Day, everyone, and welcome to Smith & Wesson Brands, Inc. Second Quarter Fiscal 2026 Financial Results Conference Call. This call is being recorded. At this time, I'd now like to turn the call over to Kevin Alden Maxwell, Smith & Wesson's general counsel. Will give us information about today's call. Thank you. Please proceed.

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, 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 and one-time costs related to the grand opening event for the Smith & Wesson Academy. Reconciliations of GAAP financial measures to non-GAAP financial measures can be found in our SEC filings and 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 EBITDAS is to adjusted EBITDAS. 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 mix a metric published 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 mix 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. We were pleased with our second quarter results which continued to demonstrate the strength of the Smith & Wesson brand, the ongoing success of our innovation strategy, and our disciplined focus on managing operations allocating capital. As we anticipated, excellent efficiency in our business allowed us to deliver solid profitability of $15 million of EBITDA, on net sales of nearly $125 million. We also saw great results on our balance sheet, with a significant reduction in inventory, thanks to our disciplined sales and operations plan process. Which ensures our factories are right-sized to demand levels. This generated healthy operating cash flow of over $27 million in the quarter. Further, our new products continue to be a significant catalyst accounting for nearly 40% of sales in the quarter. I'm proud to see our award-winning engineering and design teams continuing to deliver products that resonate with consumers. Looking at market dynamics, we believe that the market continues to be healthy and stable, following normal seasonal trends. And that our brand strength, award-winning product portfolio, experienced team, and disciplined management allowed us to continue gaining share during the quarter. In handguns, our unit shipments into the sporting goods channel were down 1.9% versus mix being up 2.9%. However, when we adjust for channel inventory fluctuations in the period to understand true consumer demand, we had a 12,000 unit decrease in distributor inventory during Q2. This indicates that our handgun sell-through at the retail counter was actually up 7.7%, we believe reflecting market share growth. As I just mentioned, this was driven by the continued success of our entire line of new products. As well as solid performance from the core line. In long guns, our shipments into the sporting goods channel declined 5.1%,…

Thanks, Mark. Please note that all comparisons are between the 2026 and the 2025 unless stated otherwise. Net sales for our second quarter of $124.7 million were $5 million or 3.9% below the prior year. During the quarter, distributor inventory in terms of actual units declined by over 5% from the end of the prior quarter and by 15% compared with the October 2024. This indicates continued positive sell-through of our products at retail and a good position for us as we look forward to the coming months. Handgun ASPs increased slightly from Q1 levels due to strong demand certain premium products partially offset by promotions and continued demand for lower-priced products. Long gun ASPs increased due to the mix of higher-priced products, and slightly increased overall volume. Gross margin of 24.3% was down 2.3% versus a year ago due primarily to decreased absorption on temporarily lower production. As we focus on inventory optimization and an 80 basis point negative impact from tariffs. Partially offset lower promotion costs and lower federal excise taxes as a result of the favorable outcome of a recent audit. Operating expenses of $26.2 million were $733,000 lower than a year ago with increases in selling and marketing costs related to the grand opening of the Smith & Wesson Academy being more than offset by lower G and A primarily due to lower legal costs. The lower revenue and associated margin resulted in net of $1.9 million compared with $4.5 million in the prior year period. Earnings per share during the second quarter was 4¢ compared with 10¢ a year ago. Cash generated from operations during the second quarter was $27.3 million compared with cash used from operations of $7.4 million in the prior year quarter due primarily to lower inventory and income taxes paid. Inventory…

Thank you. With that, 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 that 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 One moment while we poll for questions. And our first question comes from the line of Mark Eric Smith with Lake Street Capital. Please proceed with your question.

Yeah. Hey, guys. Yeah. Alex on the line Mark Eric Smith today. Thanks for taking my questions. First one for me, you know, you noted an 80 or 80 basis point headwind in the quarter. Could you just walk us through, you know, what you're seeing in input costs right now, steel, components, tariffs, and how you're thinking about gross margins over the next couple of quarters?

Sure. Hey, Alex. This is Mark. Yeah. The you know, you know, we're mostly a US-based manufacturer, low you know, in the global economy that we do have some some source components from overseas. You know, I I think our our impact from tariffs, you know, you can probably expect it to pick up a little bit as we go through the back half of the year just, you know, as we work through some of the inventory that we had already in stock from, kind of the pre-tariff days. But, you know, it shouldn't have a material impact on our on our profitability as we go through the back half.

Okay. That's great. Next oh, sorry. Go ahead. I would just say one one other point. The back half of the year, we have more operating days. And as I said on the the prepared remarks, given given inventory has declined and we're now ramping back up, absorption will probably be a little bit favorable. So you'll see a little bit of positive impact that should be able to offset that that impact of tariff cost.

Okay. That's great. Second one for me. You know, OpEx looked really clean this quarter, specifically g and a. You is this a level you feel you can hold on to, or should we expect G and A to tick up we move through the rest of the year?

Yeah. I mean, our our operating expenses are usually fairly consistent year to year. So, you know, we we always have an increase for SHOT Show in January. So I think, you know, you can kinda look at, you know, how we've performed on operating expenses in past years and Q3 and Q4, and, you know, I think you can kind of expect that to be held in line. You know, we're we're pretty disciplined in in managing the know, the the OpEx line in general. And so I hope that that performance in Q3, Q4 kinda last year, I think you can kinda expect the same cadence this year.

Okay. That's great. And then last one for me. You know, it sounds like you're seeing some nice tailwinds given the Q3 outlook. Any early thoughts on how Q4 is shaping up from where you sit today?

Yeah. We've been really pleased with the, you know, performance you know, in in Q2 and first half of the year. You know, the strength of the brand is really kinda showing through and resonating new products are doing very, very well across the board. You know, we expect that we'll continue to focus on innovation. It's one of the core strategies, you know, that marketing and design teams are, you know, continue to kinda hit it out of the park with blockbuster. Launches. And, you know, so I think, you know, as you can see in the, you know, the kind of the the color and guidance for Q3, we expect that to continue into Q3. And And for Q4, as I said in the prepared remarks, the market is stable, normal, kind of back to back to how it how it always how it always performs. Which puts our Q4 always as our strongest quarter in in this this year, I don't think it's gonna be any different. I think you can expect, you know, somewhere high single digit, low low double digit growth in Q4 over Q3 this year.

Alright. That's great. Thanks for answering my questions.

Thank you. You got it. Thanks, Alex.

Thanks, Alex. And our next question comes from the line of Rommel Dionisio with Aegis Capital. Please proceed with your question.

Thank you very much. I know SHOT Show is still about a month away, but I wonder if I you've already had some conversations with retailers and distributors I wonder if you could just give us a little heads up in terms of the feedback you're receiving with regards to you know, research revenue for new products, outlook for twenty calendar twenty twenty six, and the industry overall? Thank you.

Yeah. Great. Thanks, Rommel. I mean, the the conversations we've been having with our with our whether it's distributors, retailers, know, all of our channel partners have been very positive around Smith & Wesson. I mean and and really kind of underscores the comments we made in the in the prepared remarks about the market share gains. You know? So, you know, the the the portfolio is performing extremely well. The strength of the brand is really starting to show through. So I think they're very pleased. Their inventory is in a really great spot as we kinda covered earlier. You know, we we always say we try and target about eight weeks of supply, and we're right there. Right at eight weeks right now. So, you know, their inventory is very clean across the line. You know, and and performing efficiently for them. So, you know, they're they're very pleased with the Smith & Wesson brand. As far as SHOT Show and, you know, what we got coming up there, you to keep your eye out. Obviously, as you know, we don't give any forward guidance into the new products, but, you know, we all I'll say is, you know, we we expect for the back half of this year absolutely to continue that, momentum on new products. You know? They're they continue to, you know, do really well for us in a in a competitive environment. Really what drives the needle, you know, for for us and, really, frankly, any any consumer good company. So we're gonna keep the keep the foot on the gas there.

Great. Look forward to hearing about Thank you.

Thanks, Rommel.

Thank you. And with that, there are no further questions at this time. I'd like to pass it back to Mark Peter Smith for any closing remarks.

Alright. Thank you, operator. And thank you every for joining us today and your interest in Smith & Wesson. And, we look forward to speaking with everybody again next quarter.

Thank you. And with that, this does conclude today's teleconference. We thank you for your participation, and you may disconnect your lines at this time. And have a wonderful day.