American Out of doors Manufacturers, Inc. (AOUT) Q3 2024 Earnings Name Transcript

American Out of doors Manufacturers, Inc. (NASDAQ:AOUT) Q3 2024 Earnings Convention Name March 7, 2024 5:00 PM ET

Company Contributors

Liz Sharp – Vice President, Investor Relations

Brian Murphy – President and Chief Govt Officer

Andy Fulmer – Govt Vice President and Chief Monetary Officer

Convention Name Contributors

Aaron Wright – Lake Road Capital Markets

Mike Zabran – ROTH MKM

Operator

Good day, everybody, and welcome to American Out of doors Manufacturers, Inc. Third Quarter Fiscal 2024 Monetary Outcomes Convention Name. This name is being recorded.

At the moment, I want to flip the decision over to Liz Sharp, Vice President of Investor Relations, for some details about at this time’s name. Liz?

Liz Sharp

Thanks, and good afternoon.

Our feedback at this time could comprise predictions, estimates and different forward-looking statements. Our use of phrases like anticipate, venture, estimate, anticipate, intend, ought to, may, point out, recommend, consider and different comparable expressions is meant to determine these forward-looking statements. Ahead-looking statements additionally embrace statements concerning our product growth, focus, targets, methods and imaginative and prescient, our strategic evolution, our market share and market demand for our merchandise, market and stock circumstances associated to our merchandise and in our trade usually, and development alternatives and developments.

Our forward-looking statements signify our present judgment concerning the future, and they’re topic to numerous dangers and uncertainties. Danger components and different issues that would trigger our precise outcomes to be materially completely different are described in our securities filings. Yow will discover these paperwork, in addition to a replay of this name on our web site at aob.com.

Right now’s name incorporates time-sensitive info that’s correct solely as of this time, and we assume no obligation to replace any forward-looking statements. Our precise outcomes may differ materially from our statements at this time.

I’ve a number of necessary objects to notice about our feedback on at this time’s name. First, we reference sure non-GAAP monetary measures. Our non-GAAP outcomes exclude amortization of acquired intangible belongings, inventory compensation, shareholder cooperation settlement prices, facility consolidation prices, know-how implementation, acquisition prices, different prices and earnings tax changes. The reconciliations of GAAP monetary measures to non-GAAP monetary measures, whether or not they’re mentioned on at this time’s name, may be present in our filings, in addition to at this time’s earnings press launch, that are posted on our web site. Additionally, after we reference EPS, we’re at all times referencing fully-diluted EPS.

Becoming a member of us on at this time’s name is Brian Murphy, President and CEO and Andy Fulmer, CFO.

And with that, I’ll flip the decision over to Brian.

Brian Murphy

Thanks, Liz, and thanks, everybody, for becoming a member of us.

We delivered a stable third quarter, and I am very happy with our outcomes, which included high line gross sales development, disciplined capital administration and the disclosing of a number of strategically necessary product introductions that we consider develop our manufacturers’ runway for development. I consider our outcomes display our capability to stay targeted on our long-term technique, whereas efficiently navigating the near-term setting.

Our third quarter gross sales mirror a development of greater than 23% over our pre-pandemic third quarter of fiscal 2020, together with our acquisition of Grilla Grills in fiscal 2022. For the third quarter, we delivered web gross sales development of 5%, a outcome that got here in forward of our expectations and was supported by our numerous portfolio, evidenced by stronger gross sales throughout quite a few manufacturers inside our Taking pictures Sports activities and Out of doors Life-style classes, which each delivered web gross sales development. As well as, our e-commerce and conventional channels skilled web gross sales development within the quarter.

In our Out of doors Life-style class, which consists of merchandise associated to looking, fishing, tenting, outside cooking and rugged outside actions, we delivered third quarter year-over-year development of two.8%. That development was led by power in our looking and fishing-related merchandise and mirrored the success of our technique to determine incremental retail alternatives, together with the growth of our MEAT! Your Maker meat processing tools into the retail channel final quarter.

On a long-term foundation, our Out of doors Life-style class has grown greater than 43% in comparison with the pre-pandemic third quarter of fiscal 2020, together with the Grilla acquisition. I consider this outcome displays the success of our technique to develop this a part of our enterprise. In truth, our Out of doors Life-style class comprised over 54% of our whole web gross sales within the third quarter.

Turning now to our Taking pictures Sports activities class, which incorporates options for goal taking pictures, aiming, protected storage, cleansing and upkeep, and private safety. We delivered development of seven.6% in comparison with the prior 12 months. This outcome was led by our capability to clear some slower shifting stock within the private safety class, mixed with stronger gross sales in taking pictures equipment. We’re particularly happy with this outcome, given reviews from firearm producers within the quarter that continued to quote decreased client demand.

With regard to channel gross sales within the third quarter, we delivered gross sales development in each our conventional and e-commerce channels, reflecting our technique to make sure that our manufacturers meet the patron wherever they store. We additionally delivered gross sales development in our home and worldwide channels, reflecting our technique to develop into worldwide markets. In truth, our worldwide gross sales grew by over 72% within the quarter, the results of introducing extra of our way of life manufacturers to the Canadian market.

With regard to sell-through, we collect point-of-sale and channel stock information from retailers that signify about half of our gross sales. We had been happy with our POS outcomes this quarter. POS gross sales elevated for each our Out of doors Life-style and Taking pictures Sports activities classes.

Now, turning to innovation, which is core to our long-term development technique. Our capability to innovate permits us to drive development by coming into new product classes, and it is pushed by our Dock and Unlock course of. Our method typically consists of making a brand new product with proprietary IP and utilizing that product to determine a beachhead for a given model.

From there, we fan out, creating incremental merchandise that permit us to enter new product classes and transfer from that single level of entry to a full household of merchandise that construct upon the model’s familiarity and its loyal following. We have confirmed the success of this method prior to now with our BUBBA model, shifting from a single handbook fillet knife to a full household of fishing merchandise that now consists of our BUBBA Professional Sequence Good Fish Scale, which was quickly adopted and is now the official scale for Main League Fishing.

Within the third quarter, we once more demonstrated the success of this method by unveiling quite a few revolutionary and internally developed new merchandise below our Caldwell, Grilla and Hooyman manufacturers. I consider these merchandise signify the tip of the iceberg as we execute towards a sturdy new product pipeline that extends nicely into the following 5 years, offering us with a long-term aggressive benefit, and uniquely positioning our manufacturers to develop market share, enter new product classes and markets, and broaden our distribution channels.

Now, let me share among the thrilling product particulars. In a sea of electrical clay throwers, most powered by wires related to a 40-pound automotive battery, Caldwell caught the eye of clay shooters final 12 months after we launched the world’s first battery-free, foot-operated clay thrower with a stackable clay hopper known as the Claymore. It has been very profitable, to say the least. When creating the Claymore, we additionally stumbled upon a spot within the market. There have been few product choices accessible between the 2 fundamental kinds of clay throwers. Handheld, that are typically entry-level and decrease priced and stationary clay throwers, which are usually far more costly. Our answer, the Caldwell Claymore Solo which leverages the identical battery-free mechanics of the unique Claymore, however hundreds and throws one clay at a time as an alternative of being stack fed. Due to this, it is remarkably gentle at simply 15 kilos, half the burden of the unique Claymore, and competitively priced, filling a spot with innovation and excessive worth. However we did not cease there.

We appeared on the clay thrower market and questioned why customers needed to compromise throwing distance when selecting between a handheld thrower and a stationary one. We additionally acknowledged the good thing about with the ability to change the angle of the goal with a handheld thrower. Nonetheless, most like the power to securely maintain a clay in place when tilting the thrower earlier than launch. We solved each of those issues with the Caldwell Claymore PullPup. Our new handheld thrower can simply launch clay targets over 55 yards, whereas our twin grip design, mixed with a novel holding clip, permits customers to simply launch targets off camber at a wide range of angles.

Subsequent, we noticed a possibility for our new Grilla model to satisfy its promise to assist customers evolve their yard. One of many advantages of proudly owning a model that is solely direct to client is the nearer connection it brings to the precise consumer, together with product concepts. Grilla customers expressed frustration with the vertical smoker choices from rivals. Suggestions included lack of area, restricted meat rack and hanging choices, poor smoke era, and few choices to manage and monitor cooking.

We have solved all of these issues with the brand new Mammoth vertical smoker, which options over 1,600 sq. inches of smoking area, accommodates as much as 10 racks and 24 hangers, places out a beneficiant quantity of smoke utilizing our proprietary carry warmth deflector, and makes use of our new Alpha Join 2.0 controller to manage and monitor cooking. The Mammoth completely hit the mark, and we proceed to promote out every new container of Mammoth vertical people who smoke as they arrive, demonstrating the highly effective nature of Grilla’s reference to the patron.

Lastly, as our Hooyman model has expanded into land administration merchandise, we have recognized a number of classes riddled with client ache factors ripe for innovation. One such space is seed spreaders; seed may be very costly. And if it is advisable cowl a big space, two issues stand out, pace and precision. After releasing our first seed spreader final 12 months, the Hooyman chest-mounted spreader, we turned our consideration to high-capacity spreaders. These are generally mounted to automobiles, together with ATVs.

We found that along with pace and precision, customers needed to overcome two further ache factors with vehicle-mounted spreaders. One, a very cumbersome attachment course of, and two, frustration from seed spilling from the hopper anytime precision and distance changes had been made. Our new 125-pound capability Hooyman car spreaders solved all of those issues, enabling the consumer to connect our spreader in below 60 seconds and modify the spreader’s accuracy with out compromising beneficial seed.

With these merchandise in hand, we attended SHOT Present in January, an annual trade occasion that’s typically targeted on new shooting-related merchandise. Our Caldwell model is at all times well-liked at SHOT, and the brand new Claymore merchandise had been extraordinarily nicely obtained. And whereas attendees weren’t stunned to see Caldwell on the present, they had been stunned and really to see a full Grilla outside kitchen setup, the brand new Mammoth smoker, our MEAT! Your Maker meat processing tools, and our Hooyman product lineup, all of which had been brand-new to SHOT, and the reception was large.

However most significantly, we had been capable of expose these manufacturers to a completely new viewers, retailers and adjoining distribution channels. Elevated and expanded distribution channel alternatives are one in every of our 4 development avenues that comprise our long-term strategic plan, and they’re significantly strategic given the present retail setting.

As we have mentioned on prior calls, the surge in client shopping for through the pandemic allowed retailers in our trade to develop into much less selective when stocking their cabinets. However at this time’s client is extra discerning, and retailers have shifted in the direction of cautious stock administration, in search of out compelling merchandise that buyers really need. At AOB, we consider that by introducing a gradual stream of revolutionary options backed by fanatic manufacturers, we are able to seize market share, achieve new placement and develop shelf area with retailers wanting to attract on the patron.

With that, I am going to flip it over to Andy to debate our monetary outcomes.

Andy Fulmer

Thanks, Brian.

Our third quarter outcomes included rising our web gross sales over final 12 months, strengthening our stability sheet and returning capital to shareholders, all whereas navigating the setting of client uncertainty and cautious retailer conduct which have marked the previous few quarters. Let me stroll you thru the small print.

Internet gross sales for Q3 of $53.4 million elevated 5% over Q3 final 12 months. These outcomes had been barely forward of our expectations by about $2.5 million, as sure orders we had initially anticipated in This fall occurred in Q3. In comparison with pre-pandemic Q3 of fiscal 2020, web gross sales elevated by 23.3%, together with the acquisition of Grilla.

On a class foundation, we noticed development in each Out of doors Life-style and Taking pictures Sports activities web gross sales. In comparison with Q3 final 12 months, Out of doors Life-style grew virtually 3%, pushed by fishing and looking merchandise, and Taking pictures Sports activities grew by virtually 8%, pushed by will increase in each private safety and taking pictures equipment. In comparison with pre-pandemic Q3 of fiscal 2020, the Out of doors Life-style class grew by 43.1%, as Brian talked about, and Taking pictures Sports activities grew by virtually 6%.

On a channel foundation, conventional web gross sales elevated by 8.1% and e-commerce elevated by 1.6% in comparison with Q3 final 12 months. As a reminder, our e-commerce channel consists of direct-to-consumer gross sales from our personal web sites, in addition to gross sales by on-line retailers that do not need brick-and-mortar shops. Direct-to-consumer gross sales in Q3 had been up over the prior 12 months, led by very sturdy Black Friday weekend gross sales of MEAT! and Grilla, as we outlined on our final name that power was considerably offset by decrease gross sales to on-line retailers.

Turning now to gross margin, as we mentioned on our final name, stock purchases within the first half of fiscal 2024 had been larger than purchases within the first half of fiscal 2023, a interval after we had been actively driving down stock ranges so as to strengthen our stability sheet. The upper stage of buying in Q1 and Q2 this 12 months drove larger tariff and freight variances, which then have to be amortized over stock turns roughly 6 months later. That elevated amortization, mixed with a barely larger stage of promotional exercise yielded gross margin for the third quarter of 42.7% in comparison with 47.1% within the third quarter final 12 months.

Turning to working bills, GAAP working bills for the quarter decreased $1.3 million to $25.7 million. The lower was pushed primarily by decreased G&A, ensuing from decrease insurance coverage and IT prices and decrease hire expense as a result of facility consolidations we accomplished final 12 months. On a non-GAAP foundation, working bills decreased in Q3 to $21.5 million in comparison with $22 million in Q3 of final 12 months for the explanations I simply outlined. Non-GAAP working bills exclude intangible amortization, inventory compensation and sure non-recurring bills as they happen.

GAAP EPS was a lack of $0.23 for the third quarter in comparison with a lack of $0.21 in Q3 final 12 months. On a non-GAAP foundation, EPS was $0.08 in Q3 this 12 months in comparison with $0.13 within the prior 12 months. Our Q3 figures are primarily based on our absolutely diluted share rely of roughly 12.9 million shares. For full fiscal 2024, we anticipate our absolutely diluted share rely will probably be about 13.3 million shares. Adjusted EBITDAS for the quarter was $2.4 million in comparison with $3.3 million final 12 months.

Turning to the stability sheet and money circulate, constructive money circulate within the third quarter helped us proceed to strengthen our stability sheet. We ended the third quarter with money of $15.9 million and no debt after repurchasing roughly $1.8 million of our frequent inventory. On prior calls, we have outlined that the seasonal nature of our enterprise sometimes leads to working money outflow within the first half of the 12 months after we expertise will increase in accounts receivable and stock. That is sometimes adopted by constructive money influx within the second half of the 12 months as we gather these receivables and decrease our stock ranges. This sample is enjoying out as anticipated in fiscal 2024. We generated $13 million of working money in Q3, and we anticipate to generate money in This fall.

Working money influx in Q3 was primarily pushed by a lower in accounts receivable of $13.2 million and a lower of stock of $9.1 million, netted by a lower in accounts payable of $8.4 million. The crew did a wonderful job decreasing our stock ranges extra shortly than anticipated, and subsequently, we anticipate inventories to be roughly flat from Q3 to This fall. Our stability sheet stays debt free. We ended the quarter with no excellent stability on our $75 million expandable line of credit score, and we now have whole accessible capital of roughly $106 million.

With regard to capital expenditures, we spent $3.7 million on CapEx within the third quarter. Roughly $2.9 million of this spending was from a deliberate one-time buy of belongings referring to the complete lease assumption of our Columbia, Missouri headquarters. We now have lowered our deliberate CapEx spending for the complete 12 months by $500,000, and we now anticipate whole CapEx spend for fiscal 2024 to be between $6 million and $6.5 million, of which roughly $3 million to $3.5 million is recurring.

Lastly, a key capital allocation precedence for our firm is returning capital to shareholders by way of our share repurchase program. In Q3, we repurchased roughly 210,000 shares for $1.8 million at a median value of $8.50 per share. On the finish of Q3, we had $7.8 million of availability remaining on our $10 million share repurchase program by way of September 2024.

Now, turning to our outlook, our web gross sales outlook stays unchanged, and we proceed to consider that fiscal 2024 may ship full 12 months web gross sales development of as much as 3.5%.

Turning to gross margins, we anticipate to see gross margins are available at roughly 44% on a full fiscal 2024 foundation, which might indicate a decline in This fall gross margins from final 12 months. This anticipated decline is as a result of larger tariff and freight value amortization that I mentioned earlier.

With regard to OpEx, we proceed to consider that total working bills will decline barely on a GAAP foundation for fiscal 2024 on account of reductions from facility consolidations, decrease one-time authorized and advisory charges, and decrease IT implementation prices, offset by larger promoting and distribution prices. On a non-GAAP foundation, we anticipate that OpEx will enhance barely, primarily as a result of larger promoting and distribution prices. And recall right here that we have now SHOT Present in our third quarter, which provides promoting and advertising prices in Q3 that do not happen in This fall. Based mostly on these components, we anticipate our adjusted EBITDAS margin for the complete fiscal 2024 to be between 4.5% and 5%.

Brian?

Brian Murphy

Thanks, Andy. I consider our third quarter outcomes display our capability to handle the weather inside our management, delivering development, innovation and a loyal buyer base for our well-liked manufacturers, whereas prudently managing our capital to permit us to spend money on our long-term development. We now have an awesome portfolio of genuine way of life manufacturers and a rising lineup of thrilling and revolutionary merchandise that proceed to resonate with fanatics who’re obsessed with their outside actions.

With that, operator, please open the decision for questions from our analysts.

Query-and-Reply Session

Operator

[Operator Instructions] Right now’s first query comes from Mark Smith with Lake Road Capital Markets.

Aaron Wright

That is Aaron on the road for Mark. Congrats on the quarter. So I suppose to start out, sort of simply questioning if you happen to can sort of unpack the stock ranges at retailers a bit bit. I do know you had some commentary within the ready remarks there. However have you ever seen any enchancment since final quarter? And I am additionally simply sort of curious simply in your basic stage of confidence that you just guys are going to see some progress there shifting ahead right here.

Brian Murphy

Sure. Was it Aaron?

Aaron Wright

Appropriate. Sure.

Brian Murphy

Okay. Aaron, that is Brian. So, sure, we mentioned, look, POS was up within the quarter. We did not give any perception into stock. Stock was down within the channel, which is up a bit bit in Out of doors Life-style due to a part of the MEAT! load-in and the work with Academy. However excluding that, on either side of the fence, Out of doors Life-style and Taking pictures Sports activities, stock was down. In order that’s constructive.

After which, I might say just a few context or colour, like we mentioned, we had been at SHOT Present in Vegas, and we meet with loads of our large retailers. Stock destocking simply was not a high precedence there. So we’re largely targeted on moving into a traditional cadence. Trying ahead to the following 12 months, the massive theme that we took away was innovation, which clearly is the place we play. That is one in every of our strengths. So much less of an element, and I feel we’re seeing nice pull-through at retail proper now.

Aaron Wright

Nice. That is very useful. Thanks for that colour. After which, in earlier quarters, you have type of remained targeted on rising organically by way of your innovation efforts. And I suppose R&D has been type of at a snug stage for you guys. So does your confidence with inner innovation efforts, I am simply curious, does it have an effect on your urge for food on the M&A markets to any diploma?

Brian Murphy

Sure. That is Brian. It is a actually good query. I feel one of many issues that almost all in all probability do not have as a lot perception into is, we talked about the place we have now permission to play, the place our manufacturers have permission to play. And that permission to play for our manufacturers is what finally informs, I might say, we have now a 5-year development plan of recent merchandise going ahead. That is primarily based on that permission to play.

So after we take a look at acquisitions, we are saying, the place do not our manufacturers have permission to play? Or the place can we increase perhaps a few of these plans? A great instance of that may be with Grilla, proper? One of many causes we went as much as Grilla, along with being an awesome direct-to-consumer model and it has this differentiation with modular kitchens, is we had been truly wanting to enter outside cooking with MEAT! Your Maker. And the extra we went down that highway and speaking with customers, we simply felt prefer it wasn’t the fitting match. And so, that is what helped give us the conviction to go after Grilla was that we may take a few of these improvements that we had developed, and we name it, placing it within the vault. We may take them out of the vault after which use them for a few of these manufacturers that we go purchase.

So it is actually the place do not our manufacturers have permission to play however we do as an organization? After which, in some circumstances, the place can we truly increase among the innovation that we have already developed however could not have the fitting model for, in order that’s actually how we take a look at it and actually helps inform our acquisitions.

Aaron Wright

Nice. Sure. Completely comprehensible. Thanks for all that colour, and once more, congrats on the quarter.

Operator

The following query comes from Matt Koranda with ROTH MKM.

Mike Zabran

It is Mike Zabran on for Matt. Perhaps simply beginning on the gross sales information, it implies a low-single-digit development charge within the fourth quarter, someplace a bit beneath the third quarter development. Any purpose to anticipate the deceleration in development within the fourth quarter¸ or are we extra so simply being conservative, given the continued warning from retailers?

Andy Fulmer

Mike, that is Andy. It is an awesome query. I’d attribute it extra to simply the cyclical quarter-by-quarter seasonal nature of our enterprise. So sometimes, Q2, Q3 are larger, This fall is a bit bit decrease. So I would not actually put any extra emphasis on that.

Mike Zabran

Obtained it. Okay. And perhaps on channel stock, you sort of talked about it earlier, however perhaps simply communicate to what we’re seeing with regard to sell-in versus sell-through at retail. After which, are there any areas the place we see alternative for larger load-in profit wanting forward?

Brian Murphy

Positive. That is Brian. So sure, I feel going again, gosh, two-plus years. We talked about, finally what we need to have is the closest hyperlink potential between sell-in and sell-through. We do not need to be have an excessive amount of of our product within the channel. We would like there to be as a lot of a good hyperlink as potential in order that after we see our POS information, it permits all of our inner groups, stock administration groups, our S&OP course of to have the ability to order the fitting product and never have an excessive amount of of it and get it right here on the proper time. So we really feel like that, that hyperlink is fairly sturdy proper now. We’re not seeing a complete lot of slack within the system at the very least with our firm.

After which, I am sorry, what was the second a part of your query?

Mike Zabran

Simply any areas the place we see alternative for larger load-in forward? We talked about it taking place a bit bit on this quarter.

Brian Murphy

Sure. So replens are, we’re seeing nice replenishment proper now. After which, we have new merchandise which might be at all times popping out. We have got some new merchandise which might be going to be hitting on the finish of April and transport to shops, so we’ll see some profit there. That ought to embrace some load-ins. After which, we have not talked about subsequent 12 months but, however definitely our conversations with retailers, line evaluations that we had final fall that went very, very nicely, ought to go nicely for us and see some load-ins for these new merchandise subsequent 12 months. Along with new distribution, we have some new retailers coming on-line that we’re very enthusiastic about.

Mike Zabran

Obtained it. That is nice to listen to. Final one for me. We talked about balancing inner innovation versus M&A earlier within the Q&A. However perhaps simply communicate to, I suppose, your urge for food to be acquisitive within the close to time period, perhaps. The stability sheet seems to be nice however simply any modifications on this entrance. Have we seen something attention-grabbing, any developments there?

Brian Murphy

Sure. It is Brian once more. And Andy, be happy to chime in. So typically, when it comes to our philosophy, we are usually a bit bit extra cautious after we see multiples go means up and the market turns into extra frothy. We did Grilla over the previous few years, but it surely was very selective and really focused. And now, we’re seeing type of the M&A market has come down, slowed down a bit bit. We’re seeing indicators of it starting to choose again up; we’re seeing a number of extra decks from banks with sell-side offers. And we could not be in a greater place.

Such as you alluded to, we’re in an awesome money place. We now have dry powder. We now have no debt and so, we’re on the hunt. We’re actively wanting, assembly with firms immediately or by way of advisers. However we have an awesome pipeline that we’re executing towards and also you by no means know when one goes to hit. However we have a really clear perspective on who it’s that we have to go after, and we’re executing on that.

Mike Zabran

Obtained it. That is off from me guys. Congrats on the quarter.

Operator

This concludes our question-and-answer session. I might like to show the decision again over to Brian Murphy for closing remarks.

Brian Murphy

Thanks, operator. Earlier than we shut, I need to let everybody know that we’ll be taking part within the ROTH Convention in California on March 18 and 19 and hope to see a few of you there.

I need to additionally thank our workers for his or her dedication and our shareholders for his or her help. Thanks everybody for becoming a member of us at this time. We look ahead to talking with you once more subsequent quarter.

Operator

The convention has now concluded. Thanks to your participation. You might now disconnect your strains.