024[102](index=102&type=chunk)[103](index=103&type=chunk)[104](index=104&type=chunk) - Financing activities provided **$19.9 million**, mainly from **$40 million** in net borrowings under the revolving line of credit, partially offset by **$11.1 million** in dividend distributions and **$8.2 million** in share repurchases[105](index=105&type=chunk) - As of October 31, 2023, the company had **$44.2 million** in cash and cash equivalents and believes existing capital resources and credit facilities are adequate to fund operations and commitments for the next 12 months[112](index=112&type=chunk) [Other Matters](index=27&type=section&id=Other%20Matters) No material changes to critical accounting policies have occurred, and information on recent accounting pronouncements is referenced from Note 2 - No material changes to critical accounting policies have occurred since the Fiscal 2023 Annual Report[113](index=113&type=chunk) - Information on recent accounting pronouncements is incorporated by reference from Note 2 of the condensed consolidated financial statements[114](index=114&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=27&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company had no forward option or outstanding forward contracts during the period, indicating no significant market risk exposure from such instruments - The company did not enter into or transact any forward option contracts, nor did it have any forward contracts outstanding during the period ended October 31, 2023[115](index=115&type=chunk) [Item 4. Controls and Procedures](index=27&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective as of October 31, 2023, with no material changes to internal control over financial reporting during the period - As of October 31, 2023, the company's disclosure controls and procedures were deemed effective by the Chief Executive Officer and Chief Financial Officer[116](index=116&type=chunk) - There was no material change in the company's internal control over financial reporting during the period covered by this Quarterly Report on Form 10-Q[117](index=117&type=chunk) Part II - Other Information [Item 1. Legal Proceedings](index=28&type=section&id=Item%201.%20Legal%20Proceedings) This section refers to Note 9—Commitments and Contingencies for a detailed discussion of legal proceedings against the company - Details regarding the nature of legal proceedings against the company are discussed in Note 9—Commitments and Contingencies of the condensed consolidated financial statements[119](index=119&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=28&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company repurchased **645,770** common shares for **$8.2 million** under a **$50.0 million** authorization, with **$41.788 million** remaining for future repurchases | Period | Total of Shares Purchased | Average Price Paid Per Share | Total of Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (in thousands) | | :-------------------------- | :-------------------------- | :--------------------------- | :------------------------------------------------------------------------ | :------------------------------------------------------------------------------------------------- | | September 1 to September 30, 2023 | 554,702 | $12.65 | 554,702 | $42,973 | | October 1 to October 31, 2023 | 91,068 | $13.00 | 91,068 | $41,788 | | Total | 645,770 | $12.70 | 645,770 | $41,788 | - The repurchases were made under a **$50.0 million** authorization approved by the Board of Directors on September 19, 2023[124](index=124&type=chunk) [Item 5. Other Information](index=28&type=section&id=Item%205.%20Other%20Information) No directors or officers adopted or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the three months ended October 31, 2023 - None of the company's directors or officers adopted or terminated a 'Rule 10b5-1 trading arrangement' or a 'non-Rule 10b5-1 trading arrangement' during the three months ended October 31, 2023[121](index=121&type=chunk) [Item 6. Exhibits](index=28&type=section&id=Item%206.%20Exhibits) This section lists all exhibits included or incorporated by reference into the Quarterly Report on Form 10-Q, including certifications, dividend agreements, and XBRL documents - The exhibits include certifications (Rule 13a-14(a)/15d-14(a) and Section 1350) from the Principal Executive Officer and Principal Financial Officer, a Form of Dividend Equivalent Award Agreement, and various Inline XBRL documents[127](index=127&type=chunk) [SIGNATURES](index=30&type=section&id=SIGNATURES) The report is signed by Mark P. Smith, President and CEO, and Deana L. McPherson, EVP, CFO, Treasurer, and Assistant Secretary, on behalf of Smith & Wesson Brands, Inc - The report is signed by Mark P. Smith, President and Chief Executive Officer, and Deana L. McPherson, Executive Vice President, Chief Financial Officer, Treasurer, and Assistant Secretary[129](index=129&type=chunk) - The signing date for the report is December 7, 2023[129](index=129&type=chunk)

PART I - FINANCIAL INFORMATION [Item 1. Financial Statements (Unaudited)](index=4&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) This section presents the unaudited condensed consolidated financial statements for Smith & Wesson Brands, Inc. for the three months ended July 31, 2023 and 2022, including balance sheets, income statements, equity changes, cash flows, and detailed notes on accounting policies, leases, debt, fair value, inventory, accrued expenses, equity, commitments, and restructuring [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Presents the company's financial position at July 31, 2023, and April 30, 2023, detailing assets, liabilities, and stockholders' equity | Metric | July 31, 2023 (in thousands) | April 30, 2023 (in thousands) | Change (in thousands) | % Change | | :-------------------------------- | :--------------------------- | :-------------------------- | :-------------------- | :------- | | Total current assets | $264,153 | $291,920 | $(27,767) | -9.5% | | Total assets | $537,662 | $541,294 | $(3,632) | -0.7% | | Total current liabilities | $85,802 | $87,213 | $(1,411) | -1.6% | | Total liabilities | $154,947 | $156,671 | $(1,724) | -1.1% | | Total stockholders' equity | $382,715 | $384,623 | $(1,908) | -0.5% | - Inventories decreased by **$6.36 million** from $177.12 million on April 30, 2023, to $170.75 million on July 31, 2023[11](index=11&type=chunk) - Property, plant, and equipment, net, increased by **$24.27 million**, from $210.33 million to $234.60 million, indicating significant capital investments[11](index=11&type=chunk) [Condensed Consolidated Statements of Income](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income) Details the company's revenues, expenses, and net income for the three months ended July 31, 2023, and 2022 | Metric | Three Months Ended July 31, 2023 (in thousands) | Three Months Ended July 31, 2022 (in thousands) | Change (in thousands) | % Change | | :-------------------------------- | :-------------------------------------------- | :-------------------------------------------- | :-------------------- | :------- | | Net sales | $114,243 | $84,394 | $29,849 | 35.4% | | Cost of sales | $83,842 | $52,923 | $30,919 | 58.4% | | Gross profit | $30,401 | $31,471 | $(1,070) | -3.4% | | Total operating expenses | $26,052 | $27,554 | $(1,502) | -5.5% | | Operating income | $4,349 | $3,917 | $432 | 11.0% | | Net income | $3,118 | $3,312 | $(194) | -5.9% | | Basic - net income per share | $0.07 | $0.07 | $0.00 | 0.0% | | Diluted - net income per share | $0.07 | $0.07 | $0.00 | 0.0% | [Condensed Consolidated Statements of Changes in Stockholders' Equity](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Changes%20in%20Stockholders'%20Equity) Outlines changes in stockholders' equity, including stock-based compensation, dividends, and net income, for the three months ended July 31, 2023 | Metric | Balance at April 30, 2023 (in thousands) | Stock-based compensation (in thousands) | Dividends issued (in thousands) | Net income (in thousands) | Balance at July 31, 2023 (in thousands) | | :----------------------- | :------------------------------------- | :-------------------------------------- | :------------------------------ | :------------------------ | :------------------------------------ | | Additional Paid-In Capital | $283,666 | $1,276 | — | — | $284,176 | | Retained Earnings | $523,184 | — | $(5,536) | $3,118 | $520,766 | | Total Stockholders' Equity | $384,623 | $1,276 | $(5,536) | $3,118 | $382,715 | - Stock-based compensation contributed **$1.276 million** to additional paid-in capital for the three months ended July 31, 2023[15](index=15&type=chunk) - Dividends issued amounted to **$5.536 million**, leading to a decrease in retained earnings[15](index=15&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Summarizes cash inflows and outflows from operating, investing, and financing activities for the three months ended July 31, 2023, and 2022 | Cash Flow Activity | Three Months Ended July 31, 2023 (in thousands) | Three Months Ended July 31, 2022 (in thousands) | Change (in thousands) | % Change | | :----------------------- | :-------------------------------------------- | :-------------------------------------------- | :-------------------- | :------- | | Operating activities | $40,630 | $7,145 | $33,485 | 468.7% | | Investing activities | $(32,067) | $(11,586) | $(20,481) | -176.8% | | Financing activities | $(6,640) | $(5,835) | $(805) | -13.8% | | Net increase/(decrease) in cash and cash equivalents | $1,923 | $(10,276) | $12,199 | -118.7% | | Cash and cash equivalents, end of period | $55,479 | $110,452 | $(54,973) | -49.8% | - Cash provided by operating activities significantly increased by **$33.485 million**, primarily due to a decrease in inventories and an increase in accounts receivable[18](index=18&type=chunk)[86](index=86&type=chunk) - Cash used in investing activities increased by **$20.481 million**, largely driven by payments to acquire property and equipment, including significant expenditures for the Maryville Relocation[18](index=18&type=chunk)[87](index=87&type=chunk) [Notes to Condensed Consolidated Financial Statements (Unaudited)](index=9&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements%20(Unaudited)) Provides detailed explanations and disclosures supporting the condensed consolidated financial statements [(1) Organization](index=9&type=section&id=(1)%20Organization) Describes the company's business, products, and the ongoing relocation of its headquarters and manufacturing operations - Smith & Wesson Brands, Inc. is a leading manufacturer and designer of firearms, including handguns, long guns, handcuffs, and suppressors, sold under brands like Smith & Wesson, M&P, and Gemtech[21](index=21&type=chunk) - The company began moving inventory into its new Maryville, Tennessee facility and commenced distribution activities from there in August 2023, as part of a plan to relocate its headquarters and certain manufacturing operations[21](index=21&type=chunk) [(2) Basis of Presentation](index=9&type=section&id=(2)%20Basis%20of%20Presentation) Explains the accounting principles and assumptions used in preparing the unaudited interim financial statements - The interim financial statements are unaudited and include only normal recurring adjustments necessary for fair presentation, prepared in accordance with GAAP but with condensed disclosures[22](index=22&type=chunk)[23](index=23&type=chunk) - Results for the three months ended July 31, 2023, may not be indicative of the full fiscal year ending April 30, 2024[23](index=23&type=chunk) [(3) Leases](index=9&type=section&id=(3)%20Leases) Details the company's operating and finance lease obligations, including right-of-use assets and liabilities | Lease Type | Right-of-use assets, net (in thousands) | Total lease liabilities (in thousands) | Weighted average lease term (years) | Weighted average discount rate (%) | | :----------- | :------------------------------------ | :----------------------------------- | :---------------------------------- | :------------------------------- | | Operating | $1,518 | $1,733 | 2.8 | 4.4% | | Finance | $31,617 | $38,057 | 15.1 | 5.0% | - The company recorded **$0.386 million** in operating lease costs and **$0.566 million** in finance lease amortization for the three months ended July 31, 2023[28](index=28&type=chunk) - The Missouri Sublease, where American Outdoor Brands, Inc. (AOUT) subleases 64.7% of the distribution center, is intended to be terminated around January 1, 2024, with AOUT assuming the Missouri Lease[29](index=29&type=chunk) [(4) Notes, Loans Payable, and Financing Arrangements](index=11&type=section&id=(4)%20Notes,%20Loans%20Payable,%20and%20Financing%20Arrangements) Outlines the company's debt instruments, revolving line of credit, and related financial covenants - The company has an unsecured revolving line of credit of **$100.0 million**, maturing on August 24, 2025, with an option to increase by **$50.0 million**[32](index=32&type=chunk) - As of July 31, 2023, **$25.0 million** was outstanding on the Revolving Line, bearing interest at **6.82%** (SOFR rate plus applicable margin)[33](index=33&type=chunk) - The credit agreement was amended on April 28, 2023, to replace LIBOR with SOFR and adjust the definition of 'Consolidated Fixed Charge Coverage Ratio' to exclude unfinanced capital expenditures related to the Relocation[32](index=32&type=chunk) [(5) Fair Value Measurement](index=13&type=section&id=(5)%20Fair%20Value%20Measurement) Discusses the methodology for measuring financial assets and liabilities at fair value using a three-level hierarchy - The company measures financial assets and liabilities using the fair value hierarchy (Level 1, 2, 3)[36](index=36&type=chunk) - Cash and cash equivalents, totaling **$55.5 million** as of July 31, 2023, are measured at fair value using Level 1 inputs (unadjusted quoted prices in active markets)[38](index=38&type=chunk) - There were no Level 2 or Level 3 financial assets or liabilities as of July 31, 2023[40](index=40&type=chunk) [(6) Inventories](index=14&type=section&id=(6)%20Inventories) Provides a breakdown of inventory categories and their values at different reporting dates | Inventory Category | July 31, 2023 (in thousands) | April 30, 2023 (in thousands) | | :----------------- | :--------------------------- | :---------------------------- | | Finished goods | $99,075 | $93,705 | | Finished parts | $53,839 | $65,460 | | Work in process | $5,162 | $6,821 | | Raw material | $12,678 | $11,132 | | Total inventories | $170,754 | $177,118 | - Total inventories decreased by **$6.364 million** from April 30, 2023, to July 31, 2023, primarily driven by a reduction in finished parts and work in process[41](index=41&type=chunk) [(7) Accrued Expenses and Deferred Revenue](index=14&type=section&id=(7)%20Accrued%20Expenses%20and%20Deferred%20Revenue) Details the composition and changes in accrued expenses and deferred revenue | Accrued Expense Category | July 31, 2023 (in thousands) | April 30, 2023 (in thousands) | | :----------------------- | :--------------------------- | :---------------------------- | | Accrued employee benefits | $3,263 | $3,256 | | Accrued taxes other than income | $2,844 | $3,703 | | Accrued other | $2,643 | $4,597 | | Accrued professional fees | $1,989 | $2,596 | | Accrued distributor incentives | $1,762 | $1,640 | | Current portion of finance lease obligation | $1,466 | $1,434 | | Accrued rebates and promotions | $1,078 | $1,649 | | Current portion of operating lease obligation | $996 | $1,274 | | Total accrued expenses and deferred revenue | $16,041 | $20,149 | - Total accrued expenses and deferred revenue decreased by **$4.108 million**, from $20.149 million to $16.041 million, primarily due to decreases in 'Accrued other' and 'Accrued taxes other than income'[42](index=42&type=chunk) [(8) Stockholders' Equity](index=14&type=section&id=(8)%20Stockholders'%20Equity) Presents information on basic and diluted earnings per share, stock-based compensation, and unrecognized compensation expense | Metric | Three Months Ended July 31, 2023 | Three Months Ended July 31, 2022 | | :-------------------------------- | :------------------------------- | :------------------------------- | | Basic EPS | $0.07 | $0.07 | | Diluted EPS | $0.07 | $0.07 | | Weighted average common shares outstanding (Basic) | 46.103 million | 45.739 million | | Weighted average common shares outstanding (Diluted) | 46.551 million | 46.102 million | - Total stock-based compensation expense was **$1.3 million** for the three months ended July 31, 2023, up from **$1.2 million** in the prior year[46](index=46&type=chunk) - As of July 31, 2023, there was **$6.4 million** of unrecognized compensation expense related to unvested RSUs and PSUs, expected to be recognized over a weighted average remaining contractual term of **1.9 years**[52](index=52&type=chunk) [(9) Commitments and Contingencies](index=16&type=section&id=(9)%20Commitments%20and%20Contingencies) Discusses significant legal proceedings, product liability cases, and the capital expenditure plans for the Maryville relocation - The company is involved in several lawsuits, including a breach of contract claim by Gemini Technologies (**$18.6 million** sought), product liability cases, a putative class action in Canada (**CAD$150 million** sought), and lawsuits related to mass shootings (Chabad of Poway, Highland Park, Mexican Government, City of Buffalo/Rochester)[53](index=53&type=chunk)[54](index=54&type=chunk)[55](index=55&type=chunk)[56](index=56&type=chunk)[58](index=58&type=chunk)[59](index=59&type=chunk)[60](index=60&type=chunk) - Management believes the allegations in these lawsuits are unfounded and intends to aggressively defend them, stating that any incidents were due to negligence or misuse of firearms by third parties[53](index=53&type=chunk)[61](index=61&type=chunk) - The company plans to relocate its headquarters and significant operations to Maryville, Tennessee, with expected capital expenditures of **$160.0 million to $170.0 million** through fiscal 2024, including a guaranteed maximum price of **$114.5 million** for construction[68](index=68&type=chunk)[69](index=69&type=chunk) [(10) Restructuring](index=19&type=section&id=(10)%20Restructuring) Details the restructuring charges incurred, primarily related to the Maryville relocation, and the associated accruals | Restructuring Charge Category | Three Months Ended July 31, 2023 (in thousands) | Three Months Ended July 31, 2022 (in thousands) | | :---------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Cost of sales | $903 | $1,243 | | Selling, marketing, and distribution | $2,195 | $366 | | General and administrative | $814 | $608 | | Total restructuring charges | $3,912 | $2,220 | - Restructuring charges increased to **$3.9 million** for the three months ended July 31, 2023, from **$2.2 million** in the prior year, primarily due to increased office rent and equipment costs related to the Relocation[72](index=72&type=chunk) - The restructuring accrual at July 31, 2023, was **$11.874 million**, with **$10.817 million** for severance and employee-related benefits and **$1.057 million** for relocation[72](index=72&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=20&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides an overview of the company's financial performance for the first quarter of fiscal 2024, highlighting key operational results, liquidity, and capital resources, with a focus on the Maryville relocation [Overview](index=20&type=section&id=Overview) Refers to the Fiscal 2023 Annual Report for key objectives and performance indicators - The overview refers to the Management's Discussion and Analysis of Financial Condition and Results of Operations in the Fiscal 2023 Annual Report for key objectives and performance indicators[74](index=74&type=chunk) [First Quarter Fiscal 2024 Highlights](index=20&type=section&id=First%20Quarter%20Fiscal%202024%20Highlights) Summarizes key financial metrics and performance for the first quarter of fiscal year 2024 | Metric | Q1 Fiscal 2024 (July 31, 2023) | Q1 Fiscal 2023 (July 31, 2022) | Change | % Change | | :-------------------- | :----------------------------- | :----------------------------- | :----- | :------- | | Net sales | $114.2 million | $84.4 million | $29.8 million | 35.4% | | Gross margin | 26.6% | 37.3% | -10.7% | -28.7% | | Net income | $3.1 million | $3.3 million | $(0.2) million | -6.1% | | Diluted EPS | $0.07 | $0.07 | $0.00 | 0.0% | [Results of Operations](index=20&type=section&id=Results%20of%20Operations) Analyzes the company's financial performance, including net sales, gross profit, operating expenses, and net income [Net Sales and Gross Profit](index=20&type=section&id=Net%20Sales%20and%20Gross%20Profit) Examines revenue trends by product category and factors influencing gross margin changes | Product Category | Q1 Fiscal 2024 Net Sales (in thousands) | Q1 Fiscal 2023 Net Sales (in thousands) | $ Change (in thousands) | % Change | | :----------------- | :------------------------------------ | :------------------------------------ | :---------------------- | :------- | | Handguns | $86,106 | $59,367 | $26,739 | 45.0% | | Long Guns | $18,782 | $14,105 | $4,677 | 33.2% | | Other Products & Services | $9,355 | $10,922 | $(1,567) | -14.3% | | Total net sales | $114,243 | $84,394 | $29,849 | 35.4% | | Gross profit | $30,401 | $31,471 | $(1,070) | -3.4% | | Gross margin | 26.6% | 37.3% | -10.7% | -28.7% | - Handgun sales increased by **45.0%** due to increased revolver shipments, new product introductions (**29.9%** of handgun sales), and a **5%** price increase on select products[75](index=75&type=chunk) - Gross margin decreased from **37.3% to 26.6%** primarily due to unfavorable fixed-cost absorption from lower production volume, inflation on raw materials and labor, and unfavorable inventory reserve adjustments, partially offset by price increases[78](index=78&type=chunk) [Operating Expenses](index=21&type=section&id=Operating%20Expenses) Details changes in research and development, selling, marketing, distribution, and general and administrative expenses | Expense Category | Q1 Fiscal 2024 (in thousands) | Q1 Fiscal 2023 (in thousands) | $ Change (in thousands) | % Change | | :----------------------- | :---------------------------- | :---------------------------- | :---------------------- | :------- | | Research and development | $1,799 | $1,673 | $126 | 7.5% | | Selling, marketing, and distribution | $10,040 | $8,027 | $2,013 | 25.1% | | General and administrative | $14,213 | $17,854 | $(3,641) | -20.4% | | Total operating expenses | $26,052 | $27,554 | $(1,502) | -5.5% | - Selling, marketing, and distribution expenses increased by **$2.0 million**, mainly due to a **$2.0 million** impairment on distribution equipment related to the Relocation[80](index=80&type=chunk) - General and administrative expenses decreased by **$3.6 million**, primarily due to a **$2.7 million** decrease in profit sharing expense and reduced legal-related expenses, partially offset by increased compensation[80](index=80&type=chunk) [Operating Income](index=21&type=section&id=Operating%20Income) Analyzes the drivers behind the company's operating income and operating margin performance | Metric | Q1 Fiscal 2024 (in thousands) | Q1 Fiscal 2023 (in thousands) | $ Change (in thousands) | % Change | | :--------------- | :---------------------------- | :---------------------------- | :---------------------- | :------- | | Operating income | $4,349 | $3,917 | $432 | 11.0% | | Operating margin | 3.8% | 4.6% | -0.8% | -17.4% | - Operating income increased by **$0.432 million**, driven by increased sales volumes, decreased profit sharing, and lower legal expenses, despite unfavorable fixed cost absorption and inventory reserve adjustments[82](index=82&type=chunk) [Income Taxes](index=22&type=section&id=Income%20Taxes) Discusses the company's income tax expense and effective tax rate for the reporting period | Metric | Q1 Fiscal 2024 (in thousands) | Q1 Fiscal 2023 (in thousands) | $ Change (in thousands) | % Change | | :-------------------- | :---------------------------- | :---------------------------- | :---------------------- | :------- | | Income tax expense | $1,431 | $845 | $586 | 69.3% | | Effective tax rate | 31.5% | 20.3% | 11.2% | 55.2% | - The increase in income tax expense was a result of higher operating income[83](index=83&type=chunk) - Excluding discrete stock compensation items, the effective tax rate would have been **24.7%** for Q1 Fiscal 2024, compared to **23.6%** for Q1 Fiscal 2023[83](index=83&type=chunk) [Net Income](index=22&type=section&id=Net%20Income) Presents the company's net income and earnings per share for the quarter | Metric | Q1 Fiscal 2024 (in thousands) | Q1 Fiscal 2023 (in thousands) | $ Change (in thousands) | % Change | | :--------------- | :---------------------------- | :---------------------------- | :---------------------- | :------- | | Net income | $3,118 | $3,312 | $(194) | -5.9% | | Basic EPS | $0.07 | $0.07 | $0.00 | 0.0% | | Diluted EPS | $0.07 | $0.07 | $0.00 | 0.0% | - Net income for the three months ended July 31, 2023, was slightly lower than the comparable quarter last year, resulting in flat basic and diluted EPS[84](index=84&type=chunk) [Liquidity and Capital Resources](index=22&type=section&id=Liquidity%20and%20Capital%20Resources) Assesses the company's ability to generate and manage cash, including operating, investing, and financing activities, debt, and future capital needs [Operating Activities](index=22&type=section&id=Operating%20Activities) Analyzes cash flows generated from the company's primary business operations | Metric | Q1 Fiscal 2024 (in thousands) | Q1 Fiscal 2023 (in thousands) | $ Change (in thousands) | % Change | | :----------------------- | :---------------------------- | :---------------------------- | :---------------------- | :------- | | Cash provided by operating activities | $40,630 | $7,145 | $33,485 | 468.7% | - Cash provided by operating activities significantly increased, positively impacted by a **$52.2 million** incremental decrease in inventory and a **$11.9 million** incremental increase in accounts receivable[86](index=86&type=chunk) [Investing Activities](index=23&type=section&id=Investing%20Activities) Examines cash flows related to the acquisition and disposal of long-term assets, particularly capital expenditures for the Maryville Relocation | Metric | Q1 Fiscal 2024 (in thousands) | Q1 Fiscal 2023 (in thousands) | $ Change (in thousands) | % Change | | :----------------------- | :---------------------------- | :---------------------------- | :---------------------- | :------- | | Cash used in investing activities | $(32,067) | $(11,586) | $(20,481) | -176.8% | - Capital expenditures for the three months ended July 31, 2023, totaled **$32.1 million**, with **$30.4 million** specifically related to the Maryville Relocation[87](index=87&type=chunk) - The company expects to spend between **$70.0 million and $75.0 million** on capital expenditures for the Relocation in fiscal 2024, with **$50.0 million to $55.0 million** allocated to facility construction[88](index=88&type=chunk) [Financing Activities](index=23&type=section&id=Financing%20Activities) Details cash flows from debt, equity, and dividend transactions | Metric | Q1 Fiscal 2024 (in thousands) | Q1 Fiscal 2023 (in thousands) | $ Change (in thousands) | % Change | | :----------------------- | :---------------------------- | :---------------------------- | :---------------------- | :------- | | Cash used in financing activities | $(6,640) | $(5,835) | $(805) | -13.8% | - The primary use of cash in financing activities was a **$5.5 million** dividend distribution in Q1 Fiscal 2024, an increase from **$4.6 million** in the prior year[89](index=89&type=chunk) [Finance Lease](index=23&type=section&id=Finance%20Lease) Describes the company's material finance lease for its Missouri distribution center - The company has a material finance lease for its Missouri distribution center, valued at **$46.2 million** with an effective interest rate of approximately **5.0%**, payable through fiscal 2039[90](index=90&type=chunk) - Income related to the Missouri Sublease was **$0.581 million** for the quarter, with **$0.289 million** recorded in general and administrative expenses and **$0.292 million** in interest income[90](index=90&type=chunk) [Credit Facilities](index=23&type=section&id=Credit%20Facilities) Outlines the company's revolving line of credit and compliance with financial covenants - The company maintains an unsecured revolving line of credit of up to **$100.0 million**, with **$25.0 million** outstanding at a **6.82%** interest rate as of July 31, 2023[91](index=91&type=chunk)[92](index=92&type=chunk) - The credit agreement includes financial covenants for maximum leverage and minimum debt service coverage, with the company in compliance as of July 31, 2023[92](index=92&type=chunk) [Dividends](index=23&type=section&id=Dividends) Reports on the company's dividend policy and recent dividend declarations - The Board of Directors authorized a regular quarterly dividend of **$0.12 per share** in June 2023, payable on October 5, 2023, to stockholders of record as of September 21, 2023[93](index=93&type=chunk) [Future Capital Requirements](index=23&type=section&id=Future%20Capital%20Requirements) Discusses factors influencing future capital needs and the adequacy of existing resources - Future capital requirements depend on factors such as net sales, product development, sales and marketing expansion, new product introductions, manufacturing capacity costs, and the Maryville Relocation[94](index=94&type=chunk) - The company believes its existing capital resources and credit facilities are adequate to fund operations, finance leases, and other commitments for the next 12 months[95](index=95&type=chunk) [Other Matters](index=24&type=section&id=Other%20Matters) Covers additional financial reporting topics, including critical accounting policies and recent accounting pronouncements [Critical Accounting Policies](index=24&type=section&id=Critical%20Accounting%20Policies) Refers to the significant accounting policies and estimates used in financial statement preparation - The preparation of financial statements requires estimates and assumptions; significant accounting policies are disclosed in Note 2 of the Fiscal 2023 Annual Report, with no material changes[96](index=96&type=chunk) [Recent Accounting Pronouncements](index=24&type=section&id=Recent%20Accounting%20Pronouncements) Discusses the nature and impact of newly adopted accounting standards - The nature and impact of recent accounting pronouncements are discussed in Note 2—Basis of Presentation to the condensed consolidated financial statements[97](index=97&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=24&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) During the period ended July 31, 2023, the company did not engage in any forward option contracts or have any outstanding forward contracts, indicating minimal exposure to certain market risks - The company did not enter into or transact any forward option contracts or have any forward contracts outstanding during the period ended July 31, 2023[98](index=98&type=chunk) [Item 4. Controls and Procedures](index=24&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of July 31, 2023, with no material changes to internal control over financial reporting during the quarter - As of July 31, 2023, the company's disclosure controls and procedures were deemed **effective** by the Chief Executive Officer and Chief Financial Officer[99](index=99&type=chunk) - There were no material changes to the internal control over financial reporting during the period covered by this Quarterly Report on Form 10-Q[100](index=100&type=chunk) PART II - OTHER INFORMATION [Item 1. Legal Proceedings](index=25&type=section&id=Item%201.%20Legal%20Proceedings) This section refers to Note 9—Commitments and Contingencies for a detailed discussion of the nature of legal proceedings against the company - The nature of legal proceedings against the company is discussed in Note 9—Commitments and Contingencies[103](index=103&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=25&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) As of July 31, 2023, the company had no authorized share repurchase programs - As of July 31, 2023, the company had **no authorized share repurchase programs**[104](index=104&type=chunk) [Item 5. Other Information](index=25&type=section&id=Item%205.%20Other%20Information) This section details the adoption of Rule 10b5-1 Trading Plans by Section 16 officers and directors, specifically noting a plan adopted by a director for the potential sale of common stock [Rule 10b5-1 Trading Plans](index=25&type=section&id=Rule%2010b5-1%20Trading%20Plans) Describes the adoption of Rule 10b5-1 trading plans by company directors and officers - Director Robert L. Scott adopted a Rule 10b5-1 Plan on June 28, 2023, for the potential sale of up to **12,000 shares** of common stock, expiring on March 29, 2024[105](index=105&type=chunk) - No other directors or officers adopted or terminated a 'non-Rule 10b5-1 trading arrangement' during the three months ended July 31, 2023[106](index=106&type=chunk) [Item 6. Exhibits](index=25&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, including bylaws, certifications, and XBRL documents - The report includes various exhibits such as Amended and Restated Bylaws, Rule 13a-14(a)/15d-14(a) Certifications, Section 1350 Certifications, and Inline XBRL documents[107](index=107&type=chunk)[111](index=111&type=chunk) [Signatures](index=27&type=section&id=Signatures) The report is duly signed on behalf of Smith & Wesson Brands, Inc. by its President and Chief Executive Officer, Mark P. Smith, and Executive Vice President, Chief Financial Officer, Treasurer, and Assistant Secretary, Deana L. McPherson, on September 7, 2023 - The report was signed by Mark P. Smith, President and Chief Executive Officer, and Deana L. McPherson, Executive Vice President, Chief Financial Officer, Treasurer, and Assistant Secretary, on September 7, 2023[113](index=113&type=chunk)