Good day everyone, and welcome to American Outdoor Brands Inc. Third Quarter Fiscal 2022 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. Please go ahead.

Thank you, and good afternoon. Our comments today may contain predictions, estimates and other forward-looking statements. Our use of words like anticipate, project, estimate, expect, intend, should, indicate, suggest, 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 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. Our non-GAAP results exclude amortization of acquired intangible assets, stock compensation, transition costs, COVID-19 expenses, technology implementation, related party interest income other costs and the tax effect related to all of 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 today's earnings press release, which are posted on our website. Also, when we reference EPS, we are always referencing fully diluted EPS. Joining us on today's call is Brian Murphy, President and CEO; and Andy Fulmer, CFO. And with that, I will turn the call over to Brian.

Thanks, Liz and thanks everyone for joining us. Today, I'm excited to bring you up to date on our recent achievements, which include progress in a number of key areas that are the focus of our shareholder value creation strategy, organic growth, M&A and returning capital to shareholders. First, we have grown our company organically by 62% on a two-year basis driven by our Dock & Unlock strategy. Second, we are announcing our entry into the $7 billion outdoor cooking market with our acquisition of Grilla Grills. And third, we returned capital to shareholders by completing the share buyback that our board approved in December. Now let's dig into the details; for the past two years, many consumers have discovered for the first time or rediscovered a passion for outdoor lifestyle activities, as well as for shooting sports and personal protection. This new larger base of consumer participation has helped drive significant growth in our business over the past two years and should fuel our future growth as well. During the third quarter, net sales of products in our outdoor or lifestyle category, which consists of products primarily related to hunting, fishing, camping and rugged outdoor activities grew by more than 80% versus the pre-pandemic. Third quarter of fiscal 2020 and net sales of products in our shooting sports category, which includes shooting accessories and product related to personal protection grew by approximately 45% versus the third quarter of fiscal 2020. We believe that some of the gains experienced by us and throughout the industry over the past two years were propelled by the pandemic resulting in outsized growth last year. As a result, total net sales in our third quarter declined approximately 15% as we left very strong growth of more than 90% in the comparable period last year.…

Thanks, Brian. Net sales for Q3 were $70.1 million compared to $82.6 million in the prior year, a decrease of 15.2% percent following last year's 90% record growth. As Brian explained, we are beginning to talk about our products in two distinct categories, shooting sports and outdoor lifestyle. Our decrease in total net sales for Q3 was driven entirely by a decline in sales of products in our shooting sports category, a decline that occurred primarily in our brick and mortar channel and was consistent with the decline in Nics dhecks for the same period. Despite that decline, we believe the shooting sports market has grown over the long term. Adjusted Nics Checks are up 32% in the trailing 12 month period compared to two years ago and that has translated to growth in our business as well. Sales in our shooting sports category grew almost 45% over Q3 of fiscal '20. The outdoor lifestyle category partially offset the one year decline in shooting sports with product sales growing by 7%during the third quarter. We believe this market has also grown on a long term basis, evidenced by increased participation trends in outdoor activities and we certainly benefited from that. Our third quarter product sales in the outdoor lifestyle category have grown 81% versus two years ago. As Brian indicated growth in our outdoor lifestyle brands is an important element in our long term strategy. We are pleased that in Q3, the outdoor lifestyle category accounted for over 52% of total net sales while our shooting sports category was just over 47%. In Q3 last year, that split was about 41% for outdoor lifestyle and 59% for shooting sports. Turning now to eCommerce, as you know, our eCommerce platform is a key element in our strategy to place our brands,…

[Operator instructions] Now, first question coming from the line of John Kernan with Cowen. Your line is open.

Hi, this is on Cohn Curtis on for John Cernan [ph]. I was hoping we could dive into trends by outdoor activity. You mentioned that shooting sports and personal protection were seeing some softness, but can you give us some more granularity about the consumer trends you're seeing across either other ads or activities or end markets?

Sure. John, this is Brian Murphy. So, as you pointed out shooting sports and personal protection, we are seeing some softening in demand actually POS is coming up just slightly here as of late, but still down relative to where they were at. And then on the outdoor lifestyle side, which is, what we're referring to EBITDAS, we're seeing continued strength across the board. So hunting, fishing, camping, rugged outdoor, which is largely our cutlery and tools products. So across each of those categories, we're seeing tremendous strength right now.

Great. Thank you for that. Just one follow-up here. You mentioned some of the gains the last two years were attributable to outside pandemic driven consumption. Is Q4 is rebased or implied guide seeing any other material headwinds or drivers that we should be contemplating. I guess just really is Q4's adjusted level, how we should be thinking about the business on the go forward basis given today's ongoing macro and industry trends, really any color that would be appreciated. Thank you.

Yeah. This is Brian again. Look, I'd say for Q4 kind of what we guided for the rest of the year is based on the trends we're seeing right now in the shooting sports side and the trends that we're seeing in outdoor lifestyle which we would expect to continue to grow, but as it relates to next year, I think it's just too soon for us to come out and say what that looks like.

Very understood. That would be it for me. Thanks for taking my question.

Our next question coming from the line of Ryan Meyers from Lake Street Capital. Your line is open.

Yep. Hi guys. Thanks for taking my questions. First one for me. So when you look at the decline in the shooting sports business, was this all the man related or was there any sort of inventory sourcing problems or supply chain issues with that?

Yeah. Hey Ryan, it's Brian. It's mostly due to the demand side. So we feel as you know, we have invested in our inventory, we made that decision a long time ago, just given some of the supply chain constraints. The inventory that we have, the inventory that's in the channel, it's all really good inventory. I think right now what we're seeing is, especially at the dealer and distributor level is perhaps a shifting of open to buy dollars towards ammo as those 14 million new fire motors had entered the market had just hadn't had a chance to get their ammo yet because it wasn't on shelves. So like I said, I think we're seeing a POS has bounced back a little bit for the shooting sports side, but yeah, to answer your question, it's what we're seeing on the demand side and again, partially contributed to the open to buy at the dealer and distributor level.

Okay. That's helpful. And then I was wondering if you could highlight the margin difference between shooting sports and the outdoor lifestyle category?

Yeah. Great question. This is Andy. We don't really break out the margins between the two categories I would say, overall there're not all that much different, but we don't really have that detail broken out.

Okay. That's helpful. And then last one for me, if I'm looking at this the right way, it looks like the guidance implies for the fourth quarter is kind of looking for a decline in profitability compared to the previous guidance. I wonder if you could just sort of walk us through what the puts and takes here of are of this.

Yeah, this is Andy again. So we're expecting, as we talked about in the comments, we're expecting a little bit of a sequential margin decline. Nothing out of the ordinary, if you look at last Q4, it's kind of right in line with that and then kind of offset with some savings, both fixed and variable, especially if you compare that to Q4 last year.

Okay. That's all I got. Thanks guys.

[Operator instructions] Our next question, coming from the line of Scott Stember with CL King Associates. Your is open

Good evening. And thanks for taking my questions.

Hey, Scott.

I missed some of the breakout that you had about shooting sports versus out outdoor living. Can you just give that again on a two year stack for each one and maybe on a year over year? How each one performed?

Yeah. Scott, this is Andy. So shooting sports year over year in the quarter was down 31%. Outdoor lifestyle was up 7% on a two year stack. And again, that's kind of what we look at as a long term trend shooting sports was up 81% outdoor lifestyle was up 62%,

I'm sorry, Scott. Scott, let me back up, sorry. That was in total. Shooting sports was 45%, outdoor lifestyle 81%. So 62% total.

Okay. Got it. All right. And just tying back into I guess your organic growth guidance, I guess five years is intact because 8% to 10%, I think is the number you put out there, but it also, I guess it includes this year, right, which would be close to I guess on the high end of sales down like 9% or 10%. So could you give us a bridge of how we get back to that range? Obviously things have picked back up in the out year, I know that you're not guiding for 2023 yet, but maybe just walk us through that ladder of how we get there again.

Sure. Hey Scott, this is Brian. So what I'd tell you is, let's talk about outdoor lifestyle first. Outdoor lifestyle is becoming a greater share of the business. And we are seeing continued growth in outdoor lifestyle. That's going to continue to move up over time. It's also in bigger markets and we've been talking about like most of our Dock & Unlock examples that we've given over the last 18 months or so have been brands like Bubba, brands like Hui Man, Meteor Maker. So I would say they're the farthest along when it comes to the unlock phase and so we're seeing increased distribution, increased number of new products, getting into new, bigger, larger addressable markets, Meteor Maker from zero to, I think we said $6.4 million in this most recent and we've got out plans to do the same thing with Grilla. And then on the shooting sports side, you may be asking, okay, what you're seeing some softness right now, what does that look like over the long term? Well, there is, without a doubt, a higher level of participation that has entered the market. As those people begin to go to the ranges and they get their ammunition that still somewhat constrained, they're going to need hearing and eye protection, they're going to need shooting arrests, they're going to need gun cleaning equipment. So we have all of that to help them progress them down into that shooting sports enthusiast lifestyle as well. And we are seeing that. If you look at the products that performed the best in this last quarter, it was mostly the products that helped sustain that long term shooting sports lifestyle. The pieces that really were under a little bit more pressure were the personal protection side, which obviously after last year we didn't see as much of that. And then, and then we're also planning to in shooting sports and we teased data at Shot Show. Now that we're moving further along to that unlocked phase of Dock & Unlock is getting into categories like shotgun sports. So we just teased out a new product called the Claymore. It's a fully mechanical clay thrower that we think is totally a game changer. The people that saw it at the show, including our customers loved it, and we so see products like that continuing to get us into these more stable markets within shooting sports. And we've got other things planned there, but that's how we get through over on. Once you stack those, we have a plan to get there.

Got it. And the last question on margins, the adjusted EBITDA margins, we're looking, I guess on 14%, 14.5% for this year in the latest guidance. I know you're not guiding for next year, but just trying to get a sense as we attach profitability to that 8% to 10%, what is a normalized range that we should be thinking about? And I'm not sure if you guys have given that in the past or not, but just if you did just remind us.

Yeah, Scott, this is Andy. So we're still targeting the mid to high teens along with that 8% to 10% growth.

Okay. All right. That's all I have. Thank you.

Thank you. And I'm not showing any further questions at this time. I would not like to turn a call back over to Mr. Brian Murphy for any closing remarks.

Thank you, operator. Before we close, I want to thank our employees for their contributions and their dedication to our growing family of brands. I also want to thank everyone on the AOB team and the Grilla team for bringing on -- bringing our acquisition across the finish line. Great job. For our investors, please note that we'll be attending the Roth Conference next week in California, and hope to see some of you there. Thank you everyone for joining us today. We look forward to speaking with you again next quarter.

Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation. You may now disconnect.