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As Of Filer Filing For·On·As Docs:Size Issuer Filing Agent 9/08/22 American Outdoor Brands, Inc. 10-Q 7/31/22 68:8.1M Donnelley … Solutions/FA |
Document/Exhibit Description Pages Size
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11: R1 Document and Entity Information HTML 75K
12: R2 Condensed Consolidated Balance Sheets (Unaudited) HTML 121K
13: R3 Condensed Consolidated Balance Sheets HTML 42K
(Parenthetical)
14: R4 Condensed Consolidated Statements of Operations HTML 98K
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15: R5 Condensed Consolidated Statements of Stockholders' HTML 55K
Equity (Unaudited)
16: R6 Condensed Consolidated Statements of Cash Flows HTML 109K
(Unaudited)
17: R7 Organization HTML 29K
18: R8 Basis of Presentation HTML 103K
19: R9 Acquisitions HTML 72K
20: R10 Leases HTML 100K
21: R11 Intangible Assets, Net HTML 166K
22: R12 Fair Value Measurement HTML 34K
23: R13 Inventories HTML 46K
24: R14 Debt HTML 34K
25: R15 Equity HTML 235K
26: R16 Accrued Expenses HTML 57K
27: R17 Income Taxes HTML 29K
28: R18 Commitments and Contingencies HTML 27K
29: R19 Segment Reporting HTML 29K
30: R20 Basis of Presentation (Policies) HTML 110K
31: R21 Basis of Presentation (Tables) HTML 86K
32: R22 Acquisitions (Tables) HTML 63K
33: R23 Leases (Tables) HTML 92K
34: R24 Intangible Assets, Net (Tables) HTML 164K
35: R25 Inventories (Tables) HTML 46K
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38: R28 Organization - Additional Information (Details) HTML 21K
39: R29 Basis of Presentation - Additional Information HTML 56K
(Details)
40: R30 Basis of Presentation - Schedule of Trade Channel HTML 34K
Net Sales (Details)
41: R31 Basis of Presentation - Schedule of Geographic HTML 34K
Makeup of Net Sales (Details)
42: R32 Recently Adopted and Issued Accounting Standards - HTML 49K
Additional Information (Details)
43: R33 Acquisitions - Additional Information (Details) HTML 46K
44: R34 Acquisitions - Summary of Preliminary Allocation HTML 45K
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45: R35 Acquisitions - Schedule of Unaudited Pro Forma HTML 27K
Results of Operations Assumed (Details)
46: R36 Leases - Schedule of Assets and Liabilities HTML 31K
Related to Operating Leases (Details)
47: R37 Leases - Additional Information (Details) HTML 38K
48: R38 Leases - Schedule of Future Lease Payments for HTML 45K
Operating Leases (Details)
49: R39 Intangible Assets, Net - Summary of Intangible HTML 48K
Assets (Details)
50: R40 Intangible Assets, Net - Additional Information HTML 32K
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51: R41 Intangible Assets, Net - Schedule of Future HTML 40K
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(Details)
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56: R46 Equity - Schedule of Earnings per Share (Details) HTML 52K
57: R47 Equity - Share Based Payment Award Performance HTML 41K
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| 10-Q |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form i 10-Q
i ☒ |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
i ☐ |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended i July 31, 2022
Commission File No. i 001-39366
i American Outdoor Brands, Inc.
(Exact name of registrant as specified in its charter)
i Delaware |
|
i 84-4630928 |
(State or other jurisdiction of incorporation or organization) |
|
(I.R.S. Employer Identification No.) |
i 1800 North Route Z, i Suite A i Columbia, i Missouri |
|
i 65202 |
(Address of principal executive offices) |
|
(Zip Code) |
( i 800) i 338-9585
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each Class |
Trading Symbol |
Name of exchange on which registered |
i Common Stock, par value $0.001 per share |
i AOUT |
i Nasdaq Global Select Market |
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. i Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). i Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
|
☐ |
|
i Accelerated filer |
|
☒ |
|
|
|
|
|
||||
Non-accelerated filer |
|
☐ |
|
Smaller reporting company |
|
i ☐ |
|
|
|
|
|
|
|||
Emerging growth company |
|
i ☒ |
|
|
|||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. i ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No i ☒
The registrant had i 13,456,529 shares of common stock, par value $0.001, outstanding as of September 1, 2022.
AMERICAN OUTDOOR BRANDS, INC.
Quarterly Report on Form 10-Q
For the Three Months Ended July 31, 2022 and 2021
Accumax®, BOG®, Bubba®, Caldwell®, Deadshot®, Deathgrip®, Delta Series®, E-MAX®, F.A.T. Wrench®, Fieldpod®, Frankford Arsenal®, Golden Rod®, Hooyman®, Imperial®, Intellidropper®, Lead Sled®, Lockdown®, Mag Charger®, Old Timer®, Schrade®, Sharpfinger®, Tipton®, Grilla®, Grilla Grills®, Uncle Henry®, ust®, Wheeler®, XLA Bipod®, Crimson Trace®, Lasergrips®, Laserguard®, LaserLyte®, Lasersaddle®, Lightguard®, Rail Master®, are some of the registered U.S. trademarks of our company or one of our subsidiaries. AOB Products Company™, Dock and Unlock ™, Don’t Be Outdoorsy – Be Outdoors™, Engineered for the Unknown™, From Niche to Known™, Lockdown Puck™, MEAT!™, MEAT Your Maker!™, Secure Your Lifestyle™, The Ultimate Lifestyle™, Unmatched Accuracy at the Bench and in the Field™, Water to Plate™, Your Land. Your Legacy™, are some of the unregistered trademarks of our company or one of our subsidiaries. Trademarks licensed to us by Smith & Wesson Brands, Inc. in connection with the manufacture, distribution, marketing, advertising, promotion, merchandising, shipping, and sale of certain licensed accessory product categories include M&P®, Performance Center®, Smith & Wesson®, and T/C®, among others. This report also may contain trademarks and trade names of other companies.
Statement Regarding Forward-Looking Information
The statements contained in this Quarterly Report on Form 10-Q that are not historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. All statements other than statements of historical facts contained or incorporated herein by reference in this Quarterly Report on Form 10-Q, including statements regarding our future operating results, future financial position, business strategy, objectives, goals, plans, prospects, markets, and plans and objectives for future operations, are forward-looking statements. In some cases, you can identify forward-looking statements by terms such as “anticipates,” “believes,” “estimates,” “expects,” “intends,” “suggests,” “targets,” “contemplates,” “projects,” “predicts,” “may,” “might,” “plan,” “would,” “should,” “could,” “may,” “can,” “potential,” “continue,” “objective,” or the negative of those terms, or similar expressions intended to identify forward-looking statements. However, not all forward-looking statements contain these identifying words. Specific forward-looking statements in this Quarterly Report on Form 10-Q include statements regarding:
A number of factors could cause our actual results to differ materially from those indicated by the forward-looking statements. Such factors include, among others, the following:
All forward-looking statements included herein are based on information available to us as of the date hereof and speak only as of such date. Except as required by law, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements. The forward-looking statements contained in or incorporated by reference into this Quarterly Report on Form 10-Q reflect our views as of the date of this Quarterly Report on Form 10-Q about future events and are subject to risks, uncertainties, assumptions, and changes in circumstances that may cause our actual results, performance, or achievements to differ significantly from those expressed or implied in any forward-looking statement. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future events, results, performance, or achievements.
We are subject to the informational requirements of the Exchange Act, and we file or furnish reports, proxy statements, and other information with the SEC. Such reports and other information we file with the SEC are available free of charge at https://ir.aob.com/financial-information/sec-filings as soon as practicable after such reports are available on the SEC’s website at www.sec.gov. The SEC’s website contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements
AMERICAN OUTDOOR BRANDS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
|
|
As of: |
|
|||||
|
|
July 31, 2022 |
|
|
|
|||
|
|
(In thousands, except par value and share data) |
|
|||||
ASSETS |
|
|||||||
Current assets: |
|
|
|
|
|
|
||
Cash and cash equivalents |
|
$ |
i 17,469 |
|
|
$ |
i 19,521 |
|
Accounts receivable, net of allowance for credit losses of $ i 137 on July 31, 2022 |
|
|
i 23,920 |
|
|
|
i 28,879 |
|
Inventories |
|
|
i 120,638 |
|
|
|
i 121,683 |
|
Prepaid expenses and other current assets |
|
|
i 10,754 |
|
|
|
i 8,491 |
|
Income tax receivable |
|
|
i 1,072 |
|
|
|
i 1,231 |
|
Total current assets |
|
|
i 173,853 |
|
|
|
i 179,805 |
|
Property, plant, and equipment, net |
|
|
i 10,357 |
|
|
|
i 10,621 |
|
Intangible assets, net |
|
|
i 60,673 |
|
|
|
i 63,194 |
|
Right-of-use assets |
|
|
i 25,417 |
|
|
|
i 23,884 |
|
Other assets |
|
|
i 369 |
|
|
|
i 336 |
|
Total assets |
|
$ |
i 270,669 |
|
|
$ |
i 277,840 |
|
LIABILITIES AND EQUITY |
|
|||||||
Current liabilities: |
|
|
|
|
|
|
||
Accounts payable |
|
$ |
i 13,495 |
|
|
$ |
i 13,563 |
|
Accrued expenses |
|
|
i 9,634 |
|
|
|
i 7,853 |
|
Accrued payroll and incentives |
|
|
i 2,983 |
|
|
|
i 2,788 |
|
Lease liabilities, current |
|
|
i 1,618 |
|
|
|
i 1,803 |
|
Accrued profit sharing |
|
|
i 820 |
|
|
|
i 998 |
|
Total current liabilities |
|
|
i 28,550 |
|
|
|
i 27,005 |
|
Notes and loans payable, net of current portion |
|
|
i 19,551 |
|
|
|
i 24,697 |
|
Lease liabilities, net of current portion |
|
|
i 24,739 |
|
|
|
i 23,076 |
|
Other non-current liabilities |
|
|
i 31 |
|
|
|
i 31 |
|
Total liabilities |
|
|
i 72,871 |
|
|
|
i 74,809 |
|
Commitments and contingencies (Note 12) |
|
|
|
|
|
|
||
Equity: |
|
|
|
|
|
|
||
Preferred stock, $ i i 0.001 / par
value, i i 20,000,000 / shares authorized,
i i i i no / / / shares |
|
|
— |
|
|
|
— |
|
Common stock, $ i i 0.001 / par
value, i i 100,000,000 / shares authorized, i 14,291,791 shares |
|
|
i 14 |
|
|
|
i 14 |
|
Additional paid in capital |
|
|
i 268,855 |
|
|
|
i 268,393 |
|
Retained earnings |
|
|
( i 56,046 |
) |
|
|
( i 50,351 |
) |
Treasury stock, at cost ( i i 836,964 / shares on July 31, 2022 and April 30, 2022) |
|
|
( i 15,025 |
) |
|
|
( i 15,025 |
) |
Total equity |
|
|
i 197,798 |
|
|
|
i 203,031 |
|
Total liabilities and equity |
|
$ |
i 270,669 |
|
|
$ |
i 277,840 |
|
See accompanying notes to unaudited condensed consolidated financial statements.
5
AMERICAN OUTDOOR BRANDS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
|
For the Three Months ended July 31, |
|
|||||
|
|
|
2021 |
|
|||
|
(In thousands, except per share data) |
|
|||||
Net sales |
$ |
i 43,676 |
|
|
$ |
i 60,768 |
|
Cost of sales |
|
i 24,637 |
|
|
|
i 31,785 |
|
Gross profit |
|
i 19,039 |
|
|
|
i 28,983 |
|
Operating expenses: |
|
|
|
|
|
||
Research and development |
|
i 1,756 |
|
|
|
i 1,521 |
|
Selling, marketing, and distribution |
|
i 11,780 |
|
|
|
i 13,200 |
|
General and administrative |
|
i 11,064 |
|
|
|
i 10,039 |
|
Total operating expenses |
|
i 24,600 |
|
|
|
i 24,760 |
|
Operating (loss)/income |
|
( i 5,561 |
) |
|
|
i 4,223 |
|
Other income, net: |
|
|
|
|
|
||
Other income, net |
|
i 241 |
|
|
|
i 129 |
|
Interest expense, net |
|
( i 186 |
) |
|
|
( i 46 |
) |
Total other income, net |
|
i 55 |
|
|
|
i 83 |
|
(Loss)/income from operations before income taxes |
|
( i 5,506 |
) |
|
|
i 4,306 |
|
Income tax expense |
|
i 189 |
|
|
|
i 849 |
|
Net (loss)/income |
$ |
( i 5,695 |
) |
|
$ |
i 3,457 |
|
Net (loss)/income per share: |
|
|
|
|
|
||
Basic |
$ |
( i 0.42 |
) |
|
$ |
i 0.25 |
|
Diluted |
$ |
( i 0.42 |
) |
|
$ |
i 0.24 |
|
Weighted average number of common shares |
|
|
|
|
|
||
Basic |
|
i 13,443 |
|
|
|
i 14,083 |
|
Diluted |
|
i 13,443 |
|
|
|
i 14,301 |
|
See accompanying notes to unaudited condensed consolidated financial statements.
6
AMERICAN OUTDOOR BRANDS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)
(In thousands)
|
|
Common Stock |
|
|
Additional |
|
|
|
|
|
Treasury Stock |
|
|
|
|
|||||||||||||
For the three months ended July 31, 2021 |
|
Shares |
|
|
Amount |
|
|
Paid-In |
|
|
Retained |
|
|
Shares |
|
|
Amount |
|
|
Total |
|
|||||||
Balance at April 31, 2021 |
|
|
i 14,059 |
|
|
$ |
i 14 |
|
|
$ |
i 265,362 |
|
|
$ |
i 14,529 |
|
|
|
— |
|
|
$ |
— |
|
|
$ |
i 279,905 |
|
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 3,457 |
|
|
|
— |
|
|
|
— |
|
|
|
i 3,457 |
|
Stock-based compensation |
|
|
— |
|
|
|
— |
|
|
|
i 752 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 752 |
|
Proceeds from exercise of stock options |
|
|
i 3 |
|
|
|
— |
|
|
|
i 5 |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
i 5 |
|
|
Issuance of common stock under |
|
|
i 38 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Issuance of common stock under |
|
|
— |
|
|
|
— |
|
|
|
( i 312 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( i 312 |
) |
Balance at July 31, 2021 |
|
|
i 14,100 |
|
|
$ |
i 14 |
|
|
$ |
i 265,807 |
|
|
$ |
i 17,986 |
|
|
|
— |
|
|
$ |
— |
|
|
$ |
i 283,807 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
|
|
Common Stock |
|
|
Additional |
|
|
|
|
|
Treasury Stock |
|
|
|
|
|||||||||||||
For the three months ended July 31, 2022 |
|
Shares |
|
|
Amount |
|
|
Paid-In |
|
|
Retained |
|
|
Shares |
|
|
Amount |
|
|
Total |
|
|||||||
Balance at April 30, 2022 |
|
|
i 14,240 |
|
|
$ |
i 14 |
|
|
$ |
i 268,393 |
|
|
$ |
( i 50,351 |
) |
|
|
i 837 |
|
|
$ |
( i 15,025 |
) |
|
$ |
i 203,031 |
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( i 5,695 |
) |
|
|
— |
|
|
|
— |
|
|
|
( i 5,695 |
) |
Stock-based compensation |
|
|
— |
|
|
|
— |
|
|
|
i 714 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 714 |
|
Issuance of common stock under |
|
|
i 52 |
|
|
|
— |
|
|
|
( i 252 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( i 252 |
) |
Balance at July 31, 2022 |
|
|
i 14,292 |
|
|
$ |
i 14 |
|
|
$ |
i 268,855 |
|
|
$ |
( i 56,046 |
) |
|
|
i 837 |
|
|
$ |
( i 15,025 |
) |
|
$ |
i 197,798 |
|
See accompanying notes to unaudited condensed consolidated financial statements.
7
AMERICAN OUTDOOR BRANDS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
For the Three Months Ended July 31, |
|
|||||
|
|
|
|
2021 |
|
|||
|
|
(In thousands) |
|
|||||
Cash flows from operating activities: |
|
|
|
|
|
|
||
Net (loss)/income |
|
$ |
( i 5,695 |
) |
|
$ |
i 3,457 |
|
Adjustments to reconcile net income to net cash (used in)/provided |
|
|
|
|
|
|
||
Depreciation and amortization |
|
|
i 4,162 |
|
|
|
i 4,179 |
|
Loss on sale/disposition of assets |
|
|
— |
|
|
|
i 127 |
|
Provision for credit losses on accounts receivable |
|
|
i 7 |
|
|
|
i 23 |
|
Deferred income taxes |
|
|
— |
|
|
|
( i 110 |
) |
Stock-based compensation expense |
|
|
i 714 |
|
|
|
i 752 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
||
Accounts receivable |
|
|
i 4,952 |
|
|
|
i 3,939 |
|
Inventories |
|
|
i 1,045 |
|
|
|
( i 17,746 |
) |
Prepaid expenses and other current assets |
|
|
( i 2,263 |
) |
|
|
( i 1,924 |
) |
Income taxes |
|
|
i 159 |
|
|
|
i 869 |
|
Accounts payable |
|
|
i 277 |
|
|
|
i 4,226 |
|
Accrued payroll and incentives |
|
|
i 195 |
|
|
|
( i 3,532 |
) |
Right of use assets |
|
|
i 426 |
|
|
|
i 403 |
|
Accrued profit sharing |
|
|
( i 178 |
) |
|
|
i 248 |
|
Accrued expenses |
|
|
i 1,781 |
|
|
|
i 2,479 |
|
Other assets |
|
|
( i 33 |
) |
|
|
i 39 |
|
Lease liabilities |
|
|
( i 481 |
) |
|
|
( i 443 |
) |
Other non-current liabilities |
|
|
— |
|
|
|
( i 151 |
) |
Net cash provided by/(used in) operating activities |
|
|
i 5,068 |
|
|
|
( i 3,165 |
) |
Cash flows from investing activities: |
|
|
|
|
|
|
||
Payments to acquire patents and software |
|
|
( i 1,392 |
) |
|
|
( i 449 |
) |
Payments to acquire property and equipment |
|
|
( i 218 |
) |
|
|
( i 537 |
) |
Net cash used in investing activities |
|
|
( i 1,610 |
) |
|
|
( i 986 |
) |
Cash flows from financing activities: |
|
|
|
|
|
|
||
Payments on notes and loans payable |
|
|
( i 5,170 |
) |
|
|
— |
|
Cash paid for debt issuance costs |
|
|
( i 88 |
) |
|
|
— |
|
Proceeds from exercise of options to acquire common stock, |
|
|
— |
|
|
|
i 5 |
|
Payment of employee withholding tax related to restricted |
|
|
( i 252 |
) |
|
|
( i 312 |
) |
Net cash used in financing activities |
|
|
( i 5,510 |
) |
|
|
( i 307 |
) |
Net decrease in cash and cash equivalents |
|
|
( i 2,052 |
) |
|
|
( i 4,458 |
) |
Cash and cash equivalents, beginning of period |
|
|
i 19,521 |
|
|
|
i 60,801 |
|
Cash and cash equivalents, end of period |
|
$ |
i 17,469 |
|
|
$ |
i 56,343 |
|
Supplemental disclosure of cash flow information |
|
|
|
|
|
|
||
Cash paid for: |
|
|
|
|
|
|
||
Interest |
|
$ |
i 161 |
|
|
$ |
i 38 |
|
Income taxes |
|
$ |
i 32 |
|
|
$ |
i 85 |
|
See accompanying notes to unaudited condensed consolidated financial statements.
8
AMERICAN OUTDOORS BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
For the Three Months Ended July 31, 2022 and 2021
(1) Organization:
We (our “company,” “we,” “us,” or “our”) are a leading provider of outdoor lifestyle products and shooting sports accessories encompassing hunting, fishing, outdoor cooking, camping, shooting, and personal security and defense products for rugged outdoor enthusiasts. We conceive, design, source, and sell our outdoor lifestyle products, including premium sportsman knives and tools for fishing and hunting; land management tools for hunting preparedness; harvesting products for post-hunt or post-fishing activities; outdoor cooking products; and camping, survival, and emergency preparedness products. We conceive, design, produce or source, and sell our shooting sports accessories, such as rests, vaults, and other related accessories; electro-optical devices, including hunting optics, firearm aiming devices, flashlights, and laser grips; and reloading, gunsmithing, and firearm cleaning supplies. We develop and market our products at our facility in Columbia, Missouri and contract for the manufacture and assembly of most of our products with third-parties located in Asia. We also manufacture some of our electro-optics products at our facility in Wilsonville, Oregon.
We focus on our brands and the establishment of product categories in which we believe our brands will resonate strongly with the activities and passions of consumers and enable us to capture an increasing share of our overall addressable markets. Our owned brands include BOG, BUBBA, Caldwell, Crimson Trace, Frankford Arsenal, Grilla Grills, Hooyman, Imperial, LaserLyte, Lockdown, MEAT! Your Maker, Old Timer, Schrade, Tipton, Uncle Henry, ust, and Wheeler, and we license for use in association with certain products we sell additional brands, including M&P, Smith & Wesson, Performance Center by Smith & Wesson, and T/C. In focusing on the growth of our brands, we organize our creative, product development, sourcing, and e-commerce teams into i four brand lanes, each of which focuses on one of four distinct consumer verticals – Adventurer, Harvester, Marksman, and Defender – with each of our brands included in one of the brand lanes.
(2) Basis of Presentation:
Interim Financial Information
Our unaudited condensed consolidated financial statements have been prepared in accordance with the requirements of the Securities and Exchange Commission, or SEC, for interim reporting. As permitted under those rules, certain disclosures and other financial information that normally are required by accounting principles generally accepted in the United States have been condensed or omitted. Our accounting policies are described in the Notes to the Consolidated Financial Statements in our Annual Report on Form 10-K for our fiscal year ended April 30, 2022. We are responsible for the condensed consolidated financial statements included in this report, which are unaudited but, in our opinion, include all adjustments necessary for a fair presentation of our condensed consolidated balance sheet as of July 31, 2022, our condensed consolidated statement of operations for the three months ended July 31, 2022 and 2021, and our condensed consolidated statement of cash flows for the three months ended July 31, 2022 and 2021. The consolidated balance sheet as of April 30, 2022 was derived from audited financial statements.
The results reported in these condensed consolidated financial statements should not necessarily be taken as indicative of results that may be expected for the entire fiscal year.
Reclassification
Certain immaterial reclassifications were made to the accompanying condensed consolidated statement of cash flows for the three months ended July 31, 2021 to reclassify payments to acquire property and equipment, to payments to acquire patents and software; however, the total amount of net cash used in investing activities remained unchanged. This reclassification had i no impact on the previously reported net income.
/9
AMERICAN OUTDOORS BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
For the Three Months Ended July 31, 2022 and 2021
Revenue Recognition
We recognize revenue for the sale of our products at the point in time when the control of ownership has transferred to the customer. The transfer of control typically occurs at a point in time based on consideration of when the customer has (i) a payment obligation, (ii) physical possession of goods has been received, (iii) legal title to goods has passed, (iv) risks and rewards of ownership of goods has passed to the customer, and (v) the customer has accepted the goods. The timing of revenue recognition occurs either on shipment or delivery of goods based on contractual terms with the customer.
The duration of contractual arrangements with customers in our wholesale channels is typically less than one year. Payment terms with customers are typically between i 20 and i 90 days, with a discount available in certain cases for early payment. For contracts with discounted terms, we determine the transaction price upon establishment of the contract that contains the final terms of the sale, including the description, quantity, and price of each product purchased. We estimate variable consideration relative to the amount of cash discounts to which customers are likely to be entitled. In some instances, we provide longer payment terms, particularly as it relates to our hunting dating programs, which represent payment terms due in the fall for certain orders of hunting products received in the spring and summer. We do not consider these extended terms to be a significant financing component of the contract because the payment terms are less than one year.
We have elected to treat all shipping and handling activities as fulfillment costs and recognize the costs as distribution expenses at the time we recognize the related revenue. Shipping and handling costs billed to customers are included in net sales.
The amount of revenue we recognize reflects the expected consideration to be received for providing the goods or services to customers, which includes estimates for variable consideration. Variable consideration includes allowances for trade term discounts, chargebacks, and product returns. Estimates of variable consideration are determined at contract inception and reassessed at each reporting date, at a minimum, to reflect any changes in facts and circumstances. We apply the portfolio approach as a practical expedient and utilize the expected value method in determining estimates of variable consideration, based on evaluations of specific product and customer circumstances, historical and anticipated trends, and current economic conditions. We have co-op advertising program expense, which we record within advertising expense, in recognition of a distinct service that we receive from our customers at the retail level.
Disaggregation of Revenue
The following table sets forth certain information regarding trade channel net sales for the three months ended July 31, 2022 and 2021 (dollars in thousands):
|
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
||||
e-commerce channels |
|
$ |
i 20,545 |
|
|
$ |
i 16,608 |
|
|
$ |
i 3,937 |
|
|
|
i 23.7 |
% |
Traditional channels |
|
|
i 23,131 |
|
|
|
i 44,160 |
|
|
|
( i 21,029 |
) |
|
|
- i 47.6 |
% |
Total net sales |
|
$ |
i 43,676 |
|
|
$ |
i 60,768 |
|
|
$ |
( i 17,092 |
) |
|
|
- i 28.1 |
% |
Our e-commerce channels include net sales from customers that do not traditionally operate a physical brick and mortar store, but generate the majority of their revenue from consumer purchases at their retail websites. Our e-commerce channels also include our direct-to-consumer sales. Our traditional channels include customers that primarily operate out of physical brick and mortar stores and generate the large majority of their revenue from consumer purchases at their brick and mortar locations.
We sell our products worldwide. i The following table sets forth certain information regarding geographic makeup of net sales included in the above table for the three months ended July 31, 2022 and 2021 (dollars in thousands):
|
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
||||
Domestic net sales |
|
$ |
i 40,276 |
|
|
$ |
i 56,530 |
|
|
$ |
( i 16,254 |
) |
|
|
- i 28.8 |
% |
International net sales |
|
|
i 3,400 |
|
|
|
i 4,238 |
|
|
|
( i 838 |
) |
|
|
- i 19.8 |
% |
Total net sales |
|
$ |
i 43,676 |
|
|
$ |
i 60,768 |
|
|
$ |
( i 17,092 |
) |
|
|
- i 28.1 |
% |
10
AMERICAN OUTDOORS BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
For the Three Months Ended July 31, 2022 and 2021
i Recently Adopted Accounting Standards
In March 2020, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or ASU, 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, or ASU 2020-04, to provide temporary optional expedients and exceptions to the contract modifications, hedge relationships, and other transactions affected by reference rate reform if certain criteria are met. ASU 2020-04, which was effective upon issuance and may be applied through December 31, 2022, is applicable to all contracts and hedging relationships that reference the London Interbank Offered Rate (LIBOR) or any other reference rate expected to be discontinued. As a result of the amendment to the revolving line of credit agreement in fiscal year 2022, which uses SOFR as an interest rate option instead of LIBOR to calculate the applicable interest rate, see Note 8 - Debt, the new guidance will not have a material impact on our condensed consolidated financial statements and related disclosures.
In December 2019, FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, or ASU 2019-12, an amendment of the FASB Accounting Standards Codification. i ASU 2019-12 simplifies the accounting for income taxes by removing certain exceptions for intraperiod tax allocations and deferred tax liabilities for equity method investments and adds guidance regarding whether a step-up in tax basis of goodwill relates to a business combination or a separate transaction. ASU 2019-12 is effective for fiscal years beginning after December 15, 2020, with early adoption permitted. We i adopted ASU 2019-12 on i May 1, 2021, and the cumulative effect of the adoption was i not material to our condensed consolidated financial statements and related disclosures.
(3) Acquisitions:
Grilla Grills Acquisition
In fiscal year 2022, we acquired substantially all of the assets of the Grilla Grills business of Fahrenheit Technologies, Inc., or FTI, for $ i 27 million, financed using a combination of existing cash balances and cash from a $ i 25 million draw on our revolving line of credit. Based in Michigan, Grilla Grills is a provider of high-quality, barbecue grills; Wi-Fi-enabled wood pellet grills; smokers; accessories; and modular outdoor kitchens.
We accounted for the acquisition as a business combination using the acquisition method of accounting. The purchase price allocation below was allocated to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values as of the acquisition date. We expect to finalize the purchase price allocation as soon as practicable during the respective measurement periods, which will not exceed 12 months from the date of acquisition. The acquisition of Grilla Grills will necessitate the use of this measurement period to adequately analyze and assess a number of factors used in establishing the asset and liability fair values as of the acquisition date, including the significant contractual and operational factors underlying the tradename, intangible assets, and the related tax impacts of any changes made. The excess of the consideration transferred over the estimated fair value of the net assets received has been recorded as goodwill. The factors that contributed to the recognition of goodwill primarily relate to acquisition-driven anticipated cost savings and synergies. Assembled workforce is not recognized separate and apart from goodwill as it is neither separable nor contractual in nature. During the year ended April 30, 2022, we increased goodwill by $ i 3.5 million as a result of valuations related to the Grilla Grills acquisition, which was subsequently written off as we recorded a full impairment of our goodwill on April 30, 2022. The goodwill related to the Grilla Grills acquisition is deductible for tax purposes.
The following table summarizes the preliminary allocation of the purchase price for the Grilla Grills acquisition (in thousands):
|
|
Grilla Grills Acquisition |
|
|
|
|
|
|
|
Inventories |
|
$ |
i 5,956 |
|
Property, plant, and equipment |
|
|
i 105 |
|
Intangibles |
|
|
i 18,495 |
|
Goodwill |
|
|
i 3,534 |
|
Total assets acquired |
|
|
i 28,090 |
|
Accounts payable |
|
|
i 894 |
|
Accrued expenses |
|
|
i 46 |
|
Accrued warranty |
|
i 150 |
|
|
Total liabilities assumed |
|
|
i 1,090 |
|
|
|
$ |
i 27,000 |
|
11
AMERICAN OUTDOORS BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
For the Three Months Ended July 31, 2022 and 2021
/
We recorded $ i 646,000 of acquisition-related costs, including $ i 47,000 of acquisition-related costs incurred in the three months ended July 31, 2022, which are recorded in general and administrative expenses. The Grilla Grills acquisition generated $ i 5.2 million of net sales during the three months ended July 31, 2022.
We determined the fair market value of the intangible assets acquired in accordance with ASC 805 - Business Combinations and ASC 820 - Fair Value Measurement and assigned a fair market value of $ i 18.5 million to tradenames at the acquisition date. We amortize assets in proportion to expected yearly revenue generated from the intangibles that we acquire. The weighted average life of tradenames acquired is i 6.5 years.
Additionally, the following table reflects the unaudited pro forma results of operations assuming that the Grilla Grills acquisition had occurred on May 1, 2021 (in thousands, except per share data):
|
|
|
|
|
|
|
|
|
For the Three Months |
|
|
Net sales |
|
|
$ |
i 65,193 |
|
Income from operations |
|
|
|
i 4,240 |
|
Net income per share - diluted |
|
|
|
i 0.24 |
|
The unaudited pro forma income from operations for the three months ended July 31, 2021 has been adjusted to reflect increased cost of goods sold from the fair value step-up in inventory, which is expensed over the first inventory cycle, and the amortization of intangibles as if the Grilla Grills acquisition had occurred on May 1, 2021. The unaudited pro forma information is presented for informational purposes only and is not necessarily indicative of the actual results that would have been achieved had the Grilla Grills acquisition occurred as of May 1, 2021 or the results that may be achieved in future periods.
/(4) Leases:
We lease real estate, as well as other equipment, under non-cancelable operating lease agreements. We recognize expenses under our operating lease assets and liabilities at the commencement date based on the present value of lease payments over the lease terms. Our leases do not provide an implicit interest rate. We use our incremental borrowing rate based on the information available at the lease commencement date in determining the present value of lease payments. Our lease agreements do not require material variable lease payments, residual value guarantees, or restrictive covenants. For operating leases, we recognize expense on a straight-line basis over the lease term. We record tenant improvement allowances as an offsetting adjustment included in our calculation of the respective right-of-use asset.
Many of our leases include renewal options that can extend the lease term. These renewal options are at our sole discretion and are reflected in the lease term when they are reasonably certain to be exercised. The depreciable life of assets and leasehold improvements are limited by the expected lease term.
The amounts of assets and liabilities related to our operating leases as of July 31, 2022 are as follows (in thousands):
|
|
|
|
||||
Operating Leases |
|
|
|
|
|
||
Right-of-use assets |
$ |
i 29,422 |
|
|
$ |
i 27,475 |
|
Accumulated amortization |
|
( i 4,005 |
) |
|
|
( i 3,591 |
) |
Right-of-use assets, net |
$ |
i 25,417 |
|
|
$ |
i 23,884 |
|
|
|
|
|
|
|
||
Lease liabilities, current portion |
$ |
i 1,618 |
|
|
$ |
i 1,803 |
|
Lease liabilities, net of current portion |
|
i 24,739 |
|
|
|
i 23,076 |
|
Total operating lease liabilities |
$ |
i 26,357 |
|
|
$ |
i 24,879 |
|
|
|
|
|
|
|
||
/
12
AMERICAN OUTDOORS BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
For the Three Months Ended July 31, 2022 and 2021
For the three months ended July 31, 2022, we recorded $ i 1.0 million of operating lease costs, of which $ i 47,000 were short-term operating lease costs. For the three months ended July 31, 2021, we recorded $ i 901,000 of operating lease costs, of which $ i 51,000 were short-term operating lease costs. As of July 31, 2022, our weighted average lease term and weighted average discount rate for our operating leases were i 16.0 years and i 5.4%, respectively. The operating lease costs, weighted average lease term, and weighted average discount rate, are primarily driven by the sublease of our corporate office and warehouse facility in Columbia, Missouri through fiscal 2039. The depreciable lives of right-of-use assets are limited by the lease term and are amortized on a straight-line basis over the life of the lease.
During the three months ended July 31, 2022, we amended the existing operating lease for our corporate office and warehouse facility in Columbia, Missouri to expand our usable square footage in our warehouse. The term of the lease remains unchanged, through fiscal 2039. During the three months ended July 31, 2022, we recorded a right-of-use asset and lease liability of $ i i 1.9 / million.
Future lease payments for all our operating leases for the remainder of fiscal 2023 and for succeeding fiscal years, as of July 31, 2022, are as follows (in thousands):
|
|
|
Operating |
|
|
2023 |
|
|
$ |
i 2,411 |
|
2024 |
|
|
|
i 2,221 |
|
2025 |
|
|
|
i 2,228 |
|
2026 |
|
|
|
i 2,177 |
|
2027 |
|
|
|
i 2,207 |
|
2028 |
|
|
|
i 2,238 |
|
Thereafter |
|
|
|
i 26,426 |
|
Total future lease payments |
|
|
|
i 39,908 |
|
Less amounts representing interest |
|
|
|
( i 13,551 |
) |
Present value of lease payments |
|
|
|
i 26,357 |
|
Less current maturities of lease liabilities |
|
|
|
( i 1,618 |
) |
Long-term maturities of lease liabilities |
|
|
$ |
i 24,739 |
|
The cash paid for amounts included in the measurement of the liabilities and the operating cash flows was $ i 481,000 and $ i 443,000 for the three months ended July 31, 2022 and 2021, respectively.
/
(5) Intangible Assets, net:
The following table summarizes intangible assets as of July 31, 2022 and April 30, 2022 (in thousands):
|
|
|
|
|
||||||||||||||||||||
|
|
Gross |
|
|
|
|
|
|
|
|
Gross |
|
|
|
|
|
|
|
||||||
|
|
Carrying |
|
|
Accumulated |
|
|
Net Carrying |
|
|
Carrying |
|
|
Accumulated |
|
|
Net Carrying |
|
||||||
|
|
Amount |
|
|
Amortization |
|
|
Amount |
|
|
Amount |
|
|
Amortization |
|
|
Amount |
|
||||||
Customer relationships |
|
$ |
i 89,980 |
|
|
$ |
( i 69,476 |
) |
|
$ |
i 20,504 |
|
|
$ |
i 89,980 |
|
|
$ |
( i 67,955 |
) |
|
$ |
i 22,025 |
|
Developed software and technology |
|
|
i 26,451 |
|
|
|
( i 20,035 |
) |
|
|
i 6,416 |
|
|
|
i 25,812 |
|
|
|
( i 19,395 |
) |
|
|
i 6,417 |
|
Patents, trademarks, and trade names |
|
|
i 68,706 |
|
|
|
( i 40,282 |
) |
|
|
i 28,424 |
|
|
|
i 68,663 |
|
|
|
( i 39,030 |
) |
|
|
i 29,633 |
|
|
|
|
i 185,137 |
|
|
|
( i 129,793 |
) |
|
|
i 55,344 |
|
|
|
i 184,455 |
|
|
|
( i 126,380 |
) |
|
|
i 58,075 |
|
Patents and software in development |
|
|
i 4,899 |
|
|
|
— |
|
|
|
i 4,899 |
|
|
|
i 4,689 |
|
|
|
— |
|
|
|
i 4,689 |
|
Total definite-lived intangible assets |
|
|
i 190,036 |
|
|
|
( i 129,793 |
) |
|
|
i 60,243 |
|
|
|
i 189,144 |
|
|
|
( i 126,380 |
) |
|
|
i 62,764 |
|
Indefinite-lived intangible assets |
|
|
i 430 |
|
|
|
— |
|
|
|
i 430 |
|
|
|
i 430 |
|
|
|
— |
|
|
|
i 430 |
|
Total intangible assets |
|
$ |
i 190,466 |
|
|
$ |
( i 129,793 |
) |
|
$ |
i 60,673 |
|
|
$ |
i 189,574 |
|
|
$ |
( i 126,380 |
) |
|
$ |
i 63,194 |
|
We amortize intangible assets with determinable lives over a weighted-average period of approximately i five years. The weighted-average periods of amortization by intangible asset class is approximately i five years for customer relationships, i five years for developed software and technology, and i six years for patents, trademarks, and trade names. Amortization expense amounted to $ i 3.4 million and $ i 3.5 million for the three months ended July 31, 2022 and 2021, respectively.
13
AMERICAN OUTDOORS BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
For the Three Months Ended July 31, 2022 and 2021
Future expected amortization expense for the remainder of fiscal 2023 and for succeeding fiscal years, as of July 31, 2022, are as follows (in thousands):
Fiscal |
|
Amount |
|
|
2023 |
|
$ |
i 9,927 |
|
2024 |
|
|
i 12,294 |
|
2025 |
|
|
i 8,686 |
|
2026 |
|
|
i 7,396 |
|
2027 |
|
|
i 5,071 |
|
2028 |
|
|
i 3,787 |
|
Thereafter |
|
|
i 8,183 |
|
Total |
|
$ |
i 55,344 |
|
(6) Fair Value Measurement:
We follow the provisions of ASC 820-10, Fair Value Measurements and Disclosures Topic, or ASC 820-10, for our financial assets and liabilities. ASC 820-10 provides a framework for measuring fair value under GAAP and requires expanded disclosures regarding fair value measurements. ASC 820-10 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820-10 also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs, where available, and minimize the use of unobservable inputs when measuring fair value.
Financial assets and liabilities recorded on the accompanying condensed consolidated balance sheets are categorized based on the inputs to the valuation techniques as follows:
Level 1 — Financial assets and liabilities whose values are based on unadjusted quoted prices for identical assets or liabilities in an active market that we have the ability to access at the measurement date (examples include active exchange-traded equity securities, listed derivatives, and most U.S. Government and agency securities).
Our cash and cash equivalents, which are measured at fair value on a recurring basis, totaled $ i 17.5 million as of July 31, 2022 and $ i 19.5 million as of April 30, 2022. Cash and cash equivalents are reported at fair value based on market prices for identical assets in active markets, and therefore classified as Level 1 of the value hierarchy.
Level 2 — Financial assets and liabilities whose values are based on quoted prices in markets in which trading occurs infrequently or whose values are based on quoted prices of instruments with similar attributes in active markets. Level 2 inputs include the following:
The carrying value of our revolving line of credit approximated the fair value, as of July 31, 2022, in considering Level 2 inputs within the hierarchy.
Level 3 — Financial assets and liabilities whose values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. These inputs reflect our assumptions about the assumptions a market participant would use in pricing the asset or liability.
We currently do i i no / t have any Level 3 financial assets or liabilities as of July 31, 2022.
/14
AMERICAN OUTDOORS BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
For the Three Months Ended July 31, 2022 and 2021
(7) Inventories:
The following table sets forth a summary of inventories, stated at lower of cost or net realizable value, as of July 31, 2022 and April 30, 2022 (in thousands):
|
|
|
|
|
||||
Finished goods |
|
$ |
i 110,126 |
|
|
$ |
i 110,650 |
|
Finished parts |
|
|
i 3,785 |
|
|
|
i 4,353 |
|
Work in process |
|
|
i 218 |
|
|
|
i 194 |
|
Raw material |
|
|
i 6,509 |
|
|
|
i 6,486 |
|
Total inventories |
|
$ |
i 120,638 |
|
|
$ |
i 121,683 |
|
(8) Debt:
On August 24, 2020, we entered into a financing arrangement consisting of a $ i 50.0 million revolving line of credit secured by substantially all our assets, maturing i five years from the closing date, with available borrowings determined by a borrowing base calculation. The revolving line included an option to increase the credit commitment by an additional $ i 15 million. The revolving line bore interest at a fluctuating rate equal to the Base Rate or LIBOR, as applicable, plus the applicable margin.
On March 25, 2022, we amended our secured loan and security agreement, or the Amended Loan and Security Agreement, increasing the revolving line of credit to $ i 75 million, secured by substantially all our assets, maturing in March 2027, with available borrowings determined by a borrowing base calculation. The amendment also includes an option to increase the credit commitment by an additional $ i 15 million. i The amended revolving line bears interest at a fluctuating rate equal to the Base Rate or Secured Overnight Financing Rate, or SOFR, as applicable, plus the applicable margin. The applicable margin can range from a minimum of i 0.25% to a maximum of i 1.75% based on certain conditions as defined in the Amended Loan and Security Agreement. The financing arrangement contains covenants relating to minimum debt service coverage.
As of July 31, 2022, we had $ i 20.0 million of borrowings outstanding on the revolving line of credit, which bore interest at i 2.85%, equal to SOFR plus the applicable margin. The proceeds from the borrowings on our revolving line of credit were used to purchase the Grilla Grills branded products from FTI in fiscal year 2022.
/(9) Equity:
Earnings per Share
We compute diluted earnings per share by giving effect to all potentially dilutive stock awards that are outstanding. The computation of diluted earnings per share excludes the effect of the potential exercise of stock-based awards when the effect of the potential exercise would be anti-dilutive. There were i no shares excluded from the computation of diluted earnings per share for the three months ended July 31, 2021. Due to the loss from operations for the three months ended July 31, 2022, there are i no common shares added to calculate dilutive earnings per share because the effect would be antidilutive.
The following table provides a reconciliation of the net income amounts and weighted average number of common and common equivalent shares used to determine basic and diluted earnings per share for the three months ended July 31, 2022 and 2021 (in thousands, except per share data):
|
For the Three Months Ended July 31, |
|
|||||||||||||||||||||||||
|
|
|
2021 |
|
|||||||||||||||||||||||
|
Net |
|
|
|
|
|
Per Share |
|
|
Net |
|
|
|
|
|
Per Share |
|
||||||||||
|
Income |
|
|
Shares |
|
|
Amount |
|
|
Income |
|
|
Shares |
|
|
Amount |
|
||||||||||
Basic (loss)/earnings |
$ |
|
( i 5,695 |
) |
|
|
i 13,443 |
|
|
$ |
|
( i 0.42 |
) |
|
$ |
|
i 3,457 |
|
|
|
i 14,083 |
|
|
$ |
|
i 0.25 |
|
Effect of dilutive stock awards |
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
i 218 |
|
|
|
|
( i 0.01 |
) |
|
Diluted (loss)/earnings |
$ |
|
( i 5,695 |
) |
|
|
i 13,443 |
|
|
$ |
|
( i 0.42 |
) |
|
$ |
|
i 3,457 |
|
|
|
i 14,301 |
|
|
$ |
|
i 0.24 |
|
Incentive Stock and Employee Stock Purchase Plans
We have a stock incentive plan, or 2020 Incentive Compensation Plan, under which we can grant new awards to our employees and directors. Our 2020 Incentive Compensation Plan authorizes the issuance of awards covering up to i 1,397,510 shares of our common stock. The plan permits the grant of options to acquire common stock, restricted stock awards, restricted stock units, or RSUs, stock appreciation rights, bonus stock and awards in lieu of obligations, performance awards, and dividend equivalents. Our Board of Directors, or a committee established by our Board of Directors, administers the plan, selects recipients to whom awards are granted, and determines the grants to be awarded. Stock options granted under the plan are exercisable at a price determined by our
15
AMERICAN OUTDOORS BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
For the Three Months Ended July 31, 2022 and 2021
Board of Directors or a committee thereof at the time of grant, but in no event, less than fair market value of our common stock on the date granted. Grants of options may be made to employees and directors without regard to any performance measures. All options issued pursuant to the plan are generally nontransferable and subject to forfeiture.
Unless terminated earlier by our Board of Directors, our 2020 Incentive Compensation Plan will terminate at the earliest of (1) the tenth anniversary of the effective date of our 2020 Incentive Compensation Plan, or (2) such time as i no shares of common stock remain available for issuance under the plan and we have no further rights or obligations with respect to outstanding awards under the plan. The date of grant of an award is deemed to be the date upon which our Board of Directors or a committee thereof authorizes the granting of such award.
Except in specific circumstances, grants generally vest over a period of three or i four years and grants of stock options are exercisable for a period of i 10 years. Our 2020 Incentive Compensation Plan also permits the grant of awards to non-employees.
We recognized $ i 714,000 and $ i 752,000 of stock-based compensation expense for the three months ended July 31, 2022 and 2021, respectively.
We include stock-based compensation expense in the cost of sales, sales and marketing, research and development, and general and administrative expenses.
i We grant RSUs to employees and directors. The awards are made at no cost to the recipient. An RSU represents the right to receive one share of our common stock and does not carry voting or dividend rights. Except in specific circumstances, i RSU grants to employees generally vest over a period of i four years with one-fourth of the units vesting on each anniversary of the grant date. / We amortize the aggregate fair value of our RSU grants to compensation expense over the vesting period. Awards that do not vest are forfeited.
We grant performance stock units, or PSUs, to our executive officers and certain other employees from time to time. At the time of grant, we calculate the fair value of our PSUs using the Monte-Carlo simulation. i We incorporate the following variables into the valuation model:
|
|
For the Three Months Ended July 31, |
|
|||||
|
|
|
|
2021 |
|
|||
Grant date fair market value |
|
|
|
|
|
|
||
American Outdoor Brands, Inc. |
|
$ |
i 12.70 |
|
|
$ |
i 26.44 |
|
Russell 2000 Index |
|
$ |
i 1,882.91 |
|
|
$ |
i 2,277.45 |
|
Volatility (a) |
|
|
|
|
|
|
||
American Outdoor Brands, Inc. |
|
|
i 49.04 |
% |
|
|
i 47.78 |
% |
Russell 2000 Index |
|
|
i 31.75 |
% |
|
|
i 30.69 |
% |
Correlation coefficient (b) |
|
|
i 0.50 |
|
|
|
i 0.46 |
|
Risk-free interest rate (c) |
|
|
i 2.91 |
% |
|
|
i 0.33 |
% |
Dividend yield (d) |
|
|
i 0 |
% |
|
|
i 0 |
% |
The PSUs vest, and the fair value of such PSUs will be recognized, over the corresponding i three-year performance period. Our PSUs have a maximum aggregate award equal to i 200% of the target unit amount granted. Generally, the number of PSUs that may be earned depends upon the total stockholder return, or TSR, of our common stock compared with the TSR of the Russell 2000 Index, or the RUT, over the three-year performance period. For PSUs, our stock must outperform the RUT by i 5% in order for the target award to vest. In addition, there is a cap on the number of shares that can be earned under our PSUs, which is equal to six times the grant-date value of each award.
16
AMERICAN OUTDOORS BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
For the Three Months Ended July 31, 2022 and 2021
During the three months ended July 31, 2022, we granted an aggregate of i 52,277 PSUs to our executive officers. We also granted i 192,489 RSUs during the three months ended July 31, 2022, including i 52,277 RSUs to executive officers and i 140,212 to non-executive officer employees under our 2020 Incentive Compensation Plan. In addition, in connection with a 2019 grant, we vested i 7,200 PSUs (i.e., the target amount granted), which achieved i 200% of the maximum aggregate award possible, resulting in awards totaling i 14,400 shares to certain of our executive officers and employees of our former parent. During the three months ended July 31, 2022, we cancelled i 2,225 RSUs as a result of the service condition not being met. In connection with the vesting of RSUs, during the three months ended July 31, 2022, we delivered common stock to our employees, including our executive officers, and directors with a total market value of $ i 854,000.
During the three months ended July 31, 2021, we granted an aggregate of i 26,809 market-condition PSUs to our executive officers. We also granted i 60,276 service-based RSUs during the three months ended July 31, 2021, including i 26,809 RSUs to executive officers and i 33,467 to non-executive officer employees under our 2020 Incentive Compensation Plan. In addition, in connection with a 2018 grant, we vested i 10,800 market-condition PSUs (i.e., the target amount granted), which achieved i 200% of the maximum aggregate award possible, resulting in awards totaling i 21,600 shares to certain of our executive officers and employees of our former parent. During the three months ended July 31, 2021, we cancelled i 360 service-based RSUs as a result of the service condition not being met. In connection with the vesting of RSUs, during the three months ended July 31, 2021, we delivered common stock to our employees, including our executive officers and directors with a total market value of $ i 1.5 million.
A summary of activity for unvested RSUs and PSUs under our 2020 Incentive Compensation Plan for the three months ended July 31, 2022 and 2021 is as follows:
|
|
|
|
|
|
|
|
|
|
|||||||
|
|
|
|
|
|
|
|
|
|
|||||||
|
|
For the Three Months Ended July 31, |
|
|||||||||||||
|
|
|
|
2021 |
|
|||||||||||
|
|
|
|
|
Weighted |
|
|
|
|
|
Weighted |
|
||||
|
|
Total # of |
|
|
Average |
|
|
Total # of |
|
|
Average |
|
||||
|
|
Restricted |
|
|
Grant Date |
|
|
Restricted |
|
|
Grant Date |
|
||||
|
|
Stock Units |
|
|
Fair Value |
|
|
Stock Units |
|
|
Fair Value |
|
||||
RSUs and PSUs outstanding, beginning of period |
|
|
i 349,774 |
|
|
$ |
i 15.93 |
|
|
|
i 427,519 |
|
|
$ |
i 11.75 |
|
Awarded |
|
|
i 251,966 |
|
|
|
i 11.58 |
|
|
|
i 97,885 |
|
|
|
i 27.44 |
|
Vested |
|
|
( i 73,055 |
) |
|
|
i 14.77 |
|
|
|
( i 50,652 |
) |
|
|
i 12.35 |
|
Forfeited |
|
|
( i 2,225 |
) |
|
|
i 21.86 |
|
|
|
( i 360 |
) |
|
|
i 16.23 |
|
RSUs and PSUs outstanding, end of period |
|
|
i 526,460 |
|
|
$ |
i 13.99 |
|
|
|
i 474,392 |
|
|
$ |
i 14.92 |
|
As of July 31, 2022, there was $ i 3.6 million of unrecognized compensation expense related to unvested RSUs and PSUs. We expect to recognize this expense over a weighted average remaining contractual term of i 1.7 years.
17
AMERICAN OUTDOORS BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
For the Three Months Ended July 31, 2022 and 2021
We have an employee stock purchase plan, or ESPP, which authorizes the sale of up to i 419,253 shares of our common stock to employees. All options and rights to participate in our ESPP are nontransferable and subject to forfeiture in accordance with our ESPP guidelines. Our current ESPP will be implemented in a series of successive offering periods, each with a maximum duration of i 12 months. If the fair market value per share of our common stock on any purchase date is less than the fair market value per share on the start date of a 12-month offering period, then that offering period will automatically terminate and a new 12-month offering period will begin on the next business day. Each offering period will begin on April 1 or October 1, as applicable, immediately following the end of the previous offering period. Payroll deductions will be on an after-tax basis, in an amount of not less than i 1% and not more than i 20% (or such greater percentage as the committee appointed to administer our ESPP may establish from time to time before the first day of an offering period) of a participant’s compensation on each payroll date. The option exercise price per share will equal i 85% of the lower of the fair market value on the first day of the offering period or the fair market value on the exercise date. The maximum number of shares that a participant may purchase during any purchase period is the greater of i 2,500 shares, or a total of $ i 25,000 in shares, based on the fair market value on the first day of the offering period. Our ESPP will remain in effect until the earliest of (a) the exercise date that participants become entitled to purchase a number of shares greater than the number of reserved shares available for purchase under our ESPP, (b) such date as is determined by our Board of Directors in its discretion, or (c) the tenth anniversary of the effective date. In the event of certain corporate transactions, each option outstanding under our ESPP will be assumed or an equivalent option will be substituted by the successor corporation or a parent or subsidiary of such successor corporation.
/(10) Accrued Expenses:
The following table sets forth other accrued expenses as of July 31, 2022 and April 30, 2022 (in thousands):
|
|
|
|
||||
Accrued sales allowances |
$ |
i 2,798 |
|
|
$ |
i 2,392 |
|
Accrued freight |
|
i 2,266 |
|
|
|
i 1,253 |
|
Accrued professional fees |
|
i 1,206 |
|
|
|
i 951 |
|
Accrued warranty |
|
i 905 |
|
|
|
i 786 |
|
Accrued commissions |
|
i 865 |
|
|
|
i 1,175 |
|
Accrued taxes other than income |
|
i 740 |
|
|
|
i 718 |
|
Accrued employee benefits |
|
i 502 |
|
|
|
i 312 |
|
Accrued other |
|
i 352 |
|
|
|
i 266 |
|
Total accrued expenses |
$ |
i 9,634 |
|
|
$ |
i 7,853 |
|
(11) Income Taxes:
The income tax expense included in the condensed consolidated statements of operations is based upon the estimated effective tax rate for the year, adjusted for the impact of discrete items which are accounted for in the period in which they occur. We recorded income tax expense of $ i 189,000 and $ i 849,000 for the three months ended July 31, 2022 and 2021, respectively. The effective tax rate for the three months ended July 31, 2022 and 2021 was ( i 3.4%) and i 19.7%, respectively. Income tax expense for the three months ended July 31, 2022 included a discrete tax benefit of $ i 40,000 associated with stock-based compensation. Income tax expense for the three months ended July 31, 2021 included a discrete tax benefit of $ i 190,000 associated with stock-based compensation.
/(12) Commitments and Contingencies:
Litigation
From time to time, we are involved in lawsuits, claims, investigations, and proceedings, including those relating to product liability, intellectual property, commercial relationships, employment issues, and governmental matters, which arise in the ordinary course of business.
For the three months ended July 31, 2022 and 2021, respectively, we did not incur any material expenses in defense and administrative costs relative to product liability litigation. In addition, we did not incur any settlement fees related to product liability cases in those fiscal years.
18
AMERICAN OUTDOORS BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
For the Three Months Ended July 31, 2022 and 2021
Gain Contingency
In 2018, the United States imposed additional section 301 tariffs, of up to i 25%, on certain goods imported from China. These additional section 301 tariffs apply to our sourced products from China and have added additional cost to us. We are utilizing the duty drawback mechanism to offset some of the direct impact of these tariffs, specifically on goods that we sold internationally. We are accounting for duty drawbacks as a gain contingency and may record any such gain from a reimbursement in future periods if and when the contingency is resolved.
/(13) Segment Reporting:
We have evaluated our operations under ASC 280-10-50-1 – Segment Reporting and have concluded that we are operating as i one segment based on several key factors, including the reporting and review process used by the chief operating decision maker, our Chief Executive Officer, who reviews only consolidated financial information and makes decisions to allocate resources based on those financial statements. We analyze revenue streams in various ways, including customer group, brands, product categories, and customer channels. However, this information does not include a full set of discrete financial information. In addition, although we currently sell our products under i 21 distinct brands that are organized into i four brand lanes and include specific product sales that have identified revenue streams, these brand lanes are focused almost entirely on product development and marketing activities and do not qualify as separate reporting units under ASC 280-10-50-1. Other sales and customer focused activities, operating activities, and administrative activities are not divided by brand lane and, therefore, expenses related to each brand lane are not accumulated or reviewed individually. Our business is evaluated based upon a number of financial and operating measures, including sales, gross profit and gross margin, operating expenses, and operating margin.
Our business includes our outdoor products and accessories products, which we develop, source, market, and distribute from our facility in Columbia, Missouri, and our electro-optics products, which we assemble in our Wilsonville, Oregon facility. We report operating costs based on the activities performed.
/19
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
The following discussion and analysis of our financial condition and results of operations for the three months ended July 31, 2022 and 2021 should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for fiscal year ended April 30, 2022. This discussion and analysis should also be read in conjunction with our unaudited condensed consolidated financial statements and the notes thereto included in Item 1 of this Quarterly Report on Form 10-Q.
The following discussion and analysis includes forward-looking statements. These forward-looking statements are subject to risks, uncertainties, and other factors that could cause our actual results to differ materially from those expressed or implied by the forward-looking statements. Factors that could cause or contribute to these differences include those discussed above in “Statement Regarding Forward-Looking Information” in this Form 10-Q. In addition, this section sets forth key objectives and performance indicators used by us, as well as key industry data tracked by us.
The following discussion and analysis includes references to net sales of our products in shooting sports and outdoor lifestyle categories. Our shooting sports category includes net sales of shooting accessories and our products used for personal protection. Our outdoor lifestyle category includes net sales of our products used in hunting, fishing, camping, rugged outdoor activities, and outdoor cooking.
In March 2022, we acquired substantially all of the assets of Grilla Grills (including its branded products) from Fahrenheit Technologies, Inc., or FTI, for a purchase price of $27 million, subject to certain adjustments. Grilla Grills is a provider of high-quality, barbecue grills; Wi-Fi-enabled wood pellet grills; smokers; accessories; and modular outdoor kitchens. Because of the timing of the acquisition, we are in the process of integrating Grilla Grills into our business as we operate out of Holland, Michigan under a transition services agreement with FTI. We plan to fully integrate Grilla Grills into our business in fiscal 2023. Results of operations for the three months ended July 31, 2022 include activity for the period subsequent to the acquisition date of Grilla Grills.
First Quarter Fiscal 2023 Highlights
Our operating results for the three months ended July 31, 2022 included the following:
Results of Operations
Net Sales and Gross Profit
The following table sets forth certain information regarding consolidated net sales and gross profit for the three months ended July 31, 2022 and 2021 (dollars in thousands):
|
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
||||
Net sales |
|
$ |
43,676 |
|
|
$ |
60,768 |
|
|
$ |
(17,092 |
) |
|
|
-28.1 |
% |
Cost of sales |
|
|
24,637 |
|
|
|
31,785 |
|
|
|
(7,148 |
) |
|
|
-22.5 |
% |
Gross profit |
|
$ |
19,039 |
|
|
$ |
28,983 |
|
|
$ |
(9,944 |
) |
|
|
-34.3 |
% |
% of net sales (gross margin) |
|
|
43.6 |
% |
|
|
47.7 |
% |
|
|
|
|
|
|
||
The following table sets forth certain information regarding trade channel net sales for the three months ended July 31, 2022 and 2021 (dollars in thousands):
|
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
||||
e-commerce channels |
|
$ |
20,545 |
|
|
$ |
16,608 |
|
|
$ |
3,937 |
|
|
|
23.7 |
% |
Traditional channels |
|
|
23,131 |
|
|
|
44,160 |
|
|
|
(21,029 |
) |
|
|
-47.6 |
% |
Total net sales |
|
$ |
43,676 |
|
|
$ |
60,768 |
|
|
$ |
(17,092 |
) |
|
|
-28.1 |
% |
Our e-commerce channels include net sales from customers that do not traditionally operate physical brick-and-mortar stores, but generate the majority of their revenue from consumer purchases from their retail websites. Our e-commerce channels also include
20
our direct-to-consumer sales. Our traditional channels include customers that primarily operate out of physical brick-and-mortar stores and generate the large majority of revenue from consumer purchases in their brick-and-mortar locations.
We sell our products worldwide. The following table sets forth certain information regarding geographic makeup of net sales included in the above table for the three months ended July 31, 2022 and 2021 (dollars in thousands):
|
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
||||
Domestic net sales |
|
$ |
40,276 |
|
|
$ |
56,530 |
|
|
$ |
(16,254 |
) |
|
|
-28.8 |
% |
International net sales |
|
|
3,400 |
|
|
|
4,238 |
|
|
|
(838 |
) |
|
|
-19.8 |
% |
Total net sales |
|
$ |
43,676 |
|
|
$ |
60,768 |
|
|
$ |
(17,092 |
) |
|
|
-28.1 |
% |
For the three months ended July 31, 2022, total net sales decreased $17.1 million, or 28.1%, from the comparable quarter last year.
Net sales in our e-commerce channel increased $3.9 million, or 23.7%, from the comparable quarter last year, primarily because of a 234.8% increase in direct-to-consumer net sales over the comparable quarter last year. Our brands that are only sold on our direct-to-consumer websites represented $6.9 million, or 33.5%, of total e-commerce channel net sales for the three months ended July 31, 2022, which includes net sales from a business acquisition completed in the prior fiscal year. The increased direct-to-consumer net sales was partially offset by reduced demand for our shooting sports category.
Net sales in our traditional channels decreased $21.0 million, or 47.6%, from the comparable quarter last year primarily because of lower net sales for the majority of our products as a result of decreased orders from retailers which we believe is impacted by a combination of lower foot traffic and retailers’ efforts to reduce their overall inventory levels, as well as lower net sales of our shooting sports products to our OEM customers. In addition, we believe the decrease in traditional channel net sales was a result of a build in traditional channel inventories of our products during the first fiscal quarter last year as certain customers accelerated their purchases to offset the possibility of delays caused by global supply chain disruptions.
New products, which we define as any SKU introduced over the prior two fiscal years, represented 25.9% of net sales for the three months ended July 31, 2022.
Gross margin for the three months ended July 31, 2022 decreased 410 basis points from the comparable quarter last year primarily because of lower sales volumes, increased freight expenses, increased promotional product discounts, and increased expense related to provisions on inventory, partially offset by favorable impacts of price increases and tariff drawbacks.
Operating Expenses
The following table sets forth certain information regarding operating expenses for the three months ended July 31, 2022 and 2021 (dollars in thousands):
|
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
||||
Research and development |
|
$ |
1,756 |
|
|
$ |
1,521 |
|
|
$ |
235 |
|
|
|
15.5 |
% |
Selling, marketing, and distribution |
|
|
11,780 |
|
|
|
13,200 |
|
|
|
(1,420 |
) |
|
|
-10.8 |
% |
General and administrative |
|
|
11,064 |
|
|
|
10,039 |
|
|
|
1,025 |
|
|
|
10.2 |
% |
Total operating expenses |
|
$ |
24,600 |
|
|
$ |
24,760 |
|
|
$ |
(160 |
) |
|
|
-0.6 |
% |
% of net sales |
|
|
56.3 |
% |
|
|
40.7 |
% |
|
|
|
|
|
|
||
Research and development expenses increased $235,000 over the comparable quarter last year primarily because of increased compensation-related expenses. Selling, marketing, and distribution expenses decreased $1.4 million from the comparable quarter last year because of lower sales volume-related accruals and lower advertising expenses. General and administrative expenses increased $1.0 million over the comparable quarter last year, primarily as a result of $1.0 million of legal and advisory fees associated with the completed cooperation agreement with a stockholder and $716,000 of increased standalone expenses, such as our information technology infrastructure costs and subscription and software costs, partially offset by lower compensation-related expenses.
Operating Income
The following table sets forth certain information regarding operating income for the three months ended July 31, 2022 and 2021 (dollars in thousands):
|
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
||||
Operating (loss)/income |
|
$ |
(5,561 |
) |
|
$ |
4,223 |
|
|
$ |
(9,784 |
) |
|
|
-231.7 |
% |
% of net sales (operating margin) |
|
|
-12.7 |
% |
|
|
6.9 |
% |
|
|
|
|
|
|
||
21
Operating loss for the three months ended July 31, 2022 was $5.6 million, a decrease of $9.8 million from $4.2 million operating income for the three months ended July 31, 2021, primarily because of lower sales and gross profit as described above.
Income Taxes
The following table sets forth certain information regarding income tax expense for the three months ended July 31, 2022 and 2021 (dollars in thousands):
|
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
||||
Income tax expense |
|
$ |
189 |
|
|
$ |
849 |
|
|
$ |
(660 |
) |
|
|
-77.7 |
% |
% of income from operations (effective tax rate) |
|
|
-3.4 |
% |
|
|
19.7 |
% |
|
|
|
|
|
-23.1 |
% |
|
We recorded income tax expense of $189,000 for the three months ended July 31, 2022, compared with income tax expense of $849,000 for the prior year comparable quarter because of lower operating income. The income tax expense recorded during the three months ended July 31, 2022 was primarily due to a full valuation allowance recorded against our deferred tax assets.
Net (Loss)/Income
The following table sets forth certain information regarding net (loss)/income and the related per share data for the three months ended July 31, 2022 and 2021 (dollars in thousands, except per share data):
|
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
||||
Net (loss)/income |
|
$ |
(5,695 |
) |
|
$ |
3,457 |
|
|
$ |
(9,152 |
) |
|
|
-264.7 |
% |
Net (loss)/income per share |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic |
|
$ |
(0.42 |
) |
|
$ |
0.25 |
|
|
$ |
(0.67 |
) |
|
|
-268.0 |
% |
Diluted |
|
$ |
(0.42 |
) |
|
$ |
0.24 |
|
|
$ |
(0.66 |
) |
|
|
-275.0 |
% |
Net loss was $5.7 million, or $0.42 per diluted share, for the three months ended July 31, 2022 compared with net income of $3.5 million, or $0.24 per share, for the comparable quarter last year, primarily because of lower sales volume and gross profit.
Non-GAAP Financial Measure
We use GAAP net income as our primary financial measure. We use Adjusted EBITDAS, which is a non-GAAP financial metric, as a supplemental measure of our performance in order to provide investors with an improved understanding of underlying performance trends, and it should be considered in addition to, but not instead of, the financial statements prepared in accordance with GAAP. Adjusted EBITDAS is defined as GAAP net income/(loss) before interest, taxes, depreciation, amortization, and stock compensation expense. Our Adjusted EBITDAS calculation also excludes certain items we consider non-routine. We believe that Adjusted EBITDAS is useful to understanding our operating results and the ongoing performance of our underlying business, as Adjusted EBITDAS provides information on our ability to meet our capital expenditure and working capital requirements, and is also an indicator of profitability. We believe this reporting provides additional transparency and comparability to our operating results. We believe that the presentation of Adjusted EBITDAS is useful to investors because it is frequently used by analysts, investors, and other interested parties to evaluate companies in our industry. We use Adjusted EBITDAS to supplement GAAP measures of performance to evaluate the effectiveness of our business strategies, to make budgeting decisions, and to neutralize our capitalization structure to compare our performance against that of other peer companies using similar measures, especially companies that are private. We also use Adjusted EBITDAS to supplement GAAP measures of performance to evaluate our performance in connection with compensation decisions. We believe it is useful to investors and analysts to evaluate this non-GAAP measure on the same basis as we use to evaluate our operating results.
Adjusted EBITDAS is a non-GAAP measure and may not be comparable to similar measures reported by other companies. In addition, non-GAAP measures have limitations as analytical tools, and you should not consider them in isolation or as a substitute for analysis of our results as reported under GAAP. We address the limitations of non-GAAP measures through the use of various GAAP measures. In the future, we may incur expenses or charges such as those added back to calculate Adjusted EBITDAS. Our presentation of Adjusted EBITDAS should not be construed as an inference that our future results will be unaffected by these items.
22
The following table sets forth our calculation of non-GAAP Adjusted EBITDAS for the three months ended July 31, 2022 and 2021, respectively (dollars in thousands):
|
For the Three Months Ended July 31, |
|
|||||||
|
|
|
2021 |
|
|||||
|
(Unaudited) |
|
|||||||
GAAP net (loss)/income |
$ |
|
(5,695 |
) |
|
$ |
|
3,457 |
|
Interest expense |
|
|
186 |
|
|
|
|
46 |
|
Income tax expense |
|
|
189 |
|
|
|
|
849 |
|
Depreciation and amortization |
|
|
4,162 |
|
|
|
|
4,179 |
|
Stock compensation |
|
|
714 |
|
|
|
|
752 |
|
Technology implementation |
|
|
769 |
|
|
|
|
272 |
|
Acquisition costs |
|
|
47 |
|
|
|
|
— |
|
Shareholder cooperation agreement costs |
|
|
1,010 |
|
|
|
|
— |
|
Non-GAAP Adjusted EBITDAS |
$ |
|
1,382 |
|
|
$ |
|
9,555 |
|
Liquidity and Capital Resources
We expect to continue to utilize our cash flows to invest in our business, including research and development for new product initiatives; hire additional employees; fund growth strategies, including any potential acquisitions; to make payments on our $20.0 million of borrowings under our revolving line of credit and any indebtedness we may incur over time; implement our enterprise resource planning systems; and to repurchase shares of our common stock if we are authorized to do so. We estimate that our information technology infrastructure will cost a total of approximately $9.0 million over a period that spans fiscal 2022 and fiscal 2023. In fiscal 2022, we recorded capital expenditures of $3.9 million and one-time operating expenses of $1.0 million. In fiscal 2023, we expect capital expenditures of approximately $2.4 million and one-time operating expenses of approximately $1.7 million. In addition, we recorded $948,000 of duplicative expenses in fiscal 2022 and we expect to spend approximately $500,000 of duplicative expenses in fiscal 2023, as we operated both our existing and our new information technology and enterprise resource planning platforms in parallel during the system changeover period. The one-time operating expenses and duplicative expenses will be recorded in general and administrative expenses on our condensed consolidated statement of operations.
The following table sets forth certain cash flow information for the three months ended July 31, 2022 and 2021 (dollars in thousands):
|
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
||||
Operating activities |
|
$ |
5,068 |
|
|
$ |
(3,165 |
) |
|
$ |
8,233 |
|
|
|
-260.1 |
% |
Investing activities |
|
|
(1,610 |
) |
|
|
(986 |
) |
|
|
(624 |
) |
|
|
63.3 |
% |
Financing activities |
|
|
(5,510 |
) |
|
|
(307 |
) |
|
|
(5,203 |
) |
|
|
1694.8 |
% |
Total cash flow |
|
$ |
(2,052 |
) |
|
$ |
(4,458 |
) |
|
$ |
2,406 |
|
|
|
-54.0 |
% |
Operating Activities
On an annual basis, operating activities generally represent the principal source of our cash flow.
Cash generated by operating activities was $5.1 million for the three months ended July 31, 2022 compared with cash used in operating activities of $3.2 million for the three months ended July 31, 2021. Cash generated by operating activities for the three months ended July 31, 2022 was primarily impacted by $5.0 million of lower accounts receivable due to timing of customer shipments and $1.0 million of reduced inventory as a result of a planned reduction in purchases during the period, offset by additional purchases for new product introductions that will launch later in the year. In addition, we recorded $1.8 million of reduced sales volume related accruals.
Investing Activities
Cash used in investing activities was $624,000 higher during the three months ended July 31, 2022 as compared with the prior year comparable period primarily from increased spending on the development and implementation of our independent information technology infrastructure. We expect to spend approximately $7.5 million to $8.0 million of capital expenditures in fiscal 2023, an increase of $900,000 to $1.4 million over fiscal 2022, which includes the capital expenditures for the development and implementation of our independent information technology infrastructure noted above. We recorded spending of $1.1 million of capital expenditures during the three months ended July 31, 2022 related to our development and implementation of our independent information technology infrastructure.
23
Financing Activities
Cash used in financing activities was $5.5 million for the three months ended July 31, 2022, primarily from $5.2 million of payments on our revolving line of credit.
Our future capital requirements will depend on many factors, including net sales, the timing and extent of spending to support product development efforts, the expansion of sales and marketing activities, the timing of introductions of new products and enhancements to existing products, the capital needed to operate as an independent publicly traded company, including the establishment of our enterprise resource planning systems, any acquisitions or strategic investments that we may determine to make, our ability to navigate through the many negative business impacts from the COVID-19 pandemic and related aftermath, and changes in consumer spending, which is sensitive to economic conditions and other factors. Further equity or debt financing may not be available to us on acceptable terms or at all. If sufficient funds are not available or are not available on acceptable terms, our ability to take advantage of unexpected business opportunities or to respond to competitive pressures could be limited or severely constrained.
We had $17.5 million of cash equivalents on hand as of July 31, 2022 and had $19.5 million in cash and cash equivalents on hand as of April 30, 2022.
Other Matters
Critical Accounting Policies
The preparation of our condensed consolidated financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of net sales and expenses during the reporting periods. Significant accounting policies are summarized in Note 2 of the Notes to the consolidated and combined financial statements in our Annual Report on Form 10-K for the fiscal year ended April 30, 2022. The most significant areas involving our judgments and estimates are described in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the fiscal year ended April 30, 2022, to which there have been no material changes. Actual results could differ from our estimates.
Recent Accounting Pronouncements
The nature and impact of recent accounting pronouncements, if any, is discussed in Note 2—Basis of Presentation to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q, which is incorporated herein by reference.
24
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There were no material changes from the information provided in Quantitative and Qualitative Disclosures about Market Risk in the Form 10-K.
Item 4. Controls and Procedures
Disclosure Controls and Procedures
As of July 31, 2022, our Chief Executive Officer and Chief Financial Officer evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) and have concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. These disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the reports we file or submit is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
There have been no changes in our internal control over financial reporting during our most recent fiscal quarter ended July 31, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
25
PART II — OTHER INFORMATION
Item 1. Legal Proceedings
The nature of legal proceedings against us is discussed in Note 12 — Commitments and Contingencies to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q, which is incorporated herein by reference.
Item 1A. Risk Factors
We have disclosed under the heading “Risk Factors” in our Annual Report on Form 10-K, filed with the SEC on July 14, 2022, risk factors that materially affect our business, financial condition, or results of operations. There have been no material changes from the risk factors previously disclosed.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
As of July 31, 2022, we had no authorized share repurchase programs.
26
Item 6. Exhibits
The exhibits listed on the Index to Exhibits (immediately preceding the signatures section of this Quarterly Report on Form 10-Q) are included herewith or incorporated herein by reference.
|
|
|
10.1 |
|
Cooperation Agreement, dated August 7, 2022, by and among the Engine Group and the Company (1) |
|
|
|
31.1 |
|
Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer |
|
|
|
31.2 |
|
Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer |
|
|
|
32.1 |
|
|
|
|
|
32.2 |
|
|
|
|
|
101.INS |
|
Inline XBRL Instance Document – The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
|
|
|
101.SCH |
|
Inline XBRL Taxonomy Extension Schema Document |
|
|
|
101.CAL |
|
Inline XBRL Taxonomy Extension Calculation Linkbase Document |
|
|
|
101.DEF |
|
Inline XBRL Taxonomy Extension Definition Linkbase Document |
|
|
|
101.LAB |
|
Inline XBRL Taxonomy Extension Label Linkbase Document |
|
|
|
101.PRE |
|
Inline XBRL Taxonomy Extension Presentation Linkbase Document |
104 |
|
Cover Page Interactive Data File (formatted as Inline XBRL with applicable taxonomy extension information contained in Exhibits 101). |
|
|
|
(1) |
|
Incorporated by reference to the Registrant's Form 8-K filed with the SEC on August 8, 2022 |
27
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
AMERICAN OUTDOOR BRANDS, INC., a Delaware corporation |
||
|
|
|
||
Date: September 8, 2022 |
|
By: |
|
/s/ Brian D. Murphy |
|
|
|
|
|
|
|
|
|
President and Chief Executive Officer |
|
|
|
||
Date: September 8, 2022 |
|
By: |
|
/s/ H. Andrew Fulmer |
|
|
|
|
|
|
|
|
|
Executive Vice President, Chief Financial Officer, and Treasurer |
28
| This ‘10-Q’ Filing | Date | Other Filings | ||
|---|---|---|---|---|
 | ||||
| 12/31/22 | ||||
| Filed on: | 9/8/22 | 8-K | ||
| 9/1/22 | ||||
| 8/8/22 | 3, 4, 8-K, DEFA14A, PRE 14A | |||
| For Period end: | 7/31/22 | |||
| 7/14/22 | 10-K, 8-K | |||
| 4/30/22 | 10-K | |||
| 3/25/22 | 8-K | |||
| 7/31/21 | 10-Q | |||
| 5/1/21 | 4 | |||
| 12/15/20 | 10-Q, 8-K | |||
| 8/24/20 | 4 | |||
| List all Filings | ||||
As Of Filer Filing For·On·As Docs:Size Issuer Filing Agent 8/08/22 American Outdoor Brands, Inc. 8-K:1,5,7,9 8/07/22 12:447K ActiveDisclosure/FA |