American Outdoor Brands(AOUT) - 2023 Q1 - Quarterly Report

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