Q3 2021 American Outdoor Brands Inc Earnings Call
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Ladies and gentlemen, todays conference is scheduled to begin shortly please continue to standby. Thank you for your patience.
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Good day, everyone and welcome to American Outdoor brands, Inc. Third quarter fiscal 2021 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 of Investor Relations for 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 should indicate suggest believe and other similar expressions is intended.
Intended to identify those forward looking statements.
Forward looking statements also include statements regarding our product development focus objectives strategies and vision our strategic evolution.
Our market share and market demand for our products 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.
Factors and other considerations that could cause our actual results to be materially different are described in our securities filings 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 on.
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 are non-GAAP results exclude amortization of acquired intangible assets stock compensation transition costs COVID-19 expenses related party interest income and the tax effect related to all those adjustments the.
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 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 former Chief Financial Officer, and with that I will turn it over to Brian.
Thanks, Liz and thanks, everyone for joining us.
Today I'm excited to share our third quarter results, which exceeded our expectations for both net sales and net income.
I believe our performance reflects not only the ongoing strength of the outdoor market, but more importantly, the value of our highly authentic brand portfolio. Our unique docking on lot strategy. The harvesting of our strong new product pipeline and investments we made on our business two to three years ago that are beginning to bear fruit. These.
These elements have long been core to our strategy and the underlying the great results we're reporting today.
With a focus on the future five and even 10 years out we will continue to make forward looking investments that we believe will unlock the brand's full potential as they progress along their exciting path from niche to know.
Regardless of the direction and the outdoor market takes in a post pandemic world.
Overall, however, it looks as though the floor has been raised for outdoor participation and we expect a portion of those new entrants to continue recreating in our category well past the current pandemic.
Because of that we're very excited to continue engaging with a much larger consumer base than we did before 2020 with that let's talk about the quarter.
Highlights include order strength from products across all four of our brand lanes growth in both our e-commerce and traditional sales channel. The first million dollar plus quarter from our recently launched DTC brand meet your maker.
The largest product launch ever from our Crimson trace brand.
And exceptional cash flow generation, which further strengthens our balance sheet.
Based on our performance and our outlook for the balance of the year. We are again, raising our guidance for fiscal 2020, one which ends April 30th.
Before I address our performance specifically, let me update you on on markets right on.
So I think we're all aware of the significant impact the pandemic has had on so many aspects of our world and community. When it comes to the outdoor industry that impact has been truly profound. We believe has resulted in a higher foundational level of consumer participation.
Other personal protection shooting sports camping hunting or fishing, each one has delivered meaningful growth year over year.
And camping the outdoor industry Association estimates that camping participation increased 28% in 2020 with nearly 8 million new participants.
Millennials represented the strongest increase in participation with 19% camping for the first time ever.
We are excited about what this trend could mean for our adventure brand line, which includes xrayed as well as U S. T. A growing line of camping here that we recently rebranded with an exciting new youthful inclusive and energetic personality.
You can check on our recently launched hence sleeping bags and mass at <unk> Dot com.
And hunting.
According to data issued this week by the NSS up and Southwick Associates hunting license sales were up an estimated seven 5% in 2020.
The brands within our Harvester brand line, particularly Hooey man Borg uncle, Henry Old timer and our internally developed meet your makeup brands are in a great position to address a variety of pre hung hunt it postpones activities for these new and in some cases renewed participants.
In fishing, the recreational boating and fishing foundation reported there were $3 million more fishing licenses sold in 2020 than in 2019, an increase of 14% year over year within the adventurer brand line. Our Bubba brand is ready to provide these new anglers with must have tools to capture the ultimate lifestyle, but adventure from water.
Place.
Youll find new fishing shares stainless steel pliers and diving knives at Bobby Dotcom.
And lastly.
Strong participation in firearms ownership led to a record 8 million new entrants in calendar 2020. According to the NSS out this new on larger installed base of owners suggest strong future participation in shooting sports and the need for new products and accessories, where we are uniquely positioned.
In addition to benefiting Crimson trace locked down and our licensed Smith <unk> Wesson related brands in our defender brand line. These new consumers are also potential long term customers for Caldwell Wheeler Tipton and Frankford Arsenal all situated in our in our marksman brand line.
Our award winning <unk> monitoring device, along with other innovative safety products from our locked down brand are especially relevant and offer peace of mind for these 8 million new firearm owners.
Turning to our financial performance in the quarter net sales across our portfolio brands grew at an extraordinary 91% in the third quarter and gross margins expanded by 110 basis points to over 45 per cent.
Growth in the quarter occurred in nearly all of our 20 brands.
Furthermore of our top force selling products in the quarter. Each came from one of four brand lanes, yet again, demonstrating the diversity, we have built across the business.
We believe that sales growth across both our traditional and e-commerce channels in the quarter demonstrates the investments we have made over time continue to pay off allowing us to place our brands wherever the consumer expects to find us whether that's a physical store or online.
The investment we've made in our E. Commerce platform was an initiative, we began well in advance of the pandemic and positioned us well for the acceleration of consumer shopping online.
We believe our e-commerce and traditional platforms will both play an important role on our long term growth. So we are pleased that our e-commerce channels generated 44% of our total net sales in the third quarter.
This represented a 129% growth compared to the prior year and included a sizable increase in our direct to consumer sales.
Net sales in our traditional channels grew as well increasing by over 68% year over year.
Turning to profitability our.
Our adjusted EBITDA performance for the quarter was particularly strong with adjusted EBITDA margins, improving 1120 basis points year over year.
In addition to higher gross margins, we delivered greater profitability to the bottom line demonstrating we believe the tremendous leverage ability of our business. Thanks to the unique structure of our brand lanes and our focus on organic growth through our docking on lock strategy.
This quarter I'm excited to share. Another example of our docking on lock process on action when we purchase Crimson trace almost five years ago. It has long been a leader in the market for laser sights for self defense, essentially a red or green laser attached to the frame of a firearm, allowing the user to a more rapidly and accurately.
Interestingly when we plugged the brand into our book docking on lock process, we learned that consumers have come to view it as a trusted provider of not only laser sights, but aiming solutions more broadly.
We thought Wow, where else Crimson trace to go with us increased permission to play.
So our defender Bradley team went to work expanding the Crimson trace offering in 2018 to include Red Dot sights and a small assortment of rifle scopes, but their work didn't stop there.
Ongoing research hindered to us what we believe consumers wanted most and in this third quarter, we announced the launch of over 50 optics in our newly established hard line and brush line series of rifle Scopes like the rest of our Crimson trace products. The new scopes have undergone what we believe to be the most rigorous and hardcore testing in the industry, which is why they are backed by a life.
Time warranty.
They have the strength of IP behind a variety of features and a preview of the new design aesthetic that we're incorporating into future Crimson trace products.
Our scope to include aggressive narrowly on the magnification ring of tourists Crimson trace MLC coatings and robust aerospace grade construction.
Our pro models feature zero stop and expose tourists larger objective diameters first and second focal plane options and a variety of illumination options you'd come to expect from our brand rooted in electro optics technology.
Can find our new scopes at Crimson trace dotcom.
New products are core to our strategy and historically companies in our industry showcase new products each year at shot show.
This year, however, shot show like somebody shows was cancelled.
But that didn't slow us down and we went digital.
We redirected our shot show budget towards the rich media content and secured two full episodes on the 2021 shot show new product premiere, which aired on the outdoor channel and sportsmen channel.
Both episodes were basically an American outdoor brands takeover.
We're dedicated entirely to new products from across our brand portfolio.
This programming, including groundbreaking optics hunting blind game cameras meat processing equipment revolutionary tools for the reload on gunsmith, the latest fillet knives and gear for the most desirous of anglers a complete assortment of land management tools, a brand new line of smart security products and much more.
The reach for these episodes has been tremendous we estimate that the programs have generated over 35 million impressions.
Across TV print digital and social media and those programs are scheduled to air again in July.
The shift we made from a physical event to a digital venue for shot show seem natural since our internal capabilities, which include a modern approach to product marketing content generation and digital marketing our core strength that allow our brands to establish lasting relationships with consumers we.
We intend to further utilize these internal digital capabilities as we launched more than 300, new products in the coming year.
In addition to organic growth objectives, Andy and I continually scan the landscape for potential acquisitions that are a fit with our business.
We are currently seeing an uptick in the number of acquisition opportunities likely for a variety of reasons.
That said, we continue to maintain a very disciplined approach when we look at these targets.
In particular, we're looking for strong brands that complement our current portfolio and have runway for growth targets.
<unk> targets that have large total addressable markets in.
And brands, where our docket on lock strategy can provide untapped value for our shareholders.
Before I hand, it off I want to especially thank our employees.
US deliver these tremendous results.
Their commitment to our success as a new company their dedication to the health and safety of their coworkers and their passion for building, an exciting and innovative product portfolio made it possible for consumers to continue exploring their connection with the outdoors and our products during these challenging times.
Andy.
Thanks, Brian I'm excited to share details of our strong third quarter results.
We delivered significant growth in net sales and adjusted EBITDA that exceeded our expectations as well as exceptional cash flow generation.
Net sales for the quarter were $82 $6 million compared to $43 $3 million in the prior year, an increase of approximately 91% driven.
Driven by favorable consumer trends and a consumer preference for our strong brand portfolio and.
In fact, seven of our brands grew revenue more than 100% over the prior year Q3.
Historically, our second quarter sales have represented the highest point in our annual seasonality.
This year, however, Q3 will likely stand as our highest quarter aligning with very robust Pos trends that were occurring at the time combined with retailer load ins of inventory on new products from our Crimson trace and U S T brand.
New customer additions for Crimson trace and who he man.
And strong channel inventory replenishment made possible by effective inventory planning.
Sales in our traditional channels were $46 $2 million, an increase of 68, 5% over the prior year quarter.
Net sales in our e-commerce channels were $36 $5 million, an increase of 129% over the prior year.
Our E Commerce channels include our direct to consumer sales as well as sales to retail customers that do not traditionally operate a physical brick and mortar store, but rather generate most of their sales on their own retail websites.
Our Q3 gross margins were 45, 2%, a 110 basis point increase over the prior year and in line with our expectations.
The favorable impacts of product mix and fewer promotional programs were partially offset by higher tariff costs and sales of discounted slower moving inventory to certain retailers both of which were expected.
As a reminder, last quarter, we said, we would be working to sell $5 million to $6 million of certain slower moving inventory at low margin in order to convert that product to cash.
Our efforts have been successful and in Q3, we sold approximately $3 million of this inventory.
In Q4, we expect to complete the sale of the remaining $2 million to $3 million of inventory and the impact of those sales has been incorporated into our guidance.
In the quarter GAAP operating expenses were $27 $2 million compared to $20 9 million in Q3 last year.
The $6 $3 million increase was driven primarily by $3 6 million of variable selling and distribution costs and approximately $1 $4 million of compensation related expenses, all of which resulted from our higher net sales.
Those costs were netted by a decrease in intangible amortization of approximately $600000.
Non-GAAP operating expenses in Q3 were $22 $2 million compared to $16 $6 million last year.
Non-GAAP operating expenses exclude intangible amortization stock compensation and certain nonrecurring expenses as they occur.
For the third quarter GAAP EPS was <unk> 56.
As compared with an EPS loss of <unk> last year.
Our non-GAAP EPS was <unk> 82.
As compared to 13.
On a year ago quarter.
These figures are based on our fully diluted share count of approximately 14 million shares.
Adjusted EBITDA of $15 $8 million represents an increase of approximately 360% over prior year at a margin of $19 one per cent compared to seven 9% in the prior year quarter.
This great result was favorably impacted by a combination of.
The absence of promotions required in the current environment.
Reduced opex from travel and trade shows and the significant leverage on fixed cost at that net sales level.
Turning to the balance sheet and cash flow.
Our balance sheet became even stronger in Q3, enhancing our ability to invest in organic growth and seek complementary brands for our portfolio through acquisitions.
We ended the quarter with cash of $45 $5 million and no borrowings on our line of credit.
Our cash position was primarily driven by very strong operating cash inflow of $12 $6 million for the quarter netted by cash outflows of $1 million for capital expenditures and patent costs.
We continue to expect approximately $4 million in total capex spending for the current fiscal year with a portion of that being nonrecurring in nature related to the spinoff from our former parent company in August 2020.
I want to note that the spinoff included a transition services agreement under which we receive two years of support while we stand up our own independent it infrastructure, including an ERP system.
We are just now embarking on that process.
The related Capex will primarily occur in our fiscal 'twenty two.
Our new it infrastructure is an important and meaningful opportunity to implement a system that truly fits our needs.
It will provide immense value to our business by further strengthening our analytic capabilities and preparing us for future growth.
I look forward to share anymore as we get this project underway.
Turning to accounts receivable.
We decreased by approximately $2 million from Q2 to Q3, even though we delivered a sequential increase in quarterly net sales of roughly $3 million.
We are pleased with this reduction which is the result of two specific initiatives, we discussed on our last call.
We remain focused on identifying additional opportunities to reduce dsos in the future.
During the quarter, our team did a great job working with suppliers to ensure a consistent in flow of inventory. Despite some constraints with shipping capacity and port related delays that we faced with certain inbound product.
We utilized airfreight on occasion, when the margin impact was acceptable and this helped us maintain what we believe to be excellent service levels for our retailers.
We held our inventory relatively flat from Q2 to Q3, largely by moving the slower inventory I discussed earlier and balancing our internal inventory with increased demand.
Starting in Q4, we expect our inventory to increase due to a few factors.
First like many companies, we're seeing unprecedented and port congestion for.
For instance, the port of long Beach reported its busiest february ever with 43% more shipping containers process than prior February.
In order to help mitigate transportation risk, we intend to increase safety stock in some of our high volume Skus.
Second as Brian mentioned, we're in the process of launching over 300, new products in calendar 2021, and we plan to increase inventory in support of those launches.
It's worth noting that several of these new products are manufactured outside of China, helping us continue to diversify our supplier base and reflecting our progress toward our long term commitment to mitigate supply chain risk.
Lastly, we've shared in the past our strategy to evolve some of our brands toward higher ASP products.
As a result of our progress on this initiative many of the new products, Brian referenced will reflect higher asp's and that will.
Inherently increase our inventory value.
<unk> of this important evolution include our new scopes from Crimson trace tenths from U S T and grinders from meet your maker.
These new products represent an exciting investment we're making in our business as we do so we remain focused on effectively managing our inventories through our robust ethanol P and product lifecycle management processes.
We ended the quarter with no bank debt and the full capacity available on our $50 million line of credit.
This facility provides an additional $15 million of availability under certain conditions.
Between our revolver capacity and our cash balance our total available capital at the end of Q3 was over $110 million.
This access to capital provides us with a menu of options as we identify opportunities for organic and inorganic investments that Brian mentioned.
Now turning to our guidance.
Based on our financial performance through Q3, and our expectations for continued growth in Q4, we are increasing our net sales EPS and adjusted EBITDA guidance for fiscal 'twenty one.
We are now estimating full year net sales in the range of $268 million to $272 million, which would represent growth of roughly 60% to 62% year over year.
With net sales in that range, we would expect full year GAAP EPS in the range of $1 70.
To $1 14.
And non-GAAP EPS in the range of $2 eight to.
To $2 15.
We would also expect adjusted Ebitdas in the range of $43 five to $44 $5 million, which would represent growth of approximately 254% to 262% year over year.
I'd like to make a few comments on our guidance.
Our tax rate in Q3 was about 22% and we expect our tax rate in Q4 to be roughly 25%.
In addition, all our estimates are based on our forecasted fully diluted share count of approximately $14 2 million shares.
At the midpoint, our guidance implies healthy fourth quarter net sales growth of about 34% over the year ago quarter, and second half growth of about 62% over the year ago period.
This outlook takes into account current Pos trends, which remain favorable, but which have come off Q3 levels.
With regard to gross margin, we expect Q4 to be very similar to Q3 as a percentage and that result would include the low margin inventory sales I referenced earlier.
In terms of Opex, we expect fixed selling and marketing costs to increase from Q3 to Q4.
As we redirect travel and trade show related savings from early fiscal 'twenty, one two strategic initiatives in Q4.
These investments include product launch activities advertising programs with key retailers and other important initiatives that serve as seeds, we're planting for future growth fueling our brands in their transition from niche to known.
With that operator, we're ready to open the call for questions from our analysts.
Ladies and gentlemen, if you'd like to ask a question at this time. Please press the Star then the number one key.
On your Touchtone telephone.
To withdraw your question press the pound key.
Jim It is star then one if you'd like to ask a question at this time.
Our first question comes from John Kernan with Cowen.
Wow guys, congrats phenomenal quarter really great start since the spin.
Yes, Thanks, Sean.
You gave a lot of compelling stats on growth across a broad range of outdoor activity hunting fishing camping.
I guess just.
The growth of this installed base of consumers in this new interest across all of these activities mean for your long term organic growth rate it feels like.
Yeah, you are booking at a multiyear path too.
You know fairly significant organic top line growth I'm, just curious how things have changed maybe.
As we get into post pandemic.
Yeah.
Sure.
So certainly with with the increased participation.
With that installed base, which is much higher than it was in 2019 and our business being squarely in the center of some of the more popular activities that you mentioned.
I do think it bodes well for us going forward.
Especially as we come out with.
You know new products, we mentioned, we're coming out with 300, new products. This year overall, our portfolio is at a higher ASP.
So reaching out to those new consumers engaging with them, we're doing that in our direct to consumer efforts.
And all of our digital marketing efforts. So we haven't given any top line growth, which you know beyond this year.
But certainly it's exciting for us where as optimistic as we can be that this new installed base will continue to we'll be able to tap into that new base and a much larger way going forward.
Andy do you want to cut it off now yeah. Just you know we're very excited with our overall, our new product portfolio and really servicing the needs of those this new base of consumers we have.
Got it and maybe Andy another question for you based on the guidance.
You're now looking at a mid teen.
EBITDA margin for Sally on based on the high end low end.
What do you think the long term margin of this business should look like.
In fiscal 'twenty, two but yes, we think model out a few years what is.
What's the normalized EBITDA margin as you scale this business.
Yeah, Unfortunately, I can't really get into much detail, there beyond kind of what Brian and I talked about.
How does the fact that we're we're very excited moving forward.
I would also point out that as.
As we've seen throughout this year that we've really been able to leverage our fixed costs in a meaningful way way outside of that I can't really give you much more.
Yes.
Sorry, we plan to give our FY 'twenty two guidance at the next earnings call.
Understood and then I would imagine that the model yeah.
There's still a lot of fixed cost in this model.
Given the growth potential on the industry, that's still us on margin driving story going into fiscal 'twenty to be honest is the operating leverage in the business you see even beyond what you've already generated this year.
Yeah, I think that's a fair statement.
Okay.
And then just on on.
The cash balance is building on the balance sheet.
Next year.
Yeah.
There's going to be more cash it looks like certainly given the economics of the business right now.
What are you seeing in terms of capital allocation on M&A.
Yes, we're.
We're definitely looking at first and foremost organic growth. So Andy mentioned some of the investments that we'll be making gear. Shortly I'm looking ahead at a new ERP system, which we're really excited about.
It will give us increased analytics.
And then also like you said M&A I said in my prepared remarks that we are seeing an uptick in M&A right now I've been in this industry for a while and I can't say I've seen as much M&A as we're seeing right now.
Which is which is great theres lots of opportunities out there.
On the thing that Andy and I.
They do really well is remain.
Very disciplined in looking at these acquisitions multiples have risen a little bit.
We need to make sure. It's the right deal for US the right deal for our shareholders can plug into our dock in a lock strategy. So.
A few different areas, but those are the two primary ones.
Excellent Thanks, guys best of luck.
Thank you.
Our next question comes from Scott <unk> with C. L King.
Good evening, guys and congrats on that.
Great quarter, and thanks for taking my questions.
Thanks Scott.
Just trying to Dimensionalize you talked about.
Peter Watson's come of the elevated levels of Q3.
And I'm just trying to.
Talk about or just to figure out.
The size of the drop off and maybe try to figure out if some of that due to the falloff in mix that we saw.
On with attachments and things like that maybe just give us a little more detail on that.
Yes, Scott this is Andy so for Q3, we had some.
Debt.
Three of the things that I talked about in my comments.
And that really helped drive Q3, the weighted we looked at it the retailer load in so.
That was pretty much Crimson trace scopes are new new product line launched there and U S. T. We had a load in of some of our 10th sleeping bags and mattress pad. Those are really out of season load ins. So that definitely helped us drive new customers, we have a new OEM relationship with Crimson trace that again.
When we look back that's really a result of the spin off I don't believe we would have been able to have that relationship prior to the spin off and then also who he man we were able to.
Loading into the harmony home and hardware channel, which is a new channel for <unk> Man and then finally that inventory replenishment, we really had the inventory to be able to service our customers our customers consistently say that our service levels standout to them. So we really had strong replenishment then when.
Do you look at Q4, and what we guided into Q4 that really.
It kind of takes into account the Pos trends, we're seeing now.
And again there are off the Q3 levels as you said, but really very strong with our implied our implied guidance.
Alright, and just maybe just tying into.
Some of the reasons why it could be off do you think debt with next kind of flattening out this last month.
Is that having an impact like I was saying before with the attachment sales on things like that.
Oh I don't know.
It could impact that yes, I think that's more closely tied with some of the brands on our defender Lane like Crimson trace.
But also the cold weather that whipped through the middle of the U S and southern U S. I think had a had a part on that as well.
In February.
So we have quite a few places we're closed I think for me so.
So I cant discount that as well.
Okay. That's all I have for right now thanks a lot.
Yeah. Thank you Joe.
Our next question comes from Eric Wold with B Riley Securities.
Thank you good afternoon guys.
Eric.
A couple of questions I guess, one just follow up on the on the last one kind of around inventory.
You kind of talked about some of the strength in the quarter was the kind of non seasonal we're kind of out of season load into the new products I guess.
Moving that how would you think about channel inventory levels in general.
Adding into spring summer versus maybe normal from non pandemic years and how.
What behaviors are you seeing from the retailers in terms of desire to restock inventory versus normal periods are they are they as aggressive before they're getting more cautious or really no change.
Yeah, Hey, Eric This is Brian So what I would tell you is.
We've talked about in calls in the past that we have.
Kind of shortened the lead time between our what we're seeing in POS data again, we can see about 50% or so of our sales.
Pos.
With our own supply chain.
And so we what we're seeing there on Pos is very well tied into.
The orders that we're getting from our customer base, so strong correlation.
And I don't I'm, not getting a sense from our customers that they're stocking up I still think that there's healthy replenishment that's going on right now that's going out the door.
Where consumers are pulling that through.
At a rate that's consistent with what we're seeing in our data.
Yeah, and one thing I would add to that Eric is that.
I mentioned in my piece the investment that we're making in Q4 on those marketing programs and some of the.
Advertising with retailers, we're really doing our best to really pull that inventory through the channel.
As that marketing machine to drive that demand on to obviously pull in more of a replenishment.
Perfect and then.
Final question.
No.
Obviously big Spike in participation during the pandemic, obviously optimism that a lot of people do stay with these activities as the economy starts to reopen and to kind of get more engaged.
It may be tough on the retail side, but maybe within your own E Commerce platform.
What have you seen in terms on.
You know returning customers repeat purchases, maybe an ability to kind of shift.
Shift suddenly comes into one brand line into another brand Lane you know how how engage these these kind of new customers being with the various activities.
Yeah, Eric This is Brian its a good question. So we are seeing what we call internally kind of a daisy chain.
Sort of behavior with some of our consumers. So we have we have over 500 micro influencers that we used in a lot of times. They will they will use several of our brands.
And that's really a good starting point for somebody who is getting into the industry no matter, where they are coming on whether it's a new firearm or they're getting into hunting or they're getting into fishing or camping.
So there's kind of this ecosystem of micro influencers that we leverage pretty heavily and they kind of travel you know kind of move the consumer and introduce them to some of the brands through that in addition to our on websites.
So you'll see like for example, Lockdown I think right now are locked down brand is doing a big big.
Big launch for some new products and you'll see several of our brands being incorporated into that not on it not in an intrusive way, but in a complementary some giveaways things like that.
And then we're seeing.
Those purchase patterns across at.
At least our websites, which we have good visibility into them.
So we do think that there's there's upside there and we're seeing customers come back.
That's helpful. Thank you guys appreciate it.
Yeah. Thank you.
Our next question comes from James Hardiman with Wedbush Securities.
Hi, good evening and congrats on another strong quarter here.
So.
It's come up come up but you spoke to a significant replenishment in the quarter I just want to make sure I understand where we are is that replenishment essentially complete and ultimately.
No.
Existing the quarter how correlated are.
Point of sales retail trends in the wholesale trends that youre seeing right now if you see an uptick or downtick.
Is that going to be pretty quickly reflected in your.
Shipment patterns.
Yes, James this is Andy so.
Trying to think of how to answer.
So our guidance again is really reflective of the Pos trends that we're seeing right now.
As compared to Q3, I don't know if debt.
Yes, it's pretty well correlated the exceptions being because we do launch we're launching so many new products. This year and we've got some load ins in Q and Q4. So some bubble product for example from others more spring seasonal type.
Type brands that can skew the data a little bit.
But ultimately loadings aside.
Where we are in the upcoming quarter, we shouldn't think about incremental shipments being made to get inventory levels higher that's already been completed in the previous quarter.
What youre, saying on the inventory.
Yeah, I think that's I think that's a valid assumption.
Okay.
Perfect and then Brian a couple of times, you've talked about M&A environment picking up and you you alluded to a variety of reasons why youre seeing that uptick can you maybe give us some color on what those reasons might be.
Sure.
So again I haven't seen this much activity in a long time.
Take that Theres, a record amount of funds.
Funds on the sidelines with private equity that needs to be put to work.
The the fact that the industry is doing well has increased visibility for a lot of those financial buyers. So we're seeing more competition.
From in particular financial buyers that are stepping up and in some cases, they may own a big portfolio company and.
Have really began backing them and getting into the into the industry.
So increased I would say demand and then as a result of that as well.
And the performance of some folks in the industry day.
They recognize that demand and they wanted to take some chips off the table. So they are coming to market as well. So it's just it's created an environment, where we are seeing quite a bit more than we have in the past, but that said we're on.
Obviously, we're looking at those deals that come to market, but a big part of our strategy as Andy and I do a lot of outbound.
Cultivate our own pipeline of targets.
So that as that continues on as planned in and like I said earlier, we'll remain disciplined so while it's exciting it's really exciting that theres a lot of activity out there.
We're going to be patient, we're going to find the right deal.
Got it and then just real quick clarification, Andy if I do the math.
On the fourth quarter.
EBITDA margin it seems like we're going from what had been sort of high teens, 20% maybe.
5% to 7%.
Obviously, there is some leverage there right youre guiding to lower.
Sequentially. So that's going to hurt margin a little bit is that it or is there anything else in there that we should be cognizant of.
Yes, so I would say in Q4, there's a couple of different factors. So we have that additional $2 million to $3 million of low margin inventory that will impact margins. So I said in my comments, we expect gross margins to be kind of close as a percentage wise to Q3.
So then if you look back into Q1 and two that margins were going were higher.
And the fixed investments that we talked about there is they're not it's not a permanent change in fixed they are targeted advertising brand awareness initiatives new product launches launch initiatives that when yeah. When you look at Q4 revenue just the leverage.
Pan out, but again, we're kind of looking at it on a long term basis. So we don't want to not invest in those types of projects.
Because they are going to gain yield gains for us going forward.
It makes a lot of sense. Thanks, Andy Thanks, Brian.
Yes. Thank you.
As a reminder, ladies and gentlemen, if you'd like to ask a question at this time that's star then one.
Our next question comes from Mark Smith with Lake Street capital markets.
Hi, guys I just wanted to ask quickly about e-commerce strength, it's been pretty phenomenal here the last couple of quarters.
But talk about kind of how you can keep this momentum going kind of post pandemic as people get out and shop more in stores or perhaps more than ordering on mine.
Yeah, Hey, Mark this is Brian.
So at a very basic level, we just launched these sites in the last call. It 18 months 24 months and so I think we're still on the early innings of our E comm growth specifically direct to consumer we really haven't.
We haven't.
We haven't like.
<unk> sold many of the brands across the different websites.
So there is some low hanging fruit there that I think we can continue to go after.
But overall again I think it's in the early innings here so.
As if behaviors do begin to change.
I think we're again, we're doing our best to have that conversation with the consumer and also like we said in the past we want to make sure we are where the consumer expects to bind us so having that dialogue with the consumer.
Just increases their loyalty with our brands.
And if they buy from US great if they buy from a retailer great we want to be there as well so.
Perfect.
Talk about new products, you launched a lot of really neat products, but a lot of us would've been probably late.
On the round shot show time period, but can you talk about during Q3, how the new product mix was.
And then kind of maybe the next few months or a year, what the cadence from new launches looks like.
Hey, Mark this is Andy I'll take the percentage and then Brian can talk on a more long term. So yes, we were about 12, 8%, which was down a little bit.
Historically, but that really.
It's interesting that really reflects just timing of launches and actually.
Where we're launching so if we come out with a new product debt maybe out of season for a traditional retailer, but we're selling that through E. Commerce that may affect kind of that that new product.
And we look at that it kind of about 12, and 24 month basis and it makes more sense over the long term.
Yes, I can't speak to the longer term, but sorry, Mark did you have another question.
Just following up on that like the Crimson trace products that launched during the quarter can you talk about kind of on the timing of when those were available for customers and if that's something that's really impacted Q4, all from a new product perspective, much more than Q3.
Mark are you talking about the scopes.
Exactly yes.
Yeah. So the scopes, that's one of those where we launched very exciting launch couldnt be more thrilled with those those 50, new products and it's when you look at kind of timeline.
Timing of that is kind of out of season. So we did have that debt load and we talked about.
And then we will see some replenishment and other products or other customer activity into Q4, but that's an exciting product that we're really happy about going into fiscal 'twenty two.
And Mark this is Brian so on your on the rest of your question related to launches at shot versus other times more broadly.
So last year, we were kind of we began testing with certain brands.
<unk> is a good example, bubba and a lot of fishing.
Fishing brands launched their new products at <unk>, which is like the shot show for fishing and that happens in the summertime, but we think we have been launching new products throughout the year.
As a way to just continually engage with that consumer and we've found that it's very very impactful and has led to not only higher e-commerce sales for us, but also better pull through for our retailers. So this year.
Youre going to see more of that with across our brand. So youll see some products are hitting shelves and kind of the spring summer timeframe.
And then Youll see some more kind of throughout the summer and into the fall that would have traditionally had a big launch right around shot show.
Okay, and then as we look at kind of the strategy on new products.
Crimson trace a good example, where we did see more high priced higher price products.
Launched in the Opex line.
Or or will we see more of a kind of good better best or how do you feel about the pricing and what consumer price points you want to go after on across all your brands with new products.
Yeah. That's a great question Mark This is Brian. So this is a strategy that we've put into place a few years ago. So it's kind of working its way through our product development pipeline.
And this has been our strategy I think we've executed very well on so scopes.
Was a part of that strategy grinders getting into some of the meet your maker products was definitely part of that strategy tents and sleeping bags other parts other products.
Kind of teased out if you I mentioned in my prepared remarks about the shot show new product premiere, so getting it getting into categories like smart vault doors that you can install in a closet and essentially turned her closet into evolved and thats going to be at a much higher ASP.
So we're going to continue to launch products that are higher asps.
We're not as focused on the good side.
Good better best we're really not as focused on the good side of things I would say that most of our brands play in that better to best.
And that certainly helps us out with our Asps strategy.
Perfect. That's helpful. Thank you guys.
Yes. Thank you.
As a reminder, ladies and gentlemen that is star then one to ask a question.
Our next question is a follow up from Scott <unk> with C. L. King.
Yes in your opening remarks, you guys talked about you expect a portion of the people that are comments on the market during COVID-19 two to stick.
Just can you frame that out do you think the lion's share will stay on this because later on you talked about this new foundational layer of growth, which offers a huge opportunity. So I'm just trying to are.
Are you seeing anything hearing anything that people are leaving.
They are starting to fly in the last couple of weeks or.
Just trying to go back up.
Hey, Scott this is Bryan I.
I can start with the last part I haven't seen anything that indicates that people are leaving.
I've seen some studies out there.
They pulled parts of the population of folks that have got into the outdoors for the first time.
The majority of those individuals' said that they intend to continue recreating outdoors they didn't necessarily state at the same level.
But the larger percentage of those did intend to continue to do those activities outdoors.
So that's the best data that we have right now it's kind of coming out in real time.
But.
But that's all I can add on Andy anything else that we've talked about that you you can think of.
Yes, I think that.
And I guess, the only other thing I would add and we talked about this a little bit last call is.
Going forward.
On top of that what we believe is a new foundational level, we're focusing on new product categories, new customers and channels and those new large total addressable market to help us grow going forward, yes, Scott I'm going to hijack your question for a second.
And I was hoping you would come up here Budd.
There are parts of our business that really Havent havent.
We haven't begun to explore like we talked about E. Com, we talked about the ability to cross sell our brands.
International for US is hardly tapped at this point our brands in their infancy, and where they have permission to player where we believe that permission to play.
As a mets and we've talked about getting into some of these larger total addressable markets.
And in some cases outside of our traditional.
Called the traditional outdoors, who made is a good example of that locked down is another great example of that meet your maker. So its.
People people are very focused on outdoor participation and that's great. That's our core consumer but there are also some other.
Other pieces of our strategy that we've really focused on.
That we believe can be tapped into going forward.
Got it that was very helpful. Thank you.
Yes, Thanks Scott.
I'm showing no further questions in queue at this time I'd like to turn the call back to Mr. Murphy for closing remarks.
Alright, well, thank you operator, and thanks, everyone for joining US today, we look forward to speaking with you again next quarter.
Happy St Patrick's day.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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