Smith & Wesson Holding Corporation Reports Second Quarter Fiscal 2014 Financial Results

SPRINGFIELD, Mass., Dec. 10, 2013 /PRNewswire/ -- Smith & Wesson Holding Corporation (NASDAQ Global Select: SWHC), a leader in firearm manufacturing and design, today announced financial results for the second fiscal quarter ended October 31, 2013.

Second Quarter Fiscal 2014 Financial Highlights

• Net sales for the second quarter were $139.3 million, up 2.0% from the second quarter last year.  Excluding last year's sales of $9.7 million of Walther products pursuant to a distribution agreement that Smith & Wesson ended in April 2013 and was previously announced, net sales grew by 9.2%.  Handgun sales, which included sales of the company's popular M&P pistols, grew 27.4%.  The second quarter included a reduced number of manufacturing days related to the planned two week annual factory shut down as well as previously announced downtime related to the company's enterprise resource planning (ERP) implementation. 
• Gross profit for the second quarter was $57.9 million, or 41.6% of net sales, compared with gross profit of $48.5 million, or 35.5% of net sales, for the comparable quarter last year.  Gross profit margin improved as a result of favorable product mix, absorption, and manufacturing efficiencies, as well as the absence of Walther product sales.
• Operating expenses for the second quarter were $29.2 million, or 20.9% of net sales, compared with operating expenses of $21.8 million, or 16.0% of net sales, for the second quarter last year. Excluding one-time go-live costs related to the company's new ERP system, operating expenses would have been $25.3 million, or 18.2% of net sales.
• Operating income for the second quarter was 20.7% percent of net sales compared with 19.5% percent for the second quarter last year.
• Income from continuing operations for the second quarter was $17.1 million, or $0.28 per diluted share, compared with $16.4 million, or $0.24 per diluted share, for the second quarter last year. 
• Non-GAAP Adjusted EBITDAS from continuing operations for the second quarter increased to $36.9 million from $32.0 million for the second quarter last year.
• Operating cash flow for the second quarter of $5.0 million and capital spending of $14.1 million resulted in cash outflow of $9.1 million.

James Debney, Smith & Wesson Holding Corporation President and Chief Executive Officer, stated, "Our results for the second quarter of fiscal 2014 reflected the continued successful execution of our growth strategy.  By maintaining a strategic focus on increasing market share of our M&P polymer pistol family of products, we delivered handgun revenue growth of over 27% and a significant expansion of our gross margins.  For the first six months of this fiscal year, our gross margins were 42.1%.  At the same time, we continued to drive a number of initiatives in the quarter designed to strengthen our business and return increased value to our stockholders."

Jeffrey D. Buchanan, Smith & Wesson Holding Corporation Executive Vice President and Chief Financial Officer, stated, "During the second quarter, we continued to optimize our capital structure by successfully completing our $100 million stock buyback program.  In addition, our Board of Directors authorized the repurchase of an additional $15 million of our common stock, which will be permitted to commence after the full dissemination of the financial results we are announcing today.  We ended the second quarter with a cash balance of $52.9 million, $100 million of outstanding senior notes, and no borrowings under our credit facility. 

"Our new enterprise resource planning (ERP) system, a key strategic building block that will provide our business with scalability and visibility for growth, 'went live' early in the second quarter.  We have moved through the challenging go-live phase of the implementation; the project is proceeding on track; and we have already begun to see daily improvements in the quality of our business functionality," Buchanan concluded.   

Financial Outlook
The company estimates net sales for the third quarter of fiscal 2014 to be between $140.0 million and $145.0 million and GAAP earnings per diluted share from continuing operations of between $0.28 and $0.30.  This estimate takes into account $1.5 million in expected, non-recurring costs related to the ERP conversion.  As previously noted, the company ended its Walther distribution agreement at the end of fiscal 2013 and therefore the third quarter of fiscal 2014 will not contain Walther sales, which amounted to $12.7 million in the comparable quarter a year ago.

The company continues to expect full year fiscal 2014 net sales of between $610.0 million and $620.0 million and GAAP earnings per diluted share from continuing operations of between $1.30 and $1.35 for fiscal 2014. As previously noted, the company ended its Walther distribution agreement at the end of fiscal 2013 and therefore fiscal 2014 will not contain Walther sales, which amounted to $41.6 million in fiscal 2013.

All guidance takes into account the expected impact of the implementation of the company's new ERP system throughout fiscal 2014.

Conference Call and Webcast
The company will host a conference call and webcast today, December 10, 2013, to discuss its second quarter fiscal 2014 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 and Chief Financial Officer. The conference call may include forward-looking statements. The conference call and webcast will begin at 5:00 p.m. Eastern Time (2:00 p.m. Pacific Time). Those interested in listening to the call via telephone may call directly at (617) 399-5129 and reference conference code 14738357. No RSVP is necessary.  The conference call audio webcast can also be accessed live and for replay on the company's website at www.smith-wesson.com, under the Investor Relations section. 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 "Adjusted EBITDAS" and "free cash flow" are presented.  From time to time, the company considers and uses Adjusted EBITDAS and free cash flow as supplemental measures of operating performance in order to provide the reader with an improved understanding of underlying performance trends. Adjusted EBITDAS excludes the effects of interest expense, income taxes, depreciation of tangible fixed assets, amortization of intangible assets, stock-based compensation expense, plant consolidation costs, DOJ and SEC investigation costs, and certain other transactions.  See the attached "Reconciliation of GAAP Net Income to Adjusted EBITDAS" for a detailed explanation of the amounts excluded from and included in net income to arrive at Adjusted EBITDAS for the three month and six month periods ended October 31, 2013 and 2012.  Free cash flow is defined as cash flow provided by operating activities less capital expenditures, which include purchases of property, equipment, and software.

Adjusted or non-GAAP financial measures provide investors and the company with supplemental measures of operating performance and trends that facilitate comparisons between periods before, during, and after certain items that would not otherwise be apparent on a GAAP basis. Adjusted financial measures are not, and should not be viewed as, a substitute for GAAP results. The company's definition of these adjusted financial measures may differ from similarly named measures used by others.

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 brands include Smith & Wesson®, M&P® and Thompson/Center Arms™. Smith & Wesson facilities are located in Massachusetts and Maine. 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 the company's belief that its results for the second  quarter of fiscal 2014 reflect the continued successful execution of its growth strategy; the company's belief that by maintaining a strategic focus on increasing market share of its M&P polymer pistol family of products, it delivered handgun revenue growth of over 27% and a significant expansion of its gross margins expansion; the company's belief that it continued to drive a number of initiatives in the quarter designed to strengthen its business and return increased value to its stockholders; the company's belief that it continued to optimize its capital structure by successfully completing its $100 million stock buyback program; the company's expectation that its new ERP system will be a key strategic building block that will provide the company's business with the scalability and visibility required for future growth; the company's belief  that  it has moved through the challenging go-live phase of the  implementation of the new ERP system; the company's belief that the project is proceeding on track; the company's belief that it is already beginning to see daily improvements in the quality of the company's business functionality; the company's expectations for net sales and GAAP earnings per diluted share from continuing operations for the third quarter of fiscal 2014; and the company's expectations for net sales and GAAP earnings per diluted share from continuing operations for fiscal 2014. 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, including the DOJ and SEC matters; the state of the U.S. economy; 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; 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 Form 10-K Report for the fiscal year ended April 30, 2013.

Contact: Liz Sharp, VP Investor Relations
Smith & Wesson Holding Corp.
(413) 747-3304
[email protected]

SOURCE Smith & Wesson Holding Corporation