Q3 2020 Earnings Call
Ladies and gentlemen, please standby your conference call will begin momentarily again, thank you for your patience and please standby your conference call will begin momentarily.
[music].
Good day, everyone and welcome to American Outdoor brands Corporation third quarter fiscal 2020 financial results Conference call.
This call is being recorded.
At this time I would like to turn the call over to Liz Sharp Vice President Investor Relations, who will give us some 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 another some work suppression.
Is intended to identify those forward looking statement.
Forward looking statements also includes statements regarding revenue earnings per share non-GAAP earnings per share.
Diluted share count and tax rate for future periods.
Product development focus objectives strategies envision.
Our strategic evolution, our market share and market demand for products.
Market and inventory conditions related to our products and in our industry in general.
Growth opportunities and trends.
Forward looking statements represent our current judgment about the future and they are subject to various risks and uncertainties.
Risk factors and the other considerations that could cause <unk> actual results to be materially different are described in our securities filings, including or forms 8-K, 10-K and thank you.
You can find those documents as well as a replay of this call on our website at <unk> Dot com.
Today's call contains time sensitive information that is accurate only as of this time.
And we assume no obligation to update any forward looking statements.
Our actual results could differ materially from our statement today.
I have a few important items to note about her comments on today's 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 compensation related items related to the separation of our former president and CEO.
Onetime transition costs.
Our value inventory step up changing contingent consideration goodwill impairment and the tax effect related to all of those adjustments.
The reconciliations of GAAP financial matters 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 today's earnings press release, which are posted on our website.
When we referenced C.P.S., we're 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 30 2019.
Thank you for the quarter ended January 31 2020.
Joining me today or Mark Smith, and Brian Murphy, who serve as co president and co Ceos of our company as well as Jeff Buchanan, our Chief Financial Officer.
As you likely know, we will be spinning off our outdoor products and accessories or Oh PND business later this year.
When that occurs Mark Smith will become president and CEO of nothing less than brands, Inc. The firearms business.
And Brian Murphy will become president and CEO of American outdoor brands, Inc. The O. piano business.
On today's call Mark will discuss third quarter results for our firearms segment.
And Brian will discuss results for our <unk> segment.
Following that Jeff will discuss our financial results and our outlook after which we will open it up for questions from our analysts.
And with that I will turn the call over to Mark Smith.
Thank you Liz.
Good afternoon, and thanks, everyone for joining us.
Our third quarter revenue for the firearms segment was $127.4 million, which represented just over a 3% increase year on year.
Revenue was favorably impacted by changes in the timing of our excise tax assessment as well as the positive impact of our new MMP nine shield easy pistol, which I will discuss in a moment.
The positive impact of those items, however was partially offset by lower than anticipated orders from certain strategic retailers across multiple product categories.
We believe that consumer demand for firearms was positive during the quarter as reflected by adjusted Nics in the period, but we also believe that that demand was partially fulfilled with existing retail channel inventory of our products.
Turning now to next as a reminder, we transfer firearms only to law enforcement agencies in federally license distributors and retailers not directly to end consumers.
Therefore since next is a measurement of consumer activity. It does not directly correlate to our shipments in any given time period.
That said adjusted Nics background checks are generally considered to be the best available proxy for consumer demand for firearms at retail.
In our fiscal Q3 background checks for handguns increased 13.9% year on year, well, our handgun units shipped to distributors and retailers increased by 4.7%.
We believe that our percentage increase in handgun sales did not match adjusted Nics for a few reasons.
First reporting changes occurred in certain states during the quarter that drove higher than normal Nics results, most notably Alabama moved from a state issued license to a required federal background check.
We also believe that our performance relative to next was impacted by the timing of our new product introductions.
As well as the fulfillment of consumer demand from existing channel inventory again, particularly among certain key regions strategic retailers.
And long guns for the same period background checks group, 0.6% year over year.
While our units shipped to distributors and retailers declined by 31.8%.
This decline occurred for a few reasons first we believe that certain key strategic retailers addressed consumer demand with their existing levels of inventory second we decreased our promotions compared to the prior year.
And lastly, our prior year included Closeouts sales certain discontinued hunting rifles in order to make room for new product introductions.
Turning now to channel inventories.
Distributor inventory of our firearms increased slightly on a sequential basis from 153000 units at the end of Q2.
To 157000 units at the end of Q3.
Since the end of Q3 distributor inventories have increased and remain above our eight weeks threshold.
We don't typically address retail inventories for our products since we believe it has been fairly consistent overtime.
More recently, however, the large retailer landscape has been changing.
Those changes include some retailers completely exiting firearms market and others consolidating their businesses and evaluating their go to market strategies.
We believe those ships drove a small number of key retailers to focus on fulfilling consumer demand for our products with existing inventory in our Q3 and that they will continue to do so in Q4.
That said, we believe that this is an isolated short term situation that does not accurately reflect the underlying strength in the market as evidenced by the steady order flow, we have received from our distributors and buying groups.
Lastly, a quick update on our new products innovation to support our organic growth remains a top priority on the firearms business.
We attended shot show in January where we displayed and launched several new products in line extensions.
Among them was our new MMP nine shield easy pesto chambered in nine millimeter and an expansion of our award winning and very popular MMP Shield easy series.
I hope for personal protection and everyday carry the M.P. nine shield easy is easy to rack easy to load easy to shoot and easy to clean appealing to a wide range of consumers seeking out. These popular features in nine millimeter.
With over 3 million M. P shield pistols adopted by consumers. We believe the S&P shield name has become synonymous with personal protection.
Our new product development teams continue to work on some very exciting new product introductions, but I look forward to sharing with you in the next couple of quarters.
With that I will turn the call over to Brian.
Thank you Mark.
And our opioid segment third quarter revenue increased as a result of higher shooting hunting and cutlery product sales.
This increase was driven by demand from several of our large national retailers and by the success of our strategy was certain retail customers to migrate them from lumpy bought by ordering to a more balanced approach to their ongoing replenishment orders.
Point of sale data, which we collect from some of our larger customers appears to indicate that our products in these categories remain popular with consumers as well.
Revenue increases in the quarter were partially offset by reduced OEM sales of our laser site products bankruptcy and financial distress of certain customers any unexpected acceleration of one brick and mortar retailers private label strategy for camping accessories negatively impacting our branded survival pro.
Alex.
Despite those offsets we believe there's underlying strength in our business evidenced by growth in our shooting hunting and cutlery categories, which were up collectively 13% year over year.
As we've discussed previously the vast majority of our products and the Openess segment are sourced from China will rely upon components coming from China.
As a result tariffs continued to negatively impact our gross margins and inflate our inventory values.
Accordingly, gross margins declined in Q3 compared to the prior year quarter.
With the announced rollbacks of tariff lists for a and for B, we expect to see some benefit down the road, but only as newly ordered product works its way through our inventory likely near the middle of fiscal 21.
Turning now to discussion of developments in the business.
Our opening a business is organized into four brand names each representing the core activities of our consumer base.
We refer to them as the marksman harvester, the defender and the adventurer.
Each of our 21 brands falls within a particular brand lane.
Our focus has enabled our teams to establish clear positioning for each brand, which in turn defines work each have the consumers permission to play in certain product categories.
The result of this approach is evident in our recent new product announcements.
In January out Shotshell 15 of our brands lost approximately 300, new products and extensions.
Some of which represent our entry into six completely new product categories.
These include ground blind game cameras land management tools, DIY y or do it yourself home security.
Binoculars.
Meat processing equipment.
These new categories demonstrate meaningful progress towards our expansion into the 35 billion dollar rugged outdoor market.
While the remainder of our new product introductions aimed at strengthening our position in taking market share within existing product categories.
In a more recent development earlier this week, we launched an entirely new brand that we that we teased out last quarter.
With the public's growing interest in understanding of foods origin, such as the popular farm to table trend on that many leading restaurants and in the home.
And the increasing popularity of harvesting ones on meet as seen on shows such as the meat eaters series on Netflix.
We saw an opportunity to leverage the insights of our Harvester brand Lane team along with the capabilities of our new E Commerce platform to create our own brand that addresses the postponed meat processing needs of our consumers.
On Monday, we launched meat.
An entirely new brand focused on high quality commercial grade meat processing equipment sold direct to consumers. We introduced the consumer to our new brand with clever marketing and a website called me Youre maker dotcom.
All while offering 28 products that give us entry into the estimated 10 billion dollar meat processing market.
The launch of our meet brand demonstrates our ability to expand our addressable market and provides a tremendous example of our strategy inaction and the power of our brand lane structure to support our future growth.
First it leverages, our platform fully digital and 100% direct to consumer.
Second it represents pure organic growth.
Conceived of and developed by our internal development teams, who lived the lifestyle.
And third the launch created no disruption to our current teams and their supported brands and products.
I look forward to sharing future updates on how the new brand is progressing.
Before I hand, it off the Jeff I want to briefly address the topic of the recent Corona virus situation and the impact it could have on our business.
As I've said, a vast majority of our products and the O. penile segment are sourced from China or reliant upon components coming from China.
As a result, we expect our business to be negatively impacted in Q4, possibly longer and we've modified our outlook accordingly.
Our thoughts are with those who had been affected and we remain in close contact with our team in China as we monitor our suppliers and the evolving situation.
Huh.
Thanks, Brian.
Revenue for the quarter was $166.7 million, an increase of 2.9% from the prior year.
Intercompany eliminations were $4 million.
And our firearms segment revenue was $127.4 million, an increase of 3.1% over the prior comparable quarter.
Our old DNA segment revenue was 43 point.
$3 million, an increase of three point a 2%.
Mark and Brian have provided the details of the segment revenues. So I'll move on to a discussion of margins.
In Q3 total company gross margin was 33.1% as compared to 33.4% in the prior year.
Firearms segment, the gross margin was 27.9% about the same as the prior year.
Although the gross margin percentage was favorably impacted by the change in timing upper federal excise tax assessment. It was favorably impacted by moving certain firearm shipping costs down to Opex as we have previously discussed.
Otherwise the firearms gross margin improved because of lower manufacturing spending and favorable absorption.
And the old DNA.
Segment gross margin declined to 42.8% as compared to 46.2% in the prior year. This decline was primarily the result of additional tariffs and a one time increase in inventory reserves.
I'm for laser site.
Oh products. Excluding these two items gross margins would have been 47.2%.
GAAP operating expenses in the quarter declined by 21% were approximately $11.8 million.
Substantially all of that reduction was due to a $10.4 million goodwill impairment in the prior year quarter, and Dave 3.8 million dollar take back in the current quarter related to compensation and incentive expenses as result of the separation of our prior.
CEO.
Related to this matter it should be noted that $1.6 million of expense will be incurred in the fourth quarter due to the recently signed CEO separation agreement.
Therefore, the total impact in fiscal twice as result of the CEO separation as expected to be a net reduction in GNS expenses of approximately $2.2 million.
On a non-GAAP basis, our operating expenses increased about 6.5% were approximately $2.6 million.
Net increase represents a variety of give and takes including additional expenses that are new distribution center.
GAAP EPS came in at 10 cents as compared with a 10 sat loss last year.
Our non-GAAP EPS was 13 cents as compared with 16 cents in the year ago I'm quarter with the difference almost entirely related to the increases in operating expenses that I just discussed.
Our non-GAAP EQT EPS excludes the expensive amortization and spin off costs as well as the financial pick up related to the CEO.
Separation.
Adjusted EBITDA in Q3 was $22.4 million for a 13.4% EBITDA margin as compared with a 15.
<unk> percent margin in Q3 of last year.
Excluding the excise tax change adjusted EBITDA margin would have been 14 point.
3%.
Adjustments to EBITDA, it's included approximately $1 million of spin off related costs.
So now I'm turning to the balance sheet.
In Q3 operating cash flow was $9.6 million on our Capex was.
$2.9 million.
Yes, our Q3 free cash flow was $6.6 million compared to free cash outflow of $5.2 million in Q3 of the prior year.
We have substantially reduce our expectation for.
Capex in the current I'm fiscal year.
Hi down to a range of $15 million to $20 million.
The upcoming fourth quarter is typically our strongest cash flow.
Period, and we expect that will be the case as well.
This year.
At the end of Q3, we had $46.1 million of cash on hand, we have borrowings of $200 million outstanding on our line of credit.
So we have sense paid down $10 million about balance.
As noted in the press release all other term indebtedness has now been paid in full as result, total net bank borrowings at the end of Q3 were just under $154 million.
Our one year trailing EBITDA losses about $92 million so our net.
Banking leverage ratio is approximately 1.7.
Two one.
We expect that ratio to drop as we approach the spinoff date.
So now I'm turning to our guidance for.
Our full year fiscal <unk>.
20, we're revising our total company revenue guidance downward to reflect our actual results in Q3, and a reduced outlook for 'em Q4.
In firearms revenue I could be impacted by excess inventory at a few key strategic retailers.
In old PNM today, we believe the Q4 will be impacted by the same factors that impacted Q3, including continued weakness in laser sites and manufacturing.
Delays related to the a corona virus.
Thus, we now expect total company full year revenue to be in the range of 650 $660 million.
As a result of that revised revenue outlook, we now expect our full year GAAP EPS to be between 25, and 29 cents and our non-GAAP EPS to be between 58 and 62 cents.
It should be noted that expenses related to the spin off and the separation agreement with our former CEO will not be included in our non-GAAP bps.
In applying the adjustments that I just discussed we expect Q4 total company revenue between 205 and $215 million GAAP EPS of between 17, and 21 cents and non-GAAP EPS of between 33 and 37 cents.
All of these estimates are based on our current fully.
Diluted share count of 56 million shares that tax rate for 'em Q4 of 31.
<unk> percent.
And as a final matter I want to provide an update on our spin off.
As Louis mentioned at the beginning of the call you recently announced a plan to spin off or Opn, a business as a tax free dividend.
To our stockholders that process is underway and on track to be completed later this year. We continue to work on the required SEC filings as well as big as well as the required independent audit of the Opn a business.
And lastly, because we plan.
To become two independent public companies at the spinoff Dave.
We will continue to include revenue guidance for each business in order to provide stockholders with enhanced visibility as we approach that spin off day.
Accordingly, we expect full year revenue for firearms business to be $502 million to $507 million and full year revenue per our opn a business.
To be $170 million to $175 million.
His.
Thank you, Jeff and with that operator, please open up the call for questions from our analysts.
That's a reminder, ladies and gentlemen to ask a question you will need to press Star then one on your telephone keypad.
To withdraw your question press the pound Jackie.
Our first question comes from the line of Steve Dyer with Craig Hallum. Your line is now open.
Thanks, Good afternoon.
So you Undershipped mix adjusted mix in the quarter fairly dramatically I mean is it is it seems to sort of assume that that's a Q a few of these key retailers a lot of them are exiting the old bundle up a number of them are exiting the business altogether others are rationalizing your moving it out.
Certain stores I mean is that is that primarily the shortfall in the quarter the in the shortfall the and the outlook.
Yeah, the shortfall in the quarter definitely mostly attributed to that a couple key strategic retailers dropping inventories.
I think it's important to note we look at market share data pretty closely internally in our own analysis.
And.
And that data shows that we know that we are holding our own on our share on actually growing share in certain areas. So, but I mean, we look at the inventory on the uncertainty strategic retailers, which has been largely flat for the first half of the year really dropped off dramatically in the last in our Q3. So you know and that really you can kind of point to the loss there.
The miss almost entirely to that.
And I guess, just going forward, how long would you expect that de stocking to persist I mean, it sounds like certainly you know for your for your fiscal fourth quarter, but what's your sense as to beyond that.
[noise] the underlying market you know seems fairly steady right now a lot of our you know the conversations we have with our industry partners and everybody's very cautiously optimistic.
So I think you know through our fourth quarter.
As long as they continue to consumers continue to buy obviously at some point. There then the that strategic retailers are going to are going to come back online with ordering from us So and I mean, it's the ended the quarter ended the fourth quarter could bleed into you know very beginning of the first quarter. You know, we don't think so but is that a possibility maybe but it.
Should be should be correct as a short term issues should be corrected within a few months.
Got it that's helpful and then last one for me you.
You noted an impact from Corona your and your fiscal Q4, and then who knows potentially beyond that I mean is that primarily.
Supply chain issues are you, making some assumption on your domestic demand.
Their side of the business or and if so I guess could you quantify sort of what you took also though.
Oh sure Steve This is Brian so.
As it relates to the krona virus, you know I would say in Q4.
We did have with it took some time for some of our factories most of our factories to get back online.
And so because we have so many new products that are coming out that's a timing issue. There thankfully many of them have already come back online. So we should start to see that product here shortly.
But other than that we're also.
Theres a lot of uncertainty around it and you know we're hearing at least that there may be reduced foot traffic and that could impact our business. So.
You know certainly worked well keep an eye on it but at this point as you know there's quite a bit that's on now.
So it's mostly preemptive at this point as opposed to anything you're seeing and point of sale or anything so far.
In regards to point of sale, yes.
Okay got it alright. Thanks.
Our next question comes from light of Cai von Rumohr with Cowen and company. Your line is now open.
Yes. Thank you very much guys. So so a couple of questions first you talked about the de stocking and yet yes. It looks like your distributor inventories were up kind of a normal pattern.
Sales looked a little bit light.
You know if.
Can you maybe you can explain that.
Urgent citrix.
Hey, guys Mark Smith, so yeah. The de stocking was within our strategic retailers as you know we have three main channels on the consumer side that we go to market is our distributors buying groups and strategic retailers are orders from our strategic retailers in from sorry from our distributors and from our buying groups.
Were very strong in the quarter and their inventories largely remained flat.
So they were while they sold out the front there where they were buying in the back door the strategic retailers.
You know not all of them at a couple of there's been a couple of the key ones. We saw that you know they were selling at the front door and not buying in the back and that that they are adjusting their inventories why that is I don't know and you know we can't speculate.
Well, so you give us the distributor inventories could you give us some color in terms of if they're cutting back their inventories are they at below average levels or do you expect them to be how should we think about that.
Oh, Hi, Kai it's Jeff.
You know.
Yes, it's really more of a pacing issue.
In terms of the MSR A's.
So it might be that they have.
Either.
Our overstocked or are just reducing their stock.
Down mature a lower level.
It's hard to get into it you know.
Specific reasons, but.
Well clearly what happened is that the order pattern changed drastically.
After the end of the calendar year.
And it's really it's really isolated right now with the S arrays.
Uh huh.
Okay I mean.
Do you have any sense or their inventories at normal levels or are they up you know where they had abnormally high levels.
The inventories where I don't think we've ever provided any color on that Sri inventory. So.
The ones that we do get the get their inventory levels from they were they were pretty steady for the first half of the year and then for whatever reason as Jeff mentioned, then you know I mean, obviously is a lot going on in that landscape right now they they they really filled all their consumer demand up out of their out of their warehouses and.
Why why that is on you know, we're probably not going to be able to speculate.
But at some point again I mean, the good news here is the underlying demand is there and you know as soon as that soon is that correct inventory levels to wherever they want them to be then obviously they've got to start buying from US again, so it's a short term issue.
And then maybe a little more color on Covance I mean, if your plants were shut down I haven't been hearing about that money plants in China, starting up and.
I assume it didn't really starts to be an issue until towards the end of the quarter. So is that likely to be a bigger factor in the fourth quarter than the third.
Oh, Yeah, we'll see we'll see a.
Yeah, a decent impact in Q4.
Right and hi, it's it's where it had virtually no impact in Q3 so.
It's a Q4 impact and because.
It's it's about.
No.
Outdoor products as we've talked about it in the in the past really carries you know as much as is like two turns of inventory so.
Well, we talked about for example, or they are.
Tariffs in APAC do you see sort of a delayed impact and it's going to be the same with what's called it is gonna be delayed impact for US is in Q4. The good news is as Brian says is that the than most of the factories that we deal with have reopened not all of them, but it's just a.
A little uncertain as to the supply chain.
Shipments are beginning I read an article David that the shipments of produce for example, our beginning Oh so.
Our our guidance is based on what we know about [laughter] Weve plays with respect to the factories that we have our guidance does not take into account you know how widespread.
Pandemic in the United States or any other impacts on on shipping that we don't really understand yet.
And yet.
Excuse me for asset dominating is but it looks like your guide for for outdoor products doesn't assume much of a revenue hits in the fourth quarter. So.
How common is it that you're getting the inventory, but it's just when you're getting it or how how common so I don't know.
I'll, let a hi, Brian talk about that but I mean, there's a lot of good things happening in old DNA, Brian you want to I mean, again, just I guess I reiterate yeah, I mean worse, so we're seeing.
Like we talked about in the prepared remarks.
We're seeing strong growth you now so in hunting shooting and cutlery for example, growing 13% year over year and look in Q3, we're seeing very strong Pos data from some of our largest customers and demonstrating that pull through.
And we also we do have quite a new quite a few new products that are coming online that will that will flow into Q4.
Which is also going to support you know great growth I also want to mentioned before Chinese new year happens every year.
And so in anticipation of that we do bulk up on in line product.
And so that's also helping us sort of mitigate some of this some of the factories come back online it for that along at a time period.
But overall for Q4, we feel pretty good.
Okay, great. Thank you very much.
Our next question comes from James Hardiman with Wedbush Securities. Your line is now open.
Good evening, Thanks for taking my call. So couple of questions from me.
You had previously given us some sort of year one targets for both the firearms business and outdoor business, obviously to the guide for this year is coming down modestly, but it seems like those are largely temporary issues should we think about tweaking sort of the year one estimates for for the two second.
Uh huh, well I'm not going to actually comments on the.
The.
Your year, one estimates if you remember what we gave was we gave like sort of a rolling 12 month estimate of what we thought.
ER revenue would be for each entity. After the date of spin for for the 12 months.
Following the Dave spin and we're not yeah, we're not done I'm changing those.
There is a.
Firearms was 500 to 550, it's a it's a fairly large range.
Because we're a little uncertain as as as to the impact of the presidential election.
But the low end of that have that arranges is about the same or actually a little like lower than our midpoint of our guidance.
For this year with respect to outdoor.
Products.
It would be fairly up as compared to.
To our guidance for this year I'm 2020.
But again there is there's a lot of a you know things have happened that Brian talked about in this.
Our last quarter Q3 in Q4, and outdoor and products that were.
The onetime events and there's a lot of good things happening. So we're also standing by those numbers, which I believe were 200 to 210.
Okay. That's helpful. And then I want to talk about in end market demand for a minute obviously the knicks numbers have been really strong I guess first any.
Any reasons as to why you think it's been a strong it's been.
And do you think it's sustainable I think part of the answer is whether or not there has been some fear based by taking place here as of late and then Mark I think you made a comment about maybe foot traffic slowing down a little bit I don't know what.
That was in reference to just given how strong.
The month of February was but maybe flesh that out a little bit if that's something.
You are seeing or just or maybe it was just distributors or or retailers hearing that that would happen.
Sure.
Yes, Jim marks a a that was actually Brian who made the comment about the foot traffic more related to the hope you know I apologize.
So.
Yeah, Nixes is definitely strong.
Very strong start to the year, we obviously, you're talking to our channel partners, all the time and everybody's very optimistic.
But cautiously so I think everybody remembers you know the.
Getting caught in 2016 and nobody wants to do that again, so I think now the good news is that the underlying demand is still there as to what's driving that theres all kinds of things in the marketplace that or you know that have happened in the last couple of months, we had that the issues in Virginia, and we've got the president <unk> presidential election.
Taking off.
You know and and whether that's going to continue or you know or fall off I think you know I mean, it's following the normal trends in terms of the seasonality right now.
And can look at our January and February this year in almost exactly on the same slope line to slightly higher than it was.
This time last year. So we have no reason to think that the seasonality in the firearms business will not repeat its normal trend that's helpful.
That's really helpful and I apologize for.
Taking that to you and that makes a lot more sense.
Last question for me, Brian There were a couple of comments and they're about.
Laser sites being.
I guess why are they week it seems like that's it that's a product that would be highly correlated to end market demand <unk>. Some of the same reasons, we're seeing sort of that delta between firearms business or how should we think about that.
Yes, sure and and just for the avoidance of data on the foot traffic comment. It was it related to just what may happen with Cronto virus at folks choose not to go out as much but.
As it relates to laser sites you now we have.
Laser sites were very much invoke a over the last few years and while there has been at times, a stronger correlation with the firearm sale.
I don't know, if we're seeing a changing consumer behavior, but.
Certainly we believe we're one of the largest players in that space.
And and we just aren't seeing as much as much traction I would say as it relates to the comment in the quarter.
We do have other OEM customers and we have we've seen a declined with them as well.
As it relates to laser sites.
Crimson trace.
We have you know we've been preparing for maybe a a shift in consumer preferences.
And so while we continue to support that product line, we have proactively.
But I think somebody else call have seen some new products that we had a shot show had been proactively coming out with other inning solutions that harnessed the Crimson trace Brad.
So getting into laser sites getting into scopes things like that red dot sites.
Yeah, Hi, Ed.
Now it added.
Did you know that.
There is still is a deal mentality with consumers.
Looking for a lower price point firearm items in.
But a laser a crimson trace laser is an expensive a product. So you may be.
Like in addition to the consumer.
A preference so perhaps wayne is a bit on laser is it it might be little bit of the of a price point also.
All very helpful. Thanks, guys and good luck.
Thanks, Thank you.
Our next question comes from Scott Stember with CL King. Your line is now open a good evening and thanks for taking my questions.
And Scott.
Can you guys, maybe talk about the promotional environment.
Particularly when looking at long guns, you guys you talked about some of the puts and takes of why do you want to perform.
The next it sounds like part of it was the fact that you'd backed off of some promotions I don't know if this was bundling.
Or whatnot, but just in general just talk about the promotional environment how much of.
The next John that we're seeing is relied on people looking for deals and having to discount.
Sure.
Got it Mark so yes, there was some some very successful bundles that we had in the in the comparable quarter last year that we we did not repeat this year.
And so that's some of that drop but you know again the majority of the deep and the of the decline in the quarter was really again destocking on the us I raise but in terms of that promotional environment. I think you know, it's it's still very much is.
What's driving the consumer into the into the retail stores and they are still looking for that deal.
You know, there's a lot of capacity out there in the industry right now and I think it's you know it's how can you differentiate yourselves a bit bundles of been great for us we don't really do a whole lot of them in the wintertime. When this timeframe right now just because the kind of use those to to get an injection in the arm when we needed during our slower time.
And this is kind of the coming to the tail end of the of the traditional show season, where every firearms retailers are offering or the site manufacturers are offering the deals associated with the with the shows so I think it's.
We're going to continue to participate as we see necessary you know.
To continue getting those consumers, giving them a reason to come into the store in choose our products and hold and take market share.
Okay, and you talked about inventories on the firearm side can you maybe just talk about where you stand on the.
Yes, I, particularly with some of the changes going on with your customer base.
Oh, Yeah. This is Jeff inventories are I would say at a steady state.
And at on the old DNA side again, if you remember we did by.
Extra.
Couple of quarters ago to help with the tariff situation.
To end to end to also like deal with Oh, I can DC, but so at this point right now its I steady state.
Okay and just the last question just following up on front of ours, you talked about how.
Your factories, I guess, the ones that you're getting parts from <unk>.
Coming back online, maybe just given as an indication of how much they're back online just trying to.
From a percentage standpoint, just trying to get a gauge.
When we have to start worrying.
About whether you guys are getting the parts that you need there. Thanks.
Yes.
This is Brian.
So as far as I'm aware they are all back to full strength.
Okay.
Got it thank you.
Thanks.
As a reminder, ladies and gentlemen that is star then one if you'd like to ask a question at this time.
Our next question comes the line of Mark Smith with Lake Street Capital. Your line is now open.
Hi, guys. Thanks for taking questions.
First off kind of a broad question why not as we look at the where you came in versus your guidance why not pre announce or update the guidance you, especially when we match right here at the ended the quarter.
Uh huh.
The answer to that is that we think at the time that we tell you what's happening in the quarter, we'd like to also like let you know what's happening in like the next quarter. We have no specific rule about I mean internally about whether we're going to a pre.
Announce or not.
So.
No I don't think that anyone I should assume that you know a pre announcement it means something different or would it if we don't give mean something different we judge the situation every time based on the current facts and.
Personally I believe that when we issue our results is better if we let the street no.
What is going to happen in the future as well as to what just happened.
In addition, we do like to do a lot of analysis.
On the reason like.
For the mess.
It really is only a little over five weeks after we closed.
The quarter. So it takes time to get the numbers.
And we want to be you know we want to be a.
As as a open as possible I'm trying to explain you know.
You know everything into the analysis and it takes time, so yeah, we don't.
Now.
We don't always a like make that decision to not but this time we did.
Okay, and then looking on the firearms side Mark a question for you you know <unk> are there lessons. We learned here was was the inventory in the first half of the year, you'll pushed too heavy out on on retail or primarily distributors you know and then to be able to get these repeat orders from some of your future.
Strategic retailers here urge you going to need to reduce prices in a in a fairly competitive environment to get those reorders.
Okay two parts to that question. So the first part is on the distributors. So again just as a reminder, it wasn't distributors that went through the destock and we think they did the inventory levels at the district at distribution are appropriate as evidenced by the fact that they have remained steady their order.
Well remain steady its really the S I raise and in terms of whether they were too high.
I mean, I guess, apparently they know they felt they were you know, but again they were pretty steady through the first half of the year. So we can't really point to you know exactly what happened there and why they decided to lower them, but you know, we'll we'll work with those with those customers and understand what theyre comfortable comfort.
Levels on on levels of inventory and again, you know soon as we kind of get through and meet their targets and their goals, they're going to start ordering from US again, I mean that then I mean I think the story again here is the underlying market is you know is very healthy and strong.
Okay, and then looking at modern sporting rifle and in particular, you know you're pretty recently, we've seen three major manufacturers it looks like or exiting the space can you talk about your outlook for modern sporting rifle.
You know does this take away some competition or maybe give you opportunities in the space or is it is it really that difficult.
In that space right now to be profitable.
It's definitely not difficult to be profitable at least for us in that space and it remains a key part of our product line. Those I think there was some exacerbating factors in at least some of those brands that got out I'm not going to kind of comment anymore on that but and the other thing I'll tell you is that for for the you know for as many of them.
Got out we've got and we've got some new entrants into the some new entrance into the market were very formidable competitors and have great products. So you know I don't think we were holding our market share. We're growing slightly I'm you know, but I don't think that that that's going to have a huge impact on our them getting out is gonna have huge impact there.
We're already a pretty de Minimis part of the marketplace by the time they went out.
And I I just want to.
I'd point out that as far as a percentage of firearms MSR as you know our ARPU are fairly low.
It varies but less than 15.
<unk> percent right now.
Okay.
And then last question just looking at it Opn a you know last quarter, you guys talked about some timing of shipments out into the channel that kind of hurt opioid opn a last quarter.
Did maybe walk through the timing or sequential sales process through the quarter, you'll would did it started out stronger and get weaker maybe asked me what post holiday or just any insight you can give us into kind of how does the cadence of salesmen in that business would be great sure. Yeah. This is Brian.
So.
One of the things in it maybe earlier in the prepared remarks is.
We really we really want to get to a healthy level of replenishment with all of our customers.
And that helps us better forecast a demand helps us better you know aligned with our supply base.
And and oftentimes you know it does not come when you start having that sort of normalized.
Demand over time and replenishment.
And fewer bulk buys or lumpy bought buys it a bit also.
Helps increase your profitability when you're going you're leaning towards more replenishment. So.
For us we have been trying to work with our customers some of our largest customers too.
Really focus on.
More normal cadence of replenishment orders, which is what you're seeing in Q3.
I think it's a little mass just because of some of the onetime events, but excluding those you know we said we were up 7.9% excluding those those onetime events.
And and that's really to me as a more normalized across all product categories.
What that new replenishment.
It looks like I don't want to infer that that is a growth rate you know you should use in the future but.
In terms of picking up some of the well we had described and what you described.
Yeah, just due to the timing of some of those customer orders. It really is moving away from us lumpy bulk buys.
To that sustained replenishment demand.
Okay, great. Thank you.
And we have a follow up questions from the line of time on rumor with Cowen and company. Your line is now open yes. Thanks, I think in terms of discussing the sales.
Net of the federal excise tax you yeah. It looked like it was about a 40 million dollar.
Disappointment decline you mentioned three factors so.
No the channel destock, the bolt action clearing and.
Also the M.T. could you basically give us some sense in terms of the relative size of those factors.
Yes.
Actually we haven't really like provided the detail I'm Ky on the on the size of each of the factors.
You can sort of look at.
The the long <unk>.
Our guidance, Yeah, we broke down our guidance between opiate a in firearms a for the year you can look at that reduction this year and you know as we said with respect to firearms most of.
The unexpected drop relates to this as our a issue.
So you can just you can look at the drop and say, okay that was like most of that as I, sorry, and then with respect to the opiate a business you know I.
Without I characterize in it I would say there is all equal I'm contributors of the the three things that we had had talked about which is the you know like the weakness in the but in the laser market.
And as well as the other items that we discussed.
You know the private labeling.
And.
So so I hopefully that'll you know like Directionally give you some ideas.
That's very helpful. Thank you so much appreciated.
Thanks.
I'm showing no further questions in queue at this time I'd like to turn the call back fairly sharp for closing remarks.
Thank you operator on behalf of Mark, Brian and Jeff We want to thank everyone across the Americas outdoor brands for their commitment and dedication to excellent.
Thank you all for joining us today, and we look forward to speaking with you next quarter.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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