And good day, everyone. Welcome to the Smith & Wesson Brands, Inc. Third Quarter Fiscal 2025 Financial Results Conference Call. This call is being recorded. At this time, I would like to turn the call over to Kevin Maxwell, Smith & Wesson's General Counsel, who will give us some information about today's call. Please go ahead.

Thank you. Good afternoon. Our comments today may contain forward-looking statements. Our use of the words anticipate, project, estimate, expect, intend, believe, and other similar expressions are intended to identify forward-looking statements. Forward-looking statements may also include statements on topics such as our product development, objectives, strategies, market share, demand, consumer preferences, inventory conditions for our products, growth opportunities and trends, industry conditions in general. Forward-looking statements represent our current judgment about the future and are subject to risks and uncertainties that could cause our results to differ materially from those expressed or implied by our statements today. These risks and uncertainties are described in our SEC filings, which are available on our website along with the replay of today's call. We have no obligation to update forward-looking statements. We reference certain non-GAAP financial results. Our non-GAAP financial results exclude proceeds from a sale of land, relocation expense, and other costs. Reconciliations of GAAP financial measures to non-GAAP financial measures can be found in our SEC filings and in today's earnings press release, which is available on our website. Also, when we reference EPS, we are always referencing fully diluted EPS, and any reference to EBITDAS is to adjusted EBITDAS. Before I hand the call over to our speakers, I would like to remind you that when we discuss NICS results, we are referring to adjusted NICS, a metric published by the National Shooting Sports Foundation, based on FBI NICS data. Adjusted NICS removes those background checks conducted for purposes other than firearms purchases. Adjusted NICS is generally considered the best available proxy for consumer firearm demand at the retail counter. Because we transfer firearms only to law enforcement agencies and federally licensed distributors and retailers and not to end consumers, NICS generally does not directly correlate to our shipments or market share in any given time period. We believe mostly due to inventory levels in the channel. Joining us on today's call are Mark Smith, our President and CEO, and Deana McPherson, our CFO. With that, I will turn the call over to Mark.

Thank you, Kevin, and thanks everyone for joining us today. Our top-line revenue for the third quarter came in slightly below our target range. However, lower operating expenses and leveraging of our flexible manufacturing model, which is designed to ensure solid profitability regardless of demand conditions, allowed us to deliver on EPS and EBITDA expectations. Our new products continue to perform very well, introduced within the past year, accounting for over 41% of our sales in the quarter. Innovation continues to be a core focus, with several exciting new products expected to be introduced during the final quarter of FY2025 and throughout next year. We expect to continue the strong momentum going forward. Looking at market share for the third quarter, adjusted NICS was down 4.5% as two months of year-over-year declines were followed by a small increase in January, while our shipments into the channel declined by 7.7% in the period. Breaking those numbers down, we believe we gained share in handguns, with overall handgun NICS down 4.1% in Q3 while our shipments into the sporting goods channel were only down 3%, driven by strong demand for the new Bodyguard 2.0. In long guns, NICS was down 3.9% due largely to outperformance in the prior year period of newly introduced products, specifically our FPC rifles. Additionally, the overall market for long guns has recently shown signs of stabilization. While the introduction of our lever action rifle has been extremely positive and is helping with this dynamic, our product offerings in the category are still narrow, and we expect this momentum to grow as we build out the line. It is also important to note that on a two-year basis, our Q3 long gun unit sales grew at a compounded annual rate of nearly 20%, well ahead of NICS. In our view, this provides a much better illustration of the momentum we have achieved and highlights the true long-term market share successes of our innovation strategy. Average selling prices, as expected, trended lower in Q3 with overall ASPs moderating to a 3.1% decline versus the prior year period. Mix was the primary factor in driving our overall ASPs. In handguns, our ASPs declined 7.8%, again reflecting strong demand for the new Bodyguard 2.0, which is priced at retail around $400, combined with lower revolver sales. In long guns, our ASPs increased 17.2% in Q3, driven by strong demand for our higher-priced lever rifles. Turning now to the overall firearms environment, macroeconomic conditions continue to bifurcate and heavily skew towards new products or lower price points. Our new product pipeline positions us very well in these conditions, with the success of our Bodyguard 2.0 as a great example, a unique innovative product at a compelling price point. And as I mentioned earlier, we expect that our slate of introductions scheduled over the coming months will continue this momentum. Additionally, and also as mentioned earlier, our flexible manufacturing, with two very successful promotions conducted during the holiday season, has proven effective. Our balance sheet remains strong, and we continue to be disciplined in managing our business and allocating capital to drive value for stockholders. Internal inventory levels are slightly elevated due to lower than anticipated Q3 sales combined with a normal busy fourth quarter. Through our robust monthly sales and operations planning process, which aligns production levels to sales forecasts, we expect to continue adjusting manufacturing. Channel inventory at distributors is very clean, currently at under nine weeks. Given these factors, we expect strong cash flows during Q4, and consistent with our capital allocation strategy, we expect to continue paying down our line of debt, pay our quarterly dividend of $0.13 per share, which Deana will cover in more detail in a moment, and continue to reinvest in innovation and manufacturing. I'll also note that during the third quarter, we repurchased another 220,000 shares of our stock. With these purchases through the first nine months of fiscal 2025, we lowered our share count by more than 1.5 million shares net of dilution. During the past twelve months, we have returned more than $49 million of capital to our stockholders through our stock repurchase program and strong dividend. Looking further forward, we anticipate that the firearms market will remain steady at current demand levels. With our industry-leading innovation pipeline, continued disciplined cost control, state-of-the-art facilities, flexible manufacturing model, strong balance sheet, and our capital allocation model of returning value to stockholders, we believe we are well-positioned for continued success. Before I hand the call over, I just want to thank our entire team of talented Smith & Wesson employees for their tireless dedication in putting their skills to work each and every day to make us successful. With that, I'll turn the call over to Deana to cover the financials.

Thanks, Mark. Net sales for our third quarter of $115.9 million were $21.6 million or 15.7% below the prior year comparable quarter. As we noted on last quarter's call, we expected post-consumer demand to be relatively soft for our third quarter given the election results and the impact of persistent inflation. While our new products continue to perform very well, we are seeing lower demand for our core product portfolio, which is negatively impacting both our top line and margins. During the quarter, inventory in the distribution channel dropped by over 15,000 units while holding steady in terms of weeks outstanding. Handgun ASPs declined for the second consecutive quarter, reflecting the impact of lower-priced products and promotions. ASP for long guns increased due to the mix of higher-priced products, including the introduction of additional lever action calibers. Gross margin of 24.1% was 4.6% below the comparable quarter last year due to unfavorable fixed cost absorption from lower production volumes and higher promotional costs, partially offset by lower labor costs. Operating expenses of $23.8 million for our third quarter were $4.3 million lower than the prior year comparable quarter due primarily to a $2.3 million gain on the sale of property in Missouri. Excluding this one-time sale, operating expenses were $2.1 million lower than the prior year quarter due to lower costs associated with relocation and lower profit-related compensation expenses, which was slightly offset by higher R&D costs associated with new product development and selling and marketing costs associated with promotional activities. We ended the quarter with net income of $1.7 million or $0.04 per share. On a non-GAAP basis, income per share was $0.02. Cash used in operations for the third quarter was $9.8 million compared with $25.4 million of cash provided in the prior year comparable quarter due to a larger increase in working capital in the current quarter combined with lower net income. We spent $6.3 million on capital projects in the third quarter, compared with $18.2 million in the prior year comparable quarter, primarily due to lower investment in the current year related to the relocation. We expect our capital spending for the year to be between $20 million and $25 million. During the quarter, we repurchased approximately 220,000 shares at an average price of $12.94, totaling $2.8 million. We paid $5.7 million in dividends and ended the quarter with $26.7 million in cash and $110 million in borrowings on our line of credit. After the quarter end, we repaid $10 million on our line of credit and expect to repay additional amounts during the remainder of the first quarter. Finally, our board has authorized our $0.13 quarterly dividend to be paid to stockholders of record on March 20th, with payment to be made on April 3rd. Looking forward, we continue to expect full-year revenue to be down 5-10% from fiscal 2024, which is consistent with what we said last quarter. However, based on the softer demand trends we've seen across the industry in recent months, we now anticipate revenue at the lower end of this range, closer to a 10% decline. This would put our fourth quarter down from the prior year quarter in the 2-5% range. With lower production levels during Q4, given our desire to reduce inventory, we expect manufacturing absorption to be a factor, resulting in lower margins. As a result, fourth-quarter margins will likely lead full-year margins to end a few percentage points lower as well. Channel inventory is expected to remain stable, and we believe the distribution channel remains cautious and will continue to manage their inventory carefully. We expect operating expenses for the fourth quarter to be in line with the prior year comparable quarter, with investments in research and development, promotions, and marketing programs offsetting lower profit-related compensation costs. Our effective tax rate is expected to be approximately 28%. Turning to the balance sheet, we expect to reduce inventory slightly during our fourth quarter while generating enough profit to repay additional amounts on our line of credit over and above the $10 million that we repaid in February. We believe that our ending leverage will be well under two times, which puts us in a good position to continue to invest in our business. As a reminder, our capital allocation plan continues to be to invest in our last remain debt-free and return cash to our stockholders.

With that, operator, can we please open the call to questions from our analysts? Thank you. The confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your headset before pressing the star keys. And our first question comes from the line of Mark Smith with Lake Street Capital Markets. Please proceed.

Hi, guys. I apologize. I missed a little bit of the call, but I wanted to just check on a few things. First, new product sales looked really good. But as we look at sales of kind of non-new products or legacy products, if you will, can you just walk through, you know, do you feel like it's consumer weakness that's kind of hurting there? Or is there competitive pressures? You know, walk us through kind of what you're seeing there. Hey, Mark. Yeah, sure. I think, you know, a large part of that is, frankly, the I think, you know, that that Bodyguard 2.0 specifically on the pistol side is probably cannibalizing a little bit of our own line. So, you know, I think overall, the, you know, the as we covered in the remarks, the pistol category, we're gaining share there. But, you know, you're probably seeing a little bit outsized, you know, obviously, impact from the Bodyguard versus the core line. And, you know, there's probably a little bit of internal cannibalization as well as obviously cannibalizing the competitive products. So I think, you know, and that said, you know, as we covered, and I think you can see from the NICS results in February and the inflation continues to, you know, pressure that consumer discretionary spend, and so it is a pretty competitive market out there. So, you know, I mean, the new products, whereas, you know, it kind of used to be, you know, just gravy on the top. Now it's a little bit of cannibalization of our own and, obviously, cannibalization of the competitors as well. So, you know, I think that's really what you're seeing. Okay. And you talked about the competitive environment. Maybe just talk, if you will, about kind of the industry, as you look at distributors, as you look at everybody kind of through the channel, how you feel like everybody's behaving and kind of the health of the industry today? Yeah. I think, you know, on that front, Mark, it's pretty good. I mean, I think, you know, the distributors, our distributor inventory is right at about 8.5 weeks right now. So we're very comfortable. It's right on target. You know, everybody's doing a good job of, you know, making sure they hold the whole line, but not getting out over their skis. And I think, you know, the dealers are in the same boat. So, you know, I think as that market moves, you know, we're seeing that right away. We're not having that kind of that hangover effect of excess inventory in the channel. So I think, you know, we're pretty comfortable that the market is going to remain steady at where it's at right now. You know, there's we don't see any major demand catalysts coming up here. You know, obviously, some can be unforeseen, but, you know, the biggest thing for us right now, again, is just that if we can get if we can see that economy start to turn around that discretionary spend, availability start to go up, you know, which we were optimistic on over the long term, then, you know, that's gonna that's gonna be a nice tailwind for us. And, you know, and we'll see we should we should see that demand increase translate to demand on Smith & Wesson pretty quick. Because, again, the, you know, the channel inventory is really good right now. Okay. And the last one for me, just you know, topic of the day and the last few days certainly seems to be tariffs. Can you talk about any exposure that you guys see and obviously it's an evolving situation, but you would love to hear your thoughts on tariffs on any exposure there. And then also just you know, regulatory environment, any changes that you're seeing you know, whether in states or at the federal level in if you wanted to comment at all, any thoughts around the supreme court case. It was just up heard the other day. Sure. I'll start off with tariffs. You know, so I think you're well aware that we're, you know, we're an American-made product. You know, we a lot of our supply chain is domestic. And so, you know, we do have some exposure by the tariffs. All of that has been kind of dialed into our numbers, into the guidance that Deana gave. So it's not in any way, shape, or form gonna be material impact to our numbers for the rest of this year and next year, Mark. So on the regulatory environment, you know, we're pleased to see some good movement from the current administration on, you know, really more stability on what the regulatory environment is gonna look like going forward, which is where it really, you know, obviously, as any business is what we need is we just need stability. We operate, obviously, proud to operate within the balance of the regulations and laws that govern our industry. We just need stability, and we're glad to see that, you know, that looks like, you know, at least for the foreseeable future here that we're gonna get that. So, you know, we're pleased. And then on the supreme court case, you know, I think, you know, we don't we really don't discuss ongoing litigation. I'll just suffice it to say I know we got a lot of news coverage. We were happy to have our day in court. And we're really looking forward to the decision that should be coming up in early summer. Excellent. Thank you, guys.

The next question comes from the line of Steve Dyer with Craig Hallum. Please proceed.

Hi, guys. This is Matthew Raab on for Steve. Just starting on ASPs. Nice performance there on the long guns. Sounds like it was the 18.54 mix, which is good to see. How do you think about the Q4 ASPs? It sounds like handguns are maybe flattish in any outlook for the long gun category?

Yeah. I think on the handgun side, I think I covered a little bit of that in prepared remarks. But the, you know, I think you're gonna kinda see more of the same in Q4 as you saw in Q3. You know, our mix right now that they all on the long gun side, the, you know, the proportionate amount of lever actions that we're selling versus, you know, the core, the M&P fifteen and the shotgun line should really kinda remain the same throughout Q4. And then on the handgun side, you know, again, we have a couple new products coming out, but it shouldn't materially change that number.

Okay. Got it. And then if you're willing to comment, not looking for sort of specific guidance but can you frame kinda 2026 for us? You know, what are you looking to accomplish within the company? Is it new product intros? Are you focused on market share? You know, taking margins, you know, any color there would be great.

Sure. Yeah. I mean, I think as we look forward into 2026, you know, we're still early days. You know, we still got this year to close out, but, you know, obviously, we are, you know, we're starting to look out into the next twelve, eighteen months. I think, you know, as I talked about earlier, it's, you know, we expect the market to remain steady, and this is, you know, remember this is the environment. I think if you look at a NICS chart, and, you know, just kinda put a stack twenty-year chart on here, you're gonna see that the, you know, the NICS results that you're seeing right now are kind of trending with, you know, right along with where they historically have been. If you go back, you know, fifteen, twenty years and look at 2019, 2020 even. So, you know, for us, that's, you know, we talk a lot about our flexible manufacturing model, but that's exactly what the flexible manufacturing model is designed to do is, you know, is to react to those swings, but also remain very profitable when the market returns to normal as it has. So, for us, you know, how do we continue to grow? I think we're expecting growth this year to be fairly modest, lacking any major demand catalysts. And then how do you do that? Well, that's new product. Right? I mean, and that's, I think we've proven we’re winners of multiple awards for innovation. You know, I think we’re viewed as a frontrunner in the innovation category within the firearms industry. We're gonna continue that, and not just on our core line, but also, you know, how do we expand into other white spaces within the firearms market.

Okay. That's great. Thanks, guys.

Thanks, Matthew.

And the next question comes from the line of Rommel Dionisio with Aegis Capital Corp. Please proceed.

Great. Thank you. Could we just talk about the handgun category for a second? You know, for years now, there's been a shift right to smaller frame concealed carry. And we've heard that there's been a little more of acceleration here in the last few quarters. Would you say that that's the consumer trading numbers lower price point is helping accelerate that, or would you say that's just more continued move to kind of a smaller frame concealed carry category? Obviously, you're well represented there with the Bodyguard 2.0. I wonder if you could just chat about that. Thanks.

Sure. I think it's a little bit of both. You're right that there's been a big trend towards concealed carry, and the success of the Bodyguard has been driven by the fact that it is a great concealed carry product, but it's also at an entry-level price point for us. For a premier brand like Smith & Wesson, it hits both of those. And I think, you know, really that's the sweet spot that is driving the success of that product. So directionally for the handgun market, I think, you know, as I talked about, it's kind of bifurcating a little bit. You've got definitely that entry-level position, and within every one of those categories, it's kind of going towards the lower end, the entry-level price point products. And then we're also seeing some success with things like our metal M&Ps, which are at the higher end, but they are unique and different. You've got to give that consumer a reason to get excited about the product, to get excited about the brand. So that innovation is still successful on the high end. It's just you've got to have something compelling for that consumer to engage with. So, you know, it really is bifurcating to the entry-level and to new product innovation.

Okay. And maybe my follow-up question on switching to the long gun side. Mark, I think you talked about in your prepared comments potential future product launches in that kind of traditional hunting category. Could you just remind us again what the potential margin impact of that would be if you have a shift in long guns, perhaps slightly away from MSRs to those more traditional categories? Thanks.

Sure. Yeah. I mean, the 18.54 has been very successful, and as I said in the remarks, we definitely expect and plan to continue to build that line out across the entire category. Multiple calibers that we're not into yet are still in the works. As far as margin, we don't really give too much color and guidance on margin by product line, Rommel. But what I can tell you is that the margins of the 18.54 are not materially different from our core line of rifles.

Okay. Thanks very much. That's very helpful.

Yep.

Thank you. Ladies and gentlemen, there are no further questions at this time. I'll hand the call back to Mark Smith for closing remarks.

Thank you, operator, and thank you everybody for joining us today and your interest in Smith & Wesson. We look forward to speaking with you all again next quarter.

This concludes today's conference. You may disconnect your lines at this time. Enjoy the rest of your day.