Smith & Wesson Holding Corporation Reports Third Quarter Fiscal 2013 Financial Results
4:05 PM ET 3/5/13 | PR Newswire
Smith & Wesson Holding Corporation (NASDAQ Global Select: SWHC), a leader in firearm manufacturing and design, today announced financial results for the fiscal 2013 third quarter ended January 31, 2013.
Third Quarter Fiscal 2013 Financial Highlights
-- Net sales from continuing operations for the third quarter were $136.2 million, up 38.8% from the third quarter last year. The company continued to increase its production capacity during the third quarter and has operated its plant at essentially full capacity for the last four quarters. Despite these capacity increases, the company was unable to meet the ongoing demand across all of its firearm product lines.
-- Gross profit for the third quarter was $50.1 million, or 36.8% of net sales, compared with gross profit of $30.0 million, or 30.6% 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 favorable product mix.
-- Operating expenses for the third quarter were $22.1 million, or 16.2% of net sales, compared with operating expenses of $19.7 million, or 20.1% of net sales, for the third quarter last year. The increase in operating expenses was primarily related to higher general and administrative costs associated with the ongoing implementation of the company's new ERP system and incentive compensation. The decline in operating expenses as a percentage of net sales was primarily driven by increased sales volume and controlled spending in sales and marketing.
-- Operating income from continuing operations for the third quarter was $28.0 million, or 20.6% percent of net sales, compared with operating income from continuing operations of $10.3 million, or 10.5% percent of net sales, for the comparable quarter last year.
-- Income from continuing operations for the third quarter was $17.5 million, or $0.26 per diluted share, more than triple the net income from continuing operations of $5.4 million, or $0.08 per diluted share, for the third quarter last year.
-- Non-GAAP Adjusted EBITDAS from continuing operations for the third quarter increased to $33.3 million compared with $14.8 million for the third quarter last year. Fiscal year-to-date non-GAAP Adjusted EBITDAS was $101.5 million compared with $37.2 million for the comparable prior year period.
-- Operating cash flow of $33.0 million and net capital spending of $12.6 million for the third quarter resulted in free cash flow of $20.4 million.
-- During the third quarter of fiscal 2013, the company's Board of Directors approved a program to repurchase up to $35.0 million of Smith & Wesson's common stock, subject to certain conditions, in the open market or privately negotiated transactions on or prior to June 30, 2013. The company repurchased 2.1 million shares of its common stock for $20.0 million through this program during the third quarter of fiscal 2013 utilizing cash on hand.
James Debney, Smith & Wesson Holding Corporation President and Chief Executive Officer, stated, "Our success in the third quarter was highlighted by significant year-over-year improvements in net sales, margin expansion, and bottom line profitability as we successfully executed our growth strategy, which is underpinned with a focus on firearms. Performance gains were driven by continued robust consumer demand for firearms as well as increased sales of our M&P® polymer pistols and modern sporting rifles. Based on incremental improvements in expanding our production capacity, which will be further deployed in the fourth quarter, we are increasing our financial guidance for the full fiscal year 2013."
Jeffrey D. Buchanan, Executive Vice President and Chief Financial Officer, stated, "The strength of our balance sheet continues to provide us enhanced flexibility to invest in our core firearm business and fuel our growth initiatives. At the end of the quarter, we had no borrowings under our credit facility and a cash balance of $62.0 million. Robust free cash flow also allowed us to return value to our stockholders by buying back shares of our common stock in the fiscal third quarter for a total of $20.0 million."
Financial Outlook for Continuing Operations
The company expects net sales from continuing operations for the fourth quarter of fiscal 2013 to be between $165.0 million and $170.0 million, which would represent year-over-year growth from continuing operations of 29.0% at the midpoint. The company anticipates GAAP earnings per diluted share from continuing operations of between $0.38 and $0.40 for the fourth quarter of fiscal 2013.
The company is raising its full year fiscal 2013 financial guidance. The company currently anticipates net sales from continuing operations for fiscal 2013 of between $575.0 million and $580.0 million, which would represent year-over-year growth from continuing operations of approximately 40.0% at the midpoint. The company anticipates fiscal 2013 GAAP earnings per diluted share from continuing operations of between $1.17 and $1.19, income from continuing operations of between $78.0 million and $79.5 million, and non-GAAP Adjusted EBITDAS from continuing operations of between $148.4 million and $150.7 million.
Conference Call and Webcast
The company will host a conference call and webcast today, March 5, 2013, to discuss its third quarter fiscal 2013 financial and operational results. Speakers on the conference call will include James Debney, President and CEO, and Jeffrey D. Buchanan, Executive Vice President and CFO. 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 (866) 804-6928 and reference conference code 35129271. 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 nine-month periods ended January 31, 2013 and January 31, 2012 and the attached "Reconciliation of Estimated GAAP Income from Continuing Operations to Estimated Adjusted EBITDAS" for a full detailed explanation of the amounts excluded from and included in income from continuing operations to arrive at estimated Adjusted EBITDAS for full year fiscal 2013. 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(TM). 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 our outlook for fiscal 2013 full year net sales from continuing operations; the outcome of the ongoing implementation of our new ERP system; potential future repurchases of our common stock under our stock repurchase program; our belief regarding robust consumer demand for firearms; our belief that our expanded production capacity will be further deployed in the fourth quarter of fiscal 2013; increasing our full year fiscal 2013 financial guidance; our belief regarding our enhanced flexibility to invest in our core firearm business and fuel our growth initiatives; our outlook for net sales from continuing operations, year-over-year growth from continuing operations, and GAAP earnings per diluted share from continuing operations for the fourth quarter of fiscal 2013 and the full 2013 fiscal year; and our outlook for income from continuing operations and non-GAAP Adjusted EBITDAS from continuing operations for the full 2013 fiscal year, including the amounts excluded from and included in net income to arrive at Adjusted EBITDAS for our guidance for full year fiscal 2013. 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, 2012.
View data SMITH & WESSON HOLDING CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (Unaudited) For the Three Months Ended: For the Nine Months Ended: January 31, 2013 January 31, 2012 January 31, 2013 January 31, 2012 (In thousands, except per share data) Net sales $ 136,242 $ 98,125 $ 408,797 $ 282,154 Cost of sales 86,143 68,121 258,882 201,028 Gross profit 50,099 30,004 149,915 81,126 Operating expenses: Research and development 942 992 3,363 3,571 Selling and marketing 8,333 8,062 23,203 24,823 General and administrative 12,776 10,666 37,381 33,483 Total operating expenses 22,051 19,720 63,947 61,877 Operating income from continuing operations 28,048 10,284 85,968 19,249 Other income/(expense): Other income/(expense), net -- 8 39 62 Interest income 48 394 750 1,196 Interest expense (1,240) (1,629) (4,571) (6,044) Total other income/(expense), net (1,192) (1,227) (3,782) (4,786) Income from continuing operations before income taxes 26,856 9,057 82,186 14,463 Income tax expense 9,350 3,664 29,410 5,845 Income from continuing operations 17,506 5,393 52,776 8,618 Discontinued operations: Loss from operations of discontinued security solutions division (601) (1,600) (3,150) (8,306) Income tax expense/(benefit) 2,329 (645) (3,921) (3,326) Income/(loss) from discontinued operations (2,930) (955) 771 (4,980) Net income/comprehensive income $ 14,576 $ 4,438 $ 53,547 $ 3,638 Net income per share: Basic - continuing operations $ 0.27 $ 0.08 $ 0.81 $ 0.13 Basic - net income $ 0.22 $ 0.07 $ 0.82 $ 0.06 Diluted - continuing operations $ 0.26 $ 0.08 $ 0.79 $ 0.13 Diluted - net income $ 0.22 $ 0.07 $ 0.80 $ 0.06 Weighted average number of common shares outstanding: Basic 65,149 64,874 65,457 64,700 Diluted 66,421 66,582 66,909 65,154
View data SMITH & WESSON HOLDING CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited) As of: January 31, 2013 April 30, 2012 (In thousands, except par value and share data) ASSETS Current assets: Cash and cash equivalents, including restricted cash of $3,342 on January 31, 2013 and $3,334 on April 30, 2012 $ 61,999 $ 56,717 Accounts receivable, net of allowance for doubtful accounts of $785 on January 31, 2013 and $1,058 on April 30, 2012 38,871 48,313 Inventories 69,208 55,296 Prepaid expenses and other current assets 5,689 4,139 Assets held for sale -- 13,490 Deferred income taxes 12,759 12,759 Income tax receivable 5,800 -- Total current assets 194,326 190,714 Property, plant, and equipment, net 77,807 60,528 Intangibles, net 4,075 4,532 Other assets 5,333 5,900 $ 281,541 $ 261,674 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 24,377 $ 28,618 Accrued expenses 13,677 20,685 Accrued payroll 11,474 9,002 Accrued income taxes -- 291 Accrued taxes other than income 4,859 4,270 Accrued profit sharing 7,131 8,040 Accrued product/municipal liability 1,517 1,397 Accrued warranty 5,014 5,349 Liabilities held for sale -- 5,693 Total current liabilities 68,049 83,345 Deferred income taxes 4,537 4,537 Notes payable, net of current portion 43,559 50,000 Other non-current liabilities 10,782 10,948 Total liabilities 126,927 148,830 Commitments and contingencies Stockholders' equity: Preferred stock, $.001 par value, 20,000,000 shares authorized, no shares issued or outstanding -- -- Common stock, $.001 par value, 100,000,000 shares authorized, 67,459,468 shares issued and 64,159,865 shares outstanding on January 31, 2013 and 66,512,097 shares issued and 65,312,097 shares outstanding on April 30, 2012 67 67 Additional paid-in capital 197,602 189,379 Accumulated deficit (16,732) (70,279) Accumulated other comprehensive income 73 73 Treasury stock, at cost (3,299,603 common shares on January 31, 2013 and 1,200,000 on April 30, 2012) (26,396) (6,396) Total stockholders' equity 154,614 112,844 $ 281,541 $ 261,674
View data SMITH & WESSON HOLDING CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) For the Nine Months Ended: January 31, 2013 January 31, 2012 (In thousands) Cash flows from operating activities: Net income $ 53,547 $ 3,638 Adjustments to reconcile net income to net cash provided by operating activities: Amortization and depreciation 12,023 11,286 Loss on sale of business including loss on sale of discontinued operations, including $45 of stock-based compensation expense 1,222 241 Loss on sale/disposition of assets 277 251 Provisions for/(recoveries of) losses on accounts receivable 378 (326) Change in disposal group assets and liabilities (1,215) 5,241 Stock-based compensation expense 3,086 1,797 Excess book deduction of stock-based compensation -- (266) Changes in operating assets and liabilities: Accounts receivable 9,064 15,555 Inventories (13,912) (9,988) Other current assets (1,150) 1,578 Income tax receivable/payable (6,091) 1,239 Accounts payable (4,241) (13,519) Accrued payroll 1,867 2,785 Accrued taxes other than income 589 (8,000) Accrued profit sharing (909) (459) Accrued other expenses (7,795) (5,348) Accrued product/municipal liability 120 (149) Accrued warranty (335) 1,687 Other assets (45) (64) Other non-current liabilities 284 599 Net cash provided by operating activities 46,764 7,778 Cash flows from investing activities: Proceeds from sale of business including discontinued operations 7,500 500 Receipts from note receivable 55 -- Payments to acquire patents and software (36) (124) Proceeds from sale of property and equipment 1,037 15 Payments to acquire property and equipment (28,399) (10,067) Net cash used in investing activities (19,843) (9,676) Cash flows from financing activities: Proceeds from loans and notes payable 1,753 1,532 Cash paid for debt issue costs -- (1,859) Proceeds from energy efficiency incentive programs -- 225 Payments on capital lease obligation (450) -- Cash paid for redemption of convertible notes -- (30,000) Payments on loans and notes payable (8,034) (1,264) Payments to acquire treasury stock (20,000) -- Proceeds from exercise of options to acquire common stock, including employee stock purchase plan 4,095 717 Excess tax benefit of stock-based compensation 997 -- Net cash used in financing activities (21,639) (30,649) Net increase/(decrease) in cash and cash equivalents 5,282 (32,547) Cash and cash equivalents, beginning of period 56,717 58,292 Cash and cash equivalents, end of period $ 61,999 $ 25,745 Supplemental disclosure of cash flow information Cash paid for: Interest $ 5,252 $ 5,745 Income taxes 30,976 1,524
View data SMITH & WESSON HOLDING CORPORATION AND SUBSIDIARIES RECONCILIATION OF GAAP NET INCOME TO ADJUSTED EBITDAS (Unaudited) For the Three Months Ended January 31, 2013: For the Three Months Ended January 31, 2012: GAAP Adjustments Adjusted GAAP Adjustments Adjusted (In thousands) Net sales $ 136,242 $ -- $ 136,242 $ 98,125 $ -- $ 98,125 Cost of sales 86,143 (3,414) (8) 82,729 68,121 (3,185) (1) 64,936 Gross profit 50,099 3,414 53,513 30,004 3,185 33,189 Operating expenses: Research and development 942 (29) (8) 913 992 (42) (1) 950 Selling and marketing 8,333 (44) (8) 8,289 8,062 (51) (1) 8,011 General and administrative 12,776 (1,739) (2) 11,037 10,666 (1,228) (2) 9,438 Total operating expenses 22,051 (1,812) 20,239 19,720 (1,321) 18,399 Operating income from continuing operations 28,048 5,226 33,274 10,284 4,506 14,790 Other income/(expense): Other income/(expense), net -- -- -- 8 -- 8 Interest income 48 -- (6) 48 394 (361) (6) 33 Interest expense (1,240) 1,240 (4) -- (1,629) 1,629 (4) -- Total other income/(expense), net (1,192) 1,240 48 (1,227) 1,268 41 Income from continuing operations before income taxes 26,856 6,466 33,322 9,057 5,774 14,831 Income tax expense 9,350 (9,350) (5) -- 3,664 (3,664) (5) -- Income from continuing operations 17,506 15,816 33,322 5,393 9,438 14,831 Discontinued operations: Loss from operations of discontinued security solutions division (601) 424 (10) (177) (1,600) 759 (7) (841) Income tax expense/(benefit) 2,329 (2,329) (5) -- (645) 645 (5) -- Loss on discontinued operations (2,930) 2,753 (177) (955) 114 (841) Net income/comprehensive income $ 14,576 $ 18,569 $ 33,145 $ 4,438 $ 9,552 $ 13,990 SMITH & WESSON HOLDING CORPORATION AND SUBSIDIARIES RECONCILIATION OF GAAP NET INCOME TO ADJUSTED EBITDAS (Unaudited) For the Nine Months Ended January 31, 2013: For the Nine Months Ended January 31, 2012: GAAP Adjustments Adjusted GAAP Adjustments Adjusted (In thousands) Net sales $ 408,797 $ -- $ 408,797 $ 282,154 $ -- $ 282,154 Cost of sales 258,882 (10,211) (8) 248,671 201,028 (10,815) (1) 190,213 Gross profit 149,915 10,211 160,126 81,126 10,815 91,941 Operating expenses: Research and development 3,363 (87) (8) 3,276 3,571 (145) (1) 3,426 Selling and marketing 23,203 (168) (8) 23,035 24,823 (225) (1) 24,598 General and administrative 37,381 (4,874) (2) 32,507 33,483 (6,578) (3) 26,905 Total operating expenses 63,947 (5,129) 58,818 61,877 (6,948) 54,929 Operating income from continuing operations 85,968 15,340 101,308 19,249 17,763 37,012 Other income/(expense): Other income/(expense), net 39 -- 39 62 -- 62 Interest income 750 (608) (6) 142 1,196 (1,043) (6) 153 Interest expense (4,571) 4,571 (4) -- (6,044) 6,044 (4) -- Total other income/(expense), net (3,782) 3,963 181 (4,786) 5,001 215 Income from continuing operations before income taxes 82,186 19,303 101,489 14,463 22,764 37,227 Income tax expense 29,410 (29,410) (5) -- 5,845 (5,845) (5) -- Income from continuing operations 52,776 48,713 101,489 8,618 28,609 37,227 Discontinued operations: Loss from operations of discontinued security solutions division (3,150) 1,808 (9) (1,342) (8,306) 2,261 (7) (6,045) Income tax benefit (3,921) 3,921 (5) -- (3,326) 3,326 (5) -- Income/(loss) on discontinued operations 771 (2,113) (1,342) (4,980) (1,065) (6,045) Net income/comprehensive income $ 53,547 $ 46,600 $ 100,147 $ 3,638 $ 27,544 $ 31,182 (1) To exclude depreciation, amortization, and plant consolidation costs. (2) To exclude depreciation, amortization, stock-based compensation expense, and DOJ/SEC costs and related profit sharing impacts of DOJ/SEC. (3) To exclude depreciation, amortization, stock-based compensation expense, plant consolidation costs, severance benefits for our former President and CEO, and DOJ/SEC costs and related profit sharing impacts of DOJ/SEC. (4) To exclude interest expense. (5) To exclude income tax expense. (6) To exclude intercompany interest income. (7) To exclude depreciation, amortization, interest expense, and stock-based compensation expense. (8) To exclude depreciation and amortization. (9) To exclude loss on sale of discontinued operations, depreciation, amortization, interest expense, stock-based compensation expense. (10) To exclude loss on sale of discontinued operations.
View data SMITH & WESSON HOLDING CORPORATION AND SUBSIDIARIES RECONCILIATION OF ESTIMATED GAAP INCOME FROM CONTINUING OPERATIONS TO ESTIMATED ADJUSTED EBITDAS For the Year Ended April 30, 2013: Low Range High Range (In thousands) Income from continuing operations $ 78,000 $ 79,500 Interest expense 5,800 5,800 Income tax expense 43,900 44,700 Depreciation and amortization 15,500 15,500 Stock-based compensation expense 4,200 4,200 DOJ/SEC costs, net of profit sharing impact 1,000 1,000 Adjusted EBITDAS $ 148,400 $ 150,700
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