Ruger(US:RGR)2024-02-21 22:01PART I Business Overview The company designs, manufactures, and sells firearms, with 99% of sales from domestic firearms, emphasizing innovation and quality - The Company is principally engaged in the design, manufacture, and sale of firearms to domestic customers, with firearms sales representing virtually all (99%) of total sales for the year ended December 31, 2023. Export sales account for approximately 6% of firearms sales14108 Net Sales Attributable to Firearms Operations (2021-2023) | Year Ended December 31, | Net Sales (Millions USD) | | :---------------------- | :----------------------- | | 2023 | $540.7 | | 2022 | $593.3 | | 2021 | $728.1 | Net Sales by Firearms Product Category (2021-2023) | Product Category | 2023 (Millions USD) | 2022 (Millions USD) | 2021 (Millions USD) | | :--------------- | :------------------ | :------------------ | :------------------ | | Rifles | $306.8 | $305.4 | $317.5 | | Pistols | $131.4 | $184.7 | $278.4 | | Revolvers | $72.5 | $70.0 | $84.4 | | Accessories | $30.0 | $33.2 | $47.8 | - The Company's firearms are primarily marketed through 15 federally licensed, independent wholesale distributors for the domestic commercial market, 26 for law enforcement, and 44 for export. Top customers in 2023 were Lipsey's (24%), Davidson's (19%), and Sports South (15%)3233 Research and Development Expenses (2021-2023) | Year | R&D Expenses (Millions USD) | | :--- | :-------------------------- | | 2023 | $9.8 | | 2022 | $9.6 | | 2021 | $11.7 | - As of February 1, 2024, the Company employed approximately 1,820 full-time employees, with about 32% having at least ten years of service. The company focuses on competitive compensation, employee development through 'Ruger University,' and maintaining a safe workplace4345 Risk Factors The company faces significant risks from government policies, litigation, decreased demand, cybersecurity threats, and labor force availability - Changes in government policies and firearms legislation, including potential expansion of the National Firearms Act or repeal of the PLCAA, could significantly restrict sales and increase compliance costs6364656669 - The Company is exposed to litigation risks, including claims of defective product design, failure to warn, unfair trade practices, and lawsuits from municipalities, which could materially affect financial results70 - A significant decrease in demand for the Company's products, driven by macroeconomic downturns or specific firearms industry factors (social, political), could lead to underutilized capacity and reduced profitability7374 - Cybersecurity threats, including malicious software and unauthorized data access, could disrupt critical systems, lead to data loss, incur financial losses, and damage the Company's reputation81 - The availability and retention of the labor force, especially key management, is critical. A tightening labor market could increase costs and impact the ability to recruit and retain employees85 Unresolved Staff Comments No unresolved staff comments from the SEC - The Company has no unresolved staff comments87 Cybersecurity The company maintains an Information Security Program, overseen by the Board, to manage cybersecurity risks and protect data - The Company has an Information Security Program to protect personal and proprietary information, ensuring security, confidentiality, and protection against unauthorized access or transfer8894 - Cybersecurity risk management is overseen by the Board of Directors, primarily through its Risk Oversight Committee, which regularly receives reports from senior IT leadership and third parties87909192 Properties The company operates four manufacturing facilities for firearms and castings, plus corporate offices, with all owned real estate unencumbered Manufacturing Facilities (as of December 31, 2023) | Location | Approximate Usable Square Feet | Status | Segment | | :------------------- | :----------------------------- | :----- | :---------------- | | Newport, New Hampshire | 350,000 | Owned | Firearms/Castings | | Prescott, Arizona | 230,000 | Leased | Firearms | | Mayodan, North Carolina | 220,000 | Owned | Firearms | | Earth City, Missouri | 35,000 | Leased | Castings | - Each firearms facility includes enclosed ranges for testing firearms. The Company's principal executive offices are located in Southport, Connecticut9596 Legal Proceedings The company is involved in various legal proceedings, including a new lawsuit, Jennifer Laws v. Sturm, Ruger & Co - One lawsuit, Jennifer Laws v. Sturm, Ruger & Co., was formally instituted against the Company during the three months ending December 31, 202398 Mine Safety Disclosures This item is not applicable to the company - Mine Safety Disclosures are not applicable to the Company99 PART II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock trades on NYSE (RGR), with share repurchases authorized and a five-year total return underperforming market indices - The Company's common stock is traded on the New York Stock Exchange under the symbol "RGR," with 1,800 stockholders of record as of February 5, 2024101 Issuer Repurchase of Equity Securities (2022-2023) | Period | Total Number of Shares Purchased | Average Price Paid per Share (USD) | | :------------------------- | :------------------------------- | :--------------------------- | | August 28 to October 1, 2022 | 2,136 | $49.97 | | October 30 to November 26, 2022 | 2,304 | $49.77 | | October 29 to November 25, 2023 | 179,341 | $45.20 | | November 26 to December 31, 2023 | 84,721 | $43.67 | | Total (2023) | 264,062 | $44.71 | | Total (2022) | 4,440 | $49.87 | - As of December 31, 2023, approximately $74.7 million remained authorized for share repurchases103173 Five-Year Cumulative Total Return (Through 12/31/23, $100 invested on 12/31/18) | Index/Company | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | | :----------------------------- | :----- | :----- | :----- | :----- | :----- | :----- | | Sturm, Ruger & Company, Inc. | 100.00 | 89.86 | 134.94 | 147.45 | 124.52 | 114.49 | | Standard & Poors 500 | 100.00 | 131.49 | 155.68 | 200.37 | 164.08 | 207.21 | | Russell 2000 Index | 100.00 | 125.52 | 150.58 | 172.90 | 137.56 | 160.85 | | Dow Jones US Recreational Products TSM | 100.00 | 141.70 | 190.95 | 249.86 | 164.08 | 202.05 | Item 6. [Reserved] This item is reserved and contains no information Management's Discussion and Analysis of Financial Condition and Results of Operations The company experienced significant declines in net income and gross profit in 2023 due to reduced firearms sales and increased costs, despite strong liquidity Company Overview Sturm, Ruger & Co. primarily sells firearms domestically (99% of sales), with minor casting sales and seasonal demand - Approximately 99% of the Company's sales are from firearms, with export sales representing about 6% of total sales108 - Less than 1% of sales are from the castings segment, which also produces MIM parts for internal use109 - Orders for many firearm models from independent distributors are typically stronger in the first quarter and weaker in the third quarter109 Results of Operations - 2023 (vs 2022) In 2023, net sales declined by 8.7% to $543.7 million, with gross profit down 25.8% and net income falling by $40.1 million Product Demand and NICS Background Checks (2021-2023) | Metric | 2023 | 2022 | 2021 | | :---------------------------------------- | :---------- | :---------- | :---------- | | Estimated Units Sold from Distributors to Retailers | 1,406,600 | 1,506,800 | 2,017,800 | | Total Adjusted NICS Background Checks | 15,848,000 | 16,425,000 | 18,515,000 | - Estimated sell-through from distributors to retailers decreased 7% in 2023 from 2022, while adjusted NICS decreased 4%, suggesting aggressive promotions and discounts by competitors110 Orders Received and Ending Backlog (2021-2023, in millions USD) | Metric | 2023 (Millions USD) | 2022 (Millions USD) | 2021 (Millions USD) | | :--------------------------- | :------------------ | :------------------ | :------------------ | | Orders Received | $433.8 | $451.2 | $606.5 | | Average Sales Price of Orders Received | $374 | $416 | $330 | | Ending Backlog | $229.0 | $314.4 | $429.7 | | Average Sales Price of Ending Backlog | $522 | $486 | $357 | Annual Summary Unit Data (2021-2023) | Metric | 2023 (Units) | 2022 (Units) | 2021 (Units) | | :----------------- | :---------- | :---------- | :---------- | | Units Ordered | 1,159,000 | 1,083,800 | 1,835,500 | | Units Produced | 1,398,200 | 1,733,200 | 2,154,600 | | Units Shipped | 1,367,500 | 1,641,000 | 2,142,900 | | Average Sales Price | $395 | $362 | $340 | | Units – Backlog | 438,800 | 647,300 | 1,204,500 | Net Sales, Cost of Products Sold, and Gross Profit (2022 vs 2023, in millions USD) | Metric | 2023 (Millions USD) | 2022 (Millions USD) | Change (Millions USD) | % Change | | :---------------------- | :------------------ | :------------------ | :-------------------- | :------- | | Net firearms sales | $540.7 | $593.3 | $(52.6) | (8.9)% | | Net casting sales | $3.0 | $2.5 | $0.5 | 18.3% | | Total net sales | $543.7 | $595.8 | $(52.1) | (8.7)% | | Cost of products sold | $410.1 | $415.7 | $(5.6) | (1.3)% | | Gross profit | $133.6 | $180.1 | $(46.5) | (25.8)% | | Gross margin | 24.6% | 30.2% | (5.6)% | (18.5)% | - New products accounted for $121.7 million (23%) of firearms sales in 2023, up from $78.4 million (14%) in 2022120 Operating Expenses (2022 vs 2023, in millions USD) | Metric | 2023 (Millions USD) | 2022 (Millions USD) | Change (Millions USD) | % Change | | :-------------------------------- | :------------------ | :------------------ | :-------------------- | :------- | | Selling expenses | $38.8 | $36.1 | $2.7 | 7.4% | | General and administrative expenses | $42.7 | $40.5 | $2.2 | 5.4% | | Total operating expenses | $81.5 | $76.6 | $4.9 | 6.4% | - Operating income decreased by $51.4 million to $52.1 million (9.6% of sales) in 2023 from $103.5 million (17.3% of sales) in 2022126 Other Income (2022 vs 2023, in millions USD) | Metric | 2023 (Millions USD) | 2022 (Millions USD) | Change (Millions USD) | % Change | | :-------------- | :------------------ | :------------------ | :-------------------- | :------- | | Royalty income | $0.6 | $0.8 | $(0.2) | (21.4)% | | Interest income | $5.5 | $2.6 | $2.9 | 114.1% | | Interest expense | $(0.2) | $(0.3) | $0.1 | (19.9)% | | Other income, net | $0.8 | $1.7 | $(0.9) | (51.4)% | | Total other income | $6.7 | $4.8 | $1.9 | 39.7% | - Consolidated net income was $48.2 million in 2023, a decrease of $40.1 million from $88.3 million in 2022. The effective income tax rate was 18.0% in 2023, down from 18.4% in 2022128129 EBITDA Reconciliation (2022 vs 2023, in thousands USD) | Metric | 2023 (thousands USD) | 2022 (thousands USD) | | :-------------------------------- | :------------------- | :------------------- | | Net income | $48,215 | $88,332 | | Income tax expense | $10,609 | $19,947 | | Depreciation and amortization expense | $22,383 | $25,789 | | Interest expense | $205 | $256 | | Interest income | $(5,465) | $(2,552) | | EBITDA | $75,947 | $131,772 | | EBITDA margin | 14.0% | 22.1% | Results of Operations - 2022 (vs 2021) In 2022, net sales fell by 18.5% to $595.8 million, with gross profit down 35.6% and net income declining by $67.6 million Annual Summary Unit Data (2020-2022) | Metric | 2022 (Units) | 2021 (Units) | 2020 (Units) | | :----------------- | :---------- | :---------- | :---------- | | Units Ordered | 1,083,800 | 1,835,500 | 3,041,700 | | Units Produced | 1,733,200 | 2,154,600 | 1,659,100 | | Units Shipped | 1,641,000 | 2,142,900 | 1,717,700 | | Average Sales Price | $362 | $340 | $329 | | Units – Backlog | 647,300 | 1,204,500 | 1,511,900 | | Units – Company Inventory | 112,800 | 20,600 | 8,800 | | Units – Distributor Inventory | 298,400 | 164,200 | 39,200 | | Castings Setups | 55,971 | 68,469 | 66,044 | Orders Received and Ending Backlog (2020-2022, in millions USD) | Metric | 2022 (Millions USD) | 2021 (Millions USD) | 2020 (Millions USD) | | :--------------------------- | :------------------ | :------------------ | :------------------ | | Orders Received | $451.2 | $606.5 | $992.9 | | Average Sales Price of Orders Received | $416 | $330 | $326 | | Ending Backlog | $314.4 | $429.7 | $516.6 | | Average Sales Price of Ending Backlog | $486 | $357 | $342 | - Estimated sell-through from distributors to retailers decreased 25% in 2022 from 2021, while adjusted NICS decreased 11%, attributed to decreased consumer demand and increased competitor promotions139 Net Sales, Cost of Products Sold, and Gross Profit (2021 vs 2022, in millions USD) | Metric | 2022 (Millions USD) | 2021 (Millions USD) | Change (Millions USD) | % Change | | :---------------------- | :------------------ | :------------------ | :-------------------- | :------- | | Net firearms sales | $593.3 | $728.1 | $(134.8) | (18.5)% | | Net casting sales | $2.5 | $2.6 | $(0.1) | (1.6)% | | Total net sales | $595.8 | $730.7 | $(134.9) | (18.5)% | | Cost of products sold | $415.7 | $451.2 | $(35.5) | (7.8)% | | Gross profit | $180.1 | $279.5 | $(99.4) | (35.6)% | | Gross margin | 30.2% | 38.3% | (8.1)% | (29.7)% | - Operating income decreased by $99.6 million to $103.5 million (17.3% of sales) in 2022 from $203.1 million (27.8% of sales) in 2021155 - Consolidated net income was $88.3 million in 2022, a decrease of $67.6 million from $155.9 million in 2021. The effective income tax rate decreased to 18.4% in 2022 from 24.5% in 2021, primarily due to research and development tax credits160161 EBITDA Reconciliation (2021 vs 2022, in thousands USD) | Metric | 2022 (thousands USD) | 2021 (thousands USD) | | :-------------------------------- | :------------------- | :------------------- | | Net income | $88,332 | $155,899 | | Income tax expense | $19,947 | $50,695 | | Depreciation and amortization expense | $25,789 | $26,152 | | Interest expense | $256 | $164 | | Interest income | $(2,552) | $(49) | | EBITDA | $131,772 | $232,861 | | EBITDA margin | 22.1% | 31.9% | Financial Condition The company maintains strong liquidity with $15.2 million cash and $102.5 million short-term investments, despite decreased operating cash flow in 2023 - At December 31, 2023, the Company had $15.2 million in cash and cash equivalents and $102.5 million in short-term investments165 - The Company's working capital was $208.2 million, with a current ratio of 4.3 to 1, higher than the previous year due to a special dividend payable165 Cash Provided by Operating Activities (2021-2023, in millions USD) | Year | Cash Provided by Operating Activities (Millions USD) | | :--- | :------------------------------------ | | 2023 | $33.9 | | 2022 | $77.2 | | 2021 | $172.3 | - Capital expenditures were $15.8 million in 2023 and are expected to approximate $15 million in 2024, primarily for new product tooling and manufacturing equipment upgrades169 - In 2023, the Company repurchased 264,062 shares of common stock for $11.8 million. In 2022, 4,440 shares were repurchased for $0.2 million172 Total Dividends Paid (2021-2023, in millions USD) | Year | Total Dividends Paid (Millions USD) | | :--- | :------------------- | | 2023 | $110.8 | | 2022 | $42.7 | | 2021 | $59.1 | - The Company's practice is to pay a dividend of approximately 40% of net income. A dividend of 23¢ per share was authorized on February 16, 2024175176 - Contractual obligations at December 31, 2023, included $51.3 million for goods/services (due within one year) and $3.6 million for operating lease obligations (through 2034)178 Quantitative and Qualitative Disclosures About Market Risk The company's market risk from short-term interest rate changes on U.S. Treasury investments is low and not hedged - The Company's market risk is primarily from changing interest rates on short-term U.S. Treasury instruments and cash, but this risk is low due to short maturities194 - A hypothetical 100 basis point change in market interest rates would not materially impact the Company's earnings, cash flows, or the fair value of its investments197 Financial Statements and Supplementary Data This section provides audited consolidated financial statements, including balance sheets, income, equity, and cash flow statements, with an unqualified audit opinion - RSM US LLP issued an unqualified opinion on the Company's consolidated financial statements for the period ended December 31, 2023, and on the effectiveness of internal control over financial reporting201206207 - The LIFO inventory reserve was identified as a critical audit matter due to the complexities of manual calculations for estimating prevailing inventory costs and current year price level changes212213 Consolidated Balance Sheet Highlights (in thousands USD) | Metric | December 31, 2023 (thousands USD) | December 31, 2022 (thousands USD) | | :-------------------------- | :---------------- | :---------------- | | Total Current Assets | $271,395 | $361,838 | | Net Inventories | $79,810 | $64,993 | | Total Assets | $398,817 | $484,763 | | Total Current Liabilities | $63,195 | $163,067 | | Total Stockholders' Equity | $331,721 | $316,738 | Consolidated Statements of Income Highlights (in thousands USD) | Metric | 2023 (thousands USD) | 2022 (thousands USD) | 2021 (thousands USD) | | :-------------------------- | :-------- | :-------- | :-------- | | Total net sales | $543,767 | $595,842 | $730,736 | | Gross profit | $133,619 | $180,085 | $279,557 | | Operating income | $52,084 | $103,456 | $203,136 | | Income before income taxes | $58,824 | $108,279 | $206,594 | | Net income | $48,215 | $88,332 | $155,899 | | Basic Earnings Per Share | $2.73 | $5.00 | $8.87 | | Diluted Earnings Per Share | $2.71 | $4.96 | $8.78 | | Cash Dividends Per Share | $6.27 | $2.42 | $3.36 | Consolidated Statements of Cash Flows Highlights (in thousands USD) | Metric | 2023 (thousands USD) | 2022 (thousands USD) | 2021 (thousands USD) | | :-------------------------------------- | :-------- | :-------- | :-------- | | Cash provided by operating activities | $33,901 | $77,231 | $172,339 | | Cash provided by (used for) investing activities | $40,856 | $13,209 | $(107,537) | | Cash used for financing activities | $(124,756) | $(46,311) | $(63,905) | | Cash and cash equivalents at end of year | $15,174 | $65,173 | $21,044 | Changes in and Disagreements With Accountants on Accounting and Financial Disclosure No changes in or disagreements with accountants on accounting and financial disclosure - There are no changes in or disagreements with accountants on accounting and financial disclosure338 Controls and Procedures Disclosure controls and internal control over financial reporting were effective as of December 31, 2023, with no material changes - The CEO and CFO concluded that the Company's disclosure controls and procedures were effective as of December 31, 2023339 - Management concluded that the Company maintained effective internal control over financial reporting as of December 31, 2023, based on the COSO 2013 framework, which was audited by RSM US LLP341342 - No material changes in internal control over financial reporting occurred during the most recently completed fiscal quarter343 Other Information Rule 10b5-1 Trading Plans were adopted by the CEO and a Director in Q4 2023 for common stock sales Rule 10b5-1 Trading Plans Adopted (Q4 2023) | Name | Title | Action | Date Adopted | Expiration Date | Aggregate of Securities to be Purchased/Sold | | :-------------------- | :------------------------ | :------------ | :------------- | :----------------- | :--------------------------------------------- | | Christopher J. Killoy | President and Chief Executive Officer | Adoption of Rule 10b5-1 Plan | November 7, 2023 | May 7, 2024 | 30,000 | | John A. Cosentino, Jr. | Director | Adoption of Rule 10b5-1 Plan | November 7, 2023 | November 7, 2024 | 3,000 | - No non-Rule 10b5-1 trading arrangements were adopted or terminated by the Company's directors or Section 16 officers during the three months ended December 31, 2023346 Disclosure Regarding Foreign Jurisdictions That Prevent Inspections This item is not applicable to the company - Disclosure regarding foreign jurisdictions that prevent inspections is not applicable348 PART III Directors, Executive Officers and Corporate Governance Information on directors, executive officers, and corporate governance is incorporated by reference from the 2024 Proxy Statement - Information on directors, executive officers, and corporate governance is incorporated by reference from the 2024 Annual Meeting of Stockholders Proxy Statement349350 Executive Compensation Director and executive compensation details are incorporated by reference from the 2024 Proxy Statement - Information concerning director and executive compensation is incorporated by reference from the 2024 Annual Meeting of Stockholders Proxy Statement351 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Security ownership information is incorporated by reference, with 416,809 securities outstanding and 989,846 available for future issuance under equity plans - Information on security ownership is incorporated by reference from the 2024 Annual Meeting of Stockholders Proxy Statement352 Equity Compensation Plan Information (as of December 31, 2023) | Plan Category | Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) | Weighted-average exercise price of outstanding options, warrants and rights (b) | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c) | | :-------------------------------- | :------------------------------------------------------------------------------------------ | :------------------------------------------------------------------------------ | :-------------------------------------------------------------------------------------------------------------------------------------------------- | | Equity compensation plans approved by security holders | | | | | 2017 Stock Incentive Plan | 285,621 | - | 0 | | 2023 Stock Incentive Plan | 131,188 | - | 989,846** | | Equity compensation plans not approved by security holders | | | | | None. | | | | | Total | 416,809 | - | 989,846 | - The 989,846 securities remaining available for future issuance under equity compensation plans include 121,034 unused shares previously authorized under the 2017 SIP, now incorporated into the 2023 SIP354 Certain Relationships and Related Transactions and Director Independence Information on certain relationships, related transactions, and director independence is incorporated by reference from the 2024 Proxy Statement - Information on certain relationships, related transactions, and director independence is incorporated by reference from the 2024 Annual Meeting of Stockholders Proxy Statement355 Principal Accountant Fees and Services Information on principal accountant fees and services and audit committee pre-approval policies is incorporated by reference - Information on principal accountant fees and services and audit committee pre-approval policies is incorporated by reference from the 2024 Annual Meeting of Stockholders Proxy Statement356 PART IV Exhibits and Financial Statement Schedule This section lists all exhibits and financial statement schedules, including corporate documents, agreements, and valuation accounts - This section lists all exhibits, including corporate documents, agreements, stock incentive plans, and certifications, and refers to the financial statements under Item 8359360361362 Schedule II—Valuation and Qualifying Accounts (in thousands USD) | Description | Balance at Beginning of Period (thousands USD) | ADDITIONS (1) Charged (Credited) to Costs and Expenses (thousands USD) | (2) Charged to Other Accounts –Describe (thousands USD) | Deductions (Discounts taken/Inventory written off) (thousands USD) | Balance at End of Period (thousands USD) | | :-------------------------------- | :----------------------------- | :------------------------------------------------------- | :-------------------------------------- | :------------------------------------------------- | :----------------------- | | Allowance for doubtful accounts: | | | | | | | Year ended December 31, 2023 | $400 | $0 | $0 | $0 | $400 | | Year ended December 31, 2022 | $400 | $0 | $0 | $0 | $400 | | Year ended December 31, 2021 | $400 | $0 | $0 | $0 | $400 | | Allowance for discounts: | | | | | | | Year ended December 31, 2023 | $1,334 | $12,540 | $0 | $12,710 (a) | $1,164 | | Year ended December 31, 2022 | $1,169 | $13,849 | $0 | $13,684 (a) | $1,334 | | Year ended December 31, 2021 | $1,166 | $16,116 | $0 | $16,113 (a) | $1,169 | | Excess and obsolete inventory reserve: | | | | | | | Year ended December 31, 2023 | $4,812 | $1,615 | $0 | $307 (b) | $6,120 | | Year ended December 31, 2022 | $4,347 | $465 | $0 | $0 (b) | $4,812 | | Year ended December 31, 2021 | $3,394 | $953 | $0 | $0 (b) | $4,347 |