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, 2023

Commission File No. 001-39366

https://cdn.kscope.io/e3eeedde2181b32c5511fa376ee22111-img14558884_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 13,007,379 shares of common stock, par value $0.001, outstanding as of August 31, 2023.

 

 


 

AMERICAN OUTDOOR BRANDS, INC.

Quarterly Report on Form 10-Q

For the Three Months Ended July 31, 2023 and 2022

 

TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION

 

 

Item 1. Financial Statements (Unaudited)

5

 

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

18

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

22

 

Item 4. Controls and Procedures

22

 

 

 

 

PART II - OTHER INFORMATION

 

 

Item 1. Legal Proceedings

23

 

Item 1A. Risk Factors

23

 

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

 

23

 

Item 6. Exhibits

24

Signatures

25

 

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

 


 

Statement Regarding Forward-Looking Information

 

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

 

our expectation that the unrecognized compensation expense related to unvested RSUs and PSUs will be recognized over a weighted average remaining contractual term of one year;
our intention to vigorously defend ourselves in the lawsuits to which we are subject;
the possibility that an unfavorable outcome of litigation or prolonged litigation could harm our business;
the results reported in our condensed consolidated financial statements may not be indicative our future performance;
our belief that our future ability to fund our operating needs will depend on our future ability to generate positive cash flow from operations and obtain financing on acceptable terms; our belief we will meet known or reasonably likely future cash requirements through the combination of cash flows from operating activities, available cash balances, and available borrowings through our existing $75 million credit facility;
our expectation that our overall cost of debt funding may increase and decrease the overall debt capacity and commercial credit available to us;
our future capital requirements' dependency on many factors, including net sales, the timing and extent of spending to support product development efforts, the expansion of sales and marketing activities, the timing of introductions of new products and enhancements to existing products, the capital needed to operate as an independent publicly traded company, and any acquisitions or strategic investments that we may determine to make;
the possibility that our ability to take advantage of unexpected business opportunities or to respond to competitive pressures could be limited or severely constrained if sufficient funds are not available or are not available on acceptable terms;
our expectation to continue to utilize our cash flows to invest in our business, including research and development for new product initiatives; hire additional employees; fund growth strategies, including any potential acquisitions; repay any indebtedness we may incur over time; and to repurchase our common stock if we have authorization to do so;
the possibility that increased demand for sourced products in various industries could cause further delays at various U.S. ports, which could delay the timing of receipts of our products;
our expectation that our inventory balance will increase in our first half of fiscal 2024 because of increased inventory purchases to support the fall hunting and winter holiday shopping seasons as well as inventory for new products that we expect to launch later in the year; and
our expectation that our overall inventory balance will decline by the end of fiscal 2024 as compared to our inventory balance as of April 30, 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, 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:

 

 

 

July 31, 2023
(Unaudited)

 

 

April 30, 2023

 

 

 

(In thousands, except par value and share data)

 

ASSETS

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

18,711

 

 

$

21,950

 

Accounts receivable, net of allowance for credit losses of $131 on July 31, 2023
   and $
125 on April 30, 2023

 

 

23,572

 

 

 

26,846

 

Inventories

 

 

104,913

 

 

 

99,734

 

Prepaid expenses and other current assets

 

 

7,917

 

 

 

7,839

 

Income tax receivable

 

 

1,210

 

 

 

1,251

 

Total current assets

 

 

156,323

 

 

 

157,620

 

Property, plant, and equipment, net

 

 

9,101

 

 

 

9,488

 

Intangible assets, net

 

 

49,229

 

 

 

52,021

 

Right-of-use assets

 

 

23,917

 

 

 

24,198

 

Other assets

 

 

579

 

 

 

260

 

Total assets

 

$

239,149

 

 

$

243,587

 

LIABILITIES AND EQUITY

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

15,589

 

 

$

11,544

 

Accrued expenses

 

 

9,802

 

 

 

8,741

 

Accrued payroll, incentives, and profit sharing

 

 

2,874

 

 

 

1,813

 

Lease liabilities, current

 

 

918

 

 

 

904

 

Total current liabilities

 

 

29,183

 

 

 

23,002

 

Notes and loans payable

 

 

 

 

 

4,623

 

Lease liabilities, net of current portion

 

 

23,833

 

 

 

24,064

 

Other non-current liabilities

 

 

18

 

 

 

34

 

Total liabilities

 

 

53,034

 

 

 

51,723

 

Commitments and contingencies (Note 11)

 

 

 

 

 

 

Equity:

 

 

 

 

 

 

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

 

 

 

 

 

 

Common stock, $0.001 par value, 100,000,000 shares authorized, 14,542,812 shares
   issued and
13,060,823 shares outstanding on July 31, 2023 and 14,447,149 
   shares issued and
13,233,151 shares outstanding on April 30, 2023

 

 

15

 

 

 

14

 

Additional paid in capital

 

 

273,415

 

 

 

272,784

 

Retained deficit

 

 

(66,488

)

 

 

(62,375

)

Treasury stock, at cost (1,481,989 shares on July 31, 2023 and
   
1,213,998 shares on April 30, 2023)

 

 

(20,827

)

 

 

(18,559

)

Total equity

 

 

186,115

 

 

 

191,864

 

Total liabilities and equity

 

$

239,149

 

 

$

243,587

 

See accompanying notes to unaudited condensed consolidated financial statements.

5


 

AMERICAN OUTDOOR BRANDS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

For the Three Months ended July 31,

 

 

2023

 

 

2022

 

 

(In thousands, except per share data)

 

Net sales

$

43,445

 

 

$

43,676

 

Cost of sales

 

23,726

 

 

 

24,637

 

Gross profit

 

19,719

 

 

 

19,039

 

Operating expenses:

 

 

 

 

 

Research and development

 

1,599

 

 

 

1,756

 

Selling, marketing, and distribution

 

12,054

 

 

 

11,780

 

General and administrative

 

10,151

 

 

 

11,064

 

Total operating expenses

 

23,804

 

 

 

24,600

 

Operating loss

 

(4,085

)

 

 

(5,561

)

Other income, net:

 

 

 

 

 

Other income, net

 

39

 

 

 

241

 

Interest expense, net

 

(12

)

 

 

(186

)

Total other income, net

 

27

 

 

 

55

 

Loss from operations before income taxes

 

(4,058

)

 

 

(5,506

)

Income tax expense

 

55

 

 

 

189

 

Net loss

$

(4,113

)

 

$

(5,695

)

Net loss per share:

 

 

 

 

 

Basic

$

(0.31

)

 

$

(0.42

)

Diluted

$

(0.31

)

 

$

(0.42

)

Weighted average number of common shares
   outstanding:

 

 

 

 

 

Basic

 

13,190

 

 

 

13,443

 

Diluted

 

13,190

 

 

 

13,443

 

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, 2022

 

Shares

 

Amount

 

 

Paid-In
Capital

 

Retained
Deficit

 

Shares

 

Amount

 

 

Total
Equity

 

Balance at April 30, 2022

 

 

14,240

 

 

$

14

 

 

$

268,393

 

 

$

(50,351

)

 

 

837

 

 

$

(15,025

)

 

$

203,031

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(5,695

)

 

 

 

 

 

 

 

 

(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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Additional

 

 

 

 

Treasury Stock

 

 

 

 

For the three months ended July 31, 2023

 

Shares

 

Amount

 

 

Paid-In
Capital

 

Retained
Deficit

 

Shares

 

Amount

 

 

Total
Equity

 

Balance at April 30, 2023

 

 

14,447

 

 

$

14

 

 

$

272,784

 

 

$

(62,375

)

 

 

1,214

 

 

$

(18,559

)

 

$

191,864

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(4,113

)

 

 

 

 

 

 

 

 

(4,113

)

Stock-based compensation

 

 

 

 

 

 

 

 

932

 

 

 

 

 

 

 

 

 

 

 

 

932

 

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

 

 

96

 

 

 

1

 

 

 

(301

)

 

 

 

 

 

 

 

 

 

 

 

(300

)

Repurchase of treasury stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

268

 

 

 

(2,268

)

 

 

(2,268

)

Balance at July 31, 2023

 

 

14,543

 

 

$

15

 

 

$

273,415

 

 

$

(66,488

)

 

 

1,482

 

 

$

(20,827

)

 

$

186,115

 

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,

 

 

2023

 

 

2022

 

 

(In thousands)

 

Cash flows from operating activities:

 

 

 

 

 

Net loss

$

(4,113

)

 

$

(5,695

)

Adjustments to reconcile net income to net cash provided by
   operating activities:

 

 

 

 

 

Depreciation and amortization

 

3,969

 

 

 

4,162

 

Provision for credit losses on accounts receivable

 

6

 

 

 

7

 

Stock-based compensation expense

 

932

 

 

 

714

 

Changes in operating assets and liabilities:

 

 

 

 

 

Accounts receivable

 

3,268

 

 

 

4,952

 

Inventories

 

(5,179

)

 

 

1,045

 

Prepaid expenses and other current assets

 

(78

)

 

 

(2,263

)

Income taxes

 

41

 

 

 

159

 

Accounts payable

 

4,115

 

 

 

277

 

Accrued payroll, incentives, and profit sharing

 

1,061

 

 

 

17

 

Right of use assets

 

297

 

 

 

426

 

Accrued expenses

 

1,061

 

 

 

1,781

 

Other assets

 

34

 

 

 

(33

)

Lease liabilities

 

(233

)

 

 

(481

)

Other non-current liabilities

 

(16

)

 

 

 

Net cash provided by operating activities

 

5,165

 

 

 

5,068

 

Cash flows from investing activities:

 

 

 

 

 

Payments to acquire patents and software

 

(267

)

 

 

(1,392

)

Payments to acquire property and equipment

 

(569

)

 

 

(218

)

Net cash used in investing activities

 

(836

)

 

 

(1,610

)

Cash flows from financing activities:

 

 

 

 

 

Payments on notes and loans payable

 

(5,000

)

 

 

(5,170

)

Payments to acquire treasury stock

 

(2,268

)

 

 

 

Cash paid for debt issuance costs

 

 

 

 

(88

)

Payment of employee withholding tax related to restricted
   stock units

 

(300

)

 

 

(252

)

Net cash used in financing activities

 

(7,568

)

 

 

(5,510

)

Net decrease in cash and cash equivalents

 

(3,239

)

 

 

(2,052

)

Cash and cash equivalents, beginning of period

 

21,950

 

 

19,521

 

Cash and cash equivalents, end of period

$

18,711

 

 

$

17,469

 

Supplemental disclosure of cash flow information

 

 

 

 

 

Cash paid for:

 

 

 

 

 

Interest

$

117

 

 

$

161

 

Income taxes

$

13

 

 

$

32

 

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, 2023 and 2022

 

(1) Organization:

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

We focus on our brands and the establishment of product categories in which we believe our brands will resonate strongly with the activities and passions of consumers and enable us to capture an increasing share of our overall addressable markets. Our owned brands include BOG, BUBBA, Caldwell, Crimson Trace, Frankford Arsenal, Grilla Grills, or Grilla, Hooyman, Imperial, LaserLyte, Lockdown, MEAT! Your Maker, Old Timer, Schrade, Tipton, Uncle Henry, ust, and Wheeler, and we license additional brands for use in association with certain products we sell, including M&P, Smith & Wesson, Performance Center by Smith & Wesson, and Thompson/Center. In focusing on the growth of our brands, we organize our creative, product development, sourcing, and e-commerce teams into four brand lanes, each of which focuses on one of four distinct consumer verticals – Adventurer, Harvester, Marksman, and Defender – with each of our brands included in one of the brand lanes.

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

 

(2) Basis of Presentation:

Interim Financial Information

Our unaudited condensed consolidated financial statements have been prepared in accordance with the requirements of the Securities and Exchange Commission, or SEC, for interim reporting. As permitted under those rules, certain disclosures and other financial information that normally are required by accounting principles generally accepted in the United States have been condensed or omitted. Our accounting policies are described in the Notes to the Consolidated Financial Statements in our Annual Report on Form 10-K for our fiscal year ended April 30, 2023. We are responsible for the condensed consolidated financial statements included in this report, which are unaudited but, in our opinion, include all adjustments necessary for a fair presentation of our condensed consolidated balance sheet as of July 31, 2023, our condensed consolidated statement of operations for the three months ended July 31, 2023 and 2022, and our condensed consolidated statement of cash flows for the three months ended July 31, 2023 and 2022. The consolidated balance sheet as of April 30, 2023 was derived from audited financial statements.

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

9


AMERICAN OUTDOORS BRANDS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

For the Three Months Ended July 31, 2023 and 2022

 

Revenue Recognition

We recognize revenue for the sale of our products at the point in time when the control of ownership has transferred to the customer. The transfer of control typically occurs at a point in time based on consideration of when the customer has (i) a payment obligation, (ii) physical possession of goods has been received, (iii) legal title to goods has passed, (iv) risks and rewards of ownership of goods has passed to the customer, and (v) the customer has accepted the goods. The timing of revenue recognition occurs either on shipment or delivery of goods based on contractual terms with the customer. Revenue recorded excludes sales tax charged to retail customers as we are considered a pass-through conduit for collecting and remitting sales taxes.

The duration of contractual arrangements with customers in our wholesale channels is typically less than one year. Payment terms with customers are typically between 20 and 90 days, with a discount available in certain cases for early payment. For contracts with discounted terms, we determine the transaction price upon establishment of the contract that contains the final terms of the sale, including the description, quantity, and price of each product purchased. We estimate variable consideration relative to the amount of cash discounts to which customers are likely to be entitled. In some instances, we provide longer payment terms, particularly as it relates to our hunting dating programs, which represent payment terms due in the fall for certain orders of hunting products received in the spring and summer. We do not consider these extended terms to be a significant financing component of the contract because the payment terms are less than one year.

We have elected to treat all shipping and handling activities as fulfillment costs and recognize the costs as distribution expenses at the time we recognize the related revenue. Shipping and handling costs billed to customers are included in net sales.

The amount of revenue we recognize reflects the expected consideration to be received for providing the goods or services to customers, which includes estimates for variable consideration. Variable consideration includes allowances for trade term discounts, chargebacks, and product returns. Estimates of variable consideration are determined at contract inception and reassessed at each reporting date, at a minimum, to reflect any changes in facts and circumstances. We apply the portfolio approach as a practical expedient and utilize the expected value method in determining estimates of variable consideration, based on evaluations of specific product and customer circumstances, historical and anticipated trends, and current economic conditions. We have co-op advertising program expense, which we record within advertising expense, in recognition of a distinct service that we receive from our customers at the retail level.

Disaggregation of Revenue

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

 

 

2023

 

 

2022

 

 

$ Change

 

 

% Change

 

e-commerce channels

 

$

18,376

 

 

$

20,545

 

 

$

(2,169

)

 

 

-10.6

%

Traditional channels

 

 

25,069

 

 

 

23,131

 

 

 

1,938

 

 

 

8.4

%

Total net sales

 

$

43,445

 

 

$

43,676

 

 

$

(231

)

 

 

-0.5

%

 

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

We sell our products worldwide. The following table sets forth certain information regarding geographic makeup of net sales included in the above table for the three months ended July 31, 2023 and 2022 (dollars in thousands):

 

 

2023

 

 

2022

 

 

$ Change

 

 

% Change

 

Domestic net sales

 

$

39,789

 

 

$

40,276

 

 

$

(487

)

 

 

-1.2

%

International net sales

 

 

3,656

 

 

 

3,400

 

 

 

256

 

 

 

7.5

%

Total net sales

 

$

43,445

 

 

$

43,676

 

 

$

(231

)

 

 

-0.5

%

 

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

 

 

2023

 

 

2022

 

 

$ Change

 

 

% Change

 

Shooting sports

 

$

20,075

 

 

$

20,389

 

 

$

(314

)

 

 

-1.5

%

Outdoor lifestyle

 

 

23,370

 

 

 

23,287

 

 

 

83

 

 

 

0.4

%

Total net sales

 

$

43,445

 

 

$

43,676

 

 

$

(231

)

 

 

-0.5

%

 

10


AMERICAN OUTDOORS BRANDS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

For the Three Months Ended July 31, 2023 and 2022

 

Recently Adopted Accounting Standards

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

(3) Leases:

We lease real estate, as well as other equipment, under non-cancelable operating lease agreements. We recognize expenses under our operating lease assets and liabilities at the commencement date based on the present value of lease payments over the lease terms. Our leases do not provide an implicit interest rate. We use our incremental borrowing rate based on the information available at the lease commencement date in determining the present value of lease payments. Our lease agreements do not require material variable lease payments, residual value guarantees, or restrictive covenants. For operating leases, we recognize expense on a straight-line basis over the lease term. We record tenant improvement allowances as an offsetting adjustment included in our calculation of the respective right-of-use asset.

Many of our leases include renewal options that can extend the lease term. These renewal options are at our sole discretion and are reflected in the lease term when they are reasonably certain to be exercised. The depreciable life of assets and leasehold improvements are limited by the expected lease term.

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

 

 

July 31, 2023

 

 

April 30, 2023

 

Operating Leases

 

 

 

 

 

 

Right-of-use assets

 

$

27,001

 

 

$

26,999

 

Accumulated amortization

 

 

(3,084

)

 

 

(2,801

)

Right-of-use assets, net

 

$

23,917

 

 

$

24,198

 

 

 

 

 

 

 

 

Lease liabilities, current portion

 

$

918

 

 

$

904

 

Lease liabilities, net of current portion

 

 

23,833

 

 

 

24,064

 

Total operating lease liabilities

 

$

24,751

 

 

$

24,968

 

 

 

 

 

 

 

 

For the three months ended July 31, 2023, we recorded $827,000 of operating lease costs, of which $2,000 were short-term operating lease costs. For the three months ended July 31, 2022, we recorded $1.0 million of operating lease costs, of which $47,000 were short-term operating lease costs. As of July 31, 2023, our weighted average lease term and weighted average discount rate for our operating leases were 15.3 years and 5.4%, respectively. The operating lease costs, weighted average lease term, and weighted average discount rate, are primarily driven by the sublease of our corporate office and warehouse facility in Columbia, Missouri through fiscal 2039. The depreciable lives of right-of-use assets are limited by the lease term and are amortized on a straight-line basis over the life of the lease.

 

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

 

 

 

Operating

 

2024

 

 

 

$

1,680

 

2025

 

 

 

 

2,241

 

2026

 

 

 

 

2,178

 

2027

 

 

 

 

2,207

 

2028

 

 

 

 

2,238

 

Thereafter

 

 

 

 

26,426

 

Total future lease payments