Q1 2024 American Outdoor Brands Inc Earnings Call
Good afternoon.
Speaker 1: Good afternoon and welcome to the American Outdoor Brands first quarter fiscal 2024 earnings conference call. All participants will be in listen only mode.
And welcome to the American outdoor brands first quarter fiscal 'twenty 'twenty four earnings conference call all participants will be in listen only mode.
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Speaker 1: I would now like to turn the conference over to Liz Sharp, Vice President of Investor Relations. Please go ahead. 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, could, indicate, suggest, believe and other similar expressions is intended to identify those forward looking statements.
I'd now like to turn the conference over to Liz Sharp Vice President of Investor Relations. Please go ahead.
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 could indicate suggest believe and other similar expressions is intended to identify those forward looking statements.
Speaker 2: 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 product.
We're 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.
Speaker 2: market and inventory conditions related to our products and in our industry in general, growth opportunities and trends.
Speaker 2: Our forward-looking statements represent our current judgment about the future, and they are subject to various risks and uncertainties.
Our forward looking statements represent our current judgment about the future and they are subject to various risks and uncertainties.
Speaker 2: risk factors and other considerations that could cause our actual results to be materially different are described in our securities files.
Risk factors and other considerations that could cause our actual results to be materially different are described in our securities filings.
Speaker 2: You can find those documents as well as a replay of this call on our website at aob.gov.
You can find those documents as well as a replay of this call on our website at <unk> Dot com.
Today's call contains time sensitive information that is accurate only as of this time and we assume no obligation to update any forward looking statements. Our actual results could differ materially from our statements today.
Speaker 2: 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 statement.
Speaker 2: 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 referenced certain non-GAAP financial measures are non-GAAP results exclude amortization of acquired intangible assets stock compensation shareholder cooperation agreement costs facility consolidation costs technology implementation.
Acquisition costs, and other costs and income tax adjustments.
Speaker 2: The reconciliations of GAAP financial measures to non-GAAP financial measures, whether they are discussed on today's call, can be found in our filings as well as today's earnings press release, which are posted on our website.
The reconciliations of GAAP financial measures to non-GAAP financial measures, whether they are discussed on today's call can be found in our filings as well as today's earnings press release, which are posted on our website.
Speaker 2: Also, when we reference EPS, we are always referencing fully diluted...
Also when we reference EPS, we are always referencing fully diluted EPS.
Speaker 2: Joining us on today's call is Brian Murphy, President and CEO , and Andy Fulmer, CFO . With that, I will turn the call over to Brian .
Joining us on today's call is Brian Murphy, President and CEO, and Andy former CFO and with that I will turn the call over to Brian.
Thanks, Liz and thanks, everyone for joining us.
Speaker 3: I'm pleased with our first quarter fiscal 2024 results, which reflected solid execution in sales, profitability, and capital management, combined with ongoing progress against our long-term strategic objective.
I'm pleased with our first quarter fiscal 2024 results, which reflected solid execution in sales profitability and capital management combined with ongoing progress against our long term strategic objectives.
Speaker 3: Net sales were generally flat compared to the prior year, a result that met our expectations, and that we view favorably, given the fact that retailers continue to remain cautious about their inventories and available open to buy dollars in the quarter.
Net sales were generally flat compared to the prior year, a result that met our expectations and that we view favorably given the fact that retailers continue to remain cautious about their inventories and available open to buy dollars in the quarter.
Speaker 3: We are especially pleased at the longer term growth we delivered. Our first quarter reflected net sales growth of nearly 31% over our pre-pandemic first quarter of fiscal 2020, with growth over 10% in shooting sports and over 54% in outdoor lifestyle, including our acquisition of Grilla Grills.
We are especially pleased that the longer term growth, we delivered our first quarter reflected net sales growth of nearly 31% over our pre pandemic first quarter of fiscal 2020 with growth over 10% in shooting sports and over 54% and outdoor lifestyle.
Our acquisition of Gorilla grills.
On a year over year basis, our shooting sports category saw a slight decline in net sales compared to the prior year. A result that is consistent with reports from firearm manufacturers, citing ongoing heightened channel inventory and reduced consumer demand.
Speaker 3: On a year-over-year basis, our shooting sports category saw a slight decline in net sales compared to the prior year, a result that is consistent with reports from firearm manufacturers citing ongoing, heightened channel inventory and reduced consumer demand.
Speaker 3: And just a reminder, we don't produce firearms, only shooting sports related accessories.
And just a reminder, we don't produce firearms only shooting sports related accessories.
Speaker 3: The decline in shooting sports was offset by a slight increase in our outdoor lifestyle category, which consists of products related to hunting, fishing, camping, outdoor cooking, and rugged outdoor activities.
The decline in shooting sports was offset by a slight increase in our outdoor lifestyle category.
It consists of products related to hunting fishing camping, <unk> outdoor cooking and rugged outdoor activities.
Speaker 3: The solid result, which we believe, reflects the strength of our brands in the category and the success of our strategy to invest in this growing part of our business.
This is a solid result, which we believe reflects the strength of our brands in the category and the success of our strategy to invest in this growing part of our business.
Speaker 3: We continue to benefit from our strategy to intentionally place our brands where consumers expect to find them, whether online or in-store.
We continued to benefit from our strategy to intentionally place our brands, where consumers expect to find them whether online or in store.
Speaker 3: In our traditional channel, net sales growth was strong, supported by new product introductions in hunting and fishing under our bog and bubble brown.
In our traditional channel net sales growth was strong supported by new product introductions, and hunting and fishing under our bog and Bubba brands.
We are encouraged by this result, as we believe it reflects the ongoing convergence of inventory destocking activities by retailers with their need to replenish inventories.
Speaker 3: We are encouraged by this result as we believe it reflects the ongoing convergence of inventory de-stocking activities by retailers with their need to replenish inventory.
It also bodes well for many of our brands since we believe retailers are seeking out innovative products to help drive foot traffic and attract today's more discerning consumer.
Speaker 3: It also bodes well for many of our brands, since we believe retailers are seeking out innovative products to help drive foot traffic and attract today's more discerning consumers.
Net sales in our ecommerce channel declined year over year, driven primarily by our largest online retailer, but were partially offset by increased sales of certain hunting and shooting sports products to other online retailers.
Speaker 3: Net sales in our e-commerce channel declined year over year, driven primarily by our largest online retailer, but we're partially offset by increased sales of certain hunting and shooting sports products to other online retailers.
Speaker 3: Online net sales of Meet Your Maker and Grilla are two direct-to-consumer only brands. We're up slightly over here.
Online net sales of meet your maker in gorilla or to direct to consumer only brands were up slightly year over year.
Speaker 3: Meat and Gorilla generated over 35% of our total e-commerce sales, and together they delivered strong trailing 12-month net sales of over $24 million.
Median gorilla generated over 35% of our total e-commerce sales and together they delivered strong trailing 12 month net sales of over $24 million.
Speaker 3: That said, due to the planned closures of our Michigan and Texas retail Grilla stores, total net sales for these two brands were down slightly in the quarter.
That said due to the planned closures of our Michigan and Texas retail Gorilla stores total net sales for these two brands were down slightly in the quarter.
Yeah.
Speaker 3: For several quarters now, we have provided certain sales data on Grilla and meat for three reasons. First, to demonstrate the performance of Grilla for its first year under our ownership since the acquisition.
For several quarters now we have provided certain sales data on gorilla and meat for three reasons first to demonstrate the performance of gorilla for its first year under our ownership since the acquisition.
Speaker 3: Second, to highlight the success, we can achieve by organically creating and launching a brand, meet, using our brand.
Second to highlight the success, we can achieve by organically, creating and launching a brand meet.
Using our brand Lane architecture.
Speaker 3: And third, to provide a proxy for how well our brands are resonating directly with consumers, since both of these brands have thus far been sold exclusively D to C.
And third to provide a proxy for how well our brands are resonating directly with consumers since both of these brands have thus far been sold exclusively DTC.
This is especially the case recently as the retail channel has been experiencing inventory challenges.
Speaker 3: This is especially the case recently as the retail channel has been experiencing inventory challenges.
Now and as we've outlined in our strategic plan, we have the opportunity to expand the reach of these brands by moving them into retail distribution in the near future.
Speaker 3: Now, and as we've outlined in our strategic plan, we have the opportunity to expand the reach of these brands by moving them into retail distribution in the near future.
Speaker 3: This is an exciting and important step in our strategic plan that will allow our brands to access bigger markets and make it easier for consumers to find our products wherever they shop.
This is an exciting and important step in our strategic plan that will allow our brands to access bigger markets and make it easier for consumers to find our products wherever they shop.
It's important to note however that our goal is not to make it easier for competitors to target us.
Speaker 3: It's important to note, however, that our goal is not to make it easier for competitors to target us.
Speaker 3: Therefore, in order to maintain our competitive advantage, we don't plan to provide detailed quarterly sales data on meat and grilla going forward.
Therefore in order to maintain our competitive advantage, we don't plan to provide detailed quarterly sales data on meat and gorilla going forward.
Speaker 3: Instead, we intend to begin reporting on an annual basis our direct-to-consumer sales totals as a subset of our total e-commerce sales.
Third we intend to begin reporting on an annual basis, our direct to consumer sales totals.
Subset of our total e-commerce sales.
Turning back to the quarter point of sale data, we received from our retailers indicate that sales of our products declined slightly in the first quarter driven almost entirely by products in the shooting sports category.
Speaker 3: Turning back to the quarter, point of sale data we received from our retailers indicates that sales of our products declined slightly in the first quarter, driven almost entirely by products in the shooting sports category. This is not a surprising result.
This is not a surprising result, given the current environment.
Speaker 3: At the same time, POS data also indicates that channel inventory of our products improved in the quarter, lower on a sequential basis from Q4, and down in the mid teens on a percentage basis year over year.
At the same time P. O S data also indicates that channel inventory of our products improved in the quarter lower on a sequential basis from Q4 and.
And down in the mid teens on a percentage basis year over year.
We view this as a positive dynamic which supports our belief it will be begin to see an increase in replenishment orders in the second half of the year.
Speaker 3: We view this as a positive dynamic which supports our belief that we'll begin to see an increase in replenishment orders in the second half of the year.
Yeah.
Speaker 3: Innovation is our core strength and a key element in our long-term growth strategy.
Innovation is our core strength and a key element in our long term growth strategy.
Speaker 3: Our innovation engine, fueled by our dock and unlock process, is robust, and new products launched in the last two years generated over 21% of our first quarter nut sales, a result that met our expectations.
Our innovation engine fueled by our dock and unlock process is.
It's robust and new products launched in the last two years generated over 21% of our first quarter net sales a result that met our expectations.
Speaker 3: In the first quarter, we officially launched our new Bubba tournament grade Pro Series Smart Fish Scale.
In the first quarter, we officially launched our new Bubba tournament grade Pro series Smart fish scale or.
Speaker 3: or the Bubba Pro SFS. Our first entry into the large, underserved catch and release mark.
Or the Bubba Pro S MFS.
Our first entry into the large underserved catch and release market.
Since its launch in May the bubble Pro S. F. S was awarded best Cutlery hand, pliers and tools and I cast 2023.
Speaker 3: Since its launch in May, the Bubba Pro SFS was awarded Best Cutlery, Hand Pliers and Tools at ICAST 2023.
Speaker 3: the world's largest sport fishing trade show, and was named the official scale of Major League Fishing, or MLF, beginning with the 2024 Bass Pro Tour season.
The world's largest sport fishing trade show and was named the official scale of major league fishing for MLS beginning with the 'twenty 'twenty four bass Pro tour season.
Speaker 3: Consumer response has been very strong and the MLF has just commenced filming competitions that will start to air in early 2024.
Our response has been very strong in the MLR is just commenced filming competitions that we'll start to air in early 2024.
Speaker 3: It's early in the game, but we're very excited about what this partnership can do for the bubble brand long term.
Early in the game, but we're very excited about what this partnership can do for the Bubba brand long term.
With that I'll turn it over to Andy to discuss our financial results.
Speaker 3: With that, I'll turn it over to Andy to discuss our financial results.
Thanks, Brian.
Speaker 4: During Q1, we strengthened our balance sheet, fully paid off the outstanding balance on our line of credit, demonstrated effective capital deployment with our share repurchase program and delivered net sales and profitability in line with our expectations.
During Q1, we strengthened our balance sheet fully paid off the outstanding balance on our line of credit.
Demonstrated effective capital deployment with our share repurchase program.
And delivered net sales and profitability in line with our expectations.
Speaker 4: all while navigating ongoing market challenges that included a continuation of cautious inventory management by retailer.
All while navigating ongoing market challenges that included a continuation of cautious inventory management by retailers.
We are pleased with our results for the quarter. So let me walk you through the details.
Speaker 4: We are pleased with our results for the quarter, so let me walk you through the...
Speaker 4: Net sales for Q1 were $43.4 million compared to $43.7 million in Q1 last year, a slight decrease of.5% in Q1. The Q1 market is now $2.5 million compared to $3.7 million in Q1 last year, a slight
Net sales for Q1 were $43 $4 million compared to $43 $7 million in Q1 last year.
A slight decrease of 0.5%.
Speaker 4: Compared to pre-pandemic Q1 of fiscal 2020, net sales increased by 30.8%, including the acquisition of Grilla.
Compared to pre pandemic Q1 of fiscal 2020, net sales increased by 38%, including the acquisition of Gorilla.
On a category basis net sales in our outdoor lifestyle category increased slightly by <unk>, 4%.
Speaker 4: On a category basis, net sales in our outdoor lifestyle category increased slightly by 0.4%. This is a great result, which we believe demonstrates the strength of our brands and our new product capabilities.
This is a great result, which we believe demonstrates the strength of our brands and our new product capabilities.
Turning to the shooting sports category.
Speaker 4: Net sales of shooting sports decreased by just 1.5% compared to Q1 last week.
Net sales of shooting sports decreased by just one 5% compared to Q1 last year. This too is a great result, given that net sales in the shooting sports category tend to align with trends in the firearms industry and adjusted <unk> results, which have been under pressure.
Speaker 4: This too is a great result given that net sales in the shooting sports category tend to align with trends in the firearms industry and adjusted NICS results which have been under pressure.
Our go to market strategy was formulated to intentionally place our brands, where consumers expect to find them, whether that's online or in traditional brick and mortar locations.
Speaker 4: Our go-to-market strategy was formulated to intentionally place our brands where consumers expect to find them, whether that's online or in traditional brick-and-mortar locations.
Speaker 4: Therefore, by design, net sales in these channels can fluctuate from quarter to quarter based on consumer buying.
Therefore by design net sales in these channels can fluctuate from quarter to quarter based on consumer buying preferences on.
Speaker 4: On a channel basis, first quarter net sales in our traditional channel increased 8.4% and net sales in our ecommerce channel decreased 10.6%.
On a channel basis first quarter net sales in our traditional channel increased eight 4%.
Net sales in our ecommerce channel decreased 10, 6%.
Turning to gross margin.
Speaker 4: Gross margin for Q1 came in at 45.4%, 180 basis points higher than our gross margin for Q1 last week.
Gross margin for Q1 came in at 45, 4% 180 basis points higher than our gross margin for Q1 last year.
Speaker 4: This result was driven primarily by lower inbound container freight costs.
This result was driven primarily by lower inbound container freight costs.
Turning to operating expenses GAAP operating expenses for the quarter were $23 $8 million compared to $24 $6 million last year.
Speaker 4: Gap operating expenses for the quarter were $23.8 million compared to $24.6 million last
Speaker 4: The decrease was driven by one-time legal and advisory fees we incurred in Q1 last year relating to a shareholder cooperation agreement offset by an increase in the amount of legal
The decrease was driven by one time legal and advisory fees, we incurred in Q1 last year relating to a shareholder cooperation agreement.
<unk> set by an increase in outbound freight cost.
Speaker 4: On a non-GAAP basis, operating expenses in Q1 were up slightly to $19.6 million compared to $19 million in Q1 of last year.
On a non-GAAP basis operating expenses in Q1 were up slightly to $19 6 million compared to $19 million in Q1 of last year.
Speaker 4: non-GAAP operating expenses exclude intangible amortization, stock compensation, and certain non-recurring expenses as they exceed the current operating expenses.
non-GAAP operating expenses exclude intangible amortization stock compensation and certain nonrecurring expenses as they occur.
GAAP EPS for Q1 was negative 31 cents as compared with negative 42 cents last year.
Speaker 4: GAP EPS for Q1 was negative 31 cents as compared with negative 42 cents last year.
Our GAAP income tax expense was negatively impacted by approximately seven cents due to evaluation allowance recorded against our deferred tax assets and an accounting treatment that removes any tax benefit we would have derived from our GAAP loss from operations.
Speaker 4: Our GAAP income tax expense was negatively impacted by approximately 7 cents due to a valuation allowance recorded against our deferred tax asset.
Speaker 4: and an accounting treatment that removes any tax benefit we would have derived from our GAAP loss from operations.
Excluding that impact GAAP EPS would've been approximately negative 24 cents in Q1 of this year and negative 32 in Q1 of last year.
Speaker 4: Excluding that impact, GAP EPS would have been approximately negative 24 cents in Q1 of this year and negative 32 cents in Q1 of last year.
Speaker 4: On a non-GAAP basis, EPS was unchanged at one cent for the first quarter both this year and last.
On a non-GAAP basis EPS was unchanged at one <unk> for the first quarter, both this year and last year.
Our Q1 figures are based on a fully diluted share count of approximately $13 2 million shares.
Speaker 4: Our Q1 figures are based on our fully diluted share count of approximately 13.2 million shares.
Speaker 4: For full fiscal 2024, we expect our fully diluted share count will be about 13.5...
For full fiscal 2024, we expect our fully diluted share count will be about $13 5 million shares.
Adjusted EBITDA for the quarter was $1 $1 million compared to $1 $4 million last year.
Speaker 4: Adjusted EBITDA for the quarter was $1.1 million compared to $1.4 million last year.
Turning now to the balance sheet and cash flow.
Speaker 4: We continue to be pleased with our efforts to further strengthen our balance of service.
We continue to be pleased with our efforts to further strengthen our balance sheet.
Speaker 4: In the first quarter of Fiscal 2024, we generated strong operating cash flow and free cash flow and continued to demonstrate effective capital deployment.
In the first quarter of fiscal 2024, we generated strong operating cash flow and free cash flow and continued to demonstrate effective capital deployment.
Let me provide some of the details.
Speaker 4: We ended the quarter with cash of $18.7 million after paying down $5 million on our line of credit and repurchasing approximately $2.3 million of our common stock.
We ended the quarter with cash of $18 $7 million after paying down $5 million on our line of credit and repurchasing approximately $2 $3 million of our common stock.
Speaker 4: We generated $5.2 million in cash from operations and we invested just over $800,000 in CapEx, resulting in free cash flow of approximately $4.3 million for the quarter.
We generated $5 $2 million in cash cash from operations and we invested just over $800000 in capex, resulting in free cash flow of approximately $4 $3 million for the quarter.
Speaker 4: You'll recall last quarter, I indicated our inventory levels would rise to above $100 million in Q1 and Q2, a planned increase designed to support the fall hunting and holiday seasons, as well as new products that are scheduled for launch later this fiscal year.
Youll recall last quarter I indicated our inventory levels would rise to above $100 million in Q1 and Q2.
Planned increase designed to support the fall hunting and holiday seasons as well as new products that are scheduled for launch later this fiscal year.
Speaker 4: Consistent with this plan, our inventory levels increased by $5.2 million in the first quarter.
Consistent with this plan our inventory levels increased by $5 $2 million in the first quarter.
Speaker 4: It's worth noting that while we expect inventory levels to be above $100 million in Q2 and Q3 as well.
It's worth noting that while we expect inventory levels to be above $100 million in Q2, and Q3 as well, we do expect them to move below $100 million by the end of fiscal 2024.
Speaker 4: do expect them to move below $100 million by the end of fiscal 2020.
Speaker 4: We ended the quarter with no outstanding balance on our $75 million expandable line of credit, bringing our total available capital to over $108 million.
We ended the quarter with no outstanding balance on our 75 million dollar expandable line of credit, bringing our total available capital to over $108 million.
Turning to capital expenditures.
Speaker 4: We spent just over $800,000 on CapEx for the first quarter, mainly for product tooling and patenting.
We spent just over $800000 on Capex for the first quarter, mainly for product tooling and patent costs.
Speaker 4: And as a reminder, our ERP project is now complete.
And as a reminder, our ERP project is now complete.
Speaker 4: For full fiscal 2024, we expect to spend between $3.5 and $4.5 million for product tooling and maintenance.
For full fiscal 2024, we expect to spend between three five and $4 $5 million for product tooling and maintenance.
Speaker 4: In addition, we expect a one-time spend of approximately $2.5 million to purchase assets such as warehouse racking, office furniture, and other fixtures when we assume the full lease at our Columbia Missouri facility on January 1st.
In addition, we expect a one time spend of approximately $2 $5 million to purchase assets, such as warehouse racking office furniture and other fixtures when we assume the full lease at our Columbia, Missouri facility on January 1st.
Speaker 4: Therefore, we expect total CAPEX spend in fiscal 2024 in the range of $6 million to $7 million.
Therefore, we expect total capex spend in fiscal 2024 in the range of 6 million to $7 million.
The strength of our balance sheet allows us to employ all three of our capital allocation priorities organic growth M&A and returning capital to shareholders based on what is most opportunistic at the time.
Speaker 4: The strength of our balance sheet allows us to employ all three of our capital allocation priorities, organic growth, M&A, and returning capital to shareholders based on what is most opportu-
In the first quarter, we continued to return capital to shareholders through the stock repurchase program authorized by our board last September.
Speaker 4: In the first quarter, we continue to return capital to shareholders through the stock repurchase program authorized by our board last September .
In Q1, we repurchased roughly 268000 shares at an average price of $8 43.
Speaker 4: In Q1, we repurchased roughly 268,000 shares at an average price of $8.45.
Speaker 4: Since the program began, we have repurchased roughly 645,000 shares, or almost 5% of our shares at an average price of $8.96 per share.
Since the program began we've repurchased roughly 645000 shares or almost 5% of our shares at an average price of $8 96 per share.
Now turning to our outlook.
Speaker 4: We continue to believe that fiscal 2024 could deliver full year net sales growth of up to 3.5%.
We continue to believe that fiscal 2024 could deliver full year net sales growth of up to three 5% supported by market share gains expanded distribution and planned new product launches.
Speaker 4: supported by market share gains, expanded distribution, and planned new product launches.
Speaker 4: We expect that growth will likely begin in Q3, following a year-over-year decline in revenue for Q2 due to the timing of shipments in the first half of fiscal 2020.
We expect that growth will likely begin in Q3, following a year over year decline in revenue for Q2 due to the timing of shipments in the first half of fiscal 2024.
Speaker 4: As a reminder, our business typically follows a seasonal pattern with Q1 as the lowest net sales quarter.
As a reminder, our business typically follows a seasonal pattern with Q1 as the lowest net sales quarter Q2, and Q3 is our highest net sales quarters in Q4 coming in higher than Q1, and we expect that pattern to continue in fiscal 2024.
Speaker 4: and Q4 coming in higher than Q1, and we expect that pattern to continue in fiscal 2021.
Speaker 4: This pattern typically drives an increase in accounts receivable and a corresponding decrease in cash in Q2 with that cash collected by the end of the fiscal year.
This pattern typically drives an increase in accounts receivable and a corresponding decrease in cash in Q2 with that cash collected by the end of the fiscal year.
Turning to gross margins, we expect fiscal 'twenty for gross margins to remain flat to fiscal 2023.
Speaker 4: we expect fiscal 24 gross margins to remain flat to fiscal 2023.
With regard to Opex, we believe that overall opex for fiscal 'twenty four it will increase slightly mainly from higher selling and distribution costs offset by reductions from our facility consolidations, one time legal and advisory fees and implementation costs.
Speaker 4: We believe that overall OPEX for fiscal 24 will increase slightly, mainly from higher selling and distribution costs.
Speaker 4: offset by reductions from our facility consolidations, one-time legal and advisory fees, and
Based on these factors we continue to believe our adjusted EBITDA in fiscal 2024 could increase as much as six 5% compared to fiscal 2023.
Speaker 4: Based on these factors, we continue to believe our adjusted EBITDAs in fiscal 2024 could increase as much as 6.5% compared to fiscal 2023.
One final note on income tax expense.
Speaker 4: Due to the valuation allowance I discussed earlier, we expect to incur a small amount of income tax expense for GAAP purposes in each quarter for the remainder of the year.
Due to the valuation allowance I discussed earlier, we expect to incur a small amount of income tax expense for GAAP purposes, and each quarter for the remainder of fiscal 2024.
Speaker 4: With that, operator, please open the call for questions from our analysts.
With that operator, please open the call for questions from our analysts.
We will now begin the question and answer session.
Speaker 1: To ask a question, you may press star then one on your telephone keypad.
To ask a question you May press Star then one on your telephone keypad.
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To withdraw your question. Please press Star then two.
Speaker 1: At this time, we will pause momentarily to assemble our roster.
At this time, we will pause momentarily to assemble our roster.
Speaker 1: Our first question today is from Eric Wold with B. Reilly Securities. Please go ahead.
Our first question today is from Eric Wold with B Riley Securities. Please go ahead.
Thank you good afternoon.
Couple of questions.
Speaker 5: Couple questions. One, just one of the guidance just given.
One just on the.
One of them on the guidance I'm just just given.
Vacations for flat gross margin.
Speaker 5: expectations for flat gross margins. If you recall from the Q4 call, you're looking for margins to be up this year on lower freight expenses, benefits from the facility consolidation. What has changed in your view from where you were a few months ago?
From the Q4 call you were looking for margins to be up.
This year on.
Lower freight expenses benefited from the facility consolidation, maybe what has changed in your view if I'm if I'm right in remembering that from from where you work two months ago.
Speaker 4: Yeah, Eric, this is Andy. Great question. We did have some higher variances in the first quarter that we expect to kind of amortize off in Q3. So Q3 margin we're expecting to be down a little bit and that kind of will offset the increase in gross margin you saw in Q1. It's really just a function of how our amortization works over our inventory turns.
Yeah. Eric This is Andy Great question, we did have some higher variances in the first quarter that we expect to kind of amortize off in Q3. So Q3 margin, we're expecting to be down a little bit in that kind of will offset the increase in gross margin you saw in Q1, and it's really just a function of how.
Our amortization works over our inventory turns.
Got it okay.
Speaker 5: Got it. Okay. And then digging into the the POS a little bit.
And then digging into the U S a little bit.
Any sense from from if you dive into that a little bit you from what youre seeing in terms of demand.
Speaker 5: Any sense from from if you dive into the data a little bit into what you're seeing into the demand by price points, anything, any major shifts that give you their increased confidence or increased concern around some of the consumer demographics.
<unk> points anything any major shifts that give you the increased confidence or increased concern around some of our consumer demographics.
Speaker 3: Yeah, Eric, this is Brian . So, I guess, so specific to price points.
Yeah, Eric This is Brian So I guess, so specific to price points.
Speaker 3: I wouldn't say that we're seeing much variance.
Wouldn't say that we're seeing much much variance.
Speaker 3: at least in the data that we can see, right? So most of our brands are kind of at that mid to high price point where we play. So we still maintain the view that that consumer seems to be somewhat more insulated than the lower price point item.
Well at least at the data that we can see right. So most of our brands are kind of at that mid to high price point.
Where we play so are we still maintain the view that.
That consumer seems to be somewhat more insulated than a lower price point items.
Speaker 3: So I can't really speak to some of those lower price point ones. Is there anything else in particular outside of price that you have a question about related to POS?
So I can't really speak to some of those lower price point won so is there anything anything else in particular outside of price that you have a question about it related to P. O S.
Speaker 5: Um, I mean, any trends that you're seeing, maybe that would give you increased confidence, or maybe concern around kind of the underlying demand patterns, maybe outside of price in terms of product categories, regional differences.
I mean any trends that you're seeing maybe they would give you.
Confidence or maybe concern around when the underlying demand patterns, maybe outside of price trigger product categories regional differences.
Yeah, I mean, I think we're seeing you know like we said we're pleased with at least in the current quarter you know what what Pos trends have been while they were down slightly and shooting sports pretty flat as it relates to outdoor lifestyle.
Speaker 3: Yeah, I mean I think we're seeing, like we said, we're pleased with, at least in the current quarter, what POS trends have been. While they were down slightly in shooting sports, pretty flat as it relates to outdoor lifestyle. So I'd say between those two categories, outdoor lifestyle seems to be the most resilient at this time. But we are seeing some nice stabilization in shooting sports.
I'd say between those two categories outdoor lifestyle seems to be the most resilient at this time.
But we are seeing you know some nice stabilization in shooting sports and but I think those the retailers that are.
Speaker 3: But I think the retailers that are selling more of that product are seeing a bigger impact at this point. Outdoor Lifestyle in particular seems to be doing much better.
Selling more of that product are seeing a bigger impact at this point so outdoor lifestyle in particular seems to be doing much better.
Speaker 3: And then specifically with an outdoor lifestyle, hunting. Hunting's been doing pretty well. Fishing's been doing pretty well for us.
And then specifically with an outdoor lifestyle hunting hunting has been doing pretty well fishing, it's been doing pretty well for us.
Speaker 3: So I'd say on a whole outdoor lifestyle, it seems to be very much better right now.
So I'd say on the whole outdoor lifestyle.
Seems to be very much better right now.
Speaker 5: Got it. And then just final question, I'll make an effort on it. With the public scale launch and the app launch, any early indicators or data points you want to throw around, attach rates of app downloads to scale purchases or subscriptions, anything where it's still a little too early?
Got it and then just final question I'll make an effort on it would.
Would be the publically scale launch in the App launch any early indicators or data points you are thrown around.
Catch rates of App downloads to scale purchases or subscriptions anything or is it still a little too early.
Speaker 3: It's a little early. One, I'm happy to ask the question because we're also obviously very excited about the scale. The MLF partnership is a huge deal for us.
It's a it's a little early one.
I'm happy to ask the question because we're also obviously very excited about the scale of the ml that partnership is a huge deal for us and we hope it's a huge deal for them all up and we've got some big plans with that partnership going forward.
Speaker 3: and we hope it's a huge deal for the MLF and we've got some big plans with that partnership going forward. With that said, I mean the reception from consumers has been overwhelmingly positive. It's got, gosh, last I looked, five stars on the app store with an apple.
With that said I mean, the reception from consumers has been overwhelmingly positive. It's got gosh lots I look five stars on the on the App store with an Apple I think close to 150 reviews, which for a very technical product, where very very very happy about because that just increases the stickiness. So it's.
Speaker 3: I think close to 150 reviews, which for a very technical product, we're very, very, very happy about because that just increases the stickiness. So it's exceeded our expectations thus far, but I think it's still a little too early to begin sharing some of that data.
What are our expectations, thus far but I think it's still a little too early to begin sharing some of that data.
Operator: Good afternoon, and welcome to the American Outdoor Brands' first quarter fiscal 2024 earnings conference call. All participants will be in listen only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero.
Got it. Thank you guys appreciate it.
Speaker 5: Thank you guys, appreciate it.
Yes, Thanks, Eric.
Speaker 1: The next question is from Mark Smith with Lake Street. Please go ahead.
The next question is from Mark Smith with Lake Street. Please go ahead.
Speaker 6: Hey guys, it's Alex Sternix on the line for Mark Smith today. Just first off, you know, you guys kind of discussed the retail channel performing well. Could you maybe talk more about any additional retail locations you guys have entered in the quarter and maybe how you feel about your shelf space for your brands and products there.
Hey, guys. Its Alex students on the live remarks Smith today, just first off you know you guys discuss the retail channel performing well could you maybe talk more about any additional retail locations you guys. During the quarter and then maybe how you feel about your shelf space for your brands and products there.
Operator: After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To draw your question, please press star then two. Please note, this event is being recorded.
Speaker 3: Yeah, so hey Alex, this is Brian . So I'd say, you know, within the quarter, you know, retail we did see an increase in international sales. So on the traditional side, obviously traditional was up about 8.5%, maybe a little shy of that in the quarter. E-com was down slightly. So we are seeing some pretty good traction with traditional retailers, you know, physical retail stores.
Yeah, So hey.
Alex This is Brian So I would say you know within the quarter.
Liz Sharp: I would now like to turn the conference over to Liz Sharp, Vice President of Investor Relations. Please go ahead. Thank you and good afternoon.
Retail we did see an increase in international sales so on the traditional side, obviously traditional was up.
Liz Sharp: Our comments today may contain predictions, estimates, and other forward-looking statements. Our use of words like anticipate, project, estimate, expect, intent, should, could, indicate, suggest, believe. And other similar expressions is 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.
But in the 5%, maybe a little shy of that in the quarter E Comm was down slightly.
So we are seeing some some pretty good traction with traditional retailers you know physical retail stores.
Speaker 3: Also, as a reminder, E-Comm had some pretty significant increases over the last couple of years as people were stuck at home and doing more of that ordering. But in terms of what's driving that, it is market share. We are seeing that in several categories. And the way we would also define market share is through the introduction of new products.
Also as a reminder, E. Comm was had some pretty significant increases over the last couple of years as people were stuck at home and doing more of that ordering.
But you know in terms of what's driving that it is you know market share we are seeing that in several categories and the way. We'd also define market share is is through the introduction of new products. So we are as you know very innovative company and focused on both new product launches.
Liz Sharp: Our forward-looking statements represent our current judgment about the future, and they are subject to various risks and uncertainties. Risk factors and other considerations that could cause our actual results to be materially different are described in our security filings. You can find those documents as well as a replay of this call on our website at aob.com.
Speaker 3: So we are, as you know, a very innovative company and focused on those new product launches.
Speaker 3: And so for us to be able to maintain and capture even more of that, we believe is certainly reflected in those numbers.
And so for for us to be able to maintain and capture even more of that we believe is certainly reflected in those numbers.
Speaker 7: Yeah, that's helpful. So then kind of on the line of new products too, you know, how you feel about the distribution of Bubba products in both historically more coastal markets and then also like more so in the inland markets as well.
Yeah. That's that's helpful. So then kind of on the wall.
A lot of new products to your how do you feel about the distribution of <unk>.
Liz Sharp: Today's call contains time-sensitive information that is accurate only as of this time, and we assume no obligation to update any forward-looking statements. Our actual results could differ materially from our statements today.
<unk> products and both historically more coastal markets and then also like more so than the inland markets as well.
Yeah. That's a great. Great question has me wondering if you're a if you're an angler yourself.
Speaker 3: Yeah, that's a great, great question. It has me wondering if you're an angler yourself.
Liz Sharp: I have a few important items to note about our comments on today's call. First, we reference certain non-gap financial measures. Our non-gap results exclude amortization of acquired, intangible assets, .compensation, shareholder cooperation agreement costs, facility consolidation costs, technology implementation, acquisition costs, other costs, and income tax adjustments. The recommendations of gap financial measures to non-gap financial measures, whether they are discussed on today's call, can be found in our filings as well as today's earnings press release, which are posted on our website. Also, when we reference EPS, we are always referencing fully diluted EPS.
Speaker 3: So one of the challenges we had when we bought Bubba was, to your point, it was mostly a coastal brand. And in particular, it was focused on filet knives. And so our goal was to take that brand, take the DNA, and we saw this much larger market in freshwater, which is more inland, and thought to ourselves, you know, how do we go after that market? So we started with obviously introducing other cutlery related items and tools.
So what one of the one of the challenges we had when we bought Bubba was to your point it was mostly a coastal brand and in particular it was focused on on fillet knives, and so our goal was to take that brand take the DNA.
And we saw this much larger market and freshwater which is more inland and thoughts first of all as you know how do we go after that market. So we started with obviously introducing other cutlery related items with tools.
And so the the the <unk>.
Speaker 3: And so the Smart Fish Scale for us, I know we talk a lot about it, you're probably getting sick of us talking about it at this point, but it really was our clever way of entering that market. And if you want to do something like that, it's best to establish a beachhead.
Smart fish scale for us I know, we talk a lot about it you're probably getting sick of us talking about it at this point, but it really was our clever way of entering that market and if you want to do something like that it's best to establish a beachhead with through innovation and then coming behind it with other products. So for US it's an important beachhead to continue.
Liz Sharp: Joining us on today's call is Brian Murphy, president and CEO, and Andy Fulmer, CFO. And with that, I will turn the call over to Brian. Thanks, Liz, and thanks everyone for joining us.
Speaker 3: through innovation and then coming behind it with other products. So for us, it's an important beachhead to continue introducing the Bubba brand to that consumer. So if you were to look at Google Trends, for example, and look at Bubba Blade versus Bubba and some of the freshwater products versus salt, you're going to begin to see that there is sort of this climbing interest in the middle of the country, especially around freshwater lakes and things.
Introducing bubba brand to that consumer so like if you were to look at Google trends for example, and look at Bubba blade versus Bubba and some of the freshwater products versus salt youre going to begin to see that there is sort of is climbing interest in the middle of the country, especially around you know freshwater lakes.
Brian Murphy: I am pleased with our first quarter fiscal 2024 results, which reflected solid execution in sales, profitability, and capital management, combined with ongoing progress against our long-term strategic objectives. Net sales were generally flat compared to the prior year, a result that met our expectations, and that we view favorably, given the fact that retailers continue to remain cautious about their inventories, and available open to buy dollars in the quarter. We are especially pleased with the longer-term growth we delivered.
And things.
Speaker 3: It's really part of that strategy So I think that it's pretty rare for a fishing brand to cross over from salt to fresh and from fresh to salt etc But that's that's what our strategy has been and we're seeing the traction of that right now So at the store level certainly, you know We've gone from being very well penetrated on the coasts and we're seeing much more adoption for the Bubba brand in the middle of the US
And it's really part of that strategy. So I think that it's pretty rare for a fishing brand to crossover from salt to freshen from fresh to salt et cetera, but that's that's what our strategy has been in and we're seeing the traction about right now so at the store level, certainly you know where we've gone from being very well penetrated.
Brian Murphy: Our first quarter reflected net sales growth of nearly 31% over our pre-pandemic first quarter of fiscal 2020 with growth over 10% in shooting sports in over 54% in outdoor lifestyle, including our acquisition of grilled grills. On a year-of-year basis, our shooting sports category saw slight decline in net sales compared to the prior year. A result that is consistent with reports from firearm manufacturers, citing ongoing, heightened channel inventory and reduced consumer demand.
<unk> on the coasts and we're seeing much more adoption for the Bubba brand and in the middle of the U S.
Speaker 7: Yeah, that's awesome to hear. And then just a quick last one for me. You guys kind of touched, your balance sheet improved during the quarter, and it's looking pretty healthy. And you guys discussed a little bit more in depth about your thoughts around the capital allocation. But you know, with the new product innovation seeming to drive these sales, could you see some additional spending in R&D to drive more product innovation in the upcoming quarters? Or kind of how are you going to go about that with your allocation there? Yeah, great question. This is Brian .
Yeah, that's that's awesome, but here and then just a quick last one for me you guys trying to touch your balance sheet improved during the quarter.
Looking pretty healthy you guys discuss a little bit more in depth about your thoughts around you know the out the capital allocation.
Brian Murphy: In just a reminder, we don't produce firearms, only shooting sports related accessories. The decline in shooting sports was offset by a slight increase in our outdoor lifestyle category, which consists of products related to hunting, fishing, camping, outdoor cooking and rugged outdoor activities. This is a solid result which we believe reflects the strength of our brands in the category and the success of our strategy to invest in this growing part of our business.
But you know with the new product innovations you mean, the drive sales could you see some additional spending in R&D to drive more product innovation.
Coming quarters or kind of how are you going to go about that with your allocation there.
Yeah. Great question. This is Brian again, and Andy Andy can chime in.
Speaker 3: So we are focused on obviously organic growth, M&A, share buybacks being our kind of primary three. So we pay down debt as well in the quarter.
So we you know we are focused on obviously organic growth M&A share buybacks being our kind of primary three obviously, we pay down debt as well in the quarter.
Speaker 3: but we are very focused on organic through innovation. And it's one of the reasons, one of our strategies for maintaining our margins and ultimately higher ASPs, etc.
But we are very focused on organic through innovation and it's one of the reasons one of our strategies for maintaining our margins and and ultimately higher asp's et cetera.
Brian Murphy: We continue to benefit from our strategy to intentionally place our brands where consumers expect to find them, whether online or in-store. In our traditional channel, net sales growth was strong, supported by new product introductions in hunting and fishing under our bog and bubble brand. We are encouraged by this result as we believe it reflects the ongoing convergence of inventory destocking activities by retailers with their needs replenish inventories. It also bodes well for many of our brands, since we believe retailers are seeking out innovative products to help drive foot traffic and attract today's more discerning consumer.
Speaker 3: So, when we think about that, R&D, to your point, it's a huge part of that, right? I mean, gosh, almost 12 to 15% of our total workforce are people that are dedicated to just R&D product development.
So you know when we think about that R&D to your point, it's a it's a huge part of that right I mean, gosh, almost you know 12% to 15% of our total work force or people that are dedicated to just R&D and product development, which in my view is a very it's a high high percentage relative to some of the other companies that I'm aware of and have even looked at to acquire.
Speaker 3: which in my view is a very high percentage relative to some of the other companies that I'm aware of and have even looked at to acquire.
Sure.
Speaker 3: And so, one of the reasons why I think it is a lighter percentage relative to the total versus some other companies.
And so one of the reasons why I think it is a lighter percentage relative to the total versus some other companies is the fact that we have through consolidation moving facilities into Columbia, we've used some of those savings to bulk up our R&D Department.
Brian Murphy: Net sales in our e-commerce channel declined year-of-year, driven primarily by our largest online retailer, but were partially offset by increased sales of certain hunting and shooting sports products to other online retailers. Online net sales of Meet Your Maker and Grilla are two direct to consumer-only brands who are up slightly over year. Meeting Grilla generated over 35% of our total e-commerce sales, and together they delivered strong, trailing 12-month net sales of over $24 million.
Speaker 3: is the fact that we have, through consolidation, moving facilities into Columbia, we've used some of those savings to bulk up our R&D department. So instead of outsourcing, prototyping, some of those functions.
So instead of outsourcing prototyping instead of outsourcing some of those some of those functions.
Speaker 3: or even relying upon other third parties.
Or even relying upon.
You know other third parties, we've decided to take that in house and really leverage the intellectual property, we have through our incredible incredible engineers and designers and and do do most of what we can in house. So that gets us to market more quickly. It ensures that we can sort of lock up this innovation pipeline that we've talked.
Speaker 3: We've decided to take that in house and really leverage the intellectual property we have through our incredible, incredible engineers and designers.
Speaker 3: and do most of what we can in-house. So that gets us to market more quickly. It ensures that we can sort of lock up this innovation pipeline that we've talked about. So I think as a percentage of sales, I think it's a good number. And I don't think we're missing any dollars there. I think we're spending it wisely. And our pipeline, as you'll see over the coming years, will definitely show the fruit of that.
Brian Murphy: That says due to the planned closures of our Michigan and Texas retail grilla stores, total net sales for these two brands were down slightly in the quarter. For several quarters now, we have provided certain sales data on Grilla and Meet for three reasons. First, to demonstrate the performance of Grilla for its first year under our ownership since the acquisition. Second, to highlight the success we can achieve by organically creating and launching a brand, Meet using our brand line architecture.
About so I think as a percentage of sales I think it's a good number.
But I and I don't think we're we're missing any dollars there I think we're spending it wisely and.
Our pipeline is you'll see over the coming years will definitely show the fruit of that.
I think that's very helpful. Thank you guys.
Yes, Thanks, Alex.
Speaker 1: Again, if you have a question, please press star then 1. The next question is from Matt Coranda with Roth Capital Partners. Please go ahead.
Brian Murphy: Third, to provide a proxy for how well our brands are resonating directly with consumers since both of these brands have thus far been sold exclusively D to C. This is especially the case recently as the retail channel has been experiencing inventory challenges.
Again, if you have a question. Please press Star then one.
The next question is from Matt Koranda with Roth Capital Partners. Please go ahead.
Hey, guys. Good afternoon, I'm wondering if you could maybe just elaborate a bit more on.
Speaker 8: Hey guys, good afternoon. I wondered if you could maybe just elaborate a bit more on the retail expansion for Grilla and Meat. I know you said you're not going to necessarily be providing...
The retail expansion for Gorilla and meet I know, you said, you're not going to necessarily be providing quarterly data points on it but I'm just curious at a higher level.
Brian Murphy: Now, and as we've outlined in our strategic plan, we have the opportunity to expand the reach of these brands by moving them into retail distribution in the near future. This is an exciting and important step in our strategic plan that will allow our brands to access bigger markets and make it easier for consumers to find our products wherever they shop. Outdoor. It's important to note, however, that our goal is not to make it easier for competitors to target us.
Speaker 8: quarterly data points on it, but I'm just curious at a higher level, uh, you know, any way to think about the entry into retail, whether that's through specific strategic retailers that you'll be dealing with, are there limited SKUs you're going into retail with, are you going with the full set of SKUs that they offer, timing of entry, is that factored into the growth outlook this year? Just some, some details high level on that would be very helpful. Yeah, certainly.
You know any way to think about the entry into a retail whether that's through specific strategic retailers that you'll be dealing with are there limited skus, you're going into retail with or you're going in with a full set of skus that they offer timing of entry is that factored into the growth outlook. This year just some some details.
Brian Murphy: Therefore, in order to maintain our competitive advantage, we don't plan to provide detailed quarterly sales data on meat and grilla going forward. Then, we intend to begin reporting on an annual basis our direct to consumer sales totals as a subset of our total e-commerce sales. Turning back to the quarter, point of failed data we received from our retailers indicates that sales of our products declined slightly in the first quarter, driven almost entirely by products in the shooting sports category.
High level on that would be very helpful.
Yeah, certainly Ah Hey, Matt. This is Brian so yeah, I mean, we're very excited about meat in gorilla and one of the strategies that we we had one when we started and me was to generate enough interest where.
Speaker 3: Yeah, I mean we're very excited about meat and Grilla and one of the strategies that we had, one when we started meat, was to generate enough interest where we could get the opportunity to place it at certain retailers.
We could we could get the opportunity to place it at certain retailers.
Speaker 3: And if you have an unknown brand and you're trying to sell it into retail, it's a much more difficult value proposition. If it's a brand that has gained steam, if it's more well known, influencers are getting behind the brand.
And if you have an unknown brand and you're trying to sell it into retail its a much more difficult value proposition. If it's a brand that has gained steam it's more well known influencers are getting behind the brand.
Brian Murphy: This is not a surprising result given the current environment. At the same time, POS data also indicates that channel inventory of our products improved in the quarter, lower on a sequential basis from Q4, and down in the mid teens on a percentage basis year of year. We view this as a positive dynamic which supports our belief. It will begin to see an increase in replenishment orders in the second half of the year.
Speaker 3: you get to a point where retailers are approaching you, and that's definitely the case that we're faced with, the opportunity.
You get to a point where retailers are approaching you in that that's definitely the case that we're we're faced with the opportunity.
Speaker 3: So we have been very careful about when to bring Meet Your Maker into retail. And obviously we bought Gorilla just over a year ago. And so the same there. And we've enjoyed the direct to consumer path. We think there's still tremendous upside for those two brands in direct to consumer.
So we have been very careful about went to bring meet your maker into retail and obviously, we bike rollout just over a year ago and so at the same there and we've been we've enjoyed the direct to consumer path. We think there's still tremendous upside for those two brands in.
Brian Murphy: Innovation is our core strength and a key element in our long-term growth strategy. Our innovation engine fueled by our doc and unlock process is robust and new products launched in the last two years generated over 21% of our first quarter nut sales, a result that met our expectations. In the first quarter, we officially launched our new Bubba Tournament Grade Pro Series Smartfish Scale, or the Bubba Pro FFS. Our first entry into the large underserved catch and release market.
Our direct to consumer.
Speaker 3: With that said, there is an opportunity to get the brands in front of consumers because that is part of marketing. Some folks, that is their exposure to certain brands.
With that said there is an opportunity to get the brands in front of consumers because that's that is part of marketing you know some some folks that is their exposure to certain brands.
Brian Murphy: Fence its launch in May, the Bubba Pro FFS was awarded best cutlery, hand show, and was named the official scale of Major League Fishing, or MLF, beginning with the 2024 VAS Pro Tour season. Instinctive response has been very strong, and the MLF has just commenced filming competitions that will start to air in early 2024. It's early in the game, but we're very excited about what this partnership can do for the Bubba brand long-term.
Speaker 3: And so we have been approached by some retailers that we think very, very highly of have been good partners of ours and to have a specific viewpoint on how to approach the market with a new brand and some innovation.
And and so we have been approached by some retailers that we think very very highly of had been good partners of ours and they have a specific viewpoint on how to approach the market with a new brand and some innovation.
Speaker 3: And so we are we are we have been selective with who those retail partners are I can't share those with you right now But ultimately we're we're going to start out small make sure that we have the right Sort of flywheel built with the consumer make sure that we're supporting it appropriately We've seen brands go into retail too too quickly. You know too much too soon
And so we are we are we haven't been selective with who those retail partners are I can't share those with you right now.
But ultimately where we're gonna start out small and make sure that we have the right sort of flywheel built with the consumer make sure that we're supporting it appropriately we've seen brands go into retail too too quickly you know too much too soon.
Speaker 3: And we've sort of learned from that on the sidelines. And so we want to do it in the right way, you know, certainly come out with a splash with certain retailers, and then assess as we go forward. So we're being a little cautious on sharing too much, but we do expect this year and this fiscal to be announcing some of those, some of that place.
And we sort of learned from that on the sidelines and so we want to do it in the right way.
Certainly come out with a splash with certain retailers and then assess as we go forward. So.
Andy Fulmer: With that, I'll turn it over to Andy to discuss our financial results. Thanks, Brian. During Q1, we strengthened our balance sheet, fully paid off the outstanding balance on our line of credit, demonstrated effective capital deployment with our share repurchase program, and delivered net sales and profitability in line with our expectations. All while navigating, I'm going market challenges that included a continuation of cautious inventory management by retailers.
We're being a little cautious in sharing too much but we do expect this year in this fiscal to be announcing some of those some of that placement.
Speaker 8: Okay, that's fair. And just maybe spinning back to the retailer inventory health that you talked about in the prepared remarks and maybe discussed a bit in the Q&A here. Just curious how we're thinking about a replenish cycle and how that kicks off. I mean, we've just gotten a lot of data points recently from retailers that suggest that consumer demand is still pretty soft.
Okay, That's fair and just maybe spinning back to to the retailer inventory health that you talked about in the prepared remarks, and maybe discuss a bit in the Q&A here just curious how how we're thinking about a replenish cycle and how that kicks off I mean.
Andy Fulmer: We are pleased with our results for the quarter, so let me walk you through the details. Net sales for Q1 were $43.4 million compared to $43.7 million in Q1 last year, a slight decrease of 0.5%. Compared to pre-pandemic Q1 of fiscal 2020, net sales increased by 30.8% including the acquisition of grilla. On a category basis, net sales and our outdoor lifestyle category increased slightly by 0.4%. This is a great result, which we believe demonstrates the strength of our brands and our new product capability.
We've just gotten a lot of data points recently from retailers that suggests that consumer demand is still pretty soft and it just seems like retailers are still quite reticent to take on a lot of inventory. So curious how you think that plays out. This year I know you said, probably more likely to result in back half growth, but just maybe if you could elaborate.
Speaker 8: And it just seems like retailers are still quite reticent to take on a lot of inventory. So curious how you think that plays out this year. I know you said probably more likely to result in back half growth, but just maybe if you could elaborate a bit on how you're thinking about the replant cycle as we get into the back half of the year.
On how you're thinking about the reporting cycle.
As we get into the back half of the year.
Speaker 3: Yeah, great question Matt. Brian again, and Andy feel free to jump in.
Yeah, No Greg Great question, Matt, It's Brian again, and Andy feel free to jump in.
Speaker 3: I think there's a few things here. One is there aren't any sort of broad brushstrokes across the retail landscape. We're seeing a tail of many cities. We're seeing some retailers, depending on the product categories that they're in, are faring better than others.
I think it's a there's a few things here one is there arent any sort of broad brush strokes across the retail landscape. We're seeing a tale of many cities, we're seeing some retailers depending on the product categories that they're in are faring better than others and others that I've managed inventory.
Andy Fulmer: Series. Turning to the shooting sports category, net sales of shooting sports decreased by just 1.5 percent compared to Q1 last year. This too is a great result, given that net sales in the shooting sports category tend to align with trends in the firearms industry and adjusted NICS results which have been under pressure. Our go-to market strategy was formulated to intentionally place our brands where consumers expect to find them, whether that's online or in traditional brick and mortar locations.
Speaker 3: and others that have managed inventory more tightly, that we've seen them bounce back already. When we look at replenishment, we were having this conversation before the call, when you look at replenishment, it's not like a light switch flips.
More tightly that we've seen them bounce back already you know when we look at replenishment.
This conversation before the call when you'll get replenishment, it's not like a flip like a light switch flips.
Speaker 3: as you know, and all of a sudden they start ordering. They're already ordering. All these retailers are still replenishing their inventories with our product.
As you know and all of a sudden they start ordering they're already ordering all of these retailers are still replenishing their inventories with our products, but it's a matter of looking at their targeted inventory turns in the year and as consumer demand has slowed that number in order to reach those turns is somewhat.
Andy Fulmer: Therefore, by design, net sales in these channels can fluctuate from quarter to quarter based on consumer buying preferences. On a channel basis, first quarter net sales in our traditional channel increased 8.4 percent and net sales in our e-commerce channel decreased 10.6 percent.
Speaker 3: But it's a matter of looking at their targeted inventory turns in the year and as consumer demand has slowed that number in order to reach those turns is somewhat of a moving target. And I think you've even maybe commented on that some of your in some reports.
There are a moving target and I think you've even maybe commentary on that in some of your some of your reports.
Andy Fulmer: Turning to Gross Margin. Gross Margin for Q1 came in at 45.4 percent, 180 basis points higher than our Gross Margin for Q1 last year. This result was driven primarily by lower inbound container-free costs. Turning to operating expenses, gap operating expenses for the quarter were $23.8 million compared to $24.6 million last year. The decrease was driven by one time legal and advisory fees we incurred in Q1 last year relating to a shareholder cooperation agreement offset by an increase in outbound freight costs.
Speaker 3: So the other dynamic that I haven't really seen come out in earnings calls is the fact that some retailers really had to look to online sales to be successful over the last two to three years or the other ones had to play.
The other dynamic that I haven't really seen come out on earnings calls is our is the fact that you know that some retailers.
It really had to look to online sales to to be successful over the last two to three years or the other ones had to play a hurry up offense.
Speaker 3: And so that gave them a tremendous benefit. As a result, if you look at the same demand, if you just assume the same demand pre-COVID versus where we are today, or what a normalized level looks like,
And so that gave them a tremendous benefit as a result, if you look at the same demand. If you just assume the same demand pre COVID-19 versus where we are today or what a normalized level looks like I think youre going to see some retailers, who are who are well run carry less inventory because they may have some vendors who are able to do.
Speaker 3: I think you're going to see some retailers who are well run.
Speaker 3: carry less inventory because they may have some vendors who are able to do more drop shipping. So what that means for them is they can obviously offer more assortment.
More drop shipping so what that means for them as they can obviously offer more assortment.
Andy Fulmer: On a non-gap basis, operating expenses in Q1 were up slightly to 19.6 million compared to 19 million in Q1 last year. Non-gap operating expenses exclude intangible amortization, stock compensation, and certain non-recurring expenses as they occur. Gap EPS for Q1 was negative 31 cents as compared with negative 42 cents last year. Our gap income tax expense was negatively impacted by approximately 7 cents due to evaluation that removes any tax benefit we would have derived from our gap loss from operations.
Speaker 3: But at the same time, they don't have to carry that inventory. They can sort of lean on the manufacturers of the vendors more to carry some of that. So you have to be seeing what that looks like, but I think the vendors that have that capability to drop ship.
But at the same time, they're not they don't have to carry that inventory. They can they can sort of lean on the manufacturers of the vendors more to carry some of that so you have to be seen what that looks like but I think the the vendors that have that capability to drop ship.
Speaker 3: and can do it effectively and be a good partner with some of those retailers, I think we'll see some of those be more successful. Certainly we have that ability.
And can do it effectively and be a good partner with some of those retailers I think we'll see some of those be more successful at certainly we have that ability.
Speaker 6: Does that answer your question, Matt? Yeah, absolutely. That's very helpful, Brian . Thank you. And then I guess just maybe one for Andy. And I think maybe this has been asked in different ways in the past, but as you take over the full lease in the Columbia facility, just curious how we should be thinking about modeling OPEX costs in the back half of the year since it's a Gen 1, I think, takeover.
Does that answer your question, Matt Yeah, absolutely that's very helpful. Brian. Thank you.
And then I guess, just maybe one for Andy.
And I think maybe this has been asked in different ways in the past, but as you take over the full lease and the Columbia facility. Just curious how we should be thinking about modeling.
Andy Fulmer: Excluding that impact, gap EPS would have been approximately negative 24 cents in Q1 of this year and negative 32 cents in Q1 of last year. On a non-gap basis, EPS was unchanged at one cent for the first quarter, both this year and last year. Our Q1 figures are based on our fully diluted share count of approximately 13.2 million shares. For full fiscal 2024, we expect our fully diluted share count will be about 13.5 million shares. Adjusted EBITAS for the quarter was $1.1 million compared to $1.4 million last year.
Opex costs are in the back half of the year a.
Since it's a gen one I think takeover.
Speaker 4: Yeah, great question. It is January 1st. We take that over. That is built into our OPEX assumptions and the framework that we provided with the EBITDAS could be up to 6.5%. I can't really get more specific than that. I think what you'll see is as we get closer, you know, when we take that the extra space over and then into the next fiscal year, we'll be able to share more details.
Yeah. Great question. It is January 1st we take they take that over.
That is built into our opex assumptions and the framework that we provided with the you know ebitdas could be up to 665%.
I can't really get more specific than that.
I think what you'll see is as we get closer when we take that to.
Extra space over and then into the next fiscal year, we'll be able to share more details.
Speaker 8: Okay, fair enough. And then I guess this last one, I guess it's somewhat of a traditional question, lots of different people attack it on these calls, but maybe, Brian , could you take a crack at talking about M&A and just the funnel as we see it today? I mean, now that you have the debt basically wiped clean, share buybacks, been exercised with good results.
Andy Fulmer: Turning now to the balance sheet and cash flow, we continue to be pleased with our efforts to further strengthen our balance sheet. In the first quarter of fiscal 2024, we generated strong operating cash flow and free cash flow and continued to demonstrate effective capital Amendment. Let me provide some of the details. We ended the quarter with cash of $18.7 million after paying down $5 million on our line of credit and repurchasing approximately $2.3 million of our common stock.
Okay fair enough.
And then I guess just last one I guess, it's somewhat of a traditional question lots of different people attack. It on these calls, but maybe Brian could you take a crack at talking about M&A and and just the funnel as we see it today I mean now that you have the debt basically wiped clean share buybacks, you know I've been exercise.
Just with good results.
Speaker 8: Just curious how we should be thinking about M&A, our appetite there, what the funnel looks like, how folks are thinking about valuation. Are there more catalysts to bring folks to the market? What are you seeing on that front? Yeah spirit is example, the rollout of the
Just curious how we should be thinking about M&A or appetite, there or what the funnel looks like how folks are thinking about valuation.
Andy Fulmer: We generated $5.2 million in cash from operations and we invested just over $800,000 in CapEx, resulting in free cash flow over approximately $4.3 million for the quarter. Your recall last quarter, I indicated our inventory levels would rise to above $100 million in Q1 and Q2, a planned increase designed to support the fall hunting and holiday seasons as well as new products that are scheduled for launch later this fiscal year. Consistent with this plan, our inventory levels increased by $5.2 million in the first quarter.
Are there more catalyst to bring folks to the market.
What are you seeing on that front.
Yeah. So.
Speaker 3: I'll kind of give you a sense for the environment right now and then what I think, this is just my own opinion, what I think will sort of happen in the next few quarters based on our conversations with people. But certainly we've seen the number of deals come to market by sell-side advisors, investment banks.
I kind of give you a sense for the environment right now and then what I think this is just my own opinion, what I think will sort of happened in the next few quarters based on our conversations with people, but certainly we've seen.
Andy Fulmer: It's worth noting that while we expect inventory levels to be above $100 million in Q2 and Q3 as well, we do expect them to move below $100 million by the end of fiscal 2024. We ended the quarter with no outstanding balance on our $75 million expandable line of credit, bringing our total available capital to over $108 million. Turning to capital expenditures, we spent just over $800,000 on CapEx for the first quarter, mainly for product tooling and patent costs.
The number of deals come to market by sell side advisors investment bankers.
Speaker 3: has come down pretty significantly. And I think that's for two reasons. One is valuation expectations have lowered.
<unk> has come down pretty pretty significantly.
And I think Thats for two reasons, one is valuation expectations have lowered.
Speaker 3: And also, I think that some of those companies, depending on which categories they're in, have maybe have not reached a run rate EBITDA.
And also I think that some of those companies, depending on which categories around.
We have maybe have not reached a run rate EBITDA.
Speaker 3: that they would like to get credit for going forward. They're looking for multiple stabilization, gun rate stabilization before they come back to market.
That that they would like to get sort of credit for going forward and so theyre looking for sort of multiple stabilization run rate stabilization.
Before they come back to market with that said.
We are seeing fewer deals, but we are continue to be very very aggressive in our outbound efforts. So both Andy and I are always picking up the phone reaching out to people that we want to go after that we think would be highly complementary and so that continues and so we've got a oh.
Speaker 3: But we are, continue to be very, very aggressive in our outbound efforts. So both Andy and I are always picking up the phone, reaching out to people that we want to go after, that we think would be highly complimentary. And so that continues. And so we've got a, I'll use the word robust, we've got a very robust pipeline. And a number of people that we're currently speaking with.
Andy Fulmer: And as a reminder, our ERP project is now complete. For full fiscal 2024, we expect to spend between $3.5 and $4.5 million for product tooling and maintenance. In addition, we expect a one-time spend of approximately $2.5 million to purchase assets such as warehouse racking, office furniture, and other fixtures when we assume the full lease at our Columbia Missouri facility on January 1st.
The word robust we've got a very robust pipeline and a number of people that were currently speaking with.
Speaker 3: And we'll see where those go. Like you said.
And and you know, we'll see we will see where those go like you said, we've got we've got a very clean balance sheet. We have capacity. We're in a great spot and we're also not sacrificing our efforts on the on the share repurchase side so well.
Speaker 3: We've got a very clean balance sheet, we have capacity, we're in a great spot, and we're also not sacrificing our efforts on the Sherry purchase side.
Speaker 3: We're in about as good of a position as you can be in, I think, when it comes to M&A. And then looking out, I think Q1, Q2, calendar, Q1, Q2 of next year, I think that we will start to see more deals come back to market. That's sort of the sense that I have in speaking with advisors and with companies directly.
We're we're in about as good as a position that you can be and I think when it comes to M&A and then looking out I think Q1 Q2 calendar Q1 Q2 of next year I think that we will start to see more deals come come back to market, that's sort of a sense that I have in speaking with advisors and with companies directly.
Andy Fulmer: Therefore, we expect total CapEx spend in fiscal 2024 in the range of $6 million to $7 million. The strength of our balance sheet allows us to employ all three of our capital allocation priorities, organic growth, M&A, and returning capital to shareholders based on what is most opportunistic at the time. In the first quarter, we continue to return capital to shareholders through the stock repurchase program authorized by our board last September. In Q1, we repurchased roughly 268,000 shares in an average price of $8.43. Since the program began, we have repurchased roughly 645,000 shares or almost 5% of our shares at an average price of $8.96 per share.
Speaker 3: because I think they'll have more line of sight around what run rate EBITDA and performance looks like.
Because I think they'll have more line of sight around what runway run rate EBITDA performance looks like and and that's very similar to what you're hearing from people like us and even other public companies as they sort of look down the barrel of some of these forecasts that have been provided to us from our retailers.
Speaker 3: And that's very similar to what you're hearing from people like us and even other public companies.
Speaker 3: as they sort of look down the barrel of some of these forecasts that have been provided to us from our retailers.
Speaker 3: and give us that sort of more comfort based on what we know today about replenishment coming back.
And give us that sort of a more comfort based on what we know today about replenishment coming back.
Okay Super helpful. I'll leave it there guys. Thank you.
Speaker 1: This concludes our question and answer session. I would like to turn the conference back over to Brian Murphy for any closing remarks.
This concludes our question and answer session I would like to turn the conference back over to Brian Murphy for any closing remarks.
Andy Fulmer: Now, turning to our outlook, we continue to believe that fiscal 2024 could deliver full-year net sales growth of up to 3.5%. Supported by market share gains, expanded distribution, and planned new product launches. We expect that growth will likely begin in Q3 following a year-over-year decline in revenue for Q2 due to the timing of shipments in the first half of fiscal 2020. 24. As a reminder, our business typically follows a seasonal pattern with Q1 as the lowest net sales quarter, Q2 and Q3 as the highest net sales quarters, and Q4 coming in higher than Q1.
Speaker 3: Thank you, operator. Please note, we will be participating in two upcoming investor conferences, the Lake Street Conference in New York City on September 14, and the CL King Best Ideas Virtual Conference on September 18. We hope to see some of you.
Thank you operator.
Please note we will be participating in two upcoming investor conferences. The Lake Street Conference in New York City on September 14th and the CL King Best ideas Virtual conference on September 18th we hope to see some of you at those events.
Speaker 3: In closing, I want to thank our employees across American Outdoor Brands for their great work this quarter and for helping our customers and our consumers make the most out of the moments that matter.
In closing I want to thank our employees across American outdoor brands for their great work this quarter and for helping our customers and our consumers to make the most out of the moments that matter.
Speaker 3: Thank you everyone for joining us. We look forward to speaking with you again next quarter.
Thank you everyone for joining us we look forward to speaking with you again next quarter.
Speaker 1: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Andy Fulmer: And we expect that pattern to continue in fiscal 2024. This pattern typically drives an increase and accounts receivable and a corresponding decrease in cash in Q2, with that cash collected by the end of the fiscal year. Turning to gross margins, we expect fiscal 24 gross margins to remain flat to fiscal 2023. With regard to OPEX, we believe that overall OPEX for fiscal 24 will increase slightly, mainly from higher selling and distribution costs, offset by reductions from our facility consolidations, one time legal and advisory fees and IT implementation costs. Based on these factors, we continue to believe our adjusted EBITAS in fiscal 2024 could increase as much as 6.5% compared to fiscal 2023.
Speaker 9: I and.
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Speaker 9: Now.
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Speaker 9: The and that.
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Andy Fulmer: One final note on income tax expense. Due to the valuation allowance I discussed earlier, we expect to incur a small amount of income tax expense for gap purposes in each quarter for the remainder of fiscal 2024.
Speaker 9: And pro.
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Operator: With that, operator, please open the call for questions from our analysts. We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To draw your question, please press star then two.
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Operator: At this time, we will pause momentarily to assemble our roster.
Eric Wold: Our first question today is from Eric Wold with B. Riley Securities. Please go ahead.
Andy Fulmer: Thank you, Dr. Neum. A couple of questions. One of the guidance just given expectations for flat gross margin. You recall from the Q4 call, you are looking for margins to be up this year on lower free expenses, benefits from the facility consolidation. Maybe what has changed in your view if I am right on remembering that from where you worked a few months ago?
Andy Fulmer: Eric, this is Andy. Great question. We did have some higher variances in the first quarter that we expect to kind of amortize off in Q3. So Q3 margin works, expecting to be down a little bit, and that kind of will offset the increase in gross margin.
Andy Fulmer: It's on Q1. It's really just the function of how our amortization works over our inventory turns.
Eric Wold: Okay. And then digging into the POS a little bit, any sense from if you dive into the data a little bit into what you're seeing and through the demand by price points, anything, any major shifts that give you your increased confidence or increased concern around some of the consumer demographics.
Brian Murphy: Yeah, Eric, this is Brian. So, I guess, so specific to price points. I wouldn't say that we're seeing much, much variance. At least of the data that we can see, right? So most of our brands are kind of at that mid-to-high price point where we play. So we still maintain the view that that consumer seems to be somewhat more insulated than the lower price point items. So I can't really speak to some of those lower price point ones.
Brian Murphy: Is there anything else in particular outside of price that you have a question about related to POS? I mean, any trends that you're seeing maybe that will give you increased confidence, or maybe concerned around kind of the underlying demand patterns, maybe outside of price, in terms of product category is regional differences. Yeah, I mean, I think we're seeing, like we said, we're pleased with at least in the current quarter, what POS trends have been.
Brian Murphy: While they were down slightly in shooting sports, pretty flat as it relates to outdoor lifestyle. So I say between those two categories, outdoor lifestyle seems to be the most resilient at this time. But we are seeing some nice stabilization in shooting sports. But I think those retailers that are selling more of that product are seeing a bigger impact at this point. So outdoor lifestyle in particular seems to be doing much better.
Brian Murphy: And then specifically with an outdoor lifestyle hunting, hunting has been doing pretty well, fishing has been doing pretty well for us. So I'd say on a whole outdoor lifestyle seems to be very much better right now.
Brian Murphy: Got it. I mean, the final question. I'll make an effort on it with the public scale launch and the app launch any early indicators or data points you are thrown around. Attach rates of app downloads to scale purchases or subscriptions anything or is it still a little too early? It's a little early. One, I'm happy to ask the question because we're also obviously very excited about the scale. The MLF partnership is a huge deal for us.
Brian Murphy: And we hope it's a huge deal for the MLF and we've got some big plans with that partnership going forward. With that said, I mean, the reception for consumers has been overwhelmingly positive. It's got gosh, last I looked five stars on the on the app store with an apple. I think close to 150 reviews, which for a very technical product were very, very, very happy about because that just increases the stickiness. So it's exceed our expectations thus far, but I think it's still a little too early to begin sharing some of that data.
Eric Wold: Got it. Thank you guys. Please get it. Thanks, Eric.
Mark Smith: The next question is from Mark Smith with Lake Street. Please go ahead. Hey guys, it's Alex Sturdy.
Alex Sturdy: It's on the line from Mark Smith today. Just first off, you know, you guys kind of discussed the retail channel performing well. Could you maybe talk more about any additional retail locations you guys have entered in the quarter? And then maybe how you feel about your shelf space for your brands and products there? Yeah. So I had Alex. This is Brian. So I'd say, you know, within the quarter, you know, retail, we did see an increase in international sales.
Alex Sturdy: So on the traditional side, obviously, traditional was up about eight and a half percent. Maybe a little shy of that in the quarter. Ecom was down slightly. So we are seeing some some pretty good traction with traditional retailers, you know, physical retail stores. Office. Also, as a reminder, E-Com was, you know, had some pretty significant increases over the last couple of years as people were stuck at home and doing more of that ordering.
Alex Sturdy: But, you know, in terms of what's driving that, it is, you know, market share. We are seeing that in several categories. And the way we'd also define market share is through the introduction of new products. So, we are, as you know, very innovative company and focused on those new product launches. And so, for us to be able to maintain and capture even more of that, we believe it's certainly reflected in those numbers.
Alex Sturdy: Yeah, that's helpful. So, then, kind of on the line of new products too, you know, how do you feel about the distribution of bubble products in both historically more coastal markets and then also, like, more so on the inland markets as well? Yeah, that's a great question. Has me wondering if you're an angler yourself? So, one of the challenges we had when we bought Bubba was, to your point, it was mostly a coastal brand.
Alex Sturdy: And in particular, it was focused on filet knives. And so, our goal was to take that brand, take the DNA, and we saw this much larger market and freshwater, which is more inland, and thought to ourselves, you know, how do we go after that market? So, we started with, obviously, introducing other cutlery related items and tools. And so, the smart fish scale for us, I know we talk a lot about it.
Alex Sturdy: You're probably getting sick of us talking about it at this point. But it really was our clever way of entering that market. And if you want to do something like that, it's best to establish a beachhead through innovation and then come in behind it with other products. So, for us, it's an important beachhead to continue introducing the Bubba brand to that consumer. So, if you were to look at Google Trends, for example, and look at Bubba Blade versus Bubba and some of the freshwater products versus salt, you're going to begin to see that there is sort of this climbing interest in the middle of the country, especially around, you know, freshwater lakes and things.
Alex Sturdy: And it's really part of that strategy. So, I think that it's pretty rare for a fishing brand to cross over from salt to fresh from fresh to salt, et cetera. But that's what our strategy has been, and we're seeing the traction of that right now. So, at the store level, certainly, you know, we've gone from being very well penetrated on the coast, and we're seeing much more adoption for the Bubba brand in the middle of the US.
Alex Sturdy: Yeah, that's awesome right here. And then just a quick last one for me. You guys kind of touched your balance sheet and improved during the quarter. It's looking pretty healthy. And you guys discussed a little bit more in depth about your thoughts around, you know, the capital allocation. But, you know, with the new product, the innovation seeming to drive these sales. Could you see some like additional spending in R&D to drive more product innovation?
Alex Sturdy: And, you know, the upcoming quarters, or kind of how are you going to go about that with your allocation there? Yeah, great question. This is Brian again, Andy. Andy can chime in. So, you know, we are focused on, obviously, organic growth, M&A, share buybacks, being our kind of primaries, we obviously pay down debt as well in the quarter. But, we are very focused on organic through innovation. And it's one of the reasons one of our strategies for maintaining our margins and ultimately higher ESPs, et cetera.
Alex Sturdy: So, you know, when we think about that, R&D, dear point, it's a huge part of that, right? I mean, gosh, almost, you know, 12 to 15 percent of our total workforce are people that are dedicated to just R&D and product development, which, in my view, is a very, it's a high percentage relative to some of the other companies that I'm aware of, and maybe even looked at to acquire. And so, one of the reasons why I think it is a lighter percentage relative to the total versus some other companies is the fact that we have, through consolidation, moving facilities into Colombia, we've used some of those savings to bulk up our R&D department.
Alex Sturdy: So, instead of outsourcing, prototyping, instead of outsourcing, some of those, some of those functions, or even relying upon, you know, other third parties, we've decided to take that in-house and really leverage the intellectual property we have through our incredible, incredible engineers and designers, and do most of what we can in-house. So, that gets us to market more quickly. It ensures that we can sort of lock up this innovation pipeline that we've talked about.
Alex Sturdy: So, I think, as a percentage of sales, I think it's a good number, but I don't think we're missing any dollars there. I think we're spending it wisely, and our pipeline, as you'll see over the coming years, will definitely show the fruit of that, outdoor. I think that's very helpful. Thank you guys. Yeah, thanks Alex. Again, if you have a question, please press star then one.
Brian Murphy: The next question is from Matt Koranda with Roth Capital Partners. Please go ahead. Hey guys, good afternoon. I wondered if you could maybe just elaborate a bit more on the retail expansion for grilla and meat. I know you said you're not going to necessarily be providing quarterly data points on it, but I'm just curious at a higher level, you know, any way to think about the entry into retail, whether that's through specific strategic retailers that you'll be dealing with, are there limited skis you're going into retail with? Are you going in with a full set of skis that they offer timing of entry? Is that factored into the growth outlook this year? Just some details high level on that would be very helpful.
Brian Murphy: Yeah, certainly. Hey, Matt, this is Brian. So, yeah, I mean, we're very excited about meat and grilla and one of the strategies that we had one when we started meat with the generated up interest where we could get the opportunity to place it at certain retailers. And if you have an unknown brand and you're trying to sell it into retail, it's a much more difficult value proposition. If it's a brand that has gained steam, it's more well-known.
Brian Murphy: Influencers are getting behind the brand. You get to a point where retailers are approaching you and that's definitely the case that we're faced with, the opportunity. So, we have been very careful about when to bring meat your maker into retail and obviously we bought grilla just over a year ago. And so the same there. And we've been, we've enjoyed the direct to consumer path. We think there's still tremendous upside for those two brands in direct to consumer.
Brian Murphy: With that said, there is an opportunity to get the brands in front of consumers because that is part of marketing. You know, some folks that is their exposure to certain brands. And so we have been approached by some retailers that we think very, very highly of have been good partners of ours and they have a specific viewpoint on how to approach the market with the new brand and some innovation. And so we are, we are.
Brian Murphy: We have been selective with who those retail partners are. I can't share those with you right now. But ultimately, we're going to start out small, make sure that we have the right sort of flywheel built with the consumer, make sure that we're supporting it appropriately. We've seen brands go into retail too, too quickly, you know, too much too soon. And we've, we've sort of learned from that on the sidelines. And so we want to do it in the right way, you know, certainly come out with a splash with certain retailers.
Brian Murphy: And then as that's as we go forward. So we're being a little cautious on sharing too much, but we do expect this year in this fiscal to be announcing some of those, some of that placement. Okay, that's fair.
Brian Murphy: And just maybe spinning back to the retailer or inventory health that you talked about in the prepared remarks and maybe discussed a bit in the Q&A here. Just curious how, how we're thinking about a replenished cycle and how that kicks off. I mean, we've just gotten a lot of data points recently from retailers that suggest that consumer demand is still pretty soft. And it just seems like retailers are still quite reticent to take on a lot of inventory.
Brian Murphy: So curious how you think that plays out this year. I know you said probably more likely to result in back half growth, but just maybe if you get elaborate a bit on how you're thinking about the replened cycle as we get into the back half of the year. Yeah, no great question, Matt. Brian, again, and Andy, feel free to jump in. I think there's a few things here. One is there aren't any sort of broad brushstrokes across the retail landscape.
Brian Murphy: We're seeing a tale of many cities. We're seeing some retailers, depending on the product categories, that they're in are varying better than others. And others that have managed inventory more tightly that we've seen them bounce back. Already, when we look at replenishment, we're having this conversation before the call. We look at replenishment. It's not like a light switch flips as you know. And all of a sudden they start ordering. They're already ordering.
Brian Murphy: All these retailers are still replenishing their inventories with our products. But it's a matter of looking at their targeted inventory turns in the year. And as consumer demand has slowed that number in order to reach those terms. It's somewhat of a moving target. And I think you've even maybe commented on that some of your in some of your reports. So the other dynamic that I haven't really seen come out in earnings calls is is the fact that, you know, that some retailers really had to look to online sales to be successful over the last two to three years.
Brian Murphy: Or the other ones had to play hurry up offense. And so that gave them a tremendous benefit as a result. If you look at the same demand, you just assume the same demand. And pre-COVID versus where we are today or what a normalized level looks like. I think you're going to see some retailers who are who are well run carry less inventory because they may have some vendors who are able to do more dropshipping.
Brian Murphy: So what that means for them is they can obviously offer more absorbent. But at the same time, they're not going to have to carry that inventory. They can sort of lean on the manufacturers of the vendors more to carry some of that. So, you know, yet to be seen what that looks like. But I think the vendors that have that capability to dropship and can do it effectively and be good partner with some of those retailers, I think we'll see some of those be more successful. Certainly we have that ability. Yeah, absolutely. That's very helpful, Brian. Thank you.
Andy Fulmer: And then I guess just maybe one for Andy. And I think maybe this has been asked in different ways in the past. But as you take over the full lease in the Columbia facility, just curious how we should be thinking about modeling op-X costs in the back half of the year. Since it's a Gen 1, I think, take over.
Andy Fulmer: Yeah, great question. It is January 1st. We take that over. That is built into our op-X assumptions and the framework that we provided with the EBITAS could be up to 6.5%. I can't really get more specific than that. I think what you'll see is as we get closer, you know, when we take that, the extra space over and then into the next fiscal year, we'll be able to share more more details.
Matt Koranda: Okay, fair enough. And then I guess just last one, I guess it's somewhat of a traditional question, lots of different people attack it on these calls.
Brian Murphy: But maybe Brian, could you take a crack at talking about M&A and just the funnel as we see it today? I mean, now that you have the debt basically, wipe clean, share buybacks, you know, been exercised with good results. Just curious how we should be thinking about M&A or appetite there, what the funnel looks like, how folks are thinking about valuation. Are there more catalyst to bring folks to the market? What are you seeing on that front?
Brian Murphy: Yeah, so I kind of give you a sense for the environment right now, and then what I think, this is just my own opinion, what I think we'll sort of have in the next few quarters based on our conversations with people, but certainly we've seen the number of deals come to market by, you know, cell-side advisors, investment bankers, has come down pretty pretty significantly, and I think that's for two reasons. One is valuation expectations have lowered, and also I think that some of those companies, depending on which categories they're in, have maybe have not reached a run rate EBITDA that they would like to get sort of credit for going forward, and so they're looking for sort of multiple stabilization, run rate stabilization, before they come back to market, with that said, you know, we are seeing fewer deals, but we are continuing to be very, very aggressive in our outbound efforts, so both Andy and I are always picking up the phone, reaching out to people that we want to go after, that we think would be highly complimentary, and so that continues, and so we've got a, I'll use the word robust, we've got a very robust pipeline, and a number of people that we're currently speaking with, and you know, we'll see where those go.
Brian Murphy: Like you said, we've got a very clean balance sheet, we have capacity, we're in a great spot, and we're also not sacrificing our efforts on the Sherry-Purchase side, so we're in about as good as a position as you can be in, I think, when it comes to M&A, and then looking out, I think Q1-Q2, calendar, Q1-Q2, next year, I think that we will start to see more deals come back to market, that's sort of the sense that I have, and speaking with advisors and with companies directly, because I think they'll have, you know, more line of sight around what run rate, EBITDA, performance looks like, and that's very similar to what you're hearing from people like us, and even other public companies, as they sort of look down the barrel of some of these forecasts that have been provided to us from our retailers, and give us that sort of more comfort based on what we know today about replenishment coming back.
Matt Koranda: Okay, super helpful, I'll leave it there guys, thank you.
Brian Murphy: This concludes our question and answer session. I would like to turn the conference back over to Brian Murphy for any closing remarks. Thank you, operator. Please know we will be participating in two upcoming investor conferences, the Lake Street Conference in New York City on September 14th, and the CLKing Best Ideas Virtual Conference on September 18th. We hope to see some of you at those events. In closing, I want to thank our employees across American outdoor brands for their great work this quarter, and for helping our customers and our consumers, make the most out of the moments that matter. Thank you, everyone, for joining us. We look forward to speaking with you again next quarter.
Operator: The conference is now concluded. Thank you for attending today's presentation.
Operator: You may now disconnect, and Paul