Smith & Wesson Brands Inc (SWBI) 2021 Q1 法說會逐字稿

Good day, everyone, and welcome to Smith & Wesson Brands, Inc. First Quarter Fiscal 2021 Financial Results Conference Call. This call is being recorded.

At this time, I would like to turn the call over to Rob Cicero, General Counsel, who will give us some information about today's call.

Thank you, and good afternoon. Our comments today may contain predictions, estimates and other forward-looking statements. Our use of words like anticipate, project, estimate, expect, intend, believe and other similar expressions are intended to identify those forward-looking statements. Forward-looking statements also include statements regarding our product development, focus, objectives, strategies and vision; our strategic evolution, our market share and market demand for our products, market inventory conditions related to our products; and in our industry in general; and growth opportunities and trends.

Our forward-looking statements represent our current judgment about the future, and they are subject to various risks and uncertainties. Risk factors and other considerations that could cause our actual results to be materially different are described in our securities filings, including our periodic reports on forms 8-K, 10-K and 10-Q. You can find those documents as well as a replay of today's call on our website at smith-wesson.com.

Today's call contains time-sensitive information that is accurate only as of this time. And we assume no obligation to update any forward-looking statements. Our actual results could differ materially from our statements today.

I have a few important items to note about our comments on the call today. First, we reference certain non-GAAP financial measures on this call. Our non-GAAP financial results exclude acquisition-related amortization, recall-related expenses, onetime transition costs, COVID-19 expenses and the tax effect related to all of those adjustments.

Reconciliations of GAAP financial measures to non-GAAP financial measures, whether or not they are discussed on today's call, can be found in our securities filings as well as today's earnings press release, which are posted on our website.

Also, when we reference EPS, we are always referencing fully diluted EPS.

As many of you may know, on August 24, 2020, the company completed the previously announced spin-off of its Outdoor Products & Accessories segment. Therefore, first quarter fiscal 2021 represents the final period in which our financial results will include the Outdoor Products & Accessories segment. On the call today, we are going to focus primarily on our Firearms business.

Joining us on today's call are Mark Smith, President and Chief Executive Officer; and Deana McPherson, Chief Financial Officer.

With that, I will turn it over to Mark.

Thank you, Rob, and thanks, everyone, for joining us. First, let me recap for everyone our response related to COVID-19. From the onset of the pandemic, we have taken aggressive and decisive action to ensure the health and safety of our employees while continuing to operate our business in this challenging environment.

All of the safety precautions we spoke about on our last call, which we put in place in March and April, are still in effect today. Those include travel restrictions, staggered shifts, enhanced cleaning and sanitizing, required social distancing, use of face masks, temperature screening, modified production lines and many other changes to our workflow and daily operations, all designed to mitigate any virus spread. In addition to keeping our employees safe, these actions have allowed us to continue operations and also give back to our community. Over the past 6 months, we have produced and donated tens of thousands of sets of PPE for medical professionals and frontline personnel in our community, and we are still accepting and delivering donation requests. We continue to monitor daily developments with the coronavirus pandemic and stand ready to make any adjustments as needed.

I'll now turn to our first quarter performance. I'm very pleased to report that despite the enormous challenges presented by the pandemic, our team has delivered a record-breaking quarter in firearm sales.

Our Firearms segment revenue of $230 million represents shipments of more than 584,000 units, both of which are new records, representing milestones in the history of our great company, that our employees should be extremely proud of.

This achievement clearly demonstrates our ability to rapidly respond to increased demand through our flexible manufacturing model and our state-of-the-art distribution facility. We believe these strong quarterly results have also translated into long-term market share growth.

But before we go through those numbers, 2 quick notes. First, as a reminder, adjusted NICS background checks are generally considered to be the best available proxy for consumer firearm demand at retail. However, since NICS is a measure of consumer activity, and since we transfer firearms only to law enforcement agencies and federally licensed distributors and retailers, not directly to end consumers, NICS does not directly correlate to our shipments or market share in any given time period, we believe mostly due to inventory levels in the channel.

Secondly, as you'll recall, we have 3 main consumer sales channels: distributor, strategic retailer or SRA and buying groups. In the past, we have only provided distributor inventory levels. Going forward, however, in order to provide more insight into our business, we will now provide quarterly channel inventory totals that include both strategic retailer and distributor inventory levels. Additionally, we will break down channel inventory into long guns and handguns, whereas historically, we have only provided inventory totals.

So with that, continuing on with market share. In our fiscal Q1, overall NICS background checks increased 111% over the comparable time frame last year. For Smith & Wesson, total units shipped into the sporting goods channel during this time increased 114% to 549,000 units. While simultaneously, our SRA and distributor combined inventory declined by over 112,000 units. Breaking that number down a little further, NICS checks for handguns increased 141% during the quarter. Our handgun units shipped increased by 122% to 441,000 units, while simultaneously, our handgun channel inventory dropped by 103,000 units.

And finally, NICS checks for long guns increased 96% in the quarter, our long gun unit shipped increased 89% to 108,000 units, while simultaneously, our long gun channel inventory dropped by nearly 9,000 units. This all translates to a 58% decline in channel inventory for our products in spite of a record quarter in unit shipments from our facilities, which we believe indicates very strong market share growth.

Our internal finished goods inventory also declined by almost 48% or $28 million during the quarter. As we've seen before during these surge periods, these results reflect that despite our record numbers and market share growth, consumer demand for our products during the quarter still exceeded our internal manufacturing capacity levels.

This again highlights the unique benefit provided by our flexible manufacturing model. You may recall that we have referenced this model in prior calls. This allows us to capture the benefit of sudden increases in demand without incurring long lead times and the high cost of adding manufacturing infrastructure that has been idled when demand decreases.

As we discussed on our last call, we have fully reengaged our third-party component manufacturing partners and are aggressively ramping production to meet incoming orders, and this ramp continues today. Further, we were able to utilize our state-of-the-art distribution center to deliver products more efficiently and rapidly than ever before.

Moving now to our go-forward plan that we have been speaking about for the past few quarters. As you are aware, we successfully spun off our Outdoor Products & Accessories segment last week, and we have now returned to Smith & Wesson's heritage as a pure-play firearms company with a focus on organic growth and returning excess capital to our stockholders.

I'm therefore very excited to announce that our Board of Directors has authorized the company to declare a regular quarterly cash dividend of $0.05 per share. Our first quarterly dividend will be payable on October 1 to shareholders of record as of September 17.

Before I hand the call over to Deana for the financial highlights, I just wanted to speak about a tremendous program that our sales and marketing teams have launched in the last few weeks. The current increase in consumer demand for firearms is, in many ways, unparalleled. A recent poll of firearms retailers conducted by NSSF estimates that between 40% to 60% of the consumers purchasing firearms are first time gun owners who are looking to exercise their second amendment rights to protect themselves and their families. Since March, the NSSF estimates that nearly 5 million Americans have purchased their first firearm.

Not only are we seeing record new consumer entrants in the market, but those new entrants are serving to broaden and diversify the core base of firearms consumers, with the 2 fastest-growing segments of new gun owners being women and African Americans. In light of this new surge and as part of our continued commitment to safe and responsible gun ownership, we have launched an innovative nationwide outreach campaign called GUNSMARTS. We have 3 goals with this program. First, welcome these new gun owners to our industry. Second, make sure they know how to safely use and store their firearms. And finally, provide instructional resources from Smith & Wesson on increasing shooting proficiency, help them understand the basics of firearms function, and help them locate welcoming, hands-on training, ranges and other resources. Everything a first-time gun owner would want to know but may not want to ask.

GUNSMARTS is the only program of its kind in the market today. Using the very top professional shooters and instructors in the industry, we have produced over 60 instructional online videos and tips to help convey best practices, all regardless of the brand of firearm purchased.

Further, we are providing free of charge, and again regardless of the brand of firearm purchased, a welcome kit to new gun owners that include Smith & Wesson branded safety glasses, hearing protection, instructional booklets and a link to our online platform containing the video library. This program launched in mid-August and by mid-September, we will have donated over 40,000 GUNSMARTS boxes to new gun owners.

In collaboration with other industry partners, GUNSMARTS will also offer several sweepstakes over the next few months to keep our new consumers engaged. As an industry and as a company, we are dedicated to safe and responsible gun ownership, and we are proud to be able to welcome these new gun owners to our community. Please visit www.smith-wesson.com/gunsmarts, to see the program tools for yourself.

And with that, I'll turn the call over to Deana.

Thanks, Mark. Although we have now completed the spin-off of our Outdoor Products & Accessories business, our filings today represent our first quarter, which ended on July 31. Therefore, our Form 10-Q, which was filed this afternoon, reflects results that include the spun-off business in our operating results. Beginning with our second fiscal quarter, the Outdoor Products & Accessories business will be reported as discontinued operations.

The significant increase in consumer demand that started in the middle of March continued throughout our first quarter and led to the total combined company revenue of $278 million, a $154.3 million increase or more than double the prior year results. This increase was driven by a $134.4 million or a 141% increase in firearm revenue, resulting in a record first quarter Firearm segment revenue of $230 million. These incredible results are a testament to our operations management team that increased firearms production output, utilizing a combination of targeted headcount increases and continued activation of our flexible manufacturing model, all while keeping our employees safe during the pandemic.

Total company gross margin of 42% and was 3.3% higher than the prior year on improved volume in both segments.

Turning now to a discussion of just the Firearms segment, which generated margins of 40.2%. Increased unit shipments, combined with a reduction in promotional activity and only slightly offset by pandemic-related costs, resulted in a 3.1% increase in gross margin over the prior year. In June of last year, we began reporting the federal excise tax change in our revenue. And now that it has been in place for a full year, this will be the last time we referenced it in comparison to a prior year quarter. This change, if applied to the fiscal 2020 quarter, would have had a $4 million impact on revenue and a negative 1.5% impact on gross margin to that prior year quarter.

Total company operating expenses were $4.6 million higher than the prior year due to $3.6 million of spin-off costs and $2.8 million of increased profit sharing expense. Increased volume-related customer allowances were more than offset by reduced travel, lower advertising costs and lower employee medical costs, likely due to the deferral of elective procedures resulting from the pandemic.

The increase in revenue and gross margin led to a significant profit gain as compared to the prior year comparable quarter, including net income of $48.4 million, GAAP earnings per share of $0.86, non-GAAP earnings per share of $0.97 and adjusted EBITDA of $84.2 million.

During the quarter, we generated $83.5 million in cash from operations and spent $7.6 million on capital equipment, leaving $75.8 million in free cash. We also repaid $135 million on a revolving line of credit, leaving $25 million outstanding on the revolver and 0 net debt. After the end of the first quarter, as part of the spin-off process, we restructured our credit facility for a new 5-year term that enables us to maintain an unsecured $100 million line of credit for the foreseeable future.

With that, operator, can we please open the call to questions from our analysts.

(Operator Instructions) Our first question comes from Scott Stember with CL King.

Maybe just talk about the market share. Again, I guess, kind of like what we saw last quarter, you were speaking to the fact that NICS and your shipments were, I guess -- your numbers were a little bit lighter to the fact that distributors are working down on your inventory. I just wanted to make sure if that's still -- if that's what you were trying to get at.

Yes. If you remember last quarter, we were actually talking about the SRAs that really drove that difference in NICS to our inventory. So I mean, obviously, it's just a mass balance. So NICS, obviously, is a measure of what's happening at the counter with the consumer. And we have that -- we have our 3 channel partners, our 3 channels in between us, our shipping dock and what's happening at the counter. So the major driver, we believe, of the difference between our results and NICS results is what's happening with the inventory in the channel.

So during that time frame, if you recall from that earnings call, we had a significant increase -- sorry, a significant decrease in inventory at one of our SRA accounts. So therefore, they were not replenishing from us, whereas this time, we've had significant decreases in inventory across the board internally in all the channels. And we are still, obviously, as you can see from the results, pretty heavy on shipments, which tells us that there's a significant -- you kind of got to add those numbers together to get what our true kind of flow through was.

Got it. And going forward, obviously, you guys have a very favorable setup utilizing outsourcing and stuff like that. But how are you seeing the picture for the next few quarters? Do you think you can easily keep up with demand or will there get to be a point where you're not able to close that gap, what you're seeing on the inventory side?

Yes, I don't want to get too much into forward-looking statements. I think just directionally, we can talk about history and what's happened before in the past. Our -- when we get into these surge environments like this, and as you can see from the NICS results, we've never seen one quite this high. The demand in the industry, in general, just outstrips the industry's ability to supply and we're no different.

So when that -- the industry goes through cycles, as we've talked about for years and you've seen, so when that -- how that turns around and when that turns around, I guess, we're not going to, I guess, speculate about what those drivers are going to be. But again, we are very, very well set up, as you mentioned, with our flexible model to continue increases. And we're -- I mean, as I mentioned in the prepared remarks, we're continuing to increase today. There does come a point, though, where that's -- there's only so much we can do and whether that's going to meet the demand or not, I guess, we'll see.

Our next question comes from Cai von Rumohr with Cowen.

Great quarter, obviously. So I guess, I didn't quite get. So you said the inventories were down 103 in handguns and 98 -- excuse me, 9,000 in long guns. So that's year-over-year, correct?

No, that's in the quarter.

Actually, in the quarter. Okay. Okay. So -- which gets to the next point, and are you going to break -- I think you said you would break all that down. I didn't see it in the Q.

Right. Cai, we did just send the script information to you so that you could get the numbers that were in the script so that you could understand what that was. What we did just show you what the reduction in the quarter was and compare that to our units. So like you say, with handgun units being increased shipments of 122% and then the 103,000 units you can quickly figure out that the 141% NICS handgun units up is very comparable. So it shows that more than likely, we're taking market share because of our ability to ship that much and what was taken out of the channel.

Got it. And then the NICS were up, what, 51% in August. And looking at where your inventory was and where distributor inventories were at the end of July, were the NICS adversely impacted by just lack of supply?

Absolutely. Yes. Yes, absolutely. I think the industry, in general, as is mentioned, I think we're into one of those surges where the industry's ability to supply is outstripped by the demand. And I think what you saw in -- I mean, obviously, you can look at the inventory numbers from us and from some of the other firearms retailers and manufacturers, and I think we're just out of inventory.

Got it. Okay. And then -- so when do you want to give us the -- you mentioned that AOUT is going to be treated as a disco. But in doing our models, when is that going to happen? That's going to happen with the next quarter, so we'll get all the restated numbers.

Yes, yes. When we do our second quarter in December, everything from May 1 forward will be removed. And last year's numbers will be restated with that as a discontinued operation.

But we won't get them until then.

Correct. You can look at the 8-K that was filed that will give you the 2019 -- our fiscal '19, fiscal '20, discontinued ops for like an annual. That should help.

Our next question comes from James Hardiman with Wedbush Securities.

Obviously, a great quarter. Just a clarification on the guidance. Obviously, most companies pulled guidance heading into COVID, but is this more than that? Is it a go-forward assumption that the stand-alone Firearms business will not be giving us guidance going forward?

Yes, that's correct. If you recall in the last call, we kind of talked about -- I mean, we really -- we're looking for more of a longer term focus. Obviously, this industry is -- as everybody is well aware, pretty cyclical. And we're managing for the long term. We're not going to be providing quarterly guidance anymore.

Okay. Okay. That's what I thought. And -- but just to help me understand how to think about where you are from a manufacturing perspective, obviously, your own internal inventories are way low. You talked about how retailer inventories are way low. It sounds like you're going to be pushing your plants at sort of maximum output as well as the third-party manufacturing for some time. I just want to get my head around as I think about what you delivered in the first quarter, is there room for upside to that number? Meaning, right, if you're...

Got it. It's a good question.

If you're pushing out as much as you can for the next 3 -- and I guess, you probably know the answer to -- I mean, we're already 2/3 of the way through this quarter. But how should I think about sort of manufacturing capacity and where you were in the first quarter and if there's any room left there?

Yes. I think even though we do have a very flexible model, you got to remember that we're -- the lead time for making a firearm is long. In terms of it's not measured in weeks, it's measured in months. And so a turn up in manufacturing and CNC capacity will translate into finished good coming off the line. It's going to be -- you're looking at somewhere in 6 to 8-week kind of time frame.

So we're continuing to ramp, as I mentioned in the prepared remarks right now. But you're right, we're pushing the -- we're going to go to maximum capacity. And I think you can kind of think of that like what we did in the first quarter. You took $28 million out of internal inventory. We will replace. You got to think about that in terms of sales value, not that's cost. So you got to think that in terms of sales value. We will replace a significant portion of that, better than half. And so yes, you're going to get to the point where we're capacity constrained.

I think, James, if you go back and look at the previous surges and kind of look at the tail end quarters of those previous surges, you can probably get -- I'd kind of point you in that direction.

Okay. And then last, just real quick clarification. Maybe I'm doing the math wrong here. But -- and it's a small point, but long gun unit sales were up not quite double. But dollar sales are up more than 4x. So it seems like there was a big ASP jump in long guns. A, am I doing that math right? And b, if so, what's going on there?

So what you might remember is that last year at this time, we had a discontinuation of certain Thompson/Center products. So there was a bulk purchase that sort of cleared out the channel for a period from, say, July to January when the new products were launched. So the ASP definitely has been impacted in last year versus this year, given that we have the new products out there. They're buying on a normal trend. So this is a more normalized lack of promotional pricing that you're seeing in the ASP.

Yes. I think, James, you can kind of think last year it was abnormally low. This year is not abnormally high.

Our next question comes from Steve Dyer with Craig-Hallum.

I appreciate the additional granularity. Just following up on the last question. So I understand, certainly, there were some reasons that ASPs were impacted to the negative last year. But they're up fairly significantly, even quarter-over-quarter. And I'm guessing that has a lot to do with just little to no discounting. Is this kind of as we look forward, at least for the last several quarters? Are these sort of reasonable numbers to use? I just don't want to assume something if mix was really optimal or anything like that?

No, I think there -- I mean, obviously, you've got it. I mean it's promotions. We're not doing any promotions right now. We didn't really do any promotions at all through our Q1. We ramped down the last of them. I mean, I'm trying to think back now, I don't think we ship them really much of anything in terms of promotional orders in our quarter.

So you can kind of take that and drive it forward. I think that probably answers your question.

Got it. And then just sort of similar asking a previous question differently. With respect to COVID, have you -- in terms of production capacity, have you had any hindrances or impacts from whether it be missed days of work or just having to space things out or are you finding that you're as efficient as you were sort of in previous surges?

Yes, I think when the pandemic first hit, and we were -- obviously, everybody in the country and the world was trying to figure out where do we go from here, we definitely had some efficiency impact as we were kind of relaying our lines out and putting barriers in between stations that couldn't socially distance, et cetera.

But as we now -- we've been dealing with this for the last 6, 7 months, I think we've kind of hit our stride. Our operations management team, I cannot say enough about what an absolutely tremendous job they did and really being able to keep all of our employees safe first and foremost and then react to this increase in demand that we saw. And really, it's kudos to them for these results. So yes, I mean, I don't think -- we're really not seeing much in the way of efficiency losses from that at this point.

Okay. And then I think as we're approaching another contentious election here, and you talked a little bit about the lead time being measured in months and not weeks. And thinking back to the last election when it was -- the whole industry zigged and the results zagged, I guess, so to speak. But will you do anything differently? Or is your sense in terms of ordering patterns from the channel at all different this time around so that you don't end up in the same predicament if things don't go your way? I guess, is anybody making any bets in terms of ramping up, scaling down, et cetera?

Yes, I think -- and I think it's been talked about a lot. I do think that this election cycle is different in terms of what's happening now with this surge. The surge is really not -- I mean, yes, of course, there's some portion of the surge that's related to gun-control regulation fears, but the majority of the -- at least a vast -- a large portion, I don't want to say the majority, but I don't know if we know that. But I mean, a large portion of the demand is driven by folks who are just fearful of their personal protection and safety with -- starting with the pandemic and moving on to the civil unrest.

So I think the NSSF put a number out last week or week before that estimating 5 million new shooters into the market or new gun owners into the market since March. So really, I do think that this bodes very well for us into the future in terms of those -- a significant portion of those.

We estimate usually somewhere between -- somewhere around 1/4 of those in a normal environment, we'll stay participating, and we're pushing hard, as I mentioned, with the GUNSMARTS program to make sure that we engage those consumers and keep them for the long term. So I think it's going to be different. After this election, I'm not anticipating that we're going to have the large fall off that we did.

And then the other big piece of that is inventories. You look at inventory in the channel right now, and it's just nonexistent. So for us to kind of refill the channel even when the -- if and when the demand ever does slow down, I think we're going to have a little bit of a softer landing. Whereas if you look -- I think if you look at the inventory in the channel in 2016, inventory levels were already fairly healthy. And so there was no channel fill after the election cycle one. You said zigged and we zagged.

So pedal to the metal for the foreseeable future. One last question just on the dividend. I guess, to the extent you can or willing to share, just the dividend policy is the idea there that it's sort of a baseline level that you can sort of service through all cycles and any kind of weather or because if you keep generating free cash flow at the rate you're generating it over the next several quarters, you're going to have quite a stash. Is it is the idea that it's going to be a fixed dividend with the potential for a special at some point? Or is it something that you -- like 1 of your competitors sort of peg to net income or free cash flow or something like that?

No, it's going to be fixed. And your -- the first part of your question there is where we're at. So I mean, obviously, we came out of the gate here. We want to get into the dividends as we've been talking about for the past year now. We want to return excess capital to the shareholders, and we are starting off at a level that we are extremely comfortable with. And you can draw your conclusions from there. I mean, I think you're right. I mean, so there's probably upside there on the dividend. But it is going to be affected.

(Operator Instructions) Our next question comes from Mark Smith with Lake Street Capital Markets.

First off, I wanted to get into the long gun breakdown, just a little bit here on units as well as the ASP. Last year, obviously, some Thompson/Center stuff that impacted that. As we look today, can you talk at all about mix between kind of TC rifles and kind of modern sporting rifles, and any impact that, that's having as we look at manufacturing right now and shipping right now, where your focus really is?

Yes. I don't think we've ever provided that kind of breakdown. And we're not -- and we're still not yet, Mark. So I mean, I'll kind of point you to -- back to the how the surges usually work is it's gun control -- in an environment where it's gun control, it's going to be the MSRs and the pistols -- polymer frame pistols followed by revolvers and then down to hunting. So this one is a little bit different in terms of the fact that we got people -- it's not necessarily driven so much by fear of gun control regulation and just general fear of personal safety. But directionally, that's kind of how the surges go. So I don't know if that provides you any color you can use or not.

Okay. Do you feel like you've been able to shift manufacturing to be able to hit the demand, high demand for MSRs currently?

Yes. We're very -- as I've mentioned, we're very flexible in terms of our mix. And as we've talked about before, I think, on some of the investor days, our internal capacity is very flexible in between product lines. So machines that we use to make revolvers, we can also make pistols, we can also -- we have a very flexible internal capacity base that can move depending on the market mix.

Okay. And then as we look at ASP, maybe in long gun and on handgun, can you talk to you excluding kind of promotions going away. Kind of your ASP, have you guys taken any across the board price increases on just kind of a typical -- even if we look at MSRP or where are the selling prices for you guys right now?

We did not in our first quarter, but typically, our pricing adjustments usually come towards the tail end of our second quarter.

Okay. Okay. And that kind of leads to my next question. Gross profit margin, obviously, was big, kind of back to kind of peak gross profit margins. Is there any reason as you look at the environment right now, and I know that you're not giving guidance, is there any pressures out there or any reason that you can't continue to drive gross profit margin in the near term at this, let's call it, roughly 40% level?

I'll just talk to -- I mean, our main drivers of our gross margin, as I think Deanna talked about, I mean, the main -- we're a manufacturing facility. We have 700,000 square foot facility here in a couple -- so point being we're really a manufacturing facility and volume is a huge piece of our ability to drive the gross margins that you saw in Q1.

The other thing -- yes, and the other thing I would say is, as long as the promotional environment remains the way it is now, virtually nonexistent, the margins aren't going to be better.

Okay. And then as we look at manufacturing, can you guys speak at all to the cadence of production or maybe the cadence of shipments as we look at this 584,000 units. Can you talk at all about kind of monthly breakdown or how it flowed during the quarter?

I can tell you that, again, back to the -- to how the surges usually happen and that we end up getting -- we typically end up in a sold-out situation as an industry in general. And I would look at the numbers right now and definitely indicate that we're probably in that situation right now. So it's come down to a matter of how can you -- how much can you produce and get out the door. So the cadence is pretty steady. It's just -- it's kind of you dictate what it is.

One thing I would point out is that we do still maintain our shutdown period. We don't operate a week -- last week of July, first week of August, we do have some light operations during that period of time. But generally speaking, we used to talk quite a bit about like the number of days of production. And so the number of days, we are a week short in July, a week short in August in start of the second quarter, we are closed between Christmas and New Year. And then the fourth quarter for us always has the most production days because there isn't a holiday and there isn't a shutdown. So that's just a normal kind of cadence of our quarters.

Okay. Okay. And then just as we kind of look down the income statement a little bit. I don't know if you guys can or willing to give us some breakdown of operating expenses. Maybe that would be allocated to Smith & Wesson versus American Outdoor during the quarter, especially as we look at selling and marketing expense during the quarter?

We can't really do that at this point. The only thing we can do is point you towards the segment reporting that we do in the Q and you can look at the discontinued ops reporting that we filed. I think it was August 26. And you can also look at the Form 10 that AOUT filed on August 3. Other than that, unfortunately, we have to wait because we have to go through a lot of work for the discontinued ops and we have to get auditors to buy off on all of that work, too. So we can't really provide that right now much as we might want to.

Okay. And then just to make sure that we're looking at things the right way. As we look at the license revenue, would that -- would the intersegment revenue that's reported, I think it was just over $1 million in the quarter, is that purely license revenue? Or is there anything else that's kind of driving that?

No, that's very much purchases back and forth between the companies. As you know, Crimson Trace is a supplier to Smith & Wesson for our firearms. So intercompany revenue there would be our purchases from Crimson Trace or our purchases of other products from the AOUT business.

Okay. Wouldn't that be hitting the $1.5 million, let's call it, on the Outdoor Products & Accessories side?

Right.

On theirs. I'm looking more so on the intersegment revenue, just over $1 million on the Firearm segment.

We sell them certain -- just as they sell us certain components, we sell them certain components. I'm not sure you're aware. They're a licensee for us going forward. So that's us shipping components that they end up packaging and then marketing and selling for us.

Right. Licensing is in that number, but it's not all of licensing.

We have a follow-up question from the line of Cai von Rumohr with Cowen.

Given the super cash flow you have, I took a look at your cash flow over the last 9 years to kind of take out cycles. And it totaled like $63 million on average, but most of that's clearly SWBI. So as I look at your fixed dividend, a little under $12 million, that looks like it's very skimpy. What's your strategy going to be? I mean, you want to have a fixed dividend, but you're way under what your average cash flow has been. So how -- is this -- at what point -- what would it take you to consider raising that dividend? And how do you think about share repurchase in the mix?

So there's a couple of things there, Cai. We're just starting out. And this is a Board decision, but this is something that you don't want to come out really high in a surge environment as a fixed dividend and then -- and have to walk it back. We want to give our long-term investors something that they can rely on.

So over time, if we do find that we are generating "too much cash", we'll look at whether that can be increased. But right now, there's uncertainty with an election, with COVID, with what's happening in the world today that coming out during a surge and trying to peg something to a surge cash flow is not something that we think would be prudent. So right now, what we've done is we've spoken with the Board and come up with a conservative and determinable amount that we should have no problem whatsoever continuing over the long term. And after we get through some time, we'll go back and reevaluate whether that's something that needs to be increased.

Cai, I think you can -- I mean, we're very much thinking of it as a starting point.

Got it. And then in terms of your operating uses of cash, well, in terms of CapEx, I'm thinking specifically, given the huge surge in demand, is there any thought that you would bump CapEx? And I don't -- where the CapEx might be? Or is that still going to be relatively small?

Yes. You can -- as you can see in the investor presentation that I think we filed back in July, and we've spoken with some of you about during one of these surges, we expect our CapEx to be somewhere in the $20 million to $25 million range, but could be $10 million to $12 million of surge capacity that we add during one of these periods, if and when it makes sense. But it's not going to be back in the 10 years ago when we were adding $40 million, $50 million of capacity, that's just not the case anymore. So that will -- it won't be any more than $10 million to $12 million.

Right. And then the last one, I think you've said one of the potential uses of cash is share repurchase. Given your business has been violently cyclical in terms of swings over the years, how do you think about doing share repurchase? I mean, how does that fit into your deployment thinking? At what point would you say, okay, now we got to buy? Or how do you think about that?

Yes. We can't get too much into detail there because, obviously, I mean, that's a Board decision. But directionally, I mean, I don't think it's any kind of rocket science that if we think the shares are undervalued, we're going to push for a share repurchase. So -- and that is definitely one of the options that's on the table.

But specifically, how we end up treating some future excess cash if we end up in that situation, really, that's going to be a Board decision. We very much are looking for predictability around our dividend. So if we do increase the dividends, we're always going to be looking for something that we can sustain in the long run. And on share repurchases, then that's definitely one of the things at the top of the list for evaluating if we think the shares end up being undervalued.

We have a follow-up question from the line of James Hardiman with Wedbush Securities.

Just a quick sort of bigger picture question. We've talked a number of times about how many sort of new consumers there are purchasing firearms. I think the number that you mentioned in the prepared remarks, 40% to 60%. Obviously, a pretty wide range there in terms of what portion of sales this year or maybe that was since March, were first time gun owners. What does that normally so we could sort of gauge? Obviously, there's always some new gun buyers, but is it twice as many new gun consumers as it normally is? How do we think about that?

I don't know that I can actually give you a number on that, that I wouldn't be taking an educated guess at. So I would say, James, the best thing to do there is go to the NSSF website. And they can -- they'll probably have that information there. I just don't have it right in front of me. It's significantly higher now than -- like significantly, I would say, more -- I think your double number is probably in the ballpark or maybe even a little conservative.

That concludes today's question-and-answer session. I'd like to turn the call back to Mark Smith for closing remarks.

All right. Thank you, and thanks, everyone, for joining us today. I did just want to close by congratulating and thanking all of the dedicated intelligent employees in the company for an absolutely exceptional quarter. Everybody, please stay safe, and we look forward to speaking with you in December.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.