Q2 2021 Sturm Ruger & Company Inc Earnings Call

August 5, 2021

[music].

Ladies and gentlemen, thank you for standing by and welcome to the Sturm Ruger second quarter 2021 earnings Conference call.

At this time all participant lines are in a listen only mode.

The the speaker's presentation there'll be a question and answer session to ask the question. During the session you would need the press Star then 1 on your telephone. Please be advised of today's conference is being recorded if you require any further assistance. Please press Star then zero I would now like the hand the conference over to your host today, Chris Kilo.

President and Chief Executive Officer. Please go ahead.

Thank you good morning, and welcome to the Sturm Ruger <unk> Company second quarter 2021 conference call.

I'd like to ask Kevin Reid, our general counsel to read the caution on forward looking statements then Tom Dineen, our Chief Financial Officer will give an overview of the second quarter 2021 financial results and then I will discuss our operations and the state of the market.

After that we'll go to your questions. Kevin Thanks, Chris we want to remind everyone that statements made in the course of this meeting the state the company's or management's intentions hopes beliefs expectations or predictions of the future of our forward looking statements.

It is important to note that the company's actual results could differ materially from those projected in such forward looking statements additional information concerning factors that could cause actual results to differ materially from those of the forward. Looking statements is contained from time to time in the Companys SEC filings, including but not limited to the company's reports on form 10-K.

For the year ended December 31, 2020 and of course on the form 10-Q for the second quarter of 2021, which we filed last night copies of these documents may be obtained by contacting the company or the SEC or on the company website at Ruger Dot com slash corporate or the SEC website at SEC Gov, We do reference non-GAAP EBITDA. Please.

Note that the reconciliation of GAAP net income to non-GAAP EBITDA can be found in our form 10-K for the year ended December 31, 2020, and our form 10-Q for the second quarter of 2021, both of which are posted on our website in the Investor Relations section. Furthermore of the company disclaims all responsibility to update forward looking statements risks.

Thank you Kevin now Tom will discuss the company second quarter 2021 results Tom.

Thanks, Chris.

For the second quarter of 2021 net sales of our $200.1 million and diluted earnings were $2.50 per share.

For the comparable prior year period, net sales of our $133 million and diluted earnings were $1 <unk> per share.

For the first 6 months of 2021.

Net sales were $384.4 million and diluted.

Earnings were $4.66 per share.

For the corresponding period in 2020 net sales of our $253.9 million and diluted earnings were $1.91 per share.

The substantial increase in profitability for the second quarter was attributable to the increase in sales and production.

<unk> and favorable leveraging of fixed costs, including depreciation engineering and other indirect labor expenses.

A significant reduction in sales promotional activities and improved labor efficiencies.

Not surprisingly our strong financial results yielded robust cash generation.

During the first half of 2021, regenerated $76.2 million of cash from operations.

We reinvested $11.5 million of that back into the company in the form of capital expenditures.

We estimate that 2021 capital expenditures will be approximately $20 million predominantly related to new product development.

Our ability to shift manufacturing equipment between sales and between facilities improves overall utilization and allows for reduced capital investment.

Our balance sheet at July 3.2021 remains rock solid our.

Our cash and short term investments, which are invested in U S. T bills totaled $173.6 million.

Our current ratio was 3.7 to 1 and we had no debt.

Our stockholders' equity was $319.1 million, which equates to a book value of $18.14 per share of.

Of which $9.86 per share was cash and short term investments.

Our shareholders continue to share in our success and of direct and timely manner.

In the first month in the first 6 months of 2021, we returned $27.6 million to our shareholders through the payment of dividends.

Our board of directors declared a $1 per share quarterly dividend for shareholders of record as of August 16th 2021 payable.

Payable on August 27th 2021.

Upon receiving the $1 quarterly dividend shareholders will have received over $2.50 of dividends per share thus far in 2021.

As a reminder, our quarterly dividend is approximately 40% of net income and therefore varies quarter to quarter.

The financial update for the second quarter Chris.

Thanks, Tom Thanks.

Thanks to our team of over 1900 hard working folks in our Ruger manufacturing facilities in New Hampshire, Arizona, North Carolina, and Missouri, The second quarter of 2021 marks the seventh consecutive quarter of meaningful growth in sales profitability and virtually every financial and operating metric despite the <unk>.

<unk> posed by the COVID-19 pandemic.

Demand for our products has remained strong the.

The estimated unit sell through of the company's products from the independent distributors to retailers increased 13% in the first half of 'twenty, 1 compared to the prior year period for.

For the same period of the national instant criminal background check system background checks as adjusted by the National shooting Sports Foundation, commonly referred to as Nix checks decreased 5%.

The increase in the sell through of the company's products compared favorably to the decrease in adjusted mix background checks and may be attributable to the following.

Strong consumer demand for Ruger products increases in production for each of the past 7 quarters and the introduction of new products that of the net with strong consumer demand.

New product development remains among our highest priorities on the heels of the successful Max 9 pistol launch earlier. This year, we introduced the Ruger LCP Max of 380 auto pistol in June.

This is the latest offering from the Ruger LCP family, which has set the standard for personal protection pistols for over a decade.

The LCP Max joins an impressive roster of products that were introduced in the past 2 years. These include the extremely popular Ruger 57 pistol, which was awarded the 2020 caliber of award for Best overall, new product by the professional outdoor media Association in conjunction with the NHS GW.

The LCP 2 in 22 long rifle, which is based on the Venerable LCP platforms and utilizes our light rack system for easier slide manipulation and reduced recoil.

The wrangler revolver, our latest take on the classic single action revolver, which shows no signs of slowing down.

And the Max 9 pistol, a versatile 9 millimeter pistol that has been met with tremendous excitement.

In the first half of 2021, new product sales represented $78 million or 22% of firearm sales compared to $48 million or 21% of firearm sales in the first half of 2020.

As a reminder, derivatives and product line extensions of the mature product families are not included in our product sales of new product sales calculation.

Nonetheless, there of valuable additions to the Ruger catalog of products and are greatly appreciated by distributors retailers and our loyal group of consumers.

We look forward to the return of Marlin lever action rifles, which we plan to begin shipping in the fourth quarter.

If you are interested in following our progress with the Marlin product line checkout Marlin firearms on Facebook or Instagram, we have been delighted with the overwhelming interest and support that we have received from Marlin fans.

Since March of 2020, our workforce has been strengthened by approximately 400 folks an increase of 25% and our quarterly unit production has increased by over 200000 units or 58%.

This outsized growth in production is indicative of our labor efficiency gains.

And despite the growth in our output at the end of the second quarter of 2021, our finished goods inventory and distributor inventories of Ruger products were 160000 units lower than they were at the end of the first quarter of 2020.

The last time these inventories were at what we would consider normal or expected pre COVID-19 levels.

Since the onset of COVID-19 in March of 2020.

We remain proactive in maintaining the health and safety of our employees and mitigating its impact on our business.

By providing all hourly employees with an additional 2 weeks of paid time off in 2020 and an additional week in 2021.

Providing cash and other incentives for employees to become fully vaccinated.

Holding multiple onsite COVID-19 vaccination clinics at our manufacturing facilities.

Reducing hiring in early 2020 to help maintain the health and safety of employees and the cleanliness of our facilities.

Encouraging employees to continue to work remotely wherever possible.

And maintaining social distancing throughout each manufacturing facility, including in every manufacturing cell.

Confidentially communicating with and assisting employees with potential health issues through our dedicated facility nurses.

Restricting visitor access to minimize the introduction of new people in the to the factory environment.

Implementing additional cleaning sanitizing and improved ventilation and other health and safety processes to maintain of clean and safe workplace.

Providing all employees with multiple face mask coverings, and other personal protective equipment and currently mandating the use by unvaccinated in at risk individuals at all times in our facilities.

And issuing periodic guidance and reminders to all associates to encourage them to engage in safe and responsible behaviors.

With the United States once again seeing a rise in COVID-19 cases and positivity rates.

We remain vigilant and are proactively adjusting our plan accordingly to keep our associates of healthy and safe and the minimize any disruption to our many of our business.

We estimate the Covid related costs will total approximately $1.5 million in 2021.

Included in this estimate is of $200 bonus for every employee who becomes fully vaccinated.

Our financial strength, evidenced by our debt free balance sheet provides financial security and flexibility as we manage through challenges like COVID-19, and remain focused on the long term goals and creation of shareholder value.

Those of the highlights of the second quarter of 2021.

Operator may we have the first question.

Thank you as a reminder to ask the question you will need to press Star then 1 of your telephone to withdraw your question. Please press the pound key.

Our first question comes from the line of Ryan Meyers with Lake Street Capital. Your line is now open.

Yes, hi, good morning, guys. Thanks for taking my questions first 1 for me it was nice to see the production increased throughout the quarter.

Are you guys kind of evaluating this throughout the rest of the year and then into next year at some point when do you think that the.

Backlog starts to tick down how are you thinking about adding production.

<unk> as the year progresses.

Thanks Ryan.

As you know, we don't give forward looking guidance, but I would tell you that our SIOP process, the sales inventory and operations planning.

We go through that every 2 weeks, we look at every single product line, we look at inventory at Ruger inventory at our wholesalers and the sell through from our wholesalers to retailer.

And I think the key is going to be continuing those.

Meetings every other week keeping track of each product line watching our flow and frankly watching the flow of inventory into our distributors, regardless of whether it's ruger inventory or competitors so that.

That process won't change, we're very flexible as far as our ability to moderate.

Our production levels of hiring certainly has an impact on our ability to ramp up quickly, but in terms of flexibility are the folks in our factories of demonstrated enormous flexibility within those model lines to vary the the the individual models in the skus to meet what's needed for our distributors. So I'm very confident will be.

Able to adapt to whatever the market throws us.

Alright, that's helpful and then it looks like Youre at the <unk>.

G&A expense was quite a bit lower than what we had expected and actually provided quite a bit of leverage in the model. So do you guys think you can keep the G&A at this level or would you expect it to pick up in the second half of the year.

I believe Ryan it's up in actual dollars this quarter, but.

Nothing nothing out of the ordinary there.

Okay, and then looking at input prices are you guys seeing pressure anywhere and then do you think that you can have the ability to take on price increases as you see those pressures kind of like you did last year round of October.

Good question, Ryan we are seeing as most manufacturers in the U S. We're seeing upward.

Upward pressure on commodities and our supply chain of prices from our vendors.

As they deal with both COVID-19, and supply supply chain shortages.

We did take a 3% price increase as you noted last October. We also took 1 this June mid June just a few weeks ago, we implemented a 3% across the board price increase.

That went into effect and then that goes into effect. The movers case on everything to begin shipping out the door. The only thing we price protect our prepaid orders and law enforcement orders that are already booked with.

Alright Thats helpful. Thats. It from me thank you.

Thank you. Our next question comes from the line of Ryan Hamilton with Morgan Dempsey Capital Management. Your line is now open.

Good morning, everyone and congrats on another record quarter.

Thanks, Brian.

But.

Kind of circling back to the labor question.

As you ramp up production for Marlin, as Youre getting ready to ship out.

In the fourth quarter are you seeing any constraints there or have you already been building sizable inventory.

Well in the case of Marlin, we're really starting from scratch we inherited.

In our purchase we got some the machinery some work in process of raw materials, some parts, but really we need to stand up that line.

Down in our facility in maiden North Carolina, and the team down there has done a phenomenal job and we're going through that line.

Part by part done by gone and so we still of lot of work ahead of us. So we're really working through.

That process and we will be the guns, we'll be making in shipping in the fourth quarter will be parts and.

Basically parts and materials that we've made and are aligned not things that we necessarily inherited or picked up in the sale. We're very excited about it it's been going great. We got a great team of folks down down of Nathan and frankly, what's been.

Very.

The exciting for me personally is watching the level of effort that's been expected by our extended by our other factories, Newport and Prescott, Arizona.

Helping with the launch down of made and we've got teams of engineers in the other 2 facilities working on small parts working on wood stocks things like that and all of that's going to combine I think 2 of great relaunch of Marlin in the in the fourth quarter.

And youre going to Youre shipping completed.

<unk> in the fourth quarter as well right not just parts.

Accessories and whatnot.

Absolutely, we'll be we'll have completed <unk> it will be a limited offering initially we will start with the model $80, 95% to 894% of $3.36.

Certainly not every single model in every single SKU that our customers are looking for so it will take us a while to bring all of the all of Marlin back to its full full glory of ore.

We're excited about it and again the focus on those center-fire lever action Skus in the beginning.

The team has been doing a great job on that.

Well, sometimes scarcity can drive demand.

That's a good good plan are the refresh my memory on Laurel and most new products will be classified under your new.

The new product definition.

Absolutely there are.

Again since they were theyre around for a long time and in their former lives, but they are certainly brand new to Ruger and the amount of effort going into that is frankly.

A little bit staggering and the <unk> team has been doing a fantastic job. When you think about standing up the supply chain going through part by part.

Making sure every machine is up to snuff.

Lots of work that needed to be done.

<unk>.

I think you may have heard me on a previous call we talked about over 100 tractor trailer loads of machinery equipment work in process and parts coming our way and so it's been a big task of big undertaking down in the in May of <unk>.

You guys are phenomenal operators saw kudos there.

And I know you don't normally break this out but when youre looking at new.

New products and margins.

Are you seeing something with.

Newer products, usually demand at a higher margin or versus legacy margins could you kind of maybe touch on that a little bit I know, it's product dependent between the rifle.

Pistols and whatnot, but could you maybe just touch on that of a little bit and maybe what we can expect from a margin profile for model of products.

I think it's probably hard to say at this point I mean, 1 of the things Youre seeing right. Now is I think we talked about in the earnings release. When we have these production levels that we're currently at we're covering a lot of fixed costs and.

That that obviously has a very positive effect on gross margin when we consider new products. What we're looking for is a very disciplined approach to maintaining our cost target as far as coming in where we need to in terms of building the product and then evaluating where that particular product fits in the marketplace.

The competition looking at the number of competitors looking at those existing price points, and some things or have more flexibility than others certain certain categories, obviously, a very crowded.

Others, we're trying to hit of a very specific price point. Good example is the the wrangler, which we launched.

Year, and a half or so back of the wrangler revolvers to be successful really needed to hit.

The specific price point in the marketplace and so sometimes that can drive our approach to manufacturing processes and really.

1 of the things we look at in that new product development process is what's our opportunities based on the landscape of the market the competitors prevailing price points and where we think we can go with the features and benefits package to try to outperform the competition as best we can.

That makes sense.

1 more from me and I'll get back in line can.

Can you touch a little bit on the accessories business. What you are seeing any issues, maybe filling orders because of strong demand.

Now I'll accessories have been very strong both the accessories, we ship out to our 2 step 2 step distribution.

Our wholesalers as well as our own shop Ruger results has been very strong force.

And as firearms sales increased demand for accessories, particularly things like magazines.

That increase was evident throughout Q1 and Q2, so that was part of the strong performance of our accessories Division I think the <unk>.

Accessories world tends to ebb and flow of little bit with firearms, sometimes it lags that a little bit.

But the folks did a great job capitalizing on that demand in Q2, that's for sure.

Alright, thanks, great quarter. Thanks, Brian.

Thank you.

As a reminder to ask a question you would need the press Star then 1 of your telephone.

The first questions.

We do have a follow up question from the line of Ryan Hamilton with Morgan Dempsey Capital Management. Your line is open.

So short line.

So I was going to say Ryan Youre right back in.

I'll touch on this a lot over the past couple of quarters.

And maybe you could touch a little bit on the ammunition component.

From what I've been seeing is it's becoming available while it's still expensive or you're seeing.

Is that helping sales at all or is it still.

What kind of a question Mark in your in your view.

Well I think as you noted in recent weeks it certainly seems to be coming somewhat more available than it was a year or so ago.

The real shortages out there, but again I know in speaking with my counterparts at.

At all of the ammunition manufacturers they are working around the clock to keep up with demand. So it's certainly not a question of lack of effort on their part I think the demand combination of increased demand as people perhaps.

Bought and put away some of that ammo and then all of the new shooters. We got when we look at those numbers from the National shooting Sports Foundation of 8 to 12 million potential new shooters. That's also spurred that increased demand and I think between the new shooters coming in.

The resumption of ammunition production in the Remington facility is now operated by Vista.

I think all of that probably is probably getting us closer back to normal in the ammunition world, but we still got a long way to go I still get.

I hear from consumers, who say they can't find ammo. So I think it's probably a mixed bag out there depending on where you are but I think the key thing as the <unk>.

Good stewards of the firearms business is we want to make sure that those new shooters, who did buy guns in the past year or 18 months.

We have that have access to that ammunition. So they can get out to the range and enjoy their firearms and become lifelong users.

Users of firearms in not just the 1 and done purchases, we'd like to see them stay with stay with Ruger of course, but most importantly stay with the <unk>.

Safe and responsible ownership of firearms in the future.

No.

Good color.

You touched a little bit of new shooters are you going to feel at all that the women are still entering the field quite a bit as far as buying first time gun owners or buying a second or third gunner concealed carry or are you still seeing strong demand from from new women shooters.

Absolutely we're definitely seeing.

Yeah.

Many many more female shooters coming into the marketplace, we're seeing a much more diverse.

Crowd at the at the firearms retail counter and we think that bodes well for us long term I think thats great to see.

More women shooters in our ranks we're trying to make sure that we've got.

Forest products oriented towards the females that are going to pick them up and use them and we're going to continue to keep keep going after that part of the market as well.

1 more from me I was looking through my notes here.

So the head count was at about 19.800 hard working employees.

I Couldnt agree more where do you see that roughly.

If you could have.

Average wanted by the end of the year, where would you say that number should be.

Well I mean, that's still still a ways out obviously, that's 5 or 6 months out to.

To the end of the year right now I would tell you. We've got the help wanted sign out and all of our facilities every 1 of our manufacturing facilities has the help wanted sign out there.

Normal attrition.

Each set that number every day, so between normal attrition and ramping up some of those new product lines. We've got new products that are you look at like our Prescott, Arizona factory, they've got the Max 9 they are still growing that line as well as working on shipping out the Ruger 57 pistols, New Hampshire Fedex Cup.

All of the exciting new products teed up in that factory and then of course maiden North Carolina, where we have the.

Of the Marlin line coming in of being again lots going on there and all 3 of them have the help wanted sign out and if anyone's interested go to our website Ruger dot com slash careers and it's got the positions listed there I'll put in my free plug for for hiring some folks.

And I've been the you may have and facility of its magnificent so yes.

The second that makes them from the time I appreciate it thanks.

Thanks Ryan.

Thank you there are no further questions I will now turn the call over to Chris <unk> for closing remarks.

Thanks, operator.

In closing I would like to thank you for your continued interest in Ruger and I would like to thank the more than 1900 members of the Ruger team that continue to work together to exceed our expectations and the drive outstanding financial results.

Finally, I would like to note that this month of August is national shooting sports month of time for all Americans to celebrate and enjoy the shooting sports with friends family of newcomers they want to introduce these lifelong activities visit let's go shooting dot or to learn more about how you can celebrate national the shooting sports month. This August thank you.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.

Okay.

[music].

Yes.

[music].

Okay.

[music].

Ladies and gentlemen, thank you for standing by and welcome to the Sturm Ruger second quarter 2021 earnings conference call.

At this time all participant lines are in a listen only mode.

After the Speakers' presentation there'll be a question and answer session to ask the question to 1 of the session you will need the first Star then 1 on your telephone please.

Please be advised of today's conference is being recorded if you require any further assistance. Please press Star then zero I would now like the hand the conference over to your host today, Chris Killer.

President and Chief Executive Officer. Please go ahead.

Thank you.

And welcome to the Sturm Ruger <unk> Company second quarter 2021 conference call I would like to ask Kevin Reid, Our general counsel to read the caution on forward looking statements then Tom Dineen, our Chief Financial Officer will give an overview of the second quarter 2021 financial results and then I will discuss our operations and the state of the market.

After that we'll go to your questions Kevin Thanks, Chris.

To remind everyone that statements made in the course of this meeting the state of the Companys or managements intentions hopes beliefs expectations or predictions of the future of our forward looking statements.

Important to note that the companys actual results could differ materially from those projected in such forward looking statements.

Information concerning factors that could cause actual results to differ materially from those reported statements is contained from time to time in the Companys SEC filings, including but not limited view of the company's reports on form 10-K for the year ended December 31, 2020 and of course on the form 10-Q for the second quarter of 2021, which we filed last night.

Copies of these documents may be obtained by contacting the company or the SEC or on the company website at Ruger Dot Com force by corporate or the SEC website at SEC Gov. We do reference non-GAAP EBITDA. Please note that the reconciliation of GAAP net income to non-GAAP EBITDA can be found in our form 10-K for the year ended this.

The number of 31.2020, and our form 10-Q for the second quarter of 2021, both of which are posted on our website in the Investor Relations section. Furthermore of the company disclaims all responsibility to update forward looking statements.

Thank you Kevin now Tom will discuss the company's second quarter 2021 results Tom.

Thanks, Chris.

For the second quarter of 2021.

Net sales of our $200.1 million.

And diluted earnings of our $2.50 per share.

For the comparable prior year period, net sales of our $133 million and diluted earnings were $1 <unk> per share.

For the first 6 months of 2021.

Net sales were $384.4 million and diluted earnings were $4.66 per share.

For the corresponding period in 2020 net sales of our $253.9 million and diluted earnings were $1 of 91 per share.

The substantial increase in profitability for the second quarter was attributable to the increase in sales and production.

The resulting in favorable leveraging of fixed costs, including depreciation engineering and other indirect labor expenses.

A significant reduction in sales promotional activities and improved labor efficiencies.

Not surprisingly our strong financial results yielded robust cash generation.

During the first half of 2021, regenerated $76.2 million of cash from operations.

We reinvested $11.5 million of that back into the company in the form of capital expenditures.

We estimate that 2021 capital expenditures will be approximately $20 million predominantly related to new product development.

Our ability to shift manufacturing of equipment between sales and between facilities improves overall utilization and allows for reduced capital investment.

Our balance sheet at July 3.2021 remains rock solid our.

Our cash and short term investments, which are invested in U S. T bills totaled $173.6 million.

Our current ratio was 3.7 to 1 and we had no debt.

Our stockholders' equity was $319.1 million, which equates to a book value of $18.14 per share.

Of which $9.86 per share was cash and short term investments.

Our shareholders continue to share in our success and our direct and timely manner.

In the first month in the first 6 months of 2021, we returned $27.6 million to our shareholders through the payment of dividends.

Our board of directors declared a $1 per share quarterly dividend for shareholders of record as of August 16th 2021 payable on August 27th 2021.

Upon receiving the $1 quarterly dividend of <unk>.

Shareholders will have received over $2.50 of dividends per share thus far in 2021.

As a reminder, our quarterly dividend is approximately 40% of net income and therefore varies quarter to quarter.

That's the financial update for the second quarter Chris.

Thanks, Tom Thanks.

<unk> posed by the COVID-19 pandemic.

Demand for our products has remained strong the.

The estimated unit sell through of the company's products from the independent distributors to retailers increased 13% in the first half of 'twenty, 1 compared to the prior year period for.

For the same period, the national instant criminal background check system background checks as adjusted by the National shooting Sports Foundation, commonly referred to as Nix checks decreased 5%.

The increase in the sell through of the company's products compared favorably to the decrease in adjusted Nick's background checks and may be attributable to the following.

The strong consumer demand for Ruger products increases in production for each of the past 7 quarters and the introduction of new products that of the net with strong consumer demand.

New product development remains among our highest priorities on the heels of the successful Max 9 test the launch earlier. This year, we introduced the Ruger LCP Max of 380 auto pistol in June.

This is the latest offering from the Ruger LCP family, which has set the standard for personal protection pistols for over a decade.

The LCP II in 22 long rifle, which is based on the venerable the LCP platforms and utilizes our light rack system for easier slide manipulation and reduced recoil.

The wrangler revolver, our latest take on the classic single action revolver, which shows no signs of slowing down.

And the Max 9 pistol of virtual 9 millimeter pistol that has been net with tremendous excitement.

In the first half of 2021, new product sales represented $78 million or 22% of firearm sales compared to $48 million or 21% of firearm sales in the first half of 2020.

As a reminder, derivatives and product line extensions of the mature product families are not included in our product sales of new product sales calculation.

Nonetheless, there of valuable additions to the Ruger catalog of products and are greatly appreciated by distributors retailers and our loyal group of consumers.

We look forward to the return of Marlin lever action rifles, which we plan to begin shipping in the fourth quarter. If you are interested in following our progress with the Marlin product line checkout Marlin firearms on Facebook or Instagram, we have been delighted with the overwhelming interest and support that we have received from Marlin fans.

Since March of 2020, our workforce has been strengthened by approximately 400 folks an increase of 25% and our quarterly unit production has increased by over 200000 units or 58%.

This outsized growth in production is indicative of our labor efficiency gains.

The last time these inventories were at what we would consider normal or expected pre COVID-19 levels.

Since the onset of COVID-19 in March of 2020.

We remain proactive in maintaining the health and safety of our employees and mitigating its impact on our business by providing all hourly employees with an additional 2 weeks of paid time off in 2020 and an additional week in 2021.

Providing cash and other incentives for employees to become fully vaccinated.

Holding multiple onsite COVID-19 vaccination clinics at our manufacturing facilities.

Reducing hiring in early 2020 to help maintain the health and safety of employees and the cleanliness of our facilities.

Encouraging employees to continue to work remotely wherever possible.

Maintaining social distancing throughout each manufacturing facility, including in every manufacturing cell.

Confidentially communicating with and assisting employees with potential health issues through our dedicated facility nurses.

Restricting visitor access to minimize the introduction of new people in the to the factory environment.

Implementing additional cleaning sanitizing and improved ventilation and other health and safety processes to maintain a clean and safe workplace.

Providing all employees with multiple face mask coverings, and other personal protective equipment and currently mandating their use by unvaccinated in at risk individuals at all times in our facilities.

And issuing periodic guidance and reminders to all associates to encourage them to engage in safe and responsible behaviors.

With the United States once again seeing a rise in COVID-19 cases, and positivity rates, we remain vigilant and are proactively adjusting our plan accordingly to keep our associates, the healthy and safe and the minimize any disruption to our minimum our business.

We estimate the COVID-19 related costs will total approximately $1.5 million in 2021.

Included in this estimate is of $200 bonus for every employee who becomes fully vaccinated.

Those of the highlights of the second quarter of 2021 of.

Operator may we have the first question.

Thank you.

Milder to ask the question.

The press Star then 1 of your telephone to withdraw your question. Please press the pound key.

Our first question comes from the line of Ryan Meyers with Lake Street Capital. Your line is now open.

Yes, hi, good morning, guys. Thanks for taking my questions first 1 for me it was nice to see the production increased throughout the quarter. How are you guys kind of evaluating this throughout the rest of the year and then into next year at some point when do you think that the <unk>.

Backlog start to tick down.

Are you thinking about adding production as the year progresses.

Thanks Ryan.

As you know, we don't give forward looking guidance, but I would tell you that our SIOP process, the sales inventory and operations planning.

We go through that every 2 weeks, we look at every single product line, we look at inventory at Ruger inventory at our wholesalers and the sell through from our wholesalers to retailer.

And I think the key is going to be continuing those.

That process won't change, we're very flexible as far as our ability to moderate.

Our production levels of hiring certainly has an impact on our ability to ramp up quickly, but in terms of flexibility or the <unk>.

Folks on our factories of demonstrated enormous flexibility within those model lines to vary the the the individual models of Skus to meet what's needed for our distributors. So I'm very confident we'll be able to adapt to whatever the market throws us.

Great. That's helpful. And then it looks like Youre. The G&A expense was quite a bit lower than what we had expected and actually provided quite a bit of leverage in the model. So do you guys think you can keep the G&A at this level or would you expect it to pick up in the second half of the year.

I believe Ryan it's up in actual dollars this quarter, but.

Nothing nothing out of the ordinary there.

Okay, and then looking at input prices are you guys seeing pressure anywhere and then do you think that you can have the ability to take price increases as you see those pressures kind of like you did last year round of October.

Good question, Ryan we are seeing as most manufacturers in the U S. We're seeing.

Upward pressure on commodities and our supply chain of prices from our vendors.

As they deal with both COVID-19, and supply supply chain shortages.

Did take a 3% price increase as you noted last October. We also took 1 this June mid June just a few weeks ago, we implemented a 3% across the board price increase.

That went into effect and then that goes into effect in reverse case on everything to begin shipping out the door. The only thing we price protect our prepaid orders and law enforcement orders that are already booked with us.

Alright, that's helpful. That's it from me thank you.

Thank you. Our next question comes from the line of Ryan Hamilton with Morgan Dempsey Capital Management. Your line is now open.

Good morning, everyone and congrats on another record quarter.

Thanks Ryan.

But.

Kind of circling back to the labor question.

We have book production for Marlin, as Youre getting ready to ship out.

In the fourth quarter of you see.

Any constraints there or have you already been built.

The sizable inventory.

Well in the case of Marlin, we're really starting from scratch, we inherited in our purchase we got some the machinery. Some work in process of raw materials, some parts, but really we needed the standup that line.

Down in our facility in maiden North Carolina, and the team down there has done a phenomenal job and we're going through that line.

By part done by gun and so we still of lot of work ahead of us. So we're really working through.

That process and will be the guns, we'll be making in shipping in the fourth quarter will be parts and.

Basically parts and materials that we've made and are aligned not things that we necessarily.

Heritage or picked up in the sale, we're very excited about it.

<unk> been going great. We got a great team of folks down down of Nathan and frankly, what's been.

Very.

Exciting for me personally is watching the level of effort that's been expected by our extended by our other factories, Newport and Prescott, Arizona.

Helping with the launch down of made and we've got teams of engineers in the other 2 facilities working on small parts working on wood stocks things like that and all of that is going to combine I think 2 of great relaunch of Marlin in the in the fourth quarter.

Okay and the English.

Shipping of completed.

<unk> in the fourth quarter as well right not just parts.

Accessories or whatnot, yes.

Yes, absolutely we will be we will have completed right goes up it will be.

A limited offering initially we will start with the model $80, 95% to 894% of $3.36.

Certainly not every single model in every single SKU that our customers are looking for so it will take us a while to bring all of the the all of Marlin back to its full full glory, but we're excited about it and again the focus on those center-fire lever action Skus in the beginning and the team has been doing a great job on that.

Well, sometimes scarcity can drive demand. So I think that's a good good plan a refresh my memory on model and those new products will be classified under your.

The new product definition.

Absolutely there are.

Again since they were theyre around for a long time and in a formalized but theyre certainly brand new the ruger and the amount of effort going into that is frankly.

A little bit staggering and the <unk> team has been doing a fantastic job. When you think about standing up the supply chain going through part by part.

Making sure every machine is up to snuff.

With lots of work that needed to be done and.

You guys of phenomenal operators saw kudos there.

And I know you don't normally break this out but when youre looking at.

New products and margins.

Are you seeing something.

Newer products, usually the amount of higher margin or versus legacy margins could you kind of maybe touch on that a little bit I know, it's product dependent between the rifle.

Pistols and whatnot, but could you maybe just touch on that of a little bit and maybe what we can expect from a margin profiles per marlin products.

I think it's probably hard to say at this point I mean, 1 of the things Youre seeing right. Now is I think we talked about in the earnings release.

We have these production levels that we're currently at we're covering a lot of fixed costs and.

Others, we're trying to hit of a very specific price point. Good example is the the wrangler, which we launched.

Year, and a half or so back the wrangler revolvers to be successful really needed to hit.

Specific price point in the marketplace and so sometimes that can drive our approach to manufacturing processes and really.

That makes sense.

1 more from me and I'll get back in line can.

Can you talk a little bit on the accessories business, what youre seeing there any any issues, maybe filling orders because of strong demand.

Accessories have been very strong both the accessories, we ship out through our 2 step 2 step distribution.

Our wholesalers as well as our own shop Uber results has been very strong force.

And as firearms sales increased demand for accessories, particularly things like magazines.

That increase was evident throughout Q1 and Q2, so that was part of the strong performance of our accessories Division I think the accessories world tends to ebb and flow of little bit with firearms, sometimes it lags that a little bit.

But the folks did a great job capitalizing on that demand in Q2, that's for sure.

Alright, thanks, great quarter. Thanks, Ryan.

Thank you.

The reminder to ask a question you would need the press Star then 1 of your telephones 1 moment of fair questions.

We do have a follow up question from the line of Ryan Hamilton with Morgan Dempsey Capital Management. Your line is open.

So short line I guess, that's what I was going to.

Hey, Ryan Youre right back in.

I'll touch on this a lot over the past couple of quarters.

And maybe you could touch a little bit on the ammunition component.

From what I've been seeing is it's becoming available while it's still expensive or are you seeing.

Is that helping sales at all or is it still.

Kind of of a question Mark in your in your view.

Well I think as you noted in recent weeks it certainly it seems to be coming somewhat more available than it was a year or so ago. We.

We saw the real shortages out there, but again I know in speaking with my counterparts.

And and put away some of that ammo and then all of the new shooters. We got when we look at those numbers from the National shooting Sports Foundation of 8 to 12 million potential new shooters. That's also spurred that increased demand and I think between the new shooters coming in.

The resumption of ammunition production in the Remington facility is now operated by Vista.

I think all of that probably.

It's probably getting closer back to normal in the ammunition world, but we still got a long way to go I still get.

I hear from consumers, who say they can't find ammo. So I think it's probably a mixed bag out there depending on where you are but I think the key thing as.

The good stewards of the firearms business is we want to make sure that those new shooters, who did buy guns in the past year or 18 months.

Have that have access to that ammunition. So they can get out to the range and enjoy their firearms and become lifelong.

Users of firearms, not just the 1 and done purchases, we'd like to see them stay with stay with Ruger of course, but most importantly stay with the.

Safe and responsible ownership of firearms in the future.

No.

Good color.

You touched a little bit of new shooters are you going to feel at all of the women are still entering this field quite a bit as far as buying firsthand gun owners or buying a second or third gunner concealed carry are you still seeing strong demand from from new women shooters.

Absolutely we're definitely seeing.

Yeah.

Many many more female shooters coming into the marketplace, we're seeing a much more diverse.

Crowd at the at the firearms retail counter and we think that bodes well for us long term I think thats great to see.

More women shooters in our ranks we're trying to make sure that we've got.

The fire of products oriented towards of females that are going to pick them up and use them and we're going to continue to keep keep going after that part of the market as well.

And 1 more from me I was working with distributed through my notes here.

The head count was at about 19.800 hard working employees.

I Couldnt agree more where do you see that roughly.

If you could have.

Whatever you wanted by the end of the year, where would you say that number should be.

Well I mean, thats still still a ways out obviously, that's 5 or 6 months out to.

To the end of the year right now I would tell you. We've got the help wanted sign out and all of our facilities every 1 of our manufacturing facilities has to help wanted sign out there.

Normal attrition.

It's each set that number every day, so between normal attrition and ramping up some of those new products. We've got new products that are you look at like our Prescott, Arizona factory, they've got the Max 9 they are still growing that line as well as the working on shipping out the Ruger 57 pistols, New Hampshire. The next couple of.

The exciting new products teed up in that factory and then of course maiden North Carolina, where we have the the.

Of the Marlin line coming in of being again lots going on there and all 3 of them have the help wanted sign out and if anyone's interested.

Our website Ruger dot com slash careers and it's got the position is listed there I'll put in my free plug for our for hire and some folks.

<unk> may under the facility of its magnificent so yes.

And I definitely second half thanks again from the time I appreciate it thanks.

Thanks Ryan.

Thank you there are no further questions I will now turn the call over to Chris <unk> for closing remarks.

Thanks, operator.

In closing I would like to thank you for your continued interest in Ruger and I would like to thank the more than 90 to 100 members of the Ruger team that continue to work together to exceed our expectations and the drive outstanding financial results.

Finally, I would like to note that this month of August is national shooting sports month of time for all Americans to celebrate and enjoy the shooting sports with friends family of newcomers they want to introduce these lifelong activities visit let's go shooting that or to learn more about how you can celebrate national the shooting sports month. This August thank you.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.

Q2 2021 Sturm Ruger & Company Inc Earnings Call

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