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 October 31, 2022

Commission File No. 001-39366

 

https://cdn.kscope.io/f6c0e59d81abb968fea03bf6b9f9ba80-img13658427_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 13,329,874 shares of common stock, par value $0.001, outstanding as of November 28, 2022.

 

 


 

AMERICAN OUTDOOR BRANDS, INC.

Quarterly Report on Form 10-Q

For the Three and Six Months Ended October 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

 

21

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

29

 

Item 4. Controls and Procedures

 

29

 

 

 

 

PART II - OTHER INFORMATION

 

 

 

Item 1. Legal Proceedings

 

30

 

Item 1A. Risk Factors

 

30

 

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

 

30

 

Item 6. Exhibits

 

31

Signatures

 

32

 

Accumax®, Adrenaline®, BOG®, Bubba®, Caldwell®, Deadshot®, Deathgrip®, Delta Series®, Dominion®, E-MAX®, F.A.T. Wrench®, Fieldpod®, Frankford Arsenal®, Golden Rod®, Hooyman®, Hydrosled®, Imperial®, Intellidropper®, Lead Sled®, Lockdown®, Mag Charger®, MEAT Your Maker! ®, Old Timer®, Schrade®, Sharpfinger®, Tipton®, Grilla®, Grilla Grills®, Uncle Henry®, ust®, Wheeler®, XLA Bipod®, Crimson Trace®, Lasergrips®, Laserguard®, LaserLyte®, Lasersaddle®, Lead Sled®, Lightguard®, Rail Master®, Tack Driver®, Your Land. Your Legacy®, 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!™, Secure Your Lifestyle™, The Ultimate Lifestyle™, Unmatched Accuracy at the Bench and in the Field™, Water to Plate™, 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 1.4 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 $7.0 million to $7.5 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, and changes in consumer spending, which is sensitive to economic conditions and other factors;
our ability to navigate through the business impacts from the coronavirus, or COVID-19 pandemic and related aftermath;
the possibility that our ability to take advantage of unexpected 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 where 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 relatedtoourinformationtechnologyinfrastructureinfiscal2023tobe approximately $2.4 million and one-time operating expenses of approximately $1.7 million;
our expectation to spend approximately $500,000 of duplicative expenses related to our information technology infrastructure in fiscal 2023;
our expectation for inventory levels to decline in the second half of fiscal 2023;
our plan to implement a new ERP system in fiscal 2023; and
our plan to fully integrate Grilla Grills into our business 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, which may continue to be adversely impacted by the multitude of the effects of COVID-19 and the hostilities in the Ukraine;
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, 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, 2022
(Unaudited)

 

 

April 30, 2022

 

 

 

(In thousands, except par value and share data)

 

ASSETS

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

16,355

 

 

$

19,521

 

Accounts receivable, net of allowance for credit losses of $146 on October 31, 2022
   and $
129 on April 30, 2022

 

 

32,557

 

 

 

28,879

 

Inventories

 

 

111,444

 

 

 

121,683

 

Prepaid expenses and other current assets

 

 

11,292

 

 

 

8,491

 

Income tax receivable

 

 

1,286

 

 

 

1,231

 

Total current assets

 

 

172,934

 

 

 

179,805

 

Property, plant, and equipment, net

 

 

10,168

 

 

 

10,621

 

Intangible assets, net

 

 

58,067

 

 

 

63,194

 

Right-of-use assets

 

 

24,975

 

 

 

23,884

 

Other assets

 

 

328

 

 

 

336

 

Total assets

 

$

266,472

 

 

$

277,840

 

LIABILITIES AND EQUITY

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

8,765

 

 

$

13,563

 

Accrued expenses

 

 

10,869

 

 

 

7,853

 

Accrued payroll, incentives, and profit sharing

 

 

2,593

 

 

 

3,786

 

Lease liabilities, current

 

 

1,342

 

 

 

1,803

 

Total current liabilities

 

 

23,569

 

 

 

27,005

 

Notes and loans payable

 

 

19,575

 

 

 

24,697

 

Lease liabilities, net of current portion

 

 

24,520

 

 

 

23,076

 

Other non-current liabilities

 

 

31

 

 

 

31

 

Total liabilities

 

 

67,695

 

 

 

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, 14,353,170 shares
   issued and
13,432,177 shares outstanding on October 31, 2022 and 14,240,290 
   shares issued and
13,403,326 outstanding on April 30, 2022

 

 

14

 

 

 

14

 

Additional paid in capital

 

 

270,220

 

 

 

268,393

 

Retained deficit

 

 

(55,676

)

 

 

(50,351

)

Treasury stock, at cost (920,993 shares on October 31, 2022 and
   
836,964 shares on April 30, 2022)

 

 

(15,781

)

 

 

(15,025

)

Total equity

 

 

198,777

 

 

 

203,031

 

Total liabilities and equity

 

$

266,472

 

 

$

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 October 31,

 

 

For the Six Months ended October 31,

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

 

(In thousands, except per share data)

 

Net sales

$

54,436

 

 

$

70,760

 

 

$

98,112

 

 

$

131,528

 

Cost of sales

 

28,474

 

 

 

37,723

 

 

 

53,111

 

 

 

69,508

 

Gross profit

 

25,962

 

 

 

33,037

 

 

 

45,001

 

 

 

62,020

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

1,557

 

 

 

1,457

 

 

 

3,313

 

 

 

2,977

 

Selling, marketing, and distribution

 

13,924

 

 

 

15,664

 

 

 

25,704

 

 

 

28,864

 

General and administrative

 

10,615

 

 

 

10,615

 

 

 

21,679

 

 

 

20,654

 

Total operating expenses

 

26,096

 

 

 

27,736

 

 

 

50,696

 

 

 

52,495

 

Operating (loss)/income

 

(134

)

 

 

5,301

 

 

 

(5,695

)

 

 

9,525

 

Other income, net:

 

 

 

 

 

 

 

 

 

 

 

Other income, net

 

585

 

 

 

619

 

 

 

826

 

 

 

747

 

Interest expense, net

 

(242

)

 

 

(53

)

 

 

(428

)

 

 

(99

)

Total other income, net

 

343

 

 

 

566

 

 

 

398

 

 

 

648

 

Income/(loss) from operations before income taxes

 

209

 

 

 

5,867

 

 

 

(5,297

)

 

 

10,173

 

Income tax (benefit)/expense

 

(161

)

 

 

1,284

 

 

 

28

 

 

 

2,133

 

Net income/(loss)

$

370

 

 

$

4,583

 

 

$

(5,325

)

 

$

8,040

 

Net income/(loss) per share:

 

 

 

 

 

 

 

 

 

 

 

Basic

$

0.03

 

 

$

0.32

 

 

$

(0.40

)

 

$

0.57

 

Diluted

$

0.03

 

 

$

0.32

 

 

$

(0.40

)

 

$

0.56

 

Weighted average number of common shares
   outstanding:

 

 

 

 

 

 

 

 

 

 

 

Basic

 

13,465

 

 

 

14,135

 

 

 

13,454

 

 

 

14,109

 

Diluted

 

13,589

 

 

 

14,348

 

 

 

13,454

 

 

 

14,369

 

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, 2022 and 2021

 

Shares

 

 

Amount

 

 

Paid-In
Capital

 

 

Retained
Earnings

 

 

Shares

 

 

Amount

 

 

Total
Equity

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Additional

 

 

 

 

 

Treasury Stock

 

 

 

 

For the six months ended October 31, 2022 and 2021

 

Shares

 

 

Amount

 

 

Paid-In
Capital

 

 

Retained
Earnings

 

 

Shares

 

 

Amount

 

 

Total
Equity

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

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

 

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,

 

 

 

2022

 

 

2021

 

 

 

(In thousands)

 

Cash flows from operating activities:

 

 

 

 

 

 

Net (loss)/income

 

$

(5,325