10-Q
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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 July 31, 2022

Commission File No. 001-39366

 

https://cdn.kscope.io/ac8749fb740a765fa47002edfd5b50a3-img13635363_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 13,456,529 shares of common stock, par value $0.001, outstanding as of September 1, 2022.

 

 


 

AMERICAN OUTDOOR BRANDS, INC.

Quarterly Report on Form 10-Q

For the Three Months Ended July 31, 2022 and 2021

 

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

 

25

 

Item 4. Controls and Procedures

 

25

 

 

 

 

PART II - OTHER INFORMATION

 

 

 

Item 1. Legal Proceedings

 

26

 

Item 1A. Risk Factors

 

26

 

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

 

26

 

Item 6. Exhibits

 

27

Signatures

 

28

 

Accumax®, BOG®, Bubba®, Caldwell®, Deadshot®, Deathgrip®, Delta Series®, E-MAX®, F.A.T. Wrench®, Fieldpod®, Frankford Arsenal®, Golden Rod®, Hooyman®, Imperial®, Intellidropper®, Lead Sled®, Lockdown®, Mag Charger®, Old Timer®, Schrade®, Sharpfinger®, Tipton®, Grilla®, Grilla Grills®, Uncle Henry®, ust®, Wheeler®, XLA Bipod®, Crimson Trace®, Lasergrips®, Laserguard®, LaserLyte®, Lasersaddle®, Lightguard®, Rail Master®, are some of the registered U.S. trademarks of our company or one of our subsidiaries. AOB Products Company™, Dock and Unlock ™, Don’t Be Outdoorsy – Be Outdoors™, Engineered for the Unknown™, From Niche to Known™, Lockdown Puck™, MEAT!™, MEAT Your Maker!™, Secure Your Lifestyle™, The Ultimate Lifestyle™, Unmatched Accuracy at the Bench and in the Field™, Water to Plate™, Your Land. Your Legacy™, are some of the unregistered trademarks of our company or one of our subsidiaries. Trademarks licensed to us by Smith & Wesson Brands, Inc. in connection with the manufacture, distribution, marketing, advertising, promotion, merchandising, shipping, and sale of certain licensed accessory product categories include M&P®, Performance Center®, Smith & Wesson®, and T/C®, among others. This report also may contain trademarks and trade names of other companies.

 


 

Statement Regarding Forward-Looking Information

 

The statements contained in this Quarterly Report on Form 10-Q that are not historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. All statements other than statements of historical facts contained or incorporated herein by reference in this Quarterly Report on Form 10-Q, including statements regarding our future operating results, future financial position, business strategy, objectives, goals, plans, prospects, markets, and plans and objectives for future operations, are forward-looking statements. In some cases, you can identify forward-looking statements by terms such as “anticipates,” “believes,” “estimates,” “expects,” “intends,” “suggests,” “targets,” “contemplates,” “projects,” “predicts,” “may,” “might,” “plan,” “would,” “should,” “could,” “may,” “can,” “potential,” “continue,” “objective,” or the negative of those terms, or similar expressions intended to identify forward-looking statements. However, not all forward-looking statements contain these identifying words. Specific forward-looking statements in this Quarterly Report on Form 10-Q include statements regarding:

our future lease payments;
our future expected amortization expense;
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 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 condensed consolidated financial statements may not be indicative of 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;
the availability of equity or debt financing to us 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 expectation of spending approximately $5.5 million to $6.0 million for capital expenditures in fiscal 2023;
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 enterprise resource planning systems, any acquisitions or strategic investments that we may determine to make, our ability to navigate through the business impacts from the coronavirus, or COVID-19 pandemic and related aftermath, and changes in consumer spending, which is sensitive to economic conditions and other factors;
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; to make payments on our $20.0 million of borrowings under our revolving line of credit and any indebtedness we may incur over time; implement our enterprise resource planning systems; and to repurchase shares of our common stock if we have authorization to do so;
our estimation that our information technology infrastructure will cost a total of approximately $9.0 million over a period that spans fiscal 2022 and fiscal 2023;
our expectation for capital expenditures of approximately $2.3 million and one-time operating expenses of approximately $1.6 million in fiscal 2023; and
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 plan to implement a new ERP system in fiscal 2023.

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

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

 

 


 

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

AMERICAN OUTDOOR BRANDS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

 

 

As of:

 

 

 

July 31, 2022
(Unaudited)

 

 

April 30, 2022

 

 

 

(In thousands, except par value and share data)

 

ASSETS

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

17,469

 

 

$

19,521

 

Accounts receivable, net of allowance for credit losses of $137 on July 31, 2022
   and $
129 on April 30, 2022

 

 

23,920

 

 

 

28,879

 

Inventories

 

 

120,638

 

 

 

121,683

 

Prepaid expenses and other current assets

 

 

10,754

 

 

 

8,491

 

Income tax receivable

 

 

1,072

 

 

 

1,231

 

Total current assets

 

 

173,853

 

 

 

179,805

 

Property, plant, and equipment, net

 

 

10,357

 

 

 

10,621

 

Intangible assets, net

 

 

60,673

 

 

 

63,194

 

Right-of-use assets

 

 

25,417

 

 

 

23,884

 

Other assets

 

 

369

 

 

 

336

 

Total assets

 

$

270,669

 

 

$

277,840

 

LIABILITIES AND EQUITY

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

13,495

 

 

$

13,563

 

Accrued expenses

 

 

9,634

 

 

 

7,853

 

Accrued payroll and incentives

 

 

2,983

 

 

 

2,788

 

Lease liabilities, current

 

 

1,618

 

 

 

1,803

 

Accrued profit sharing

 

 

820

 

 

 

998

 

Total current liabilities

 

 

28,550

 

 

 

27,005

 

Notes and loans payable, net of current portion

 

 

19,551

 

 

 

24,697

 

Lease liabilities, net of current portion

 

 

24,739

 

 

 

23,076

 

Other non-current liabilities

 

 

31

 

 

 

31

 

Total liabilities

 

 

72,871

 

 

 

74,809

 

Commitments and contingencies (Note 12)

 

 

 

 

 

 

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, 14,291,791 shares
   issued and
13,454,827 shares outstanding on July 31, 2022 and 14,240,290 
   shares issued and
13,403,326 outstanding on April 30, 2022

 

 

14

 

 

 

14

 

Additional paid in capital

 

 

268,855

 

 

 

268,393

 

Retained earnings

 

 

(56,046

)

 

 

(50,351

)

Treasury stock, at cost (836,964 shares on July 31, 2022 and April 30, 2022)

 

 

(15,025

)

 

 

(15,025

)

Total equity

 

 

197,798

 

 

 

203,031

 

Total liabilities and equity

 

$

270,669

 

 

$

277,840

 

See accompanying notes to unaudited condensed consolidated financial statements.

5


 

AMERICAN OUTDOOR BRANDS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

For the Three Months ended July 31,

 

 

2022

 

 

2021

 

 

(In thousands, except per share data)

 

Net sales

$

43,676

 

 

$

60,768

 

Cost of sales

 

24,637

 

 

 

31,785

 

Gross profit

 

19,039

 

 

 

28,983

 

Operating expenses:

 

 

 

 

 

Research and development

 

1,756

 

 

 

1,521

 

Selling, marketing, and distribution

 

11,780

 

 

 

13,200

 

General and administrative

 

11,064

 

 

 

10,039

 

Total operating expenses

 

24,600

 

 

 

24,760

 

Operating (loss)/income

 

(5,561

)

 

 

4,223

 

Other income, net:

 

 

 

 

 

Other income, net

 

241

 

 

 

129

 

Interest expense, net

 

(186

)

 

 

(46

)

Total other income, net

 

55

 

 

 

83

 

(Loss)/income from operations before income taxes

 

(5,506

)

 

 

4,306

 

Income tax expense

 

189

 

 

 

849

 

Net (loss)/income

$

(5,695

)

 

$

3,457

 

Net (loss)/income per share:

 

 

 

 

 

Basic

$

(0.42

)

 

$

0.25

 

Diluted

$

(0.42

)

 

$

0.24

 

Weighted average number of common shares
   outstanding:

 

 

 

 

 

Basic

 

13,443

 

 

 

14,083

 

Diluted

 

13,443

 

 

 

14,301

 

See accompanying notes to unaudited condensed consolidated financial statements.

6


 

AMERICAN OUTDOOR BRANDS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(Unaudited)

(In thousands)

 

 

Common Stock

 

 

Additional

 

 

 

 

 

Treasury Stock

 

 

 

 

For the three months ended July 31, 2021

 

Shares

 

 

Amount

 

 

Paid-In
Capital

 

 

Retained
Earnings

 

 

Shares

 

 

Amount

 

 

Total
Equity

 

Balance at April 31, 2021

 

 

14,059

 

 

$

14

 

 

$

265,362

 

 

$

14,529

 

 

 

 

 

$

 

 

$

279,905

 

Net income

 

 

 

 

 

 

 

 

 

 

 

3,457

 

 

 

 

 

 

 

 

 

3,457

 

Stock-based compensation

 

 

 

 

 

 

 

 

752

 

 

 

 

 

 

 

 

 

 

 

 

752

 

Proceeds from exercise of stock options

 

 

3

 

 

 

 

 

 

5

 

 

 

 

 

 

 

 

 

 

 

 

5

 

Issuance of common stock under
   restricted stock unit awards

 

 

38

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

(312

)

 

 

 

 

 

 

 

 

 

 

 

(312

)

Balance at July 31, 2021

 

 

14,100

 

 

$

14

 

 

$

265,807

 

 

$

17,986

 

 

 

 

 

$

 

 

$

283,807

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Additional

 

 

 

 

 

Treasury Stock

 

 

 

 

For the three months ended July 31, 2022

 

Shares

 

 

Amount

 

 

Paid-In
Capital

 

 

Retained
Earnings

 

 

Shares

 

 

Amount

 

 

Total
Equity

 

Balance at April 30, 2022

 

 

14,240

 

 

$

14

 

 

$

268,393

 

 

$

(50,351

)

 

 

837

 

 

$

(15,025

)

 

$

203,031

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(5,695

)

 

 

 

 

 

 

 

 

(5,695

)

Stock-based compensation

 

 

 

 

 

 

 

 

714

 

 

 

 

 

 

 

 

 

 

 

 

714

 

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

 

 

52

 

 

 

 

 

 

(252

)

 

 

 

 

 

 

 

 

 

 

 

(252

)

Balance at July 31, 2022

 

 

14,292

 

 

$

14

 

 

$

268,855

 

 

$

(56,046

)

 

 

837

 

 

$

(15,025

)

 

$

197,798

 

See accompanying notes to unaudited condensed consolidated financial statements.

7


 

AMERICAN OUTDOOR BRANDS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

 

For the Three Months Ended July 31,

 

 

 

2022

 

 

2021

 

 

 

(In thousands)

 

Cash flows from operating activities:

 

 

 

 

 

 

Net (loss)/income

 

$

(5,695

)

 

$

3,457

 

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

 

 

 

 

 

 

Depreciation and amortization

 

 

4,162

 

 

 

4,179

 

Loss on sale/disposition of assets

 

 

 

 

 

127

 

Provision for credit losses on accounts receivable

 

 

7

 

 

 

23

 

Deferred income taxes

 

 

 

 

 

(110

)

Stock-based compensation expense

 

 

714

 

 

 

752

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Accounts receivable

 

 

4,952

 

 

 

3,939

 

Inventories

 

 

1,045

 

 

 

(17,746

)

Prepaid expenses and other current assets

 

 

(2,263

)

 

 

(1,924

)

Income taxes

 

 

159

 

 

 

869

 

Accounts payable

 

 

277

 

 

 

4,226

 

Accrued payroll and incentives

 

 

195

 

 

 

(3,532

)

Right of use assets

 

 

426

 

 

 

403

 

Accrued profit sharing

 

 

(178

)

 

 

248

 

Accrued expenses

 

 

1,781

 

 

 

2,479

 

Other assets

 

 

(33

)

 

 

39

 

Lease liabilities

 

 

(481

)

 

 

(443

)

Other non-current liabilities

 

 

 

 

 

(151

)

Net cash provided by/(used in) operating activities

 

 

5,068

 

 

 

(3,165

)

Cash flows from investing activities:

 

 

 

 

 

 

Payments to acquire patents and software

 

 

(1,392

)

 

 

(449

)

Payments to acquire property and equipment

 

 

(218

)

 

 

(537

)

Net cash used in investing activities

 

 

(1,610

)

 

 

(986

)

Cash flows from financing activities:

 

 

 

 

 

 

Payments on notes and loans payable

 

 

(5,170

)

 

 

 

Cash paid for debt issuance costs

 

 

(88

)

 

 

 

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

 

 

 

 

 

5

 

Payment of employee withholding tax related to restricted
   stock units

 

 

(252

)

 

 

(312

)

Net cash used in financing activities

 

 

(5,510

)

 

 

(307

)

Net decrease in cash and cash equivalents

 

 

(2,052

)

 

 

(4,458

)

Cash and cash equivalents, beginning of period

 

 

19,521

 

 

 

60,801

 

Cash and cash equivalents, end of period

 

$

17,469

 

 

$

56,343

 

Supplemental disclosure of cash flow information

 

 

 

 

 

 

Cash paid for:

 

 

 

 

 

 

Interest

 

$

161

 

 

$

38

 

Income taxes

 

$

32

 

 

$

85

 

See accompanying notes to unaudited condensed consolidated financial statements.

8


AMERICAN OUTDOORS BRANDS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

For the Three Months Ended July 31, 2022 and 2021

 

(1) Organization:

We (our “company,” “we,” “us,” or “our”) are a leading provider of outdoor lifestyle products and shooting sports accessories encompassing hunting, fishing, outdoor cooking, camping, shooting, and personal security and defense products for rugged outdoor enthusiasts. We conceive, design, source, and sell our outdoor lifestyle products, including premium sportsman knives and tools for fishing and hunting; land management tools for hunting preparedness; harvesting products for post-hunt or post-fishing activities; outdoor cooking products; and camping, survival, and emergency preparedness products. We conceive, design, produce or source, and sell our shooting sports accessories, such as rests, vaults, and other related accessories; electro-optical devices, including hunting optics, firearm aiming devices, flashlights, and laser grips; and reloading, gunsmithing, and firearm cleaning supplies. We develop and market our products at our facility in Columbia, Missouri and contract for the manufacture and assembly of most of our products with third-parties located in Asia. We also manufacture some of our electro-optics products at our facility in Wilsonville, Oregon.

We focus on our brands and the establishment of product categories in which we believe our brands will resonate strongly with the activities and passions of consumers and enable us to capture an increasing share of our overall addressable markets. Our owned brands include BOG, BUBBA, Caldwell, Crimson Trace, Frankford Arsenal, Grilla Grills, Hooyman, Imperial, LaserLyte, Lockdown, MEAT! Your Maker, Old Timer, Schrade, Tipton, Uncle Henry, ust, and Wheeler, and we license for use in association with certain products we sell additional brands, including M&P, Smith & Wesson, Performance Center by Smith & Wesson, and T/C. In focusing on the growth of our brands, we organize our creative, product development, sourcing, and e-commerce teams into 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 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 help consumers aim their firearms more accurately, including situations that require self-defense, and products that help safely secure and store, as well as 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, 2022. We are responsible for the condensed consolidated financial statements included in this report, which are unaudited but, in our opinion, include all adjustments necessary for a fair presentation of our condensed consolidated balance sheet as of July 31, 2022, our condensed consolidated statement of operations for the three months ended July 31, 2022 and 2021, and our condensed consolidated statement of cash flows for the three months ended July 31, 2022 and 2021. The consolidated balance sheet as of April 30, 2022 was derived from audited financial statements.

The results reported in these condensed consolidated financial statements should not necessarily be taken as indicative of results that may be expected for the entire fiscal year.

Reclassification

 

Certain immaterial reclassifications were made to the accompanying condensed consolidated statement of cash flows for the three months ended July 31, 2021 to reclassify payments to acquire property and equipment, to payments to acquire patents and software; however, the total amount of net cash used in investing activities remained unchanged. This reclassification had no impact on the previously reported net income.

9


AMERICAN OUTDOORS BRANDS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

For the Three Months Ended July 31, 2022 and 2021

 

Revenue Recognition

We recognize revenue for the sale of our products at the point in time when the control of ownership has transferred to the customer. The transfer of control typically occurs at a point in time based on consideration of when the customer has (i) a payment obligation, (ii) physical possession of goods has been received, (iii) legal title to goods has passed, (iv) risks and rewards of ownership of goods has passed to the customer, and (v) the customer has accepted the goods. The timing of revenue recognition occurs either on shipment or delivery of goods based on contractual terms with the customer.

The duration of contractual arrangements with customers in our wholesale channels is typically less than one year. Payment terms with customers are typically between 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 July 31, 2022 and 2021 (dollars in thousands):

 

 

2022

 

 

2021

 

 

$ Change

 

 

% Change

 

e-commerce channels

 

$

20,545

 

 

$

16,608

 

 

$

3,937

 

 

 

23.7

%

Traditional channels

 

 

23,131

 

 

 

44,160

 

 

 

(21,029

)

 

 

-47.6

%

Total net sales

 

$

43,676

 

 

$

60,768

 

 

$

(17,092

)

 

 

-28.1

%

 

Our e-commerce channels include net sales from customers that do not traditionally operate a physical brick and mortar store, but generate the majority of their revenue from consumer purchases at their retail websites. Our e-commerce channels also include our direct-to-consumer sales. Our traditional channels include customers that primarily operate out of physical brick and mortar stores and generate the large majority of their revenue from consumer purchases at their brick and mortar locations.

We sell our products worldwide. The following table sets forth certain information regarding geographic makeup of net sales included in the above table for the three months ended July 31, 2022 and 2021 (dollars in thousands):

 

 

2022

 

 

2021

 

 

$ Change

 

 

% Change

 

Domestic net sales

 

$

40,276

 

 

$

56,530

 

 

$

(16,254

)

 

 

-28.8

%

International net sales

 

 

3,400

 

 

 

4,238

 

 

 

(838

)

 

 

-19.8

%

Total net sales

 

$

43,676

 

 

$

60,768

 

 

$

(17,092

)

 

 

-28.1

%

 

10


AMERICAN OUTDOORS BRANDS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

For the Three Months Ended July 31, 2022 and 2021

 

 

Recently Adopted Accounting Standards

 

In March 2020, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or ASU, 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, or ASU 2020-04, to provide temporary optional expedients and exceptions to the contract modifications, hedge relationships, and other transactions affected by reference rate reform if certain criteria are met. ASU 2020-04, which was effective upon issuance and may be applied through December 31, 2022, is applicable to all contracts and hedging relationships that reference the London Interbank Offered Rate (LIBOR) or any other reference rate expected to be discontinued. As a result of the amendment to the revolving line of credit agreement in fiscal year 2022, which uses SOFR as an interest rate option instead of LIBOR to calculate the applicable interest rate, see Note 8 - Debt, the new guidance will not have a material impact on our condensed consolidated financial statements and related disclosures.

 

In December 2019, FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, or ASU 2019-12, an amendment of the FASB Accounting Standards Codification. ASU 2019-12 simplifies the accounting for income taxes by removing certain exceptions for intraperiod tax allocations and deferred tax liabilities for equity method investments and adds guidance regarding whether a step-up in tax basis of goodwill relates to a business combination or a separate transaction. ASU 2019-12 is effective for fiscal years beginning after December 15, 2020, with early adoption permitted. We adopted ASU 2019-12 on May 1, 2021, and the cumulative effect of the adoption was not material to our condensed consolidated financial statements and related disclosures.

(3) Acquisitions:

Grilla Grills Acquisition

In fiscal year 2022, we acquired substantially all of the assets of the Grilla Grills business of Fahrenheit Technologies, Inc., or FTI, for $27 million, financed using a combination of existing cash balances and cash from a $25 million draw on our revolving line of credit. Based in Michigan, Grilla Grills is a provider of high-quality, barbecue grills; Wi-Fi-enabled wood pellet grills; smokers; accessories; and modular outdoor kitchens.

We accounted for the acquisition as a business combination using the acquisition method of accounting. The purchase price allocation below was allocated to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values as of the acquisition date. We expect to finalize the purchase price allocation as soon as practicable during the respective measurement periods, which will not exceed 12 months from the date of acquisition. The acquisition of Grilla Grills will necessitate the use of this measurement period to adequately analyze and assess a number of factors used in establishing the asset and liability fair values as of the acquisition date, including the significant contractual and operational factors underlying the tradename, intangible assets, and the related tax impacts of any changes made. The excess of the consideration transferred over the estimated fair value of the net assets received has been recorded as goodwill. The factors that contributed to the recognition of goodwill primarily relate to acquisition-driven anticipated cost savings and synergies. Assembled workforce is not recognized separate and apart from goodwill as it is neither separable nor contractual in nature. During the year ended April 30, 2022, we increased goodwill by $3.5 million as a result of valuations related to the Grilla Grills acquisition, which was subsequently written off as we recorded a full impairment of our goodwill on April 30, 2022. The goodwill related to the Grilla Grills acquisition is deductible for tax purposes.

The following table summarizes the preliminary allocation of the purchase price for the Grilla Grills acquisition (in thousands):

 

 

Grilla Grills Acquisition
(as reported)

 

 

 

 

 

Inventories

 

$

5,956

 

Property, plant, and equipment

 

 

105

 

Intangibles

 

 

18,495

 

Goodwill

 

 

3,534

 

Total assets acquired

 

 

28,090

 

Accounts payable

 

 

894

 

Accrued expenses

 

 

46

 

Accrued warranty

 

150

 

Total liabilities assumed

 

 

1,090

 

 

 

$

27,000

 

 

11


AMERICAN OUTDOORS BRANDS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

For the Three Months Ended July 31, 2022 and 2021

 

We recorded $646,000 of acquisition-related costs, including $47,000 of acquisition-related costs incurred in the three months ended July 31, 2022, which are recorded in general and administrative expenses. The Grilla Grills acquisition generated $5.2 million of net sales during the three months ended July 31, 2022.

We determined the fair market value of the intangible assets acquired in accordance with ASC 805 - Business Combinations and ASC 820 - Fair Value Measurement and assigned a fair market value of $18.5 million to tradenames at the acquisition date. We amortize assets in proportion to expected yearly revenue generated from the intangibles that we acquire. The weighted average life of tradenames acquired is 6.5 years.

Additionally, the following table reflects the unaudited pro forma results of operations assuming that the Grilla Grills acquisition had occurred on May 1, 2021 (in thousands, except per share data):