American Outdoor Brands Corp. on Thursday reported non-GAAP net income for the fiscal second quarter ended October 31 of $5.2 million, or 9 cents per diluted share, down from $11 million, or 20 cents per diluted share, in the year-ago period. EPS topped Wall Street’s estimates by 2 cents.

Second Quarter Fiscal 2020 Financial Highlights

  • Quarterly net sales were $154.4 million compared with $161.7 million for the second quarter last year, a decrease of 4.5 percent. It should be noted that $8.1 million of incremental revenue in the quarter was the result of a change required by the Tax and Trade Bureau related to the timing of federal excise tax assessment within the company’s Firearms segment. That change had no impact on gross margin dollars or operating expenses. Further details related to that change are outlined in the company’s Form 10-Q filed concurrently with this press release.
  • Gross margin for the quarter was 32.6 percent compared with 34.9 percent for the comparable quarter last year.
  • Quarterly GAAP net income was $1.3 million, or $0.02 per diluted share, compared with net income of $6.7 million, or $0.12 per diluted share, for the comparable quarter last year.
  • Quarterly non-GAAP net income was $5.2 million, or $0.09 per diluted share, compared with $11 million, or $0.20 per diluted share, for the comparable quarter last year. GAAP to non-GAAP adjustments to net income exclude a number of acquisition-related costs and other costs. For a detailed reconciliation, see the schedules that follow in this release.
  • Quarterly non-GAAP Adjusted EBITDAS was $20.9 million, or 13.5 percent of net sales, compared with $26.7 million, or 16.5 percent of net sales, for the comparable quarter last year.

James Debney, American Outdoor Brands Corporation President and Chief Executive Officer, commented, “During the second quarter, we remained focused on innovation throughout our company. In firearms, we began shipping into the channel a major new product, which will be available to our consumer customers on December 12. In both our firearms and our outdoor products and accessories businesses, we prepared a large number of exciting new products for launch at SHOT Show in January 2020.”

“Subsequent to the end of the second quarter, we announced a plan to spin-off our outdoor products and accessories business as a tax-free stock dividend to our stockholders. We expect to complete the transaction in the second half of calendar 2020, thereby creating two independent publicly traded companies: Smith & Wesson Brands, Inc. (the firearm business) and American Outdoor Brands, Inc. (the outdoor products and accessories business), each of which are leaders in their industries. We believe the spin-off will drive long-term value for our stockholders by enabling the management team of each company to focus on its specific strategies, including structuring its business to take advantage of growth opportunities in its specific markets; tailoring its business operation and financial model to its specific long-term strategies; and aligning its external financial resources, such as stock, access to markets, credit, and insurance factors, with its particular type of business. In order to provide our stockholders with better visibility into each of these businesses, we will begin providing revenue guidance for each business, beginning with today’s financial results announcement.”

Jeff Buchanan, Executive Vice President, Chief Financial Officer, and Chief Administrative Officer, commented, “At the end of the quarter, our balance sheet remained strong with cash of $43.8 million and total net borrowings of $159.4 million. That, combined with our twelve-month trailing EBITDAS, translates to a net leverage ratio of approximately 1.7 to 1.0. We expect to substantially reduce that ratio by the end of the current fiscal year. In preparation for the recently announced spin-off of our outdoor products and accessories business, and since the end of our second fiscal quarter, we have finalized an amendment to our existing revolving credit facility that supports our proposed spin-off without the need for further bank approvals. As a result, in November, we repaid our bank term loan that was due in June 2020 from that amended credit facility, and we called our Senior Notes, due in August 2020. Thus, all of our bank debt will be consolidated into the lower interest rate, revolving line of credit, which has a maturity date of October 2021.”

The consummation of the spin-off is subject to final approval of the company’s Board of Directors, customary regulatory approvals, and tax and legal considerations.

Financial Outlook

The company is also providing full year revenue guidance for each of its business segments. Accordingly, the company expects full year revenue for its Firearms segment to be between $520 million and $530 million and full year revenue for its Outdoor Products & Accessories segment to be between $180 million and $190 million. The full year revenue estimate for the Firearms segment includes additional revenue of $34 million to $36 million as a result of the change in timing of the federal excise tax assessment noted above and further discussed in the company’s form 10-Q filed concurrently with this press release. Intercompany eliminations are expected to be approximately $20 million.