Good day, everyone, and welcome to Smith & Wesson 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 Kevin Maxwell, Smith & Wesson’s General Counsel, who will give us some information about today's call.

Thank you, and good afternoon. Our comments today may contain forward-looking statements. Our use of the words anticipate, project, estimate, expect, intend, believe and other similar expressions are intended to identify forward-looking statements. Forward-looking statements may also include statements on topics such as our product development, objectives, strategies, market share, demand, consumer preferences, inventory conditions for our products, growth opportunities and trends, and industry conditions in general. Forward-looking statements represent our current judgment about the future and are subject to the risks and uncertainties that could cause our actual results to differ materially from those expressed or implied by our statements today. These risks and uncertainties are described in our SEC filings, which are available on our website, along with a replay of today's call. We have no obligation to update forward-looking statements. We reference certain non-GAAP financial results. Our non-GAAP financial results exclude costs related to the planned relocation of our headquarters and certain manufacturing and distribution operations to Tennessee. The spin-off of the Outdoor products and accessories business in fiscal 2021, COVID-19-related expenses and other costs. Reconciliations of GAAP financial measures to non-GAAP financial measures can be found in our SEC filings and in today's earnings press release, each of which is available on our website. Also, when we reference EPS, we are always referencing fully diluted EPS. Finally, when we discuss NICS results, we are referring to adjusted NICS, a metric published by the National Shooting Sports Foundation based on FBI NICS data. Adjusted NICS removes those background checks conducted for purposes other than RMs purchases. Please remember that adjusted NICS background checks are generally considered the best available proxy for consumer firearm demand at the retail counter. Because we transfer firearms only to law enforcement agencies and federally licensed distributors and retailers and not to end consumers, NICS generally does not directly correlate to our shipments or market share in any given time period. We believe, mostly due to inventory levels in the channel. Before I hand the call over to our speakers, I would like to remind you that any reference to income statement items refers to results from continuing operations unless otherwise indicated and any reference to EBITDAS is to adjusted EBITDAS. Joining us on today's call are Mark Smith, our President and CEO; and Deana McPherson, our CFO. With that, I will turn the call over to Mark.

Thank you, Kevin, and thanks, everyone, for joining us today. As you can see from the NICS data over the past 3 months, the firearms market, although still elevated and healthy with new entrants, has cooled significantly from the height of the pandemic surge, returning to more normal levels throughout our entire Q3, and with recent results from February just released this week now seems to be following the pre-pandemic historical demand patterns. While this obviously has resulted in lower revenues from prior periods for Smith & Wesson, and no one is ever pleased to report a quarter with significant revenue declines, this macro demand pattern is very familiar to us and is exactly what our business model is designed to accommodate. I'm very proud of the team and the fact that once again, they have demonstrated the ability to deliver meaningful profitability, no matter the overall market conditions. Our ability to ramp production aggressively to meet surging demand over the past couple of years, fueled significant market share gains for Smith & Wesson and provided a demonstrable proof point for our flexible manufacturing strategy. Our manufacturing team increased throughput by over 82% during the surge, which has enabled us to not only gain impressive market share, but also to set us a very solid business foundation for long-term success. Since the demand surge began in March of 2020, we have paid down $160 million of debt and are now debt free, bought back $200 million of stock, which reduced our outstanding shares by nearly 20%, paid nearly $20 million in dividends, invested nearly $40 million back into our business and today have a strong and healthy balance sheet with over $107 million in cash. As we've discussed previously, our long-term commitment is to continue returning value to stockholders through…

Thanks, Mark. Echoing Mark's comments, and consistent with our discussion last quarter, the historic demand for firearms that began in March of 2020 continues to return to a more normalized and seasonal pattern, which will make comparisons to the prior fiscal year difficult over the next several quarters. However, looking back to where we were during the same quarter in fiscal 2020, you can see how our response to the surge in demand over the last 2 years has strengthened our foundation, creating an agile business model that optimizes profitability to drive long-term value. Revenue for our third quarter grew from $127.4 million in fiscal 2020 to $257.6 million in fiscal 2021 or a 202.6% increase and is now at $177.7 million in fiscal 2022. While this represents a 31% decrease from the historic levels recorded last year, it is truly remarkable that we were able to achieve a $50.3 million increase in revenue this quarter versus 2 years ago on nearly the same number of units shipped. As Mark noted, the reduction in promotional programs combined with price and mix impacts helped to significantly increase added selling prices. During our fiscal third quarter, NICS declined 23.4% when compared to the same period last year, while our units shipped into the consumer channel declined 41.1% for the same period. But we believe that quarterly figures are not reflective of our true market position as our flexible manufacturing model allows us to quickly adjust capacity relative to changes in demand. The outsized share gains we captured at demand surge have largely endured as evidenced by viewing our results on a year-to-date basis relative to 2020, where our sporting goods shipments are up 56.3% versus a 25.7% growth in NICS. Gross margin was 39.6% in the quarter, which was 300 basis points…

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

First, I wanted to just dig into pricing a little bit more on ASP. Can you guys quantify or discuss how much maybe you took in January?

Mark, in January, we took a 3% on average across the board, obviously, was -- mix was different on certain product lines, but on average about 3%.

Okay. And as we look at new products, especially those that have come out in the last couple of months, are we seeing -- it seems like typically higher pricing on these new products, right?

Yes. Yes. I mean, that's -- as I said in the prepared remarks that kind of the goal here is to kind of readjust, I guess, if you will, our pricing portfolio. We feel like the brand is definitely and I think it's been proven over the last year and decent results that the brand is definitely able to command at higher price point. So, we've done a lot of work over the last 18, 24 months on kind of realigning the product portfolio and moving certain product lines completely out of the portfolio and replacing them with, as you can see, with a lot of new products and a lot of new product to come to kind of hold those ASPs and drive some lasting change there.

Perfect. And as we look at the promotional environment, at retail are you beginning to see some signs of promotion or do you feel like we're still a little ways off there and in line with that? Do you guys feel like with inflationary pressures, there's still opportunities or that you can take future price increases?

I definitely think that if the inflationary pressures continue that we will be able to pass those through, through price increases. But obviously, it depends on the market at the time, and we'll make that evaluation when we come to it. If you remember, last year, we did one in the summertime in June and then another one in January. So, we've been able to offset a lot of the inflationary pressures to date. I expect that we'll be able to continue doing that. As far as the promotional environment, I think we are definitely beginning to see the early signs of that -- of the promotional environment starting to kind of kick in a little bit. Now with that said, it's not -- it's by no means any kind of a panic race to the bottom. It's just people, I think, sort of trying to trim around the edges a little bit. And so, I think the market, as you can see from the NICS, is kind of returning back to normal historical levels, although, as I said, still elevated, but it is kind of starting to get a little more competitive out there and product is available at retail for multiple brands.

Okay. And then I think the last one for me. Just can you guys dig in a little deeper on your flexible manufacturing? And maybe talk about any pullback or shutdown on some of the outsourcing that we've seen here recently?

Yes. As we talked about many times before, that model is pretty unique for us and allows us, I think, to react a lot faster to some of the demand changes that we see in this volatile market. We can ramp up very quickly as we saw back in March and April and early part of the summer of 2020, and then we can -- on the flip side, we can ramp that back down pretty rapidly as well. And that allows us -- our flexible manufacturing model is just in a nutshell ramp-up is using outsourced capacity. So when we ramp back down, our facilities remain 100% utilized and helps us on fixed cost absorption and remaining profitable no matter the market condition. So that's, as you can see here in this quarter, that's how we're able to do that.

Some of, hey Mark, it’s Deana, some of the parts increases that you are seeing in our balance sheet, if you look at inventory that’s because we do ramp our suppliers down slower than we might ramp ourselves down in order to give them a soft landing. We don't want to destroy the relationship we have with them. We have great partners. So, we do ramp them slower because we know that our products are going to sell in the future. We're willing to take that in. So, finished parts will grow a little bit during that period of time and then eventually finished parts will start coming back down as finished goods are made.

[Operator Instructions] I'm showing no further questions in queue at this time. I'd like to turn the call back to Mark Smith for closing remarks.

All right. Thank you, operator, and thanks, everyone, for joining us today. Just another thank you to all of our employees for yet another very profitable and successful quarter. Talk to you next time.

This concludes today's conference call. Thank you for participating. You may now disconnect.