Smith & Wesson Holding Corporation Reports First Quarter Fiscal 2016 Financial Results

- Net Sales of $147.8 Million for First Quarter

- First Quarter GAAP Net Income Per Diluted Share of $0.26

- First Quarter Non-GAAP Net Income Per Diluted Share of $0.32

- Company Raises Full Year Fiscal 2016 Revenue and Net Income Outlook

Aug 27, 2015, 16:05 ET from Smith & Wesson Holding Corporation

SPRINGFIELD, Mass., Aug. 27, 2015 /PRNewswire/ -- Smith & Wesson Holding Corporation (NASDAQ Global Select: SWHC), a leader in firearm manufacturing and design, today announced financial results for the fiscal first quarter ended July 31, 2015.

First Quarter Fiscal 2016 Financial Highlights

  • Quarterly net sales were $147.8 million, an increase of 12.1% from the first quarter last year.  Firearms division net sales of $134.4 million increased by 1.9% from the comparable quarter last year.  Accessories division net sales of $13.3 million increased by 29.9% from the comparable quarter last year, which was prior to the company's acquisition of Battenfeld Technologies, Inc. (BTI) on December 11, 2014.
  • Gross margin for the quarter was 39.8% compared with 37.2% in the prior year. 
  • Quarterly GAAP net income was $14.4 million, or $0.26 per diluted share, compared with $14.6 million, or $0.26 per diluted share, for the first quarter last year.  First quarter 2016 GAAP net income per diluted share included an expense of $0.08 related to the previously announced redemption of the company's 5.875% Senior Notes, an expense of $0.04 for acquisition amortization related to the acquisition of BTI, an expense reduction of $0.03 related to an insurance settlement, and a tax benefit for the foregoing items of $0.03.
  • Quarterly non-GAAP net income was $17.7 million, or $0.32 per diluted share, compared with $14.9 million, or $0.27 per diluted share, for the first quarter last year.
  • Quarterly non-GAAP Adjusted EBITDAS was $38.8 million, or 26.3% of net sales.

James Debney, Smith & Wesson Holding Corporation President and Chief Executive Officer, said, "Our first quarter results exceeded our expectations for sales and net income in both our firearms and accessories divisions.  Higher  revenue in our firearms division was driven by strong orders for our M&P®15 Sport™ rifles, our Thompson/Center Venture™ bolt-action rifles and our M&P Shield™ polymer pistols.  Our accessories division, which was established less than one year ago, also continued to deliver excellent results, with revenue and gross margins that were positive from the year-ago quarter.  During the quarter, we introduced limited edition models of our M&P BODYGUARD® 380 pistol and Model 642 J-Frame Revolver, and product development teams in both our firearm and accessories divisions continued to prepare several new products and extensions for launch at SHOT Show® 2016.  Based upon our performance for the first quarter and our current outlook for the remainder of fiscal 2016, we are raising our full year revenue and net income guidance."

Jeff Buchanan, Executive Vice President, Chief Financial Officer, and Chief Administrative Officer, said, "Strong gross margins in the quarter were driven by a number of factors, including favorable standard margins in the accessories division and increased production volumes in the firearms division.  Operating cash flow was positive at $16.6 million despite our seasonal inventory build as we prepare for the upcoming fall hunting and holiday shopping seasons. As a result, cash during the quarter increased by $13.2 million to $55.4 million.  We ended the first quarter with no borrowings on our $175.0 million revolving line of credit."

Financial Outlook


Range for the Three Months Ending October 31, 2015


Range for the Year Ending April 30, 2016

Net sales (in thousands)

$ 135,000


$ 140,000


$ 610,000


$ 620,000









GAAP income per share - diluted

$        0.16


$        0.18


$        0.99


$        1.04

Amortization of acquired intangible assets

0.05


0.05


0.19


0.19

Debt extinguishment costs



0.03


0.03

Bond premium paid



0.05


0.05

Insurance recovery costs



(0.03)


(0.03)

Tax effect of non-GAAP adjustments

(0.02)


(0.02)


(0.09)


(0.09)

Non-GAAP income per share - diluted

$        0.19


$        0.21


$        1.14


$        1.19


Conference Call and Webcast

The company will host a conference call and webcast today, August 27, 2015, to discuss its first quarter fiscal 2016 financial and operational results. Speakers on the conference call will include James Debney, President and Chief Executive Officer, and Jeffrey D. Buchanan, Executive Vice President, Chief Financial Officer, and Chief Administrative Officer. The conference call may include forward-looking statements.  The conference call will be webcast live and is scheduled to begin at 5:00 p.m. Eastern Time. The live audio broadcast and replay of the conference call can be accessed on Smith & Wesson's website at www.smith-wesson.com (Windows Media is required). Those interested in listening to the conference call via telephone may call directly at 617-597-5376 and reference conference code 99442253.  No RSVP is necessary.  The company will maintain an audio replay of this conference call on its website for a period of time after the call. No other audio replay will be available. 

Reconciliation of U.S. GAAP to Non-GAAP Financial Measures

In this press release, certain non-GAAP financial measures, including "non-GAAP net income" and "Adjusted EBITDAS" are presented. From time-to-time, the company considers and uses these supplemental measures of operating performance in order to provide the reader with an improved understanding of underlying performance trends.  The company believes it is useful for itself and the reader to review, as applicable, both (1) GAAP measures that include (i) amortization of acquired intangible assets, (ii) TCA accessories transition costs, (iii) discontinued operations, (iv) insurance recovery costs, (v) acquisition-related costs, (vi) bond premium, (vii) debt extinguishment costs, (viii) the tax effect of non-GAAP adjustments, (ix) interest expense, (x) income taxes, (xi) depreciation and amortization, (xii) stock-based compensation expense, (xiii) DOJ and SEC costs, (xiv) payments for acquisitions, and (xv) receipts from note receivables; and (2) the non-GAAP measures that exclude such information.  The company presents these non-GAAP measures because it considers them an important supplemental measure of its performance. The company's definition of these adjusted financial measures may differ from similarly named measures used by others. The company believes these measures facilitate operating performance comparisons from period to period by eliminating potential differences caused by the existence and timing of certain expense items that would not otherwise be apparent on a GAAP basis.  These non-GAAP measures have limitations as an analytical tool and should not be considered in isolation or as a substitute for the company's GAAP measures.  The principal limitations of these measures are that they do not reflect the company's actual expenses and may thus have the effect of inflating its financial measures on a GAAP basis.

About Smith & Wesson

Smith & Wesson Holding Corporation (NASDAQ Global Select: SWHC) is a U.S.-based leader in firearm manufacturing and design, delivering a broad portfolio of quality firearms, related products, and training to the global military, law enforcement, and consumer markets. The company's firearms division brands include Smith & Wesson®, M&P®, and Thompson/Center Arms™. As a leading provider of shooting, reloading, gunsmithing, and gun cleaning supplies, the company's accessories division produces innovative, high-quality products under several brands, including Caldwell® Shooting Supplies, Wheeler® Engineering, Tipton® Gun Cleaning Supplies, Frankford Arsenal® Reloading Tools, Lockdown® Vault Accessories, and Hooyman™ Premium Tree Saws. Smith & Wesson facilities are located in Massachusetts, Maine, Connecticut, and Missouri. For more information on Smith & Wesson, call (800) 331-0852 or log on to www.smith-wesson.com.  

Safe Harbor Statement

Certain statements contained in this press release may be deemed to be forward-looking statements under federal securities laws, and we intend that such forward-looking statements be subject to the safe-harbor created thereby.  Such forward-looking statements include our expectations regarding the favorable impact of an insurance settlement; our anticipated new products and extensions for launch at SHOT Show 2016; our plans regarding our seasonal inventory build and preparation for the upcoming fall hunting and holiday shopping season; and our expectations for net sales, GAAP net income per diluted share, and non-GAAP net income per diluted share for the second quarter of fiscal 2016 as well as net sales, GAAP net income per diluted share, and non-GAAP net income per diluted share for fiscal 2016.  We caution that these statements are qualified by important factors that could cause actual results to differ materially from those reflected by such forward-looking statements.  Such factors include the demand for our products; the costs and ultimate conclusion of certain legal matters; the state of the U.S. economy in general and the firearm industry in particular; general economic conditions and consumer spending patterns; the potential for increased regulation of firearms and firearm-related products; speculation surrounding fears of terrorism and crime; our growth opportunities; our anticipated growth; our ability to increase demand for our products in various markets, including consumer, law enforcement, and military channels, domestically and internationally; the position of our hunting products in the consumer discretionary marketplace and distribution channel; our penetration rates in new and existing markets; our strategies; our ability to introduce new products; the success of new products; our ability to expand our markets; our ability to integrate acquired businesses in a successful manner; the general growth of our firearm accessories business; the potential for cancellation of orders from our backlog; and other risks detailed from time to time in our reports filed with the SEC, including our Annual Report on Form 10-K for the fiscal year ended April 30, 2015.

Contact: Liz Sharp, VP Investor Relations
Smith & Wesson Holding Corp.
(413) 747-6284
lsharp@smith-wesson.com

SMITH & WESSON HOLDING CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)







For the Three Months Ended



July 31, 2015


July 31, 2014



(In thousands, except per share data)

Net sales


$ 147,763


$ 131,869

Cost of sales


88,893


82,751

Gross profit


58,870


49,118

Operating expenses:





Research and development


2,396


1,457

Selling and marketing


9,219


7,947

General and administrative


17,438


14,039

Total operating expenses


29,053


23,443

Operating income


29,817


25,675

Other (expense)/income:





Other (expense)/income, net


(6)


(6)

Interest income


51


24

Interest expense


(7,251)


(1,984)

Total other (expense)/income, net


(7,206)


(1,966)

Income from operations before income taxes


22,611


23,709

Income tax expense


8,199


9,153

Net income


14,412


14,556

Net income per share:





Basic 


$        0.27


$        0.27

Diluted 


$        0.26


$        0.26

Weighted average number of common shares outstanding:





Basic


54,218


54,829

Diluted


55,477


56,145

 

SMITH & WESSON HOLDING CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)


As of


July 31, 2015


April 30, 2015


(In thousands, except par value and share data)

 ASSETS

 Current assets:




Cash and cash equivalents

$    55,417


$     42,222

Accounts receivable, net of allowance for doubtful accounts of $737 on July 31, 2015 and $722 on April 30, 2015

51,535


55,280

Inventories

90,086


76,895

Prepaid expenses and other current assets

9,815


6,306

Deferred income taxes 

16,373


16,373

Total current assets

223,226


197,076

 Property, plant, and equipment, net

134,184


133,844

 Intangibles, net

70,536


73,768

 Goodwill

76,057


75,426

 Other assets

10,092


10,811


$  514,095


$   490,925

 LIABILITIES AND STOCKHOLDERS' EQUITY

 Current liabilities:




Accounts payable

$    34,952


$     32,360

Accrued expenses

16,212


19,021

Accrued payroll

9,366


7,556

Accrued income taxes

4,893


4,224

Accrued taxes other than income

3,286


5,281

Accrued profit sharing

7,912


6,165

Accrued warranty

6,158


6,404

Current portion of notes payable

6,300


Total current liabilities

89,079


81,011

 Deferred income taxes 

33,453


33,905

 Notes payable, net of current portion of notes payable

170,747


170,933

 Other non-current liabilities

10,818


10,706

Total liabilities

304,097


296,555

 Commitments and contingencies 




 Stockholders' equity:




Preferred stock, $.001 par value, 20,000,000 shares authorized, no shares issued or outstanding


Common stock, $.001 par value, 100,000,000 shares authorized, 69,931,033 shares issued and 54,368,411 shares outstanding on July 31, 2015 and 69,625,081 shares issued and 54,062,459 shares outstanding on April 30, 2015

70


70

Additional paid-in capital 

220,530


219,198

Retained earnings

161,764


147,352

Accumulated other comprehensive (loss)/income

(43)


73

Treasury stock, at cost (15,562,622  shares on July 31, 2015 and April 30, 2015)

(172,323)


(172,323)

Total stockholders' equity

209,998


194,370


$ 514,095


$   490,925

 

SMITH & WESSON HOLDING CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


For the Three Months Ended


July 31, 2015


July 31, 2014


(In thousands)

Cash flows from operating activities:




Net income

$       14,412


$       14,556

Adjustments to reconcile net income to net cash provided by operating activities:




Depreciation and amortization 

11,030


6,105

Loss/(gain) on sale/disposition of assets

63


(88)

Provisions for losses on accounts receivable

15


17

Stock-based compensation expense

1,545


1,579

Changes in operating assets and liabilities (net effect of acquisitions):



Accounts receivable

3,730


5,213

Inventories

(13,191)


(11,601)

Prepaid expenses and other current assets

(3,509)


(2,239)

Income tax payable

669


8,752

Accounts payable

2,592


(2,184)

Accrued payroll

1,810


(8,377)

Accrued taxes other than income

(1,995)


(1,019)

Accrued profit sharing

1,747


1,250

Accrued expenses

(2,825)


(1,181)

Accrued warranty

(246)


(353)

Other assets

698


(110)

Other non-current liabilities

80


460

Net cash provided by operating activities

16,625


10,780

Cash flows from investing activities:




Payments for the net assets of Tri-Town Precision Plastics, Inc.


(24,095)

Refunds of deposits on machinery and equipment

835


Receipts from note receivable

21


21

Payments to acquire patents and software

(66)


(34)

Payments to acquire property and equipment

(7,940)


(14,588)

Net cash used in investing activities

(7,150)


(38,696)

Cash flows from financing activities:




Proceeds from loans and notes payable

105,000


75,000

Cash paid for debt issue costs

(918)


(2,337)

Payments on capital lease obligation

(149)


(150)

Payments on notes payable

(100,000)


Payments to acquire treasury stock


(30,040)

Proceeds from exercise of options to acquire common stock

634


424

Payroll taxes paid as a result of restricted stock unit withholdings

(1,661)


(444)

Excess tax benefit of stock-based compensation

814


61

Net cash provided by financing activities

3,720


42,514

Net increase in cash and cash equivalents

13,195


14,598

Cash and cash equivalents, beginning of period

42,222


68,860

Cash and cash equivalents, end of period

$       55,417


$       83,458

Supplemental disclosure of cash flow information




Cash paid for:




Interest

$         8,253


$         3,010

Income taxes

6,816


639

 

SMITH & WESSON HOLDING CORPORATION AND SUBSIDIARIES

RECONCILIATION OF GAAP FINANCIAL MEASURES TO NON-GAAP FINANCIAL MEASURES
(Dollars in thousands, except per share data)
(Unaudited)










For the Three Months Ended 


July 31, 2015


July 31, 2014


$


% of Sales


$


% of Sales

GAAP gross profit

$  58,870


39.8%


$ 49,118


37.2%

Discontinued operations

52


0.1%



Non-GAAP gross profit

$  58,922


39.9%


$ 49,118


37.2%









GAAP operating expenses

$  29,053


19.7%


$ 23,443


17.8%

Amortization of acquired intangible assets

(2,073)


-1.4%



TCA accessories transition costs

(82)


-0.1%



Discontinued operations

(20)


0.0%


(95)


-0.1%

Insurance recovery costs

1,772


1.2%



Acquisition-related costs



(435)


-0.3%

Non-GAAP operating expenses

$  28,650


19.4%


$ 22,913


17.4%









GAAP operating income

$  29,817


20.2%


$ 25,675


19.5%

Amortization of acquired intangible assets

2,073


1.4%



TCA accessories transition costs

82


0.1%



Discontinued operations

72


0.0%


95


0.1%

Insurance recovery costs

(1,772)


-1.3%



Acquisition-related costs



435


0.3%

Non-GAAP operating income

$  30,272


20.5%


$ 26,205


19.9%









GAAP net income

$  14,412


9.8%


$ 14,556


11.0%

Bond premium paid

2,938


2.0%



Amortization of acquired intangible assets

2,073


1.4%



Debt extinguishment costs

1,723


1.2%



TCA accessories transition costs

82


0.1%



Discontinued operations

72


0.0%


95


0.1%

Insurance recovery costs

(1,772)


-1.2%



Acquisition-related costs



435


0.3%

Tax effect of non-GAAP adjustments

(1,857)


-1.3%


(195)


-0.1%

Non-GAAP net income

$  17,671


12.0%


$ 14,891


11.3%









GAAP net income per share - diluted

$      0.26




$     0.26



Bond premium paid

0.05






Amortization of acquired intangible assets

0.04






Debt extinguishment costs

0.03






TCA accessories transition costs

0.00






Discontinued operations

0.00




0.00



Insurance recovery costs

(0.03)






Acquisition-related costs




0.01



Tax effect of non-GAAP adjustments

(0.03)




(0.00)



Non-GAAP net income per share - diluted

$      0.32




$     0.27



 

SMITH & WESSON HOLDING CORPORATION AND SUBSIDIARIES

RECONCILIATION OF NET OPERATING CASH FLOW TO FREE CASH FLOW
(In thousands)
(Unaudited)






For the Three Months Ended


July 31, 2015


July 31, 2014

Net cash provided by operating activities

$    16,625


$    10,780

Net cash used in investing activities

(7,150)


(38,696)

Payments for the net assets of Tri-Town Precision Plastics, Inc.


24,095

Receipts from note receivable

(21)


(21)

Free cash flow

$      9,454


$    (3,842)



SMITH & WESSON HOLDING CORPORATION AND SUBSIDIARIES

RECONCILIATION OF GAAP NET INCOME TO NON-GAAP ADJUSTED EBITDAS
(In thousands)
(Unaudited)






For the Three Months Ended


July 31, 2015


July 31, 2014





GAAP net income

$    14,412


$    14,556

Interest expense

7,251


1,984

Income tax expense

8,199


9,153

Depreciation and amortization

8,999


5,839

Stock-based compensation expense

1,545


1,579

TCA accessories transition costs

82


Discontinued operations

72


95

Acquisition-related costs


435

DOJ/SEC costs, including insurance recovery costs

(1,770)


433

Non-GAAP Adjusted EBITDAS

$    38,790


$    34,074

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SOURCE Smith & Wesson Holding Corporation



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