Good day, everyone, and welcome to Smith & Wesson Brands, Inc. First Quarter Fiscal 2026 Financial Results Conference Call. This call is being recorded. At this time, I would like to turn the call over to Kevin Alden Maxwell, Smith & Wesson's General Counsel, who will give us some information about today's call.

Thank you, and good afternoon. Our comments today may contain forward-looking statements. Our use of the words anticipate, project, estimate, expect, intend, believe, and other similar expressions are intended to identify forward-looking statements. Forward-looking statements may also include statements on topics such as our product development, objectives, strategies, market share, demand, consumer preferences, inventory conditions for our products, growth opportunities and trends, and industry conditions in general. Forward-looking statements represent our current judgment about the future and are subject to risks and uncertainties that could cause our actual results to differ materially from those expressed or implied by our statements today. These risks and uncertainties are described in our SEC filings which are available on our website along with a replay of today's call. We have no obligation to update forward-looking statements. We reference certain non-GAAP financial results. Our non-GAAP financial results exclude relocation expense. Reconciliations of GAAP financial measures to non-GAAP financial measures can be found in our SEC filings in today's earnings press release each of which is available on our website. Also, when we reference EPS, we are always referencing fully diluted EPS. And any reference to EBITDA is to adjusted EBITDA. Before I hand the call over to our speakers, I would like to remind you that when we discuss mix results, we are referring to adjusted NICS, a metric by the National Shooting Sports Foundation based on FBI NICS data. Adjusted NICS removes those background checks conducted for purposes other than firearms purchases. Adjusted NICS is generally considered the best available proxy for consumer firearm demand at the retail counter. Because we transfer firearms only to law enforcement agencies, and federally licensed distributors and retailers, and not to end consumers mix generally does not directly correlate to our shipments or market share in any given time period, we believe mostly due to inventory levels in the channel. Joining us on today's call are Mark Peter Smith, our President and CEO, and Deana L. McPherson, our CFO. With that, I will turn the call over to Mark.

Thank you, Kevin, and thanks, everyone, for joining us today. First quarter results came in better than expected, with sales of $85.1 million and EBITDA of $8 million. Reflecting robust demand for our new products and continued strong market share for our broader portfolio in every firearms category in which we compete. Our performance during the seasonal slow period for firearms demonstrates the strength of our brand and the ongoing success of our innovation strategy. During the first quarter, our performance in handguns was exceptional. With our shipments into the sporting goods channel increasing just over 35% year on year, versus NICS being down 2.4%. These results were driven by strength across several product lines, including Bodyguard, Shield, and M&P. Showing the power of the Smith & Wesson brand supported by our incredibly passionate and loyal customers. In long gun, our shipments into the sporting goods channel were down 28.1% year over year versus NICS being down 7.8%. However, reflects the divergent conditions between the shotgun and bolt action rifle market. Where we do not play meaningfully. And the MSR and lever action market, where we continue to maintain a very strong market position. As expected, average selling prices trended lower in the first quarter. Declining 6.1% sequentially. Handgun ASPs were down 4% while long guns declined 13% due to mix. The market remains highly promotional, our focus on new products, strong marketing campaigns, such as the red, white, and big blue campaign we ran throughout July, and continued consumer preference for our brand have allowed us to participate in promotions more selectively. As a result, we maintain relatively healthy ASPs throughout the summer. With the typically busy fall and winter seasons now upon us, we continue to expect to maintain strong ASP throughout fiscal 2026. Moving now to market…

Thanks, Mark. Net sales for our first quarter of $85.1 million were $3.3 million or 3.7% below the prior year comparable quarter. During the quarter, inventory at distributors declined by over 10% from the end of the prior quarter and over 13% compared with the July 2024 in terms of actual units. Indicating positive sell through of our products at retail and a good position for us as we look forward to the coming month. As expected, handgun ASPs declined slightly from Q4 levels due to promotions and continued strong demand for our lower priced products. Long gun ASPs decreased due to the mix of lower priced products, and lower overall volume. Gross margin of 25.91.5% below the comparable quarter last year due primarily to decreased absorption on lower production and a 120 basis point negative impact from tariffs. Stemming primarily from steel. Partially offset by lower promotion costs and lower federal excise taxes as a result of the favorable outcome of recent audit. Operating expenses of $25 million for our first quarter were $680,000 lower than the prior year comparable quarter with increases in R&D, being more than offset by lower selling and marketing costs due to lower promotional costs and the absence of costs related to the NRA show which was held in Q4 of last fiscal year. The lower revenue and associated margin, combined with an increase interest expense due to higher outstanding borrowings, resulted in a $3.4 million net loss or an 8¢ loss per share. Cash used in operations for the first quarter was $8.1 million compared with $30.8 million in the prior year comparable quarter, due to a net working capital decrease of $24 million Inventory increased $13.3 million during the current quarter versus $29.3 million in the prior year comparable quarter. As a…

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press 2 to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star key. One moment, while we poll for question. Thank you. Our first question comes from the line of Mark Eric Smith with Lake Street Capital. Please proceed with your question.

Hi, guys. I wanted to ask first about ASPs, kind of both in in handgun and long gun. Just just given kind of the competitive dynamics, but but more so kind of where the consumer is You know, how do you feel about your your pricing today on products? And and do you feel there's there's any shifting that that potentially could happen as we look through the rest of the year?

Hey, Mark. Yeah. The We are pretty pleased with the AFPs. Throughout the summer, as you know you know, that's our typically slow season you know, throughout the year in in firearms. And, you know, we were we were able to kinda maintain that. You know, the promotional environment still remains fairly robust out there. But for us, as I said in the in the prepared remarks, you know, with the the innovation making up a a significant portion of our of our pipeline of of products. And the strength of the, you know, even the core portfolio, you know, we were able to be pretty selective. We did participate, but, you know, you know, we are able to maintain those ASPs. And as we now, you know, go into the busy season, I think that bodes pretty well for us to to be able to hold those up throughout the rest of the year. K. And and then I I wanted to ask about the long term business. You talked about some markets where you don't really participate or have products. You know, what opportunities do you have in in expanding your your product offerings maybe to hit some of these these segments?

Yeah. I mean, I think we've been well, we have definitely been very successful with the 1854, know, entering into that lever action market. I think that's kinda paved the way for us to, you know, to continue expanding into more of the white space for us. In the in the in the industry that we don't play in. So, you know, we're Mary continue. We're we're still expanding that lever action platform. You know, there's you know, two more calibers that we're that we're still kinda working on on filling out. And, you know, we're those will be coming here very shortly. But, you know and then after that, it's, you know, on to the next thing. Perfect. And the last one for me is just as we look out to to changes in regulations with the recent tax law, it's is there opportunities for some NFA items potentially suppressors and SBRs offer some higher demand as as we move into January.

Yeah. Good question. For sure. You know, I think there's a lot of pent up demand there in the suppressor market. As folks are, you know, kind of waiting for the for the that law to go in the go into effect in January. So, you know, I think in a you know, from a long term perspective, bodes very well for us. With the with the Gemtek brand. So, you know, we're already seeing some some movement there with some promotions on, you know, for a early discounts and and on on the text. Fact stamp promos that we're running with some of our some of our fire or sorry. Sorry. Our suppressor retailers and, you know, I think that's an early indication that know, that that should be pretty healthy market come January. Excellent. Thank you.

Yep. Our next question comes from the line of Matthew Joseph Raab on for Steve Dyer Craig Hallum. Please proceed with your question.

Hey. Thanks. This is Matthew Raab on for Steve. Just wanna hone in on the legacy products. On on my math, legacy products were actually up very slightly year over year in the quarter. I guess, you know, two two sort of questions there. One, what do you credit the better performance to in the quarter? And then two, how do you feel about getting through the rest of that inventory as we look towards the the back half of the year?

Thanks, Matthew. Yeah. The, the the legacy product did very well for us. You know, we continue to gain share there. I think, you know, that the the combination of, you know, the strength of the brand you know, we're we are definitely taking share in that in that category. Of the more in line, you know, products, you know, excluding the new stuff. And we continue to see that, you know, that we we have some more runway there to go as we go through the rest of the year. And then from an from an inventory perspective, you know, we're hyper focused on that this year and kind of, you bringing our internal inventories kind of back down again, you know, just to be completely honest, we ended last year with maybe a little bit more than we wanted. And, you know, with that, I'll just remind you that, you know, for us in the firearms industry, that's not necessarily a concern. We obviously a strong balance sheet, and, you know, we're we're able to we're able to kinda navigate the ups and downs of the of the pretty well. I think we've proven over time and and, you know, for us now, that just means you know, again, these products, there's no expiration date on on on our inventory and just make some adjustments to the production run rate and and bring that down throughout throughout year.

Sure. That's that's great. And then just just on promos, really thinking about the back half of the year, we expect Promac promo activity to accelerate to aid the inventory reductions, or should we expect promos to remain pretty pretty rational? And then maybe comparing that cadence to to last year would be would be helpful. I mean, it sounds like you're being pretty thoughtful about promos in the near term, but but any other thoughts there would be would be great.

Yeah. On the promotional side, I you know, I don't foresee any need for us to, you know, be you know, leaning in there any more than we already have throughout this summer. As I mentioned, you know, we are we are participating. We're you know, we're just doing a very thoughtful manner. You know, we're a lot of conversations internally about, you know, maybe a couple pockets here and there where we wanna, you know, promote. But, you know, I I think you can kind of expect that our ASPs will, you know, kinda hold up throughout the rest of the year. You know, we'll we'll participate, but, you know, I think we're we're probably in a little bit better position just given the strength of the brand and, you know, again, strong balance sheet where we can kinda be a little bit more measured and and in in our participation. So know, we'll participate, but I don't think you know, you you shouldn't expect that, you know, we're gonna have a significant increase as go through the back half.

Okay. That's great. Thank you very much.

Thank you. And we have reached the end of the question and answer and I would like to turn the floor back to Mark Peter Smith for closing remarks.

Thank you, operator, and thanks, everyone, for joining us today. And your interest in our company. We look forward to speaking with everybody again next quarter.

Thank you. This concludes today's conference, and you may disconnect your line at this time. We thank you for your participation. Have a great day.