Q1 2024 Sturm Ruger & Co Inc Earnings Call

Operator: Thank you for standing by, and welcome to Sturm Ruger's first quarter 2024 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. To remove yourself from the queue, you may press star 11 again. I would now like to hand the call over to Chris Killoy, President and CEO. Please go ahead.

Thank you for standing by and welcome to Sturm Ruger as first quarter 'twenty 'twenty four earnings conference call. At this time, all participants are in a listen only mode.

After the speaker presentation, there will be a question and answer session to ask a question. During the session you will need to press star one one on your telephone to remove yourself from the queue. You May press star one again.

I'd now like to hand, the call over to Chris Galore, President and CEO. Please go ahead.

Christopher J. Killoy: Good morning, and welcome to Sturm Ruger & Company's first quarter 2024 conference call. I'll ask Kevin Reid, our General Counsel, to read the Caution on Forward-Looking Statements. Tom Dineen, our Chief Financial Officer, will then give an overview of the first quarter 2024 financial results, and then I will discuss our operations, including our recent Reduction in Force and Profitability Improvement Plan and the market. After that, we'll get to your questions. Kevin?

Chris Galore: Good morning, and walk ins Sturm, Ruger and company's first quarter 2024 conference call.

Chris Galore: I'll ask Kevin Reid, our general counsel to read the caution on forward looking statements dominate our chief Financial Officer will then give an overview of the first quarter 2024 financial results.

Chris Galore: We'll discuss our operations, including our recent reduction in force and profitability improvement plan and the market.

Kevin B. Reid: Thanks, Chris. As always, we want to remind everyone that statements made in the course of this meeting that state the company's or management's intentions, hopes, beliefs, expectations, or predictions of the future are forward-looking statements. It is important to note that the company's actual results could differ materially from those projected in such forward-looking statements. Additional information concerning factors that could cause actual results to differ materially from those in the forward-looking statements is contained from time to time in the company's SEC filings, including but not limited to the company's reports on Form 10-K for the year ended December 31, 2023, and, of course, on the Form 10-Q for the first quarter of 2024, which we filed last night.

Kevin B. Reid: After that we'll get to your questions. Kevin Thanks, Chris as always we want to remind everyone that statements made in the course of this meeting that state the companys or managements intentions hopes beliefs expectations or predictions of the future are forward looking statements.

Kevin B. Reid: Copies of these documents may be obtained by calling the company or the SEC, or on the company website at luber.com forward slash corporate, or, of course, on the SEC website at sec.gov. We do reference non-GAAP EBITDA. Please note that the reconciliation of GAAP net income to non-GAAP EBITDA can be found in our Form 10-K for the year ended December 31, 2023, and our Form 10-Q for the first quarter of 2024, both of which are posted to our website. Furthermore, the company disclaims all responsibility to update forward-looking statements.

Thomas A. Dineen: Thank you, Kevin. Now Tom will discuss the company's first quarter 2024 results. Tom?

Kevin B. Reid: It is important to note that the companys actual results could differ materially from those projected in such forward looking statements additional information concerning factors that could cause actual results to differ materially from those in the forward. Looking statements is contained from time to time and accomplished SEC filings, including but not limited to the company's reports on Form 10-K for the year ended December 31.

Chris Galore: 23 and of course on the Form 10-Q for the first quarter of 2020 for which we filed last night.

Chris Galore: These documents may be obtained by contacting the company or the SEC Foreigner company website, <unk> dot com tourists that corporate of course, the SEC website at SEC Gov. We do reference non-GAAP EBITDA. Please note that a reconciliation of GAAP net income to non-GAAP EBITDA can be found in our Form 10-K.

Chris Galore: Remember 31st 2023, and our Form 10-Q for the first quarter of 2024, both of which are posted to our website. Furthermore, the company disclaims all responsibility to update forward looking statements Chris.

Speaker Change: Thank you Kevin now Tom will discuss the company's first quarter 2024 results John.

Thomas A. Dineen: For the first quarter of 2024, net sales were $136.8 million, and diluted earnings were $0.40 per share. For the corresponding period in 2023, net sales were $149.5 million, and diluted earnings were $0.81 per share. Our profitability declined in the first quarter of 2024 from the first quarter of 2023 as our gross margin decreased from 26% to 21%. The lower margin was driven by a decrease in sales and production, a product mix shift toward products with relatively lower margins that remained in relatively stronger demand, Unfavorable deleveraging of fixed costs resulting from the decreased production and sales, and Inflationary Cost Increases in Materials, Commodities, Services, Wages, Energy, Fuel, and Transportation.

Tom: Thanks, Chris.

Tom: 124, net sales were $136 $8 million.

Tom: And diluted earnings were <unk> 40 per share.

Tom: For the corresponding period in 2023, net sales were $149 $5 million and diluted earnings were <unk> 81 per share.

Tom: Our profitability declined in the first quarter of 2024 from the first quarter of 2023 is our gross margin decreased from 26% to 21%.

Tom: The lower margin was driven by a decrease in sales and production.

Tom: Mixed shift towards products with relatively lower margins that remained relatively stronger demand on.

Tom: Unfavorable deleveraging of fixed costs, resulting from the decreased production and sales.

Tom: And inflationary cost increases in materials commodities services wages energy fuel and transportation.

Thomas A. Dineen: In the first quarter of 2024, we implemented a reduction in force that impacted about 80 of our employees and resulted in a severance expense of $1.5 million. Discharged reduced earnings by Earnings Per Share by $0.07; Chris will provide further commentary on this action and the related profitability improvement plan during his remarks. At March 30, 2024, our cash and short-term investments totaled $115 million. Our short-term investments are invested in United States Treasury bills and in a money market fund that invests exclusively in United States Treasury instruments that mature within one year. At March 30, 2024, our current ratio was 5.2 to 1, and we had no debt. 5.2 is among our highest current ratios in recent history.

Tom: In the first quarter of 2024, we implemented a reduction in force that impacted about 80 of our employees and resulted in a severance expense of $1.5 million.

Tom: This charge reduced earnings by earnings per share by <unk> <unk>.

Tom: Chris will provide further commentary on this action and the related profitability improvement plan during his remarks.

Chris Galore: At March 32024, our cash and short term investments totaled $115 million.

Chris Galore: Our short term investments are invested in the United States Treasury Bills, and then money market fund and in a money market fund that invests exclusively in the United States Treasury instruments, which mature within one year.

Chris Galore: At March 30, <unk> 2024, our current ratio was 512 to one and we had no debt and.

Chris Galore: $5 two is among our highest court ratios in recent history.

Thomas A. Dineen: Stockholders' equity was $332 million, which equates to a book value of $19.08 per share, of which $6.63 was cash and short-term investments. In the first quarter of 2024, we generated $7.3 million of cash from operations. We reinvested $1.8 million of that back into the company in the form of capital expenditures. We expect our 2024 capital expenditures will total approximately $15 million, related to some exciting new product introductions, upgrades to our manufacturing equipment, and improvements to our facilities.

Chris Galore: Stockholders' equity was $332 million, which equates to a book value of $19 eight per share.

Chris Galore: $6 63.

Chris Galore: With cash and short term investments.

Chris Galore: In the first quarter of 2024, we generated $7 $3 million of cash from operations.

Chris Galore: We reinvested $1 $8 million of that back into the company in the form of capital expenditures.

Chris Galore: We expect our 2020 for our capital expenditures will total approximately $15 million.

Chris Galore: Related to mix related to some exciting new product introductions.

Chris Galore: Upgrades to our manufacturing equipment and improvements to our facilities.

Thomas A. Dineen: In the first quarter of 2024, we returned $7.3 million to our shareholders through the payment of $4.1 million of quarterly dividends and the repurchase of 75,000 shares of our common stock in the open market at an average price of $42.89 per share for a total of $3.2 million. Our Board of Directors declared a $0.16 per share quarterly dividend for shareholders of record as of May 20, 2024, payable on June 7, 2024.

Chris Galore: In the first quarter of 2024, we returned $7 $3 million to our shareholders through the payment of $4 $1 million of quarterly dividends and the repurchase of 75000 shares of our common stock in the open market and an average price of $42 89 per share for a total of three.

Chris Galore: $3 $2 million.

Chris Galore: Our board of directors declared a <unk> <unk> per share quarterly dividend for shareholders of record as of May 20th 2024.

Chris Galore: Payable on June seven 2024.

Thomas A. Dineen: As a reminder, our quarterly dividend is approximately 40% of net income and therefore varies quarter to quarter. Our variable dividend strategy, coupled with our strong debt-free balance sheet, allows us to continually and consistently provide returns to our shareholders without sacrificing our ability to capitalize on opportunities that emerge. That's the financial update for the first quarter.

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

Chris Galore: Our variable dividend strategy, coupled with our strong debt free balance sheet allows us to continually and consistently provide returns to our shareholders without sacrificing our ability to capitalize on opportunities that emerge.

Speaker Change: That's the financial update for the first quarter Chris.

Christopher J. Killoy: Thanks, Tom. During the first quarter, we implemented a profitability improvement plan to ensure our long-term success and continued leadership in the firearms market. We restructured ourselves to better align and streamline some of our key functions in our organization: Manufacturing, New Product Development, Engineering, and Customer and Product Services. By streamlining our workforce, we are better positioned to allocate resources and focus on our core strengths and strategic priorities and achieve greater efficiency and productivity.

Chris Galore: Thanks, Tom during the first quarter, we implemented a profitability improvement plan to ensure our long term success and continued leadership in the firearms market.

Chris Galore: We restructured ourselves to better align and streamline some of our key functions of our organization manufacturing new product development engineering and customer and product service by.

Chris Galore: By streamlining our workforce, we are better positioned to allocate resources and focus on our core strengths and strategic priorities.

Chris Galore: <unk> achieved greater efficiency and productivity.

Christopher J. Killoy: As part of this restructuring, we made some difficult decisions and undertook a reduction in force that affected our... Given strong demand for many of our products and the skill set of the folks involved, approximately half of those impacted were able to be reassigned to direct manufacturing. This action resulted in a severance expense of $1.5 million in the first quarter and will result in annualized savings of approximately $9 million.

Chris Galore: As part of this restructuring we made some difficult decisions and undertook a reduction in force.

Chris Galore: Add to that.

Chris Galore: Given strong demand from any of our products and the skill sets of the folks involved.

Chris Galore: <unk> half of those impacted we're able to be reassigned to direct manufacturing positions.

Chris Galore: This action resulted in severance and the severance expense of $1 $5 billion in the first quarter and will result in annualized savings of approximately $9 million.

Christopher J. Killoy: In addition to the reduction of force, we identified opportunities for cost reduction and cost elimination in virtually every facet of the company. We expect to realize the benefit of some of these initiatives as quickly as the second quarter, while others will take more time to materialize. So it took a lot of hard work, analysis, collaboration, and creativity to pull this plan together, and we'll keep working hard to see it to fruition.

Chris Galore: In addition to the reduction of force, we identified opportunities for cost reduction and cost elimination and virtually every facet of the company.

Chris Galore: We expect to realize the benefit of some of these initiatives as quickly as the second quarter.

Chris Galore: While others will take more time to materialize.

Chris Galore: So a lot of hard work analysis collaboration and creativity to pull this plan together and we will keep working hard to see it to fruition.

Christopher J. Killoy: Throughout this process, we were guided by our core values of integrity, respect, innovation, and teamwork. And we will continue to abide by them as we pursue additional opportunities to consolidate functions and reduce or eliminate expenses wherever possible. Although the overall firearms market declined in the first quarter, demand for several of our product families remained strong, including many of our recently introduced products. The 75th Anniversary Mark IV Target Pistol, the 75th Anniversary 10.2 Rifles, the 75th Anniversary LCP Max Pistol, The American Rifle Generation 2 family of rifles, the Mini-14 Tactical with side-folding stock, and the LC Carbine chambered in

Chris Galore: Throughout this process, we are guided by our core values of integrity respect innovation and teamwork.

Chris Galore: And we will continue to abide by them as we pursue additional opportunities to consolidate functions and reduce or eliminate expenses wherever possible.

Chris Galore: Although the overall firearms market decline in the first quarter demand for several of our product families remained strong including many of our recently introduced products.

Chris Galore: 75th anniversary Mark for target pistol, 75th anniversary 10, 22 rifles.

Chris Galore: 75th anniversary LCP Max pistols.

Chris Galore: The American rental generation two family of rifles.

Chris Galore: The mini 14 tactical with Si bone stock and ELC carving chambered in 45 auto.

Christopher J. Killoy: This drove our sales increase in the fourth quarter and generated strong distributor sell-through of our products to retailers. The estimated unit sell-through of our products from independent distributors to retailers in the first quarter of 2024 increased 1% compared to the prior year period. Next, the background check, as adjusted by the National Shooting Sports Foundation, decreased 4% from the first quarter of 2020.

Chris Galore: This drove our sales increase in the fourth quarter and generated strong distributor sell through of our products to retail.

Chris Galore: The estimated unit sell through of our products from the independent distributors to retailers in the first quarter of 2024 increased 1% compared to the prior year period.

Chris Galore: Next <unk>.

Chris Galore: <unk> background checks.

Chris Galore: As adjusted by the National Shooting Sports Foundation decreased 4% from the first quarter of 2023.

Christopher J. Killoy: Our prioritization of developing exciting and innovative new products continues to pay off. New product sales, which include only major new products that were introduced in the past two years, totaled $42 million, or 32% of firearm sales in the first quarter of 2023. This was our second highest quarterly new product sales in recent memory, only slightly below the second quarter of 2021, which was a record year for us. In conjunction with our profitability improvement plan, we shifted resources and increased production to capitalize on the opportunities that this strong demand offers, and we increased our production from the fourth quarter.

Chris Galore: Our prioritization of developing exciting and innovative new products continues to pay off <unk>.

Chris Galore: New product sales, which include only major new products that were introduced in the past two years.

Chris Galore: <unk> totaled $42 million or 32% of firearm sales in the first quarter of 2024.

Chris Galore: This was our second highest quarterly new product sales in recent memory only slightly below the second quarter of 2021, which was a record year for us.

Chris Galore: In conjunction with our profitability improvement plan, we shifted resources and increased production to capitalize on the opportunities that this strong demand offers and increased our production from the fourth quarter.

Christopher J. Killoy: The strong consumer demand for our products resulted in a combined reduction of over 80,000 units in our finished goods inventory and the inventory of our products at distributors during the first quarter. Over the past two quarters, this combined inventory has dropped over 160,000 units and now sits at the lowest it has been since the first quarter of 2022, when inventories were still being replenished after the surge of demand that started in 2020.

Chris Galore: The strong consumer demand for our products resulted in a combined reduction of over 80000 units in our finished goods inventory and the inventory of our products at distributors during the first quarter.

Chris Galore: Over the past two quarters. This inventory. This combined inventory has dropped over 160000 units and now sits at the lowest it has been since the first quarter of 2022, when inventories were still being replenished.

Chris Galore: After the surge of demand that started in 2020.

Christopher J. Killoy: Simply said, we continually adjust our production levels to conform with demand. As such, we plan on increasing our production again in the second quarter to begin to replace the inventory, especially for the new products I mentioned earlier. Increased production will help us leverage our fixed costs and favorably impact our market. The American Rifle Generation 2 family of rifles has been extraordinarily well-received and has quickly become one of our most sought-after products.

Chris Galore: Simply said, we continue to adjust our production levels to conform with demand.

Chris Galore: As such we plan on increasing our production again in the second quarter to begin to replenish those inventories, especially for the new products I mentioned earlier.

Chris Galore: Increased production will help us leverage our fixed costs and favorably impact our margins.

Chris Galore: The American rifle generation two family of rifles has been extraordinarily well received and has quickly become one of our most sought after product lines.

Christopher J. Killoy: Since this new platform was launched in December, we have introduced 47 SKUs, including the Standard, Ranch, and Predator models. We are excited to further broaden the American Rifle Gen 2 offerings with the introduction of several additional new models planned in 2023. Those were the highlights of the first quarter of 2024. Operator, ma'am, we have the first question.

Chris Galore: Since this new platform was launched in December we've introduced 47, skus, including the standard Ranch our primary models.

Chris Galore: We are excited to further broaden the America American rifle Gen. Two offerings with introductions of several additional new models plan in 2024.

Chris Galore: Those are the highlights of the first quarter of 2024.

Speaker Change: Operator may we have the first question.

Operator: As a reminder, to ask a question, please press star 1 1 on your telephone. To remove yourself from the queue, you may press star 1 1 again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Mark Smith of Lakeshore.

Speaker Change: As a reminder to ask a question. Please press star one one on your telephone to remove yourself from the queue. You May Press Star one again, please standby, while we compile the Q&A roster.

Speaker Change: Our first question.

Speaker Change: It comes from the line of Mark Smith of Lake Street.

Mark Eric Smith: Hi guys. First question for me: I just wanted to dig in a little bit more about the kind of difference between orders during the quarter and production and shipments. Pretty big difference there was some of this timing of when orders came in; was this kind of planned? Maybe walk me through, you know, kind of your thoughts around, you know, the strength of orders, the demand that's out there, and your ability to produce and ship to meet the demand.

Mark Eric Smith: Hi, guys.

Mark Eric Smith: First question for me.

Mark Eric Smith: Just wanted to dig in a little bit more about kind of the difference between orders during the quarter and production and shipments pretty big.

Mark Eric Smith: <unk> there was with some of the timing of when the orders came in versus kind of plan.

Chris Galore: Maybe walk me through kind.

Chris Galore: Or your thoughts around.

Chris Galore: The strength in orders the demand that's out there.

Chris Galore: Kind of your ability.

Chris Galore: To produce and ship to meet the demand.

Christopher J. Killoy: Good morning, Mark. What we really saw at the end of Q4 2023 was the launch of the family of Generation II American Rifles. And when that happened, a lot of those orders were received in Q1, and of course, that's a higher-priced product than the Gen 1 rifles and higher than, say, product lines such as the 1022, Wrangler, and LCP. So that resulted in quite a few orders received in Q1, and again, a lot of those will take time as we're ramping that line up in our facility in Maryland.

Speaker Change: Good morning, Mark.

Speaker Change: We really saw at the end of Q4 2023, we had the launch of the family of generation two American rifles, and when that happened a lot of those orders were received in Q1 and of course, that's a higher priced product in the Gen. One rifles and higher than say product licenses of $2 22 Wrangler NLC.

Speaker Change: So that that it resulted in quite a few.

Speaker Change: Orders received in Q1 and again a lot of those will take time as were ramping that line up in our facility in Maryland. It will take us time to fill that we then additionally launched other other models and other calibers and other skus that contributed to the orders received in Q1, So I'm sure we'll be capitalizing on that throughout.

Christopher J. Killoy: It'll take us time to fill that. We then additionally launched other models and other calibers and other SKUs that contributed to the orders received in Q1. So I'm sure we'll be capitalizing on that throughout Q2, Q3, and I'm sure those orders will continue to come in as we get closer to hunting season.

Speaker Change: The Q2 Q3.

Speaker Change: And I'm sure those orders will continue to come in as we get closer to hunting season.

Mark Eric Smith: And, you know, any other movement within kind of categories, you know, handgun versus rifle, lever action, anything to call out where you're seeing strength or maybe where you're seeing, you know, any weakness in the men.

Speaker Change: Okay.

Speaker Change: And.

Speaker Change: Any other movement within categories.

Speaker Change: Categories.

Speaker Change: Handguns versus rifle <unk>.

Speaker Change: Anything to call out, where you're seeing strength or maybe where youre seeing.

Christopher J. Killoy: Well, right now, you know, we talked about some of the strengths of the 75th anniversary models. All of those anniversary models were priced to sell. The 1022 LCP and Mark IV models were all priced sharply so they would be available to all of our customers.

Speaker Change: Any weakness at the med.

Speaker Change: Well right now.

Speaker Change: We talked about some of the strength of a shall we say.

Speaker Change: <unk> anniversary models all of those anniversary models, where prices sell 10, 22, LCP and Mark for models were all.

Speaker Change: Priced sharply so they would be available to all of our customers. We think that's had the desired effect.

Christopher J. Killoy: We think that's had the desired effect. We also have, of course, the Gen 2 American Centerfire rifles have been an enormous hit, and things like the Mini-14 with the folding stock have also been a big hit, so it's been very positive. And, of course, Marlin continues to do extremely well.

Speaker Change: We also have of course the Gen. Two American Center fire rifles had been an enormous hit.

Speaker Change: And.

Speaker Change: Things like the mini 14 with the falling stock have also been a big hit.

Speaker Change: It's been very positive and of course Marlin continues to do extremely well the recent additions of the dark series and in addition.

Christopher J. Killoy: The recent additions of the Dark series and the addition in late 2024 of the.44 Magnum and.357 Magnum in the 1894 lines have been met with very, very strong demand, and we're frankly hiring direct labor. Despite the reduction in force, we have the help want to sign out for direct labor to build guns at all three of our facilities.

Speaker Change: In late 2024 of the 44 Magnum and 357 Magnum and 18 94 lines have been met with very very strong demand and we're frankly hiring direct labor. Despite the reduction in force. We have the help wanted sign out for direct labor to build guns at all three of our fire us plants.

Mark Eric Smith: Okay. Looking at gross profit margin a little bit, I wanted to see, you know, are there pressures on costs that you're seeing today in anything in particular? Is it primarily labor? Is there anything else that's putting pressure on gross profit margin?

Speaker Change: Okay.

Speaker Change: Gross profit margin a little bit I wanted to see.

Speaker Change: Is there are there pressures on cost that youre seeing today in anything in particular or is it primarily labor or is there anything else.

Speaker Change: That's putting pressure on our gross profit margin.

Christopher J. Killoy: Well, the biggest thing was, you know, we had, we had, you know, we decreased sales or decreased production. We've got unfavorable deleveraging of fixed costs, and then we've also got the inflationary cost impact on materials, commodities, wages, services, all of that is impacted. And that's partly offset by increased pricing, but this year we had very modest pricing. The other thing is our mix of products. So, for example, when demand shifts to lower-priced products like the original LCP, the LCP Max, Mark IV, and 1022 commemorative models, those are lower priced, and because we price them to sell, they have a slightly lower margin than their counterparts in the standard product line.

Speaker Change: Well the biggest thing was we had we had.

Speaker Change: As we decrease.

Speaker Change: Sale our fees decreased production.

Speaker Change: Unfavorable deleveraging of fixed costs and then we've also got the inflationary cost impact on materials commodities wages services all of that is impacting and thats, partly offset by increased pricing, but this year, we had very modest price increases.

Speaker Change: The other thing is our mix of product. So for example in <unk>.

Speaker Change: <unk> shifts to those lower priced products like the original LCP.

Speaker Change: The LCP Max Smart four and $10 two commemorative models.

Speaker Change: Lower pricing, because we price them price them to sell slightly lower margin than our counterparts in the standard product line. So I think all of that contributed to those decreased.

Christopher J. Killoy: So I think all that contributed to those decreased margins. I think the biggest factor going forward will be increasing production rates in Q2 and Q3, and we think that that will have a positive effect on gross margin.

Speaker Change: Margins I think the biggest factor going forward will be taken production rates up in Q2, and Q3, and we think that that'll have a positive effect on our gross margins.

Mark Eric Smith: As you talk about, you know, solid demand for some lower margin products, are those typically what we would think of as lower price products? You know, I guess LCP, maybe the Wrangler, even the Super Wrangler, is that putting more pressure than inflationary pressures on gross profit margins?

Speaker Change: Greg as you talk about solid demand for some <unk>.

Speaker Change: Lower margin products are those typically what we would think of as floor price.

Speaker Change: Products I guess, the LCP, maybe the wrangler, even the super regular is that putting more pressure than kind of inflationary pressures on gross profit margin.

Christopher J. Killoy: I'd say it's a mix, you know, and the first part of your question about, yes, typically, it's a lower-priced product, but we've got other examples where LCP, we make very good margins, for example, 1022; we make strong margins, and so we've got some opportunity within those priced slightly lower than our standard counterpart, but still making good margins. I think where we're seeing, you know, some of the mix, the centerfire pistol market remains very competitive, but certain of our product lines are doing very well, and, you know, the biggest thing for us is trying to capitalize on and move labor to where we can be most efficient within each factory.

Greg: I'd say, it's a mix.

Greg: And the first part of your question about yes, typically it's a lower price products, but we've got other examples where LCP, we make very good margins for example.

Speaker Change: 10, 22 extra on margins and so we've got some opportunity within those price slightly lower than our standard card counterpart, but still making good margins.

Speaker Change: Where we're seeing some of the mix.

Speaker Change: The Sapphire pistol market remains very competitive and.

Speaker Change: Certain of our product lines are doing very well and the biggest thing for us is trying to capitalize and move labor to where we can be most efficient within each factory.

Christopher J. Killoy: We've got three big factories; all of them are working hard to turn out exactly the right mix, but like I said, all of them are trying to hire direct labor to get our production levels up.

Speaker Change: Three big factories, all of them, we're working hard to turn out exactly the right mix, but like I said all of them are trying to hire direct labor folks to get our production levels up.

Mark Eric Smith: Okay, and I think the last one for me, just would love your thoughts on kind of the competitive market today, any insights you have on pricing in the market, are you seeing peers discount be more promotional, more specials that are out there that you think is, you know, giving some headwinds going forward?

Speaker Change: Okay.

Speaker Change: The last one for me just.

Speaker Change: Would love your thoughts on kind of the competitive market today.

Speaker Change:

Speaker Change: Okay.

Speaker Change: Any insight you have on pricing in the market are you seeing peers.

Speaker Change: Cal can be more promotional more specials that are out there.

Speaker Change: That you think as.

Speaker Change: It gives some headwinds going forward.

Christopher J. Killoy: We're seeing some discounting, to be sure, particularly if a manufacturer is only one product line deep or wide. For example, for folks that only make, say, the AR-15 platform, it's tough for them in this market. That has not been a strong part of this market, and so there may be some additional discounts that we're seeing there. And again, centerfire pistols; we're seeing a lot of rebates there as well. So far, it hasn't been too bad, but we're cautious going into 2024.

Speaker Change: We're seeing some discounting to be sure, particularly if the manufacturer is only one product line deep or wide for example for folks who only make say the <unk> platform. It's tough for them in this market that has not been a strong part of this market and so there may be some additional discounting that we're seeing there.

Speaker Change: And again Sapphire pistols, we're seeing a lot of rebates there as well.

Speaker Change: So far it's not hasn't been too bad, but we're cautious going into 2024 and like I said only had a certain product lines that we gave modest price increases to in years past.

Christopher J. Killoy: And like I said, we only had certain product lines that we gave modest price increases to. In years past, we, in fact, for I think several years before that, we had an annual price increase that equated to about 3% on January 1. Just based on the competitive nature of this market, we were not able to implement that level of price increases this year.

Speaker Change: In fact for I think several years before we had an annual price increase that equated to about 3% January one.

Speaker Change: Based on the competitive nature of this market, we were not able to implement those level of price increases this year.

Mark Eric Smith: Excellent. Thank you.

Speaker Change: Yes.

Speaker Change: Excellent. Thank you.

Speaker Change: Thanks Mark.

Operator: Our next question comes from the line of Rommel Dionisio of Aegis Capital.

Speaker Change: Thank you.

Speaker Change: Our next question.

Speaker Change: It comes from the line of <unk>.

Speaker Change: D N ACO.

Speaker Change: Capital.

Rommel Tolentino Dionisio: Thanks. Good morning.

Speaker Change: Thanks, Good morning.

Speaker Change: Chris I Wonder if you could just give us some perspective on the thoughts behind the restructuring I mean.

Speaker Change: When looking at your backlog numbers in inventories in the state of the industry. It doesn't seem like a time.

Christopher J. Killoy: Chris, you know, I wonder if you could just give us some perspective on the thoughts behind the restructuring. I mean, you know, we're looking at your backlog numbers and inventories, and the state of the industry. It doesn't seem like a time companies normally would enact a restructuring. Is this, you know, a move towards more flexible, flexible manufacturing, continuous improvement, and supply chain efficiency? Or are you seeing something different in your long-term industry outlook that would kind of motivate you to enact a more permanent restructuring here? How should we think about that?

Speaker Change: Companies normally would enact the restructuring is this.

Speaker Change: Move towards more flexible.

Speaker Change: Flexible manufacturing continuous improvement supply chain efficiency or are you seeing something different in your long term industry outlook.

Speaker Change: Kind of motivate you to to enact a more permanent restructuring here and how should we think about that.

Rommel Tolentino Dionisio: Well Rommel, good morning. The real thing is, you know, most of these folks were indirect labor. In fact, all of them were indirect labor, either salaried personnel or hourly folks working indirect labor jobs. And so when we eliminated those positions, as difficult as it was, it was partially as a result of some of the efficiencies we've gained with our lean manufacturing efforts, as well as our One Best Way initiative, where we're trying to consolidate activity amongst our plants.

Speaker Change: Well Robert good morning.

Speaker Change: The real thing is most of these folks for indirect labor folks in fact, all of our indirect labor either salary personnel or alloy folks working indirect labor jobs and so when we eliminated those positions as difficult as it was it's partially as a result of some of the efficiencies we've gained with our lean.

Speaker Change: Manufacturing efforts as well as our one best way initiative.

Speaker Change: Where we're trying to consolidate activity amongst our plants again, having three large manufacturing plants as a lot of opportunity for consolidation of activity and this was one as painful as it was for us and for the folks involved we thought it was the right long term restructuring action to take to make sure that we're focusing on.

Rommel Tolentino Dionisio: Again, having three large manufacturing plants is a lot of opportunity for consolidation of activity, and this was one, as painful as it was for us and for the folks involved, we thought it was the right long-term restructuring action to take to make sure that we're focusing on our future and getting our margins in order, getting our costs in order, and knowing that we're going to be in a competitive market for the foreseeable future, we had to get right The good news is that we were able to move, as we said, about half those folks into direct labor positions. So, for example, a person who might have been working an indirect labor job, perhaps serving several product lines, is now working on the line itself building firearms, and that was our intent.

Speaker Change: Our future and getting our margins in order to get our cost in order and knowing that we're going to be in a competitive market for the foreseeable future.

Speaker Change: Got to get right in terms of our cost structure and Thats. What this is intended to do the good news is we're able to move it as we said that half of those folks into direct labor positions. So for example, a person who might have been working in indirect labor job.

Speaker Change: Perhaps serving several product lines is now working on the line itself building firearms and that was our intent.

Christopher J. Killoy: Okay, all right. Thanks for that color.

Speaker Change: Okay, all right. Thanks for that color and maybe just a follow up then.

Rommel Tolentino Dionisio: Maybe just to follow up, then, you know, the industry has not seen a demand surge for, you know, a few years now, and we're getting into election year. Do you, you know, given the effects of the restructuring, still have that ability to quickly and rapidly flex up if necessary? If the industry were to, and obviously your own brand name, so you see that kind of corresponding demand surge that the industry does tend to see every few years.

Speaker Change: The industry has not seen a demand surge for a few years now and we're getting into a much leaner.

Christopher J. Killoy: Thanks.

Speaker Change: Given the effects of the restructuring do you still have that ability to quickly and rapidly flex up if necessary if the industry were just.

Speaker Change: And obviously your euro.

Speaker Change: Brand name, so you see that kind of corresponding demand surge as the industry does tend to see every few years. Thanks.

Rommel Tolentino Dionisio: Yeah, absolutely. I mean, we're in the process of flexing it up right now. Like I said, Q2 production has already moved ahead of where Q1 was, and that's our goal, and I suspect Q3 will be going in that direction as well. Despite things like NICS being down quarter over quarter or year over year, we've got some great opportunities ahead of us, and even though I don't typically speak in terms of forward-looking guidance, we've got some great new products coming that you'll see later this year, and that's part of the reason for our flexing our muscles now and increasing production so we can be ready for those new products and perhaps shift people from some of the existing lines to some of those new products that are just getting started now.

Speaker Change: Yes, absolutely I mean, we are in the process of flexing up right now like I said Q2 production.

Speaker Change: <unk> already moved ahead of where Q1 was and that's our goal and I suspect Q3 will be going in that direction as well as well.

Speaker Change: Slight things like knicks, being down quarter over quarter or year over year.

Speaker Change: We've got some great opportunities ahead of us and even though I don't typically speak in terms of forward looking guidance.

Speaker Change: Got some great new products.

Speaker Change: Youll see later this year and that's part of the reason for are flexing.

Speaker Change: Flexing our muscles now an increasing demand are increasing production. So we can be ready for those new products and perhaps shift people from some of the existing lines to some of those new products that are just getting started now.

Rommel Tolentino Dionisio: Okay, great. Thanks for the call. Looking forward to seeing the new products.

Speaker Change: Okay, great. Thanks for the call looking forward to seeing the new products. Thanks Ross.

Operator: Thank you. I would now like to turn the conference back to Chris Killoy for his closing remarks, sir.

Speaker Change: Thanks Rommel.

Speaker Change: Thank you I would now like to turn the conference back to Chris <unk> for closing remarks, Sir.

Christopher J. Killoy: In closing, I would like to thank all of you for attending our call this morning and thank our shareholders for their continued investment in our company. And I would like to thank our loyal customers and our 1,800 hardworking members of the Ruler team who design, build, and sell rugged, reliable firearms. I hope you will be able to join us at our virtual 2024 Annual Meeting on Thursday, May 30. Proxy notifications were sent out to shareholders in mid-April.

Chris Galore: In closing I would like to thank all of you for attending our call. This morning, and thank our shareholders for their continued investment in our company.

Speaker Change: And I would like to thank our loyal customers and our <unk> thousand 800 hard working members of the Ruger team, who design build and sell rugged reliable firearms.

Speaker Change: I hope you will be able to join us at our virtual 2024 annual meeting on Thursday May 30.

Speaker Change: Proxy notifications were sent out to shareholders in mid April so please be on the lookout and be sure to vote. Your shares in advance of the meeting I appreciate your support.

Christopher J. Killoy: So please be on the lookout and be sure to vote your shares in advance of the meeting. I appreciate your support as we approach Memorial Day on May 27. Please remember those service members who made the ultimate sacrifice to secure our freedoms.

Speaker Change: As we approach Memorial day on May 27, Please remember those service members, who made the ultimate sacrifice to secure our freedoms. Thank.

Speaker Change: Thank you all.

Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.

Speaker Change: And this concludes today's conference call. Thank you for participating you may now disconnect.

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