SEC Filing | American Outdoor Brands Inc.

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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, 2021

Commission File No. 001-39366

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 14,184,946 shares of common stock, par value $0.001, outstanding as of December 2, 2021.

AMERICAN OUTDOOR BRANDS, INC.

Quarterly Report on Form 10-Q

For the Three and Six Months Ended October 31, 2021 and 2020

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	22
	Item 3. Quantitative and Qualitative Disclosures About Market Risk	30
	Item 4. Controls and Procedures	30

PART II - OTHER INFORMATION
	Item 1. Legal Proceedings	31
	Item 1A. Risk Factors	31
	Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	31
	Item 6. Exhibits	31
Signatures		32

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®, 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®, T/C®, and Thompson/Center Arms™, 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:

•

future lease payments for all our operating leases for the remainder of fiscal 2022 and for succeeding fiscal years;

•

future expected amortization expense for the remainder of fiscal 2022 and for succeeding fiscal years;

•

our expectation that the unrecognized compensation expense related to unvested RSUs and PSUs will be recognized over a weighted average remaining contractual term of 1.7 years;

•

our expectation of spending approximately $7.5 million to $8.5 million for capital expenditures in fiscal 2022;

•

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, including the establishment of our independent information technology infrastructure and enterprise resource planning systems, any acquisitions or strategic investments that we may determine to make, and our ability to navigate through the many negative business impacts from the COVID-19 pandemic;

•

the possibility that further equity or debt financing may not be available to us on acceptable terms or at all;

•

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 of any indebtedness we may incur over time; and develop our independent information technology infrastructure, including the implementation of our enterprise resource planning systems;

•

our estimation that our information technology infrastructure will cost a total of approximately $8.0 million over a period that spans fiscal 2022 and fiscal 2023;

•

our expectation for capital expenditures of approximately $3.5 million and one-time operating expenses of approximately $1.6 million in fiscal 2022;

•

our expectation to record approximately $1.2 million of duplicative expenses, in fiscal 2022, as we operate both our existing and our new information technology and enterprise resource planning platforms in parallel during the system changeover period;

•

our expectation for capital expenditures of approximately $2.0 million and one-time operating expense of approximately $1.0 million in fiscal 2023;

•

the possibility that worsening of conditions or increased fears of the COVID-19 pandemic could have a renewed and prolonged effect on manufacturing or employment in Asia, travel to and from Asia, or other restrictions on imports, all of which could have a longer-term effect on our sales and profitability in future periods;

•

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; and

•

our expectation that our inventory will decrease in our second half of fiscal 2022 because of seasonality in our business that has historically generated increased demand during the holiday shopping season and the anticipation of new product introductions over the remainder of our fiscal year.

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:

•

the effects of the COVID-19 pandemic and related aftermath, including 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, product 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 U.S. Presidential, Congressional, 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 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 are based on information available to us as of the date hereof and speak only as of such date. Except as required by law, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements. The forward-looking statements contained in or incorporated by reference into this Quarterly Report on Form 10-Q reflect our views as of the date of this Quarterly Report on Form 10-Q about future events and are subject to risks, uncertainties, assumptions, and changes in circumstances that may cause our actual results, performance, or achievements to differ significantly from those expressed or implied in any forward-looking statement. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future events, results, performance, or achievements.

We are subject to the informational requirements of the Exchange Act, and we file or furnish reports, proxy statements, and other information with the SEC. Such reports and other information we file with the SEC are available free of charge at https://ir.aob.com/financial-information/sec-filings as soon as practicable after such reports are available on the SEC’s website at www.sec.gov. The SEC’s website contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

AMERICAN OUTDOOR BRANDS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	As of:
	October 31, 2021 (Unaudited)		April 30, 2021
	(In thousands, except par value and share data)
ASSETS
Current assets:
Cash and cash equivalents	$	32,603	$	60,801
Accounts receivable, net of allowance for credit losses of $98 on October 31, 2021 and $119 on April 30, 2021		49,644		37,487
Inventories		104,973		74,296
Prepaid expenses and other current assets		11,191		7,098
Income tax receivable		121		149
Total current assets		198,532		179,831
Property, plant, and equipment, net		12,447		10,992
Intangible assets, net		46,978		53,643
Goodwill		64,315		64,315
Right-of-use assets		24,722		25,375
Deferred income taxes		7,086		6,683
Other assets		358		424
Total assets	$	354,438	$	341,263
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	20,081	$	16,021
Accrued expenses		14,480		9,843
Accrued payroll and incentives		3,808		6,774
Lease liabilities, current		1,888		1,771
Accrued profit sharing		922		1,933
Total current liabilities		41,179		36,342
Lease liabilities, net of current portion		23,931		24,780
Other non-current liabilities		59		236
Total liabilities		65,169		61,358
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, 14,182,730 shares issued and outstanding on October 31, 2021 and 14,059,440 shares issued and outstanding on April 30, 2021		14		14
Additional paid in capital		266,686		265,362
Retained earnings		22,569		14,529
Total equity		289,269		279,905
Total liabilities and equity	$	354,438	$	341,263

See accompanying notes to unaudited consolidated and combined financial statements.

AMERICAN OUTDOOR BRANDS, INC. AND SUBSIDIARIES

CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(Unaudited)

	For the Three Months ended October 31,					For the Six Months ended October 31,
	2021			2020		2021			2020
	(In thousands, except per share data)
Net sales (including $882,000 and $2.4 million of related party sales for the one month and four months of our fiscal year 2021, respectively, prior to the Separation)	$	70,760		$	79,098	$	131,528		$	129,565
Cost of sales		37,723			42,025		69,508			68,762
Gross profit		33,037			37,073		62,020			60,803
Operating expenses:
Research and development		1,457			1,932		2,977			3,162
Selling, marketing, and distribution		15,664			15,679		28,864			26,305
General and administrative		10,615			9,898		20,654			19,308
Total operating expenses		27,736			27,509		52,495			48,775
Operating income		5,301			9,564		9,525			12,028
Other income/(expense), net:
Other income, net		619			127		747			211
Interest (expense)/income, net		(53	)		56		(99	)		392
Total other income, net		566			183		648			603
Income from operations before income taxes		5,867			9,747		10,173			12,631
Income tax expense		1,284			2,408		2,133			3,503
Net income/comprehensive income	$	4,583		$	7,339	$	8,040		$	9,128
Net income per share:
Basic	$	0.32		$	0.52	$	0.57		$	0.65
Diluted	$	0.32		$	0.52	$	0.56		$	0.65
Weighted average number of common shares outstanding:
Basic		14,135			13,981		14,109			13,978
Diluted		14,348			14,155		14,369			14,125

See accompanying notes to unaudited consolidated and combined financial statements.

AMERICAN OUTDOOR BRANDS, INC. AND SUBSIDIARIES

CONSOLIDATED AND COMBINED STATEMENTS OF EQUITY

(Unaudited)

(In thousands)


	Common Stock				Former Net Parent			Additional
For the three months ended October 31, 2021 and 2020	Shares		Amount		Company Investment			Paid-In Capital			Retained Earnings		Total Equity
Balance at July 31, 2020		—	$	—	$	227,342		$	—		$	—	$	227,342
Net Income		—		—		2,087			—			5,252		7,339
Stock-based compensation		—		—		—			776			—		776
Issuance of common stock under restricted stock unit awards		17		—		—			—			—		—
Net transfers from former Parent		—		—		33,328			—			—		33,328
Issuance of common stock and reclassification of former net parent company investment		13,975		14		(262,757	)		262,743			—		—
Balance at October 31, 2020		13,992	$	14	$	—		$	263,519		$	5,252	$	268,785

Balance at July 31, 2021		14,100	$	14	$	—		$	265,807		$	17,986	$	283,807
Net Income		—		—		—			—			4,583		4,583
Stock-based compensation		—		—		—			664			—		664
Shares issued under employee stock purchase plan		35		—		—			408			—		408
Issuance of common stock under restricted stock unit awards, net of tax		48		—		—			(193	)		—		(193	)
Balance at October 31, 2021		14,183	$	14	$	—		$	266,686		$	22,569	$	289,269

	Common Stock				Former Net Parent			Additional
For the six months ended October 31, 2021 and 2020	Shares		Amount		Company Investment			Paid-In Capital			Retained Earnings		Total Equity
Balance at April 30, 2020		—	$	—	$	224,098		$	—		$	—	$	224,098
Net Income		—		—		3,876			—			5,252		9,128
Stock-based compensation		—		—		—			776			—		776
Issuance of common stock under restricted stock unit awards		17		—		—			—			—		—
Net transfers from former Parent		—		—		34,783			—			—		34,783
Issuance of common stock and reclassification of former net parent company investment		13,975		14		(262,757	)		262,743			—		—
Balance at October 31, 2020		13,992	$	14	$	—		$	263,519		$	5,252	$	268,785

Balance at April 30, 2021		14,059	$	14	$	—		$	265,362		$	14,529	$	279,905
Net Income		—		—		—			—			8,040		8,040
Stock-based compensation		—		—		—			1,416			—		1,416
Shares issued under employee stock purchase plan		35		—		—			408			—		408
Proceeds from exercise of stock options		3		—		—			5			—		5
Issuance of common stock under restricted stock unit awards, net of tax		86		—		—			(505	)		—		(505	)
Balance at October 31, 2021		14,183	$	14	$	—		$	266,686		$	22,569	$	289,269

See accompanying notes to unaudited consolidated and combined financial statements.

AMERICAN OUTDOOR BRANDS, INC. AND SUBSIDIARIES

CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS

(Unaudited)

	For the Six Months Ended October 31,
	2021			2020
	(In thousands)
Cash flows from operating activities:
Net income	$	8,040		$	9,128
Adjustments to reconcile net income to net cash provided by/(used in) operating activities:
Depreciation and amortization		8,386			10,459
Loss on sale/disposition of assets		127			—
Provision for credit losses on accounts receivable		38			174
Deferred income taxes		(403	)		(780	)
Stock-based compensation expense		1,416			1,196
Changes in operating assets and liabilities:
Accounts receivable		(12,195	)		(21,955	)
Inventories		(30,677	)		(13,576	)
Prepaid expenses and other current assets		(4,093	)		(2,654	)
Income taxes		28			2,546
Accounts payable		3,632			11,716
Accrued payroll and incentives		(2,966	)		2,421
Right of use assets		812			586
Accrued profit sharing		(1,011	)		86
Accrued expenses		4,637			5,690
Other assets		23			(451	)
Lease liabilities		(891	)		(728	)
Other non-current liabilities		(177	)		598
Net cash (used in)/provided by operating activities		(25,274	)		4,456
Cash flows from investing activities:
Payments to acquire patents and software		(292	)		(378	)
Payments to acquire property and equipment		(2,540	)		(1,728	)
Net cash used in investing activities		(2,832	)		(2,106	)
Cash flows from financing activities: