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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended October 31, 2023

Commission File No. 001-39366

img14581948_0.jpg 

American Outdoor Brands, Inc.

(Exact name of registrant as specified in its charter)

Delaware

84-4630928

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

1800 North Route Z, Suite A

Columbia, Missouri

65202

(Address of principal executive offices)

(Zip Code)

(800) 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

Common Stock, par value $0.001 per share

AOUT

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. 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). 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

Accelerated filer

 

 

 

 

Non-accelerated filer

Smaller reporting company

 

 

 

 

 

Emerging growth company

 

 

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.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No

The registrant had 12,936,665 shares of common stock, par value $0.001, outstanding as of November 22, 2023.

 

 


 

AMERICAN OUTDOOR BRANDS, INC.

Quarterly Report on Form 10-Q

For the Three and Six Months Ended October 31, 2023 and 2022

 

TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION

 

 

Item 1. Financial Statements (Unaudited)

5

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

20

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

26

 

Item 4. Controls and Procedures

26

 

 

 

 

PART II - OTHER INFORMATION

 

 

Item 1. Legal Proceedings

27

 

Item 1A. Risk Factors

27

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

27

 

Item 5. Other Information

 

27

 

Item 6. Exhibits

28

Signatures

29

 

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®, and 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™, and 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 the following:

 

our expectation that the unrecognized compensation expense related to unvested RSUs and PSUs will be recognized over a weighted average remaining contractual term of one year;
our intention to vigorously defend ourselves in the lawsuits to which we are subject;
the possibility that an unfavorable outcome of litigation or prolonged litigation could harm our business;
the results reported in our condensed consolidated financial statements may not be indicative our future performance;
our belief that our future ability to fund our operating needs will depend on our future ability to generate positive cash flow from operations and obtain financing on acceptable terms; our belief we will meet known or reasonably likely future cash requirements through the combination of cash flows from operating activities, available cash balances, and available borrowings through our existing $75 million credit facility;
our expectation that our overall cost of debt funding may increase and decrease the overall debt capacity and commercial credit available to us;
our future capital requirements' dependency 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, and any acquisitions or strategic investments that we may determine to make;
the possibility that our ability to take advantage of unexpected business opportunities or to respond to competitive pressures could be limited or severely constrained if sufficient funds are not available or are not available on acceptable terms;
our expectation 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; repay any indebtedness we may incur over time; and to repurchase our common stock if we have authorization to do so;
the possibility that increased demand for sourced products in various industries could cause further delays at various U.S. ports, which could delay the timing of receipts of our products;
our expectation that, upon the effectiveness of the Lease assignment described herein, the increase in the total annual expense under the Lease above our annual expense under the current Sublease will be entirely offset by savings from facility consolidation completed in fiscal 2023 and efficiencies gained in our distribution process;
our expectation of an increase of the right-of-use asset on our consolidated balance sheet, where effective;
our expectation that our overall inventory balance will decline by the end of fiscal 2024 as compared to our inventory balance as of October 31, 2023; and
our expectation that we will receive tax and other incentives from federal, state, and local governmental authorities.

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:

potential disruptions in our suppliers’ ability to source the raw materials necessary for the production of our products, disruptions and delays in the manufacture of our products, and difficulties encountered by retailers and other components of the distribution channel for our products, including delivery of product stemming from port congestion and related transportation challenges;
lower levels of consumer spending in general and specific to our products or product categories;
our ability to introduce new products that are successful in the marketplace;
interruptions of our arrangements with third-party contract manufacturers and freight carriers that disrupt our ability to fill our customers’ orders;
increases in costs or decreases in availability of finished products, components, and raw materials;
our ability to maintain or strengthen our brand recognition and reputation;
the ability to forecast demand for our products accurately;
our ability to continue to expand our e-commerce business;

 


 

our ability to compete in a highly competitive market;
our dependence on large customers;
our ability to attract and retain talent;
an increase of emphasis on private label products by our customers;
pricing pressures by our customers;
our ability to collect our accounts receivable;
the potential for product recalls, product liability, and other claims or lawsuits against us;
our ability to protect our intellectual property;
inventory levels, both internally and in the distribution channel, in excess of demand;
our ability to identify acquisition candidates, to complete acquisitions of potential acquisition candidates, to integrate acquired businesses with our business, to achieve success with acquired companies, and to realize the benefits of acquisitions in a manner consistent with our expectations;
the performance and security of our information systems;
our ability to comply with any applicable foreign laws or regulations and the effect of increased protective tariffs;
economic, social, political, legislative, and regulatory factors;
the potential for increased regulation of firearms and firearms- related products;
the effect of political pressures on firearm laws and regulations;
the potential impact on our business and operations from the results of federal, state, and local elections and the policies that may be implemented as a result thereof;
our ability to realize the anticipated benefits of being a separate, public company;
future investments for capital expenditures, liquidity, and anticipated cash needs and availability;
the potential for impairment charges;
estimated amortization expense of intangible assets for future periods;
actions of social or economic activists that could, directly or indirectly, have an adverse effect on our business;
disruptions caused by social unrest, including related protests or disturbances;
our assessment of factors relating to the valuation of assets acquired and liabilities assumed in acquisitions, the timing for such evaluations, and the potential adjustment in such evaluations; and
other factors detailed from time to time in our reports filed with the Securities and Exchange Commission, or the SEC, including information contained herein.

All forward-looking statements included herein, or in our Annual Report on Form 10-K, are based on information available to us as of their respective dates and speak only as of such dates. 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, or in our Annual Report on Form 10-K, reflect our views as of the date of these reports 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:

 

 

 

October 31, 2023
(Unaudited)

 

 

April 30, 2023

 

 

 

(In thousands, except par value and share data)

 

ASSETS

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

8,379

 

 

$

21,950

 

Accounts receivable, net of allowance for credit losses of $129 on October 31, 2023
   and $
125 on April 30, 2023

 

 

40,447

 

 

 

26,846

 

Inventories

 

 

109,123

 

 

 

99,734

 

Prepaid expenses and other current assets

 

 

6,016

 

 

 

7,839

 

Income tax receivable

 

 

301

 

 

 

1,251

 

Total current assets

 

 

164,266

 

 

 

157,620

 

Property, plant, and equipment, net

 

 

8,783

 

 

 

9,488

 

Intangible assets, net

 

 

46,351

 

 

 

52,021

 

Right-of-use assets

 

 

23,736

 

 

 

24,198

 

Other assets

 

 

514

 

 

 

260

 

Total assets

 

$

243,650

 

 

$

243,587

 

LIABILITIES AND EQUITY

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

17,805

 

 

$

11,544

 

Accrued expenses

 

 

12,271

 

 

 

8,741

 

Accrued payroll, incentives, and profit sharing

 

 

2,932

 

 

 

1,813

 

Lease liabilities, current

 

 

985

 

 

 

904

 

Total current liabilities

 

 

33,993

 

 

 

23,002

 

Notes and loans payable

 

 

 

 

 

4,623

 

Lease liabilities, net of current portion

 

 

23,648

 

 

 

24,064

 

Other non-current liabilities

 

 

18

 

 

 

34

 

Total liabilities

 

 

57,659

 

 

 

51,723

 

Commitments and contingencies (Note 11)

 

 

 

 

 

 

Equity:

 

 

 

 

 

 

Preferred stock, $0.001 par value, 20,000,000 shares authorized, no shares
   issued or outstanding

 

 

 

 

 

 

Common stock, $0.001 par value, 100,000,000 shares authorized, 14,605,941 shares
   issued and
12,966,416 shares outstanding on October 31, 2023 and 14,447,149 
   shares issued and
13,233,151 shares outstanding on April 30, 2023

 

 

15

 

 

 

14

 

Additional paid in capital

 

 

274,708

 

 

 

272,784

 

Retained deficit

 

 

(66,411

)

 

 

(62,375

)

Treasury stock, at cost (1,639,525 shares on October 31, 2023 and
   
1,213,998 shares on April 30, 2023)

 

 

(22,321

)

 

 

(18,559

)

Total equity

 

 

185,991

 

 

 

191,864

 

Total liabilities and equity

 

$

243,650

 

 

$

243,587

 

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 October 31,

 

 

For the Six Months ended October 31,

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

 

 

(In thousands, except per share data)

Net sales

 

$

57,931

 

 

$

54,436

 

 

$

101,376

 

 

$

98,112

 

 

Cost of sales

 

 

31,441

 

 

 

28,474

 

 

 

55,167

 

 

 

53,111

 

 

Gross profit

 

 

26,490

 

 

 

25,962

 

 

 

46,209

 

 

 

45,001

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

1,675

 

 

 

1,557

 

 

 

3,274

 

 

 

3,313

 

 

Selling, marketing, and distribution

 

 

15,414

 

 

 

13,924

 

 

 

27,468

 

 

 

25,704

 

 

General and administrative

 

 

9,423

 

 

 

10,615

 

 

 

19,573

 

 

 

21,679

 

 

Total operating expenses

 

 

26,512

 

 

 

26,096

 

 

 

50,315

 

 

 

50,696

 

 

Operating loss

 

 

(22

)

 

 

(134

)

 

 

(4,106

)

 

 

(5,695

)

 

Other income, net:

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income, net

 

 

53

 

 

 

585

 

 

 

92

 

 

 

826

 

 

Interest income/(expense), net

 

 

6

 

 

 

(242

)

 

 

(7

)

 

 

(428

)

 

Total other income, net

 

 

59

 

 

 

343

 

 

 

85

 

 

 

398

 

 

Income/(loss) from operations before income taxes

 

 

37

 

 

 

209

 

 

 

(4,021

)

 

 

(5,297

)

 

Income tax (benefit)/expense

 

 

(40

)

 

 

(161

)

 

 

15

 

 

 

28

 

 

Net income/(loss)

 

$

77

 

 

$

370

 

 

$

(4,036

)

 

$

(5,325

)

 

Net income/(loss) per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.01

 

 

$

0.03

 

 

$

(0.31

)

 

$

(0.40

)

 

Diluted

 

$

0.01

 

 

$

0.03

 

 

$

(0.31

)

 

$

(0.40

)

 

Weighted average number of common shares
   outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

13,010

 

 

 

13,465

 

 

 

13,100

 

 

 

13,454

 

 

Diluted

 

 

13,256

 

 

 

13,589

 

 

 

13,100

 

 

 

13,454

 

 

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 October 31, 2023 and 2022

 

Shares

 

Amount

 

 

Paid-In
Capital

 

Retained
(Deficit)/Earnings

 

Shares

 

Amount

 

 

Total
Equity

 

Balance at July 31, 2022

 

 

14,292

 

 

$

14

 

 

$

268,855

 

 

$

(56,046

)

 

 

837

 

 

$

(15,025

)

 

$

197,798

 

Net income

 

 

 

 

 

 

 

 

 

 

 

370

 

 

 

 

 

 

 

 

 

370

 

Stock-based compensation

 

 

 

 

 

 

 

 

1,121

 

 

 

 

 

 

 

 

 

 

 

 

1,121

 

Shares issued under employee stock
   purchase plan

 

 

39

 

 

 

 

 

 

287

 

 

 

 

 

 

 

 

 

 

 

 

287

 

Issuance of common stock under
   restricted stock unit awards, net of
   tax

 

 

22

 

 

 

 

 

 

(43

)

 

 

 

 

 

 

 

 

 

 

 

(43

)

Repurchase of treasury stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

84

 

 

 

(756

)

 

 

(756

)

Balance at October 31, 2022

 

 

14,353

 

 

$

14

 

 

$

270,220

 

 

$

(55,676

)

 

 

921

 

 

$

(15,781

)

 

$

198,777

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at July 31, 2023

 

 

14,543

 

 

$

15

 

 

$

273,415

 

 

$

(66,488

)

 

 

1,482

 

 

$

(20,827

)

 

$

186,115

 

Net income

 

 

 

 

 

 

 

 

 

 

 

77

 

 

 

 

 

 

 

 

 

77

 

Stock-based compensation

 

 

 

 

 

 

 

 

1,005

 

 

 

 

 

 

 

 

 

 

 

 

1,005

 

Shares issued under employee stock
   purchase plan

 

 

47

 

 

 

 

 

 

339

 

 

 

 

 

 

 

 

 

 

 

 

339

 

Issuance of common stock under
   restricted stock unit awards, net of
   tax

 

 

16

 

 

 

 

 

 

(51

)

 

 

 

 

 

 

 

 

 

 

 

(51

)

Repurchase of treasury stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

158

 

 

 

(1,494

)

 

 

(1,494

)

Balance at October 31, 2023

 

 

14,606

 

 

$

15

 

 

$

274,708

 

 

$

(66,411

)

 

 

1,640

 

 

$

(22,321

)

 

$

185,991

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Additional

 

 

 

 

Treasury Stock

 

 

 

 

For the six months ended October 31, 2023 and 2022

 

Shares

 

Amount

 

 

Paid-In
Capital

 

Retained
Deficit

 

Shares

 

Amount

 

 

Total
Equity

 

Balance at April 30, 2022

 

 

14,240

 

 

$

14

 

 

$

268,393

 

 

$

(50,351

)

 

 

837

 

 

$

(15,025

)

 

$

203,031

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(5,325

)

 

 

 

 

 

 

 

 

(5,325

)

Stock-based compensation

 

 

 

 

 

 

 

 

1,835

 

 

 

 

 

 

 

 

 

 

 

 

1,835

 

Shares issued under employee stock
   purchase plan

 

 

39

 

 

 

 

 

 

287

 

 

 

 

 

 

 

 

 

 

 

 

287

 

Proceeds from exercise of stock options

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock under
   restricted stock unit awards, net of
   tax

 

 

74

 

 

 

 

 

 

(295

)

 

 

 

 

 

 

 

 

 

 

 

(295

)

Repurchase of treasury stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

84

 

 

 

(756

)

 

 

(756

)

Balance at October 31, 2022

 

 

14,353

 

 

$

14

 

 

$

270,220

 

 

$

(55,676

)

 

 

921

 

 

$

(15,781

)

 

$

198,777

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at April 30, 2023

 

 

14,447

 

 

$

14

 

 

$

272,784

 

 

$

(62,375

)

 

 

1,214

 

 

$

(18,559

)

 

$

191,864

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(4,036

)

 

 

 

 

 

 

 

 

(4,036

)

Stock-based compensation

 

 

 

 

 

 

 

 

1,938

 

 

 

 

 

 

 

 

 

 

 

 

1,938

 

Shares issued under employee stock
   purchase plan

 

 

47

 

 

 

 

 

 

339

 

 

 

 

 

 

 

 

 

 

 

 

339

 

Issuance of common stock under
   restricted stock unit awards, net of
   tax

 

 

112

 

 

 

1

 

 

 

(353

)

 

 

 

 

 

 

 

 

 

 

 

(352

)

Repurchase of treasury stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

426

 

 

 

(3,762

)

 

 

(3,762

)

Balance at October 31, 2023

 

 

14,606

 

 

$

15

 

 

$

274,708

 

 

$

(66,411

)

 

 

1,640

 

 

$

(22,321

)

 

$

185,991

 

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 Six Months Ended October 31,

 

 

2023

 

 

2022

 

 

(In thousands)

 

Cash flows from operating activities:

 

 

 

 

 

Net loss

$

(4,036

)

 

$

(5,325

)

Adjustments to reconcile net loss to net cash (used in)/provided by
   operating activities:

 

 

 

 

 

Depreciation and amortization

 

7,927

 

 

 

8,272

 

Loss/(gain) on sale/disposition of assets

 

7

 

 

 

(5

)

Provision for credit losses on accounts receivable

 

6

 

 

 

16

 

Stock-based compensation expense

 

1,938

 

 

 

1,835

 

Changes in operating assets and liabilities:

 

 

 

 

 

Accounts receivable

 

(13,607

)

 

 

(3,694

)

Inventories

 

(9,389

)

 

 

10,239

 

Prepaid expenses and other current assets

 

1,823

 

 

 

(2,781

)

Income taxes

 

950

 

 

 

(55

)

Accounts payable

 

6,331

 

 

 

(4,058

)

Accrued payroll, incentives, and profit sharing

 

1,119

 

 

 

(1,193

)

Right of use assets

 

592

 

 

 

868

 

Accrued expenses

 

3,530

 

 

 

3,016

 

Other assets

 

75

 

 

 

8

 

Lease liabilities

 

(465

)

 

 

(976

)

Other non-current liabilities

 

(16

)

 

 

 

Net cash (used in)/provided by operating activities

 

(3,215

)

 

 

6,167

 

Cash flows from investing activities:

 

 

 

 

 

Payments to acquire patents and software

 

(761

)

 

 

(2,495

)

Proceeds from sale of property and equipment

 

131

 

 

 

 

Payments to acquire property and equipment

 

(951

)

 

 

(816

)

Net cash used in investing activities

 

(1,581

)

 

 

(3,311

)

Cash flows from financing activities:

 

 

 

 

 

Payments on notes and loans payable

 

(5,000

)

 

 

(5,170

)

Payments to acquire treasury stock

 

(3,762

)

 

 

(756

)

Cash paid for debt issuance costs

 

 

 

 

(88

)

Proceeds from exercise of options to acquire common stock,
   including employee stock purchase plan

 

339

 

 

 

287

 

Payment of employee withholding tax related to restricted
   stock units

 

(352

)

 

 

(295

)

Net cash used in financing activities

 

(8,775

)

 

 

(6,022

)

Net decrease in cash and cash equivalents

 

(13,571

)

 

 

(3,166

)

Cash and cash equivalents, beginning of period

 

21,950

 

 

19,521

 

Cash and cash equivalents, end of period

$

8,379

 

 

$

16,355

 

Supplemental disclosure of cash flow information

 

 

 

 

 

Cash paid for:

 

 

 

 

 

Interest

$

196

 

 

$

393

 

Income taxes (net of refunds)

$

(936

)

 

$

86

 

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 and Six Months Ended October 31, 2023 and 2022

 

(1) Organization:

American Outdoor Brands, Inc. (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 all our products as well as manufacture some of our electro-optics products at our facility in Columbia, Missouri. We also contract for the manufacture and assembly of most of our products with third parties located in Asia.

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, or Grilla, Hooyman, Imperial, LaserLyte, Lockdown, MEAT! Your Maker, Old Timer, Schrade, Tipton, Uncle Henry, ust, and Wheeler, and we license additional brands for use in association with certain products we sell, including M&P, Smith & Wesson, Performance Center by Smith & Wesson, and Thompson/Center. In focusing on the growth of our brands, we organize our creative, product development, sourcing, and e-commerce teams into 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.

Our Adventurer brands include products that help enhance consumers’ fishing, outdoor cooking, and camping experiences.
Our Harvester brands focus on the activities hunters typically engage in, including the activities to prepare for the hunt, the hunt itself, and the activities that follow a hunt, such as meat processing.
Our Marksman brands address product needs arising from consumer activities that take place primarily at the shooting range and where firearms are cleaned, maintained, and worked on.
Our Defender brands include products that are used by consumers in situations that require self-defense and products that help safely secure, store, and maintain connectivity to those possessions that many consumers consider to be high value or high consequence.

 

(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, 2023. 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 October 31, 2023, our condensed consolidated statement of operations for the three and six months ended October 31, 2023 and 2022, and our condensed consolidated statement of cash flows for the six months ended October 31, 2023 and 2022. The consolidated balance sheet as of April 30, 2023 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.

9


AMERICAN OUTDOORS BRANDS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

For the Three and Six Months Ended October 31, 2023 and 2022

 

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. Revenue recorded excludes sales tax charged to retail customers as we are considered a pass-through conduit for collecting and remitting sales taxes.

The duration of contractual arrangements with customers in our wholesale channels is typically less than one year. Payment terms with customers are typically between 20 and 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 October 31, 2023 and 2022 (dollars in thousands):

 

 

 

2023

 

 

2022

 

 

$ Change

 

 

% Change

 

e-commerce channels

 

$

23,462

 

 

$

22,713

 

 

$

749

 

 

 

3.3

%

Traditional channels

 

 

34,469

 

 

 

31,723

 

 

 

2,746

 

 

 

8.7

%

Total net sales

 

$

57,931

 

 

$

54,436

 

 

$

3,495

 

 

 

6.4

%

 

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 operate primarily 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. The following table sets forth certain information regarding geographic makeup of net sales included in the above table for the three months ended October 31, 2023 and 2022 (dollars in thousands):

 

 

2023

 

 

2022

 

 

$ Change

 

 

% Change

 

Domestic net sales

 

$

54,982

 

 

$

52,106

 

 

$

2,876

 

 

 

5.5

%

International net sales

 

 

2,949

 

 

 

2,330

 

 

 

619

 

 

 

26.6

%

Total net sales

 

$

57,931

 

 

$

54,436

 

 

$

3,495

 

 

 

6.4

%

 

10


AMERICAN OUTDOORS BRANDS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

For the Three and Six Months Ended October 31, 2023 and 2022

 

 

The following table sets forth certain information regarding net sales in our shooting sports and outdoor lifestyle categories for the three months ended October 31, 2023 and 2022 (dollars in thousands):

 

 

2023

 

 

2022

 

 

$ Change

 

 

% Change

 

Shooting sports

 

$

23,371

 

 

$

24,191

 

 

$

(820

)

 

 

-3.4

%

Outdoor lifestyle

 

 

34,560

 

 

 

30,245

 

 

 

4,315

 

 

 

14.3

%

Total net sales

 

$

57,931

 

 

$

54,436

 

 

$

3,495

 

 

 

6.4

%

 

The following table sets forth certain information regarding trade channel net sales for the six months ended October 31, 2023 and 2022 (dollars in thousands):

 

 

 

2023

 

 

2022

 

 

$ Change

 

 

% Change

 

e-commerce channels

 

$

41,838

 

 

$

43,257

 

 

$

(1,419

)

 

 

-3.3

%

Traditional channels

 

 

59,538

 

 

 

54,855

 

 

 

4,683

 

 

 

8.5

%

Total net sales

 

$

101,376

 

 

$

98,112

 

 

$

3,264

 

 

 

3.3

%

 

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 six months ended October 31, 2023 and 2022 (dollars in thousands):

 

 

 

2023

 

 

2022

 

 

$ Change

 

 

% Change

 

Domestic net sales

 

$

94,771

 

 

$

92,382

 

 

$

2,389

 

 

 

2.6

%

International net sales

 

 

6,605

 

 

 

5,730

 

 

 

875

 

 

 

15.3

%

Total net sales

 

$

101,376

 

 

$

98,112

 

 

$

3,264

 

 

 

3.3

%

 

The following table sets forth certain information regarding net sales in our shooting sports and outdoor lifestyle categories for the six months ended October 31, 2023 and 2022 (dollars in thousands):

 

 

2023

 

 

2022

 

 

$ Change

 

 

% Change

 

Shooting sports

 

$

43,446

 

 

$

44,579

 

 

$

(1,133

)

 

 

-2.5

%

Outdoor lifestyle

 

 

57,930

 

 

 

53,533

 

 

 

4,397

 

 

 

8.2

%

Total net sales

 

$

101,376

 

 

$

98,112

 

 

$

3,264

 

 

 

3.3

%

Recently Adopted Accounting Standards

No recent accounting pronouncements are expected to have a material impact on our condensed consolidated financial statements.

(3) 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.

11


AMERICAN OUTDOORS BRANDS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

For the Three and Six Months Ended October 31, 2023 and 2022

 

The amounts of assets and liabilities related to our operating leases as of October 31, 2023 and April 30, 2023 are as follows (in thousands):

 

 

 

October 31, 2023

 

 

April 30, 2023

 

Operating Leases

 

 

 

 

 

 

Right-of-use assets

 

$

26,969

 

 

$

26,999

 

Accumulated amortization

 

 

(3,233

)

 

 

(2,801

)

Right-of-use assets, net

 

$

23,736

 

 

$

24,198

 

 

 

 

 

 

 

 

Lease liabilities, current portion

 

$

985

 

 

$

904

 

Lease liabilities, net of current portion

 

 

23,648

 

 

 

24,064

 

Total operating lease liabilities

 

$

24,633

 

 

$

24,968

 

 

 

 

 

 

 

 

For the three and six months ended October 31, 2023, we recorded $808,000 and $1.6 million, respectively, of operating lease costs, of which $6,000 and $8,000 were short-term operating lease costs. For the three and six months ended October 31, 2022, we recorded $1.1 million and $2.1 million, respectively, of operating lease costs, of which $41,000 and $88,000 were short-term operating lease costs. As of October 31, 2023, our weighted average lease term and weighted average discount rate for our operating leases were 15.1 years and 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.

 

Future lease payments for all our operating leases for the remainder of fiscal 2024 and for succeeding fiscal years, as of October 31, 2023, are as follows (in thousands):

 

 

 

 

Operating

 

2024

 

 

 

$

1,150

 

2025

 

 

 

 

2,300

 

2026

 

 

 

 

2,197

 

2027

 

 

 

 

2,207

 

2028

 

 

 

 

2,238

 

Thereafter

 

 

 

 

26,426

 

Total future lease payments

 

 

 

 

36,518

 

Less amounts representing interest

 

 

 

 

(11,885

)

Present value of lease payments

 

 

 

 

24,633

 

Less current maturities of lease liabilities

 

 

 

 

(985

)

Long-term maturities of lease liabilities

 

 

 

$

23,648

 

 

The cash paid for amounts included in the measurement of the liabilities and the operating cash flows was $465,000 and $976,000 for the six months ended October 31, 2023 and 2022, respectively.

 

12


AMERICAN OUTDOORS BRANDS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

For the Three and Six Months Ended October 31, 2023 and 2022

 

(4) Intangible Assets, net:

The following table summarizes intangible assets as of October 31, 2023 and April 30, 2023 (in thousands):

 

 

 

October 31, 2023

 

 

April 30, 2023

 

 

 

Gross

 

 

 

 

 

 

 

 

Gross

 

 

 

 

 

 

 

 

 

Carrying

 

 

Accumulated

 

 

Net Carrying

 

 

Carrying

 

 

Accumulated

 

 

Net Carrying

 

 

 

Amount

 

 

Amortization

 

Amount

 

Amount

 

Amortization

 

 

Amount

 

Customer relationships

 

$

89,980

 

 

$

(76,456

)

 

$

13,524

 

 

$

89,980

 

 

$

(74,035

)

 

$

15,945

 

Developed software and technology

 

 

27,308

 

 

 

(19,157

)

 

 

8,151

 

 

 

31,022

 

 

 

(21,978

)

 

 

9,044

 

Patents, trademarks, and trade names

 

 

69,246

 

 

 

(47,039

)

 

 

22,207

 

 

 

68,943

 

 

 

(44,042

)

 

 

24,901

 

 

 

186,534

 

 

 

(142,652

)

 

 

43,882

 

 

 

189,945

 

 

 

(140,055

)

 

 

49,890

 

Patents and software in development

 

 

2,039

 

 

 

 

 

 

2,039

 

 

 

1,701

 

 

 

 

 

 

1,701

 

Total definite-lived intangible assets

 

 

188,573

 

 

 

(142,652

)

 

 

45,921

 

 

 

191,646

 

 

 

(140,055

)

 

 

51,591

 

Indefinite-lived intangible assets

 

 

430

 

 

 

 

 

 

430

 

 

 

430

 

 

 

 

 

 

430

 

Total intangible assets

 

$

189,003

 

 

$

(142,652

)

 

$

46,351

 

 

$

192,076

 

 

$

(140,055

)

 

$

52,021

 

 

We amortize intangible assets with determinable lives over a weighted-average period of approximately five years. The weighted-average periods of amortization by intangible asset class is approximately five years for customer relationships, six years for developed software and technology, and six years for patents, trademarks, and trade names. Amortization expense amounted to $3.2 million and $3.3 million for the three months ended October 31, 2023 and 2022, respectively. Amortization expenses amounted to $6.5 million and $6.8 million for the six months ended October 31, 2023 and 2022, respectively.

Future expected amortization expense for the remainder of fiscal 2024 and for succeeding fiscal years, as of October 31, 2023, are as follows (in thousands):

 

Fiscal

 

Amount

 

2024

 

$

6,462

 

2025

 

 

9,500

 

2026

 

 

8,152

 

2027

 

 

5,798

 

2028

 

 

4,479

 

Thereafter

 

 

9,491

 

Total

 

$

43,882

 

 

(5) 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 $8.4 million as of October 31, 2023 and $22.0 million as of April 30, 2023. 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.

13


AMERICAN OUTDOORS BRANDS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

For the Three and Six Months Ended October 31, 2023 and 2022

 

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:

quoted prices for identical or similar assets or liabilities in non-active markets (such as corporate and municipal bonds which trade infrequently);
inputs other than quoted prices that are observable for substantially the full term of the asset or liability (such as interest rate and currency swaps); and
inputs that are derived principally from or corroborated by observable market data for substantially the full term of the asset or liability (such as certain securities and derivatives).

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 not have any Level 3 financial assets or liabilities as of October 31, 2023.

(6) Inventories:

The following table sets forth a summary of inventories, stated at lower of cost or net realizable value, as of October 31, 2023 and April 30, 2023 (in thousands):

 

 

 

October 31, 2023

 

 

April 30, 2023

 

Finished goods

 

$

98,445

 

 

$

90,906

 

Finished parts

 

 

2,860

 

 

 

2,818

 

Work in process

 

 

132

 

 

 

66

 

Raw material

 

 

7,686

 

 

 

5,944

 

Total inventories

 

$

109,123

 

 

$

99,734

 

 

Certain of our suppliers in Asia require deposits to procure our inventory prior to beginning the manufacturing process. These deposits on our inventory varies by supplier and range from 30% to 100%. As of October 31, 2023 and April 30, 2023, we have recorded $3.6 million and $4.3 million, respectively, of inventory on deposit in prepaid expenses and other current assets on our consolidated balance sheet.

(7) Debt:

On August 24, 2020, we entered into a financing arrangement consisting of a $50.0 million revolving line of credit secured by substantially all our assets, maturing 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 $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 $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 $15 million. 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 0.25% to a maximum of 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 October 31, 2023, we had no borrowings outstanding on the revolving line of credit. If we would have had borrowings at October 31, 2023, those borrowings would have borne interest at approximately 6.85%, which is equal to SOFR plus the applicable margin.

In the fiscal year ended April 30, 2023, we executed an irrevocable standby letter of credit for $1.7 million to collateralize duty drawback bonds. During the three months ended October 31, 2023, no amounts have been drawn on the letter of credit.

14


AMERICAN OUTDOORS BRANDS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

For the Three and Six Months Ended October 31, 2023 and 2022

 

(8) Equity:

Treasury Stock

On September 30, 2022, our Board of Directors authorized the repurchase of up to $10.0 million of our common stock, subject to certain conditions, in the open market, in block purchases, or in privately negotiated transactions. This authorization expired on September 29, 2023. On October 2, 2023, our Board of Directors authorized the repurchase of up to $10.0 million of our common stock, subject to certain conditions, in the open market, in block purchases, or in privately negotiated transactions, executable through September 30, 2024. During the three and six months ended October 31, 2023, under these authorizations, we repurchased 157,536 and 425,527 shares, respectively, of our common stock for $1.5 million and $3.8 million, respectively, utilizing cash on hand.

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. All of our outstanding restricted stock units, or RSUs, were included in the computation of diluted earnings per share for the three and six months ended October 31, 2023 and 2022.

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 October 31, 2023 and 2022 (in thousands, except per share data):

 

 

For the Three Months Ended October 31,

 

 

2023

 

 

2022

 

 

Net

 

 

 

 

 

Per Share

 

 

Net

 

 

 

 

 

Per Share

 

 

Income

 

 

Shares

 

 

Amount

 

 

Income

 

 

Shares

 

 

Amount

 

Basic earnings

$

 

77

 

 

 

13,010

 

 

$

 

0.01

 

 

$

 

370

 

 

 

13,465

 

 

$

 

0.03

 

Effect of dilutive stock awards

 

 

 

 

 

246

 

 

 

 

 

 

 

 

 

 

 

124

 

 

 

 

 

Diluted earnings

$

 

77

 

 

 

13,256

 

 

$

 

0.01

 

 

$

 

370

 

 

 

13,589

 

 

$

 

0.03

 

Due to the loss from operations for the six months ended October 31, 2023 and 2022, respectively, there are no common shares added to calculate dilutive earnings per share because the effect would be anti-dilutive.

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.

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, RSU grants to employees generally vest over a period of three or four years with one-third or one-fourth of the units vesting on each anniversary of the grant date, respectively. 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. We incorporate the following variables into the valuation model:

 

 

 

For the Six Months ended October 31,

 

 

 

2023

 

 

2022

 

Grant date fair market value

 

 

 

 

 

 

American Outdoor Brands, Inc.

 

$

8.79

 

 

$

12.70

 

Russell 2000 Index

 

$

1,769.21

 

 

$

1,882.91

 

Volatility (a)

 

 

 

 

 

 

American Outdoor Brands, Inc.

 

 

45.53

%

 

 

49.04

%

Russell 2000 Index

 

 

27.08

%

 

 

31.75

%

Correlation coefficient (b)

 

 

0.48

 

 

 

0.50

 

Risk-free interest rate (c)

 

 

3.81

%

 

 

2.91

%

Dividend yield (d)

 

 

0

%

 

 

0

%

 

15


AMERICAN OUTDOORS BRANDS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

For the Three and Six Months Ended October 31, 2023 and 2022

 

 

(a)
Expected volatility is calculated based on a peer group over the most recent period that represents the remaining term of the performance period as of the valuation date, or three years.
(b)
The correlation coefficient utilizes the same historical price data used to develop the volatility assumptions.
(c)
The risk-free interest rate is based on the yield of a zero-coupon U.S. Treasury bill, commensurate with the three-year performance period.
(d)
We do not expect to pay dividends in the foreseeable future.

The PSUs vest, and the fair value of such PSUs will be recognized, over the corresponding three-year performance period. Our PSUs have a maximum aggregate award equal to 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 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.

During the six months ended October 31, 2023, we granted an aggregate of 75,894 PSUs to our executive officers. We also granted 318,438 RSUs during the six months ended October 31, 2023, including 103,118 RSUs to executive officers and 215,320 to non-executive officer employees and directors under our 2020 Incentive Compensation Plan. During the six months ended October 31, 2023, 15,223 PSUs were cancelled, at target, as a result of the performance condition not being met, and 21,296 RSUs were cancelled as a result of the service condition not being met. In connection with the vesting of RSUs, during the six months ended October 31, 2023, we delivered common stock to our employees, including our executive officers and directors with a total market value of $1.3 million.

During the six months ended October 31, 2022, we granted an aggregate of 52,277 market-condition PSUs to our executive officers. We also granted 263,898 service-based RSUs during the six months ended October 31, 2022, including 52,277 RSUs to executive officers and 211,621 to non-executive officer employees and directors under our 2020 Incentive Compensation Plan. In addition, in connection with a 2019 grant, we vested 7,200 market-condition PSUs (i.e., the target amount granted), which achieved 200% of the maximum aggregate award possible, resulting in awards totaling 14,400 shares to certain of our executive officers and employees of our former parent. During the six months ended October 31, 2022, we cancelled 3,456 service-based RSUs as a result of the service condition not being met. In connection with the vesting of RSUs, during the six months ended October 31, 2022, we delivered common stock to our employees, including our executive officers and directors with a total market value of $1.1 million.

We recognized $1.0 million and $1.1 million of stock-based compensation expense for the three months ended October 31, 2023 and 2022, respectively. We recognized $1.9 million and $1.8 million of stock-based compensation expense for the six months ended October 31, 2023 and 2022, respectively.

We include stock-based compensation expense in the cost of sales, sales and marketing, research and development, and general and administrative expenses.

A summary of activity for unvested RSUs and PSUs under our 2020 Incentive Compensation Plan for the six months ended October 31, 2023 and 2022 is as follows:

 

 

 

For the Six Months Ended October 31,

 

 

 

2023

 

 

2022

 

 

 

 

 

 

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

 

 

560,579

 

 

$

13.36

 

 

 

349,774

 

 

$

15.93

 

Awarded

 

 

394,332

 

 

 

8.69

 

 

 

323,375

 

 

 

10.87

 

Vested

 

 

(161,149

)

 

 

11.86

 

 

 

(101,061

)

 

 

14.26

 

Forfeited

 

 

(51,742

)

 

 

9.62

 

 

 

(3,456

)

 

 

18.83

 

RSUs and PSUs outstanding, end of period

 

 

742,020

 

 

$

11.46

 

 

 

568,632

 

 

$

13.34

 

 

As of October 31, 2023, there was $3.4 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 1.5 years.

 

16


AMERICAN OUTDOORS BRANDS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

For the Three and Six Months Ended October 31, 2023 and 2022

 

We have an employee stock purchase plan, or ESPP, which authorizes the sale of up to 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 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 1% and not more than 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 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 2,500 shares, or a total of $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. During the six months ended October 31, 2023, 47,466 shares were purchased by our employees under our ESPP.

 

We measure the cost of employee services received in exchange for an award of an equity instrument based on the grant-date fair value of the award. We amortize the fair value of the award over the vesting period of the option. Under ESPP, fair value is determined at the beginning of the purchase period and amortized over the term of each exercise period.

 

The following assumptions were used in valuing ESPP purchases under our ESPP during the six months ended October 31, 2023 and 2022:

 

For the Six Months ended October 31,

 

 

2023

 

 

2022

 

Risk-free interest rate

 

5.46% - 5.53%

 

 

3.97% - 4.01%

 

Expected term

 

6 months - 12 months

 

 

6 months - 12 months

 

Expected volatility

 

43.2% - 48.9%

 

 

51.9% - 58.4%

 

Dividend yield

 

 

0

%

 

 

0

%

 

(9) Accrued Expenses:

The following table sets forth other accrued expenses as of October 31, 2023 and April 30, 2023 (in thousands):

 

October 31, 2023

 

 

April 30, 2023

 

Accrued freight

$

3,984

 

 

$

1,962

 

Accrued sales allowances

 

3,579

 

 

 

2,453

 

Accrued professional fees

 

1,255

 

 

 

1,106

 

Accrued commissions

 

1,291

 

 

 

1,072

 

Accrued warranty

 

948

 

 

 

966

 

Accrued employee benefits

 

518

 

 

 

568

 

Accrued taxes other than income

 

358

 

 

 

346

 

Accrued other

 

338

 

 

 

268

 

Total accrued expenses

$

12,271

 

 

$

8,741

 

 

 

(10) 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 benefit of $40,000 and $161,000 for the three months ended October 31, 2023 and 2022, respectively. The effective tax rate for the three months ended October 31, 2023 and 2022 was (108.1%) and (77.0%), respectively. Income tax expense for the three months ended October 31, 2022 included a discrete tax expense of $40,000 associated with stock-based compensation. We recorded

17


AMERICAN OUTDOORS BRANDS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

For the Three and Six Months Ended October 31, 2023 and 2022

 

income tax expense of $15,000 and $28,000 for the six months ended October 31, 2023 and 2022, respectively. The effective tax rate for the six months ended October 31, 2023 and 2022 was (0.4%) and (0.5%), respectively.

(11) 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 and six months ended October 31, 2023 and 2022, 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.

 

Assignment and Assumption Agreement

 

On January 31, 2023, we entered an Assignment Agreement with our former parent company and RCS – S&W Facility, LLC to assign to us the rights of the tenant under the Lease Agreement, dated October 26, 2017, as amended by the First Amendment of Lease Agreement, dated October 25, 2018, and as further amended by the Second Amendment to Lease Agreement, dated January 31, 2019 (collectively, the “Lease”), which assignment will be effective on January 1, 2024, subject to certain conditions.

 

The Lease covers approximately 632,000 square feet of building and surrounding property located at 1800 North Route Z, Columbia, Boone County, Missouri, or the Building where we currently sublease approximately 361,000 square feet from our former parent company, or the Sublease. If the conditions precedent set forth in the Assignment Agreement are satisfied, then effective on January 1, 2024, we will no longer be subject to the provisions and terms of the Sublease, but instead we will have use of the entire Building under the Lease. The Lease provides the tenant with an option to expand the Building by up to 491,000 additional square feet. The Lease term ends on November 26, 2038 and, pursuant to the Assignment Agreement, does not provide for an extension of the term of the Lease. Upon the effectiveness of the Lease assignment, the total annual expense under the Lease, including base rent, is estimated at $3.7 million, which represents an incremental $1.3 million above our annual expense under the Sublease, which we expect will be entirely offset by savings from facility consolidations completed in fiscal 2023 and efficiencies gained in our distribution processes. We expect an increase of $12.8 million will be recorded as a right-of-use asset on our consolidated balance sheet, when effective. We also expect to receive tax and other incentives from federal, state, and local governmental authorities previously received by our former parent. Our former parent will guarantee the Lease through the end of the term.

 

Gain Contingency

 

In 2018, the United States imposed additional section 301 tariffs of up to 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 sell 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.

18


AMERICAN OUTDOORS BRANDS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

For the Three and Six Months Ended October 31, 2023 and 2022

 

(12) Segment Reporting:

We have evaluated our operations under ASC 280-10-50-1 – Segment Reporting and have concluded that we are operating as 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 21 distinct brands that are organized into 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 as well as our electro-optics products, which we develop, source, market, assemble, and distribute from our facility in Columbia, Missouri. 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 and six months ended October 31, 2023 and 2022 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, 2023. 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.

Second Quarter Fiscal 2023 Highlights

Our operating results for the three months ended October 31, 2023 included the following:

Net sales were $57.9 million, an increase of $3.5 million or 6.4%, from the comparable quarter last year.
Gross margin was 45.7%, a decrease of 200 basis points from the comparable quarter last year.
Net income was $77,000, or $0.01 per diluted share, compared with a net income of $370,000, or $0.03 per diluted share, for the comparable quarter last year.
Non-GAAP Adjusted EBITDAS was $5.2 million for the three months ended October 31, 2023 compared with $6.4 million for the three months ended October 31, 2022. See non-GAAP financial measure disclosures below for our reconciliation of non-GAAP Adjusted EBITDAS.

Our operating results for the six months ended October 31, 2023 included the following:

Net sales were $101.4 million, an increase of $3.3 million, or 3.3%, from the prior year comparable period.
Gross margin was 45.6%, a decrease of 30 basis points from the prior year comparable period.
Net loss was $3.9 million, or $0.29 per diluted share, compared with a net loss of $5.3 million, or $0.40 per diluted share, for the prior year comparable period.
Non-GAAP Adjusted EBITDAS was $6.4 million for the six months ended October 31, 2023 compared with $7.8 million for the six months ended October 31, 2022. See non-GAAP financial measure disclosures below for our reconciliation of non-GAAP Adjusted EBITDAS.

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 October 31, 2023 and 2022 (dollars in thousands):

 

 

 

2023

 

 

2022

 

 

$ Change

 

 

% Change

 

Net sales

 

$

57,931

 

 

$

54,436

 

 

$

3,495

 

 

 

6.4

%

Cost of sales

 

 

31,441

 

 

 

28,474

 

 

 

2,967

 

 

 

10.4

%

Gross profit

 

$

26,490

 

 

$

25,962

 

 

$

528

 

 

 

2.0

%

% of net sales (gross margin)

 

 

45.7

%

 

 

47.7

%

 

 

 

 

 

 

 

The following table sets forth certain information regarding trade channel net sales for the three months ended October 31, 2023 and 2022 (dollars in thousands):

 

20


 

 

 

2023

 

 

2022

 

 

$ Change

 

 

% Change

 

e-commerce channels

 

$

23,462

 

 

$

22,713

 

 

$

749

 

 

 

3.3

%

Traditional channels

 

 

34,469

 

 

 

31,723

 

 

 

2,746

 

 

 

8.7

%

Total net sales

 

$

57,931

 

 

$

54,436

 

 

$

3,495

 

 

 

6.4

%

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 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 October 31, 2023 and 2022 (dollars in thousands):

 

 

 

2023

 

 

2022

 

 

$ Change

 

 

% Change

 

Domestic net sales

 

$

54,982

 

 

$

52,106

 

 

$

2,876

 

 

 

5.5

%

International net sales

 

 

2,949

 

 

 

2,330

 

 

 

619

 

 

 

26.6

%

Total net sales

 

$

57,931

 

 

$

54,436

 

 

$

3,495

 

 

 

6.4

%

 

The following table sets forth certain information regarding net sales categories for the three months ended October 31, 2023 and 2022 (dollars in thousands):

 

 

 

2023

 

 

2022

 

 

$ Change

 

 

% Change

 

Shooting sports

 

$

23,371

 

 

$

24,191

 

 

$

(820

)

 

 

-3.4

%

Outdoor lifestyle

 

 

34,560

 

 

 

30,245

 

 

 

4,315

 

 

 

14.3

%

Total net sales

 

$

57,931

 

 

$

54,436

 

 

$

3,495

 

 

 

6.4

%

 

For the three months ended October 31, 2023, total net sales increased $3.5 million, or 6.4%, from the comparable quarter last year because of an increase in net sales of our outdoor lifestyle products.

 

Net sales in our e-commerce channel increased $749,000, or 3.3%, from the comparable quarter last year, primarily because of an increase in net sales to the world's largest e-commerce retailer as a result of promotional activity, which primarily related to our hunting and shooting sports products. Our increase in net sales in our e-commerce channel was partially offset by lower net sales of personal protection products in our shooting sports product category and outdoor cooking products in our outdoor lifestyle product category.

 

Net sales in our traditional channels increased $2.7 million, or 8.7%, from the comparable quarter last year, primarily because of increased net sales in our outdoor lifestyle category for our hunting and rugged outdoor products from additional demand and because we began selling one of our direct-to-consumer only brands at retail during the three months ended October 31, 2023.

New products, which we define as any SKU introduced over the prior two fiscal years, represented 25.3% of net sales for the three months ended October 31, 2023.

 

Gross margin for the three months ended October 31, 2023 decreased 200 basis points from the comparable quarter last year, primarily because of promotional product discounts.

 

The following table sets forth certain information regarding consolidated net sales and gross profit for the six months ended October 31, 2023 and 2022 (dollars in thousands):

 

 

 

2023

 

 

2022

 

 

$ Change

 

 

% Change

 

Net sales

 

$

101,376

 

 

$

98,112

 

 

$

3,264

 

 

 

3.3

%

Cost of sales

 

 

55,167

 

 

 

53,111

 

 

 

2,056

 

 

 

3.9

%

Gross profit

 

$

46,209

 

 

$

45,001

 

 

$

1,208

 

 

 

2.7

%

% of net sales (gross margin)

 

 

45.6

%

 

 

45.9

%

 

 

 

 

 

 

 

21


 

The following table sets forth certain information regarding trade channel net sales for the six months ended October 31, 2023 and 2022 (dollars in thousands):

 

 

 

2023

 

 

2022

 

 

$ Change

 

 

% Change

 

e-commerce channels

 

$

41,838

 

 

$

43,257

 

 

$

(1,419

)

 

 

-3.3

%

Traditional channels

 

 

59,538

 

 

 

54,855

 

 

 

4,683

 

 

 

8.5

%

Total net sales

 

$

101,376

 

 

$

98,112

 

 

$

3,264

 

 

 

3.3

%

The following table sets forth certain information regarding geographic makeup of net sales included in the above table for the six months ended October 31, 2023 and 2022 (dollars in thousands):

 

 

 

2023

 

 

2022

 

 

$ Change

 

 

% Change

 

Domestic net sales

 

$

94,771

 

 

$

92,382

 

 

$

2,389

 

 

 

2.6

%

International net sales

 

 

6,605

 

 

 

5,730

 

 

 

875

 

 

 

15.3

%

Total net sales

 

$

101,376

 

 

$

98,112

 

 

$

3,264

 

 

 

3.3

%

The following table sets forth certain information regarding net sales categories for the six months ended October 31, 2023 and 2022 (dollars in thousands):

 

 

 

2023

 

 

2022

 

 

$ Change

 

 

% Change

 

Shooting sports

 

$

43,446

 

 

$

44,579

 

 

$

(1,133

)

 

 

-2.5

%

Outdoor lifestyle

 

 

57,930

 

 

 

53,533

 

 

 

4,397

 

 

 

8.2

%

Total net sales

 

$

101,376

 

 

$

98,112

 

 

$

3,264

 

 

 

3.3

%

 

For the six months ended October 31, 2023, total net sales increased $3.3 million, or 3.3%, from the prior year comparable period because of an increase in net sales of our outdoor lifestyle products.

 

Net sales in our e-commerce channel decreased $1.4 million, or 3.3%, from the prior year comparable period, primarily because of lower net sales to the world's largest e-commerce retailer as a result of reduced demand. In addition, our e-commerce channel decreased because of lower net sales for certain personal protection products in our shooting sports product category and certain outdoor cooking products in our outdoor lifestyle product category. Our decline in net sales in our e-commerce channel was partially offset by higher net sales for certain hunting and shooting products in our outdoor lifestyle product category as a result of additional promotional activity mentioned above.

 

Net sales in our traditional channels increased $4.7 million, or 8.5%, from the prior year comparable period, primarily because of increased net sales in our outdoor lifestyle category as a result of new hunting and rugged outdoor product introductions. In addition, our traditional channel net sales increased because we began selling one of our direct-to-consumer only brands at retail as mentioned above.

New products, which we define as any SKU introduced over the prior two fiscal years, represented 23.5% of net sales for the six months ended October 31, 2023.

 

Gross margin for the six months ended October 31, 2023 remained relatively flat from the prior year comparable period.

Operating Expenses

The following table sets forth certain information regarding operating expenses for the three months ended October 31, 2023 and 2022 (dollars in thousands):

 

 

 

2023

 

 

2022

 

 

$ Change

 

 

% Change

 

Research and development

 

$

1,675

 

 

$

1,557

 

 

$

118

 

 

 

7.6

%

Selling, marketing, and distribution

 

 

15,414

 

 

 

13,924

 

 

 

1,490

 

 

 

10.7

%

General and administrative

 

 

9,423

 

 

 

10,615

 

 

 

(1,192

)

 

 

-11.2

%

Total operating expenses

 

$

26,512

 

 

$

26,096

 

 

$

416

 

 

 

1.6

%

% of net sales

 

 

45.8

%

 

 

47.9

%

 

 

 

 

 

 

 

22


 

Research and development expenses increased $118,000 over the comparable quarter last year, primarily from increased depreciation. Selling, marketing, and distribution expenses increased $1.5 million over the comparable quarter last year, primarily because of increased outbound freight costs and higher sales volume related expenses. General and administrative expenses decreased $1.2 million from the comparable quarter last year, primarily because of lower insurance premiums, reduced enterprise resource planning system implementation-related expenses, and lower rent expense as result of the facility consolidations we completed in the prior fiscal year.

 

The following table sets forth certain information regarding operating expenses for the six months ended October 31, 2023 and 2022 (dollars in thousands):

 

 

 

2023

 

 

2022

 

 

$ Change

 

 

% Change

 

Research and development

 

$

3,274

 

 

$

3,313

 

 

$

(39

)

 

 

-1.2

%

Selling, marketing, and distribution

 

 

27,468

 

 

 

25,704

 

 

 

1,764

 

 

 

6.9

%

General and administrative

 

 

19,573

 

 

 

21,679

 

 

 

(2,106

)

 

 

-9.7

%

Total operating expenses

 

$

50,315

 

 

$

50,696

 

 

$

(381

)

 

 

-0.8

%

% of net sales

 

 

49.6

%

 

 

51.7

%

 

 

 

 

 

 

 

Research and development expenses were relatively flat with the prior year comparable period. Selling, marketing, and distribution expenses increased $1.8 million over the prior year comparable period, primarily because of increased outbound freight costs and higher sales volume related expenses. General and administrative expenses decreased $2.1 from the prior year comparable period, primarily because of lower legal and advisory fees associated with the completed cooperation agreement with a stockholder that was completed in the prior fiscal year, reduced enterprise resource planning system implementation-related expenses, and lower rent expense as result of the facility consolidations we completed in the prior fiscal year.

Operating Loss

The following table sets forth certain information regarding operating income/(loss) for the three months ended October 31, 2023 and 2022 (dollars in thousands):

 

 

 

2023

 

 

2022

 

 

$ Change

 

 

% Change

 

Operating loss

 

$

(22

)

 

$

(134

)

 

$

112

 

 

 

-83.6

%

% of net sales (operating margin)

 

 

0.0

%

 

 

-0.2

%

 

 

 

 

 

 

 

Operating loss for the three months ended October 31, 2023 was $22,000, a $112,000 increase from an operating loss of $134,000 for the three months ended October 31, 2022, primarily because of lower operating expenses.

 

The following table sets forth certain information regarding operating loss for the six months ended October 31, 2023 and 2022 (dollars in thousands):

 

 

 

2023

 

 

2022

 

 

$ Change

 

 

% Change

 

Operating loss

 

$

(4,106

)

 

$

(5,695

)

 

$

1,589

 

 

 

-27.9

%

% of net sales (operating margin)

 

 

-4.1

%

 

 

-5.8

%

 

 

 

 

 

 

 

Operating loss for the six months ended October 31, 2023 was $4.1 million, a $1.6 million decrease from an operating loss of $5.7 million for the six months ended October 31, 2022, primarily because of higher gross profit and lower operating expenses.

Income Taxes

The following table sets forth certain information regarding income tax benefit for the three months ended October 31, 2023 and 2022 (dollars in thousands):

 

 

 

2023

 

 

2022

 

 

$ Change

 

 

% Change

 

Income tax benefit

 

$

(40

)

 

$

(161

)

 

$

121

 

 

 

-75.2

%

% of income from operations (effective tax rate)

 

 

-108.1

%

 

 

-77.0

%

 

 

 

 

 

-31.1

%

 

23


 

We recorded income tax benefit of $40,000 for the three months ended October 31, 2023 compared with income tax benefit of $161,000 for the prior year comparable period because of a higher estimated effective tax rate. The income tax expense recorded for the three months ended October 31, 2023 and 2022 was primarily due to a full valuation allowance recorded against our deferred tax assets.

 

The following table sets forth certain information regarding income tax expense for the six months ended October 31, 2023 and 2022 (dollars in thousands):

 

 

 

2023

 

 

2022

 

 

$ Change

 

 

% Change

 

Income tax expense

 

$

15

 

 

$

28

 

 

$

(13

)

 

 

-46.4

%

% of income from operations (effective tax rate)

 

 

-0.4

%

 

 

-0.5

%

 

 

 

 

 

0.1

%

 

We recorded income tax expense of $15,000 for the six months ended October 31, 2023, compared with income tax expense of $28,000 for the prior year comparable period. The income tax expense recorded during the six months ended October 31, 2023 and 2022 was primarily due to a full valuation allowance recorded against our deferred tax assets.

Net Income/(loss)

The following table sets forth certain information regarding net income and the related per share data for the three months ended October 31, 2023 and 2022 (dollars in thousands, except per share data):

 

 

 

2023

 

 

2022

 

 

$ Change

 

 

% Change

 

Net income

 

$

77

 

 

$

370

 

 

$

(293

)

 

 

-79.2

%

Net income per share

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.01

 

 

$

0.03

 

 

$

(0.02

)

 

 

-66.7

%

Diluted

 

$

0.01

 

 

$

0.03

 

 

$

(0.02

)

 

 

-66.7

%

 

Net income was $77,000, or $0.01 per diluted share, for the three months ended October 31, 2023 compared with net income of $370,000, or $0.03 per share, for the comparable quarter last year, primarily because of higher gross profit.

 

The following table sets forth certain information regarding net loss and the related per share data for the six months ended October 31, 2023 and 2022 (dollars in thousands, except per share data):

 

 

 

2023

 

 

2022

 

 

$ Change

 

 

% Change

 

Net loss

 

$

(4,036

)

 

$

(5,325

)

 

$

1,289

 

 

 

-24.2

%

Net loss per share

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(0.31

)

 

$

(0.40

)

 

$

0.09

 

 

 

-22.5

%

Diluted

 

$

(0.31

)

 

$

(0.40

)

 

$

0.09

 

 

 

-22.5

%

 

Net loss was $4.0 million, or $0.31 per diluted share, for the six months ended October 31, 2023 compared with net loss of $5.3 million, or $0.40 per share, for the prior year comparable period, primarily because of lower operating expenses and higher 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

24


 

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.

The following table sets forth our calculation of non-GAAP Adjusted EBITDAS for the three and six months ended October 31, 2023 and 2022, respectively (dollars in thousands):

 

For the Three Months Ended October 31,

 

 

For the Six Months Ended October 31,

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

(Unaudited)

 

GAAP net income/(loss)

$

 

77

 

 

$

 

370

 

 

$

 

(4,036

)

 

$

 

(5,325

)

Interest expense

 

 

(6

)

 

 

 

242

 

 

 

 

7

 

 

 

 

428

 

Income tax expense/(benefit)

 

 

(40

)

 

 

 

(161

)

 

 

 

15

 

 

 

 

28

 

Depreciation and amortization

 

 

3,935

 

 

 

 

4,110

 

 

 

 

7,880

 

 

 

 

8,272

 

Stock compensation

 

 

1,005

 

 

 

 

1,121

 

 

 

 

1,938

 

 

 

 

1,835

 

Technology implementation

 

 

66

 

 

 

 

273

 

 

 

 

359

 

 

 

 

1,042

 

Acquisition costs

 

 

 

 

 

 

 

 

 

 

 

 

 

 

47

 

Facility consolidation costs

 

 

 

 

 

 

292

 

 

 

 

 

 

 

 

292

 

Stockholder cooperation agreement costs

 

 

 

 

 

 

167

 

 

 

 

 

 

 

 

1,177

 

Other

 

 

204

 

 

 

 

 

 

 

 

204

 

 

 

 

 

Non-GAAP Adjusted EBITDAS

$

 

5,241

 

 

$

 

6,414

 

 

$

 

6,367

 

 

$

 

7,796

 

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; to hire additional employees; to fund growth strategies, including any potential acquisitions; to make payments on any indebtedness we may incur over time; and to repurchase shares of our common stock if we are authorized to do so.

The following table sets forth certain cash flow information for the six months ended October 31, 2023 and 2022 (dollars in thousands):

 

 

2023

 

 

2022

 

 

$ Change

 

 

% Change

 

Operating activities

 

$

(3,215

)

 

$

6,167

 

 

$

(9,382

)

 

 

-152.1

%

Investing activities

 

 

(1,581

)

 

 

(3,311

)

 

 

1,730

 

 

 

-52.3

%

Financing activities

 

 

(8,775

)

 

 

(6,022

)

 

 

(2,753

)

 

 

45.7

%

Total cash flow

 

$

(13,571

)

 

$

(3,166

)

 

$

(10,405

)

 

 

328.6

%

Operating Activities

On an annual basis, operating activities generally represent the principal source of our cash flow.

Cash used in operating activities was $3.2 million for the six months ended October 31, 2023 compared with cash generated by operating activities of $6.2 million for the six months ended October 31, 2022. Cash used in operating activities for the six months ended October 31, 2023 was primarily impacted by $13.6 million of higher accounts receivable due to timing of customer shipments and $9.4 million of higher inventory as a result of a planned inventory build during the period to prepare for the fall hunting and winter holiday seasons as well as additional purchases for new product introductions that will launch later in the year. We expect that our overall inventory balance will decline by the end of our fiscal year ending April 30, 2024, as compared to our overall inventory balance as of October 31, 2023. Cash used in operations was partially offset by $6.3 million of increased accounts payable due to timing of supplier payments from increased inventory purchases; $3.5 million of increased accrued expenses from higher freight, tariff, and duty expenses for the import of inventory products; and $1.8 million of lower prepaid expenses from lower deposits on inventory and insurance premium costs.

25


 

Investing Activities

Cash used in investing activities was $1.6 million lower during the six months ended October 31, 2023 compared with the prior year comparable period, primarily from reduced spending on the development and implementation of our independent information technology infrastructure and enterprise resource planning system that was completed in the prior fiscal year. We expect to spend approximately $6.0 million to $7.0 million of capital expenditures in fiscal 2024, an increase of $1.1 million to $2.1 million over fiscal 2023.

Financing Activities

Cash used in financing activities was $8.8 million for the six months ended October 31, 2023, primarily from $5.0 million to payoff all our borrowings on our revolving line of credit and $3.8 million used to repurchase 425,527 shares of our common stock.

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, any acquisitions or strategic investments that we may determine to make, 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 $8.4 million of cash equivalents on hand as of October 31, 2023 and had $22.0 million in cash and cash equivalents on hand as of April 30, 2023.

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, 2023. 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, 2023, 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.

 

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 October 31, 2023, 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 October 31, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

26


 

PART II — OTHER INFORMATION

The nature of legal proceedings against us is discussed in Note 11 — 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 June 28, 2023, 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

 

The following table sets forth certain information relating to the purchases of our common stock by us and any affiliated purchases within the meaning of Rule 10b5-1 of the Exchange Act during the six months ended October 31, 2023 (dollars in thousands, except per share data):

 

 

 

Total # of

 

 

Average

 

 

Total # of Shares Purchased as Part of Publicly Announced

 

 

Maximum Dollar Value of Shares that May Yet Be Purchased

 

 

 

Shares

 

 

Price Paid

 

 

Plan or

 

 

Under the Plan

 

Period

 

Purchased

 

 

Per Share (2)

 

 

Program (1)

 

 

or Program

 

Total first quarter fiscal year 2024

 

 

267,991

 

 

$

 

8.43

 

 

 

267,991

 

 

$

 

4,217

 

   August 1, 2023 to August 31, 2023

 

 

59,221

 

 

 

 

9.49

 

 

 

327,212

 

 

 

 

3,655

 

   September 1, 2023 to September 30, 2023

 

 

48,344

 

 

 

 

9.61

 

 

 

375,556

 

 

 

 

 

   October 1, 2023 to October 31, 2023

 

 

49,971

 

 

 

 

9.27

 

 

 

425,527

 

 

 

 

9,537

 

Total second quarter fiscal year 2024

 

 

157,536

 

 

 

 

9.46

 

 

 

425,527

 

 

 

 

9,537

 

Total year-to-date fiscal year 2024

 

 

425,527

 

 

$

 

8.81

 

 

 

425,527

 

 

$

 

9,537

 

(1) On September 30, 2022, our Board of Directors authorized the repurchase of up to $10.0 million of our common stock, subject to certain conditions, in the open market, in block purchases, or in privately negotiated transactions. This authorization expired on September 29, 2023. We purchased $375,556 shares during the six months ended October 31, 2023 under this expired plan for a total of $3.3 million, utilizing cash on hand. On October 2, 2023, our Board of Directors authorized the repurchase of up to $10.0 million of our common stock, subject to certain conditions, in the open market, in block purchases, or in privately negotiated transactions, executable through September 30, 2024. We purchased 49,971 shares during the six months ended October 31, 2023 under the new authorization for a total of $464,000, utilizing cash on hand. During the three and six months ended October 31, 2023, under these authorizations, we repurchased a total of 157,536 and 425,527 shares, respectively, of our common stock for $1.5 million and $3.8 million, respectively, utilizing cash on hand. As of October 31, 2023, we have $9.5 million of available funds to repurchase our common stock under the current authorization.

(2) The average price per share excludes fees paid to acquire the shares.

 

Item 5. Other Information

During the quarter ended October 31, 2023, none of our directors or officers adopted or terminated a "Rule 10b5-1 trading arrangement" or a "non-Rule 10b5-1 trading arrangement" (in each case, as defined in item 408 of Regulation S-K).

27


 

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.

 

INDEX TO EXHIBITS

 

 

 

 

 

 

  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

Section 1350 Certification of Principal Executive Officer

 

 

  32.2

Section 1350 Certification of Principal Financial Officer

 

 

 

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).

 

 

 

 

28


 

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: November 30, 2023

By:

/s/ Brian D. Murphy

Brian D. Murphy

President and Chief Executive Officer

 

 

 

Date: November 30, 2023

By:

/s/ H. Andrew Fulmer

H. Andrew Fulmer

Executive Vice President,

Chief Financial Officer, and Treasurer

 

29