American Outdoor Brands, Inc.: Form 10-Q for the period ended Jul 31, 2024

Overview

The following discussion and analysis of our financial condition and results of operations for the three months ended July 31, 2024 and 2023 should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for fiscal year ended April 30, 2024. This discussion and analysis should also be read in conjunction with our unaudited condensed consolidated financial statements and the notes thereto included in Item 1 of this Quarterly Report on Form 10-Q.

The following discussion and analysis includes forward-looking statements. These forward-looking statements are subject to risks, uncertainties, and other factors that could cause our actual results to differ materially from those expressed or implied by the forward-looking statements. Factors that could cause or contribute to these differences include those discussed above in “Statement Regarding Forward-Looking Information” in this Form 10-Q. In addition, this section sets forth key objectives and performance indicators used by us, as well as key industry data tracked by us.

The following discussion and analysis includes references to net sales of our products in shooting sports and outdoor lifestyle categories. Our shooting sports category includes net sales of shooting accessories and our products used for personal protection. Our outdoor lifestyle category includes net sales of our products used in hunting, fishing, camping, rugged outdoor activities, and outdoor cooking.

First Quarter Fiscal 2025 Highlights

Our operating results for the three months ended July 31, 2024 included the following:

• Net sales were $41.6 million, a decrease of $1.8 million or 4.1%, from the comparable quarter last year.
• Gross margin was 45.4%, flat as compared to the comparable quarter last year.
• Net loss was $2.4 million, or $0.18 per diluted share, compared with a net loss of $4.1 million, or $0.31 per diluted share, for the comparable quarter last year.
• Non-GAAP Adjusted EBITDAS was $2.0 million for the three months ended July 31, 2024 compared with $1.1 million for the three months ended July 31, 2023. See non-GAAP financial measure disclosures below for our reconciliation of non-GAAP Adjusted EBITDAS.

Results of Operations

Net Sales and Gross Profit

The following table sets forth certain information regarding consolidated net sales and gross profit for the three months ended July 31, 2024 and 2023 (dollars in thousands):

The following table sets forth certain information regarding trade channel net sales for the three months ended July 31, 2024 and 2023 (dollars in thousands):

Our e-commerce channels include net sales from customers that do not traditionally operate physical brick-and-mortar stores, but generate the majority of their revenue from consumer purchases from 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 revenue from consumer purchases in 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, 2024 and 2023 (dollars in thousands):

The following table sets forth certain information regarding net sales categories for the three months ended July 31, 2024 and 2023 (dollars in thousands):

For the three months ended July 31, 2024, total net sales decreased $1.8 million, or 4.1%, from the comparable quarter last year primarily because of a decrease in our direct-to-consumer net sales partially offset by an increase in net sales to international retailers.

Net sales in our e-commerce channel decreased $1.9 million, or 10.2%, from the comparable quarter last year, primarily because of lower direct-to-consumer net sales for products sold on our e-commerce platform. E-commerce channel net sales decreased for both our outdoor lifestyle category from lower outdoor cooking and rugged outdoor product net sales and our shooting sports category from lower personal protection product net sales.

Net sales in our traditional channels increased $73,000, or 0.3%, over the comparable quarter last year. Traditional channel net sales increased primarily because of higher net sales of shooting accessories in our shooting sports category partially offset by lower net sales of rugged outdoor products in our outdoor lifestyle category. In addition, our international net sales increased $774,000, or 21.2%, over the comparable quarter last year as a result of increased sales in Canada.

New products, which we define as any SKU introduced over the prior two fiscal years, represented 23.4% of net sales for the three months ended July 31, 2024.

Gross margin for the three months ended July 31, 2024 was flat to comparable quarter last year, with lower freight and shipping container costs offset by higher promotional product discounts.

Operating Expenses

The following table sets forth certain information regarding operating expenses for the three months ended July 31, 2024 and 2023 (dollars in thousands):

Research and development expenses increased $75,000 over the comparable quarter last year, primarily from higher consulting and third party service expenses. Selling, marketing, and distribution expenses decreased $671,000 from the comparable quarter last year mainly because of lower advertising expense. General and administrative expenses decreased $1.7 million from the comparable quarter last year, primarily because of lower legal and consulting expense and lower acquired intangible asset amortization expense.

Operating Loss

The following table sets forth certain information regarding operating loss for the three months ended July 31, 2024 and 2023 (dollars in thousands):

Operating loss for the three months ended July 31, 2024 was $1.5 million lower as compared to the comparable quarter last year primarily from lower operating expenses mentioned above.

Income Taxes

The following table sets forth certain information regarding income tax benefit for the three months ended July 31, 2024 and 2023 (dollars in thousands):

We recorded income tax expense of $22,000 for the three months ended July 31, 2024 compared with income tax expense of $55,000 for the prior year comparable period. The income tax expense recorded for the three months ended July 31, 2024 and 2023 was primarily due to a full valuation allowance recorded against our deferred tax assets.

Net Loss

The following table sets forth certain information regarding net income and the related per share data for the three months ended July 31, 2024 and 2023 (dollars in thousands, except per share data):

Net loss was $2.4 million, or $0.18 per diluted share, for the three months ended July 31, 2024 compared with net loss of $4.1 million, or $0.31 per share, for the comparable quarter last year. The lower net loss was primarily related to lower operating expenses during the three months ended July 31, 2024 as compared to the three months ended July 31, 2023.

Non-GAAP Financial Measure

We use GAAP net income as our primary financial measure. We use Adjusted EBITDAS, which is a non-GAAP financial metric, as a supplemental measure of our performance in order to provide investors with an improved understanding of underlying performance trends, and it should be considered in addition to, but not instead of, the financial statements prepared in accordance with GAAP. Adjusted EBITDAS is defined as GAAP net income/(loss) before interest, taxes, depreciation, amortization, and stock compensation expense. Our Adjusted EBITDAS calculation also excludes certain items we consider non-routine. We believe that Adjusted EBITDAS is useful to understanding our operating results and the ongoing performance of our underlying business, as Adjusted EBITDAS provides information on our ability to meet our capital expenditure and working capital requirements, and is also an indicator of profitability. We believe this reporting provides additional transparency and comparability to our operating results. We believe that the presentation of Adjusted EBITDAS is useful to investors because it is frequently used by analysts, investors, and other interested parties to evaluate companies in our industry. We use Adjusted EBITDAS to supplement GAAP measures of performance to evaluate the effectiveness of our business strategies, to make budgeting decisions, and to neutralize our capitalization structure to compare our performance against that of other peer companies using similar measures, especially companies that are private. We also use Adjusted EBITDAS to supplement GAAP measures of performance to evaluate our performance in connection with compensation decisions. We believe it is useful to investors and analysts to evaluate this non-GAAP measure on the same basis as we use to evaluate our operating results.

Adjusted EBITDAS is a non-GAAP measure and may not be comparable to similar measures reported by other companies. In addition, non-GAAP measures have limitations as analytical tools, and you should not consider them in isolation or as a substitute for analysis of our results as reported under GAAP. We address the limitations of non-GAAP measures through the use of various GAAP measures. In the future, we may incur expenses or charges such as those added back to calculate Adjusted EBITDAS. Our presentation of Adjusted EBITDAS should not be construed as an inference that our future results will be unaffected by these items.

The following table sets forth our calculation of non-GAAP Adjusted EBITDAS for the three months ended July 31, 2024 and 2023, respectively (dollars in thousands):

(Unaudited)

Liquidity and Capital Resources

We expect to continue to utilize our cash flows to invest in our business, including research and development for new product initiatives; to hire additional employees; to fund growth strategies, including any potential acquisitions; to make payments on any indebtedness we may incur over time; and to repurchase shares of our common stock if we are authorized to do so.

The following table sets forth certain cash flow information for the three months ended July 31, 2024 and 2023 (dollars in thousands):

Operating Activities

On an annual basis, operating activities generally represent the principal source of our cash flow.

Cash used in operating activities was $4.4 million for the three months ended July 31, 2024 compared with cash generated by operating activities of $5.2 million for the three months ended July 31, 2023. Cash used by operating activities for the three months ended July 31, 2024 was primarily impacted by $13.4 million of increased inventory. The increase in inventory was a result of planned increase in purchases to prepare for the fall and winter hunting and holiday seasons. The cash usage for the three months ended July 31, 2024 was partially offset by a $4.1 million increase in accounts payable due to the timing of inventory purchases and $2.0 million of increase accrued expenses related to the timing of outbound freight accruals.

Investing Activities

Cash used in investing activities was $1.1 million during the three months ended July 31, 2024 compared with $836,000 used in the prior year comparable period with higher spending on product tooling. We expect to spend approximately $3.5 million to $4.5 million of capital expenditures in fiscal 2025, a decrease of $1.5 million to $2.5 million from the $6.0 million we spent in fiscal 2024, a year in which we spent $2.9 million on capital expenditures as a result of the lease assignment of the full building at our headquarters in Columbia, Missouri.

Financing Activities

Cash used in financing activities was $778,000 for the three months ended July 31, 2024, primarily from $381,000 used to repurchase 42,017 shares of our common stock.

Our future capital requirements will depend 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, 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. Further equity or debt financing may not be available to us on acceptable terms or at all. If sufficient funds are not available or are not available on acceptable terms, our ability to take advantage of unexpected business opportunities or to respond to competitive pressures could be limited or severely constrained.

We had $23.5 million of cash equivalents on hand as of July 31, 2024 and had $29.7 million in cash and cash equivalents on hand as of April 30, 2024.

Other Matters

Critical Accounting Policies

The preparation of our condensed consolidated financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of net sales and expenses during the reporting periods. Significant accounting policies are summarized in Note 2 of the Notes to the consolidated and combined financial statements in our Annual Report on Form 10-K for the fiscal year ended April 30, 2024. Our critical accounting policies are described in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the fiscal year ended April 30, 2024, to which there have been no material changes. Actual results could differ from our estimates.

Recent Accounting Pronouncements

The nature and impact of recent accounting pronouncements, if any, is discussed in Note 2—Basis of Presentation to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q, which is incorporated herein by reference.

There were no material changes from the information provided in Quantitative and Qualitative Disclosures about Market Risk in the Form 10-K.

Disclosure Controls and Procedures

As of July 31, 2024, our Chief Executive Officer and Chief Financial Officer evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) and have concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. These disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the reports we file or submit is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

There have been no changes in our internal control over financial reporting during our most recent fiscal quarter ended July 31, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

We have disclosed under the heading “Risk Factors” in our Annual Report on Form 10-K, filed with the SEC on June 27, 2024, risk factors that materially affect our business, financial condition, or results of operations. There have been no material changes from the risk factors previously disclosed.