Mark Smith

Mark Smith asked about the company's comfort level with its balance sheet, specifically regarding reworked covenants and debt levels.

Answer

Mark Palamountain, EVP and CFO, stated the goal is to reduce debt to $40 million. He explained that new banking covenants were negotiated, shifting from a backward-looking max leverage debt ratio to a capitalization ratio (debt divided by assets minus liabilities) and suspending the Debt Service Coverage Ratio until the end of fiscal year 2027, providing greater flexibility. Harold Edwards, President and CEO, added that increased EBITDA from the core agricultural business and asset monetization will drive debt reduction.

Mark Smith from Lake Street Capital Markets inquired whether the upcoming management transition, with John Pawlowski assuming the CEO role, would lead to any significant changes in Mission Produce's overall strategy.

Answer

John Pawlowski, President and Chief Operating Officer, affirmed that the current direction is strong, a result of close collaboration with Steve Barnard. He highlighted an inflection point due to past CapEx investments and a keen focus on accelerating commercial growth, exploring both organic and inorganic opportunities over the next 5-10 years.

Mark Smith asked about the outlook for mango growth, the biggest risks to achieving free cash flow growth, capital allocation strategies given lower CapEx and healthy leverage, and potential changes in strategy following the management transition.

Answer

President and COO John Pawlowski indicated that the mango growth trajectory for the next fiscal year would be consistent with previous years, focusing on market share penetration and global sourcing. CFO Bryan Giles explained that strong operating performance drives cash flow, with a target CapEx of $40 million for the upcoming year, allowing for continued growth investments. CEO Stephen Barnard stated that growth remains the priority, with flexibility for opportunities in existing or adjacent categories, and confirmed comfort with share buybacks. John Pawlowski added that the leadership team is excited about the organization's direction, focusing on accelerating growth and exploring both organic and inorganic opportunities, leveraging the completed capital investment cycle.

Mark Smith inquired about the challenges of buying and selling boats in the current macro environment, including any observed changes and the associated risks or opportunities.

Answer

Brian John, Off The Hook's CEO, explained that the company's high inventory turnover (4-5 times annually) allows it to quickly adjust pricing and acquisition strategies in response to economic conditions or market shifts, enabling consistent profitability regardless of market direction.

Mark Smith with Lake Street Capital Markets inquired about the strategic role and expected revenue contribution of Autograph Yacht Group in 2026, along with other key growth drivers for the upcoming year. He also asked about the impact of macro environment changes on boat buying and selling, including associated risks and opportunities.

Answer

CEO Brian John and COO Blake Phillips explained that Autograph Yacht Group elevates Off The Hook's presence in the large boat segment (over $1 million), leveraging brokers' existing listings and representing high-value inventory. Blake Phillips also highlighted the formation of a business development team focused on direct-from-owner liquidation, similar to automotive models, as a significant revenue driver. Brian John added that Off The Hook's high inventory turnover (4-5 times annually) allows them to quickly adjust pricing and buying levels in response to economic or market conditions, ensuring consistent profitability.

Mark Smith from Lake Street Capital asked about recent consumer trends, specifically insights from Black Friday point-of-sale performance, and whether the company observed any impact from Florida's tax holiday on product sales. He also inquired about the nature of upcoming new products, asking if they primarily backfill existing market segments or represent entries into entirely new categories. Lastly, Smith sought an update on the current mergers and acquisitions (M&A) landscape and any changes observed.

Answer

Andy Fulmer, CFO, and Brian Murphy, President and CEO, reported strong Black Friday and November POS results, including robust direct-to-consumer performance for MEAT! Your Maker and Grilla. Murphy noted they had not specifically analyzed the Florida tax holiday impact. Regarding new products, Murphy expressed excitement about the pipeline, emphasizing building upon existing brand ecosystems (e.g., Caldwell, Bubba) through innovation like the Clay Copter surface-to-air launcher and app integration, focusing on gamification. He indicated that while some new products will build out existing families, several entirely new products are also in the pipeline for FY27. On M&A, Murphy stated that the 'ice is beginning to break,' with more high-quality targets emerging due to stabilized tariffs, family-owned businesses seeking resources, and potential larger asset divestitures in the next six months, making him more optimistic than three months prior.

Inquired about retail partner behavior heading into the fall season, opportunities for international growth, learnings from the expanded distribution center, and current consumer behavior and competitive landscape in the Shooting Sports category, especially in light of the upcoming election.

Answer

The executive noted that retailers are past the heavy destocking of last year and are getting back to a normal cadence of line reviews, seeking innovation, which benefits AOB. International growth is strong, particularly in Canada, with further untapped potential. The expanded distribution center has improved efficiency and provides flexibility for growth. Regarding Shooting Sports, the market is uncertain heading into the election, so the company is focusing on more stable parts of the business, like target shooting accessories.

Mark Smith of Lake Street Capital Markets asked about the behavior of retail partners regarding inventory and promotions heading into the fall season. He also inquired about international growth opportunities, learnings from the expanded distribution facility, and current consumer trends in the Shooting Sports category, particularly in light of recent NICS data and the competitive landscape.

Answer

President and CEO Brian Murphy stated that most retailers have completed their destocking from the prior year and are now seeking innovation and newness, which benefits AOUT's product pipeline. He identified Canada as a significant and still largely untapped international market, with the expanded Missouri distribution center improving efficiency and providing flexibility for growth. Regarding Shooting Sports, Murphy noted the market has cooled and faces uncertainty from the election, but AOUT is mitigating this by focusing on more stable sub-categories like target shooting accessories.

Mark Smith asked for an update on certification delays since the end of the quarter, mitigation efforts to improve gross profit margin, and opportunities for pricing increases given tariffs, higher freight, and raw material costs.

Answer

CEO Jim Jenkins and CRO Barry Phillips confirmed that all products are in the queue for certification, with no further delays expected beyond the March 2026 NFPA standard adoption. Barry Phillips explained the current backlog at certification agencies like UL due to the combination of four standards into one. Jim Jenkins outlined mitigation efforts including addressing tariffs with supplier programs, simplifying product lines, shifting production to higher-margin categories, SKU rationalization, and targeted inventory reductions. Barry Phillips added that they are bringing third-party manufactured products into their own factories. Jim Jenkins stated that annual pricing increases are being communicated strategically in fire and industrial segments, not across the board, and they are also running programs to move critical environment inventory.

Inquired about the company's comfort with inventory levels, the specific drivers of the manufacturing cost headwind on gross margin, and the potential for SG&A efficiencies within the newly acquired businesses.

Answer

Management stated they are comfortable with current inventory levels and expect them to decrease. The gross margin headwind was primarily from a temporary purchase variance issue and purchase accounting, and they are actively working on improving margins at acquired companies. They confirmed there are significant opportunities to cut costs and improve efficiency in the acquired businesses, such as consolidating Viridian's operations.

Mark Smith asked for clarification on any other significant order backlogs besides the delayed Jolly order, the expected trajectory for gross profit margins, and any anticipated lumpiness in revenue cadence for the upcoming fiscal year.

Answer

CFO Roger Shannon and Executive James Jenkins confirmed there were no other major delayed orders, noting the LHD backlog was now 85% cleared. Shannon stated the long-term goal is a mid-to-high teens adjusted EBITDA margin, with a near-term focus on improving acquired company gross margins to the mid-to-high 30s. For cadence, Shannon projected Q1 to be the lightest quarter, with revenue improving into a strong Q3, and Q4 slightly below Q2.

Mark Smith questioned the Black Friday promotional strategy, noting a perceived absence of traditional doorbusters, and its potential impact on the Q4 outlook. He also inquired about inventory levels by category, particularly if promotions would heavily target hunt-shoot, and the margin profile of non-lethal personal protection items like Byrna and Taser compared to traditional firearms.

Answer

Jennifer Fall Jung, CFO, confirmed that while promotional, they did not feature doorbusters for Black Friday but are re-implementing them in December. Paul Stone, CEO, added that overall promotions are heavier year-over-year and they plan aggressive promotions soon. Jennifer Fall Jung noted that underperforming categories had proportionally lower inventory, while hunt and shoot, despite being slightly up, would be leveraged for sales. Paul Stone emphasized confidence in inventory levels, especially in fish and firearms/ammo, for promotional deployment. Jennifer Fall Jung stated that non-lethal personal protection is accretive to the category margin and attracts a new customer base.

Mark Smith asked about inventory levels, specifically how much was bought ahead of tariffs and if the company is fully stocked earlier for the hunting season compared to previous years. He also inquired about consumer behavior within the hunt category, asking if sales momentum is driven by promotions or if consumers are purchasing at regular price levels. Lastly, he asked about the opportunity to increase sales or inventory in suppressors and short barrel rifles given upcoming tax law changes.

Answer

Jennifer Fall Jung, CFO, confirmed that elevated inventory was a strategic decision to enter seasons earlier, particularly for fish and hunt, with plans to clear out earlier and still end the year below last year's inventory levels. She noted that ammunition's outperformance (partially due to strategic pricing) and firearms' lower average unit retail (AUR) impacted hunt category margins. Paul Stone, President, CEO & Director, clarified that firearms' AUR was down 4% while units were up 4.2%. Paul Stone expressed strong intent to 'lean into' suppressors and short barrel rifles, seeing a 'huge opportunity' and aiming to facilitate Q4 shipments to capitalize on anticipated demand next year.

Mark Smith inquired about Sportsman's Warehouse's inventory levels, specifically asking about the amount of inventory bought ahead of potential tariffs and the company's earlier stocking strategy for the hunting season compared to previous years. He also asked about consumer behavior within the hunt, firearm, and ammo categories, seeking to understand if sales momentum is driven by promotions or regular pricing. Lastly, he explored the opportunity for increased sales and inventory in suppressors and short barrel rifles, considering upcoming tax law changes.

Answer

CFO Jennifer Paul Young confirmed the elevated inventory was a strategic decision to stock earlier for hunting and fishing seasons, aiming for earlier sell-through and expecting to finish the year below last year's inventory levels. She noted that ammo's outperformance, partly due to strategic pricing, and a 4% decline in average unit retail for firearms, put pressure on hunt category margins. CEO Paul Stone expressed bullishness on suppressors and short barrel rifles, planning to lean into these categories in Q4 to capitalize on anticipated demand from tax law changes in 2026.

Asked for clarification on the $20 million inventory pull-forward, whether sales mix negatively impacted gross profit margin, and the company's ability to reduce inventory and repay debt by year-end.

Answer

The company confirmed the strategic $20 million inventory pull-forward was to mitigate tariff uncertainty. They acknowledged that a higher sales mix of firearms and ammo pressured gross margins. They remain confident in generating positive free cash flow for the year, with debt paydown being the top priority for that cash.

Asked if consumer trade-downs are happening in other categories beyond firearms, how inventory is positioned for this trend, what the trends are for add-on sales like ammunition and accessories, and for an update on e-commerce growth and mix.

Answer

The company confirmed they are seeing trade-down behavior and have responded with everyday low pricing on key ammunition SKUs and have seen an uptick in rod-and-reel combos in fishing, for which they are well-inventoried. Add-on sales are strong, particularly firearm service plans and personal protection accessories. E-commerce comped positive in the double-digits, now represents over 17% of the business, and is seeing broad growth, especially in firearms, helped by better in-stock levels.

Asked about consumer behavior across different price points, the profitability of outperforming NICS in firearms, progress through the holiday season, and plans for new stores.

Answer

Executives stated they haven't seen a high-end consumer uptick but are improving customer targeting. Firearm promotions are offset by high attachment rates on ancillary products. They are tracking well for the holiday season and are better positioned with inventory than last year. One new standard-format store is planned for Arizona in mid-2025.

Mark Smith inquired about consumer behavior, specifically if higher-end customers also require promotions. He asked about confidence in outperforming NICS in Q4 without significant margin erosion, progress during the holiday season, and details on the new store planned for next year.

Answer

CEO Paul Stone noted they haven't seen a distinct uptick from higher-end consumers but are improving their ability to target all customer segments. CFO Jeff White stated that promotional firearm sales are being offset by high attachment rates on ancillary products. Regarding the holiday, management is confident in their inventory position and tracking ahead of their 2019 model. The new store, planned for Arizona in mid-2025, will be a standard format in a state strong for the personal protection category.

Asked about product category performance, the status of loyalty and credit card programs, and the drivers behind the improving sales comp trend during the quarter.

Answer

The company noted apparel and footwear were most pressured, while ammo also saw weakness. Loyalty and credit programs are in the early stages of a needed overhaul. The improving comp trend was driven by better performance each month, though caution remains for the second half of the year. Customer attachment rates also improved significantly.

Mark Smith from Lake Street Capital Markets asked for more detail on product category performance, particularly which were weakest, and sought updates on the loyalty, email, and credit card programs. He also inquired about the monthly comp sales cadence and the drivers behind it, such as price versus traffic.

Answer

CFO Jeffrey White identified apparel and footwear as the most pressured categories due to ongoing resets, with ammunition also impacting results. CEO Paul Stone described the loyalty and credit programs as being in the 'early stages' of a necessary evolution with 'enormous upside.' White confirmed comps improved monthly through the quarter, while Stone highlighted that customer attachment rates reached an 'all-time high,' demonstrating the effectiveness of the new in-store strategy.

Mark Smith sought clarification on the $20 million inventory pull-forward, asked if the sales mix negatively impacted Q1 gross profit margins, and questioned the company's confidence in reducing both inventory and debt by the end of the fiscal year.

Answer

CFO Jeff White confirmed the $20 million strategic inventory pull-forward focused on high-turn products to mitigate tariff risks and noted that a heavier sales mix of firearms and ammunition did pressure gross margins. Both CEO Paul Stone and CFO Jeff White affirmed their confidence in generating positive free cash flow to pay down debt and achieving a lower total inventory level by year-end, following a seasonal build in the first half of the year.

Mark Smith inquired about the factors contributing to downward pressure on gross profit margin, specifically asking if it was a mix issue or related to ongoing transformation costs. He also sought an update on the Hebron facility's production status, the impact of product mix and pricing (including LCP orders and the new Glenfield line strategy), and the current state of steel and other input prices.

Answer

CEO Todd Seyfert explained that gross profit margin pressure was primarily due to $1.4 million in costs associated with getting the new Hebron, Kentucky facility ready for production without corresponding revenue. He confirmed the Hebron facility is on pace for firearm production by year-end. Regarding mix and price, Seyfert noted heavy LCP orders and shipments from a strategic program. He described the Glenfield expansion as an opportunity to enter a new, lower price point, utilizing existing capacity at the Newport facility for the Gen 1 rifle line, thereby avoiding cannibalization and targeting a new market segment. On input prices, Seyfert stated they were fairly flat, with some noise around aluminum due to tariff uncertainty, but no significant pressure to date.

Mark Smith inquired about the factors contributing to downward pressure on gross profit margins in the quarter, seeking clarification on whether it was a mix issue, ongoing transformation costs, or other elements. He also requested an update on the Hebron facility's production status, discussed product mix and pricing strategies, specifically regarding LCP orders and the new Glenfield line, and asked about the impact of steel and other input prices on margins.

Answer

CEO Todd Seyfert explained that gross margin pressure was primarily due to $1.4 million in costs associated with getting the new Hebron, Kentucky facility ready for production without corresponding revenue, rather than significant Q2 transformation issues. He confirmed that the Hebron facility is on pace for firearm production by year-end. Seyfert noted that heavy LCP orders and shipments, part of a thoughtful program, influenced the quarter's mix. He described the Glenfield expansion as an opportunity to enter a new, lower price point, rounding out the product offering without cannibalizing existing lines, and confirmed good market acceptance. Regarding input prices, Seyfert stated they were fairly flat, with the company having bought ahead on supply, though aluminum tariffs present some uncertainty, but no significant pressure on costs to date.

Mark Smith of Lake Street Capital Markets inquired about the specifics of the product rationalization and SKU reduction, including its impact on sales, unit volume, and average selling price (ASP). He also asked about the completion status and long-term savings from the organizational realignment, and for insights into current consumer demand trends.

Answer

President & CEO Todd Seyfert explained that the rationalization primarily affected the American Gen 1 rifle, MSRs, and the EC9 pistol, moving roughly 70,000 units and reducing the ASP by about $16. He clarified that the organizational realignment is complete but was a strategic reallocation of talent, not a cost-saving measure, so significant ongoing savings are not expected. Seyfert also noted that while the broader market is down, Ruger is outpacing it by focusing on market share gains through innovation and its diverse product portfolio.

Mark Smith asked about the new RXM pistol's impact on average selling price (ASP) during the quarter and whether it exemplifies the company's future platform strategy. He also inquired about potential margin pressures from tariffs and inflation, and what gives management confidence to expand capacity amid a weaker consumer environment.

Answer

President and CEO Todd Seyfert explained that the RXM launch affected Q1 ASP due to the production ramp-up. He affirmed the RXM is a key example of their platform-building strategy. Regarding tariffs, Seyfert stated that as a U.S. manufacturer with a domestic supply chain and a stockpile of raw materials, the company sees no immediate impact but is monitoring the situation. He attributed the confidence for CapEx expansion to a strong new product pipeline and the company's debt-free balance sheet, which allows it to aggressively pursue market share.

Mark Smith inquired about the sales impact of the new RXM pistol, its potential as a platform for future products with Magpul, and the company's capital allocation strategy for cash on the balance sheet.

Answer

Outgoing CEO Christopher Killoy explained that the RXM pistol had a significant and well-planned launch in December, becoming their largest ever. He confirmed the RXM is a platform for future variations and the Magpul collaboration is strong. Regarding cash, Killoy stated the priority is funding the business and new products, followed by strategic acquisitions, and then returning capital to shareholders via special dividends or share buybacks.

Mark Smith of Lake Street Capital Markets inquired about the significant difference in average selling price (ASP) between new orders and the existing backlog, the shipping timeline for backlogged rifles into Q4 and 2025, the drivers behind the lower gross profit margin in the quarter, and the current state of consumer demand and the promotional environment.

Answer

President and CEO Christopher Killoy explained that the high ASP in the backlog is primarily driven by higher-priced Marlin and American Gen II rifles. He noted that while production is being maximized, a significant portion of this backlog will likely ship in Q1 and Q2 of 2025. Killoy attributed the gross margin decline to a mix of factors: no annual price increase, strategic pricing on 75th-anniversary models, and the deleveraging of fixed costs at current volumes, plus fewer workdays in Q3. Regarding the market, he acknowledged promotional pressure but stated Ruger will remain disciplined, relying on product innovation rather than widespread rebates to compete.

Mark Smith asked about Smith & Wesson's average selling prices (ASPs) for handguns and long guns, competitive dynamics, and the outlook for pricing through the rest of the year. He also inquired about opportunities to expand long gun product offerings into new market segments and the potential demand for NFA items like suppressors and SBRs following recent tax law changes.

Answer

President and CEO Mark Smith stated satisfaction with summer ASPs, noting the company's ability to be selective in promotions due to innovation and brand strength. He highlighted the success of the 1854 lever-action platform as a path for future expansion into white space categories, with two new calibers coming soon. Regarding NFA items, he anticipated healthy demand for suppressors starting in January due to pent-up demand and ongoing promotions for the Gemtech brand.

Mark Smith asked about the current state of handgun and long gun average selling prices (ASPs), competitive dynamics, and consumer behavior, inquiring if any shifts are anticipated for the remainder of the year. He also questioned opportunities for expanding long gun product offerings into underserved market segments and the potential impact of new tax laws on demand for NFA items like suppressors and SBRs starting in January.

Answer

Mark Smith, President & CEO, expressed satisfaction with ASPs maintained through the summer's slow season, attributing it to innovation and core portfolio strength allowing selective promotional participation. He anticipates ASPs will improve in the busy season. Regarding long guns, he highlighted the success of the 1854 lever-action platform, with plans to expand it with two new calibers, paving the way for further white space expansion. For NFA items, he noted significant pent-up demand in the suppressor market ahead of January's law changes, with early promotions for the GemTech brand indicating a healthy market.

Mark Smith of Lake Street Capital Markets asked about the impact of smaller competitors exiting the market, the necessity of price cuts to maintain market share, trends in consumer demand across different price points, the timing of the extended summer shutdown, and the company's plans for debt repayment.

Answer

President and CEO Mark Smith explained that the exit of smaller competitors is a long-term tailwind, creating market share opportunities without a significant flood of liquidated inventory. He stated that the company does not need to cut prices on its core line, instead focusing on new entry-level products and value-added bundling to compete. He confirmed that demand remains strongest at the high-end and entry-level price points. Smith clarified the extra factory shutdown week is scheduled for Q2, not Q1, to align inventory with demand. He also confirmed the company expects to generate healthy cash flow from inventory reduction in the upcoming fiscal year, which will be used for significant debt repayment.

Mark Smith sought clarification on full-year guidance, the drivers of handgun ASP pressure, the effectiveness of promotions, industry inventory levels, and whether the era of 'fear-based buying' has passed.

Answer

CFO Deana McPherson confirmed full-year revenue guidance of down 5-10% and Q3 operating expenses up 5-10%. CEO Mark Smith attributed ASP pressure to the success of the lower-priced Bodyguard and consumer trade-downs, noting the company still gained share. He stated that promotions are meeting expectations, channel inventories are healthy, and that while fear-based buying has abated, the move to personal protection remains a key driver, though currently overshadowed by economic pressures.

Mark Smith asked for an update on the progress of expense reduction initiatives and inquired about the broader industry outlook, specifically regarding signs of renewed capital investment from cultivators.

Answer

CFO Greg Sanders confirmed that cost-cutting is ongoing, with further reductions in SG&A and store operating expenses expected in the second half of the year. CEO Darren Lampert added that the company is seeing its largest backlog for durable goods in three years, signaling that capital is returning to the industry for new builds and equipment refurbishment.

Mark Smith from Lake Street Capital Markets asked about the impact of potential tariffs on proprietary products, the extent of sourcing from China, and the mitigation steps GrowGen has taken, including pricing adjustments. He also inquired about the timeline for the planned closure of an additional 10 stores.

Answer

Darren Lampert, Executive, explained that less than 10% of proprietary brand products are sourced from China, with diversification into India and Mexico already in place. He noted that mitigation efforts include vendor negotiations, optimizing logistics via a hub-and-spoke model, and selective price increases. Regarding store closures, Lampert stated the process would be spread out, with about half occurring as leases expire, reflecting a strategic shift away from declining retail foot traffic toward a B2B and digital-first model.

Mark Smith of Lake Street Capital Markets asked for a breakdown of proprietary brand sales across different channels (e-commerce, B2B, retail) and questioned if the Q4 inventory cleanup was finished or if some would carry into Q1 2025.

Answer

CFO Greg Sanders explained that proprietary brand penetration is accelerating across all channels, with wholesale and Amazon e-commerce now almost exclusively selling these products. He confirmed the 'heavy lifting' on inventory cleanup is done. Executive Darren Lampert added that the closure of 19 stores drove Q4 clearance sales and that margins should recover significantly in Q1.

Mark Smith asked about the rate of customer retention from closed stores and its contribution to same-store sales growth. He also inquired about the general health and spending habits of GrowGen's commercial and walk-in customers.

Answer

CEO Darren Lampert confirmed that the company has been successful in retaining a majority of its commercial customers from closed locations, which was a key driver of the 12.5% same-store sales growth in Q3. He noted that the new B2B portal is designed to help retain walk-in customers from those areas. Regarding customer health, Lampert described the industry as 'tough' but pointed to positive signs, such as strong receivables collection. He expressed cautious optimism about potential legislative changes under the new administration, which could bring investment back into the sector.

Mark Smith questioned the level of franchisee participation in new promotions and inquired about the company's menu pricing strategy, including when prior price increases would roll off and the capacity for future adjustments.

Answer

President and CEO Dave Pace confirmed that franchisees have bought into and are participating in the promotions, and that the company is undertaking a surgical menu optimization study rather than applying blunt price increases. CFO Todd Wilson specified that menu price contribution will drop from ~4.5-5% in Q3 to ~2-2.5% in Q4 as older pricing rolls off, before accounting for the mix impact of value deals.

Inquired about franchisee sales performance and their participation in new promotions, as well as the company's pricing strategy, including the roll-off of existing price increases and the potential for future ones.

Answer

Management confirmed that franchisees have bought into the new promotions and are participating, despite some concerns about trade-down. The company has no plans for broad price increases in 2025. The effective price will roll down from ~4.5-5% in Q3 to ~2-2.5% in Q4. They are conducting a menu optimization study to find more surgical ways to improve margin rather than taking blunt price increases.

Mark Smith from Lake Street Capital Markets, LLC asked for the outlook on selling expenses and media spend for the rest of the year, the number of remaining company-owned properties available for sale, and the company's confidence and potential timeline for refinancing its debt.

Answer

EVP & CFO Todd Wilson confirmed the full-year selling expense guidance remains around $30 million, with spending expected to be consistent from Q2-Q4. He stated that four properties are still owned, providing monetization opportunities, though nothing is imminent. Regarding the debt, Wilson expressed increased optimism for a refinancing following the strong Q1 results and ongoing lender conversations, but did not commit to a specific timeline, prioritizing the goal of securing attractive terms.

Mark Smith from Lake Street Capital Markets asked for the outlook on product margins given tariffs and inflation, requested quantification of recent pricing actions, and inquired about differences in consumer behavior between renters and homebuyers.

Answer

President & CEO Duncan Bates noted that while pricing has been adjusted for tariffs, rising commodity and labor costs present ongoing challenges, requiring a balance between price and volume. He confirmed two price increases in 2025: one in February and a more significant one in late June. Bates observed that renters are very price-sensitive, which pressures community operators and shifts demand toward smaller, more affordable homes. He remains optimistic long-term due to the national affordable housing crisis.

Mark Smith of Lake Street Capital Markets inquired about the drivers behind the significant increase in average home selling price, the factors contributing to lower Mobile Home Park (MHP) sales, and any atypical capital expenditure plans for the year.

Answer

Executive Robert Bates clarified that the primary driver for the higher average selling price was a sales mix shift toward higher-priced retail and inventory finance sales, not underlying price hikes. He noted MHP sales were impacted by both timing delays on large orders and softer demand, which the company is addressing with a modified financing program. Regarding capital allocation, Bates confirmed there were no uses of cash outside the norm, with a continued focus on completing the Bastrop development and monetizing noncore real estate.

Mark Smith from Lake Street Capital Markets asked for an update on the settlement agreement, questioning if there would be any ongoing impact in Q4, and inquired about the significant increase in the MHP financing portfolio.

Answer

Executive Robert Bates confirmed that the moving parts of the settlement agreement were completed in Q3, with no further impact expected. He noted the company is now operating two parks acquired through the settlement and plans to monetize them. Regarding the MHP portfolio, Bates explained that as part of the settlement, some balances were shifted from the development loan portfolio to the MHP portfolio.

Mark Smith of Lake Street Capital Markets asked about the MHP loan portfolio's interest rates in a changing rate environment, the accounting and balance sheet impact of the recent litigation settlement, and the sustainability of the strong gross profit margin on product sales given potential cost pressures.

Answer

Executive Robert Bates explained that MHP loan portfolio growth has slowed with the park business but noted that as existing two-year fixed-rate loans flip to variable, rates will increase. He clarified the litigation settlement will consolidate numerous MHP and development notes into a single new note, reducing the overall loan balance on their books while Legacy takes ownership of two mobile home parks. Regarding margins, Bates expressed pride in maintaining levels despite lower volume and believes they are sustainable. He identified labor as the primary cost pressure and stated that if they can increase production volume, they can maintain similar gross margin levels by holding prices firm.

Mark Smith from Lake Street Capital Markets questioned the company's capital deployment strategy, the performance of store remodels and new prototypes, and observed trends in consumer behavior.

Answer

CFO Steven Cirulis outlined capital priorities: reinvesting in assets (remodels, new units), technology (new app, tech stack), and the share buyback program, with the highest priority on high-return strategic initiatives. CEO Bob Wright discussed being pleased but "not satisfied" with new shop performance, focusing on cost reduction in builds and improving opening sales. He detailed the three-tiered remodel program and noted positive early results, though it's too early to share specific ROI data. Wright also mentioned that while there's pressure on low-income consumers, it's a small part of their base, and digital customers tend to have a higher check.

Mark Smith of Lake Street Capital Markets inquired about Cadre's business exposure to ICE and Border Patrol, the specific tariff assumptions included in the current guidance, and the performance and adoption trends for new products across the company.

Answer

President Brad Williams noted that as agencies like ICE and Border Patrol expand, Cadre is well-positioned to supply them with necessary equipment. CFO Blaine Browers explained that guidance only includes tariffs currently in effect and assumes USMCA remains, highlighting Cadre's regional supply chains and multi-country manufacturing as mitigation options. Williams added that new products launched in the last 24 months, like the HyperX carrier and Ballast duty holster, are performing well.

Mark Smith from Lake Street Capital Markets asked about the expected timing and potential lumpiness of business throughout the rest of the year and sought details on tariff mitigation strategies beyond pricing.

Answer

Executive Warren Kanders stated that while backlog visibility is limited, Q2 revenue is expected to be up sequentially, with Q4 projected to be the strongest quarter of the year, driven by Armor and EOD project timing. CFO Blaine Browers outlined tariff mitigation tactics that include shifting production between existing facilities, such as between the U.S. and Canada for bomb suits, and accelerating internal productivity projects to offset cost pressures without major factory moves.

Mark Smith asked if any revenue delays from the previous cybersecurity incident were impacting Q1, what was driving the lower Q1 EBITDA margin guidance, and for an update on domestic law enforcement hiring trends.

Answer

CFO Blaine Browers confirmed that the impact from the cybersecurity incident was almost entirely resolved in Q4 2024, with minimal spillover into Q1. He explained that the lower Q1 EBITDA margin guidance of 12-14% is primarily a function of lower sales volume and the resulting lack of leverage on SG&A, not a decline in gross margins. President Brad Williams stated that law enforcement headcount continues to be stable. He noted that while a tougher economy could theoretically boost recruitment, the high hurdles and success rates of recruit classes act as a filter on potential hiring increases.

Mark Smith of Lake Street Capital Markets inquired about the nuclear business, asking about the timeline for recognizing benefits from new projects like small modular reactors (SMRs). He also asked about the long-term outlook following the U.S. election and any potential impact from tariffs.

Answer

President Brad Williams explained that for new nuclear plants like SMRs, Cadre's products are utilized once the plants are operational and generating waste, not during construction. Executive Warren Kanders stated they foresee no changes from the election due to bipartisan support for law enforcement spending and noted that the company's regional supply chain mitigates risks from potential tariffs on Asian goods.

Mark Smith of Lake Street Capital Markets questioned the behavioral differences between customers of the grill concepts versus STK and Benihana, sought details on the recent grill concept closures, and asked for insights on food cost inflation trends.

Answer

President & CEO Emanuel Hilario detailed that the grill concepts face headwinds from their connection to the movie business, consumer pullback on seafood, intense sushi competition, and lower alcohol consumption trends. He confirmed the five closures were non-core locations at the end of their lease terms with poor real estate quality. CFO Tyler Loy noted that while some commodity pressures are easing, beef prices remain sticky. Hilario added that menu innovation and forward contracting for seafood will help mitigate Q4 cost pressures.

Mark Smith of Lake Street Capital Markets asked about consumer behavior trends between high-end and grill concepts, plans for improving the grill brands, and the current state of restaurant labor costs and employee retention.

Answer

CEO Emanuel Hilario explained that STK's positive traffic is a result of its value strategy rather than a demographic shift, while acknowledging the grill concepts remain more challenged. He detailed plans to boost grill performance through increased grassroots marketing and the soft launch of the 'Friends with Benefits' loyalty program. Regarding labor, Hilario noted that employee retention is stable and comparable to the second half of last year, with only moderate wage inflation.

Mark Smith asked about the potential impact of tariffs on commodity costs and inquired about any planned restaurant closures, particularly for the RA Sushi or Kona Grill brands. He also sought details on consumer behavior, pricing power, and any observed changes in spending on items like alcohol or desserts.

Answer

CEO Emanuel Hilario stated that key commodities like beef and frozen seafood appear stable for the year and expressed confidence in the company's strengthened supply chain team to manage any tariff-related complexities. He confirmed there are no planned restaurant closures at this time. Regarding consumer behavior, Hilario noted a shift towards alternative dayparts like happy hour and some sharing of side dishes, but no other significant changes. He added that while the company is being cautious with pricing, it retains some flexibility, especially at STK.

Requested clarification on the company's sourcing mix by country for tariff exposure, asked about near-term tariff mitigation plans, and inquired about the performance of the recently acquired Rocky Mounts business.

Answer

The company detailed its sourcing mix, with Adventure primarily from China/Australia and Black Diamond from Southeast Asia (31% Taiwan, 15% Vietnam, 12% Philippines) and 25% from China. The tariff mitigation strategy is currently 'wait and see' as they evaluate options for moving production out of China. They are 'thrilled' with Rocky Mounts' performance, noting its $2.1M revenue contribution and future growth potential.

Mark Smith of Lake Street Capital Markets requested clarification on the company's sourcing mix by country in relation to tariffs, asked about further mitigation plans, and inquired about the performance of the Rocky Mounts brand.

Answer

CFO Michael J. Yates detailed the sourcing mix, noting Adventure is mostly from China and Australia, while Black Diamond is ~25% from China with the rest from Southeast Asia. He stated the company is taking a 'wait and see' approach on further moves. Yates expressed that the company is 'thrilled' with Rocky Mounts' performance, highlighting its $2.1 million revenue contribution in the quarter.

Inquired about the sales impact from discontinued inventory in the Outdoor segment, confirmed the gross margin impact, and asked about the current and future strategy for Black Diamond's physical retail stores.

Answer

Sales of discontinued merchandise in the Outdoor segment totaled $2.7 million, about $600,000 more than the prior year, which had an 80-90 basis point negative impact on gross margin. The company's retail strategy involves a small, stable footprint of 8-10 stores used as 'learning labs' and for brand expression, not as a primary revenue driver. Recent openings in Seattle and partnerships in Jackson Hole are aimed at broadening the brand into mountaineering and building community connections.

Inquired about the state of the international consumer for the Outdoor segment and the company's exposure to potential tariffs on goods from China.

Answer

The company explained that European markets are a few months behind the U.S. in recovery, while distributor markets in Asia are 12-18 months behind due to an extra layer of inventory. They feel well-insulated from potential China-specific tariffs due to active and ongoing supply chain diversification efforts in both the Outdoor and Adventure segments, including moving production to other countries and sourcing closer to market.

Mark Smith of Lake Street Capital Markets inquired about the state of the international consumer for the Outdoor segment and the company's exposure to potential tariffs on goods from China.

Answer

Black Diamond President McNeil Fiske explained that European markets are a few months behind the U.S. in their correction, while international distributor markets may take another year to fully correct inventory. On tariffs, Fiske noted Outdoor's China exposure is minimal and manageable. Adventure segment Managing Director Mathew Hayward added that they are actively diversifying their supply chain, including standing up Australian partners and identifying new manufacturing sources to de-risk from China.

Mark Smith asked for the drivers behind the increase in 'other costs' at the restaurant level, sought more detail on G&A management practices, and questioned if success in smaller markets alters the long-term outlook for total unit potential in the U.S.

Answer

SVP Benjamin Porten clarified that the Q3 'other costs' of 14.7% was a bounce-back from an abnormally low Q2, and the year-to-date figure of 14.3% is in line with fiscal 2024, representing minor growth across items like R&M and utilities. CFO Jeff Uttz emphasized that G&A control is purposeful, focusing on slowing hiring and reallocating work rather than cutting staff. Porten affirmed that success in smaller markets expands their white space potential but did not provide a new total unit number.

Mark Smith asked for confirmation that the G&A guidance includes the recent litigation expense and inquired about the potential impact of tariffs on the build-out costs for new restaurants.

Answer

CFO Jeff Uttz confirmed the G&A guidance includes the litigation expense. Hajime Uba, via interpreter Benjamin Porten, estimated a worst-case scenario of a $400,000 incremental build-out cost per unit due to tariffs on imported equipment. However, he emphasized that this does not change their appetite for a 20%+ unit growth rate, given strong unit economics and a robust capital position.

Mark Smith questioned if the G&A guidance was conservative given the strong leverage in the quarter and asked for the reasons behind the lower-than-expected preopening expenses.

Answer

Benjamin Porten stated he was comfortable with the G&A guidance, which implies a 60 basis point year-over-year improvement, noting that the 80-90 basis points of leverage seen in prior years is difficult to sustain. He then explained, on behalf of Hajime Uba, that lower preopening costs were due to having fewer units under construction compared to the prior year and efficiencies gained from a restructured, smaller opening team.

Mark Smith asked for an update on the cannabis industry's health, inquiring about specific states showing weakness or improvement, and followed up on the new loan pipeline's strength and key state drivers.

Answer

Peter Sack (executive) explained that Chicago Atlantic views the U.S. not as a single cannabis market but as 40 distinct, uncorrelated markets. He highlighted the company's current focus on operators in Missouri, Ohio, and Maryland. Sack confirmed the loan pipeline is strong at $560 million, driven by opportunities in these targeted states.

Mark Smith asked about the accounting treatment for the gold held on the company's balance sheet, specifically whether it is valued at mark-to-market or at cost.

Answer

Executive Jason Reid acknowledged the question and deferred to Chief Financial Officer Janet Turner for a precise explanation of the accounting methodology for the company's gold and silver bullion holdings.

Mark Smith of Lake Street asked about the drivers behind the sales decline at GunBroker, the current stage and early success of the platform's cross-selling capabilities, and the operational status of the ammunition plant, including any remaining major hurdles.

Answer

Executive Jared Smith attributed the GunBroker decline to high channel inventory and reduced consumer spending, but highlighted the company's strength in the used and premium markets. He stated the new cross-selling functionality was launched within the last month and is in the early stages of algorithmic learning. Regarding plant operations, management noted the recent delivery of a long-delayed annealing oven, which should resolve a major hurdle, and mentioned a significant uptick in 50 Cal production.

Inquired about the reasons for the sales decline at GunBroker and its competitive strategy, the current status and early results of the cross-selling feature, and any remaining major operational issues or updates at the ammunition plant.

Answer

The executive attributed the GunBroker decline to market inventory and consumer spending but highlighted the company's strength in the premium and used markets and the potential of the new cross-selling feature, which launched in the last 25 days. Regarding the ammo plant, a key piece of equipment (an annealing oven) that has been an issue for over a year is now being installed, and rifle production is seeing a massive uptick and making steady progress.

Mark Smith of Lake Street asked about the drivers behind the sales decline at GunBroker, its competitive strategy against brick-and-mortar stores, the progress of the new cross-selling feature, and any remaining major operational hurdles at the ammunition plant.

Answer

Executive Jared Smith explained that GunBroker competes by dominating the premium and used firearm markets and that the new cross-selling feature, launched within the last month, is key to future growth and increasing the take rate. Regarding plant operations, Paul Kasowski, Chief Compliance and Transformation Officer, noted a new annealing oven is coming online, 50 Cal production has seen a 'massive uptick,' and rifle production is making steady progress despite some mechanical issues.

Mark Smith of Lake Street asked for more detail on ammunition margins, specifically whether pressure was on casings or loaded ammo, and inquired about future pressures from input costs like copper and propellant. He also requested an update on the ZRODelta contract's progress.

Answer

Executive Jared Smith clarified that the primary issue is production capacity, not inventory, with margin pressure concentrated in high-volume 9mm ammunition while rifle calibers remain strong. He confirmed significant cost pressure from copper, which the company aims to pass on, and noted that while propellant supply is a market-wide issue, AMMO Inc. feels secure in its position. Regarding the ZRODelta contract, Smith reported that the 50 Cal production line is now running, deliveries have begun, and the process is being streamlined to meet strong demand.

Mark Smith of Lake Street Capital Markets asked for clarification on ammunition margin pressures, distinguishing between casings and loaded ammo, and inquired about future input cost pressures. He also requested an update on the progress of the ZRODelta contract.

Answer

Jared Smith, an executive, clarified that margin strength is in specialty products like 50 cal and rifle hunting ammunition, while high-volume 9mm margins remain tough. He confirmed significant cost pressure from copper and noted that propellant supply will continue to be a constraint for the broader industry, though AMMO Inc. feels secure in its own supply. Regarding the ZRODelta contract, Smith stated the 50 Cal production line is now running, initial deliveries have been made, and the primary challenge is streamlining processes to maximize output against strong demand.

Asked for details on the new large brass contract's profitability, the reasons for better-than-expected proprietary ammo sales, the factors impacting AMMO margins (one-time vs. industry headwinds like propellant costs), and the company's broader outlook on military and global contract business.

Answer

The new contract has a strong margin profile of over 40%. Improved proprietary ammo sales were attributed to a combination of rebranding efforts, market recovery, and strong sales team execution. The primary drag on margins is the underutilization of rifle production capacity, which is still below 30%, though propellant constraints are a market-wide issue. The company is confident in its contract business outlook but is being deliberate in taking on large deals until it fully proves its new factory's performance.

Inquired about the drivers of the October demand surge, the product mix of that demand, OEM demand for brass casings, the status of the equipment issues, the impact of clearing old inventory, and the timing of price increases.

Answer

The October demand surge was sharper than typical seasonality due to geopolitical events, affecting both firearms and ammo. The company is sold out on brass and awaiting press repairs/upgrades to meet demand; the problematic press is currently being tested with new parts. The process of clearing old, low-margin inventory is complete, and price increases are occurring post-quarter end due to strong 2024 demand forecasts.

Asked about cost pressures on The Kinetic Group's gross margin, channel inventory and pricing power for Kinetic, the outlook for government sales for both segments, and consumer behavior regarding price points and channel mix within Revelyst.

Answer

Kinetic's Q1 gross margin was strong due to mix and price, but margins face pressure from elevated commodity costs (especially powder) for the rest of the year. The market is not favorable for further price increases. Kinetic's channel inventory is healthy and not overstocked. Government sales are a growth opportunity for both segments, with Kinetic winning a SOCOM contract and Revelyst seeing potential in its tactical brands. For Revelyst, the consumer is shifting towards mass and D2C channels, with the specialty channel remaining pressured.

Asked for clarification on whether recent price increases for the Kinetic Group are sufficient to cover inflation, inquired about the promotional environment for both Revelyst and Kinetic, and asked about future plans for the Fiber Energy business following a plant fire.

Answer

The recent price increase for Kinetic was targeted and not sufficient to cover all cost pressures; a broader increase is planned. The promotional environment is decreasing for Revelyst after a purposeful Q3, and it is minimal for Kinetic. The future of the Fiber Energy business is still under evaluation pending an insurance claim, with more updates to come.

Sought clarification on Revelyst's standalone EBITDA guidance, the allocation of corporate overhead, the drivers behind Kinetic's Q4 margin outlook, and the current state of Revelyst's inventory.

Answer

Executives confirmed Revelyst's standalone EBITDA guidance is fully burdened. The recent rise in corporate overhead is due to separation activities and timing, with about 70% allocated to Revelyst. Kinetic's Q4 margin is expected to be lower than Q3 because price hikes didn't fully cover input cost increases and production mix creates some inefficiency. Revelyst's inventory position has significantly improved and is in a much more comfortable state.