8-K
SMITH & WESSON BRANDS, INC. (SWBI)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): March 5, 2020
American Outdoor Brands Corporation
(Exact Name of Registrant as Specified in Charter)
| Nevada | 001-31552 | 87-0543688 |
|---|---|---|
| (State or other jurisdiction<br> <br>of incorporation) | (Commission<br> <br>File Number) | (IRS Employer<br> <br>Identification No.) |
2100 Roosevelt Avenue
Springfield, Massachusetts 01104
(Address of principal executive offices) (Zip Code)
(800) 331-0852
(Registrant’s telephone number, including area code)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
☐ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
☐ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
☐ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
☐ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading<br> <br>Symbol(s) | Name of each exchange<br> <br>on which registered |
|---|---|---|
| Common Stock, Par Value $.001 per Share | AOBC | Nasdaq Global Market Select |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (17 §CRF 230.405) or Rule 12b-2 of the Securities Exchange Act of 1934 (17 CFR §240.12b-2).
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
| Item 2.02. | Results of Operations and Financial Condition. |
|---|
We are furnishing the disclosure in this Item 2.02 in connection with the disclosure of information in the form of the textual information from a press release released on March 5, 2020.
The information in this Item 2.02 (including Exhibit 99.1) is furnished pursuant to Item 2.02 and shall not be deemed to be “filed” for the purpose of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that section.
We do not have, and expressly disclaim, any obligation to release publicly any updates or any changes in our expectations or any change in events, conditions, or circumstances on which any forward-looking statement is based.
The text included with this Current Report on Form 8-K is available on our website located at www.aob.com, although we reserve the right to discontinue that availability at any time.
| Item 9.01. | Financial Statements and Exhibits. | |
|---|---|---|
| (d) | Exhibits. | |
| --- | --- | |
| Exhibit <br>Number | Exhibits | |
| --- | --- | --- |
| 99.1 | Press release from American Outdoor Brands Corporation, dated March 5, 2020, entitled “American Outdoor Brands Corporation Reports Third Quarter Fiscal 2020 Financial Results” | |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| AMERICAN OUTDOOR BRANDS CORPORATION | ||
|---|---|---|
| Date: March 5, 2020 | By: | /s/ Jeffrey D. Buchanan |
| Jeffrey D. Buchanan | ||
| Executive Vice President, Chief Financial Officer,<br>Chief Administrative Officer, and Treasurer |
EX-99.1
Exhibit 99.1
Contact: Liz Sharp, VP Investor Relations
American Outdoor Brands Corporation
(413) 747-6284
lsharp@aob.com
American Outdoor Brands Corporation Reports
Third Quarter Fiscal 2020 Financial Results
SPRINGFIELD, Mass., March 5, 2020 — American Outdoor Brands Corporation (NASDAQ Global Select: AOBC), one of the world’s leading providers of firearms and quality products for the shooting, hunting, and rugged outdoor enthusiast, today announced financial results for the third quarter fiscal 2020, ended January 31, 2020.
Third Quarter Fiscal 2020 Financial Highlights
| • | Quarterly net sales were $166.7 million compared with $162.0 million for the third quarter last year,<br>an increase of 2.9%. It should be noted that a change required by the Tax and Trade Bureau related to the timing of federal excise tax assessment within the company’s Firearms segment favorably impacted net sales in the quarter by<br>$10.1 million. 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<br>press release. |
|---|---|
| • | Gross margin for the quarter was 33.1% compared with 33.4% for the comparable quarter last year. Excluding the<br>change required by the Tax and Trade Bureau related to the timing of federal excise tax assessment within the company’s Firearms segment, gross margin for the quarter would have been 35.3%, or an increase of 190 basis points over the comparable<br>quarter last year. |
| --- | --- |
| • | Quarterly GAAP net income was $5.7 million, or $0.10 per diluted share, compared with a GAAP net loss of<br>$5.7 million, or $(0.10) per diluted share, for the comparable quarter last year. Results for the comparable quarter last year included a $10.4 million, non-cash impairment of goodwill in our Outdoor<br>Products & Accessories segment, which had a $(0.19) impact on basic and diluted earnings per share. |
| --- | --- |
| • | Quarterly non-GAAP net income was $6.9 million, or $0.13 per diluted<br>share, compared with $8.9 million, or $0.16 per diluted share, for the comparable quarter last year. GAAP to non-GAAP adjustments for net income exclude a number of acquisition-related costs and other<br>costs. For a detailed reconciliation, see the schedules that follow in this release. |
| --- | --- |
| • | Quarterly non-GAAP Adjusted EBITDAS was $22.4 million, or 13.4% of<br>net sales, compared with $24.4 million, or 15.0% of net sales, for the comparable quarter last year. Excluding the change required by the Tax and Trade Bureau related to the timing of federal excise tax assessment within the company’s<br>Firearms segment, non-GAAP Adjusted EBITDAS for the quarter would have been 14.3%. |
| --- | --- |
During the quarter, the company announced that its Board of Directors named Mark P. Smith and Brian D. Murphy as co-Presidents and co-Chief Executive Officers, following the separation of former President and CEO, James Debney. Smith was most recently President of the Manufacturing Services Division of the company, while Murphy was most recently President of the Outdoor Products & Accessories Division. The company also stated that it is proceeding with its previously announced plan to spin-off its outdoor products and accessories business as a tax-free stock dividend to its stockholders in the second half of calendar 2020, a transaction that will create two independent publicly traded companies: Smith & Wesson Brands, Inc. (the firearm business) and American Outdoor Brands, Inc. (the outdoor products and accessories business). 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.
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Mark Smith, co-President and co-Chief Executive Officer, commented, “Third quarter revenue in our Firearms segment was favorably impacted by changes in the timing of our excise tax assessment, as well as the positive impact of our new M&P9 Shield EZ pistol, which is built for personal protection and every day carry, and was displayed at SHOT Show in January. That positive impact, however, was partially offset by lower than anticipated orders from certain strategic retailers across multiple product categories. We believe that consumer demand for handguns remained strong during the quarter, as reflected by adjusted National Instant Criminal Background Check System (“NICS”) background checks, but we also believe that demand was fulfilled with existing retail channel inventory of our handguns. Our revenue in long guns declined due to a reduction in our inventory by certain strategic retailers, decreased bundle promotions compared to the prior year, and close-out sales of discontinued products in the prior year.”
Brian Murphy, co-President and co-Chief Executive Officer, commented, “In our Outdoor Products & Accessories segment, third quarter revenue increased as a result of increased shooting, hunting, and cutlery product sales, driven by demand from several large national retailers and the success of our strategy with certain retail customers to normalize the cadence of ongoing replenishment orders. Point of sale data, which we collect from many of our larger customers, appears to indicate that our products in these categories remain popular with consumers as well. Revenue increases in the quarter were partially offset by reduced OEM sales of our laser sight products, bankruptcy and financial distress of certain customers, and the acceleration of one brick-and-mortar retailer’s private label strategy for camping accessories away from our branded survival products. Excluding the impact of these items, revenue would have increased approximately $3.3 million, or 7.9%, over the comparable quarter last year.“
Jeffrey D. Buchanan, Chief Financial Officer, commented, “During the third quarter, we successfully refinanced our revolving line of credit to extend the maturity out to October 2021, securing our ability to spin off our outdoor products and accessories business without obtaining additional bank approvals. Concurrent with the extension of the revolving line of credit, we repaid our term loan that was due in June 2020 and, in January, we called our Senior Notes that were due in August 2020, thereby extending the maturity of all of the company’s debt out to 2021. We ended our third fiscal quarter with $46.1 million in cash and $200.0 million in revolving debt.”
Financial Outlook
AMERICAN OUTDOOR BRANDS CORPORATION
NET SALES AND EARNINGS PER SHARE GUIDANCE, INCLUDING GAAP TO NON-GAAP RECONCILIATION
(Unaudited)
| Range for the Three Months Ending April 30, 2020 | Range for the Year Ending April 30, 2020 | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Net sales (in thousands) | $ | 205,000 | $ | 215,000 | $ | 650,000 | $ | 660,000 | ||||
| GAAP income per share - diluted | $ | 0.17 | $ | 0.21 | $ | 0.25 | $ | 0.29 | ||||
| Amortization of acquired intangible assets | 0.09 | 0.09 | 0.35 | 0.35 | ||||||||
| Diode recall | — | — | (0.01 | ) | (0.01 | ) | ||||||
| CEO separation | 0.03 | 0.03 | (0.04 | ) | (0.04 | ) | ||||||
| Transition costs | 0.12 | 0.12 | 0.17 | 0.17 | ||||||||
| Tax effect of non-GAAP adjustments | (0.07 | ) | (0.07 | ) | (0.14 | ) | (0.14 | ) | ||||
| Non-GAAP income per share - diluted | $ | 0.33 | * | $ | 0.37 | * | $ | 0.58 | $ | 0.62 | ||
| * | Does not foot due to rounding. | |||||||||||
| --- | --- |
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 $502.0 million and $507.0 million and full year revenue for its Outdoor Products & Accessories segment to be between $170.0 million and $175.0 million. The full year revenue estimate for the Firearms segment includes additional revenue of $34.0 million to $36.0 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 $22.0 million. This guidance takes into account several factors, including expected impacts from the Coronavirus, all of which are outlined in the company’s Form 10-Q.
Page 2 of 9
Conference Call and Webcast
The company will host a conference call and webcast today, March 5, 2020, to discuss its third quarter fiscal 2020 financial and operational results. Speakers on the conference call will include Brian Murphy, Co-President and Co-Chief Executive Officer, Mark Smith, Co-President and Co-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 conference call via telephone may call directly at (844) 309-6568 and reference conference identification number 6658749. No RSVP is necessary. The conference call audio webcast can also be accessed live on the company’s website at www.aob.com, under the Investor Relations section.
Reconciliation of U.S. GAAP to Non-GAAP Financial Measures
In this press release, certain non-GAAP financial measures, including “non-GAAP net income,” “Adjusted EBITDAS,” and “free cash flow” 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) transition costs, (iii) fair value inventory step-up expense, (iv) recall related expenses, (v) change in contingent consideration, (vi) goodwill impairment, (vii) CEO separation, (viii) acquisition related costs, (ix) the tax effect of non-GAAP adjustments, (x) net cash (used in)/provided by operating activities, (xi) net cash used in investing activities, (xii) interest expense, (xiii) income tax expense, (xiv) depreciation and amortization, and (xv) stock-based compensation expenses, ; 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 American Outdoor Brands Corporation
American Outdoor Brands Corporation (NASDAQ Global Select: AOBC) is a provider of quality products for shooting, hunting, and rugged outdoor enthusiasts in the global consumer and professional markets. The Company reports two segments: Firearms and Outdoor Products & Accessories. Firearms manufactures handgun, long gun, and suppressor products sold under the iconic Smith & Wesson^®^, M&P^®^, Thompson/Center Arms^™^, and Gemtech^®^ brands, as well as provides forging, machining, and precision plastic injection molding services. AOB Outdoor Products & Accessories is an industry leading provider of shooting, reloading, gunsmithing and gun cleaning supplies, specialty tools and cutlery, and electro-optics products and technology for firearms. This segment produces innovative, top quality products under the brands Caldwell^®^; Crimson Trace^®^; Wheeler^®^; Tipton^®^; Frankford Arsenal^®^; Lockdown^®^; BOG^®^; Hooyman^®^; Smith & Wesson^®^ Accessories; M&P^®^ Accessories; Thompson/Center Arms^™^ Accessories; Performance Center^®^ Accessories; Schrade^®^; Old Timer^®^; Uncle Henry^®^; Imperial^®^; BUBBA^®^; UST^®^; and LaserLyte. For more information on American Outdoor Brands Corporation, call (844) 363-5386 or log on to www.aob.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, among others, our expectation to complete the spin-off of our outdoor products and accessories business as a tax-free stock dividend to our stockholders 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); our belief that point of sale data appears to indicate that our shooting, hunting, and cutlery products remain popular with consumers; our expectation of net sales, GAAP income per share – diluted, and non-GAAP income per share – diluted for the three months ending April 30, 2020 and for the year ending April 30, 2020; our expectation of full year revenue for the Firearms segment and the Outdoor Products & Accessories segment; our expectation of intercompany eliminations; and our belief that the presentation of non-GAAP 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. We caution that these statements are qualified by important risks, uncertainties,
Page 3 of 9
and other factors that could cause actual results to differ materially from those reflected by such forward-looking statements. Such factors include, among others, economic, social, political, legislative, and regulatory factors; the potential for increased regulation of firearms and firearm-related products; actions of social activists that could have an adverse effect on our business; the impact of lawsuits; the demand for our products; the state of the U.S. economy in general and the firearm industry in particular; general economic conditions and consumer spending patterns; impacts from the Coronavirus; our competitive environment; the supply, availability, and costs of raw materials and components; the impact of protectionist tariffs and trade wars; speculation surrounding fears of terrorism and crime; our anticipated growth and growth opportunities; our ability to increase demand for our products in various markets, including consumer, law enforcement, and military channels, domestically and internationally; our penetration rates in new and existing markets; our strategies; the completion of our proposed spin-off and the operations and performance of the two separate companies thereafter; our ability to maintain and enhance brand recognition and reputation; risks associated with the establishment of our new 630,000 square foot Logistics & Customer Services facility in Missouri; 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 outdoor products and 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, 2019.
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AMERICAN OUTDOOR BRANDS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
| April 30, 2019 | |||||
| ASSETS | |||||
| Current assets: | |||||
| Cash and cash equivalents | 46,101 | $ | 41,015 | ||
| Accounts receivable, net of allowance for doubtful accounts of 2,010 on January 31, 2020 and<br>1,899 on April 30, 2019 | 101,822 | 84,907 | |||
| Inventories | 201,536 | 163,770 | |||
| Prepaid expenses and other current assets | 9,575 | 6,528 | |||
| Income tax receivable | 4,749 | 2,464 | |||
| Total current assets | 363,783 | 298,684 | |||
| Property, plant, and equipment, net | 164,341 | 183,268 | |||
| Intangibles, net | 78,346 | 91,840 | |||
| Goodwill | 182,267 | 182,269 | |||
| Other assets | 19,410 | 10,728 | |||
| 808,147 | $ | 766,789 | |||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||
| Current liabilities: | |||||
| Accounts payable | 31,843 | $ | 35,584 | ||
| Accrued expenses and deferred revenue | 43,131 | 39,322 | |||
| Accrued payroll and incentives | 14,189 | 21,473 | |||
| Accrued income taxes | 265 | 175 | |||
| Accrued profit sharing | 1,699 | 2,830 | |||
| Accrued warranty | 4,208 | 5,599 | |||
| Current portion of notes and loans payable | — | 6,300 | |||
| Total current liabilities | 95,335 | 111,283 | |||
| Deferred income taxes | 9,595 | 9,776 | |||
| Notes and loans payable, net of current portion | 199,034 | 149,434 | |||
| Finance lease payable, net of current portion | 40,202 | 45,400 | |||
| Other non-current liabilities | 13,482 | 6,452 | |||
| Total liabilities | 357,648 | 322,345 | |||
| Commitments and contingencies | |||||
| Stockholders’ equity: | |||||
| Preferred stock, .001 par value, 20,000,000 shares authorized, no shares issued or<br>outstanding | — | — | |||
| Common stock, .001 par value, 100,000,000 shares authorized, 73,234,996 issued and<br>55,068,134 shares outstanding on January 31, 2020 and 72,863,624 shares issued and 54,696,762 shares outstanding on April 30, 2019 | 73 | 73 | |||
| Additional paid-in capital | 264,866 | 263,180 | |||
| Retained earnings | 407,862 | 402,946 | |||
| Accumulated other comprehensive income | 73 | 620 | |||
| Treasury stock, at cost (18,166,862 shares on January 31, 2020 and April 30,<br>2019) | (222,375 | ) | (222,375 | ) | |
| Total stockholders’ equity | 450,499 | 444,444 | |||
| 808,147 | $ | 766,789 |
All values are in US Dollars.
Page 5 of 9
AMERICAN OUTDOOR BRANDS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME/(LOSS)
| For the Three Months Ended | For the Nine Months Ended | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| January 31, 2020 | January 31, 2019 | January 31, 2020 | January 31, 2019 | |||||||||
| (Unaudited) | ||||||||||||
| (In thousands, except per share data) | ||||||||||||
| Net sales | $ | 166,695 | $ | 162,008 | $ | 444,753 | $ | 462,544 | ||||
| Cost of sales | 111,492 | 107,949 | 291,390 | 299,677 | ||||||||
| Gross profit | 55,203 | 54,059 | 153,363 | 162,867 | ||||||||
| Operating expenses: | ||||||||||||
| Research and development | 3,192 | 3,297 | 9,410 | 9,358 | ||||||||
| Selling, marketing, and distribution | 19,294 | 15,373 | 55,419 | 42,279 | ||||||||
| General and administrative | 21,810 | 27,026 | 71,601 | 78,065 | ||||||||
| Goodwill Impairment | — | 10,396 | — | 10,396 | ||||||||
| Total operating expenses | 44,296 | 56,092 | 136,430 | 140,098 | ||||||||
| Operating income | 10,907 | (2,033 | ) | 16,933 | 22,769 | |||||||
| Other (expense)/income, net: | ||||||||||||
| Other income, net | (18 | ) | 47 | 73 | 38 | |||||||
| Interest expense, net | (2,885 | ) | (2,548 | ) | (8,551 | ) | (6,822 | ) | ||||
| Total other (expense), net | (2,903 | ) | (2,501 | ) | (8,478 | ) | (6,784 | ) | ||||
| Income from operations before income taxes | 8,004 | (4,534 | ) | 8,455 | 15,985 | |||||||
| Income tax expense | 2,273 | 1,191 | 3,539 | 7,399 | ||||||||
| Net Income/(loss) | $ | 5,731 | $ | (5,725 | ) | $ | 4,916 | $ | 8,586 | |||
| Net Income/(loss) per share: | ||||||||||||
| Basic | $ | 0.10 | $ | (0.10 | ) | $ | 0.09 | $ | 0.16 | |||
| Diluted | $ | 0.10 | $ | (0.10 | ) | $ | 0.09 | $ | 0.16 | |||
| Weighted average number of common shares outstanding: | ||||||||||||
| Basic | 55,064 | 54,544 | 54,919 | 54,444 | ||||||||
| Diluted | 55,744 | 54,544 | 55,641 | 55,132 |
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AMERICAN OUTDOOR BRANDS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| For the Nine Months Ended | ||||||
|---|---|---|---|---|---|---|
| January 31, 2020 | January 31, 2019 | |||||
| (In thousands) | ||||||
| Cash flows from operating activities: | ||||||
| Net income | $ | 4,916 | $ | 8,586 | ||
| Adjustments to reconcile net income to net cash (used in)/provided by operating<br>activities: | ||||||
| Depreciation and amortization | 41,083 | 39,624 | ||||
| Loss/(gain) on sale/disposition of assets | 780 | (1,033 | ) | |||
| Provision for losses on notes and accounts receivable | 551 | 832 | ||||
| Goodwill impairment | — | 10,396 | ||||
| Deferred income taxes | (18 | ) | (1,519 | ) | ||
| Change in fair value of contingent consideration | 100 | (60 | ) | |||
| Stock-based compensation expense | 1,344 | 6,070 | ||||
| Changes in operating assets and liabilities: | ||||||
| Accounts receivable | (17,466 | ) | (19,347 | ) | ||
| Inventories | (37,766 | ) | (20,186 | ) | ||
| Prepaid expenses and other current assets | (3,047 | ) | (591 | ) | ||
| Income taxes | (2,195 | ) | 1,146 | |||
| Accounts payable | (3,610 | ) | 664 | |||
| Accrued payroll and incentives | (7,284 | ) | 5,815 | |||
| Accrued profit sharing | (1,131 | ) | 297 | |||
| Accrued expenses and deferred revenue | 529 | (8,532 | ) | |||
| Accrued warranty | (1,391 | ) | (1,550 | ) | ||
| Other assets | 2,429 | 10 | ||||
| Other non-current liabilities | (2,865 | ) | 123 | |||
| Net cash (used in)/provided by operating activities | (25,041 | ) | 20,745 | |||
| Cash flows from investing activities: | ||||||
| Acquisition of businesses, net of cash acquired | — | (1,791 | ) | |||
| Payments to acquire patents and software | (551 | ) | (355 | ) | ||
| Proceeds from sale of property and equipment | — | 1,223 | ||||
| Payments to acquire property and equipment | (11,751 | ) | (25,989 | ) | ||
| Net cash used in investing activities | (12,302 | ) | (26,912 | ) | ||
| Cash flows from financing activities: | ||||||
| Proceeds from loans and notes payable | 228,225 | 50,000 | ||||
| Payments on finance lease obligation | (875 | ) | (1,025 | ) | ||
| Cash paid for debt issuance costs | (663 | ) | — | |||
| Payments on notes and loans payable | (184,600 | ) | (54,725 | ) | ||
| Proceeds from exercise of options to acquire common stock, including employee stock purchase<br>plan | 936 | 1,158 | ||||
| Payment of employee withholding tax related to restricted stock units | (594 | ) | (631 | ) | ||
| Net cash provided by/(used in) financing activities | 42,429 | (5,223 | ) | |||
| Net increase/(decrease) in cash and cash equivalents | 5,086 | (11,390 | ) | |||
| Cash and cash equivalents, beginning of period | 41,015 | 48,860 | ||||
| Cash and cash equivalents, end of period | $ | 46,101 | $ | 37,470 | ||
| Supplemental disclosure of cash flow information | ||||||
| Cash paid for: | ||||||
| Interest | $ | 8,422 | $ | 5,554 | ||
| Income taxes | $ | 5,755 | $ | 6,885 |
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AMERICAN OUTDOOR BRANDS 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 Nine Months Ended | |||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| January 31, 2020 | January 31, 2019 | January 31, 2020 | January 31, 2019 | |||||||||||||||||
| % of Sales | % of Sales | % of Sales | % of Sales | |||||||||||||||||
| GAAP gross profit | 33.1 | % | 33.4 | % | 34.5 | % | 35.2 | % | ||||||||||||
| Diode recall | ) | -0.1 | % | — | ) | -0.2 | % | — | ||||||||||||
| Fair value inventory step-up | — | 0.1 | % | — | 0.1 | % | ||||||||||||||
| Transition costs | — | — | 0.2 | % | — | |||||||||||||||
| Non-GAAP gross profit | 33.0 | % | 33.4 | % | 34.5 | % | 35.3 | % | ||||||||||||
| GAAP operating expenses | 26.6 | % | 34.6 | % | 30.7 | % | 30.3 | % | ||||||||||||
| Amortization of acquired intangible assets | ) | -2.8 | % | ) | -3.4 | % | ) | -3.2 | % | ) | -3.5 | % | ||||||||
| Goodwill impairment | — | ) | -6.4 | % | — | ) | -2.2 | % | ||||||||||||
| Transition costs | ) | -0.6 | % | ) | -0.2 | % | ) | -0.4 | % | ) | -0.2 | % | ||||||||
| CEO separation | 2.3 | % | — | 0.9 | % | — | ||||||||||||||
| Acquisition-related costs | — | ) | 0.0 | % | — | ) | 0.0 | % | ||||||||||||
| Non-GAAP operating expenses | 25.5 | % | 24.6 | % | 27.9 | % | 24.3 | % | ||||||||||||
| GAAP operating income | 6.5 | % | ) | -1.3 | % | 3.8 | % | 4.9 | % | |||||||||||
| Fair value inventory step-up | — | 0.1 | % | — | 0.1 | % | ||||||||||||||
| Diode recall | ) | -0.1 | % | — | ) | -0.2 | % | — | ||||||||||||
| Amortization of acquired intangible assets | 2.8 | % | 3.4 | % | 3.2 | % | 3.5 | % | ||||||||||||
| Goodwill impairment | — | 6.4 | % | — | 2.2 | % | ||||||||||||||
| Transition costs | 0.6 | % | 0.2 | % | 0.6 | % | 0.2 | % | ||||||||||||
| CEO separation | ) | -2.3 | % | — | ) | -0.9 | % | — | ||||||||||||
| Acquisition-related costs | — | 0.0 | % | — | 0.0 | % | ||||||||||||||
| Non-GAAP operating income | 7.5 | % | 8.8 | % | 6.6 | % | 10.9 | % | ||||||||||||
| GAAP net income/(loss) | 3.4 | % | ) | -3.5 | % | 1.1 | % | 1.9 | % | |||||||||||
| Fair value inventory step-up | — | 0.1 | % | — | 0.1 | % | ||||||||||||||
| Amortization of acquired intangible assets | 2.8 | % | 3.4 | % | 3.2 | % | 3.5 | % | ||||||||||||
| Goodwill impairment | — | 6.4 | % | — | 2.2 | % | ||||||||||||||
| Diode recall | ) | -0.1 | % | — | ) | -0.2 | % | — | ||||||||||||
| Transition costs | 0.6 | % | 0.2 | % | 0.6 | % | 0.2 | % | ||||||||||||
| CEO separation | ) | -2.3 | % | — | ) | -0.9 | % | — | ||||||||||||
| Acquisition-related costs | — | 0.0 | % | — | 0.0 | % | ||||||||||||||
| Change in contingent consideration | — | ) | 0.0 | % | ) | 0.0 | % | ) | 0.0 | % | ||||||||||
| Tax effect of non-GAAP adjustments | ) | -0.3 | % | ) | -1.0 | % | ) | -0.7 | % | ) | -1.0 | % | ||||||||
| Non-GAAP net income | 4.2 | % | 5.5 | % | 3.1 | % | 6.8 | % | ||||||||||||
| GAAP net income/(loss) per share - diluted | ) | |||||||||||||||||||
| Fair value inventory step-up | ||||||||||||||||||||
| Amortization of acquired intangible assets | ||||||||||||||||||||
| Goodwill impairment | ||||||||||||||||||||
| Diode recall | ) | |||||||||||||||||||
| Transition costs | ||||||||||||||||||||
| CEO separation | ) | ) | ||||||||||||||||||
| Tax effect of non-GAAP adjustments | ) | ) | ) | ) | ||||||||||||||||
| Non-GAAP net income per share -<br>diluted (a) |
All values are in US Dollars.
| (a) | Non-GAAP net income per share does not foot due to rounding.<br> |
|---|
Page 8 of 9
AMERICAN OUTDOOR BRANDS CORPORATION AND SUBSIDIARIES
RECONCILIATION OF NET OPERATING CASH FLOW TO FREE CASH FLOW
(In thousands)
(Unaudited)
| For the Three Months Ended | For the Nine Months Ended | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| January 31, 2020 | January 31, 2019 | January 31, 2020 | January 31, 2019 | |||||||||
| Net cash provided by/(used in) operating activities | $ | 9,565 | $ | 11,694 | $ | (25,041 | ) | $ | 20,745 | |||
| Net cash used in investing activities | (2,934 | ) | (8,323 | ) | (12,302 | ) | (26,912 | ) | ||||
| Acquisition of businesses, net of cash acquired | — | 1,791 | — | 1,791 | ||||||||
| Free cash flow | $ | 6,631 | $ | 5,162 | $ | (37,343 | ) | $ | (4,376 | ) |
AMERICAN OUTDOOR BRANDS CORPORATION AND SUBSIDIARIES
RECONCILIATION OF GAAP NET INCOME/(LOSS) TO NON-GAAP ADJUSTED EBITDAS
(in thousands)
(Unaudited)
| For the Three Months Ended | For the Nine Months Ended | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| January 31, 2020 | January 31, 2019 | January 31, 2020 | January 31, 2019 | |||||||||
| GAAP net income/(loss) | $ | 5,731 | $ | (5,725 | ) | $ | 4,916 | $ | 8,586 | |||
| Interest expense | 2,869 | 2,661 | 8,898 | 7,043 | ||||||||
| Income tax expense | 2,273 | 1,191 | 3,539 | 7,399 | ||||||||
| Depreciation and amortization | 12,761 | 13,303 | 40,539 | 38,863 | ||||||||
| Stock-based compensation expense | 1,762 | 2,118 | 4,778 | 6,070 | ||||||||
| Impairment of long-lived tangible assets | — | 10,396 | — | 10,396 | ||||||||
| Fair value inventory step-up | — | 92 | — | 362 | ||||||||
| Acquisition-related costs | — | 6 | — | 6 | ||||||||
| Transition costs | 990 | 369 | 2,761 | 751 | ||||||||
| CEO separation | (3,844 | ) | — | (3,844 | ) | — | ||||||
| Diode recall | (180 | ) | — | (769 | ) | — | ||||||
| Change in contingent consideration | — | (60 | ) | (100 | ) | (60 | ) | |||||
| Non-GAAP Adjusted EBITDAS | $ | 22,362 | $ | 24,351 | $ | 60,718 | $ | 79,416 |
Page 9 of 9