Good day and thank you for standing by. Welcome to the Q3 2024 Sturm, Ruger 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. [Operator Instructions]. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Chris Killoy, President and CEO. Please go ahead.

Good morning, and welcome to Sturm, Ruger & Company's third 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 third quarter 2024 financial results; and then I will discuss our operations and the market. After that, we'll get to your questions. Kevin?

Thanks, Chris. I just 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 31st, 2023, and of course, on the Form 10-Q for the third quarter of 2024, which we filed last night. Copies of these documents may be obtained by contacting the company or the SEC or on the company's website at ruger.com/corporate or the SEC website at sec.gov. We do reference non-GAAP EBITDA. Please note that the reconciliation of GAAP net income to non-GAAP EBITDA can be found in our Form 10-K for the year ended December 31st, 2023 and our Form 10-Q for the third quarter of 2024, both of which are also posted to our website. Furthermore, the company disclaims all responsibility to update forward-looking statements. Chris?

Thank you, Kevin. Now, Tom will discuss the company's third quarter 2024 results.

Thanks, Chris. For the third quarter of 2024, net sales were $122.3 million and diluted earnings were $0.28 per share. For the corresponding period in 2023, net sales were $120.9 million and diluted earnings were $0.42 per share. For the nine months ended September 28th, 2024, net sales were $389.9 million and diluted earnings were $1.15 per share. For the corresponding period in 2023, net sales were $413.2 million and diluted earnings were $2.13 per share. At September 28th, 2024, our cash and short-term investments totaled $96 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, which mature within one year. At December 28th, 2024, our current ratio was 4.5:1, and we had no debt. Stockholders' equity was $314.9 million which equates to a book value of $18.76 per share, of which $5.72 was cash and short-term investments. In the first nine months of 2024, we generated $35.5 million of cash from operations. Our year-to-date capital expenditures totaled $17.2 million. We expect our 2024 capital expenditures will total approximately $20 million. In the first nine months of 2024, we returned $39.3 million to our shareholders through the payment of $10 million of quarterly dividends and the repurchase of 699,000 shares of our common stock at an average price of $41.99 per share for a total of $29.3 million. Our Board of Directors declared a $0.11 per share quarterly dividend for shareholders of record as of November 13, 2024, payable on November 27, 2024. As a reminder, our quarterly dividend is approximately 40% of net income and therefore, varies quarter-to-quarter. Our variable dividends -- 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 third quarter. Chris?

Thanks, Tom. After a sluggish first half of the year, overall market demand appeared to recover somewhat in the third quarter. As mix background checks as adjusted by the National Shooting Sports Foundation increased by 4.5% from last year. For the same period, the estimated unit sell through of our products from the independent distributors to retailers increased 9%, twice the rate of the NICS increase. For the first nine months of 2024, adjusted NICS decreased 3%, while our estimated distributor sell-through increased 4%, again outpacing NICS. These quarterly and year-to-date metrics indicate that we likely picked up some market share. That's not surprising given the strong demand for several of our product families, including the American Rifle Generation II and Marlin Lever Action rifles, coupled with increased production on these lines. Furthermore, used gun sales appear to represent a larger percentage of overall retail firearm sales. An increase in used gun sales is not unusual during tough economic times, like we are currently experiencing, with decreased disposable income, high interest rates and rising consumer debt. This would suggest that, our gains are perhaps even greater than the NICS data would indicate, since NICS does not distinguish between used gun sales and new gun sales. The diversity of our products and the strong demand for several of our product families has allowed us to grow without sacrificing our long-term focus or pricing discipline despite the current promotion rich environment. Consequently, our finished goods inventory and our distributors' inventories have decreased 125,000 units in the past year. We are well-positioned to increase production entering the traditionally stronger fall and winter selling season, allowing us to capitalize on the pent-up demand for some of our more sought-after products. Developing innovative new products to drive growth, excitement and profitability is not new at…

Thank you. [Operator Instructions] And our first question is going to be from Mark Smith of Lake Street. You may go ahead.

Hi, guys. First question for me, and we've talked about this one before, but just wanted to discuss the big kind of delta between ASP of orders versus orders still in the backlog, much higher price. Is this a function of just timing on maybe building some rifles and shipping them or anything you can discuss to give us color on kind of the difference between those two numbers?

Thanks, Mark. The biggest thing when we look at our products and the backlog, biggest impact there that drives that ASP up is the Marlins. Marlins are much higher selling price. There's also a good number of American Gen IIs, but the biggest thing that skews that number north is the number of Marlins that are in that backlog.

And are those rifles that you feel like you get out here in this important fourth quarter and in time to get in consumer's hands for kind of key hunting seasons, or is this maybe more delayed into '25 in building and shipping a lot of those rifles?

A lot of them are going to 2025. We're going to maximize production in Q4, for Marlin in particular. We're building more Marlin's right now than we've ever built. The team down in Mayodan, North Carolina is doing a great job, maximizing production, but making sure we don't sacrifice quality. So I suspect that the backlog numbers will continue into at least Q1 and Q2.

Okay. And then, as we look at gross profit margin during the quarter, that being down, was that really a function of kind of mix and pricing of items that were shipped during the quarter?

There's certainly some mix. I mean, one of the things this year we didn't take an overall price increase, based on the competition in the market. We also, when we saw where the market was this year, we made some strategic decisions on our 75th anniversary guns to implement some fairly sharp prices on those, to make sure we get the volume. And then the other thing, of course, is that, these volume levels we're at today versus several years ago, deleveraging those fixed costs is really the biggest factor when we look at that. The other thing to remember in our third quarter, fewer work days because we take the July shutdown, 4th July week always has a negative impact on our Q3.

Okay. I think the last one for me, Chris, any comments just on kind of consumer demand, how it fits? I know you talked about in your commentary, I think used gun sales being up, but not kind of being a function of where the consumer is at. But any additional insights you can give us on that? And then also the promotional environment, you just discussed being, I don't know, if aggressive is the right word, but trying to price some of these anniversary items at the right level as we rotate through these other items? Do you feel like you need to move and be more promotional to compete, or do you feel like you're not seeing that pressure in the industry?

There's definitely pressure out there. We're seeing we just got back from the NASGW show, where we're being with our wholesalers, we're looking at what's happening in the industry, we're seeing a lot of rebates. If you look at the gun store counter over the next month or so, you'll see a lot of rebates from manufacturers. That's typically not where Ruger participates. Right now, I think we'll get through Q4 without any aggressive promotional efforts. But, we're keeping our powder dry. That may change as we get into 2025. Like I said, there's lots of capacity out there, particularly from players that are maybe only one category deep. If all you're making is AR platform rifles, MSRs, so to speak, then you've got nowhere to turn but to continue to discount. In Ruger's case, the breadth of our product line and the variety of products we offer help us to keep us somewhat insulated from having to defend market share in one single category. So we're going to stay disciplined, keep the power dry and continue to do our best to drive innovation with some really exciting new products, one of which you'll see in just a couple of weeks, and we're very, very excited about.

Excellent. Looking forward to it. Thank you.

Thanks, Mark.

Thank you. [Operator Instructions] Our next question comes from Rommel Dionisio, of Aegis Capital. You may go ahead. Your line is open.

Good morning Thank you for taking my questions. Chris, I wonder if we could just get your perspective on the competitive promotional environment a bit. I mean, obviously, this is a cyclical industry over the years, but while demand hasn't been particularly robust for several quarters, it's been somewhat stable. Is there -- do you think this is maybe more of a permanent thing in the industry that we're seeing just because, again, there's been some stability in the industry? Is there oversupply? I mean, I'd just love to hear your general thoughts on why promotions are continuing for such a fairly extended period of time at this point? Thanks.

Thanks, Rommel. Good question. We were just talking about this with our own team this week. One of the things I think we've seen is, one of the industry gun writers turn the phrase crisis fatigue, perhaps our customer base is not going out in an election year, for example, and buying more fires like they might have in previous election cycles. We certainly didn't see an uptick in demand there. We do think there's quite a bit of capacity out there. Some manufacturers have not slowed down. They probably over inventoried at their location. They've got their wholesalers and retailers perhaps over inventoried. So that results in some of that discounting. I think as we look at 2025 and look at absent any artificial stimulation in demand, I think it's pretty stable. I mean, I think you're right, it's a stable environment, but we're going to see these upticks from quarter-to-quarter. I think right now, what we're looking at in 2025, I wish my crystal ball was clear, but we're planning to be aggressive with our new products. We know, in Ruger's case, we're far better off trying to gain market share and take business based on exciting new product launches rather than trying to discount our way to success. In our case, we've got the American Centerfire Gen II family of rifles is off to a great start. Marlins, of course, continue to be a big driver for us. But the Gen II American Sapphire Rifles in particular, have really hit a hard run. We heard that loud and clear from our distributors. We certainly saw the impact with some of our competitors that are scrambling to do rebates and things like that. But the Gen II American Family of Rifles is going to continue to grow and we're very excited about that. And like I said, we've got a very exciting fourth quarter launch coming up that I think is going to be very strong for Ruger and we're going to try to do our best to take market share the old-fashioned way by exciting new products and not discount our way.

Great. Okay. We look forward to hearing more about that. Just maybe a follow-up, obviously, there were a lot of moving parts during the pandemic and all that. Wondering, are there any sort of other big picture items that you kind of see moving around, whether that's participation or more first-time shooters, women in the marketplace that some of those sort of bigger picture items that you're seeing change around here these last few quarters? Thanks.

Good question. We did gain a lot of new customers, the entire industry did during the pandemic. It's incumbent upon us to turn those first-time buyers into life-long customers. And we've been trying to do that, particularly with some of our exciting offerings in things like the Mark IV pistols, the 10/22s and things like to target some of the niches like you mentioned, our female customers, or frankly some of our older customers who may not have the hand strength they once did, products like the Security-380, which have done extremely well, have a much easier to manipulate slide and easier to control in the fairly comfortable to shoot 380 ACP caliber. We're going to continue to go after those new customers, those niche customers and try to grow that again with our new products and some of our product variations. We've been very successful this year with, like I said, particularly Mark IV, 10/22s using the 22 long rifle caliber. There are a lot of fun at the range and a great way to hang on to those new customers. There may have been a one-time purchaser they thought when they bought a gun for home or personal protection, during the pandemic. But if we can get a Mark IV pistol or 10/22 rifle into their hands, they're going to become a life-long customer and a life-long participant in the shooting sports.

Great. Thanks very much for insights.

Thanks, Rommel.

Thank you. And I'm showing no further questions at this time. So I would like to turn it back to Chris Killoy, President and CEO, for closing remarks.

I would like to thank all of you for attending this call, especially our shareholders. I want to mention two important upcoming dates. Next Tuesday is Election Day. As we head into an uncertain global, political and economic future, your voice at the polls is of great importance. Please educate yourself on the issues that are important to you, learn about the candidates, and vote. And the following Monday, November 11th, is Veterans Day. Without the sacrifice of those who served our great country, we wouldn't have the ability to exercise our many freedoms, including the right to vote. Please take a moment to say a quick prayer of thanks to all the brave servicemen and servicewomen, who fought to attain and protect these rights for all of us. We thank all veterans, especially the veteran members of the Ruger family for their service and sacrifice to our country. And I would like to thank our loyal customers and our 1800 hardworking members of the Ruger team who design, build and sell rugged, reliable firearms. We look forward to speaking with you at our next quarterly call in February. Thank you.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.