Good day, everyone, and welcome to American Outdoor Brands, Inc. Third Quarter Fiscal 2025 Financial Results Conference Call. This call is being recorded. At this time, I would like to turn the call over to Liz Sharp, Vice President of Investor Relations, for some information about today's call.

Thank you, and good afternoon. Our comments today may contain predictions, estimates, and other forward-looking statements. Our use of words like anticipate, project, estimate, expect, intend, should, 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. 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 securities filings. You can find those documents as well as a replay of this call on our website at aob.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. I have a few important items to note about our comments on today's call. First, we reference certain non-GAAP financial measures. Our non-GAAP results exclude amortization of acquired intangible assets, stock compensation, technology implementation, non-recurring inventory reserve adjustments, other costs, and income tax adjustments. The reconciliation 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. Also, when we reference EPS, we are always referencing fully diluted EPS. Joining us on today's call is Brian Murphy, President and CEO, and Andy Fulmer, CFO. And with that, I will turn the call over to Brian.

Thanks, Liz, and thanks everyone for joining us. I'm extremely pleased with our third quarter results, which came ahead of our expectations. We delivered net sales of over $58 million, a 9.5% increase over last year. We delivered growth in both our outdoor lifestyle and our shooting sports categories, supported by year-over-year increases in our traditional, e-commerce, and domestic sales channels. We delivered a significant increase in non-GAAP adjusted EBITDAS, which nearly doubled year-over-year. And similar to last quarter, our growth was driven mostly by inline products, well ahead of several new product launches that we teased at during our last call and showcased publicly in the third quarter. We believe our strong performance demonstrates the effectiveness of our long-term strategy to leverage our innovation advantage, to broaden our distribution opportunities, expand awareness of our brands, and strengthen our margins, all while remaining agile and asset-light. We delivered results in each of these areas in the third quarter, so let's jump in. First, let me share how we're leveraging our innovation advantage. At AOB, we often say that the greatest opportunity is the one that's right in front of us. And that means the growth potential in our existing brands. That growth potential comes from new products, which form the core of our innovation advantage. New products provide the oxygen that allows our brands to grow. They create larger addressable markets to house that growth. They deepen consumer loyalty and attract entirely new consumers. They drive retail foot traffic and drive retailers to choose us as a unique cross-category innovation partner. Most importantly, new products fuel our long-term growth by adding layers of IP-protected revenue to a platform that stacks up over time. While I plan to highlight some of these new products on today's call, I want to be…

Thanks, Brian. We're very pleased with our results for the third quarter. Our net sales and profitability came in ahead of our expectations, we further strengthened our balance sheet, and we continue to return capital to shareholders through our share repurchase program. Let me walk you through some of the details. Net sales for Q3 were $58.5 million, a 9.5% increase over Q3 last year. We delivered growth in both our outdoor lifestyle category and our shooting sports category and benefited from the timing of approximately $1 million in orders that were originally slated for the fourth quarter. In our outdoor lifestyle category, which consists of products related to hunting, fishing, outdoor cooking, and rugged outdoor activities, net sales grew by 15.1%, driven mainly by sales in our Meet Your Maker and BOG brands, as well as our knife and tool brands. In our shooting sports category, which includes solutions for target shooting, aiming solutions, safe storage, cleaning and maintenance, and personal protection, net sales grew by almost 3% compared to our third quarter last year. Within the category, shooting accessory sales increased due in part to promotional sales of some slower-moving inventory. Personal protection product sales were down slightly compared to last year, consistent with the decrease in adjusted NICS checks for the same period. Turning now to our distribution channels. Our traditional channel net sales increased by 9.6%, and our e-commerce net sales increased by 9.5% compared to Q3 last year. As a reminder, our e-commerce channel includes direct-to-consumer sales from our own websites as well as sales by online retailers that do not have brick-and-mortar stores. We believe this high single-digit growth across both categories continues to underscore the connection that our brands have both at retail and with consumers. With regard to gross margin, GAAP gross…

Thank you. We will now begin the question and answer session. Today's first question comes from Mark Smith with Lake Street Capital Markets. Please go ahead.

Hi, guys. I'll apologize if some of my questions are you hit on the call as I missed some of it. But, you know, I wanted to just ask broadly about new products, you know, if any insight you can give us on kind of the mix, the impact on sales, you know, but also I want to hear just kind of long-term, kind of how the pipeline looks and how you think about new product introductions, kind of the planning process behind that.

Sure. Hey, Mark. It's Brian. Yeah. So new products, obviously, is a big part of our go-forward plan. We are an innovation company. And, you know, historically for us, it has represented between 20% and 25% of our total net sales. And we have the neat slide in our investor deck that shows the stacking of that over time. So going forward, the pipeline continues to be a major contributor for us. And, frankly, as a big contributor going forward into this next year, just showing an acceleration of some of that growth. And in terms of, you know, sales mix, things like that, you know, we've talked about outdoor lifestyle becoming a bigger part of our overall portfolio, just given the nature of the opportunity and the size of some of those markets. So that continues to be the case. With that said, coming out of Shot Show last month, which you were there and saw some of the neat products that we had, particularly the Clay Copter and some other products from Caldwell, Tipton, Wheeler, is really in the shooting sports side, continuing to diversify into large markets that are more sustainable, you know, over time, have less fluctuation, and frankly, a strong user base. So overall, continue to move towards outdoor lifestyle, but in the meantime, also have some very exciting good long-term categories that we continue to expand into.

Excellent. And then, you know, might be a repeat from some of the script. But if you want to talk about kind of the topic as you're here of tariffs, you know, it's changing daily, but maybe talk about, you know, your expected exposure, you know, especially as we think about, you know, a mix of China, Canada, Mexico. You know, it sounds like it's maybe built into guidance, but walk us through kind of how you're looking at that and anything that maybe changes in your strategies going forward.

Yeah. So, Brian again, obviously. Yeah. Tariffs are continuing to change. Not only daily, but by the minute, it seems. If you're tracking The Wall Street Journal, they've got live coverage and updates by the minute. I think that's how you know that this is a fast-evolving situation. So I think our approach, just taking a step back, remains the same, which is, you know, we try to make ourselves as nimble as possible and built up a very strong balance sheet where we can make the right long-term decision, part of what we talked about in the prepared remarks. Because ultimately, we're seeing, you know, there might be tariffs, and there are right now, increased tariffs on Chinese goods. And then we're going back and forth on Canada versus Mexico, and there's even talk of other countries. So, ultimately, we want to measure twice and cut once and make the right long-term decision because, you know, moving a supply chain and making those changes, it's not a switch you can just flip. There are other things you need to take into account, like quality, which is a big one. We want to make sure we maintain our reputation of no recalls. For a company that produces as many new products as we do each year, it's imperative that we maintain our quality standards, and the team does a phenomenal job of that. So for us, you know, tariffs are obviously very, very top of mind. And we do, because we're an asset-light company, we do manufacture our products overseas and in China. Our Chinese partners play a big part of that. But we truly are leveraging our innovation advantage, and we've got a number of levers to pull, whether it's feathering in margin with new products because new products are such a large percentage for us. Our IP protection gives us tremendous protection for existing lines and, obviously, new ones. We've got a meaningful direct-to-consumer business. We've got some very exciting recurring revenue streams that are high margin. So we feel really good, you know, and as this situation continues to unfold, we have plenty of levers that we can pull.

Okay. Perfect. And then kind of the other hot topic, obviously, you know, consumer behavior, you know, any update on changes, anything that you've seen even as we think about maybe the last thirty days? You know, obviously, we've seen fluctuate a fair amount here, January to February. You know, but any thoughts around, you know, on-the-ground changes in consumer behavior that you guys are seeing?

Yeah. We're seeing, I mean, coming out of SHOT Show and talking with retailers, we are hearing and seeing consumers continue to be cautious in making their purchases. But it's also on the flip side one of the reasons we've been so successful and seeing that strong pull-through in POS at the stores is because, you know, consumers continue to be starved of innovation, and they're really being selective about where they're buying. So we're benefiting from that fact, but, certainly, there is some cautiousness. And I think specifically, too, you think about the kind of low, mid, high-level price point structure. We play in that higher price point. You know, most of our products are premium. And so we have a little bit of insulation there that is less price-sensitive and tends to be more affluent consumer. And that consumer still shows strong signs of resiliency.

Excellent. Thank you, guys.

Mhmm. Thanks, Mark.

The next question comes from Matt Koranda with Roth Capital. Please go ahead.

Hi. It's Joseph on for Matt today. We're just looking at your guidance. I wanted to see does it seem like a slight step up. Does this guidance for 2025 capture Q3 outperformance and which would growth might slow down a bit as sequentially. So I just wanted to ask about quarter-to-date trends in both channels and where you're seeing this mid-single-digit growth?

Hey, Joe. It's Andy. So yeah. So overall, on the net sales side, you know, we kind of narrowed the range to $207 to $210. So the midpoint is up about a million bucks. In the quarter, we talked about kind of some timing of about a million dollars that we thought was going to ship in Q4 that we shipped in Q3. And that's kind of normal quarter-to-quarter timing. But, yeah, overall, we feel really good about the year, the $207 to $210. We're able to increase the adjusted EBITDA guidance as well. So we're really happy with the quarter.

And just stayed on the consumer and then guidance. We see that you're reiterating your 2026 guidance. Is there any visibility you can give us in terms of long-term growth for your retail, excuse me, for your retail partners and your order books?

What do you mean by long when you say long-term growth, what are you referring to at post FY 2026 or?

Sorry. I just forgot FY 2026.

Yeah. This is Brian. I mean, the best detail I can give you is, you know, we had coming out of line reviews last quarter. We had some strong indications from our retail partners that they were going to double down on AOB and really sought to bring in more innovation into their stores. And so the story you saw in the prepared remarks, the story of really giving them instant access to innovation and excitement is real. And they're seeing that success. So coming out of Shot Show, which would have been between our last call and where we are today, those same retailers just really reiterated and strengthened their commitment to bringing in these products. You know, many of them are new and will hit in FY 2026. So not really a change of any kind there, other than just more conviction that those orders are there and there's strong demand for them.

Got it. And then just my final question here on your internal M&A funnel. Just want to see if you guys could provide us any commentary on what you're seeing out there in the M&A markets and if you could provide any color on what you're looking for and what's best the best interest for AOB.

Yeah. So, Brian here. I'll answer first, and maybe feel free to chime in. Yeah. M&A is near and dear to our heart. A big part of my background, and we've done a lot of, few deals here together, Andy and I. We just will continue to be very disciplined. We look at a ton of deals. We've seen the ice break a little bit before the tariffs with more companies seeming to come to market, so more sell-side deals with investment bankers. I do think that the tariff, you know, think there are lots of companies out there that have not really protected themselves. I think that or have as many levers to pull. And so we are seeing, I think, a little bit of a maybe a stutter step, you know, where they need to figure some things out first before they officially come to market. But, ultimately, I think it's going to continue to unfold. Honestly, I think the next three years is just going to continue to be an evolution, and new things will emerge. So it's how adaptable are the companies, how adaptable are they, and when they come to market. So I wouldn't be surprised if there's a little bit of a kind of pause on some deals coming to market. But, you know, we're still ready. You know, we're very excited looking at deals. We love deals that have perspective on recurring revenue, subscription revenue. You know, we have more in our own pipeline related to subscription revenue and recurring revenue. So, really, just trying to find the right deal that fits for our model and, you know, allow us to maintain asset agile and asset-light infrastructure.

Appreciate it. Thank you. Picked the rest offline.

This concludes our question and answer session. I would now like to turn the call back over to Mr. Murphy for closing remarks.

Thank you, operator. Before we close, I want to let everyone know that we'll be participating in the ROTH Conference in California on March 17th, and the Lake Street Virtual Conference on April 3rd. And we hope to see some of you there. I want to thank our employees whose tireless commitment to innovation allows us to remain focused on executing our long-term vision. Thank you to everyone who joined us today. Look forward to speaking with you again next quarter.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect your lines.