American Outdoor Brands(AOUT) - 2022 Q2 - Quarterly Report

Form 10-Q Cover Page 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] 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 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 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] - 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][7] - 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] PART I - FINANCIAL INFORMATION 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) 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 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] Consolidated and Combined Statements of Operations and Comprehensive Income 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] Consolidated and Combined Statements of Equity 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] Consolidated and Combined Statements of Cash Flows 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][149] (1) Background, Description of Business, and Basis of Presentation 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][27] - 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][30] - 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][31] 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] (2) Recently Adopted and Issued Accounting Standards 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] (3) Leases 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] 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 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] 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] (5) Fair Value Measurement 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] - The company did not have any Level 2 or Level 3 financial assets or liabilities as of October 31, 2021[68] (6) Inventories 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] (7) Debt 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] - 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] (8) Equity 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][80][86] - 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][87] (9) Accrued Expenses 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] (10) Income Taxes 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] (11) Commitments and Contingencies 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] - 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][96] (12) Segment Reporting 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] - Brand lanes (Marksman, Defender, Harvester, Adventurer) are primarily focused on product development and marketing, not separate operating activities or expense accumulation[97] (13) Subsequent Events 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] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 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 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][103] Background and Basis of Presentation 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][105][106] Second Quarter Fiscal 2022 Highlights 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 This section provides a detailed analysis of the company's financial performance across various income statement line items Net Sales and Gross Profit 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][116] - 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][122] - 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][123] Operating Expenses 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] - 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] Operating Income 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][130] Total Other Income, Net 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] Income Taxes 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][135] Net Income 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][139] Non-GAAP Financial Measure 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] 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 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] - 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] - Cash and cash equivalents were $32.6 million as of October 31, 2021, down from $60.8 million at April 30, 2021[154] Operating Activities 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] - 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] - Inventory is expected to decrease in the second half of fiscal 2022 due to holiday shopping season demand and new product introductions[150] Investing Activities 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] Financing Activities 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] - 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] Other Matters 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][156] Item 3. Quantitative and Qualitative Disclosures About Market Risk 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] Item 4. Controls and Procedures 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] - There have been no material changes in the company's internal control over financial reporting during the fiscal quarter ended October 31, 2021[160] PART II - OTHER INFORMATION This part includes additional information not covered in the financial statements, such as legal proceedings, risk factors, and exhibits Item 1. Legal Proceedings 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] Item 1A. Risk Factors 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] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 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] Item 6. Exhibits 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][167] 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][171]