Q2 2020 Earnings Call

Ladies and gentlemen.

Today's conference is scheduled to begin shortly please continue to standby and thank you for your patience.

Good day, everyone and welcome to the Americas Outdoor brands Corporation second quarter fiscal 2020 financial results Conference call. This call is being recorded at this time I'd like to turn the call over to Liz Sharp Vice President of Investor Relations, well give us some important information about today's call.

Thank you and good afternoon.

Our comments today may contain predictions estimates and other forward looking statements.

Our use of words like anticipate project estimate expect intend believe.

And other similar expressions is intended to identify those forward looking statement.

Forward looking statements also include statements regarding revenue earnings per share non-GAAP earnings per share fully diluted share count and tax rate for future periods.

Our product development focus objectives strategies envision.

Our strategic evolution.

Marketshare and market demand for a product.

Market and inventory conditions related to our products and in our industry in general and growth opportunities and trends.

Our forward looking statements represent our current judgment about the future and they are subject to various risks and uncertainties.

Risk factors and other considerations that could cause our actual results to be materially different are described in our securities filings, including or forms 8-K 10-K intend to.

You can find those documents as well as a replay of this cold water website at <unk> Dot Com later today.

Today's call contains time sensitive information that is accurate only as of this time.

And we said 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 her comments on todays call first we reference certain non-GAAP financial measures on this call.

Our non-GAAP results and guidance exclude acquisition related costs.

Including amortization recall related expenses onetime transition cost for a value inventory step up change and contingent consideration and the tax effect related to all those adjustments.

The reconciliations of GAAP financial measures to non-GAAP financial measures, whether or not they are discussed on today's call can be found in today's form 8-K filing as well as todays earnings press release.

Sure posted on our website.

Oh, so when we referenced P.S., we are always referencing fully diluted EPS.

For detailed information on our results. Please refer to our annual report on Form 10-K for the year ended April 32019, and our 10-Q for the quarter ended October 30 129 team.

I'll now turn the call over to James Debney, President and CEO of American outdoor brands.

Thank you last.

Good afternoon, and thanks, everyone for joining us.

With me on today's call is Jeff you kind of know Chief Financial Officer.

We are pleased with our second quarter performance, which includes several what treatment, but I will outline for you today.

Among them was all work to finalize the plan to spin off our outdoor products and accessories business other tax free dip it into our stockholders.

I transaction, we announced in early November , but we expect to close in about eight to 10 months.

Because we plan to become two independent public companies at the spinoff died.

I have organize my comments today to foster dress off our own business, which will become Smith <unk> Wesson brands, Inc.

Outdoor products and accessories business, which will become American outdoor brands Inc.

After my comments, Jeff will discuss our financial results on our outlook, which will now include revenue guidance for each business for the balance of the here as we work to provide stockholders with enhanced visibility as we approach the spinoff type.

With that Oh first address all firearms business.

As you know we transfer far on only to law enforcement agencies on federally license distributors and retailers.

Not directly to end consumers.

That said adjusted Nics background checks are generally considered to be the best available proxy for consumer demand so far on Sept retail.

And all fiscal Q2 background checks the handguns increased 14.8% year over year.

While our unit shipped to distributors and retailers increased by 14.2%.

For the same period background checks for long guns grew 7.8% year over year, well all units shipped to distributors and retailers declined by 30.3%.

The decline occurred for two reasons, but you'll remember that on a law school are you indicated we are proactively work to reduce our inventory of its a family of hunting rifles.

With enough time for that inventory to clear out to the channel and it bounce about upcoming major product launch.

As a result, we believe consumer demand for all hunting rifles in Q2 was addressed with Yemen inventory, we effectively moved into the channel during Q1.

The balance of all long gun decline relative to adjusted Nics is due to lower sales of modern sporting rifles buses last year.

In a more recent update November adjusted Nics increased 2.1% versus a year ago following be expected seasonal trend line.

Within that result on adjusted background checks of Black Friday, what brisk delivering the second highest black Friday on record.

And indicating that the consumer is willing to wait for a great deal on the next bar on patches.

Distributor inventory of off our own decrease sequentially from 178000 units at the end of Q1 253000 units at the end of Q2.

Sequential decline is normal that's Q2, Texas since the beginning of the full punting on holiday shopping season.

Since the end of Q2 distributor inventories a further decline, but remain above alright week threshold.

New product introductions in Q2 included the Smith <unk> Wesson model 648 revolver.

Featuring a night round capacity I'm trying but in 22 Magnum.

Deal for target shooting and small game Ponting.

As well as the new M. P. M 2.0, subcompact. The newest addition to our popular and two point <unk> family of pistol and ideal for concealed carry on personal protection.

During the quarter will surpass it for an exciting new upcoming major product launch.

We see did the channel with this new product late in Q2 in preparation for the official launch that will occur on December 12.

The team also continue preparations for several exciting new product launches, we have planned for short show in January .

Well I went share more details at this point I can tell you that we look forward to providing consumers with some exciting new products from the brands. They know and trust. So please stay tuned.

Turning now to outdoor products and accessories for DNA.

Revenue in a few to decrease by about $8 million from the comparable quarter last year.

The prior year quarter was a challenging comparison since they included large discounted or what is from two significant customers and those are what it did not repeat in the current you too.

That said that decline does not concerned us because points of sale data continues to indicate strong consumer demand for products at retail and.

In fact, I don't have Jeff will outline later, we expect full year fiscal 2020 revenue in okay, and I hate to grow over the prior year.

Our decision to organize our open a business into brand lanes continues to yield exciting results.

Four primary brand lane to orientated around distinct consumer archetype them oxman.

Harvista, the defend a and b adventurer each containing three to six distinct brands.

This focus has enabled all teams to establish clear positioning for each brand, which in time defines what each brand has the consumers permission to play in certain product categories.

The results of this approach is evident in our new product launch plan.

In January .

Primarily a short shack 15 of on 19, Opn eight brands will launch a large number of new products.

One of which is an entirely new brand a.

Many of which represent our entry into six completely new product categories.

Those entries demonstrate meaningful progress towards our expansion into that 35 billion dollar rugged outdoor market.

While the remainder our introductions aimed at strengthening our position I'm, taking market share within existing product categories.

I look forward to sharing the details of both launches in the new yeah.

Lastly, I'm before I hand over to Jeff just a few comments on the plan spin off of our IP in a business.

We made the spin off announcement, just three weeks ago. So there are no significant new developments to share today. We currently have a dedicated project team in place that will keep us on track well, we work to develop the various business arrangements that will need to be in place by the spin off day.

In the meantime, the rest of our organization will remain focused on continuing to effectively and efficiently run the company.

As we approach the spin off we will continue to provide regular <unk> sites.

We look forward to getting on new leadership teams out on the road, providing us the opportunity to meet with many of you.

The first of these opportunities will be a shot show in January and we hope to see some of you the.

With that I lost you have to provide more detail <unk> financial results and our updated guidance Jeff.

Thanks James.

Revenue for the quarter was $154.4 million.

Decrease of 4.5% from prior year revenue from or firearms segment was $113.7 million an increase of 1.8%.

Note that we recorded $8.1 million of incremental firearm revenue because of a change in how we record federal firearms excise tax without that change firearms revenue would have been $105.6 million or a 5.5% decrease.

From the prior year.

This decrease related mostly to the decline in long gun sales that James discussed.

Revenue from our old DNA segment was $47.8 million a decrease of 14.6%.

The decline in our old DNA revenue was due mainly to a reduction in large discount orders from certain significant customers as James discussed earlier in the call. Despite the decline we expect full year old being your revenue to be up versus the prior year.

Intercompany eliminations were $7.1 million.

So now let me take a moment to explain the change in firearms excise tax.

The firearms segment is not required.

To record and pay that tax when we ship firearms from our Massachusetts manufacturing plant to our Missouri distribution Center.

Previously we pay the tax upon shipment to our third party customers and recorded pretax has a reduction of revenue at that point.

We petition to continue with that same treatment when shipping firearms from our distribution center.

The tax and trade Bureau, however denied our punish petition and insisted that the tax be assessed and paid on the first transfer of a firearm which is is when we ship it to our distribution center.

This means that our revenue will no longer be reduced by that excise tax amount rather that amount will be included in our cost of sales.

Obviously this change does not impact our gross profit dollars, but it will artificially increased revenue and cost of goods sold and it will correspondingly reduce certain percentage is based on revenue such as gross margin operating margin and EBITDA margin.

I will detail the tax related revenue increase for the remainder of the fiscal year when I provide guidance later in the call.

Now turning to gross margin.

In Q2, the total company gross margin was 32.6% as compared to 34.9% in the prior year.

The decline was driven by both the change in excise tax as well as lower margins in our Opn a business.

And our firearms segment, the gross margin was 28.2% as compared to 28.5% in the prior year.

Although the gross margin percentage was unfavorably impacted by the change in federal excise tax it was favorably impacted by moving firearm shipping costs down to Opex as we discussed in our last earnings call.

In the open today segment gross margin declined to 38.9% as compared to 45.4% in the prior year.

This decline was the result of additional tariffs and unfavorable customer and product mix.

We expect our gross margins and Opn a to rebound in the back half of the year, two well above 40%.

In the quarter, both GAAP and non-GAAP operating expenses were roughly equivalent to last year, even though Q2, mark the false first full quarter of operation of our Missouri campus, which increased operating expenses by $3.2 million.

That increase however was offset by savings from closing, our Jacksonville location as well as reductions in compensation bad debt and other costs.

Additional savings will occur when we close original Opn a facility in Missouri and fully consolidate into the Missouri campus.

For the second quarter GAAP EPS came in above our guidance at two cents as compared with 12 cents last year.

Our non-GAAP EPS was above our guidance at nine cents as compared with 20 cents in the year ago on quarter.

Adjusted EBITDA in Q2 was $20.9 million for a 13.5% EBITDA margin as compared with a 16.5% margin in Q2 of last year, excluding the excise tax change adjusted EBITDA margin would have been afford.

13.3%.

Turning to the balance sheet in Q2 operating cash outflow was $5.5 million in our Capex was $5.6 million. Thus, our Q2 free cash outflow was $11 million as compared to free cash outflow.

$18.1 million in Q2 of the prior year.

Free cash flow in our second quarter is usually neutral to negative but is typically strong in the back half of the fiscal year.

We continue to expect capex spending to be about $25 million for the full fiscal year, and that's related to ICTI, new products and maintenance.

At the end of Q2, we had $43.8 million with cash on hand.

We had borrowings of a little over $200 million comprised of.

$50 million drawn on our line of credit a term loan of $78 million and bonds of $75 million. As a result total net bank borrowings at the end of Q2 were just under $160 million.

Our one year trailing EBITDA losses about $95 million. So our net leverage ratio is approximately 1.7 to one and we expect that ratio to be significantly lower at the end of the fiscal year.

After the end of the quarter, we modified our banking facility with respect to certain terms that will take effect upon our planned spinoff.

Most importantly, the banks have pre approved the spin off so long as certain debt levels are maintained.

We believe the amended facility will provide more than enough borrowing.

Capacity for the firearms business after the spin off.

As results of that pre approval and modification last week, we use the amended revolving line of credit to repay our bank term loan that was due in June of 2020 . We also called our 5% bonds that are due in August of 2020 .

And expect to close that transaction in early January also using the revolving line of credit.

These two transactions will have the effect of extend the 100% of our debt maturities.

Out to October 2021, and reducing our overall blended annual interest rate by 35 basis points.

So now I will discuss our guidance.

For full year fiscal 2020 , we are revising upward our total company revenue guidance to reflect two factors.

First we are estimating a slightly improved outlook for product demand for the remainder of the fiscal year.

Second the change in federal excise tax will increase our full year revenue by $34 million to $36 million. Thus, we now expect total company full year revenue to be in the range of $680 million to $700 million.

As James indicated earlier in connection with our planned spinoff, we are providing revenue guidance for each separate business for the balance of the fiscal year to provide stockholders with enhanced visibility for each business. Accordingly, we expect full.

Your revenue for firearms to be $520 million to $530 million and full year revenue for opn, a to be $180 million to $190 million.

Intercompany eliminations between the two businesses are expected to be approximately $20 million.

Regarding s., we are maintaining our full year GAAP EPS guidance of between 41 and 49 cents. Despite the following impact items one the beat in Q2, and our improved demand outlook, which have a favorable impact.

And to the expenses associated with the spin off which have an unfavorable impact.

It should be noted that the spin off expenses will not be included in our non-GAAP EPS. The us based on our beat in Q2 and the improved demand outlook, we are raising our full year non-GAAP EPS guidance to between 76 and 84 cents.

So turning to third quarter guidance and applying the adjustments as I just discussed we expect total company revenue of $180 million to $190 million.

GAAP EPS of between 11, and 15 cents and non-GAAP EPS of between 20 and 24 cents.

All of these estimates are based on our current fully diluted share count of 55 million shares and a tax rate for the full fiscal year up approximately 30%.

James.

Thank you Jeff.

With that operator, please open up the call for questions from analysts.

Thank you to ask a question you'll need to press star one on your telephone. So withdraw your question press the pound key again to ask a question press Star one.

Please standby, we compiled acuity roster.

Our first question comes from Cai von Rumohr with Cowen and company. Your line is open.

Good evening, good evening, James and Jeff. This is Jeff Molinari on for Cai today. Thank you hijacking my question.

Hi, yes.

Thanks for taking my question here.

Start off can you can you update us on what your guidance assumes for negative impacts from tariffs on Chinese imports.

And and specifically kind of what are your assumptions around the phase one.

Potential phase one deal if thats going to provide any relief.

And then I have one follow up after that thank you well, it's an easy answer is that the.

That the forecast assumes a tariffs in place right now like stay in place. So we're not we're not making any guesses as to what's going to happen or not happen.

And what.

What is the negative impact.

That.

The other otherwise well I mean as you quantified that hard I mean part of the reason that the gross margin for example in outdoor products was lower this quarter. This quarter was was tariffs we haven't got into.

Specific.

Numbers on on tariffs, but.

In general.

Obviously like some of those tariffs are in inventory and.

And as the products are sold its reflecting a lower gross margin and then and the forecast assumes that everything in place stays in place.

Okay that makes sense is.

But first can you remind us what percent of outdoor product.

It is manufactured in China.

Right right not 100%, but it's it's in the eighties, probably yes, it's 80 plus percent.

Okay.

And just switching gears to.

The other segment.

The major new product that's coming on December 12, it kind of.

Is that.

A long gun admit it seems kinda like you implied that with.

When you said that you were letting in old inventory build inventory on an old product go through.

Is that what we should expect or anything else you can provide on that.

Yeah, I'm really not going to come out much but when we were talking about the inventory. The we had pets I pushed out into the channel and the last quarter, because we want about inventory to move through before the new product launch that was a.

Referencing a different product launch that will actually take place in January Ashok shack.

Okay. Okay. Thanks, guys.

Thank you and our next question comes from James Hardiman with Wedbush Securities. Your line is open.

Hi, Good evening, a couple questions for me, so let's start with outdoor seems like.

There's a lot of moving parts there.

You talked about a big purchases from discount retailers it didnt repeat.

In this years second quarter, but but coming into the quarter. They are also seem to be.

At least what I thought was going to be a benefit because if memory serves there were some delayed shipments.

From one Q2 Q. So is there any way to think about the outdoor sort of trajectory, excluding those sort of unusual items.

Yeah, I mean, I think you should think about it in terms of our guidance.

As you can see we've guided for the balance of the year, we haven't broken it down by Cortez, We've just given what we believe we'll do in the second half of the yet and as you can say, we believe it it's gainshare growth over the prior year and Thats largely as a result of the new product introductions that we'll be making.

For the balance of the fiscal year.

You heard me say earlier, we're going to be launching a significant number of new products. Just in terms of skewed, let's just say about 300.

Well, it's more exciting is that we're entering six completely new product categories as well, so really expanding our addressable market and they're trying to live up to one of our long term goals, which is to ultimately dressed up $35 billion rugged outdoor market. We've spoken about some time.

So lot of organic growth.

Driven by those new product introductions, plus even more exciting unit, we created new brand, which we think is really going to resonate with the consumer and not new product category as well. So we're very excited about that so definitely a lot going on as you say James on where lot of exciting things going on so were very.

Very bullish about the balance of the yeah.

We have a lot of traction with the consumers good level of awareness remember we have I actually met spike in the remarks rashly have 20 brands.

When we trade normal but be at 21 brands. So on those brands really resonate with the consumer and James If you look at the.

Look at the guidance and we gave guidance I for the first time for the whole year for outdoor.

Products, which you said when 81 90, while we only did 81 in the first half which means that the the second half is 100 at the at the low end.

And if you look in past years.

Just to show you how impressive that is it typically Q3 in Q4 are down so the if you. If you if you put in a 100 in the last half of the year.

You're talking about increase over over.

I'd like to prior year of over over 30% so.

Just in terms of a trajectory everything that James talked about with.

The new products and brands.

We're we're very were very positive on on the second half of the year.

And that's helpful and then.

I'm sorry go ahead, sorry, sorry go ahead.

Okay.

So along those same lines.

Sales guidance is up 50 million versus the previous guide you talked about the excise tax issue being 30 $436 million, so I get to about $15 million increase.

Any underlying business can you help us.

Think about which side of the business that 50 million dollar increases coming from obviously mix were much better than expected. So I would assume it's more weighted towards firearms, but you also some pretty positive on the outdoor side, even though.

The decline in the first half of the year, how should we think about that.

Yes, actually it is more that $50 million you referenced is more weighted towards from firearms, but there is a little bit of outdoor products in there. We've we've we always have those have.

Planned a strong second half for outdoor on products, but it is a bit better than we thought but you're right most of that.

The increase as it relates to firearms.

Okay and then just last question for me is we're putting together a model that I think you gave us the excise tax impact on the second quarter and for the full year 20, I can you also give us what that number would be topline im talking about here.

Can you can you tell us what that number would be for the third quarter and then what is left over for next year fiscal 21.

Yeah, I mean, the easy way too.

I'm thinking about it is the excise tax as a proxy it's on up a fire the sale of completed firearm.

Andy it's approximately 10% now not all of our sales are subject.

Now of our firearm sales are subject to that so if you just take bike I don't know, 9% or something of our firearms.

I'm topline eight and half were 9% then you'll probably get there.

Approximately as to as to what the impact is on on Q3 I mean, it's.

It's it's it's probably.

It's probably kind of $11 million to $12 million.

Perfect. Thanks, guys. Thanks, guys.

Our next question comes from Scott Stember with C.L. King Your line is open.

Good evening and thanks for taking my questions Hey, Scott.

James You mentioned you were talking about mix.

Really good trajectory that we had during the quarter, but then.

The last month in November that things kind of flattened out you talked about consumers waiting for a good deal that does that imply that a big chunk of the strong nixed in your opinion for the previous year months was driven by just by discounts.

Oh, that's definitely an element of I mean, there's a lot of promotional activity still guiding on we talked about that for some time and we have a strong promotional strategy as well, which we think is very appropriate in this environment.

We continue to to invest in those types of promotions going forward. So as we think about the balance of the yes, we're going to continue.

With the same strength of promotional activity that you've seen from is in the past suddenly looking to repeat what we did last year as well and just as a reminder to everybody. You know we are entering show season. So this is where the major promotions ready for the trade stops.

Then obviously as regarding to the new calendar year.

With that Sutton shires with two step distribution partner as well, obviously launching new products at shelf Shire, but there were into the by group shows as well in February which was very strong as well and just as a reminder of the by group shows. The membership there is the stronger as we said in this very strong independent retailers that are out there.

Obviously, you're working with the larger strategic retailers as well when it comes to that promotional plans as well so.

But really as a lot going on to in an attempt to stimulate that consumer and mostly it seems to be working on we've certainly been very successful with a bundled promotions as well, which has set us apart from the competition.

Got it got it and with regards to inventory.

I think last quarter, you had talked about inventories were up a little bit part of it was because of some strong demand that you were expecting.

Also I guess as we head into shot show, you're trying to build up some inventory as well, but now in this quarter, we're talking about that.

Just trying to figure out.

What the disconnect is or is it because you were able to move out some older inventory a lot quicker than expected.

Thats the reason for it always having come down sequentially.

Yeah heading into that busy period that we'd always always spoken about so youre fulltime thing for example, which really does stimulate.

The consumer.

Got back to the stores as.

Most of our product is obviously so.

And that we were into the holiday season, and that's obviously, we've seen that before in terms of adjusted Nics just continues to strengthen as you move from November December .

So that's the reason you start to see can mall.

Sales velocity, let say, where AUD inventory, mainly said switches with largely without to set distribution partners. So it's always expected that it will come down and you're quite right. We did.

Sales.

Inventory over the summer as we always do.

And you know it's in preparation for that busy holiday season, but this time. It was also in preparation for major new product launches because we have to make show that we had the capacity.

In the future too so.

To produce those new products have agreed sub the consumer.

With ample products and not happen frustrated because they can't find it.

Got it and then last question on Jeff on the the excise tax maybe just give a little bit more granular detail them just try to.

I understand I know that.

When you look at the fact that.

You just it's basically a shift from sales doubts or cost of goods sold so the overall gross profit dollars don't change, but maybe talking about the timing I mean, how does the timing get impacted here.

You know it sounds as if it's from immediately from its when it shipped from the factory to the DC in before it was for my guess and the DC to the to the endpoint, what's the difference in timing here.

We could look I'm, just trying to figure out how how things changed yes, it's I mean, it's a difference of.

Ever how long the fire arm product is in inventory because again.

When we shipped it a previously when we shipped it from the Springfield factory by two customer.

It was assessed and paid at that point and of course, we took that as contra revenue. So hopefully it was 100 dollar.

A product we reported $90.

Revenue.

Now when the product is sold.

The DC.

It's assessed and paid but we still have that product in inventory so the offsetting entry to in essence.

Pain that tax is it goes into the cost of goods sold it goes in the inventory thats product. So when that product is sold.

Now recognized $100 instead of a $90 that you would have previously recognized so it there is depending on how much inventory you have.

And you know.

In the past like couple of years, we've had anywhere from.

No as low as.

Sergio.

$20 million of finished goods inventory up to as high as.

60, or something like 60, or 70, so take roughly like 10% of that and that is the cash.

It is an essence out of pocket, while you're waiting to buy sell the product.

Got it Thats all I have thanks, guys. Thanks.

Thanks next question comes from Steve Dyer with Craig Hallum. Your line is open.

Thank you good afternoon.

Just kind of touching base on the inventory question again, it seems like kind of the oral industry and the inventory in the channels been above that that eight week level gosh for probably since before trumped up elective is that just sort of the level I mean, our dcs distributors just more comfortable.

Carrying more inventory now is it sort of the the new level do you think or any color around sort of how you to anticipate that looking going forward.

Yeah, I think it really is the new level, if something they ought to step distribution partners a comfortable.

Carrying our inventory.

As you know we have some of the strongest brands, which means that they have a lot of confidence that they'll be able to sell all product. So were relatively low risk to compared to some of the lesser brands. Sorry, you know you're guiding to see that weeks of cava, it's going to fluctuate all the time it depends where we are in seasonality.

And obviously I've to sum up its low velocity.

The velocity starts to increase as very insightful hunting and into the holiday season say it.

Ebbs and flows to be on it. So we don't get too hung up on that went on consigned by the level of inventory that we see out that right now.

Okay. That's good.

And then you talked about seeding the channel that gets a little bit was a new product at the end of the second quarter. I guess first you willing to sort of talk about how much revenue you recognize from though given the second quarter and is the launch of that sort of inline the timing of that sort of inline with your expectations at the beginning of.

Sure.

I would say the everything is on plan.

Yeah.

With some might give you any more color I'll now I would say that were slightly ahead of plan, which are very pleased about.

We're obviously not going to break down how much revenue is generated from the new product to date or what we believe that will generate for the balance of the yet we just don't give out that level of detail, but I will say that were extremely excited about the products. We think it is we try to believe it as one that will be very very well received by the consumer.

And it is one that they will want to iron.

Okay. Thank you. Thank you.

Our next question comes from Mark Smith with Lake Street. Your line is open.

Hi, guys.

First just housekeeping item as we break down average selling price on hand guns and long guns I assume that that is higher due to the excise tax.

Yes.

Certainly impacts it.

Okay, perfect and then even if we kind of back that out it looks like long guns.

Maybe we saw a little higher price or we've not seen as.

Promotional of activity and long guns as maybe we are in hand guns.

Well I guide.

As James mentioned, we sold out of a particular are long gun.

Product, we sold all the remaining mostly in Q1, it's a lower priced products are not having that.

Those AAM sales in Q2, probably helped to the ASP.

Okay, perfect and they can you guys walk through the impact of the holiday season, and maybe promotions around black Friday, and how that impacted this quarter and any that that may be flows into the next quarter.

Because that I, often say black Fridays really any just taken place on its in the current quarter. So we can't provide any update.

But obviously, we are planning promotions around black Friday, well in advance with our customer base and all of that is always built into our guidance.

Okay.

And then this might be fish in a little bit too much but as we look at Opn, a and a new categories that you're looking at it entering can you talk about if you're if there's some more soft good type categories that you're looking to entering that maybe drive higher margins than the typical products offered today.

Yeah, that's really not comment beyond what we've already said there I'm afraid that would just be giving too much away, but and as I said, we're extremely excited to be entering six new product categories and.

Thats, a significant number of meaningful new product launches going to take place in January onto the balance of the fiscal yet.

Okay, Great, we'll look forward to hearing more about them. Thank you.

Thanks.

Thank you and as a reminder, she would like to ask a question press star one on your touched on telephone.

Our next question comes from Max mixture of off to a medium your line is open.

Hey, good afternoon.

Correct.

A couple of questions can you do you have any thoughts or commentary about how its going with your direct to consumer after its for the outdoor products and accessories brands and do you have any golds.

As to how much you will see going direct to consumer versus your traditional she's got distribution models.

Yeah, that's really nothing to speak about that at the moment way too early to discuss.

I think you know over time, you may see is lower really very slowly build that part of the business.

But it will be a and a well thought out intelligent why we obviously are risk respectful to our existing customers.

Three very strong retail partnerships that we value deeply.

So I will be cautious in that respect.

Okay.

Second question any bought.

Regarding the Sandy hook lawsuit and I guess was it a part of date divestments insulin.

No I think.

I think it was overblown in the press with regards to the impact of that I mean, basically the Supreme Court just decline to get involved it's on a very.

Like tenuous.

Thread of.

Or very tenuous.

I'm claim.

Uh huh.

And.

Even if it and of course the claim is about the marketing.

Activity of Bushmaster.

Even if that.

That claim were somehow.

Found valid.

Or adjudicated by a jury as fighting.

Bushmaster reliable that could still be appealed and the Supreme Court at that time could decide to get involved so.

You know it's really.

I don't think there is really like much there right now.

Okay, and I guess to last question, Gary I guess more or less it for clarification. So the outdoor brands and accessories interest on off grid unencumbered and all the debt is going to remain with our system wasn't holdings and a follow up to that is Emerson gemtek is going to remain with the firearms rather than outdoor brands.

Correct, yes, Okay did break out the gemtek actually actually it everything you everything that you said is correct.

Okay awesome. Thank you very much guys.

Back to take care.

And we have a follow up from the line of Cogs.

Okay.

Hey, guys. This is Jeff Molinari on again, thanks for the follow up Scott.

So I wanted to ask kind of.

With the upcoming election year, how you are preparing for the various outcomes and whether or not you've seen any impact to demand.

To this point.

Thank you.

I would say at this point no impact to demand whatsoever.

As to preparing for the various outcomes, obviously, that's extremely extremely difficult today.

We always think about.

Well the future may look like.

We try and.

So now already I play as best you can which then allows us to create strong contingency plans that we can deploy.

As quickly as we can react depending on what happens.

That's pretty much all I can say at the moment crosses the topic of conversation for us.

As we go through our business planning processes. So we do think about it deeply and we do take it very seriously. We obviously look back a history, we've been out direct before in a meaningful way.

So we have the experience, we certainly have that skill set.

And knowledge how to do it.

Got it still still early okay.

Another question.

To the guided independent first 12 months sales and EBITDA ranges that Youve previously announced are those still hold or have you are they nudged up a little bit as well.

Given your increased outlook for this year.

Yes, well the.

Huh.

And so the first like 12 months of the spend guidance that we gave for firearms, which was for 450 to 500 did not include FTT.

Now I know that doesn't impact the bottom line, but if you want to end include EFI team you want to compare it.

Im to our guidance.

The current year with EFI T. The guidance.

Organized guidance, our estimate of the first 12 months of an independent.

Firearms.

Business it would be about 500 to 550.

And that.

Compares to about 520 to 530, which is is the number we gave for the current fiscal year.

Got it and obviously the like the number for next year is a big range. Because you know, it's a business thats difficult to forecast a quarter or to it it sounds like let alone a year in advance.

I understand and.

So that so the firearms is kind of benefited a lot from bundled promotions.

I believe.

You would do dealer part of that would be bundling fire arms with concentration Crimson trace.

Thanks.

Hi, how are you going to handle.

Approach, replacing that.

Those bundled dealer.

Kind of like the impact of going forward post spin.

Yeah, the bundled promotions as we said before I have been extremely successful. It's it's been more than just with Crimson trace its being with multiple brands that are in our IP in a business and our expectation is that that will continue the fire arms will want to continue to do bundled promotions in the future and procure.

Some of those items, maybe not all of them, but certainly some of them as they do now from the outdoor products company.

Okay got it thanks guys.

Thanks.

We have a follow up from Mark Smith.

With Lake Street Your line is open.

Our question was answered thank you.

Thanks Mark.

Thank you and.

I have another follow up from James Hardiman with Wedbush Securities. Your line is open.

Hey, a follow up for me I don't think you've answered.

Certainly versus the way that the street was modeling Miss.

The implied sort of fourth quarter numbers, both in terms of sales and earnings.

Much better.

Some some big growth rates in the fourth quarter is there any way to think about sort of I don't know any any bread crumbs you can give us in terms of how to think about the distribution between firearms and Opn a.

Sales or earnings between Threeq and Fourq, you were or even just how to think about but the drivers of of those two things.

I would say that the big jump from Q3, two Q4 is in firearms.

There is an increase in outdoor.

Products that we are expecting.

But.

It is by Q3 in Q4 is not.

The high sales months for outdoor.

Products, but it is for firearms.

So so Q4 as always like the biggest month for on a firearms and therefore.

Based on the new products that we have the James talked about earlier.

I would say.

A lot of of the increase or the sequential increase in Q4 is firearms.

Okay. That's helpful. And then last question for me. So you talked about Opn a revenues during the first 12 months being 200 to 210 is that comparable to the one ABT 190 that you've guided to today for yes that is comparable that's that's apples and apples there so.

Excellent thanks, guys.

Thanks James.

Thank you and I'm showing no further questions in the queue I'd like to turn it back to Mr. James Debney for any closing remarks.

Thank you operator, I wanted to thank everyone across the Americas outdoor brands team for their commitment and dedication to excellence.

Thanks, everyone for joining us today, and we look forward speaking with you next quarter.

Ladies and gentlemen, this concludes todays conference call. Thank you for participating you may now disconnect everyone have a great day.