Smith & Wesson Holding Corporation Reports First Quarter Fiscal 2014 Financial Results - Net Sales of $171 Million for the First Quarter of Fiscal 2014, Up 25.8% Year-Over-Year - Quarterly Gross Margin of 42.6% in the First Quarter of Fiscal 2014 vs. 37.7% a Year Ago - Quarterly Operating Income Margin of 28.1% in the First Quarter of Fiscal 2014 vs. 23.0% a Year Ago - Company Raising Full Fiscal Year 2014 Revenue Guidance PR Newswire SPRINGFIELD, Mass., Sept. 5, 2013 SPRINGFIELD, Mass., Sept. 5, 2013 /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 30, 2013. First Quarter Fiscal 2014 Financial Highlights oNet sales for the first quarter were $171.0 million, up 25.8% from the first quarter last year, as the company continued to operate at maximum production capacity. Excluding last year's sales of Walther products pursuant to a distribution agreement that Smith & Wesson ended in April 2013, net sales grew by 36.4%. oGross profit for the first quarter was $72.8 million, or 42.6% of net sales, compared with gross profit of $51.2 million, or 37.7% of net sales, for the comparable quarter last year. Gross profit improved as a result of increased sales volume, leveraging of fixed costs, and a planned favorable product mix to meet the needs of consumers. oOperating expenses for the first quarter were $24.8 million, or 14.5% of net sales, compared with operating expenses of $19.9 million, or 14.7% of net sales, for the first quarter last year. oOperating income for the first quarter was 28.1% percent, compared with 23.0% percent for the first quarter last year. oIncome from continuing operations for the first quarter was $26.5 million, or $0.40 per diluted share, compared with net income from continuing operations of $18.9 million, or $0.28 per diluted share, for the first quarter last year. Income from continuing operations for the first quarter of fiscal 2014 included $5.1 million, or approximately $0.05 per diluted share, of one-time expense associated with the retirement of 9.5% senior notes and the issuance of 5.875% senior notes. oNon-GAAP Adjusted EBITDAS from continuing operations for the first quarter increased to $55.2 million compared with $36.1 million for the first quarter last year. oOperating cash flow of $19.0 million and capital spending of $12.0 million for the first quarter resulted in free cash flow of $7.0 million. James Debney, Smith & Wesson Holding Corporation President and Chief Executive Officer, stated, "Our results for the first quarter of fiscal 2014 reflect the continued successful execution of our growth strategy. We delivered improvements across all of our key metrics, including a meaningful increase in year-over-year sales and significant expansion of our gross margins. Ongoing increases in our manufacturing capacity, combined with strong consumer demand for firearms, resulted in increased market share and higher sales of our most popular M&P® products. Amidst that robust growth, we drove a number of significant initiatives in the quarter designed to strengthen our business and return increased value to our stockholders." First Quarter Fiscal 2014 Balance Sheet Highlights oSmith & Wesson issued $100 million of new 5.875% senior notes due in 2017 and used $49.2 million of the proceeds to repurchase the company's outstanding 9.5% senior notes. oThe Board of Directors approved and the company initiated a $100 million common stock repurchase program, replacing the $15 million remaining from the authorization in December, 2012. oUnder the common stock repurchase program, Smith & Wesson purchased approximately 1.4 million shares of common stock for $15.6 million through a stock tender offer, leaving a balance of $84.4 million dollars available for repurchases in the open market. oThe company ended the first quarter with a cash balance of $146.5 million, $100 million of outstanding senior notes, and no borrowings under the company's credit facility. Jeffrey D. Buchanan, Smith & Wesson Holding Corporation Executive Vice President and Chief Financial Officer, stated, "During the first quarter, we took several meaningful steps to optimize our capital structure. These actions have increased the strength and flexibility of our balance sheet, providing a solid foundation to support the further development and growth of our business. In addition to the 1.4 million shares of common stock purchased in the tender offer, we have so far purchased an additional 1.82 million shares in the open market utilizing cash on hand. In addition, after the end of the first quarter, we completed a new $75 million unsecured revolving line of credit, which includes an accordion feature for up to $175 million, and which replaced our $55 million credit facility. "Early in the second quarter we 'went live' with our new SAP enterprise resource planning (ERP) system, a key strategic building block that will provide our business with the scalability and visibility required for future growth. While we have worked through what we believe are most of the issues surrounding the implementation, the initial impact of going live will amount to several days of lost production in the second quarter. Despite that short-term impact, which is factored into our guidance, today we are raising our full year sales outlook," concluded Buchanan. Financial Outlook The company estimates net sales for the second quarter of fiscal 2014 to be between $135.0 million and $140.0 million and GAAP earnings per diluted share from continuing operations of between $0.20 and $0.22. It should be noted that the company ended its Walther distribution agreement at the end of fiscal 2013 and therefore the second quarter of fiscal 2014 will not contain Walther sales, which amounted to $9.7 million in the comparable quarter a year ago. The company is increasing its previously issued full year fiscal 2014 revenue guidance and now anticipates net sales for fiscal 2014 of between $610.0 million and $620.0 million. The company expects GAAP earnings per diluted share from continuing operations of between $1.30 and $1.35 for fiscal 2014. 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, September 5, 2013, to discuss its first 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) 399-5123 and reference conference code 71726404. 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-months ended July 30, 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 first quarter of fiscal 2014 reflect the continued successful execution of its growth strategy; the company's belief that steps taken to optimize its capital structure during the first quarter have increased the strength and flexibility of its balance sheet, providing a solid foundation to support the further development and growth of its business; 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 anticipation that while it has worked through what it believes are most of the issues surrounding the implementation of the new ERP system, the initial impact of going live will amount to several days of lost production in the second quarter; the company's expectations for net sales and GAAP earnings per share from continuing operations for the second quarter of fiscal 2014; and the company's expectations for net sales, and GAAP earnings per 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 firstname.lastname@example.org SMITH & WESSON HOLDING CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (Unaudited) For the Three Months Ended July 31, 2013 July 31, 2012 (In thousands, except per share data) Net sales $ 171,020 $ 135,995 Cost of sales 98,247 84,768 Gross profit 72,773 51,227 Operating expenses: Research and development 1,358 1,172 Selling and marketing 7,548 6,838 General and administrative 15,853 11,921 Total operating expenses 24,759 19,931 Operating income from continuing 48,014 31,296 operations Other income/(expense): Other income/(expense), net 5 — Interest income 102 368 Interest expense (6,673) (1,987) Total other income/(expense), net (6,566) (1,619) Income from continuing operations before 41,448 29,677 income taxes Income tax expense 14,922 10,807 Income from continuing operations 26,526 18,870 Discontinued operations: Loss from operations of discontinued (52) (1,682) security solutions division Income tax benefit (3) (599) Loss from discontinued operations (49) (1,083) Net income/comprehensive income $ 26,477 $ 17,787 Net income per share: Basic - continuing operations $ 0.41 $ 0.29 Basic - net income $ 0.41 $ 0.27 Diluted - continuing operations $ 0.40 $ 0.28 Diluted - net income $ 0.40 $ 0.27 Weighted average number of common shares outstanding: Basic 64,235 65,352 Diluted 65,622 66,798 SMITH & WESSON HOLDING CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited) As of: July 31, 2013 April 30, 2013 (In thousands, except par value and share data) ASSETS Current assets: Cash and cash equivalents, including restricted cash of $3,348 on July 31, $ 146,455 $ 100,487 2013 and $3,345 on April 30, 2013 Accounts receivable, net of allowance for doubtful accounts of $953 on July 53,756 46,088 31, 2013 and $1,128 on April30, 2013 Inventories 63,232 62,998 Prepaid expenses and other current 7,070 4,824 assets Deferred income taxes 12,076 12,076 Income tax receivable 4,592 3,093 Total current assets 287,181 229,566 Property, plant, and equipment, net 93,876 86,382 Intangibles, net 3,759 3,965 Other assets 14,055 7,076 $ 398,871 $ 326,989 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 33,534 $ 31,220 Accrued expenses 16,556 16,033 Accrued payroll 7,964 13,096 Accrued taxes other than income 4,600 5,349 Accrued profit sharing 12,435 9,587 Accrued product/municipal liability 1,623 1,551 Accrued warranty 5,913 5,757 Current portion of notes payable 1,269 — Total current liabilities 83,894 82,593 Deferred income taxes 7,863 7,863 Notes payable, net of current portion 100,000 43,559 Other non-current liabilities 12,525 11,675 Total liabilities 204,282 145,690 Commitments and contingencies Stockholders' equity: Preferred stock, $.001par value, 20,000,000shares authorized, no shares — — issued or outstanding Common stock, $.001par value, 100,000,000shares authorized, 67,717,348 shares issued and 63,000,512 68 68 shares outstanding on July 31, 2013 and 67,596,716shares issued and 64,297,113 shares outstanding on April30, 2013 Additional paid-in capital 201,926 199,120 Retained earnings 34,911 8,434 Accumulated other comprehensive income 73 73 Treasury stock, at cost (4,716,836 common shares on July 31, 2013 and (42,389) (26,396) 3,299,603 common shares on April 30, 2013) Total stockholders' equity 194,589 181,299 $ 398,871 $ 326,989 SMITH & WESSON HOLDING CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) For the Three Months Ended July 31, 2013 July 31, 2012 (In thousands) Cash flows from operating activities: Net Income $ 26,477 $ 17,787 Adjustments to reconcile net income to net cash provided by operating activities: Amortization and depreciation 5,683 3,985 Loss on sale of business including loss on sale of discontinued operations, including — 798 $45 of stock-based compensation expense Loss/(gain) on sale/disposition of assets 74 (14) Provisions for/(recoveries of) losses on (192) 75 accounts receivable Change in disposal group assets and — (1,112) liabilities Stock-based compensation expense 2,202 853 Changes in operating assets and liabilities: Accounts receivable (7,476) (5,051) Inventories (234) (7,531) Prepaid expenses and other current assets (2,246) (2,447) Income tax receivable/payable (1,499) 7,857 Accounts payable 2,314 (3,296) Accrued payroll (5,132) (1,600) Accrued taxes other than income (749) (268) Accrued profit sharing 2,848 2,175 Accrued other expenses 311 (3,430) Accrued product/municipal liability 72 32 Accrued warranty 156 (131) Other assets (4,598) 174 Other non-current liabilities 1,000 423 Net cash provided by operating 19,011 9,279 activities Cash flows from investing activities: Proceeds from sale of business — 5,500 Receipts from note receivable 19 18 Payments to acquire patents and software (41) — Proceeds from sale of property and equipment 12 14 Payments to acquire property and equipment (12,035) (6,278) Net cash used in investing (12,045) (746) activities Cash flows from financing activities: Proceeds from loans and notes payable 101,584 1,753 Cash paid for debt issue costs (3,167) — Payments on capital lease obligation (150) (150) Payments on loans and notes payable (43,876) (6,925) Payments to acquire treasury stock (15,993) — Proceeds from exercise of options to acquire 534 527 common stock Taxes paid related to restricted stock (11) — issuance Excess tax benefit of stock-based compensation 81 88 Net cash used in financing 39,002 (4,707) activities Net increase in cash and cash equivalents 45,968 3,826 Cash and cash equivalents, beginning of period 100,487 56,717 Cash and cash equivalents, end of period $ 146,455 $ 60,543 Supplemental disclosure of cash flow information Cash paid for: Interest $ 4,573 $ 2,974 Income taxes 16,329 2,397 SMITH & WESSON HOLDING CORPORATION AND SUBSIDIARIES RECONCILIATION OF GAAP NET INCOME TO ADJUSTED EBITDAS (Unaudited) For the Three Months Ended July 31, For the Three Months Ended July 31, 2013: 2012: GAAP Adjustments Adjusted GAAP Adjustments Adjusted (In thousands) Net sales $ 171,020 $ — $ 171,020 $ 135,995 $ — $ 135,995 Cost of sales 98,247 (4,173) (1) 94,074 84,768 (3,435) (1) 81,333 Gross profit 72,773 4,173 76,946 51,227 3,435 54,662 Operating expenses: Research and 1,358 (68) (1) 1,290 1,172 (57) (1) 1,115 development Selling and 7,548 (65) (1) 7,483 6,838 (72) (1) 6,766 marketing General and 15,853 (2,807) (2) 13,046 11,921 (1,234) (2) 10,687 administrative Total operating 24,759 (2,940) 21,819 19,931 (1,363) 18,568 expenses Operating income from continuing 48,014 7,113 55,127 31,296 4,798 36,094 operations Other income/(expense): Other income/(expense), 5 — 5 — — — net Interest income 102 — 102 368 (317) (5) 51 Interest expense (6,673) 6,673 (3) — (1,987) 1,987 (3) — Total other income/(expense), (6,566) 6,673 107 (1,619) 1,670 51 net Income from continuing 41,448 13,786 55,234 29,677 6,468 36,145 operations before income taxes Income tax expense 14,922 (14,922) (4) — 10,807 (10,807) (4) — Income from continuing 26,526 28,708 55,234 18,870 17,275 36,145 operations Discontinued operations: Loss from operations of discontinued (52) — (52) (1,682) 1,161 (6) (521) security solutions division Income tax benefit (3) 3 (4) — (599) 599 (4) — Income/(loss) on discontinued (49) (3) (52) (1,083) 562 (521) operations Net income/comprehensive $ 26,477 $ 28,705 $ 55,182 $ 17,787 $ 17,837 $ 35,624 income (1) To exclude depreciation, amortization, and stock-based compensation expense. (2) To exclude depreciation, amortization, stock-based compensation expense, and DOJ/SEC costs and related profit sharing impacts of DOJ/SEC. (3) To exclude interest expense. (4) To exclude income tax expense/(benefit). (5) To exclude intercompany interest income. (6) To exclude loss on sale of discontinued operations, depreciation, amortization, interest expense, and stock-based compensation expense. SOURCE Smith & Wesson Website: http://www.smith-wesson.com
Smith & Wesson Holding Corporation Reports First Quarter Fiscal 2014 Financial Results
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