SMITH & WESSON BRANDS, INC. (SWBI)

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read the following Management’s Discussion and Analysis of Financial Condition and Results of Operations in conjunction with our consolidated financial statements and the related notes thereto contained elsewhere in this Annual Report on Form 10-K. This discussion contains forward-looking statements that involve risks, uncertainties, and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of a variety of factors, including those set forth under Item 1A, “Risk Factors” and elsewhere in this Annual Report on Form 10-K.

This section generally discusses year-to-year comparisons between fiscal 2025 and fiscal 2024. A discussion of our results of operations, liquidity, and capital resources for fiscal 2024 compared with fiscal 2023 is not included in this Annual Report on Form 10-K and can be found in Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" of our Annual Report on Form 10-K for fiscal 2024, filed with the SEC on June 20, 2024. See also the discussion below related to an immaterial correction of an error.

2025 Highlights

Our operating results for fiscal 2025 included the following:

•
Net sales of $474.7 million represented a decrease of $61.2 million, or 11.4%, from the prior fiscal year.

•
Gross profit decreased $30.9 million, or 19.6%, from the prior fiscal year, primarily as a result of lower sales volume and a shift in product mix. Gross margin decreased 270 basis points from the prior fiscal year in spite of a $3.2 million legal settlement recognized in the prior year comparable period. Excluding the impact of the prior year legal settlement, gross margin was 330 basis points lower as a result of higher material costs, higher promotional costs, and a shift in product mix to lower margin products, partially offset by lower inventory adjustments (including standard cost revaluations, shrink, and excess inventory write downs).

•
Net income was $13.4 million, or $0.30 per diluted share, compared with net income of $41.4 million, or $0.89 per diluted share, for the prior fiscal year.

•
During fiscal 2025, we paid $23.1 million in dividends compared with $22.0 million in fiscal 2024.

•
During fiscal 2025, we purchased 1,844,073 shares of our common stock for $25.5 million.

Immaterial Correction of an Error

During the fourth quarter of fiscal 2025, we identified an immaterial error related to our accrual for certain legal expenses, resulting in an overstatement of general and administrative expenses in the interim and annual periods for the year ended April 30, 2024 and during the interim periods for the year ended April 30, 2025. In accordance with Staff Accounting Bulletin (“SAB”) No. 99, Materiality, and SAB No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements, we evaluated the quantitative and qualitative considerations of the error and determined that the related impact was not material to results of operations, financial position, or cash flows for any historical annual or interim period. Prior year amounts have been adjusted to correct the immaterial error, which overstated accrued expenses and deferred revenue and general and administrative expenses by $2.3 million and understated income tax expense by $569,000 and overstated the related amounts of income tax receivable by $548,000 and deferred income taxes by $21,000 as of April 30, 2024 and for the year then ended. Related changes to net income, corresponding line items within cash provided by operating activities, and related disclosures within the notes accompanying these financial statements, reflect the immaterial correction.

Key Performance Indicators

We evaluate the performance of our business based upon operating profit and net income, which includes net sales, cost of sales, selling and administrative expenses, and certain components of other income and expense. We also track our return on invested capital, and we use adjusted EBITDAS (earnings before interest expense, taxes, depreciation, amortization, and stock-based compensation expense, excluding certain non-operational items), which is a non-GAAP financial metric, as a supplemental measure of our performance in order to provide investors with an

36

improved understanding of underlying performance trends. We evaluate the performance of our products using measurements such as gross margin per unit produced, units produced per day, revenue by trade channel, and incoming orders per day.

External Factors that Impact the Firearm Industry

The firearm industry has been subject to many external factors in the past that have significantly increased the volatility of revenue generated for companies within the industry. These factors include, among others, fears surrounding crime and terrorism; significant news events; potential restrictions on the sale or makeup of firearms; actual and potential legislative, judicial, and regulatory actions; economic changes; and changes in the social and political environment, including congressional and presidential elections. See Item 1A, Risk Factors, for further discussion of external factors that impact the firearm industry. Although these external factors have created demand surges and volatility in the firearm market, and often make it difficult to predict demand, we believe that those external factors have also likely contributed to a long-term increase in consumer interest in firearms. We estimate that the annual domestic non-military firearm market is approximately $2.8 billion for handguns and $1.9 billion for long guns, excluding shotguns, based on the latest data for industry shipments as calculated by the National Shooting Sports Foundation, or NSSF, utilizing Firearms and Ammunition Excise Tax data for calendar year 2023. According to calendar 2024 reports by the ATF, the U.S. firearm manufacturing industry grew at a 1.5% compound annual growth rate in units from 2018 through 2023, although there has been wide variation among years (e.g., 2019 to 2020 grew 58.0%). We believe that this expanding base of consumers combined with our strong brand reputation and attractive price points lend support to our goal of continuing to increase our market share.

Results of Operations

Net Sales and Gross Profit

The following table sets forth certain information regarding net sales and gross profit for the fiscal years ended April 30, 2025, 2024, and 2023 (dollars in thousands):

The following table sets forth certain information regarding units shipped by trade channel for the fiscal years ended April 30, 2025, 2024, and 2023 (units in thousands):

37

Sales of our handguns decreased $50.0 million, or 13.1%, from fiscal 2024, primarily as a result of lower consumer demand within the industry and a shift in product mix to lower priced models, partially offset by increased shipments of newly introduced products (defined as any new SKU not shipped in the prior year), which represented 42.6% of handgun sales in the period, and a 2%-5% price increase on select products that became effective in the third fiscal quarter of fiscal 2024. Handgun unit shipments into the sporting goods channel decreased 3.5% from fiscal 2024, while overall consumer demand decreased 3.2%, (as indicated by adjusted background checks for handguns reported to the National Instant Criminal Background Check System, or NICS).

Sales of our long guns decreased $12.5 million, or 10.8%, from fiscal 2024, primarily as a result of lower consumer demand within the industry, partially offset by increased shipments of new products in the fiscal year, which represented 59.5% of sales in the period, a shift in product mix to higher priced models, and a 2%-5% price increase on select products that became effective in the third fiscal quarter of fiscal 2024. Unit shipments into the sporting goods channel decreased 24.8% from fiscal 2024, while overall consumer demand for long guns decreased 2.1%, as indicated by NICS. We believe that our unit demand declined at a significantly greater rate than NICS as a result of a combination of the industry-wide performance in some of the long gun categories in which we participate relative to those categories in which we do not participate fully, specifically hunting, as well as the impact in the current year of newly introduced products from the prior year that are at lower price points.

Other products and services sales increased $1.3 million, or 3.5%, over fiscal 2024, primarily because of increased component parts and suppressor sales, partially offset by lower business-to-business sales.

New products represented 42.8% of net sales for the 12 months ended April 30, 2025 and included six new pistols, six new long guns, and many new product line extensions.

Gross margin decreased 270 basis points from the prior fiscal year in spite of a $3.2 million legal settlement recognized in the prior year comparable period. Excluding the impact of the prior year legal settlement, gross margin was 330 basis points lower as a result of higher material costs, higher promotional costs, and a shift in product mix to lower margin models, partially offset by lower inventory adjustments (including standard cost revaluations, shrink, and excess inventory write downs).

Inventory balances increased $29.3 million between April 30, 2024 and April 30, 2025 as a result of a slowdown in demand combined with level loading of our manufacturing facilities to ensure our ability to satisfy anticipated future demand. While inventory levels, both internally and in the distribution channel, in excess of demand may negatively impact future operating results, it is difficult to forecast the potential impact of distributor inventories on future revenue and income as demand is impacted by many factors, including seasonality, new product introductions, news events, political events, and consumer tastes. We expect our inventory levels to moderately decline during fiscal 2026.

Operating Expenses

The following table sets forth certain information regarding operating expenses for the fiscal years ended April 30, 2025, 2024, and 2023 (dollars in thousands):

Research and development expenses increased $2.3 million, primarily because of higher materials and testing costs associated with new product development and higher compensation-related costs. Selling, marketing, and distribution expenses increased $702,000 in spite of a $1.9 million impairment on distribution equipment related to the Relocation and one-time costs related to our grand opening event at our Maryville facility in fiscal 2024. Excluding

38

the impact of these one-time prior year charges, selling, marketing, and distribution expenses increased $3.5 million, primarily as a result of higher spending on promotions and higher compensation-related costs. General and administrative expenses decreased $8.2 million, primarily because of lower Relocation costs, lower profit-related compensation expense, and lower insurance costs, partially offset by higher legal costs. During fiscal 2025, we sold certain real estate located adjacent to our former Missouri distribution center for $2.3 million, net of transaction costs, and recognized a $2.3 million pre-tax gain on sale.

Operating Income

The following table sets forth certain information regarding operating income for the fiscal years ended April 30, 2025, 2024, and 2023 (dollars in thousands):

Operating income for fiscal 2025 decreased $23.2 million, or 49.3%, from the prior fiscal year, primarily for the reasons outlined above.

Other Income

The following table sets forth certain information regarding other income for the fiscal years ended April 30, 2025, 2024, and 2023 (dollars in thousands):

Other income for fiscal 2025 decreased $6.7 million, primarily as a result of the sale of certain intangible assets in fiscal 2024.

Interest Expense

The following table sets forth certain information regarding interest expense for the fiscal years ended April 30, 2025, 2024, and 2023 (dollars in thousands):

Interest expense increased by $2.6 million, primarily as a result of higher average debt balances and lower average cash balances compared with fiscal 2024.

Income Tax Expense

The following table sets forth certain information regarding income tax expense for the fiscal years ended April 30, 2025, 2024, and 2023 (dollars in thousands):

39

We recorded income tax expense of $5.8 million for fiscal 2025, $4.5 million lower than the prior fiscal year, primarily because of decreased profitability. Our effective tax rates were 30.2% and 20.0% for fiscal 2025 and 2024, respectively. The 2024 rate was impacted favorably as a result of an amendment of prior year returns for the foreign derived income deduction that reduced 2024 income tax expense by $1.4 million, or 2.9%. Adjusting for the foreign derived income deduction for each year, the effective tax rate would have been 22.8% for fiscal 2024, which is 7.9% lower than fiscal 2025 due primarily to decreased pretax income and changes in state apportionment and other state adjustments.

Net Income

The following table sets forth certain information regarding net income and the related per share data for the fiscal years ended April 30, 2025, 2024, and 2023 (dollars in thousands, except per share data):

Net income decreased $27.9 million, or $0.59 per diluted share, from fiscal 2024 primarily for reasons outlined above.

Liquidity and Capital Resources

Our principal cash requirements are to finance the growth of our operations, including working capital and capital expenditures, and return capital to our stockholders. Capital expenditures for new product development and repair and replacement of equipment represent important cash needs.

The following table sets forth certain cash flow information for the fiscal years ended April 30, 2025, 2024, and 2023 (dollars in thousands):

Operating Activities

Operating activities generally represent the principal source of our cash flow.

Cash used in operating activities was $7.2 million in fiscal 2025 compared with $106.7 million of cash provided in fiscal 2024. Cash used in operating activities in fiscal 2025 was unfavorably impacted by a $29.3 million increase in inventory compared with a $16.6 million decrease in inventory in fiscal 2024, a $14.8 million decrease in accounts payable compared with a $18.2 million increase in accounts payable in fiscal 2024, an $8.1 million decrease in accrued payroll and incentives compared with a $1.4 million decrease in accrued payroll and incentives in fiscal 2024, a $4.4 million decrease in accrued profit sharing compared with a $895,000 increase in accrued profit sharing in fiscal 2024, and lower net income. Cash used in operating activities in fiscal 2025 was favorably impacted by a $3.2 million decrease in accounts receivable compared with a $3.9 million increase in accounts receivable in fiscal 2024.

Investing Activities

Cash used in investing activities decreased $62.3 million for fiscal 2025 compared with fiscal 2024. We paid $21.6 million for capital expenditures for fiscal 2025, which was $69.2 million lower than fiscal 2024, primarily as a result of payments related to the Relocation in the prior year period.

40

We currently expect to spend $25.0 to $30.0 million on capital expenditures in fiscal 2026.

Financing Activities

Cash used in financing activities was $9.2 million for fiscal 2025 compared with $18.0 million in fiscal 2024. Cash used in financing activities during fiscal 2025 was primarily the result of $25.5 million of share repurchases and $23.1 million in dividend distributions, partially offset by $40 million of net borrowings under our revolving line of credit.

Credit Facilities — We entered into the Second Amended and Restated Credit Agreement on October 3, 2024. The Second Amended and Restated Credit Agreement provides for a revolving line of credit of $175.0 million at any one time, or the Revolving Line. The Revolving Line bears interest at either the Base Rate (as defined in the Second Amended and Restated Credit Agreement) or the Adjusted Term SOFR rate (as defined in the Second Amended and Restated Credit Agreement), plus an applicable margin based on our consolidated leverage ratio. The Second Amended and Restated Credit Agreement also provides a swingline facility in the maximum amount of $5.0 million at any one time (subject to availability under the Revolving Line). Each Swingline Loan (as defined in the Amended and Restated Credit Agreement) bears interest at the Base Rate, plus an applicable margin based on our Adjusted Consolidated Leverage Ratio (as defined in the Second Amended and Restated Credit Agreement). Subject to the satisfaction of certain terms and conditions described in the Second Amended and Restated Credit Agreement, we have an option to increase the Revolving Line by an aggregate amount not exceeding $50.0 million. The Revolving Line matures on the earlier of October 3, 2029 or the date that is six months in advance of the earliest maturity of any Permitted Notes (as defined in the Second Amended and Restated Credit Agreement) under the Second Amended and Restated Credit Agreement.

As of April 30, 2025, we had $80.0 million of borrowings outstanding on the Revolving Line, bearing interest at an average rate of 6.69%, which was equal to the Adjusted Term SOFR rate plus an applicable margin.

The credit agreement for the Revolving Line contains financial covenants relating to maintaining a maximum leverage ratio and a minimum debt service coverage ratio. We were in compliance with all debt covenants as of April 30, 2025.

Share Repurchase Programs – On September 19, 2023, our Board of Directors authorized the repurchase of up to $50.0 million of our common stock, subject to certain conditions, in the open market or in privately negotiated transactions through September 19, 2024, or the 2023 Authorization. During fiscal 2024, we purchased 793,551 shares of our common stock for $10.2 million under the 2023 Authorization. During fiscal 2025, we purchased 1,531,763 shares of our common stock for $21.4 million under the 2023 Authorization. The 2023 Authorization expired on September 19, 2024. On September 5, 2024, our Board of Directors authorized the repurchase of up to $50.0 million of our common stock, subject to certain conditions, in the open market or in privately negotiated transactions from September 20, 2024 through September 20, 2025, or the 2024 Authorization. During fiscal 2025, we repurchased 312,310 shares of our common stock for $4.1 million under the 2024 Authorization. During fiscal 2025, we repurchased a total of 1,844,073 shares of our common stock for $25.5 million.

Finance Lease – We are a party to a material finance lease, which is a $46.2 million lease that has an effective interest rate of approximately 5.0% and is payable in 240 monthly installments through fiscal 2039, as well as a related payment and performance guaranty, dated October 26, 2017, in favor of the Original Missouri Landlord. The building is pledged to secure the amounts outstanding. As part of the Relocation, on January 31, 2023, we entered into the Assignment and Assumption Agreement and the Amended and Restated Guaranty. Because of the Amended and Restated Guaranty, we continue to account for this lease as we have since prior to the Relocation. During fiscal 2025, AOUT made payments pursuant to this lease directly to the landlord and we neither received nor paid any cash related to this arrangement. See Note 3 — Leases for additional information.

As of April 30, 2025, we had $25.2 million in cash and cash equivalents on hand.

41

Based upon our current working capital position, current operating plans, and expected business conditions, we believe that our existing capital resources and credit facilities will be adequate to fund our operations for at least the next 12 months.

Our future capital requirements will depend on many factors, including net sales, the timing and extent of spending to support product development efforts, the expansion of sales and marketing activities, the timing of introductions of new products and enhancements to existing products, and the costs to ensure access to adequate manufacturing capacity. Future equity or debt financing may not be available to us on acceptable terms or at all. If sufficient funds are not available or are not available on acceptable terms, our ability to take advantage of unexpected business opportunities or to respond to competitive pressures could be limited or severely constrained.

Inflation

During fiscal 2025, 2024 and 2023 inflationary pressures resulted in increases in the cost of certain of the components, parts, raw materials, and other supplies necessary for the production of our products, as well as labor costs. We expect that inflation will continue to impact us during fiscal 2026.

Critical Accounting Estimates

Management's Discussion and Analysis of Financial Condition and Results of Operations is based upon our consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires that we make accounting estimates, judgments, and assumptions that can have a meaningful effect on the reporting of consolidated financial statements. See Note 2 — Significant Accounting Policies for additional information.

Critical accounting estimates are defined as those reflective of significant judgments, estimates, and uncertainties, which may result in materially different results under different assumptions and conditions. We believe the following are our critical accounting estimates:

Inventories

Description: We value inventories at the lower of cost, using the first-in, first-out, or FIFO, method, or net realizable value.

Judgments and Uncertainties: An allowance for potential non-saleable inventory as a result of excess stock or obsolescence is based upon a detailed review of inventory, past history, and expected future usage.

Sensitivity of Estimate to Change: The assumptions used to assess inventory valuation consider historical activity. Changes in these estimates can have a significant impact on the assessment of excess and obsolete inventory, which could result in material losses.

Recent Accounting Pronouncements

The nature and impact of recent accounting pronouncements is discussed in Note 2 — Significant Accounting Policies to our consolidated financial statements, which is incorporated herein by reference.

Off-Balance Sheet Arrangements

We do not have any transactions, arrangements, or other relationships with unconsolidated entities that are reasonably likely to affect our liquidity or capital resources. We have no special purpose or limited purpose entities that provide off-balance sheet financing, liquidity, or market or credit risk support or that engage in leasing, hedging, research and development services, or other relationships that expose us to liability that is not reflected in our consolidated financial statements.

42

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read the following Management’s Discussion and Analysis of Financial Condition and Results of Operations in conjunction with our consolidated financial statements and the related notes thereto contained elsewhere in this report. This discussion contains forward-looking statements that involve risks, uncertainties, and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of a variety of factors, including those set forth under Item 1A, “Risk Factors” and elsewhere in this report.

This section generally discusses year-to-year comparisons between fiscal 2024 and fiscal 2023. A discussion of our results of operations, liquidity, and capital resources for fiscal 2023 compared with fiscal 2022 are not included in this Annual Report on Form 10-K and can be found in Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" of our Annual Report on Form 10-K for fiscal 2023, filed with the SEC on June 22, 2023.

2024 Highlights

Our operating results for fiscal 2024 included the following:

•
Net sales of $535.8 million represented an increase of $56.6 million, or 11.8%, over the prior fiscal year.

•
Gross profit increased $3.6 million, or 2.3%, over the prior fiscal year, primarily as a result of increased sales volume. Gross margin decreased 2.7% from the prior fiscal year, primarily because of unfavorable fixed-cost absorption, as a result of lower production volume, the impact of an accrued legal settlement, the impact of inflation on raw materials, finished parts, and labor costs, and unfavorable inventory reserves adjustments, partially offset by the impact of decreased relocation spend and favorable mix associated with newly introduced products.

•
Net income was $39.6 million, or $0.86 per diluted share, compared with net income of $36.9 million, or $0.80 per diluted share, for the prior fiscal year.

•
During fiscal 2024, we paid $22.0 million in dividends compared with $18.3 million in fiscal 2023.

•
On September 30, 2021, we announced the Relocation. In connection with the Relocation, we built a new facility in Maryville, Tennessee and relocated some of our Springfield, Massachusetts operations and all of our Columbia, Missouri distribution operations to Maryville. We are in the process of relocating our corporate headquarters and a portion of our Deep River, Connecticut plastic injection molding operations to Maryville. In total, we expect to incur capital expenditures in connection with the construction and equipping of the new facility in an aggregate amount of approximately $160.0 million to $170.0 million. Through April 30, 2024, we had incurred $157.0 million of capital expenditures and $25.6 million of other restructuring charges related to the Relocation.

Key Performance Indicators

We evaluate the performance of our business based upon operating profit, which includes net sales, cost of sales, selling and administrative expenses, and certain components of other income and expense. We also track our return on invested capital, and we use adjusted EBITDAS (earnings before interest, taxes, depreciation, amortization, and stock-based compensation expense, excluding certain non-operational items), which is a non-GAAP financial metric, as a supplemental measure of our performance in order to provide investors with an improved understanding of underlying performance trends. We evaluate the performance of our products using measurements such as gross margin per unit produced, units produced per day, revenue by trade channel, and incoming orders per day.

39

External Factors that Impact the Firearm Industry

The firearm industry has been subject to many external factors in the past that have significantly increased the volatility of revenue generated for companies within the industry. These factors include, among others, fears surrounding crime and terrorism; significant news events, such as those related to mass shootings; potential restrictions on the sale or makeup of firearms; actual and potential legislative, judicial, and regulatory actions; economic changes; and changes in the social and political environment, including congressional and presidential elections. See Item IA, Risk Factors, for further discussion of external factors that impact the firearm industry. Although these external factors have created demand surges and volatility in the firearm market, and often make it difficult to predict demand, we believe that those external factors have also likely contributed to a long-term increase in consumer interest in firearms. We estimate that the annual domestic non-military firearm market is approximately $2.9 billion for handguns and $1.8 billion for long guns, excluding shotguns, based on the latest data for industry shipments as calculated by the National Shooting Sports Foundation, or NSSF, utilizing Firearms and Ammunition Excise Tax data for calendar year 2023. According to calendar 2022 reports by the U.S. Bureau of Alcohol, Tobacco, Firearms and Explosives, or ATF, the U.S. firearm manufacturing industry grew at a 10.0% compound annual growth rate in units from 2017 through 2022, although there has been wide variation among years (e.g., 2019 to 2020 grew 58.0%). We believe that this expanding base of consumers combined with our strong brand reputation and attractive price points lend support to our goal of continuing to increase our market share.

Results of Operations

Net Sales and Gross Profit

The following table sets forth certain information regarding net sales and gross profit for the fiscal years ended April 30, 2024, 2023, and 2022 (dollars in thousands):

The following table sets forth certain information regarding units shipped by trade channel for the fiscal years ended April 30, 2024, 2023, and 2022 (units in thousands):

Sales of our handguns increased $21.2 million, or 5.9%, over fiscal 2023, primarily as a result of increased shipments of revolvers, increased shipments of newly introduced products (defined as any new SKU not shipped in the prior year), which represented 22.8% of handgun sales in the period, the impact of targeted promotions on certain polymer frame pistols, and a 2%-5% price increase on select products that became effective in the third fiscal quarter, partially offset by lower demand for several older handgun products and certain products that were introduced in the

40

prior year. Handgun unit shipments into the sporting goods channel increased 5.6% over fiscal 2023, while overall consumer demand decreased 7.7%, (as indicated by adjusted background checks for handguns reported to the National Instant Criminal Background Check System, or NICS).

Sales of our long guns increased $42.3 million, or 56.9%, over fiscal 2023, primarily as a result of increased shipments of new products in the fiscal year, which represented 52.2% of sales in the period. Unit shipments into the sporting goods channel increased 53.3% over fiscal 2023, while overall consumer demand for long guns decreased 3.0%, as indicated by NICS.

Other products and services sales decreased $6.9 million, or 15.6%, from fiscal 2023, primarily because of decreased sales of component parts, decreased business-to-business sales, and decreased licensing revenue, partially offset by increased sales of handcuffs.

New products represented 27.6% of net sales for the 12 months ended April 30, 2024 and included one new pistol, three new long guns, and many new product line extensions.

Gross margin for fiscal 2024 decreased by 2.7% from the prior fiscal year, primarily because of a combination of unfavorable fixed-cost absorption (as a result of lower production volumes), the impact of an accrued legal settlement for $3.2 million, the impact of inflation on raw materials and finished parts, which increased approximately 5.6% over the prior fiscal year, the impact of inflation on labor costs (particularly as it relates to entry level positions), and unfavorable inventory reserve adjustments, including capitalized variances, partially offset by the impact of decreased Relocation spend and favorable mix associated with new products.

Our inventory levels decreased $16.6 million during fiscal 2024. While inventory levels, both internally and in the distribution channel, in excess of demand may negatively impact future operating results, it is difficult to forecast the potential impact of distributor inventories on future revenue and income as demand is impacted by many factors, including seasonality, new product introductions, news events, political events, and consumer tastes. We expect our inventories to increase in the first quarter of fiscal 2025 due to seasonal factors.

Operating Expenses

The following table sets forth certain information regarding operating expenses for the fiscal years ended April 30, 2024, 2023, and 2022 (dollars in thousands):

Operating expenses increased $7.2 million over the prior fiscal year. Research and development expenses decreased $284,000, primarily because of decreased sample and testing costs associated with new product development. Selling, marketing, and distribution expenses increased $3.6 million, primarily as a result of a $1.9 million impairment of distribution equipment related to the Relocation, one-time costs related to the grand opening event at our new Maryville facility, increased compensation costs, increased spend on targeted promotions, and increased freight costs because of higher shipments, partially offset by decreased compensation-related Relocation costs and decreased digital advertising costs. General and administrative expenses increased $3.9 million, primarily as a result of increased compensation expenses, legal expenses, and profit-related compensation costs, partially offset by decreased Relocation costs.

41

Operating Income

The following table sets forth certain information regarding operating income for the fiscal years ended April 30, 2024, 2023, and 2022 (dollars in thousands):

Operating income for fiscal 2024 decreased $3.6 million, or 7.5%, from the prior fiscal year, primarily because of the impact of an accrued legal settlement for $3.2 million, unfavorable inventory reserve adjustments, one-time costs associated with the grand opening of our new Maryville facility, increased spend on targeted promotions, and increased freight costs because of higher shipments, partially offset by increased sales volumes and decreased Relocation spend.

Other Income

The following table sets forth certain information regarding other income for the fiscal years ended April 30, 2024, 2023, and 2022 (dollars in thousands):

Other income for fiscal 2024 increased $6.5 million primarily is a result of the sale of certain intangible assets.

Interest (Expense)

The following table sets forth certain information regarding interest expense for the fiscal years ended April 30, 2024, 2023, and 2022 (dollars in thousands):

Interest expense increased by $1.7 million over the prior fiscal year, primarily as a result of higher average outstanding debt balances during fiscal 2024.

Income Tax Expense

The following table sets forth certain information regarding income tax expense for the fiscal years ended April 30, 2024, 2023, and 2022 (dollars in thousands):

We recorded income tax expense of $9.8 million for fiscal 2024, $1.6 million lower than the prior fiscal year, in spite of increased profitability, primarily as a result of an amendment of prior year returns for the foreign derived income deduction that favorably reduced current year income tax expense by $1.4 million, or 2.9%. Our effective tax rates were 19.8% and 23.5% for fiscal 2024 and 2023, respectively. Adjusting for the foreign derived income deduction for each year, the effective tax rates would have been 22.7% and 23.0% for fiscal 2024 and 2023, respectively.

42

Net Income

The following table sets forth certain information regarding net income and the related per share data for the fiscal years ended April 30, 2024, 2023, and 2022 (dollars in thousands, except per share data):

Net income increased $2.7 million, or $0.06 per diluted share, from the prior fiscal year for reasons outlined above.

Liquidity and Capital Resources

Our principal cash requirements are to finance the growth of our operations, including working capital and capital expenditures, and return capital to our stockholders. Capital expenditures for new product development and repair and replacement of equipment represent important cash needs.

The following table sets forth certain cash flow information for the fiscal years ended April 30, 2024, 2023, and 2022 (dollars in thousands):

Operating Activities

Operating activities represent the principal source of our cash flow.

Cash provided by operating activities was $106.7 million in fiscal 2024, or $90.0 million higher than the prior fiscal year. Cash from operating activities was favorably impacted by a $16.6 million decrease in inventory in fiscal 2024 compared with a $40.5 million increase in inventory in fiscal 2023, an $18.2 million increase in accounts payable in fiscal 2024 compared with an $8.6 million decrease in fiscal 2023, and a $6.3 million increase in accrued expenses and deferred revenue in fiscal 2024 compared with a $3.6 million decrease in fiscal 2023. Partially offsetting this favorable activity was a $3.9 million increase in accounts receivable in fiscal 2024 compared with a $7.6 million decrease in accounts receivable in fiscal 2023 due to increased sales volume.

Investing Activities

Cash used in investing activities in fiscal 2024 was $8.3 million lower than fiscal 2023, primarily as a result of $6.5 million received for the sale of certain intangible assets and the sale of assets related to the Relocation.

We currently expect to spend $25.0 to $30.0 million on capital expenditures in fiscal 2025.

Financing Activities

Cash used in financing activities was $18.0 million in fiscal 2024 compared with cash provided by financing activities of $5.9 million in fiscal 2023. Cash used in financing activities in fiscal 2024 primarily included $22.0 million in dividend distributions and $10.2 million of share repurchases, partially offset by a net $15.0 million borrowing under our revolving line of credit.

Finance Lease – We are a party to a material finance lease, the Missouri Lease, which is a $46.2 million lease for our Missouri distribution center that has an effective interest rate of approximately 5.0% and is payable in 240 monthly installments through fiscal 2039. The building is pledged to secure the amounts outstanding. During fiscal

43

2024, we paid approximately $1.3 million in principal payments relating to the Missouri Lease. With the completion of the Separation, we entered into the Missouri Sublease. On July 16, 2022, we entered into an amendment to the Missouri Sublease, increasing the subleased space to 64.7% of the facility under the same terms as the Missouri Lease. As part of the Relocation, on January 31, 2023, we entered into the Assignment and Assumption Agreement and the Amended and Restated Guaranty. We terminated the Missouri Sublease as of January 1, 2024. For fiscal 2024, income related to the Missouri Sublease was $2.7 million, of which $1.3 million was recorded in general and administrative expenses and $1.4 million was recorded in interest expense, net, in our consolidated statements of income.

Credit Facilities – We maintain an unsecured revolving line of credit with TD Bank, N.A. and other lenders, or the Lenders, which includes availability up to $100.0 million at any one time, or the Revolving Line. The Revolving Line provides for availability for general corporate purposes, with borrowings to bear interest at either the Base Rate or SOFR rate, plus an applicable margin based on our consolidated leverage ratio, as of April 30, 2024. The credit agreement also provides a swingline facility in the maximum amount of $5.0 million at any one time (subject to availability under the Revolving Line). Each Swingline Loan bears interest at the Base Rate, plus an applicable margin based on our consolidated leverage ratio. In response to a Springing Lien Triggering Event (as defined in the credit agreement), we would be required to enter into certain documents that create in favor of TD Bank, N.A., as administrative agent, and the lenders party to such documents as legal, valid, and enforceable first priority lien on the collateral described therein. Subject to the satisfaction of certain terms and conditions described in the credit agreement, we have an option to increase the Revolving Line by an aggregate amount not exceeding $50.0 million. The Revolving Line matures on the earlier of August 24, 2025, or the date that is six months in advance of the earliest maturity of any permitted notes under the credit agreement. On April 28, 2023, we amended our existing credit agreement to, among other things, replace LIBOR with SOFR as the interest rate benchmark and amend the definition of “Consolidated Fixed Charge Coverage Ratio” to exclude unfinanced capital expenditures in connection with the Relocation.

As of April 30, 2024, we had $40.0 million of borrowings outstanding on the Revolving Line, bearing interest at an average rate of 7.18%, which was equal to SOFR rate plus an applicable margin.

The credit agreement for our credit facility contains financial covenants relating to maintaining a maximum leverage ratio and a minimum debt service coverage ratio. We were in compliance with all debt covenants as of April 30, 2024.

Share Repurchase Programs – On September 19, 2023, our Board of Directors authorized the repurchase of $50.0 million of our common stock, subject to certain conditions, in the open market or in privately negotiated transactions through September 19, 2024. During fiscal 2024, we purchased 793,551 shares of our common stock for $10.2 million under this authorization. We did not purchase any shares of our common stock during fiscal 2023, and we did not have an authorized repurchase program as of April 30, 2023.

At April 30, 2024, we had $60.8 million in cash and cash equivalents on hand.

Based upon our current working capital position, current operating plans, and expected business conditions, we believe that our existing capital resources and credit facilities will be adequate to fund our operations for the next 12 months.

Our future capital requirements will depend on many factors, including net sales, the timing and extent of spending to support product development efforts, the expansion of sales and marketing activities, the timing of introductions of new products and enhancements to existing products, and the costs to ensure access to adequate manufacturing capacity.

44

Inflation

During fiscal 2024 and 2023, inflationary pressures resulted in increases in the cost of certain of the components, parts, raw materials, and other supplies necessary for the production of our products, as well as labor costs. We do not believe that inflation had a material impact on us during fiscal 2022. We expect that inflation will continue to have an impact during fiscal 2025.

Critical Accounting Estimates

Management's Discussion and Analysis of Financial Condition and Results of Operations is based upon our consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires that we make accounting estimates, judgments, and assumptions that can have a meaningful effect on the reporting of consolidated financial statements. See Note 2 — Significant Accounting Policies for additional information.

Critical accounting estimates are defined as those reflective of significant judgments, estimates, and uncertainties, which may result in materially different results under different assumptions and conditions. We believe the following are our critical accounting estimates:

Revenue Recognition

Description: We recognize revenue in accordance with the provisions of Accounting Standards Update, or ASU, Revenue from Contracts with Customers (Topic 606), which became effective for us on May 1, 2018. Generally, all performance obligations are satisfied and revenue is recognized when the risks and rewards of ownership have transferred to the customer, which is generally upon shipment but could be delayed until the receipt of customer acceptance.

Judgments and Uncertainties: In some instances, sales include multiple performance obligations. These may include sales promotion programs that entitle customers to receive rebates or free goods based upon their purchase of our products. The fulfillment of these free goods is our responsibility. We recognize revenue proportionally as each performance obligation is satisfied, based on the relative transaction price of each product. The net change in contract liabilities for a given period is reported as an increase or decrease to sales.

Our product sales are generally sold free on board, or FOB, shipping point and provide payment terms to most commercial customers ranging from 20 to 60 days of product shipment with a discount available in certain cases for early payment. In some instances, we may provide longer payment terms. We do not consider these extended terms to be a significant financing component of the contract because the payment terms are always less than one year. In all cases, we consider our costs related to shipping and handling to be a cost of fulfilling the contract with the customer.

Sensitivity of Estimate to Change: The liability relating to performance obligations is based on the estimated level of participation in the sales promotional program and the timing of the shipment of all products included in the promotional program. For contracts with discounted terms, we determine the transaction price upon establishment of the contract that contains the final terms of the sale, including the description, quantity, and price of each product purchased. We estimate variable consideration relative to the amount of cash discounts to which customers are likely to be entitled.

Valuation of Goodwill, Long-lived Tangible, and Intangible Assets

Description: We evaluate the recoverability of long-lived assets, or asset groups, whenever events or changes in circumstances indicate that carrying amounts may not be recoverable. When such evaluations indicate that the related future undiscounted cash flows are not sufficient to recover the carrying values of the assets, such carrying values are reduced to fair value and this adjusted carrying value becomes the asset’s new cost basis. We determine fair value primarily using future anticipated cash flows that are directly associated with and are expected to arise as a direct result of the use and eventual disposition of the asset, or asset group, discounted using an interest rate commensurate with the risk involved.

45

Judgments and Uncertainties: Determining whether impairment indicators exist and estimating the fair value of our goodwill, tangible and intangible assets requires significant judgment. Estimating the fair value of goodwill requires management to make assumptions and projections of future cash flows, revenues, earnings, discount rates, long term growth rates, and other factors.

Sensitivity of Estimate to Change: The assumptions used to assess impairment consider historical trends, macroeconomic conditions, and projections consistent with our operating strategy. Changes in these estimates can have a significant impact on the assessment of fair value which could result in material impairment losses.

Inventories

Description: We value inventories at the lower of cost, using the first-in, first-out, or FIFO, method, or net realizable value.

Judgments and Uncertainties: An allowance for potential non-saleable inventory as a result of excess stock or obsolescence is based upon a detailed review of inventory, past history, and expected future usage.

Sensitivity of Estimate to Change: The assumptions used to assess inventory valuation consider historical activity. Changes in these estimates can have a significant impact on the assessment of excess and obsolete inventory, which could result in material losses.

Warranty

Description: We generally provide a limited one-year warranty and a lifetime service policy to the original purchaser of our new firearm products. We will also repair or replace certain products or parts found to be defective under normal use and service with an item of equivalent value, at our option, without charge during the warranty period. We provide for estimated warranty obligations in the period in which we recognize the related revenue.

Judgments and Uncertainties: We quantify and record an estimate for warranty-related costs based on our actual historical claims experience and current repair costs. We adjust accruals as warranty claims data and historical experience warrant. Should we experience actual claims and repair costs that are higher than the estimated claims and repair costs used to calculate the provision, our operating results for the period or periods in which such returns or additional costs materialize could be adversely impacted.

Sensitivity of Estimate to Change: The assumptions used to assess warranty consider historical trends. Changes in these estimates can have a significant impact on the assessment of warranty, which could result in material losses.

Relocation

Description: As part of the Relocation, we offered a severance and relocation package to every affected employee. The severance was, in part, based on the employee's service term, job function, and classification status, and required the employee to remain active and in good standing through their relocation date.

Judgments and Uncertainties: In accounting for severance and relocation costs, we must make a variety of assumptions and estimates, including the number of employees that will meet all of the requirements to receive the severance and relocation package, the number of those employees that will be electing to relocate versus opt for severance, and the potential cost of self-insured benefits that may be incurred during any potential severance period. We consider current facts when determining these estimates.

Sensitivity of Estimate to Change: The liabilities relating to severance and relocation obligations is based on the number of employees affected by the Relocation, the number of employees that have decided to relocate, the estimated cost of benefits during the severance period, and the employees' terms of service and rates of pay as of the fiscal year end. Changes in these assumptions can have a significant impact on the estimate of these liabilities.

46

Recent Accounting Pronouncements

The nature and impact of recent accounting pronouncements is discussed in Note 2 — Significant Accounting Policies to our consolidated financial statements, which is incorporated herein by reference.

Off-Balance Sheet Arrangements

We do not have any transactions, arrangements, or other relationships with unconsolidated entities that are reasonably likely to affect our liquidity or capital resources. We have no special purpose or limited purpose entities that provide off-balance sheet financing, liquidity, or market or credit risk support or that engage in leasing, hedging, research and development services, or other relationships that expose us to liability that is not reflected in our financial statements.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read the following Management’s Discussion and Analysis of Financial Condition and Results of Operations in conjunction with our consolidated financial statements and the related notes thereto contained elsewhere in this report. This discussion contains forward-looking statements that involve risks, uncertainties, and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of a variety of factors, including those set forth under Item 1A, “Risk Factors” and elsewhere in this report.

The results of our outdoor products and accessories business, which was previously reported as a separate business segment, are being presented as discontinued operations in the consolidated statements of income for all periods presented, See Note 3 – Discontinued Operations to our consolidated financial statements for additional information regarding these discontinued operations. Unless otherwise indicated, any reference to income statement items in this Management’s Discussion and Analysis of Financial Condition and Results of Operations refers to results from continuing operations.

2023 Highlights

Our operating results for fiscal 2023 included the following:

•
Net sales of $479.2 million represented a decrease of $384.9 million, or 44.5%, from our fiscal 2022 net sales. The decrease in net sales was primarily as a result of a return to more normalized demand from the historic pandemic-related demand that lasted from March 2020 through the beginning of fiscal 2022 combined with a reduction in inventory within the distribution channel.

•
Gross profit decreased $220.0 million, or 58.7%, from the prior fiscal year primarily as a result of lower sales volume. Gross margin decreased 11.1% from the prior fiscal year as a result of reduced sales volumes across nearly all product lines, combined with the impact of inflation, unfavorable fixed-cost absorption due to lower production volume, and expenses related to the Relocation. These unfavorable impacts were partially offset by decreased compensation costs and favorable inventory valuation adjustments caused by amortization of variance capitalization offset by an increase in excess and obsolescence reserves.

•
Net income was $36.9 million, or $0.80 per diluted share, compared with net income of $194.5 million, or $4.08 per diluted share, for the prior fiscal year.

•
During fiscal 2023, we paid $18.3 million in dividends compared with $15.0 million in fiscal 2022.

•
On September 30, 2021, we announced the Relocation. In connection with the Relocation, we are building a new facility in Maryville. Our corporate headquarters, some of our Springfield manufacturing operations, a portion of our Deep River plastic injection molding facility, and our Columbia distribution operations will be relocated to Maryville. In total, we expect to incur capital expenditures in connection with the construction and equipping of the new facility in an aggregate amount of approximately $160.0 million to $170.0 million through the end of fiscal 2024. Through April 30, 2023, we had incurred $93.5 million of capital expenditures and $18.5 million of other restructuring charges related to the Relocation.

Key Performance Indicators

We evaluate the performance of our business based upon operating profit, which includes net sales, cost of sales, selling and administrative expenses, and certain components of other income and expense. We also track our return on invested capital, and we use adjusted EBITDAS (earnings before interest, taxes, depreciation, amortization, and stock-based compensation expense, excluding certain non-operational items), which is a non-GAAP financial metric, as a supplemental measure of our performance in order to provide investors with an improved understanding of

37

underlying performance trends. We evaluate the performance of our products using measurements such as gross margin per unit produced, units produced per day, revenue by trade channel, and incoming orders per day.

External Factors that Impact the Firearm Industry

The firearm industry has been subject to many external factors in the past that have significantly increased the volatility of revenue generated for companies within the industry. These factors include, among others, fears surrounding crime and terrorism; significant news events, such as those related to mass shootings; potential restrictions on the sale or makeup of firearms; actual and potential legislative, judicial, and regulatory actions; economic changes; and changes in the social and political environment, including congressional and presidential elections. See Item IA, Risk Factors, for further discussion of external factors that impact the firearm industry. Although these external factors have created demand surges and volatility in the firearm market, and often make it difficult to predict demand, we believe that those external factors have also likely contributed to a long-term increase in consumer interest in firearms. We estimate that the annual domestic non-military firearm market is approximately $3.5 billion for handguns and $1.6 billion for long guns, excluding shotguns, based on the latest data for industry shipments as calculated by the National Shooting Sports Foundation, or NSSF, utilizing Firearms and Ammunition Excise Tax data for calendar year 2022. According to calendar 2021 reports by the U.S. Bureau of Alcohol, Tobacco, Firearms and Explosives, or ATF, the U.S. firearm manufacturing industry grew at a 3.7% compound annual growth rate in units from 2016 through 2021, although there has been wide variation among years (e.g., 2019 to 2020 grew 58.0%). We believe that this expanding base of consumers combined with our strong brand reputation and attractive price points lend support to our goal of continuing to increase our market share.

Results of Operations

Net Sales and Gross Profit

The following table sets forth certain information regarding net sales and gross profit for the fiscal years ended April 30, 2023, 2022, and 2021 (dollars in thousands):

The following table sets forth certain information regarding units shipped by trade channel for the fiscal years ended April 30, 2023, 2022, and 2021 (units in thousands):

38

Fiscal 2023 Net Sales and Gross Profit Compared with Fiscal 2022

Sales of our handguns decreased $263.6 million, or 42.2%, from fiscal 2022, primarily as a result of a return to more normalized demand from the historic pandemic-related demand that lasted from March 2020 through the beginning of fiscal 2022 as competing products became more available through the replenishment of depleted channel inventory, partially offset by net sales generated from increased shipments of new products, which represented 26.8% of sales in the period, combined with one price increase of 5% on select products. Handgun unit shipments into the sporting goods channel decreased 48.4% from fiscal 2022, while overall consumer demand decreased 3.3%, (as indicated by adjusted background checks for handguns reported to the National Instant Criminal Background Check System, or NICS). In addition, during the fiscal year, handgun inventory in our distribution channel declined by 44.4%, which negatively impacted our net sales.

Sales of our long guns decreased $115.2 million, or 60.8%, from fiscal 2022. Similar to handgun sales, this decrease was primarily a result of lower demand for the majority of our long gun products as competing products became more available through the replenishment of depleted channel inventory, partially offset by increased shipments of new products in the fiscal year, which represented 36.3% of sales in the period. Unit shipments into the sporting goods channel decreased 59.9% from fiscal 2022, while overall consumer demand for long guns decreased 5.9%, as indicated by NICS. In addition, during the fiscal year, long gun inventory in our distribution channel declined by 49.6%, which negatively impacted our net sales.

We believe that overall firearm demand remains healthy, as indicated by NICS data, but has normalized from the surge levels we experienced during much of calendar years 2020 and 2021. We believe our comparable shipments year over year underperformed in comparison to NICS primarily because of an over-replenishment of our channel inventory during the first three quarters of fiscal 2022, at which time channel inventory peaked, and which led to our distribution partners actively seeking to reduce inventory of our products during fiscal 2023.

Other products and services sales decreased $6.1 million, or 12.1%, from fiscal 2022, primarily because of decreased sales of component parts and business-to-business sales, partially offset by increased sales of handcuffs.

New products, defined as any new SKU not shipped in the prior year, represented 25.8% of net sales for the 12 months ended April 30, 2023 and included three new pistols, one new modern sporting rifle, and many new product line extensions.

Gross margin for fiscal 2023 decreased by 11.1% from the prior fiscal year, primarily because of a combination of reduced sales volumes across nearly all product lines, the impact of inflation on raw material and finished parts, which increased approximately 9.6% over the prior year, the impact of inflation on labor costs, particularly as it relates to entry level positions, unfavorable fixed-cost absorption due to lower production volume, and expenses related to employee severance, partially offset by decreased compensation costs and favorable inventory valuation adjustments caused by amortization of variance capitalization offset by an increase in excess and obsolescence reserves. We generally attempt to mitigate inflationary impacts with price increases, when and where possible, based on market dynamics, and process improvements, although our ability to utilize process improvements in recent periods has been constrained by factors related to the Relocation.

Our inventory levels increased $40.5 million during fiscal 2023, as we slowly ramped down production to minimize impact to our employees and suppliers while replenishing stock to provide our customers with a more robust selection of inventory and position ourselves for potential increases in consumer demand and plan for the Relocation. During the second half of fiscal 2023, our inventory balances decreased $16.3 million. While inventory levels, both internally and in the distribution channel, in excess of demand may negatively impact future operating results, it is difficult to forecast the potential impact of distributor inventories on future revenue and income as demand is impacted

39

by many factors, including seasonality, new product introductions, news events, political events, and consumer tastes. We expect our inventories to remain elevated as we begin our transition to our new facility in Maryville.

A discussion of our results of net sales and gross profit for fiscal 2022 compared to fiscal 2021 is included in Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for fiscal 2022, filed with the SEC on June 23, 2022.

Operating Expenses

The following table sets forth certain information regarding operating expenses for the fiscal years ended April 30, 2023, 2022, and 2021 (dollars in thousands):

Fiscal 2023 Operating Expenses Compared with Fiscal 2022

Operating expenses decreased $16.8 million from the prior fiscal year. Research and development expenses increased $288,000, primarily because of increased new product development costs, partially offset by decreased compensation-related costs. Selling, marketing, and distribution expenses decreased $6.2 million, primarily as a result of decreased compensation-related expenses, decreased co-op advertising expenses, decreased advertising costs, and decreased freight costs due to lower shipments, partially offset by increased spending on targeted customer promotions. General and administrative expenses decreased $10.9 million, primarily because of a decrease of $5.3 million in profit sharing expense, decreased profit-related compensation costs, lower costs associated with the Relocation, decreased legal-related expenses, and decreased bad debt expense, partially offset by increased travel and entertainment expenses. Fiscal 2023 general and administrative expenses were reduced by sublease income of $1.8 million, of which $1.6 million was reported in other income/(expense) in fiscal 2022.

Fiscal 2022 Operating Expenses Compared with Fiscal 2021

Operating expenses decreased $6.4 million from the prior fiscal year. Research and development expenses decreased $218,000, primarily because of decreased compensation-related costs, driven by temporarily unfilled positions, we believe as a result of the Relocation. Selling, marketing, and distribution expenses increased $553,000, primarily as a result of increased digital advertising costs and expenses relating to industry shows, partially offset by decreased co-op advertising expenses on lower sales and decreased freight costs due to lower shipments. General and administrative expenses decreased $6.8 million, primarily because of a decrease of $7.0 million related to Separation costs incurred in the prior year, $5.2 million of lower compensation-related expenses primarily as a result of the synergy savings realized from the Separation, and a decrease of $1.5 million in depreciation expenses, partially offset by an increase of $5.6 million of costs associated with the Relocation and $1.4 million of increased legal-related expenses.

Operating Income from Operations

The following table sets forth certain information regarding operating income for the fiscal years ended April 30, 2023, 2022, and 2021 (dollars in thousands):

40

Fiscal 2023 Operating Income from Operations Compared with Fiscal 2022

Operating income from operations for fiscal 2023 decreased $203.2 million, or 80.8%, from the prior fiscal year, primarily because of reduced sales volumes across nearly all product lines, unfavorable fixed-cost absorption, and increased spending on targeted customer promotions, partially offset by decreased profit sharing expense, decreased profit-related compensation costs, lower costs associated with the Relocation, decreased legal-related expenses, decreased bad debt expense, favorable inventory valuation adjustments, and the change in classification of rental income.

Fiscal 2022 Operating Income from Operations Compared with Fiscal 2021

Operating income from operations for fiscal 2022 decreased $68.0 million, or 21.3%, from the prior fiscal year, primarily because of reduced sales volumes across nearly all product lines, unfavorable fixed-cost absorption, expenses incurred in relation to the Relocation, and increased legal costs. These unfavorable impacts were partially offset by lower promotional product spending, lower spend related to the Separation, decreased co-op advertising expenses, and decreased freight costs.

Other Income

The following table sets forth certain information regarding operating income for the fiscal years ended April 30, 2023, 2022, and 2021 (dollars in thousands):

Other income for fiscal 2023 decreased $2.7 million, or 94.8%, from the prior fiscal year, primarily as a result of the reclassification of sublease income to general and administrative expenses and interest expense, as applicable, in the current fiscal year.

Interest (Expense)

The following table sets forth certain information regarding interest expense for the fiscal years ended April 30, 2023, 2022, and 2021 (dollars in thousands):

Interest expense decreased by $1.8 million, or 84.5%, from the prior fiscal year primarily as a result of the reclassification of interest income on the sublease from other income combined with higher average interest rates paid on cash on deposit.

Income Tax Expense

The following table sets forth certain information regarding income tax expense for the fiscal years ended April 30, 2023, 2022, and 2021 (dollars in thousands):

41

We recorded income tax expense of $11.4 million for fiscal 2023, $46.5 million lower than the prior fiscal year, primarily because of decreased profitability. The effective tax rates were 23.5% and 22.9% for fiscal 2023 and 2022, respectively.

We recorded income tax expense of $57.9 million for fiscal 2022, $16.5 million lower than the prior fiscal year, primarily because of decreased profitability. The effective tax rates were 22.9% and 23.4% for fiscal 2022 and 2021, respectively.

Net Income

The following table sets forth certain information regarding net income and the related per share data for the fiscal years ended April 30, 2023, 2022, and 2021 (dollars in thousands, except per share data):

Fiscal 2023 Net Income Compared with Fiscal 2022

Net income decreased $157.6 million, or $3.32 per diluted share, from the prior fiscal year for reasons outlined above.

Fiscal 2022 Net Income Compared with Fiscal 2021

Net income decreased $49.1 million, or $0.34 per diluted share, from the prior fiscal year for reasons outlined above.

Liquidity and Capital Resources

Our principal cash requirements are to (1) finance the growth of our operations, including working capital and capital expenditures, (2) fund the Relocation, and (3) return capital to our stockholders. Capital expenditures for the Relocation, new product development, and repair and replacement of equipment represent important cash needs.

The following table sets forth certain cash flow information for the fiscal years ended April 30, 2023, 2022, and 2021 (dollars in thousands):

Operating Activities

Operating activities represent the principal source of our cash flow.

Cash provided by operating activities was $16.7 million in fiscal 2023, or $121.1 million lower than the prior fiscal year. Cash from operating activities was negatively impacted by a $157.7 million reduction in net income, partially offset by an incremental $17.7 million decrease in inventory and an incremental $18.4 million increase in accounts payable.

Cash provided by operating activities was $137.8 million in fiscal 2022, or $179.4 million lower than the prior fiscal year. The fiscal 2022 cash from operating activities was negatively impacted by an incremental $83.4 million increase in inventory due to increased production capacity combined with reduced consumer demand, an incremental

42

$52.5 million decrease in accounts payable due to lower operating activities, and the impact of paying the fiscal 2021 profit sharing in fiscal 2022. These unfavorable impacts were partially offset by an incremental $14.9 million increase in accrued expenses as a result of the payment of deferred federal excise tax liabilities during the first quarter of 2021, the fulfillment of performance obligations relating to sales promotions in the prior year, and a $9.9 million decrease in accounts receivable due to timing of shipments and customer payments.

Investing Activities

Cash used in investing activities in fiscal 2023 was $89.8 million, or $65.7 million higher than fiscal 2022. We recorded capital expenditures of $89.6 million for fiscal 2023, $65.6 million higher than fiscal 2022. Capital expenditures relating to the Relocation were $73.2 million for fiscal 2023, of which $513,000 is capitalized interest. Excluding spending related to the Relocation, we currently expect to spend between $20.0 million and $25.0 million on capital expenditures in fiscal 2024.

Additionally, as it relates to the Relocation, we currently expect to spend between $70.0 million and $75.0 million on capital expenditures in fiscal 2024, of which $50.0 million to $55.0 million is expected for the construction of the facility.

Cash used in investing activities in fiscal 2022 was $24.1 million, or $1.9 million higher than fiscal 2021 primarily due to cash used for capital expenditures.

Financing Activities

Cash provided by financing activities was $5.9 million in fiscal 2023 compared with cash used of $106.0 million in fiscal 2022. Cash provided by financing activities during fiscal 2023 was primarily a result of $25.0 million of borrowings under our revolving line of credit, partially offset by $18.3 million in dividend distributions.

Cash used in financing activities was $106.0 million in fiscal 2022, or $197.8 million lower than fiscal 2021. Cash used in financing activities during fiscal 2022 primarily included $90.0 million of share repurchases and $15.0 million in dividend distributions.

Finance Lease – We are a party to a material finance lease, the Missouri Lease, which is a $46.2 million lease for our Missouri distribution center that has an effective interest rate of approximately 5.0% and is payable in 240 monthly installments through fiscal 2039. The building is pledged to secure the amounts outstanding. During fiscal 2023, we paid approximately $1.2 million in principal payments relating to the Missouri Lease. With the completion of the Separation, we entered into the Missouri Sublease. On July 16, 2022, we entered into an amendment to the Missouri Sublease, increasing the subleased space to 64.7% of the facility under the same terms as the Missouri Lease. On January 31, 2023, we entered into the Assignment and Assumption Agreement and the Amended and Restated Guaranty. We intend to terminate the Missouri Sublease on or around the effective date of the Assignment and Assumption Agreement. We recorded $2.3 million of income related to the Missouri Sublease, of which $1.1 million was recorded in general and administrative expenses and $1.2 million was recorded in interest income in our condensed consolidated statements of income.

Credit Facilities – We maintain an unsecured revolving line of credit with TD Bank, N.A. and other lenders, or the Lenders, which includes availability up to $100.0 million at any one time, or the Revolving Line. The revolving line provides for availability for general corporate purposes, with borrowings to bear interest at either the Base Rate or LIBOR rate, plus an applicable margin based on our consolidated leverage ratio, as of April 30, 2023. The credit agreement also provides a swingline facility in the maximum amount of $5.0 million at any one time (subject to availability under the revolving line). Each swingline loan bears interest at the Base Rate, plus an applicable margin based on our consolidated leverage ratio. In response to a Springing Lien Triggering Event (as defined in the credit agreement), we would be required to enter into certain documents that create in favor of TD Bank, N.A., as administrative agent, and the lenders party to such documents as legal, valid, and enforceable first priority lien on the collateral described therein. Subject to the satisfaction of certain terms and conditions described in the credit agreement, we have an option to increase the revolving line by an aggregate amount not exceeding $50.0 million. The revolving line matures on the earlier of August 24, 2025, or the date that is six months in advance of the earliest maturity of any permitted notes under the credit agreement.

43

On April 28, 2023, we entered into an amendment to our existing credit agreement to, among other things, replace LIBOR with SOFR as the interest rate benchmark and amend the definition of "Consolidated Fixed Charge Coverage Ratio" to exclude unfinanced capital expenditures in connection with the Relocation.

As of April 30, 2023, we had $25.0 million of borrowings outstanding on the Revolving Line, which bore interest at 6.62%, which was equal to the LIBOR rate plus an applicable margin.

The credit agreement for our credit facility contains financial covenants relating to maintaining maximum leverage and minimum debt service coverage. We were in compliance with all debt covenants as of April 30, 2023.

Share Repurchase Programs – On March 2, 2021, our board of directors authorized the repurchase of $100.0 million of our common stock, subject to certain conditions, in the open market or in privately negotiated transactions until March 2022. Pursuant to this authorization, during fiscal 2021, we purchased 3,380,447 shares of our common stock for $60.0 million, utilizing cash on hand. During fiscal 2022, we completed this stock repurchase program by purchasing 1,967,420 of our common stock for $40.0 million, utilizing cash on hand. On June 15, 2021, our board of directors authorized the repurchase of an additional $50.0 million of our common stock, subject to certain conditions, in the open market or in privately negotiated transactions, until August 2022. Pursuant to this authorization, during fiscal 2022, we completed this repurchase program by purchasing 2,788,152 shares of our common stock for $50.0 million, utilizing cash on hand. As of April 30, 2023, we had no authorized share repurchase programs. We did not purchase any shares of our common stock during fiscal 2023.

At April 30, 2023, we had $53.6 million in cash and cash equivalents on hand.

Based upon our current working capital position, current operating plans, and expected business conditions, we believe that our existing capital resources and credit facilities will be adequate to fund our operations for the next 12 months.

Our future capital requirements will depend on many factors, including net sales, the construction of the new facility in Maryville, the timing and extent of spending to support product development efforts, the expansion of sales and marketing activities, the timing of introductions of new products and enhancements to existing products, and the costs to ensure access to adequate manufacturing capacity.

Inflation

During fiscal 2023, inflationary pressures resulted in increases in the cost of certain of the components, parts, raw materials, and other supplies necessary for the production of our products, as well as labor costs. We do not believe that inflation had a material impact on us during fiscal 2022 or 2021. We expect that there will be an increased impact from inflation during fiscal 2024.

Critical Accounting Estimates

Management's discussion and analysis of financial condition and results of operations is based upon the Company's consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires that we make accounting estimates, judgments, and assumptions that can have a meaningful effect on the reporting of consolidated financial statements. See Note 2 — Significant Accounting Policies for additional information.

Critical accounting estimates are defined as those reflective of significant judgments, estimates, and uncertainties, which may result in materially different results under different assumptions and conditions. The Company believes the following are its critical accounting estimates:

Revenue Recognition

Description: We recognize revenue in accordance with the provisions of Accounting Standards Update, or ASU, Revenue from Contracts with Customers (Topic 606), which became effective for us on May 1, 2018. Generally,

44

all performance obligations are satisfied and revenue is recognized when the risks and rewards of ownership have transferred to the customer, which is generally upon shipment but could be delayed until the receipt of customer acceptance.

Judgments and Uncertainties: In some instances, sales include multiple performance obligations. These may include sales promotion programs that entitle customers to receive rebates or free goods based upon their purchase of our products. The fulfillment of these free goods is our responsibility. We recognize revenue proportionally as each performance obligation is satisfied, based on the relative transaction price of each product. The net change in contract liabilities for a given period is reported as an increase or decrease to sales.

Our product sales are generally sold free on board, or FOB, shipping point and provide payment terms to most commercial customers ranging from 20 to 60 days of product shipment with a discount available in certain cases for early payment. In some instances, we may provide longer payment terms. We do not consider these extended terms to be a significant financing component of the contract because the payment terms are always less than one year. In all cases, we consider our costs related to shipping and handling to be a cost of fulfilling the contract with the customer.

Sensitivity of Estimate to Change: The liability relating to performance obligations is based on the estimated level of participation in the sales promotional program and the timing of the shipment of all products included in the promotional program. For contracts with discounted terms, we determine the transaction price upon establishment of the contract that contains the final terms of the sale, including the description, quantity, and price of each product purchased. We estimate variable consideration relative to the amount of cash discounts to which customers are likely to be entitled.

Valuation of Goodwill, Long-lived Tangible, and Intangible Assets

Description: We evaluate the recoverability of long-lived assets, or asset groups, whenever events or changes in circumstances indicate that carrying amounts may not be recoverable. When such evaluations indicate that the related future undiscounted cash flows are not sufficient to recover the carrying values of the assets, such carrying values are reduced to fair value and this adjusted carrying value becomes the asset’s new cost basis. We determine fair value primarily using future anticipated cash flows that are directly associated with and are expected to arise as a direct result of the use and eventual disposition of the asset, or asset group, discounted using an interest rate commensurate with the risk involved.

Judgments and Uncertainties: Determining whether impairment indicators exist and estimating the fair value of our goodwill, tangible and intangible assets requires significant judgment. Estimating the fair value of goodwill requires management to make assumptions and projections of future cash flows, revenues, earnings, discount rates, long term growth rates, and other factors.

Sensitivity of Estimate to Change: The assumptions used to assess impairment consider historical trends, macroeconomic conditions, and projections consistent with our operating strategy. Changes in these estimates can have a significant impact on the assessment of fair value which could result in material impairment losses.

Inventories

Description: We value inventories at the lower of cost, using the first-in, first-out, or FIFO, method, or net realizable value.

Judgments and Uncertainties: An allowance for potential non-saleable inventory due to excess stock or obsolescence is based upon a detailed review of inventory, past history, and expected future usage.

Sensitivity of Estimate to Change: The assumptions used to assess inventory valuation consider historical activity. Changes in these estimates can have a significant impact on the assessment of excess and obsolete inventory, which could result in material losses.

45

Warranty

Description: We generally provide a limited one-year warranty and a lifetime service policy to the original purchaser of our new firearm products. We will also repair or replace certain products or parts found to be defective under normal use and service with an item of equivalent value, at our option, without charge during the warranty period. We provide for estimated warranty obligations in the period in which we recognize the related revenue.

Judgments and Uncertainties: We quantify and record an estimate for warranty-related costs based on our actual historical claims experience and current repair costs. We adjust accruals as warranty claims data and historical experience warrant. Should we experience actual claims and repair costs that are higher than the estimated claims and repair costs used to calculate the provision, our operating results for the period or periods in which such returns or additional costs materialize could be adversely impacted.

Sensitivity of Estimate to Change: The assumptions used to assess warranty consider historical trends. Changes in these estimates can have a significant impact on the assessment of warranty, which could result in material losses.

Relocation

Description: As part of the Relocation, we offered a severance and relocation package to every affected employee. The severance was, in part, based on the employee's service term, job function, and classification status, and required the employee to remain active and in good standing through their relocation date.

Judgments and Uncertainties: In accounting for severance and relocation costs, management must make a variety of assumptions and estimates, including, but not limited to, the number of employees that will meet all of the requirements to receive the severance and relocation package, the number of those employees that will be electing to relocate versus opt for severance, and the potential cost of self-insured benefits that may be incurred during any potential severance period. We consider current facts when determining these estimates.

Sensitivity of Estimate to Change: The liabilities relating to severance and relocation obligations is based on the number of employees affected by the Relocation, the number of employees that have decided to relocate, the estimated cost of benefits during the severance period, and the employees' terms of service and rates of pay as of the fiscal year end. Changes in these assumptions can have a significant impact on the estimate of these liabilities.

Recent Accounting Pronouncements

The nature and impact of recent accounting pronouncements is discussed in Note 2 — Significant Accounting Policies to our consolidated financial statements, which is incorporated herein by reference.

Off-Balance Sheet Arrangements

We do not have any transactions, arrangements, or other relationships with unconsolidated entities that are reasonably likely to affect our liquidity or capital resources. We have no special purpose or limited purpose entities that provide off-balance sheet financing, liquidity, or market or credit risk support or that engage in leasing, hedging, research and development services, or other relationships that expose us to liability that is not reflected in our financial statements.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read the following Management’s Discussion and Analysis of Financial Condition and Results of Operations in conjunction with our consolidated financial statements and the related notes thereto contained elsewhere in this report. This discussion contains forward-looking statements that involve risks, uncertainties, and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of a variety of factors, including those set forth under Item 1A, “Risk Factors” and elsewhere in this report.

The results of our outdoor products and accessories business, which was previously reported as a separate business segment, are being presented as discontinued operations in the consolidated statements of income/(loss) for all periods presented, See Note 3 – Discontinued Operations to our consolidated financial statements for additional information regarding these discontinued operations. Unless otherwise indicated, any reference to income statement items in this Management’s Discussion and Analysis of Financial Condition and Results of Operations refers to results from continuing operations.

2022 Highlights

Our operating results for fiscal 2022 included the following:

•
Net sales of $864.1 million represented a decrease of $195.1 million, or 18.4%, from our fiscal 2021 net sales. The decrease in net sales was primarily driven by decreased consumer demand following a significant increase in demand in the prior fiscal year.

•
Gross profit decreased 16.6% from the prior fiscal year as a result of lower sales volume. Gross margin increased 0.9% over the prior fiscal year, primarily because of price increases, lower promotional spending, and favorable product mix. These favorable impacts were partially offset by unfavorable fixed-cost absorption due to lower production volume and expenses relating to employee severance and relocation costs associated with the Relocation.

•
Net income was $194.5 million, or $4.08 per diluted share, compared with net income of $243.6 million, or $4.40 per diluted share for the prior fiscal year.

•
During the fiscal year, we purchased 4,755,572 shares of our common stock for $90.0 million, utilizing cash on hand.

•
During the fiscal year, we paid $15.0 million in dividends compared with $8.2 million in fiscal 2021.

•
On September 30, 2021, we announced the Relocation. In connection with the Relocation, we will build a new facility in Maryville, Tennessee. Our corporate headquarters, some of our Springfield, Massachusetts manufacturing operations, a portion of our Deep River, Connecticut plastic injection molding facility, and our Columbia, Missouri distribution operations will be relocated to Maryville, Tennessee. We expect to incur capital expenditures in connection with the construction and equipping of the new facility in an aggregate amount of no less than $120.0 million on or before December 31, 2025. Through April 30, 2022, we had incurred $5.5 million of capital expenditures and $10.2 million of other restructuring charges related to the Relocation.

Key Performance Indicators

We evaluate the performance of our business based upon operating profit, which includes net sales, cost of sales, selling and administrative expenses, and certain components of other income and expense. We also track our return on invested capital, and we use adjusted EBITDAS (earnings before interest, taxes, depreciation, amortization, and stock-based compensation expense, excluding certain non-operational items), which is a non-GAAP financial metric, as a supplemental measure of our performance in order to provide investors with an improved understanding of

37

underlying performance trends. We evaluate the performance of our products using measurements such as gross margin per unit produced, units produced per day, revenue by trade channel, and incoming orders per day.

External Factors that Impact the Firearm Industry

The firearm industry has been subject to many external factors in the past that have significantly increased the volatility of revenue generated for all companies within the industry. These factors include, among others, fears surrounding crime and terrorism; significant news events, such as those related to mass shootings; potential restrictions on the sale or makeup of firearms; actual and potential legislative, judicial, and regulatory actions; economic changes; and changes in the social and political environment, including congressional and presidential elections. See Item IA, Risk Factors, for further discussion of external factors that impact the firearm industry. Although these external factors have created demand surges and volatility in the firearm market, and often make it difficult to predict demand, we believe that those external factors have also likely contributed to a long-term increase in consumer interest in firearms. From 2011 through 2020, this increased consumer interest helped the firearm industry generate a ten-year compound annual growth rate in units of approximately 6.0% according to the ATF. We believe that this expanding base of consumers combined with our strong brand reputation and attractive price points are important factors in our goal to continue increasing our market share. Based on data from calendar 2021, we estimate that we have an approximately 16.0% share of the U.S. consumer market for firearms.

Results of Operations

Net Sales and Gross Profit

The following table sets forth certain information regarding net sales and gross profit for the fiscal years ended April 30, 2022, 2021, and 2020 (dollars in thousands):

The following table sets forth certain information regarding units shipped by trade channel for the fiscal years ended April 30, 2022, 2021, and 2020 (units in thousands):

Fiscal 2022 Net Sales and Gross Profit Compared with Fiscal 2021

Sales of our handguns decreased $131.5 million, or 17.4%, from fiscal 2021, primarily as a result of lower demand for the majority of our products, partially offset by net sales generated from increased shipments of newly introduced products, combined with two price increases. Handgun unit shipments into the sporting goods channel

38

decreased 27.2% from fiscal 2021, while overall consumer demand decreased 25.5%, (as indicated by adjusted background checks for handguns reported to the National Instant Criminal Background Check System, or NICS).

Sales of our long guns decreased $63.9 million, or 25.2%, from fiscal 2021 as a result of decreased shipments of our M&P modern sporting rifles and lower shipments of our hunting rifles, as a result of our discontinuation of that product line, partially offset by increased shipments of newly introduced products in the fiscal year, combined with two price increases. Unit shipments into the sporting goods channel decreased 32.7% from fiscal 2021. Excluding Thompson/Center branded products, long gun unit shipments decreased 22.4% as compared with a 20.6% decrease in reported long gun NICS checks from the prior year.

We believe the decrease in overall firearm demand (as indicated by adjusted NICS) versus the prior fiscal year was due to heightened demand in the prior year driven by civil unrest, ongoing COVID restrictions, and news events driving increased concern for personal safety and fear of potential firearm restrictions. We believe our ability to ramp up production to meet surging consumer demand in the prior year, at a time when many of our competitors were unable to do so and when overall firearm demand exceeded the industry’s production capacity, enabled us to gain significant market share. As these concerns have become less pressing for consumers, demand has eased, inventory levels in the distribution and retail channels have normalized, and competitor offerings have become more available at retail, our prior year outperformance has likely resulted in a market share decline for us in the short-term in comparison to our peak levels during the surge. We believe, when comparing to levels prior to the surge that, over the long-term, we have gained market share and expanded our leadership position.

Other products and services sales increased $320,000, or 0.6%, over fiscal 2021, primarily because of increased business-to-business sales, partially offset by decreased sales of handcuffs and component parts.

New products, defined as any new SKU not shipped in the prior year, represented 19.8% of net sales for the 12 months ended April 30, 2022 and included two new pistols, one new modern sporting rifle, and many new product line extensions.

Gross margin for fiscal 2022 increased by 1.0% over the prior fiscal year, primarily as a result of two price increases, lower promotional spending, and favorable product mix. This increase was partially offset by unfavorable fixed-cost absorption due to lower production volume in the second half of the year and expenses relating to employee severance and relocation costs associated with the Relocation.

Our inventory levels increased $58.2 million during fiscal 2022, as we replenished stock to provide our customers with a more robust selection of inventory and positioned ourselves for potential future increases in consumer demand. Our fiscal year 2021 ending inventory levels were at historically low levels due to the unprecedented consumer demand during fiscal 2021. We anticipate that inventory levels will continue to build in the first quarter of fiscal 2023 as we continue to build to our more normalized stocking levels.

A discussion of our results of net sales and gross profit for the year ended April 30, 2021 compared to the year ended April 30, 2020 is included in Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended April 30, 2021, filed with the SEC on June 17, 2021.

Operating Expenses

The following table sets forth certain information regarding operating expenses for the fiscal years ended April 30, 2022, 2021, and 2020 (dollars in thousands):

39

Fiscal 2022 Operating Expenses Compared with Fiscal 2021

Operating expenses decreased $6.4 million from the prior fiscal year. Research and development expenses decreased $218,000, primarily because of decreased compensation-related costs, driven by temporarily unfilled positions, we believe as a result of the Relocation. Selling, marketing, and distribution expenses increased $553,000, primarily as a result of increased digital advertising costs and expenses relating to industry shows, partially offset by decreased co-op advertising expenses on lower sales and decreased freight costs due to lower shipments. General and administrative expenses decreased $6.8 million, primarily because of a decrease of $7.0 million related to Separation costs incurred in the prior year, $5.2 million of lower compensation-related expenses primarily as a result of the synergy savings realized from the Separation, and a decrease of $1.5 million in depreciation expenses, partially offset by an increase of $5.6 million of costs associated with the Relocation and $1.4 million of increased legal-related expenses.

We expect that there will be increased compensation expense in fiscal 2023 as we return to more normalized staffing levels.

Fiscal 2021 Operating Expenses Compared with Fiscal 2020

Operating expenses increased $14.0 million over the prior fiscal year. Selling, marketing, and distribution expenses increased $616,000, primarily because of increased freight-related expenses and expenses related to temporary labor, as a result of increased shipments, additional expenses for a consumer firearm safety program, increased co-op advertising expenses for strategic customers, and compensation-related expenses. These increased expenses were partially offset by lower travel and entertainment expenses as a result of COVID-19 and decreased spending on targeted customer promotions. General and administrative expenses increased $13.2 million, primarily because of $3.2 million of increased expenses related to the Separation, $12.6 million of increased profit-sharing expense, and $1.0 million in donations to the National Shooting Sports Foundation. These increased expenses were partially offset by lower travel and entertainment expensed due to COVID-19, and decreased compensation-related expenses.

Operating Income from Operations

The following table sets forth certain information regarding operating income for the fiscal years ended April 30, 2022, 2021, and 2020 (dollars in thousands):

Fiscal 2022 Operating Income from Operations Compared with Fiscal 2021

Operating income from operations for fiscal 2022 decreased $68.0 million, or 21.3%, from the prior fiscal year, primarily because of reduced sales volumes across nearly all product lines, unfavorable fixed-cost absorption, expenses incurred in relation to the Relocation, and increased legal costs. These unfavorable impacts were partially offset by lower promotional product spending, lower spend related to the Separation, decreased co-op advertising expenses, and decreased freight costs.

Fiscal 2021 Operating Income from Operations Compared with Fiscal 2020

Operating income from operations for fiscal 2021 increased $269.3 million, or 535.4%, over the prior fiscal year, primarily because of increased sales and the resulting improvements in gross margins. Operating income from operations was also favorably impacted by lower promotional product spending, favorable manufacturing fixed-cost absorption, lower travel and entertainment expenses because of COVID-19, and decreased advertising costs. These favorable impacts were partially offset by increased volume-related spending, increased freight-related expenses, and increased profit-sharing expense.

40

Other Income

The following table sets forth certain information regarding operating income for the fiscal years ended April 30, 2022, 2021, and 2020 (dollars in thousands):

Other income for fiscal 2022 increased $616,000, or 27.4%, over the prior fiscal year, primarily as a result of the sublease of the distribution center to AOUT, whereby AOUT subleases from us 59.0% of our distribution center under the same terms as the master lease.

Interest (Expense)

The following table sets forth certain information regarding interest expense for the fiscal years ended April 30, 2022, 2021, and 2020 (dollars in thousands):

Interest expense decreased by $1.8 million from the prior fiscal year as we maintained a zero balance on our revolving line following our debt repayment in fiscal 2021.

Income Tax Expense

The following table sets forth certain information regarding income tax expense for the fiscal years ended April 30, 2022, 2021, and 2020 (dollars in thousands):

We recorded income tax expense of $57.9 million for fiscal 2022, $16.5 million lower than the prior fiscal year, primarily because of decreased profitability. The effective tax rates were 22.9% and 23.4% for fiscal 2022 and 2021, respectively.

We recorded income tax expense of $74.4 million for fiscal 2021, $62.9 million higher than the prior fiscal year, primarily because of increased profitability. The effective tax rates were 23.4% and 29.4% for fiscal 2021 and 2020, respectively. The effective tax rate decreased by 6.0% as a result of non-deductible expenses impacting taxable income to a lesser extent as taxable income rises. In addition, prior year income tax expense included higher non-deductible Separation-related transaction costs.

Income from Operations

The following table sets forth certain information regarding net income and the related per share data for the fiscal years ended April 30, 2022, 2021, and 2020 (dollars in thousands, except per share data):

Fiscal 2022 Income from Operations Compared with Fiscal 2021

Net income decreased $49.1 million, or $0.34 per diluted share, from the prior fiscal year for reasons outlined above.

41

Fiscal 2021 Income from Operations Compared with Fiscal 2020

Net income increased $215.9 million, or $3.9 per diluted share, over the prior fiscal year for reasons outlined above.

Liquidity and Capital Resources

Our principal cash requirements are to (1) finance the growth of our operations, including working capital and capital expenditures, (2) fund the Relocation, and (3) return capital to our stockholders. Capital expenditures for the Relocation, new product development, additional manufacturing capacity, and repair and replacement of equipment represent important cash needs.

The following table sets forth certain cash flow information for the fiscal years ended April 30, 2022, 2021, and 2020 (dollars in thousands):

Operating Activities

Operating activities represent the principal source of our cash flow.

Cash provided by operating activities was $137.8 million in fiscal 2022, or $179.4 million lower than the prior fiscal year. The fiscal 2022 cash from operating activities was negatively impacted by an incremental $83.4 million increase in inventory due to increased production capacity combined with reduced consumer demand, an incremental $52.5 million decrease in accounts payable due to lower operating activities, and the impact of paying the fiscal 2021 profit sharing in fiscal 2022. These unfavorable impacts were partially offset by an incremental $14.9 million increase in accrued expenses as a result of the payment of deferred federal excise tax liabilities during the first quarter of 2021, the fulfillment of performance obligations relating to sales promotions in the prior year, and a $9.9 million decrease in accounts receivable due to timing of shipments and customer payments.

Cash provided by operating activities was $317.3 million in fiscal 2021, or $236.4 million higher than the prior fiscal year. Cash provided by operating activities was favorably impacted by net income of $274.3 million before depreciation and amortization, an incremental $26.2 million decrease in inventory from the prior year due to increased shipments to meet consumer demand, an incremental $21.5 million increase in accounts payable due to increased manufacturing purchases and timing of payments, an incremental $12.6 million increase in profit sharing, and a $10.8 million increase in management incentive bonus accruals due to higher income from continuing operations. These favorable impacts were partially offset by an incremental $46.7 million of decreased accrued expenses, primarily due to lower promotional product discount accruals and the payment of deferred federal excise tax liabilities allowed by the Tax and Trade Bureau as a result of the COVID-19 pandemic, and a $5.6 million incremental increase in accounts receivable due to timing of shipments.

Investing Activities

Cash used in investing activities in fiscal 2022 was $24.1 million, or $1.9 million higher than fiscal 2021. We recorded capital expenditures of $24.0 million for fiscal 2022, $1.9 million higher than fiscal 2021. Excluding spending related to the Relocation, we currently expect to spend between $20.0 million and $25.0 million on capital expenditures in fiscal 2023.

Additionally, as it relates to the Relocation, we currently expect to spend between $125.0 million and $130.0 million on capital expenditures in fiscal 2023, of which $90.0 million to $95.0 million is expected for the construction of the facility.

42

Cash used in investing activities in fiscal 2021 was $22.3 million, or $10.2 million higher than fiscal 2020. We recorded capital expenditures of $22.1 million for fiscal 2021, $9.6 million higher than fiscal 2020 due to expenditures required to increase manufacturing capacity.

Financing Activities

Cash used in financing activities was $106.0 million in fiscal 2022, or $197.8 million lower than fiscal 2021. Cash used in financing activities during the fiscal year primarily included $90.0 million of share repurchases and $15.0 million in dividend distributions.

Cash used in financing activities was $303.8 million in fiscal 2021 compared with cash provided by financing activities of $3.4 million in fiscal 2020. Cash used in financing activities during the fiscal year was primarily a result of a net repayment of $160.0 million of borrowings on our credit facility, funding a distribution of $25.0 million in connection with the Separation, and $110.0 million of share repurchases.

Finance Lease – We are party to a $46.2 million lease for our distribution center in Columbia, Missouri, which has an effective rate of approximately 5.0% and is payable in 240 monthly installments through fiscal 2039. The building is pledged to secure the amounts outstanding. During the fiscal year, we paid $1.1 million in principal payments relating to this finance lease. In connection with the completion of the Separation on August 24, 2020, we entered into an agreement with AOUT, pursuant to which AOUT subleases 59.0% of this facility under the same terms as the master lease. We recorded $2.1 million of income related to this sublease agreement, which is recorded in other income/(expense) in our condensed consolidated statement of income/(loss) and comprehensive income/(loss).

Credit Facilities - As of April 30, 2022, we had no outstanding indebtedness. However, we maintain an unsecured revolving line of credit with TD Bank, N.A. and other lenders, or the Lenders, which includes availability up to $100.0 million at any one time. The revolving line provides for availability for general corporate purposes, with borrowings to bear interest at either the Base Rate or LIBOR rate, plus an applicable margin based on our consolidated leverage ratio, as of April 30, 2022. The credit agreement also provides a swingline facility in the maximum amount of $5.0 million at any one time (subject to availability under the revolving line). Each swingline loan bears interest at the Base Rate, plus an applicable margin based on our consolidated leverage ratio. In response to a Springing Lien Triggering Event (as defined in the credit agreement), we would be required to enter into certain documents that create in favor of TD Bank, N.A., as administrative agent, and the lenders party to such documents as legal, valid, and enforceable first priority lien on the collateral described therein. Subject to the satisfaction of certain terms and conditions described in the credit agreement, we have an option to increase the revolving line by an aggregate amount not exceeding $50.0 million. The revolving line matures on the earlier of August 24, 2025, or the date that is six months in advance of the earliest maturity of any permitted notes under the credit agreement.

The credit agreement for our credit facility contains financial covenants relating to maintaining maximum leverage and minimum debt service coverage. We were in compliance with all debt covenants as of April 30, 2022.

Share Repurchase Programs - On March 2, 2021, our board of directors authorized the repurchase of $100.0 million of our common stock, subject to certain conditions, in the open market or in privately negotiated transactions until March 1, 2022. Pursuant to this authorization, during fiscal 2021, we purchased 3,380,447 shares of our common stock for $60.0 million, utilizing cash on hand. During fiscal 2022, we completed this stock repurchase program by purchasing 1,967,420 of our common stock for $40.0 million, utilizing cash on hand. On June 15, 2021, our board of directors authorized the repurchase of an additional $50.0 million of our common stock, subject to certain conditions, in the open market or in privately negotiated transactions, until August 2022. Pursuant to this authorization, during fiscal 2022, we completed this repurchase program by purchasing 2,788,152 shares of our common stock for $50.0 million, utilizing cash on hand.

43

At April 30, 2022, we had $120.7 million in cash and cash equivalents on hand.

Based upon our current working capital position, current operating plans, and expected business conditions, we believe that our existing capital resources and credit facilities will be adequate to fund our operations for the next 12 months.

Our future capital requirements will depend on many factors, including net sales, the timing of the construction of the new facility in Tennessee, the timing and extent of spending to support product development efforts, the expansion of sales and marketing activities, the timing of introductions of new products and enhancements to existing products, the costs to ensure access to adequate manufacturing capacity, and costs to enhance the equipment and software at our distribution center.

Inflation

We do not believe that inflation had a material impact on us during fiscal 2022, 2021, or 2020; however, during the fourth fiscal quarter, we began to see inflationary increases in both hourly wages and raw materials. We expect that there will be an increased impact from inflation during fiscal 2023.

Critical Accounting Policies

Revenue Recognition

We recognize revenue in accordance with the provisions of Accounting Standards Update, or ASU, Revenue from Contracts with Customers (Topic 606), which became effective for us on May 1, 2018. Generally, all performance obligations are satisfied and revenue is recognized when the risks and rewards of ownership have transferred to the customer, which is generally upon shipment but could be delayed until the receipt of customer acceptance.

In some instances, sales include multiple performance obligations. The most common of these instances relates to sales promotion programs that entitle customers to receive free goods based upon their purchase of our products. The fulfillment of these free goods is our responsibility. In such instances, we allocate the revenue of the promotional sales based on the estimated level of participation in the sales promotional program and the timing of the shipment of all of the products included in the promotional program, including the free goods. We recognize revenue proportionally as each performance obligation is satisfied, based on the relative transaction price of each product. The net change in contract liabilities for a given period is reported as an increase or decrease to sales.

Our product sales are generally sold free on board, or FOB, shipping point and provide payment terms to most commercial customers ranging from 20 to 60 days of product shipment with a discount available in certain cases for early payment. For contracts with discounted terms, we determine the transaction price upon establishment of the contract that contains the final terms of the sale, including the description, quantity, and price of each product purchased. We estimate variable consideration relative to the amount of cash discounts to which customers are likely to be entitled. In some instances, we provide longer payment terms, particularly as it relates to our hunting dating programs, which represent payment terms due in the fall for certain orders of hunting products received in the spring and summer. We do not consider these extended terms to be a significant financing component of the contract because the payment terms are less than one year. In all cases, we consider our costs related to shipping and handling to be a cost of fulfilling the contract with the customer.

44

Valuation of Long-lived Tangible and Intangible Assets

We evaluate the recoverability of long-lived assets, or asset groups, whenever events or changes in circumstances indicate that carrying amounts may not be recoverable. When such evaluations indicate that the related future undiscounted cash flows are not sufficient to recover the carrying values of the assets, such carrying values are reduced to fair value and this adjusted carrying value becomes the asset’s new cost basis. We determine fair value primarily using future anticipated cash flows that are directly associated with and are expected to arise as a direct result of the use and eventual disposition of the asset, or asset group, discounted using an interest rate commensurate with the risk involved.

Inventories

We value inventories at the lower of cost, using the first-in, first-out, or FIFO, method, or net realizable value. An allowance for potential non-saleable inventory due to excess stock or obsolescence is based upon a detailed review of inventory, past history, and expected future usage.

Warranty

We generally provide a limited one-year warranty and a lifetime service policy to the original purchaser of our new firearm products. We will also repair or replace certain products or parts found to be defective under normal use and service with an item of equivalent value, at our option, without charge during the warranty period. We provide for estimated warranty obligations in the period in which we recognize the related revenue. We quantify and record an estimate for warranty-related costs based on our actual historical claims experience and current repair costs. We adjust accruals as warranty claims data and historical experience warrant. Should we experience actual claims and repair costs that are higher than the estimated claims and repair costs used to calculate the provision, our operating results for the period or periods in which such returns or additional costs materialize could be adversely impacted.

Recent Accounting Pronouncements

The nature and impact of recent accounting pronouncements is discussed in Note 2 — Significant Accounting Policies to our consolidated financial statements, which is incorporated herein by reference.

Off-Balance Sheet Arrangements

We do not have any transactions, arrangements, or other relationships with unconsolidated entities that are reasonably likely to affect our liquidity or capital resources. We have no special purpose or limited purpose entities that provide off-balance sheet financing, liquidity, or market or credit risk support or that engage in leasing, hedging, research and development services, or other relationships that expose us to liability that is not reflected in our financial statements.