American Outdoor Brands, Inc. Price & Performance (AOUT)

And we assume no obligation to update any forward looking statements. Our actual results could differ materially from our statements today. I have a few important items to note about our comments on today's call. First, we reference certain non GAAP financial measures. Our non GAAP results exclude amortization of a acquired intangible assets, stock compensation, technology implementation, non recurring inventory reserve adjustments, Other costs and income tax adjustments [indiscernible] The reconciliation of GAAP financial measures to non GAAP financial measures whether they are discussed on today's call, can be found in our filings as well as today's earnings press release, which are posted on our website. Also, when we reference EPS, we are always referencing fully diluted EPS. Joining us on today's call is Brian Murphy, President and CEO and Andy Fulmer, CFO. And with that, I will turn the call over to Brian.

Thanks, Liz, and thanks everyone for joining us. I'm extremely pleased with our third quarter results. Which came ahead of our expectations. Delivered net sales of over $58,000,000 a 9.5% increase over last year. Delivered growth in both our outdoor lifestyle our shooting sports categories. Supported by year over year increases our traditional e commerce and domestic sales channels. We delivered a significant increase in non GAAP adjusted EBITDAS which nearly doubled year over year.

And similar to last quarter, our growth was driven mostly by in line products, well ahead of several new product launches that we teased at during our last call, and showcased publicly in the third quarter. We believe our strong performance demonstrates the effectiveness our long term strategy to leverage our innovation advantage, to broaden our distribution opportunities, expand awareness of our brands, and strengthen our margins all while remaining agile [indiscernible] We delivered results in each of these areas in the third quarter. So let's jump in. First, let me share how we're leveraging our innovation advantage. At AOB, we often say that the greatest opportunity is the one that's right in front of us, And that means the growth potential in our existing brands. Back growth potential comes from new products, which form the core of our innovation advantage. New products provide and they create larger addressable markets to house that growth. They deepen consumer loyalty and they attract entirely new consumers. They drive retail foot traffic. And they drive retailers to choose us as a unique cross category innovation partner. And most importantly, new products fuel our long term growth by adding layers of IP protected revenue to a platform that stacks up over time.

While I plan to highlight some of these new products on today's call, want to be clear that they represent just a couple of exciting examples in a very deep very wide pipeline that spans many brands and runs several years into the future. Our internal teams are incredibly collaborative and resourceful, drive a process that continually replenishes that pipeline. Which is why new products typically generate over 20% of our net sales each year In January, we unveiled several new products that showcase our ability to leverage our innovation advantage to drive brand awareness, and expand our markets by developing disruptive products that make outdoor activities more accessible to a broader audience of enthusiasts. Two prime examples come from our Bubba and Caldwell brands. First from Bubba. We're bringing fishing gamification to a much larger market of everyday anglers allowing them to compete like the pros with the Bubba Smart Fish Scale or SFS, Originally, our Bubba brand played only in the saltwater market. Which represents about 10,000,000 anglers. When we decided to expand into the much larger freshwater market, of about 40,000,000 anglers, had a clear strategy in mind. Develop a premium fish scale and app with a level of accuracy and reliability the pros will trust.

And used that earned trust to win over the everyday angler. We launched the Pro Series in June 2023. And by January 2024, it was named the official scale of Major League Fishing. Putting Bubba on the map with an achievement that set the stage for this year's launch of the SFS Lite. The new SFS Lite offers some of the same pro grade features and gamification capabilities for casual fishing trips with buddies, all at a price that everyday anglers can appreciate. [indiscernible] it's still a premium product at $69 it's a scale purposely designed and built to grow with anglers. Offering configurations that support their journey and push the boundaries of what's possible. Anglers contract their biggest catches and most successful days on the water or they can turn their time on the lake into a competition with friends. When it's time to level up. Anglers can upgrade their app to the Bubba Pro subscription. Unleashing the full potential of the SFS Lite. The strategy we employed with Bubba is one that was several years in the making. But only now is visible. With the launch of the SFS Lite. It's one example of our multiyear product development approach.

Me share one more. Last quarter, you may recall said that Caldwell was about to put a new spin on shotgun sports. Some of you probably wondered what we meant.

Well, Caldwell is reshaping how millions of play shooters take In Q3, we introduced a revolutionary new target system called the Claycopter, which includes an easy to use handheld electronic launcher that propels a set of biodegradable discs up to 100 yards in an endless variety of flight patterns. Challenging shooters like never before, taking a thrower and targets to the range, couldn't be easier more fun. For nearly one hundred and fifty years, traditional clay targets have been the most practical option for shotgun sports enthusiasts eager to hone their wing shooting skills. Traditional clay targets typically require heavy throwers that are bulky and cumbersome to store and transport. Clays are notoriously fragile. They fly in predictable patterns, they come in heavy containers that often make transportation a real challenge. [indiscernible] In fact, clays cannot be purchased at all online. Due to their weight and breakage. Enter Designed entirely in house and surrounded by pending IP, portable launcher weighs just three pounds and packs the same power of a traditional thrower. In a handheld motorized design small enough to fit in a range bag or backpack. The Claycopter target discs are 70% lighter than traditional clays and designed to break only one shot.

They can be purchased in a lightweight compact tube of 50 discs.

And they're inexpensive to transport. Freeing retailers in our Caldwell brand to ship directly to consumers and opening up a highly attractive consumable revenue stream. Next, let me turn to our achievements in widening our distribution and expanding awareness of our brands. We continued to gain traction and momentum with the retailers in the third quarter. Proving our value as a cross category innovation partner demonstrating our ability to provide them instant access to innovation and excitement. This capability is a true differentiator for us. Since we're often competing against organizations that can provide great efficiency across multiple categories, but often lack innovation. Or that can provide innovation but only in a single category. We have cracked that code and found a way to give retailers both efficiency and innovation across an entire portfolio. This provides new distribution opportunities for our brands and products.

For example, during the quarter, we secured new and expanded retail placement for our BOG Caldwell, Grilla and Meet Your Makeup brands. This broader distribution is important because it generates brand awareness among consumers, who often represent entirely new audiences. Lastly, I'll address our focus on increasing profitability while remaining agile and asset light. Both of which are equally important to our growth strategy. We continue to embrace our long term model for net sales and profitability. And I'm extremely pleased with our ability to demonstrate growth and margin expansion the third quarter. Particularly given the recent environment [indiscernible] consumer uncertainty and ever evolving tariffs Despite these environmental challenges, we believe we have a number of levers available to us in support of our model. [indiscernible] First, Because the new products are such a high percentage of our revenue, They are a tremendous tool in preserving and strengthening our margin profile by allowing us to feather in New higher margin often IP protected, products. As well as subscription revenue services such as the Bubba app, that accompanies the fish scales we discussed today. Second, we continue to maintain a healthy direct to consumer business. Which is complementary to our B2B strategy and gives us the option to introduce new products directly to consumers when appropriate.

Building loyalty and demand prior to introducing them into the retail channel.

It's a strategy we've successfully executed in the past with our Grilla and Meat Your Makeup brands.

Third, because we own our and the tooling required to make those products have some flexibility with regard to where those products are made. That said, we have strong and long lasting supplier partnerships. Those partnerships are proving valuable as we work together to assess our optimal responses to the dynamic tariff landscape. Lastly, our strong balance sheet and asset light model provide agility allowing us to make those decisions that are best for the long term health of our business. We believe we have the tools necessary to successfully navigate the future. We have encountered tariffs before and demonstrated that we have levers we can pull. And have pulled As a result, we believe we have optionality as we continue to grow. While embracing our long term model for profitability. With our innovation advantage in hand, and our flexible asset light platform, already in place We remain excited about our ability and profitability in fiscal twenty twenty five and beyond. That, I'll turn it over to Andy to discuss our financial results Thanks, Brian. We're very pleased with our results for the third quarter. Net sales and profitability came in ahead of our expectations We further strengthened our balance sheet and we continue to return capital to shareholders through our share repurchase program.

Net sales for Q3 were $58,500,000 a 9.5% increase over Q3 last year. We delivered growth in both our outdoor lifestyle category and our shooting sports category. And benefited from the timing of approximately $1,000,000 in orders that were originally slated for the fourth quarter. In our outdoor lifestyle category, which consists of products related to hunting, fishing, outdoor cooking, Net sales grew by 15.1% driven mainly by sales in our meet your maker, as well as our knife and tool brands.

In our shooting sports category, which includes solutions for target shooting aiming solutions, safe storage, cleaning and maintenance and personal protection, Within the category, shooting accessory sales increased due in part to promotional sales of some slower moving inventory. [indiscernible] Personal protection product sales were down slightly compared to last year consistent with the decrease in adjusted 9.6% and our e commerce net sales increased by 9.5% compared to Q3 last year. As a reminder, our e commerce channel includes direct to consumer sales from our own websites as well as sales by online retailers that do not have brick and mortar stores. We believe this high single digit growth across both categories continues to underscore the connection that our brands have both at retail and with consumers. With regard to gross margin, GAAP gross margin for Q3 was 44.7% a 200 basis point increase from 42.7% in Q3 last year. On a non GAAP basis, gross margin for Q3 was 45%. The increase was driven largely by higher sales volumes and lower inbound freight costs in the quarter, partially offset by the sale of the slower moving inventory I mentioned before. Turning to operating expenses. GAAP operating expenses for the quarter were relatively flat at $25,800,000 On a non GAAP basis, which removes amortization, stock compensation and non recurring expenses, Operating expenses in Q3 were up slightly in terms of dollars to $22,700,000 compared to $21,500,000 in Q3 of last year.

However, non GAAP OpEx decreased as a percentage of net sales. To 38.8% compared to 40.3% last year a great result We remain disciplined with a cost management philosophy we as we look for ways to avoid building in unnecessary costs. It's an approach that helps us maintain a lower level of expense over the allowing us to be agile and asset light when responding to changes in our environment. Without resorting to large and sudden cost cuts. Turning to EPS. GAAP EPS was $0.01 for the third quarter, compared to a negative $0.23 in the third quarter last year. On a non GAAP basis, EPS was $0.21 in Q3 compared to $0.08 in the prior year. Our Q3 figures are based on our fully diluted share count of approximately 13,100,000 shares.

And we expect that share count to remain consistent through fiscal year end. Outside of any share buybacks that may occur. Adjusted EBITDAS for the quarter was $4,700,000 compared to $2,400,000 last year.

On a trailing twelve month basis, adjusted EBITDAS was $15,200,000 up an impressive 45% from $10,500,000 for the trailing twelve month period a year ago. Turning now to the balance sheet and cash flow. We continue to strengthen our balance sheet ending the quarter with cash of $17,100,000 and no debt. After repurchasing approximately $1,200,000 of our common stock. [indiscernible] [indiscernible] Driven by a decrease in accounts receivable of 11,600,000.0 which was partially offset by a decrease in accounts payable and a planned increase in inventory. We continue to expect our inventory levels to end the fiscal year at approximately $110,000,000 to support net sales growth in fiscal twenty twenty six.

Turning to capital expenditures. We spent $1,800,000 on CapEx for ongoing product tooling and patent costs in the third quarter and the completion of the factory outlet store our Missouri facility. For full year fiscal twenty twenty five, we expect to spend $4,000,000 to $4,500,000 Our operating model is designed to require annual CapEx of roughly 2% of net sales, for patents, tooling and maintenance investments and our our expectations for fiscal twenty twenty five are right in line with that model. We've discussed in the past our three capital allocation priorities. Which are: organic growth, disciplined M and A, and returning capital to stockholders with share repurchases. With regard to organic growth, the investments we make in innovation, form the core of our growth strategy. Those investments strengthen our brands with consumers, deepen our relationships with retailers and broaden our distribution opportunities. They drove the growth we have delivered in Q3 and throughout the year. As a result, organic growth remains our top priority. Next, we seek out M and A opportunities that fit our criteria and supplement that growth. And lastly, we opportunistically return capital to our stockholders through buybacks. Now turning to our outlook. We remain excited about the opportunities that lie ahead.

Given the strength in our existing product lines, As we approach the end of fiscal twenty twenty five, we are narrowing the range of our net sales guidance and raising the midpoint. Expect net sales for fiscal twenty twenty five in a range of $2.00 $7,000,000 to $210,000,000 Net sales at the midpoint of that range would imply growth of 3.7% Turning to gross margins. We expect GAAP gross margins for the full full year fiscal twenty twenty five to come in at approximately 45% Right on target.

As expected, second half gross margins will be lower than first half gross margins driven by the increased amortization of tariff and freight variances in the fourth quarter, related to higher inventory purchases we made in the first half of the year. [indiscernible] As a reminder, our business, tariff and freight variances are capitalized when inventory is purchased and amortized based on inventory turns. While I'm on the subject of tariffs, I want to point out here that our strong profit performance this year incorporates tariffs already embedded into our business for many years now. So while we are not yet giving gross margin guidance for fiscal twenty twenty six, we remain confident in our ability to utilize the levers we have built into our business As Brian outlined, With regard to operating expense, we expect overall OpEx in fiscal twenty twenty five to increase slightly over the prior year, Due to higher variable selling and distribution costs, driven by the higher net sales we expect. [indiscernible] Based on all of these factors, we are increasing the range of our estimate for adjusted EBITDAS for fiscal twenty twenty five. We now expect adjusted EBITDAS will be between 14,500,000.0 and $15,500,000 At the midpoint, this would represent year over year adjusted EBITDAS growth of almost 54% Turning now to fiscal twenty twenty six.

Last quarter, we discussed that early order indications we received from retailers for both our in line products and our new products provided us greater visibility into the future. And supported our fiscal twenty twenty six growth expectations. Since then, we've attended SHOT Show, where positive feedback reinforced our expectation for net sales of between $220,000,002 $30,000,000 for fiscal twenty twenty six. Which would represent growth of 7.9% from the midpoint of fiscal twenty twenty five to the midpoint of fiscal twenty twenty six.

We believe this acceleration in growth rate demonstrates the potential of our innovation advantage to deliver long term sustainable growth. [indiscernible] Thank you. Today's first question comes from Mark Smith with Lake Street Capital Markets. Please go ahead.

Hi, guys. I'll apologize if some of my questions are you hit on the call as I missed some of it. But I wanted to just ask broadly about new products If any insight you can give us on kind of the mix, the impact to sales, But also I want to hear just kind of long term kind of how the pipeline looks and how you think about new product introductions and kind of the planning process behind that? Sure. Hey, Mark. It's Brian. Yes, the new products obviously is a big part of our go forward plan being an innovation [indiscernible] And historically for us as represented between 2025% of our total net sales. And we have the neat slide in our investor deck that shows the stacking of that over time. So going forward, the pipeline continues to be a major contributor for us.

And frankly is a big contributor going forward into this next year. Just showing an acceleration of some of that growth. And in terms of sales mix, things like that, We've talked about outdoor lifestyle becoming a bigger part of our overall portfolio. Just given the nature of the opportunity and the size of some of those markets. So that continues to be the case. With that said coming out of SHOT Show last month, which you were there and saw some of the neat products that we had some other products from Caldwell Tipton, Wheeler, is really in the shooting sports side is continuing to diversify large markets that are more sustainable over time have less fluctuation and frankly a strong user base.

Overall, continue to move towards outdoor lifestyle, but the meantime, also have some very exciting good long term categories that we continue to expand into. Excellent. And then it might be a repeat from some of the script, but if you want to talk about kind of the topic as you're here of tariffs it's changing daily, but maybe talk about your expected exposure, especially as we think about a mix of China, Canada, Mexico, It sounds like it's maybe built into guidance, but walk us through kind of how you're looking at that and anything that maybe changes in your strategy going forward? [indiscernible] Yes, tariffs are continuing to change not only daily, but by the minute it seems. If you're tracking the Wall Street Journal, they've got a live live coverage and update by the minute. I think that's how you know that this is a fast evolving situation. So I think our approach just taking a step back remains the same, which is we try to make ourselves as nimble as possible and built up a very strong balance sheet where we can make the right long term decision as part of what we talked about in the prepared remarks.

Because ultimately, we're seeing there might be tariffs and there is right now increased tariffs on Chinese goods And that we're going back and forth on Canada versus Mexico and there's even talk of potential So ultimately, we want to measure twice and cut once. And make the right long term decision because moving a supply chain and making some of those changes It's not a switch you can just flip. There are other things you need to take into consideration quality, which is a big one. We want to make sure we maintain our reputation of no recalls. For a company that produces as many new products as we do each year. It's imperative that we maintain our quality standards and the team does a phenomenal job of that. So For us, tariffs is obviously very top of mind. And we do because we're an asset light company, we do manufacture our products overseas and in China our Chinese partners play a big part of that. But we truly are leveraging our innovation advantage and we've got a number of levers to pull whether it's feathering in new feathering in margin with new products because new products are such a large percentage for us.

Our IP protection gives us tremendous protection for existing lines and obviously future ones. We've got a meaningful direct to consumer business We've got some very exciting recurring revenue streams that are high margin So we feel really good and we'll as the situation continues to unfold, we'll we have plenty of levers that we can pull.

Okay.

Perfect. And then kind of the other hot topic, obviously, consumer behavior, any update on changes, anything that you've seen even as we think about maybe the last thirty days? Obviously, we've seen mix fluctuate fair amount here January to February. But any thoughts around on the ground changes in consumer behavior that you guys are seeing? Yes. We're seeing a just coming out of SHOT Show and talking with retailers we are hearing and seeing consumers continue to be cautious in making their purchases. But it's also on the flip side one of the reasons we've been so successful and seeing that strong pull through in POS at the stores is because consumers continue to be starved of innovation and they're really being selective about where they're where they're buying. So we're benefiting from that fact, but certainly there is some cautious And then I think specifically to you think about the kind of low, mid, high level price point, structure, we play in that higher price point. Most of our products are premium. And so we have a little bit of insulation there that is less price sensitive and tends to be more affluent consumer. And that consumer still shows strong signs of resiliency.

Excellent. Thank you, guys. Thanks, Mark. The next question comes from Matt Koranda with ROTH Capital.

Please go ahead.

Hi, it's Joseph on for Matt today. We're just looking at your guidance. I wanted to see, does it seem like a slight step up Does this guidance for 2025 capture 3Q outperformance? And which growth might slow down a bit sequentially. So I just wanted to ask about quarter to date trends in both channels and where you're seeing mid single digit growth. Hey Joe, it's Andy. So yes, so overall, on the net sales side, we kind of narrowed the range to $2.00 $7,000,000 to $210,000,000 So the midpoint is up about $1,000,000 In the quarter, we talked about kind of some timing of about $1,000,000 that we thought was going to ship in Q4 that that we shipped in Q3 and that's kind of normal quarter to quarter timing. But yes, overall, we feel really good about year, the $2.00 $7,000,000 to $210,000,000 we're able to increase the adjusted guidance as well. So we're really happy with the quarter. And then just staying on the consumer and then guidance, we see that you're reiterating your 2026 guidance. Is there any visibility you can give us in terms of long term growth excuse me for your retail partners and your order books?

What do you mean by long when you say long term growth, [indiscernible] Post FY 'twenty six or Sorry, just for FY '26. Yes. This is Brian. I mean, the best detail I can give you is we had coming out of line reviews last quarter we had some strong indications from our retail partners that they were going to Double down on AOB. And really sought to bring in more innovation into their stores. And so the story you saw in the prepared remarks, the story of really giving them instant access to innovation and excitement is real. And they're seeing that success. So coming out of SHOT Show, which would have been between our last call and where we are today, those same retailers just really reiterated and strengthened their commitment to bringing in these products Many of them are new and will hit in FY 2026.

So I had not really a change of any kind there, other than just more conviction that those orders are there and there's strong demand for them.

Got it. And then just my final question here on your concerning M and A funnel. Just wanted to see if you guys could provide us any commentary on what you're seeing out there in the M and A markets and if you could provide any color on what you're looking for and what's the best interest for, Aout?

Yes. So Brian here, I'll answer first and Andy feel free to chime in. Yes, M and A is near and dear to our heart. I mean, it's a big part of my background and we've done a lot of few deals here together, Andy and I, We just will continue to be very disciplined. We look at a ton of deals We've seen the ice break a little bit. Before the tariffs with more companies seeming to come to market So more sell side deals with investment bankers. I do think that the tariff think there are lots of companies out there that have not really protected themselves. I think that our have as many levers to pull And so we are seeing, I think, a little bit of maybe a stutter step you know, where they need to figure some things out first before they officially come to market. But ultimately, I think it's going to continue to to unfold. Honestly, I think the next three years is just going to continue to be an evolution and new things will emerge. So it's how adaptable are the companies how adaptable are they and when they come to market.

So I wouldn't be surprised if there's a little bit of kind of pause on some deals coming to market. But we're still ready We're very excited looking at deals We love, love deals that have perspective on recurring revenue. Subscription revenue, we have more in our own pipeline related to subscription revenue and recurring revenue. So really just trying to find the right deal that fits for our model and allow us to maintain asset agile and asset light infrastructure.

Appreciate it. Thank you. I'll take the rest offline.

This concludes our question and answer session. I would now like to turn the call back over to Mr. Murphy for closing remarks. Thank you, operator.

Before we close, I want to let everyone know that we'll be participating in the ROTH Conference in California on March 17, and the Lake Street Virtual Conference on April 3, and we hope to see some of you there. I want to thank our employees whose tireless commitment to innovation allows us to remain focused on executing our long term vision. You to everyone who joined us today. Look forward to speaking with you again Next quarter.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines. [indiscernible] [indiscernible] [indiscernible]