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

- Net Sales of $143.2 Million for Second Quarter, up 32.1% Year-Over-Year

- Second Quarter GAAP Net Income Per Diluted Share of $0.22

- Second Quarter Non-GAAP Net Income Per Diluted Share of $0.25

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

08 Dec, 2015, 16:05 ET from Smith & Wesson Holding Corporation

SPRINGFIELD, Mass., Dec. 8, 2015 /PRNewswire/ -- Smith & Wesson Holding Corporation (NASDAQ Global Select: SWHC), a leader in firearm manufacturing and design, today announced financial results for the fiscal second quarter ended October 31, 2015.

Second Quarter Fiscal 2016 Financial Highlights

  • Quarterly net sales were $143.2 million, an increase of 32.1% over the second quarter last year.  Firearms division net sales of $124.9 million increased by 15.2% over the comparable quarter last year.  Accessories division net sales of $18.4 million increased by 24.6% over 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 39.2% compared with 32.1% in the comparable quarter last year. 
  • Quarterly GAAP net income was $12.5 million, or $0.22 per diluted share, compared with $5.1 million, or $0.09 per diluted share, for the comparable quarter last year. Second quarter 2016 GAAP net income per diluted share included an expense of $0.03 for amortization expense, net of tax, related to the acquisition of BTI.
  • Quarterly non-GAAP net income was $14.2 million, or $0.25 per diluted share, compared with $5.2 million, or $0.10 per diluted share, for the comparable quarter last year.
  • Quarterly non-GAAP Adjusted EBITDAS was $33.4 million, or 23.3% of net sales.

James Debney, Smith & Wesson Holding Corporation President and Chief Executive Officer, said, "The combined strength of our firearms and accessories divisions delivered results that exceeded our financial guidance for sales and net income, reflecting the successful implementation of our growth strategy.  Based on our second quarter performance, we are raising our fiscal 2016 guidance for revenue as well as net income.  Higher revenue in our firearms division was driven by increased orders for our Smith & Wesson SDVE polymer pistols, M&P® Shield™ and M&P BODYGUARD® polymer pistols, and our long guns, especially our Thompson/Center™ Venture™ bolt-action rifles.  Our accessories division, which was established less than one year ago, also continued to deliver excellent results, with double-digit, year-over-year revenue growth and gross margins that came in above the year-ago quarter.  During the second quarter, we introduced a range of new products including the new Thompson/Center Strike™ Muzzleloader; the M&P BODYGUARD 380 with Crimson Trace® Green Laserguard®; the M&P Shield pistol with tritium night sights, a new engraved SW1911 pistol from Smith & Wesson Custom Engraving; and from our Performance Center, the new ported M&P Shield in 9mm and 40S&W for enhanced performance.  We look forward to showcasing these new products, and others, at SHOT Show in January."

Jeff Buchanan, Executive Vice President, Chief Financial Officer, and Chief Administrative Officer, said, "Our gross margin performance was strong in the second quarter, driven by the favorable impact of increased production volumes in our firearms division and by gross margins in our accessories division in excess of 50.0%.  For the first half of fiscal 2016, we generated $22.8 million in operating cash flow and $8.6 million in free cash flow despite our seasonal inventory build in preparation for the hunting and holiday shopping seasons.  Our balance sheet remains healthy as we ended the second quarter with cash of $54.1 million and no borrowings on our $175.0 million revolving line of credit."

Financial Outlook

SMITH & WESSON HOLDING CORPORATION

NET SALES AND EARNINGS PER SHARE GUIDANCE, INCLUDING GAAP TO NON-GAAP RECONCILIATION
(Unaudited)











Range for the Three Months Ending

January 31, 2016


Range for the Year Ending

April 30, 2016


Net sales (in thousands)

$ 150,000


$ 155,000


$ 625,000


$ 635,000











GAAP income per share - diluted

$        0.24


$        0.26


$        1.11


$        1.16


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

$        0.27


$        0.29


$        1.26


$        1.31











Conference Call and Webcast

The company will host a conference call and webcast today, December 8, 2015, to discuss its second 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 877-415-3182 and reference conference code 95372579.  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 belief regarding the successful implementation of our growth strategy; new products to be showcased at SHOT Show; and our expectations for net sales, GAAP net income per diluted share, and non-GAAP net income per diluted share for the third 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


For the Six Months Ended



October 31, 2015


October 31, 2014


October 31, 2015


October 31, 2014



(In thousands, except per share data)

Net sales


$        143,242


$        108,446


$        291,005


$        240,315

Cost of sales


87,027


73,606


175,920


156,357

Gross profit


56,215


34,840


115,085


83,958

Operating expenses:









Research and development


2,695


1,473


5,091


2,929

Selling and marketing


12,536


8,850


21,754


16,797

General and administrative


19,202


13,743


36,640


27,783

Total operating expenses


34,433


24,066


63,485


47,509

Operating income


21,782


10,774


51,600


36,449

Other (expense)/income:









Other (expense)/income, net


(5)


(11)


(12)


(17)

Interest income


27


20


77


44

Interest expense


(2,323)


(2,914)


(9,573)


(4,898)

Total other (expense)/income, net


(2,301)


(2,905)


(9,508)


(4,871)

Income before income taxes


19,481


7,869


42,092


31,578

Income tax expense


7,015


2,819


15,214


11,972

Net income


12,466


5,050


26,878


19,606

Net income per share:









Basic 


$               0.23


$               0.09


$               0.49


$               0.36

Diluted 


$               0.22


$               0.09


$               0.48


$               0.35

Weighted average number of common shares outstanding:









Basic


54,447


53,545


54,333


54,188

Diluted


55,668


54,651


55,621


55,435










 

SMITH & WESSON HOLDING CORPORATION AND SUBSIDIARIES


CONSOLIDATED BALANCE SHEETS


(Unaudited)



As of


October 31, 2015


April 30, 2015



(In thousands, except par value and share data)


 ASSETS


 Current assets:





Cash and cash equivalents

$          54,064


$     42,222


Accounts receivable, net of allowance for doubtful accounts of $669 on October 31, 2015 and $722 on April 30, 2015

50,153


55,280


Inventories

100,897


76,895


Prepaid expenses and other current assets

6,893


6,306


Deferred income taxes 

16,373


16,373


Income tax receivable 

6,476



Total current assets

234,856


197,076


 Property, plant, and equipment, net

138,396


133,844


 Intangibles, net

67,803


73,768


 Goodwill

76,057


75,426


 Other assets

6,704


10,811



$        523,816


$   490,925


 LIABILITIES AND STOCKHOLDERS' EQUITY


 Current liabilities:





Accounts payable

$          31,338


$     32,360


Accrued expenses

20,707


19,021


Accrued payroll

13,428


7,556


Accrued income taxes


4,224


Accrued taxes other than income

4,599


5,281


Accrued profit sharing

3,652


6,165


Accrued warranty

6,220


6,404


Current portion of notes payable

6,300



Total current liabilities

86,244


81,011


 Deferred income taxes 

33,341


33,905


 Notes payable, net of current portion of notes payable

169,282


170,933


 Other non-current liabilities

9,618


10,706


Total liabilities

298,485


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, 70,118,491 shares issued and 54,555,869 shares outstanding on October 31, 2015 and 69,625,081 shares issued and 54,062,459 shares outstanding on April 30, 2015

70


70


Additional paid-in capital 

223,587


219,198


Retained earnings

174,230


147,352


Accumulated other comprehensive (loss)/income

(233)


73


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

(172,323)


(172,323)


Total stockholders' equity

225,331


194,370



$        523,816


$   490,925







 

SMITH & WESSON HOLDING CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


For the Six Months Ended


October 31, 2015


October 31, 2014


(In thousands)

Cash flows from operating activities:




Net income

$              26,878


$              19,606

Adjustments to reconcile net income to net cash provided by/(used in) operating activities:




Depreciation and amortization 

21,066


12,983

Loss/(gain) on sale/disposition of assets

19


(86)

Provisions for/(recoveries of) losses on accounts receivable

(72)


230

Stock-based compensation expense

3,247


2,801

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




Accounts receivable

5,199


6,873

Inventories

(24,002)


(9,622)

Prepaid expenses and other current assets

(587)


(2,786)

Income tax payable

(10,700)


397

Accounts payable

(1,022)


(14,206)

Accrued payroll

5,872


(9,012)

Accrued taxes other than income

(682)


(988)

Accrued profit sharing

(2,513)


(8,560)

Accrued expenses

1,671


(1,058)

Accrued warranty

(184)


(459)

Other assets

(156)


(137)

Other non-current liabilities

(1,273)


596

Net cash provided by/(used in) operating activities

22,761


(3,428)

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

4,222


1,204

Receipts from note receivable

41


40

Payments to acquire patents and software

(136)


(84)

Proceeds from sale of property and equipment

61


225

Payments to acquire property and equipment

(18,352)


(21,200)

Net cash used in investing activities

(14,164)


(43,910)

Cash flows from financing activities:




Proceeds from loans and notes payable

105,000


75,000

Cash paid for debt issue costs

(1,024)


(2,333)

Payments on capital lease obligation

(298)


(298)

Payments on notes payable

(101,575)


Payments to acquire treasury stock


(30,040)

Proceeds from exercise of options to acquire common stock, including employee stock purchase plan

1,758


1,432

Payroll taxes paid as a result of restricted stock unit withholdings

(1,690)


(1,107)

Excess tax benefit of stock-based compensation

1,074


197

Net cash provided by financing activities

3,245


42,851

Net increase/(decrease) in cash and cash equivalents

11,842


(4,487)

Cash and cash equivalents, beginning of period

42,222


68,860

Cash and cash equivalents, end of period

$              54,064


$              64,373

Supplemental disclosure of cash flow information




Cash paid for:




Interest

$                9,271


$                3,106

Income taxes

24,936


11,682





 

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 


For the Six Months Ended



October 31, 2015


October 31, 2014


October 31, 2015


October 31, 2014



$


% of Sales


$


% of Sales


$


% of Sales


$


% of Sales


GAAP gross profit

$ 56,215


39.2%


$ 34,840


32.1%


$ 115,085


39.5%


$ 83,958


34.9%


Discontinued operations





52


0.0%




Non-GAAP gross profit

$ 56,215


39.2%


$ 34,840


32.1%


$ 115,137


39.6%


$ 83,958


34.9%



















GAAP operating expenses

$ 34,433


24.0%


$ 24,066


22.2%


$   63,485


21.8%


$ 47,509


19.8%


Amortization of acquired intangible assets

(2,656)


-1.9%


(215)


-0.2%


(4,729)


-1.6%


(215)


-0.1%


TCA accessories transition costs

(70)


0.0%




(151)


-0.1%




Discontinued operations

(24)


0.0%


(61)


-0.1%


(45)


0.0%


(157)


-0.1%


Insurance recovery costs





1,791


0.6%




Acquisition-related costs



(7)


0.0%




(442)


-0.2%


Non-GAAP operating expenses

$ 31,683


22.1%


$ 23,783


21.9%


$   60,351


20.7%


$ 46,695


19.4%



















GAAP operating income

$ 21,782


15.2%


$ 10,774


9.9%


$   51,600


17.7%


$ 36,449


15.2%


Amortization of acquired intangible assets

2,656


1.9%


215


0.2%


4,729


1.6%


215


0.1%


TCA accessories transition costs

70


0.0%




151


0.1%




Discontinued operations

24


0.0%


61


0.1%


45


0.0%


157


0.1%


Insurance recovery costs





(1,791)


-0.6%




Acquisition-related costs



7


0.0%


4,729


1.6%


442


0.2%


Non-GAAP operating income

$ 24,532


17.1%


$ 11,057


10.2%


$   59,463


20.4%


$ 37,263


15.5%



















GAAP net income

$ 12,466


8.7%


$   5,050


4.7%


$   26,878


9.2%


$ 19,606


8.2%


Bond premium paid





2,938


1.0%




Amortization of acquired intangible assets

2,656


1.9%


215


0.2%


4,729


1.6%


215


0.1%


Debt extinguishment costs





1,723


0.6%



0.0%


TCA accessories transition costs

70


0.0%




151


0.1%




Discontinued operations

24


0.0%


61


0.1%


97


0.0%


157



Insurance recovery costs





(1,791)


-0.6%




Acquisition-related costs



7


0.0%




442


0.2%


Tax effect of non-GAAP adjustments

(1,021)


-0.7%


(105)


-0.1%


(2,903)


-1.0%


(222)


-0.1%


Non-GAAP net income

$ 14,195


9.9%


$   5,228


4.8%


$   31,822


10.9%


$ 20,198


8.4%



















GAAP net income per share - diluted

$      0.22




$      0.09




$        0.48




$      0.35




Bond premium paid







0.05







Amortization of acquired intangible assets

0.05




0.01




0.09




0.00




Debt extinguishment costs







0.03







TCA accessories transition costs

0.00







0.00







Discontinued operations

0.00




0.00




0.00




0.00




Insurance recovery costs







(0.03)







Acquisition-related costs




0.00







0.01




Tax effect of non-GAAP adjustments

(0.02)




(0.00)




(0.05)




(0.00)




Non-GAAP net income per share - diluted

$      0.25




$      0.10




$        0.57




$      0.36





















 

SMITH & WESSON HOLDING CORPORATION AND SUBSIDIARIES

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











For the Three Months Ended


For the Six Months Ended



October 31, 2015


October 31, 2014


October 31, 2015


October 31, 2014


Net cash provided by/(used in) operating activities

$             6,136


$         (14,208)


$          22,761


$           (3,428)


Net cash used in investing activities

(7,075)


(5,214)


(14,164)


(43,910)


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




24,095


Receipts from note receivable

(20)


(19)


(41)


(40)


Free cash flow

$              (959)


$         (19,441)


$             8,556


$         (23,283)











 

SMITH & WESSON HOLDING CORPORATION AND SUBSIDIARIES


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








For the Three Months Ended



October 31, 2015


October 31, 2014







GAAP net income

$          12,466


$             5,050


Interest expense

2,323


2,914


Income tax expense

7,015


2,819


Depreciation and amortization

9,818


6,485


Stock-based compensation expense

1,702


1,220


TCA accessories transition costs

70



Discontinued operations

24


61


Acquisition-related costs


7


DOJ/SEC costs

(20)


258


Non-GAAP Adjusted EBITDAS

$          33,398


$          18,814







 

SMITH & WESSON HOLDING CORPORATION AND SUBSIDIARIES

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






For the Six Months Ended


October 31, 2015


October 31, 2015





GAAP net income

$          26,878


$          19,606

Interest expense

9,573


4,898

Income tax expense

15,214


11,972

Depreciation and amortization

18,817


12,324

Stock-based compensation expense

3,247


2,801

TCA Accessories transition costs

151


Discontinued operations

97


157

Acquisition-related costs


442

DOJ/SEC costs, including insurance recovery costs

(1,790)


691

Non-GAAP Adjusted EBITDAS

$          72,187


$          52,891





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SOURCE Smith & Wesson Holding Corporation



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