Good day, everyone, and welcome to American Outdoor Brands Inc. First Quarter Fiscal 2021 Financial Results Conference Call. This call is being recorded. At this time, I would like to turn the call over to Liz Sharp, Vice President of Investor Relations, for some information about today's call.

Thank you, and good morning. On behalf of all of us at American Outdoor Brands, we hope you are healthy and safe. Our comments today may contain predictions, estimates and other forward-looking statements. Our use of words like anticipate, project, estimate, expect, intend, believe and other similar expressions is intended to identify those forward-looking statements. Forward-looking statements also include statements regarding our product development; focus; objectives; strategies and vision; our strategic evolution; our market share and market demand for our products; market and inventory conditions related to our products and in our industry in general; and growth opportunities and trends. Our forward-looking statements represent -- excuse me, our forward-looking statements represent our current judgment about the future, and they are subject to various risks and uncertainties. Risk factors and other considerations that could cause our actual results to be materially different are described in our securities filings. You can find those documents as well as a replay of this call on our website at aob.com. Today's call contains time-sensitive information that is accurate only as of this time, and we assume no obligation to update any forward-looking statements. Our actual results could differ materially from our statements today. I have a few important items to note about our comments on today's call. First, we reference certain non-GAAP financial measures on this call. Our non-GAAP results exclude amortization of acquired intangible assets, stock compensation, transition costs, COVID-19 expenses, related party interest income and the tax effect related to all those adjustments. The reconciliations of GAAP financial measures to non-GAAP financial measures, whether or not they are discussed on today's call, can be found in our filings as well as yesterday's earnings press release, which are posted to our website. Also, when we reference EPS, we are always referencing fully diluted EPS. As many of you know, on August 24, we completed our spin-off from Smith & Wesson Brands, and today marks our first earnings call as American Outdoor Brands. I would like to note that we expect our 10-Q to file by the end of next week. Going forward, our goal will be to file our 10-Q concurrent with our earnings release each quarter. Joining us on today's call is Brian Murphy, President and CEO; and Andy Fulmer, Chief Financial Officer. And with that, I will turn it over to Brian.

Thanks, Liz. I'm happy to join you today for our first earnings call, and I know that I speak for all of us at American Outdoor Brands when I say we could not be more excited about our future. We believe our passion for products that allow people to pursue their outdoor adventures is especially timely as consumers increasingly look to outdoor activities such as fishing, hunting, shooting sports, camping and hiking in response to travel restrictions and social distancing. We are excited to continue developing and delivering innovative products that make it possible for people to rethink their connection with the outdoors. Before I cover our performance, I want to extend a sincere thank you to all of our employees, who hopefully are listening to this call, across the company for their incredible accomplishments. In the past several months, this team has successfully organized and executed the complicated spin-off of our business into an independent company and delivered extraordinary quarterly results, all while maintaining protocols to ensure the health and safety of our workforce and our business. So with that, let me turn to the quarter. I am very pleased with our first quarter results, which featured significant growth in both net sales and profitability. We believe our net sales growth of nearly 52% reflected the strong alignment between our diverse brand portfolio and consumer trends, including participation in outdoor activities, driven in part by pandemic-related travel restrictions and social distancing and increased interest in self-protection. We believe our performance is a result of having built a business platform and a strategy that are resilient and that have positioned our company to be agile in a variety of operating environments. Now let me cover the highlights from the quarter. First, we benefited from pent-up demand that began during our…

Thanks, Brian. Net sales for the quarter were $50.5 million compared to $33.2 million in the prior year, an increase of approximately 52% and was due to the factors that Brian outlined. Increased net sales in the quarter benefited in part from an initiative we began in fiscal '20 to migrate certain retail customers away from lumpy, bulk buy ordering. We successfully worked with those customers to achieve a more balanced approach to their replenishment orders, which gives us a more direct relationship with changes in consumer demand. As a result, and based on feedback from those retailers, we believe our inventory replenishment is better aligned with consumer demand. Net sales in our e-commerce channels were $24.5 million, an increase of 129.7% over prior year. These net sales include our direct-to-consumer sales as well as our sales to customers that do not traditionally operate a physical brick-and-mortar store, but generate the majority of their sales from consumer purchases from their retail websites. Sales in our traditional brick-and-mortar channels increased as well by 15.1% to $25.9 million. These increases reflect the benefit of investments we've made in our e-commerce and marketing platforms, as Brian explained, ensuring that our brands are available where the consumer decides to shop. In Q1, gross margin was 47% compared to 41.1% in the prior year. This substantial increase was driven by the combination of a favorable product mix and a decrease in promotional activity. Although the majority of our cost of goods sold is from variable costs, our margins are also improved slightly from leveraging fixed costs over the increased sales. As shown in our previous filings under our former parent company, our gross margin percentage tends to vary by quarter, especially with certain annual promotions that typically take place in Q2 and Q3. Our margins…

Thank you, Andy. Operator, please open the call for questions from our analysts.

[Operator Instructions] Our first question comes from John Kernan with Cowen.

Excellent. And Brian and Andy, congrats on all the work to get through the spin and certainly the operational momentum inside the business as well.

Thanks, John.

Thanks, John.

I wanted to go into the sales guidance for the remainder of the year. Obviously, tremendous momentum in the first quarter, both from a growth perspective year-over-year, the amount of dollar growth impressive as well. How should we think about the rest of the year? What are your assumptions with your retail partners? It seems like you've done some work around the replenishment side of the business. I'm wondering, given the strong sell-through that we're seeing in a lot of your key brands, how are you planning the business from a wholesale perspective as we go into the back half of the year? Because it does look like your guidance assumes a pretty meaningful deceleration in the momentum you're seeing right now.

Yes. Thanks, John. This is Brian. So the full year guidance that we put forth and we've updated still assumes a 16% to 20% -- or sorry, 16% to 22% year-over-year growth, which we think is pretty meaningful. And there's still a lot of uncertainty that remains for Qs 2 through 4. And while we're still through a portion through Q2, really, we've only completed 4 months. And so there's still quite a bit of runway ahead of us. And based on what we're seeing today, that guidance reflects what we're seeing.

Got it. Maybe any commentary from a specific brand level perspective for BUBBA, Crimson Trace, to MEAT! Your Maker, BOG. You did call them out in your prepared remarks, and it does seem like all of them have building momentum at the retail level right now.

Yes. So big question. And I would say, like we said in our prepared remarks, most of our brands, really, there were only 2 that did not show growth and for reasons that we expected, one of which was a major retailer's decision to go to private label, so we expected that. Excluding that factor, we actually saw growth. And then one additional brand outside of a customer load in from last year, we also saw growth. So essentially, outside of those 2 unique factors, all of our brands grew year-over-year. And so we would expect the increased levels of participation that we're seeing in the market. Our brands are, in particular, are well positioned to take advantage of this environment.

Got it. And then maybe one more for me. Just on the guidance from a margin perspective. A lot of gross margin expansion in Q1 and meaningful adjusted SG&A leverage as well. Just how should we think about the balance between gross margin and SG&A rate that's embedded in the EBITDAS guidance that you provided?

Yes. Thanks, John. This is Andy. So on the margin side, in Q1, the decreased promotions, definitely, like we said in the prepared remarks, helped the margins. And given the fact that going forward, with annualized promotions that we do every year as well as our inventory, the plan that we put into place and it's underway already to convert some of the slower moving targeted inventory back to cash, we do expect some margin declines from Q1. On the OpEx side, I think on a run rate basis, when we look at OpEx, obviously, we're going to reinvest the kind of COVID-19-related savings just from lack of travel, trade shows, those types of things, back into the back half of the year or actually from Q2 through Q4. But also on the G&A side, so again, we're -- our Q1 had allocated expenses under the carve-out financial statement. And going forward, we're going to have the full cost of our building and sublease, the full burden of corporate cost going forward. And obviously, as we -- our selling and distribution is highly variable in relation to revenue.

That's helpful. Best of luck. And again, congrats on the spin and the momentum.

Thank you.

Our next question [indiscernible] with Wedbush.

Obviously, a really strong quarter. I think a lot of us sort of understand how the supply chain expands and contracts with the legacy firearm business. But maybe help us understand the inventory situation, not only on your own balance sheet but at retail, given that we don't have a long history with this. Are we playing catch up at this point? And sort of if so, how long does that take to sort of normalize?

Yes, James, this is Brian. So the way -- the best way to think about this is what we talked about in our prepared remarks around the alignment between end consumer demand and our replenishment with those retailers that are servicing that demand. So last year, well ahead of COVID, we made some tough decisions to -- we want to prepare this business for long-term growth, was to better align the 2. So we got rid of the -- or try to transition our customers away from lumpy bulk buys to healthier replenishments each quarter, each month. And as a result, that allowed us to streamline our forecasting inventory planning process, and the team has done an incredible job to do that. As a result, we have -- it's easier for us to plan the inventory requirements for our customers because we're seeing it real time how they're selling that product out the door. And so I believe we are uniquely positioned, perhaps versus some of our competitors, to take advantage of that direct relationship. And so now we can plan out in a very short period of time how to service those end consumer needs and also our marketing plans. So Andy referenced taking some of the savings that we've had and reinvesting them in the business into the marketing side. As you're aware, each early spring, we launch quite a few new products, is being able to now align those marketing initiatives with the inventory needs of our customers. So that way, it's in lockstep. There's no disconnect there. So we've been able to, I think, keep pace with many of our retailers based on the demand that they're seeing.

Okay. So I should take that to mean that you're not significantly behind in terms of where channel inventories right now such that you would need to ramp up to meet the current demand?

There's certainly quite a bit of demand out there. I would say that we are uniquely -- what I do note, that we're uniquely positioned, I believe, to be able to service our customers. And I've heard from many of them that this is true, that we're able to -- we've got among the highest fulfillment rates of any of their vendors.

Okay. And then secondly, so -- and I think you answered a good portion of this with some of the margin commentary. But as I take a step back and look at your guidance, you did $9 million in EBITDAS in the first quarter. The guidance for the year is a little more than double that. I would have, just as an outsider, thought that second quarter would probably be bigger than the first. But it sounds like there's some -- again, there's some margin issues in terms of the accounting from an allocation perspective. You talked about the promos in terms of gross margins. Is there anything from a top line perspective to think about how this is going to be -- how the rest of the year should be meaningfully different than what we saw in the first quarter? And then is there any way to -- you talked about this major customer shift in orders from Q4 to Q1. Is there any way to quantify that?

James, this is Andy. So from a top line perspective, I don't think there's any magic as far as kind of looking at the kind of quarter-by-quarter. You definitely did hit on the point. So on the margin side, like we talked about, the expected promos as well as the converting to cash. And on the OpEx side, Q1 is a bit of an anomaly just because of the allocation nature under the carve-out. But then going forward -- I'm sorry, what was the second part of the question? It was totally [ drowned ].

The sort of onetime benefit that you got in Q1 from the customer shifting out of Q4.

Oh, yes. So as we talked about, I don't necessarily think we can quantify that. But like we said in the prepared remarks, we had a major online retailer in Q4 essentially stop ordering, and we believe that -- in Q4, exactly. And then in Q1, we were able to really help them replenish inventory levels.

And then I would add -- this is Brian. James, it's just -- this is a highly -- I mean, in my career, this is one of the most unprecedented uncertain times. Things appear to be -- keep popping up that no one really could anticipate. The thing that I would continue to direct people towards is the fact that we have spent the time to build a platform that is highly agile. So we don't know what will come in the next 12 months. We've done our best to estimate that, and we've given that as part of our outlook. But certainly, we've built an agile platform that we believe will help us weather a variety of different operating environments. So what we know today is reflected in our guidance. And certainly, we believe we've got a great platform to respond as necessary and anticipate where needed.

That's really helpful. And if I may, just one quick point of clarification, Andy. These carve-out financials are obviously going to be different as we get later into the year with actual expenses that you guys are incurring. That's not going to be retroactive, correct? Like this -- these are the numbers for the first quarter, and we're not going to then retroactively restate those in any way. Is that right?

That is absolutely correct. Yes. That's absolutely correct.

Our next question comes from Scott Stember with C.L. King.

Congratulations on a really good start to AOUT.

Thank you, Scott.

Maybe talking about on the e-commerce side. You talked about the direct-to-consumer, how that's really taken off. Could you maybe just frame out for us what inning you guys are in, in that process? And maybe how big of the e-com growth that really is and how much more we can expect?

Yes. So Scott, this is Brian, and it's a great question. And obviously, we continue to hammer home that direct-to-consumer sales over the last few quarters. So like I said in the prepared remarks, our goal is to be where the consumer expects to find us. And based on the current environment and the store closures, which is unfortunate, consumers continue to pull-through our products. Our products were in high demand. And so because we've made this investment in the e-commerce platform, we have the ability to sell directly to those consumers, if that's how they choose to purchase our products, and give them a good experience in the process. So in terms of what inning we're in, I think it's really up to the consumer. We're prepared, like I said, to be agile in a variety of operating environments. If they choose to purchase from us, great, we're there. We have certainly the e-commerce websites to be able to service them and the distribution capabilities. If they -- if things reopen up and folks decide to go back out into brick-and-mortar channels, great, we're totally going to be there as well. So it's hard to say. We certainly have the platform in place to service them going forward. So wouldn't anticipate from your perspective or investors' perspective that there's still quite a bit of infrastructure to be built out. It's already built out.

Okay. Got it. And just going back to your flexible business model. You talked about how it helps you, obviously, to keep up with demand. But if we were to keep at the same pace of retail pull-through, what is your ability to continue to keep up with that? Basically, is there a breaking point or a limit where even with your flexible structure where it becomes problematic?

That's a great question. And we talk a lot about that internally because, again, we've built this platform to serve a variety of environments. We've also built this platform to facilitate long-term growth. So as we take our brands from niche to known, what's really that known piece is a mature brand portfolio, which we believe we don't have today. We've got significant runway for growth. But with that said, we just stood up a 632,000-square foot facility. We share that facility with a company that we just recently spun out from, Smith & Wesson. But we have adequate, I believe, based on the demand that we're seeing today, to be able to service that demand going forward.

Okay. And just one last question, if I can. Just for modeling purposes, I know things are coming out in time as far as historical quarterlies and from an adjusted basis. But when the Q comes out, will there be more disclosure about past years on an adjusted basis and on a quarterly basis? And if not, when would we see that?

Yes. Scott, this is Andy. So as the quarters come out, we will have comparable quarters on a carve-out basis from prior year as well. So when the first Q comes out, you'll see Q1 over Q1. And then as the quarters go, the Q2 versus Q2 and so forth.

[Operator Instructions] Our next question comes from Mark Smith with Lake Street Capital.

First question for me. Can you give us a breakdown or any insight into sales growth of shooting-related products versus nonshooting products? So for instance, if we looked at Harvester and Adventurer versus Marksman and Defender.

Mark, this is Brian. So what I would tell you is, in this environment, we're seeing, I would, I believe, unprecedented demand across all of the brand lanes. So the Marksman, Harvester, Adventurer, Defender and due to the reasons that I described earlier, just around social distancing, which obviously plays into the Harvester and Adventurer lane, and also Marksman. And then personal protection, which certainly plays into the Defender lane, and then I think flows into, as a result, the Marksman lane as folks need to clean their firearms, they want to go out to the range, site them in and be responsible firearm owners. So it's -- I really can't answer the question because it's across the board. I mean we're seeing unprecedented demand across all of our 4 brand lanes.

Okay. And then as we look at kind of the channel of sales, can you give us more insight or breakdown on gross profit margin differences between e-com and traditional sales?

Mark, it's Andy. So we can't get too much detail. I will say that with increased direct-to-consumer sales, those are obviously at higher margin than some of our traditional sales. But we really can't get into too much detail on the kind of channel-by-channel margin.

Okay. And then just -- you guys hit on this a little bit earlier, but just if you can give us -- quantify at all, any backlog insight that you can give us, especially, or even insight into backlog issues maybe within certain brands or brand lanes.

Yes. We can't get into backlog. We don't disclose that. As far as -- on a specific product level, yes, I can't really -- I don't think we're going really going to...

Mark, what I would -- this is Brian. What I would tell you or point you towards is this, again, being better aligned with end consumer demand, which feeds into everything, right? It's traditional. And then it's also the e-com side. So we're seeing real-time sales and then there's some delay on the traditional side. But because we've been able to better align with that demand, really allows us to have a closer to -- not perfect, but closer to a 1:1 relationship with that and forecast appropriately.

Sure. And then just looking within brick-and-mortar, are there any issues that you still have today within closures and just maybe even looking at international markets? Anything that you're still seeing closed today that's not fully reopened?

So on the traditional side, I would say, we still had -- in the last quarter, we had what I believe is impressive growth. So 15% in the traditional channels. And if you look at what's been reported for other companies out there, I think 15% is pretty impressive. I believe the brick-and-mortar retailers that have a strong -- their own e-commerce platform right now are more successful, and we also accommodate to that business strategy. So I think that folks that have that strong structure in place will continue to be successful, and we're certainly able to accommodate that strategy. And then also just internationally, international for us represents a very small part of our business. And while it represents a big opportunity, we were not significantly or even meaningfully impacted by the store closures internationally. So again, our goal is to be where the consumer expects to find us. And if that's online, great. If it's in stores and that becomes a better option for them, we certainly will be there. And we have incredibly strong partners across both of those channels that certainly we want to make sure that they do the same thing.

Yes. And Mark, I'll just point out, too, historically, over the last 2 or 3 years, I think our international percent of revenue is roughly 4%. So it represents a pretty decent growth engine in the future.

Okay. And then the last one for me. You guys gave us a lot of insight into gross profit margin and some of the moving parts there as we move from first quarter into second and third quarter. But is there anything to call out as far as pressures as we go forward that's built into the guidance that you haven't talked to outside of kind of promotions and tariffs? Are you seeing any increases in steel? Or any raw products that maybe put pressure on gross profit margin going forward?

Yes. Nothing outside of the ordinary, I would say. And we work very well with our supply chain partners on costing, making sure that everything is buttoned up there. Obviously, tariffs, the current tariff situation is built into our margin profile that we model for purposes of guidance. So no change with respect and obviously, that -- if that changes, we would have to update it accordingly.

Yes. And I would say, Mark, this is Brian, the other thing that we've, I think, discussed in the past is we have a strategy in place to diversify our supply chain, which helps to offset some of that tariff risk. And the best way to do that is through new product introductions. And so by coming out with between 200 and 300 new products each year, we have the ability to raise the average ASP of some of those products. So if you look at brands like UST, we have sleeping bags, we have tents, we have all these new products that come at a higher ASP, and we're able to look at different supply chains to help deliver those products. And for us, that's been a major strategic initiative to help us offset some of those pressures. And so when it comes to like commodity price, commodity input costs and things like that, we stay on top of that, and we look across our supply chain to make sure that we're as competitive as possible.

I'm not showing any further questions at this time. I would now like to turn the call back over to Brian Murphy for closing remarks.

Thank you, operator, and thank you, everyone, for joining us today. We are looking forward to participating in 2 virtual conferences this month, the C.L. King Best Ideas Conference on September 16 and the Lake Street BIG4 Conference on September 17. We hope to speak with some of you there. In the meantime, please stay safe. We look forward to speaking with you again next quarter. Thanks.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.