Good day, everyone, and welcome to American Outdoor Brands, Inc. Third Quarter Fiscal 2024 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. Liz?

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, could, 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, shareholder cooperation agreement costs, facility consolidation costs, technology implementation, acquisition costs, other costs and income tax adjustments. The reconciliations of GAAP financial measures to non-GAAP financial measures, whether 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. We delivered a solid third quarter, and I'm very pleased with our results, which included top line sales growth, disciplined capital management and the unveiling of several strategically important product introductions that we believe expand our brands' runway for growth. I believe our results demonstrate our ability to remain focused on our long-term strategy, while successfully navigating the near-term environment. Our third quarter sales reflect a growth of more than 23% over our pre-pandemic third quarter of fiscal 2020, including our acquisition of Grilla Grills in fiscal 2022. For the third quarter, we delivered net sales growth of 5%, a result that came in ahead of our expectations and was supported by our diverse portfolio, evidenced by stronger sales across a number of brands within our Shooting Sports and Outdoor Lifestyle categories, which both delivered net sales growth. In addition, our e-commerce and traditional channels experienced net sales growth in the quarter. In our Outdoor Lifestyle category, which consists of products related to hunting, fishing, camping, outdoor cooking and rugged outdoor activities, we delivered third quarter year-over-year growth of 2.8%. That growth was led by strength in our hunting and fishing-related products and reflected the success of our strategy to identify incremental retail opportunities, including the expansion of our MEAT! Your Maker meat processing equipment into the retail channel last quarter. On a long-term basis, our Outdoor Lifestyle category has grown more than 43% compared to the pre-pandemic third quarter of fiscal 2020, including the Grilla acquisition. I believe this result reflects the success of our strategy to grow this part of our business. In fact, our Outdoor Lifestyle category comprised over 54% of our total net sales in the third quarter. Turning now to our Shooting Sports category, which includes solutions…

Thanks, Brian. Our third quarter results included growing our net sales over last year, strengthening our balance sheet and returning capital to shareholders, all while navigating the environment of consumer uncertainty and cautious retailer behavior that have marked the last few quarters. Let me walk you through the details. Net sales for Q3 of $53.4 million increased 5% over Q3 last year. These results were slightly ahead of our expectations by about $2.5 million, as certain orders we had originally expected in Q4 occurred in Q3. Compared to pre-pandemic Q3 of fiscal 2020, net sales increased by 23.3%, including the acquisition of Grilla. On a category basis, we saw growth in both Outdoor Lifestyle and Shooting Sports net sales. Compared to Q3 last year, Outdoor Lifestyle grew almost 3%, driven by fishing and hunting products, and Shooting Sports grew by almost 8%, driven by increases in both personal protection and shooting accessories. Compared to pre-pandemic Q3 of fiscal 2020, the Outdoor Lifestyle category grew by 43.1%, as Brian mentioned, and Shooting Sports grew by almost 6%. On a channel basis, traditional net sales increased by 8.1% and e-commerce increased by 1.6% compared to Q3 last year. As a reminder, our e-commerce channel includes direct-to-consumer sales from our own websites, as well as sales by online retailers that do not have brick-and-mortar stores. Direct-to-consumer sales in Q3 were up over the prior year, led by very strong Black Friday weekend sales of MEAT! and Grilla, as we outlined on our last call that strength was somewhat offset by lower sales to online retailers. Turning now to gross margin, as we discussed on our last call, inventory purchases in the first half of fiscal 2024 were higher than purchases in the first half of fiscal 2023, a period when we were actively…

Thank you, Andy. I believe our third quarter results demonstrate our ability to manage the elements within our control, delivering growth, innovation and a loyal customer base for our popular brands, while prudently managing our capital to allow us to invest in our long-term growth. We have a great portfolio of authentic lifestyle brands and a growing lineup of exciting and innovative products that continue to resonate with enthusiasts who are passionate about their outdoor activities. With that, operator, please open the call for questions from our analysts.

[Operator Instructions] Today's first question comes from Mark Smith with Lake Street Capital Markets.

This is Aaron on the line for Mark. Congrats on the quarter. So I guess to start, kind of just wondering if you can kind of unpack the inventory levels at retailers a little bit. I know you had some commentary in the prepared remarks there. But have you seen any improvement since last quarter? And I'm also just kind of curious just on your general level of confidence that you guys are going to see some progress there moving forward here.

Yes. Was it Aaron?

Correct. Yes.

Okay. Aaron, this is Brian. So, yes, we said, look, POS was up in the quarter. We didn't give any insight into inventory. Inventory was down in the channel, which is up a little bit in Outdoor Lifestyle because of part of the MEAT! load-in and the work with Academy. But excluding that, on both sides of the fence, Outdoor Lifestyle and Shooting Sports, inventory was down. So that's positive. And then, I'd say just some context or color, like we said, we were at SHOT Show in Vegas, and we meet with a lot of our big retailers. Inventory destocking just was not a top priority there. So we're mostly focused on getting into a normal cadence. Looking forward to the next year, the big theme that we took away was innovation, which obviously is where we play. That's one of our strengths. So less of a factor, and I think we're seeing great pull-through at retail right now.

Great. That's very helpful. Thanks for that color. And then, in previous quarters, you've sort of remained focused on growing organically through your innovation efforts. And I guess R&D has been sort of at a comfortable level for you guys. So does your confidence with internal innovation efforts, I'm just curious, does it affect your appetite on the M&A markets to any degree?

Yes. This is Brian. It's a really good question. I think one of the things that most probably don't have as much insight into is, we talked about where we have permission to play, where our brands have permission to play. And that permission to play for our brands is what ultimately informs, I'd say, we have a 5-year growth plan of new products going forward. That's based on that permission to play. So when we look at acquisitions, we say, where don't our brands have permission to play? Or where can we augment maybe some of those plans? A good example of that would be with Grilla, right? One of the reasons we went up to Grilla, in addition to being a great direct-to-consumer brand and it has this differentiation with modular kitchens, is we were actually wanting to go into outdoor cooking with MEAT! Your Maker. And the more we went down that road and talking with consumers, we just felt like it wasn't the right fit. And so, that's what helped give us the conviction to go after Grilla was that we could take some of those innovations that we had developed, and we call it, putting it in the vault. We could take them out of the vault and then use them for some of those brands that we go acquire. So it's really where don't our brands have permission to play but we do as a company? And then, in some cases, where can we actually augment some of the innovation that we've already developed but may not have the right brand for, so that's really how we look at it and really helps inform our acquisitions.

Great. Yes. Totally understandable. Thanks for all that color, and again, congrats on the quarter.

The next question comes from Matt Koranda with ROTH MKM.

It's Mike Zabran on for Matt. Maybe just starting on the sales guide, it implies a low-single-digit growth rate in the fourth quarter, somewhere a bit below the third quarter growth. Any reason to expect the deceleration in growth in the fourth quarter¸ or are we more so just being conservative, given the continued caution from retailers?

Mike, this is Andy. It's a great question. I would attribute it more to just the cyclical quarter-by-quarter seasonal nature of our business. So typically, Q2, Q3 are higher, Q4 is a little bit lower. So I wouldn't really put any more emphasis on that.

Got it. Okay. And maybe on channel inventory, you kind of talked about it earlier, but maybe just speak to what we're seeing in regards to sell-in versus sell-through at retail. And then, are there any areas where we see opportunity for higher load-in benefit looking ahead?

Sure. This is Brian. So yes, I think going back, gosh, two-plus years. We talked about, ultimately what we want to have is the closest link possible between sell-in and sell-through. We don't want to be have too much of our product in the channel. We want there to be as much of a tight link as possible so that when we see our POS data, it allows all of our internal teams, inventory management teams, our S&OP process to be able to order the right product and not have too much of it and get it here at the right time. So we feel like that, that link is pretty strong right now. We're not seeing a whole lot of slack in the system at least with our company. And then, I'm sorry, what was the second part of your question?

Just any areas where we see opportunity for higher load-in ahead? We talked about it happening a little bit in this quarter.

Yes. So replens are, we're seeing great replenishment right now. And then, we've got new products that are always coming out. We've got some new products that are going to be hitting at the end of April and shipping to stores, so we'll see some benefit there. That should include some load-ins. And then, we haven't talked about next year yet, but certainly our conversations with retailers, line reviews that we had last fall that went very, very well, should go well for us and see some load-ins for those new products next year. In addition to new distribution, we've got some new retailers coming online that we're very excited about.

Got it. That's great to hear. Last one for me. We talked about balancing internal innovation versus M&A earlier in the Q&A. But maybe just speak to, I guess, your appetite to be acquisitive in the near term, maybe. The balance sheet looks great but just any changes on this front. Have we seen anything interesting, any developments there?

Yes. It's Brian again. And Andy, feel free to chime in. So generally, in terms of our philosophy, we tend to be a little bit more cautious when we see multiples go way up and the market becomes more frothy. We did Grilla over the last few years, but it was very selective and very targeted. And now, we're seeing sort of the M&A market has come down, slowed down a little bit. We're seeing signs of it beginning to pick back up; we're seeing a few more decks from banks with sell-side deals. And we couldn't be in a better position. Like you alluded to, we're in a great cash position. We have dry powder. We have no debt and so, we're on the hunt. We are actively looking, meeting with companies directly or through advisers. But we've got a great pipeline that we're executing against and you never know when one is going to hit. But we've got a very clear perspective on who it is that we need to go after, and we're executing on that.

Got it. That's off from me guys. Congrats on the quarter.

This concludes our question-and-answer session. I'd like to turn the call back over to Brian Murphy for closing remarks.

Thank you, operator. Before we close, I want to let everyone know that we'll be participating in the ROTH Conference in California on March 18 and 19 and hope to see some of you there. I want to also thank our employees for their dedication and our shareholders for their support. Thanks everyone for joining us today. We look forward to speaking with you again next quarter.

The conference has now concluded. Thank you for your participation. You may now disconnect your lines.