American Outdoor Brands Inc Stock

Good day, everyone, and welcome to American Outdoor Brands, Inc. First Quarter Fiscal 2027 Financial Results Conference Call. This call is being recorded.

At this time, I would like to turn the call over to Liz Sharp, Vice President of Investor Relations, for 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, should, could, indicate, suggest, believe and other similar expressions is 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 and 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. You can find those documents as well as a replay of this call on our website at aob.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. A few important items to note about our comments on today's call. First, we reference certain non-GAAP financial measures. Our non-GAAP results exclude amortization of acquired intangible assets, stock compensation, contract exit costs, other costs and income tax adjustments. The reconciliation of GAAP financial measures to non-GAAP financial measures, where they are discussed on today's call, can be found in our filings as well as today's earnings press release, which are posted on our website.

Joining us on today's call is Brian Murphy, President and CEO; and Andy Fulmer, CFO.

And with that, I will turn the call over to Brian.

Thank you, Liz. We are off to a strong start in fiscal 2027. We believe our first quarter results reflect the strength of our brands, healthy retailer and consumer demand for our products and the continued impact of our innovation strategy. We also believe the quarter reflects the impact of the strategic priorities and operating discipline we've built into our business over time. Our focus on innovation, disciplined execution and agility helped us deliver these strong results, and we believe those same capabilities will be important as we continue to execute against our growth objectives for the year.

First quarter net sales were $37.3 million, an increase of 25% over the prior year quarter. As a reminder, we believe last year's first quarter was impacted by approximately $6 million of orders that retailers accelerated into the fourth quarter of fiscal 2025, creating a favorable comparison for the quarter we are reporting today. Even after adjusting for that acceleration, first quarter net sales increased approximately 4%, a great result that reflects the continued strength of our brands. Our growth in the quarter was driven by several factors and reflected higher sales with our largest retailers, including our largest e-commerce retailer and our largest mass retailer.

We also benefited from higher direct-to-consumer sales through our own websites as well as strong sales to our international customers. Importantly, our first quarter performance was broad-based with double-digit growth in both our Outdoor Lifestyle and Shooting Sports categories. We also saw continued strength in POS during the quarter, telling us that consumer demand for our brands and products remained healthy. In fact, this is now our sixth consecutive quarter of positive year-over-year POS growth. POS increased 6% in Outdoor Lifestyle and 3% in our Shooting Sports category. Our key growth brands, BOG, BUBBA, Caldwell, Grilla and MEAT! Your Maker once again delivered positive year-over-year net sales growth on a combined basis.

Our healthy POS results were supported by strong consumer pull-through of the new products we've introduced over the last 24 months. That pull-through drove strong retailer replenishment, resulting in new products contributing 36% of first quarter net sales, well above our historical average of 20% to 25%. Importantly, innovation drives not only revenue, but profitability by generating natural consumer demand without the need for promotions. But we all know that new products alone don't stand a chance without a compelling value proposition for the consumer. And this is where innovation differentiates AOB. We focus on product categories where innovation can disrupt the status quo and where our superior product can cause consumers to move away from incumbents. We're not just looking to take share. We strive to redefine what consumers expect from a category by reshaping the activity itself.

Interestingly, there are a handful of innovation ingredients that many category-defining brands like Keurig, Ring, YETI and SharkNinja have in common with AOB's growth brand. The 4 ingredients that stand out to me are disruptive innovation, IP protection, product ecosystems and an element of product alchemy. And this last piece is critical. It means the difference between a consumer saying, "I bought this," or saying, "You have to try this." And our innovation strategy combines these ingredients to deepen consumer loyalty over time.

Let's take Caldwell, for example. First, disruptive innovation. So a few years ago, we saw an opportunity to extend Caldwell into shotgun shooting, a category with meaningful consumer pain points and relatively low brand affinity. That led to 2 new platforms: Claymore, which address the mobility and power limitations of traditional clay throwers and ClayCopter, which reimagined target shooting with a highly portable launcher and biodegradable targets that better mimic bird flight.

Second, IP protection. We now have more than 30 patents or pending patent applications supporting the Claymore and ClayCopter families of products. Third, product ecosystem. Using our Caldwell Clays mobile app, shooters can now connect Claymore and ClayCopter launchers to wirelessly launch both traditional clays and revolutionary ClayCopter targets in the same shooting session, an entirely new experience that no other brand can offer. And fourth, the element of product alchemy, which creates product evangelists. Our new Claymore and ClayCopter products are generating an incredible organic response from shooters all across the world on social media, forums and online reviews.

A flurry of videos uploaded by consumers have each attracted millions of views and thousands of shares, but the numbers alone don't capture what is happening. What stands out is the spontaneous reaction from people, usually a wide grin and a genuine, "Wow, you have to try this." These are real consumers sharing the surprise, raw excitement and sheer fun these products have brought to recreational target shooting. Every one of those posts is an invitation for someone else to experience it. And that kind of consumer energy is powerful, and our retailers pay close attention to it. They see the excitement building and recognize the opportunity to bring that experience and that consumer into their stores.

For us, that retailer engagement is especially valuable. It expands our brand's reach, creates new merchandising opportunities, makes it easier for more consumers to discover our platform and has the potential to compress adoption cycle. That dynamic has helped make Caldwell one of the top-performing brands in our portfolio today, and it reinforces our confidence in Caldwell's 5-year product pipeline, which is filled with exciting products that will continue to expand the platform and strengthen the brand. Caldwell is a good example of how we use these ingredients to create category-defining brands. But these ingredients can also combine in other areas as well to produce emerging new revenue streams for the company.

BUBBA is a great example of that with subscription services that are now generating real revenue. When we launched the first BUBBA Smart Fish Scale and app 2 years ago, we included a complimentary 2-year subscription, a move intended to lower the barrier to entry and encourage consumers to adopt the new technology. That was especially important in fishing, where consumers often look to elite competitors to guide their product choices. One reason our relationship with Major League Fishing has been so valuable. Those complimentary subscriptions are now beginning to roll off. And while we remain in the early innings of tracking conversions, the trends are very encouraging. Paid subscriptions are now in the 6-figure dollar range on a TTM basis and accelerated in the first quarter, a solid indication that consumers see ongoing value in the connected experience. And with the consumer launch of SCORETRACKER LIVE at ICAST in July, we're now bringing that connected experience to a much broader audience, further expanding the long-term opportunity for the BUBBA ecosystem.

As we look to the remainder of fiscal 2027, we like what we're seeing. Consumer demand for our products has remained healthy. Our key growth brands continue to perform well collectively, and our innovation pipeline is robust. That said, we also know from experience how quickly conditions can change. Consumer spending remains measured, tariffs continue to evolve and broader economic and global conditions remain dynamic. That makes it important that we continue to do what has served us well, stay close to our consumers and retail partners, remain focused on innovation, stay disciplined in our execution and maintain the agility to respond quickly and effectively as conditions evolve. We're pleased with our start to the year, confident in our strategy and focused on executing against the opportunities ahead.

With that, I'll turn the call over to Andy to walk through our first quarter financial results and our outlook for fiscal 2027.

Thanks, Brian. We're very pleased with our first quarter performance. We delivered strong net sales and profitability and ended the quarter with another strong balance sheet. Net sales for Q1 were $37.3 million compared to $29.7 million in Q1 last year, an increase of 25.4%. Brian outlined the acceleration of orders by our retailers that impacted Q1 of last year, so I won't go into that detail. Adjusting for that acceleration, net sales for Q1 increased by 4.3% compared to Q1 last year.

On a category basis, net sales in Outdoor Lifestyle, which consists of products related to hunting, fishing, meat processing, outdoor cooking and rugged outdoor activities, increased 34.4%. Net sales in Shooting Sports, which includes solutions for target shooting, aiming, safe storage, cleaning and maintenance and personal protection increased 15.3% compared to Q1 last year.

Turning to our distribution channels. Our traditional channel net sales increased 28.4% in the first quarter, and our e-commerce net sales increased 20.1% compared to last year. Domestic net sales during the quarter increased 24.9%, while our international net sales increased 32.7% or roughly $600,000 compared to Q1 last year, largely due to increased net sales in Canada and Europe.

Turning to gross margin. Q1 gross margin was 53%, up 630 basis points compared with Q1 last year. This result reflected several factors, including higher margins from new products, channel mix, the timing of tariff capitalization and amortization and pricing actions taken in fiscal 2026. I'd like to provide a quick update on the evolving tariff landscape. Following the Supreme Court's February 2026 ruling that IEEPA-based tariffs were unlawfully imposed, the administration implemented tariffs under Section 122 at a 10% rate, subject to a statutory 150-day limit. On July 24, those tariffs were replaced by a new set of tariffs under Section 301 at rates of 10% or 12.5%, depending on the country of origin.

As a reminder, these tariffs are in addition to the original 301 tariffs of either 7.5% or 25% that went into effect on certain products in 2018 as well as Section 232 tariffs of 25% or 50% that went into effect in 2025. Since February, we've been capitalizing these tariffs into inventory. Because the related costs are recognized in the P&L based on inventory turns, the impact to gross margin is delayed. As a result, we expect to begin seeing the impacts of these tariffs later in Q3 with the full quarterly impact reflected in Q4.

Turning to operating expenses. GAAP operating expenses for the quarter were $21.9 million compared to $20.7 million last year. The increase was driven by higher variable costs due to the increase in net sales as well as higher fuel costs, partially offset by lower bad debt expense and lower intangible amortization. On a non-GAAP basis, operating expenses in Q1 were $19.8 million compared to $18.2 million in Q1 last year. Non-GAAP operating expenses exclude intangible amortization, stock compensation and certain nonrecurring expenses as they occur.

GAAP EPS for Q1 was a loss of $0.12 compared to a loss of $0.54 last year. On a non-GAAP basis, EPS was $0.03 for the first quarter compared to a loss of $0.26 in Q1 last year. Our Q1 figures are based on our basic share count of approximately 12.6 million shares, whereas on a fully diluted basis, we expect our share count will be about 13.3 million shares for fiscal 2027 outside of any share buybacks that may occur. Adjusted EBITDA increased $4.3 million from a loss of $3.1 million in Q1 last year to positive $1.2 million in Q1 this year, driven mainly by the increase in net sales and gross margin. On a trailing 12-month basis, adjusted EBITDA was $14.5 million, up from $10.2 million at the end of fiscal 2026.

Turning now to the balance sheet and cash flow. We continue to maintain a strong balance sheet, ending the quarter with $33.3 million in cash and no debt. We generated $13 million of operating cash in Q1 compared to an operating cash usage of $1.7 million in Q1 last year. The increase in cash was driven by IEEPA refund claims received in Q1 as well as improved operating performance. Inventory increased $8.4 million in Q1 to $100.3 million, in line with our expectations. The increase supports our seasonal inventory build as we prepare for hunting and holiday seasons. Our balance sheet remains strong and debt-free. We ended the quarter with no balance on our $75 million line of credit. So as of Q1, we have total available capital of over $120 million.

Turning to capital expenditures. We spent roughly $500,000 on CapEx in Q1, mainly for product tooling and patent costs. For full year fiscal 2027, we expect to spend $3.5 million to $4 million, consistent with our asset-light operating model.

Now turning to our outlook. Based on our Q1 performance and positive POS trends that Brian mentioned, we are maintaining our previous net sales guidance and raising our adjusted EBITDA guidance for fiscal 2027. We expect net sales for fiscal 2027 in the range of $200 million to $210 million, which at the midpoint would represent growth of 7.5% over fiscal 2026 reported net sales. For the second quarter, we expect net sales to increase approximately 3% compared with the prior year quarter. Over the course of the year, we continue to expect our typical seasonal net sales pattern to play out with Q2 and Q3 representing our highest quarters and Q4 exceeding Q1.

Turning back to the full year. We expect gross margins for fiscal 2027 to be in the mid- to high 40s, slightly above our target range. Turning to OpEx. We continue to expect fiscal 2027 operating expenses to increase slightly due primarily to variable costs associated with higher net sales, partially offset by lower intangible asset amortization. On a percentage of net sales basis, we expect operating expenses to decline as we leverage our fixed cost base. We will continue to align our cost structure with our business activity while preserving the flexibility to respond to changing market conditions.

Lastly, based on all the factors I've discussed, we are raising our adjusted EBITDA guidance for fiscal 2027. Our previous guidance called for adjusted EBITDA of roughly $13 million to $16 million. We now expect adjusted EBITDA in the range of $14.5 million to $17.5 million. The midpoint of $16 million would represent an increase of 57% from our prior year results. This new profitability guidance continues to be consistent with our long-term operating model, which targets an EBITDA contribution of 25% to 30% on net sales above $200 million. One reminder on income taxes. We ended fiscal 2026 with a net operating loss carryforward of approximately $21 million. Therefore, because of this benefit, we expect a minimal amount of GAAP income tax in fiscal 2027.

With that, operator, please open the call for questions from our analysts.

[Operator Instructions] The first question will come from Matt Koranda with ROTH Capital.

I just want to make sure there was no IEEPA benefit that flowed through the P&L in the first quarter. Did you see any margin benefit that flowed through the P&L or all of the improvement was essentially the fundamental items that you highlighted, Andy?

Yes. Matt, there was a little bit of IEEPA refund, a little bit left over from kind of some of the easier claims. So that was kind of baked into the reduced amount of tariffs for the quarter. But yes, we're really pleased with the 53%. Overall, what I talked about in the comments, roughly 200 basis points were related to that tariff timing. And the remainder is really from kind of growth in e-com and new products that we would expect higher margins on and then a little bit of pricing as well.

Okay. Got it. So call it, 400 basis points from kind of product innovation mix shift that may be sustainable going forward?

Correct. Product mix, channel mix, yes, and then a little bit of pricing.

Okay. All right. Got you. Helpful. And then I guess maybe just level set us on the way to think about revenue growth for the remainder of the year. Obviously, embedded in the guide, it's sort of like a 4% kind of rate if we level set it across the rest of the quarters. I think you said second quarter, probably closer to 3%. But then you got POS and Outdoor Lifestyle growing what looks like mid-single digits and potentially, you still had this gap between sell-in and sell-through for the last several quarters. So that does bode well, I guess, for an acceleration for the rest of the year. How should we be thinking about that dynamic and sort of the health of channel inventory given that retailers have been destocking for several quarters now?

Yes. Matt, this is Brian. So overall, we're actually pretty pleased with what we're seeing with channel inventory and the POS. So I would say it's more normalized replenishment at this point. So pretty tight link between the two. And you saw that, too, with our e-commerce customer commentary where we had expected they were getting a little low on inventory. We saw strong POS and would have expected that to reverse at some point, and we saw that trend beginning a few quarters ago, so in Q1 of this year. Certainly pleased with the direction it's headed, which is in line with our expectations.

So to your point about the rest of the year, I mean, I think at this point, Q1, we're still early in the year. The majority of our sales occur in Q2 and Q3. The holiday season is a big barometer to understand what the health of the consumer looks like. Overall, though, I mean, new products for us is just hitting on all cylinders right now, especially with the growth brands. So I think we're being a little conservative as we look out over the rest of the year on that piece. But certainly, if things consider at this rate on the new products and the strong replenishment that we're seeing, there could be some upside to that.

Okay. Understood. On the new product front, it was great to see that stat of 36% coming from new product. How sustainable do you think that high level is for the -- over the near to medium term, I guess, with the rollout of ClayCopter and some of the new innovation around Caldwell, I assume it may be sustainable for the next several quarters, but maybe just speak to sort of how you can hold sales at that kind of high rate of innovative product and new product.

Yes. It certainly -- it's an extraordinary number. Our averages that we've cited historically are between 20% and 25%. I still think that's a good number long term. We seem to kind of hover around in that range. So 36% certainly stands out from that average. What's driving that 36%, we were just looking at before the meeting here, what were some of the top-performing products and you hit the nail on the head, the ClayCopter family is leading the charge there. And it's why we decided to really focus on that in the prepared remarks, just the reality of that product is unlike anything we've seen in some of our product launch history.

So if you haven't seen any of that stuff, I encourage you to look it up. But -- so I think is it sustainable at that level? I don't think so. But I also think the ClayCopter in particular, continues to gain momentum. So it is possible that we see sort of higher-than-average sales from new products this year. But I don't know that we'll be able to sustain something closer to 36% for the remainder of the year.

Okay. Fair enough. And for what it's worth taking the ClayCopter to the range before, and it definitely gets a lot of notice from folks. So yes, that's true on the ground. I guess last one for me. I just want to make sure I understand that sort of the gist behind the guidance raise on EBITDA, but not sales. It looks to me like it's stemming largely from the strength in gross margin that you put up in the first quarter here. But maybe just speak to the bigger kind of items that are driving the EBITDA revision to the upside versus kind of holding sales where it was.

Yes, Matt, I can start. This is Brian. And then Andy, feel free to jump in. So I think it's a few things, right? We -- when we're looking at our net sales piece, in Q1, we have stronger e-com, which drives higher margins. We have higher new products, which drives higher margins. And I talked about the pricing piece, which was a smaller part of the overall increase. And I think if you look out at the rest of the year, if we continue to see strength in that e-com piece and new products, et cetera, I think it could help drive a revenue change. But kind of gross margins and what we can control below gross margins, we feel very good with.

So when we look at the numbers, we feel confident in the top line range that we gave. And I already discussed some of the upside opportunities there. But when it comes to gross margin flowing through EBITDA contribution, what we can control internally, we feel really confident that we could increase our EBITDA range for the year.

The next question will come from Mark Smith with Lake Street Capital.

First off, kind of a broad question. I'm curious as we look at first quarter results and what kind of drove bigger surprises versus your guidance and expectations. Curious if you can call out anything. It sounds like ClayCopter. Was there anything else to really call out that was surprising from either a revenue or a margin standpoint during the quarter?

I mean I think it's -- we called out our largest e-com customer and our largest mass retailer that showed up in a big way in the quarter. And so we saw stronger replenishments from those 2 than I think we had originally modeled, which is great. And to your point around the ClayCopter, it's those types of new products that are really seeing the best highest success at POS right now. And retailers managing their inventory levels in a more normalized fashion. So those replenishments are coming through much more quickly, and they're having a better -- I think they're just better to able to forecast some of those new products now that they've been out for a little while. So I would point to those 2 customers, coupled with just the -- like you pointed out, the success of some of those new products that exceeded our expectations.

Okay. And then as we think about the consumer, I'm curious if there's any real trends that you've seen, results look really good. But as far as trade down or consumer behavior as you're looking at point-of-sale data, anything to really call out on where the consumer stands today?

Yes. I mean we spent a lot of time talking about the consumer. We continue to orient our products towards the higher end as much as possible. So premium products that are disruptive. And so we look to capture the 2 types of consumers, the more affluent consumer or the super enthusiast who is willing to pay to have the highest quality, best-performing product. And so we continue to see traction there. I can give you a little bit of insight. We see some of the market data that's out there. And we are seeing for areas that we don't necessarily play in price points, kind of a continued downward pressure where the consumer is not spending as much.

It seems like they really have to have a reason to go out and spend that discretionary share. At least at this point, we've been the beneficiary of that spend. But I would say certainly entry-level, mid-level price point products in our categories, I think, continue to be under a little bit more pressure. And I wouldn't say that's a category-specific thing. I think that's just sort of general outdoor retail right now.

Okay. And then last one for me, just looking broad-based kind of consumer. I'm curious if there's any update on Aiming Solutions, just given strong NICS background checks in your own Shooting Sports results, if there's anything to call out within Aiming Solutions on any improvement there or anything else in that Shooting Sports category outside of Caldwell that's surprised on the upside or downside?

Yes. Yes. We've seen a nice lift. Some of our Shooting Sports brands tend to correlate more closely with NICS like Aiming Solutions. And we have mentioned in a few prior quarters that Aiming Solutions was one of our two headwinds. I would say at this point, that business is doing pretty well. So we had two sales events last year during the quarter that are onetime in nature. One was to an OEM customer. The other was to a military customer. And when you exclude those two onetime sales, the Crimson Trace was up and was consistent with what you saw in the NICS check. So the brand is performing well. It's -- we're seeing growth out of the brand overall. And I would say the rest of our Shooting Sports portfolio from gun cleaning, reloading continues to do well also.

This concludes our question-and-answer session. I would like to turn the conference back over to Brian Murphy for any closing remarks.

Thanks, operator. In closing, I want to thank our employees for their role in helping us deliver a strong start to fiscal 2027. And thank you, everyone, for joining us today, and we look forward to updating you next quarter.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Good day, everyone, and welcome to the American Outdoor Brands, Inc. Fourth Quarter and Full Year Fiscal 2026 Financial Results Conference Call. This call is being recorded.

At this time, I would like to turn the conference over to Ms. Liz Sharp, Vice President of Investor Relations. Please go ahead, ma'am.

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, should, could, indicate, suggest, believe and other similar expressions is 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 and inventory conditions related to our products and 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. You can find those documents as well as a replay of this call on our website at aob.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.

A few important items to note about our comments on today's call. First, we reference certain non-GAAP financial measures. Our non-GAAP results exclude amortization of acquired intangible assets, stock compensation, emerging growth transition costs, nonrecurring inventory reserve adjustments, impairment of assets held for sale, other costs and income tax adjustments. The reconciliation of GAAP financial measures to non-GAAP financial measures, whether they are discussed on today's call, can be found in our 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. Joining us on today's call is Brian Murphy, President and CEO; and Andy Fulmer, CFO.

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

Thanks, Liz, and thanks, everyone, for joining us today. I'm very proud of what our team accomplished during fiscal 2026. In a year shaped by tariff uncertainty, uneven retailer ordering patterns and continued pressure across portions of the consumer marketplace, our team remained focused on innovation, execution and serving our consumers and retail partners. As a result, we continue to strengthen our brands, expand distribution of our products, optimize our portfolio and position the company for future growth in fiscal 2027 and beyond. With that, let's take a look at the year.

While our reported net sales declined during fiscal 2026, the underlying performance of our business was much stronger than the reported results suggest. A meaningful portion of the year-over-year decline was attributable to approximately $10 million in orders that retailers accelerated into the final 2 weeks of fiscal 2025. As we said at the time, that acceleration was not only a bid by retailers to get ahead of impending tariffs, but it was also a tremendous endorsement of our most popular and innovative brands. Nevertheless, that acceleration created a tough comp for our fourth quarter and full year that we believe is masking excellent performance across our business.

In fact, excluding that impact, net sales declined just 5% for the year, a solid result given the environment. We view the 5% decline as nominal and driven by 2 elements that were persistent throughout the year. The first is an inventory reset at our largest e-com retailer and the second is extended softness in the aiming solutions category within the personal protection market. Despite those impacts, our key brands continue to perform. You'll recall that last quarter, we defined these key growth brands as BOG, BUBBA, Caldwell, Grilla and MEAT! Your Maker. On a combined basis and again, adjusting for the acceleration, this group delivered positive year-over-year net sales growth as well as positive POS growth for fiscal 2026.

This is a great result because what matters most is what happens when consumers encounter our brands at retail and our POS results tell us that consumer demand for our products remained healthy throughout fiscal 2026. We delivered POS growth of approximately 4%, representing our fourth consecutive quarter of positive year-over-year POS growth.

In our Outdoor Lifestyle category, POS increased by 7% and in our Shooting Sports category, which tends to align more closely with [ KIS ] background check results, POS increased by 1%. Innovation remains one of the most important drivers of our business. New products represented approximately 29% of fiscal 2026 net sales, continuing a consistent track record of innovation across our portfolio. Today, we have more than 440 issued and pending patents, the largest number in our company's history, and the impact of those patents is profound.

In fiscal 2026, products that are protected by one or more patents generated roughly 54% of our net sales for the year compared to just 28% at our spin-off. That demonstrates the deep moat created by our intellectual property. Our patents help protect the market positions we have earned, defend future revenue streams and create meaningful barriers to entry for competitors. Just as importantly, they enable us to continue taking share by bringing differentiated products and technologies to market that competitors simply cannot replicate. While others are often focused on protecting the past, we remain focused on building the future.

Behind our innovation engine is a talented team of designers, engineers, sourcing specialists, software developers and category experts who continually mine the depths of our brand portfolio for new opportunities. They identify where our brands have permission to play, develop multiyear innovation road maps and create differentiated products and technologies that generate new revenue streams protected by intellectual property. Each innovation strengthens our competitive position, expands the reach of our brands and further widens the moat around our business.

More recently, for a number of our key growth brands, these efforts have expanded beyond individual products and into a new frontier for the outdoor industry, [ connected ecosystems ]. These ecosystems combine innovative hardware, software and digital engagement to create experiences that simply did not exist before. The result is deeper consumer engagement, differentiated offerings for retailers and new opportunities to drive category growth, all of which are reflected in the strong POS performance we are seeing with our largest retail partners.

A great example is Caldwell. During the year, we expanded our ClayCopter and Claymore lines for [ shot ] and enthusiasts, who number nearly 19 million in America. With the [ Claymore Connect ] and the [ ClayCopter Surface to Air ], a revolutionary wireless ground launcher that integrates with our Caldwell [ Clay app ] and makes Caldwell the only brand that can connect to and simultaneously control up to 10 [ Claymore Connect ] or [ ClayCopter Surface to Air ] launchers, allowing the combination of traditional [ clays ] and ClayCopter targets on a single course. Together, these products create a connected experience that brings new levels of engagement, competition and excitement to [ shot ] and enthusiasts while reinforcing Caldwell's leadership position in the category.

And we're taking that connected experience into the recreational fishing market as well, where nearly 58 million Americans participate. During the year, our BUBBA brand partnered with Major League Fishing to introduce SCORETRACKER LIVE, a transformative platform for competitive fishing professionals and everyday anglers that delivers real-time tournament management, scoring, spectating and excitement via our BUBBA app and [ Smart Fish Scales ]. Our partnership with MLF is important because it significantly expands the visibility of our BUBBA brand through one of the largest and most engaged audiences, the 30 million Americans who participate in [ Bass ] fishing.

It allows us to bring the excitement previously reserved for professional tournament fishing to everyday anglers. Whether competing in a local fishing league, on a college team, in a regional event or simply among friends and family, [ Anglers ] will now have access to the same experiences that have helped make professional tournament fishing so compelling. In a few weeks, we'll head to Florida for [ ICA ], the world's largest sport fishing expo, where we'll join MLF to officially launch SCORETRACKER LIVE for consumers.

Lastly, as I think about innovation, I'm reminded that the most powerful innovations are often those that penetrate and shake up large sleepy markets, changing consumer behavior and creating value long after their introduction. BOG is a great example. Several years ago, we introduced the [ Death Grip ], a truly innovative shooting rest that solved the fundamental trade-off between portability and stability for hunters. And what made [ Death Grip ] successful was simple. Once consumers discovered it, they recognize it as an authentic solution to a real challenge. That drove adoption, strengthened the brand and displaced competitors. What began as a single product evolved into a category-defining platform that helped establish BOG as a leader in hunting rest and made it indispensable for both consumers and retailers. Today, although we don't often talk about BOG, it remains one of the most consistent top performers in our growth brand portfolio. And we see that same potential in the innovative platforms we're building with BUBBA and Caldwell today.

Beyond innovation, we continue to strengthen our company throughout fiscal 2026. We took steps to optimize our brand portfolio, including the planned divestiture of an underperforming brand. We remain disciplined in how we allocate resources across the business, and we successfully navigated a rapidly evolving tariff environment, enhancing the flexibility and responsiveness of our supply chain while preserving our rights to potential tariff refunds and maintaining continuity for our customers and consumers. Andy will cover these topics in more detail during his remarks.

As we enter fiscal 2027, we are mindful of the uncertainties that continue to affect the consumer marketplace. At the same time, we are encouraged by several trends we believe are important. First, consumer demand for our products remained favorable as reflected in our POS performance. Second, ordering patterns with our largest e-com retailer appeared to stabilize as fiscal 2026 progressed. Third, retail inventory conditions and foot traffic patterns at several of our retailers were trending favorably as we exited fiscal 2026. And fourth, retailers continue to respond positively to our innovation pipeline, expanding distribution opportunities for our brands.

Taken together, these factors reinforce our belief that our long-term model remains intact. We believe our brands are well positioned. Our innovation pipeline is exceptionally strong. Our operating model remains agile and the foundation we have built over the past several years positions us well to return to growth in fiscal 2027.

With that, I'll turn the call over to Andy to review our financial results and outlook.

Thanks, Brian. Fiscal 2026 was a year marked by disciplined execution and our continued focus on maintaining strong financial fundamentals despite the uncertainty of tariffs and macroeconomics that persisted across the landscape. Throughout the year, we managed the business with a balanced approach, carefully controlling costs while continuing to invest in innovation that supports our long-term strategy. We ended the year in a great position. Let me walk you through the details.

Net sales for fiscal 2026 were $190.5 million, a decrease of 14.3% compared to fiscal 2025. Brian outlined the acceleration by our retailers, so I won't walk through that in detail. Adjusting for that acceleration, the decline in net sales for fiscal 2026 was just 5.4%, solid performance given the environment and largely in line with expectations we set in our second quarter. Because we believe this result is more reflective of our underlying performance for the year, I will reference it a few times throughout my remarks today.

Our Outdoor Lifestyle category, which consists of products relating to hunting, fishing, meat processing, outdoor cooking and rugged outdoor activities represented approximately 58% of fiscal 2026 net sales, up from 46% at our spin-off in fiscal 2020. This evolution reflects our focus on large, attractive outdoor recreation markets where innovation can drive consumer engagement, distribution expansion and long-term growth. Our Outdoor Lifestyle net sales for the fiscal year decreased 13.1% compared to last year. Adjusting for the acceleration, net sales in Outdoor Lifestyle decreased 1.6%.

In our Shooting Sports category, which includes solutions for target shooting, aiming, safe storage, cleaning and maintenance and personal protection, net sales for the year declined 15.9% compared to last year, driven mainly by a decrease in aiming solutions. Adjusting for the acceleration, Shooting Sports net sales declined by 10.4%.

Turning to our distribution channels. Our traditional channel net sales decreased by [ 13.5% ] in fiscal 2026. Adjusting for the acceleration, traditional net sales actually increased by about 1%. Consistent with our comments throughout fiscal 2026, our largest e-com retailer continued to reset its inventory, which we believe was in response to tariffs. Accordingly, our e-commerce net sales decreased by 15.6% in fiscal 2026. That said, we were encouraged to see an improvement in that reset activity as the year progressed.

Our domestic channel, which generated approximately 94% of our net sales in the year, decreased by 13.4%, while our international channel, which represented 6% of our annual net sales, decreased by 26.7% compared to last year, largely the result of U.S. trade policy uncertainty. On a quarterly basis, net sales in Q4 decreased 24% compared to Q4 last year. Adjusting for the acceleration, net sales decreased $4.8 million or 9.2% compared to Q4 last year, the decline driven almost entirely by the weakness in aiming solutions.

Turning to gross margin. Fiscal '26 gross margins increased 10 basis points to 44.7%. The increase was due to the timing of pricing actions to offset higher tariff costs as well as a higher percentage of new product sales, which typically generate higher gross margins. Those increases were somewhat offset by sales of slow-moving inventory, increased depreciation and higher inbound freight and tariff costs. We're pleased with this result, which is consistent with our long-term target for gross margins in the mid-40s.

Now speaking to the topic of tariffs. Following the Supreme Court's February 2026 ruling that IEPA-based tariffs were unlawfully imposed, we have taken the steps to file for a refund of duties paid under those tariff orders. In Q4 of fiscal 2026, we filed a refund claim related to IEPA tariffs in the amount of $15.2 million, and we recorded a receivable for refund in other current assets. Of that $15.2 million, we reduced our inventory carrying value by $10.8 million and the balance of the $4.4 million reduced our cost of goods sold to offset IEPA tariffs amortized in Q3 and Q4.

Turning now to operating expenses. For the full year, GAAP operating expenses totaled $94.2 million, a decrease of $5.2 million compared to fiscal 2025. The decrease was driven by a reduction in intangible amortization, lower sales volume-related expenses, decreases in variable compensation and depreciation and careful cost management that resulted in reduced costs across the business. These decreases were offset by increased public company costs as we emerge from [ EGC ] status and a $3.4 million noncash impairment charge related to the divestiture of our UST brand, which we discussed on our last call.

On a non-GAAP basis, operating expenses decreased $6.6 million in fiscal 2026 to $80.3 million. Non-GAAP operating expenses exclude the noncash impairment, intangible amortization, stock compensation and certain nonrecurring expenses as they occur. I believe the OpEx result in fiscal 2026 reflects our disciplined approach to consistently avoiding unnecessary expenses. This philosophy helps us maintain a lean, agile and asset-light model that can adapt to change without requiring abrupt cost cuts, especially in the uncertain macro environment we faced in fiscal 2026.

GAAP EPS for fiscal '26 was a loss of $0.73 compared to a loss of $0.01 in the prior year, while non-GAAP EPS in fiscal 2026 was a positive $0.28 compared to $0.76 in fiscal 2025. Our fiscal '26 figures are based on our fully diluted share count of approximately 12.9 million shares. For fiscal 2027, we expect our fully diluted share count will be about [ 13.2 million ] shares outside of any share buybacks that may occur. Full year adjusted EBITDA in fiscal 2026 was $10.2 million compared to [ $17.7 million ] last year.

Turning to the balance sheet and cash flow. We finished fiscal 2026 with a very strong balance sheet, ending the year with cash of $21.4 million and no debt after repurchasing approximately $5.1 million of our common stock. As we've discussed before, our business is seasonal with the highest quarterly net sales typically occurring in Q2 and Q3. This pattern generally results in operating cash outflows in the first half of the fiscal year, followed by cash inflows in the second half as receivables are collected and inventory levels decline. This seasonal pattern played out as expected, and we generated $21.3 million in operating cash in the second half of the year. We ended the year with inventory of $91.9 million, a decrease of $9.4 million compared to the prior fiscal year-end. The decrease included a reduction in capitalized tariffs as well as the move of UST inventory to assets held for sale and a planned reduction in overall inventory levels.

Turning to capital expenditures. We ended the year with CapEx of $2.5 million compared to $3.9 million last year. For fiscal 2027, we expect to spend $3.5 million to $4 million on tooling and patent costs, consistent with our asset-light operating model of CapEx at less than 2% of net sales. Our balance sheet remains strong and debt free. We ended the year with no balance on our $75 million line of credit, so we entered fiscal '27 with a total available capital of over $110 million.

Lastly, we continue to return capital to our shareholders through our share repurchase program. During fiscal 2026, we repurchased roughly 551,000 shares of common stock at an average price of $9.24 per share. And at year-end, we still had roughly $8.1 million of availability remaining on our $10 million share repurchase program, which runs through September of this year.

Now turning to our outlook. In fiscal 2027, we plan to grow net sales and profitability by leveraging what has long been our greatest competitive advantage, innovation. While the macroeconomic environment remains uncertain and external factors such as inflation, interest rates, geopolitical developments and evolving consumer spending patterns may continue to fluctuate, we believe that periods of change often create the greatest opportunities for companies like ours that can innovate and adapt quickly. As we move through the year, we will continue to closely monitor economic and market developments, adapting where prudent as conditions evolve.

Based upon the trends that we saw at the end of fiscal 2026 that Brian outlined, we expect net sales for fiscal 2027 in the range of $200 million to $210 million, which at the midpoint would represent growth of 7.5% over fiscal 2026 reported net sales. As we think about the flow of net sales over the year, we expect to see our typical seasonal pattern play out in fiscal 2027 with Q1 coming in as our lowest net sales quarter, Q2 and Q3 as our highest net sales quarters and Q4 coming in with higher net sales than Q1. We expect Q1 net sales to be approximately 20% higher than reported net sales for Q1 of fiscal 2026.

We estimate that approximately $6 million of the $10 million of accelerated orders into fiscal 2025 came from Q1 and fiscal 2026 and the remainder from Q2 and Q3 in fiscal 2026. This implies we expect Q1 net sales in fiscal 2027 to be roughly flat to up slightly year-over-year on a normalized basis. Based on our net sales volume in Q1, we expect adjusted EBITDA to be slightly negative.

Turning back to the full year. We expect gross margins for fiscal 2027 to be consistent with our long-term target range in the mid-40s.

Turning to OpEx. We expect fiscal 2027 operating expenses to increase slightly due primarily to variable costs associated with higher net sales, partially offset by lower intangible asset amortization. We remain committed to disciplined expense management and will continue to align our cost structure with business activity while preserving flexibility to respond to changing market conditions.

Lastly, based on all the factors I've discussed, we expect adjusted EBITDA for fiscal 2027 to be in the range of 6.5% to 7.5% of net sales. At the midpoint, this would represent an increase in adjusted EBITDA of over 40% compared to fiscal 2026. This level of profitability is consistent with our long-term operating model which targets EBITDA contribution of 25% to 30% on net sales above $200 million. We've demonstrated this level of performance in the past, and as our brands continue to introduce innovative and compelling products, we remain confident in our ability to drive sustained profitability over time.

One note on income taxes. We ended fiscal 2026 with net operating loss carryforwards of approximately $21 million. Therefore, because of this benefit, this provides us we expect a minimal amount of GAAP income tax in fiscal 2027.

With that, operator, please open the call for questions from our analysts.

[Operator Instructions] And our first question for today will come from Matt Koranda with ROTH Capital.

I just want to make sure I understand the gross margin commentary for the quarter from the fourth quarter. It seems like there was, I think, a benefit from IEPA. I think, Andy, you may have called out like $4.4 million from the IEPA tariffs that was recognized as a [ contra COGS ] item in the fourth quarter. Can you just run us through that.

And then are you building that into the margin outlook for fiscal '27? Or is the margin outlook for '27, excluding benefit from future IEPA rebates?

Yes. Matt, you're correct. So the $4.4 million was recorded all in Q4 in COGS. That was really -- if you remember, we disclosed $1.7 million hit in Q3 so that [ $1.7 million ] really benefited Q4 as part of that $4.4 million. And then going forward, yes, so our guidance for fiscal '27 really has everything -- all the tariffs that are effective as of today are baked into our guidance. So you have Section 232, right now, since February, we've had a Section 122 that kind of replaced IEPA for a little while. And then TBD on what happens with Section 301 tariffs going forward.

Okay. All right. Got it. But just making sure that -- I guess, we're not building in future [ contra COGS ] items from any additional tariff rebates for fiscal '27?

Correct.

Yes. Okay. Got you. And then on, I guess, the sell-through commentary from Brian, just curious to kind of put the 1% sell-through overall, and I think you said 6% in Outdoor Lifestyle. It sounds like those are running positive and look good, but I guess the outlook suggests something like high single-digit growth for fiscal '27. So are we counting on some sell-in on new products? Is this just we're factoring in a higher theoretical baseline from '26 because of the $10 million of orders that were pulled forward in the '25. Maybe just help us level set and make sure we understand the disconnect on sort of what the outlook implies versus sort of the sell-through that you're seeing right now?

Yes. Yes, happy to. So the way that I think about it is you have to also consider the acceleration piece that Andy pointed out earlier in the script. So we have that acceleration. Obviously, that came in Q4 of last year in FY '25 which kind of set us up for some declines in the first quarter. And that $10 million was really split, right? Most of it hitting in Q1. I think we said like 60% or so. Now that we have that hindsight and the data to support it with the rest of that occurring in Q2 largely probably a little bit in Q3.

So when we look at the POS trends we saw in FY '26, which were positive, right? I think net-net it was like 4% over the course of the year. Is when you take into account the adjustment for the acceleration, which is candidly how we are assessing the health of our business internally, it's actually very consistent with those trends. So we don't see a shift towards higher growth. when you take into account that normalization, the trends are actually pretty consistent. The headwind you might say, well, what's the delta then between the POS trends and what you're seeing on the sort of normalization side, it really comes down to the 2 factors that we discussed, which is aiming solutions softness, which we are seeing some improvement, and our largest e-commerce retailer again, seeing improvement there, especially coming out of the end of last fiscal year.

So we're not seeing any trends right now on our dashboard that would lead us to believe that the increases that we're proposing here are unrealistic. We actually are actually seeing quite a bit of support that those increases are going to be more likely than not.

Yes. Okay. That helps kind of square it for us, Brian. And then maybe back to -- and on the margin guidance, so if we were to bridge from the commentary that you made and then kind of using the midpoint of the EBITDA margin guide, there's like 170 basis points, I think, of EBITDA margin improvement embedded in the guidance. It sounded like you said gross margin relatively consistent in '27 versus '26 mid- sort of mid-40% range. So the bulk of the improvement in EBITDA margin should be coming from operating leverage. Correct me if I'm wrong in that thinking, I guess? And then maybe just call out some of the items where you think you're getting some leverage on the operating side.

Yes. So I think your math is right. We're kind of targeting those long-term gross margins kind of in the mid-40s. So a bit of improvement from '26 to '27. And then overall, I mean, the EBITDA guide, we feel comfortable because it's right within our long-term EBITDA contribution model of the 25% to 30%. We've been there before when you look historically. So we're really comfortable with that. So as net sales grow, we are going to be -- we are going to be leveraging those -- the fixed costs that are kind of embedded in the OpEx number.

Okay. All right. Understood. Maybe on the cash deployment side of things. Could you talk about what you expect to collect at least seasonally on tariff rebates over the course of the next couple of quarters? And then just maybe a little bit on deployment of that cash. The balance sheet is obviously in a great spot. How are we thinking about deployment there? I know you guys have been consistent on the buyback. It seems like that's sort of been the priority outside of organic investment in the business where your needs are relatively met in the near term. So is that still the posture we have? Or are there anything percolating on the M&A side that we should be thinking about in terms of cash deployment as you kind of bring on additional cash from the rebates?

Yes. Matt, it's Brian. I'll start and then Andy, feel free to chime in. So the way that we're thinking about the refund is overall, the refund is really offsetting, in many ways, the residual tariff burden from the replacement tariffs, right? Section 122, although it's temporary, Section 232 on steel and aluminum, TBD on 301, if there are going to be additional changes there. So we don't view the tariff refund as a discrete windfall in any sort of way. We really see it as a way to offset some of these other costs that have crept in throughout the year while also just being more disciplined on OpEx, so we can maintain that long-term model that Andy alluded to.

And then -- but look, if there -- we don't know the timing of when we're going to receive these things. I think most people expect that it would take a while. In reality, we started getting some refunds sooner than we expected, right? So timing is unknown overall, but let's just assume that they come sooner, right? What would we do? First, we would look to offset any additional costs because that's a real factor. But then secondly, we already have a strong balance sheet. I think if you would have told me last year, all the things that would occur in the macro environment and the tariffs and everything that we would be able to execute, end the year with over $20 million of cash, clean, no debt. I would have asked how you did it because I'm very pleased with how the team has responded to this and taking a long-term view.

What I'm trying to say is we've set ourselves up very, very well to outside of any tariff refund, again, because we're going to allocate that appropriately, that we're in a tremendous position to be an acquirer of choice and have to give a shout out to [ Tyler Lindwall ] who recently joined our team. I'm sure you know, Tyler, Matt. But just brings incredible analytical horsepower relationships and frankly, a pipeline that is additive to the work that we were already doing. And although he's been here for a short time, the work with the team has really accelerated our efforts and made us more impactful in pursuing acquisition targets, especially those that are not for sale.

So we're going to be aggressive on that front, and we'll see where the refunds shake out relative to other capital allocation priorities.

The next question will come from Mark Smith with Lake Street Capital.

I want to stay on M&A here for a second and just kind of how you're thinking about that with the addition of Tyler versus organic growth, R&D, we haven't seen much uptick in spending there, but you guys have been driving strong new product sales. Just kind of curious how you rate growth from each of those segments?

Sure. Mark, I can go first. This is Brian. It's funny how we get over the course of the years, people wonder why we aren't spending more on R&D. And I think that's it's a real testament to how vertically integrated this team is when it comes to developing new products. So in a prior life before the spin, we did outsource certain elements of that, which led to a higher cost. In our efforts to be more nimble, agile, come to market more quickly, be more disruptive we decided to rely more on internal resources. And what that's allowed us to do is to spend less but get a much higher return on that investment. So I think we're well positioned there with our spend and the talent that we have today.

When it comes to kind of alluded to, buy versus build is when Tyler first came here in the last month or so, last 2 months, the first thing we did as a team was sit down, and this includes the entire executive team and getting him to speed on our philosophy because at the end of the day, innovation is probably getting tired of us talking about it, but that is what we do, that's who we are. And that leads everything, right? So even when we look at acquisitions, we look at it through the lens of innovation. Is there a brand here that has a highly enthusiastic base of consumers that we can tap into? Do they have a strong brand? And ultimately, does this become a vessel for us to now insert some of our new innovation. We've got tons of new products that we've created and ideas that we believe we don't have the right brand today.

And ultimately, that helps give Tyler and our team, a road map for these are the brands that we believe are going to be the most strategic for us. I think a lot of companies can fall into the trap. Certainly, I've been at companies like this where you become more reactive, right? And it's opportunistic. Can we buy this company for a low multiple carve-out costs and get multiple arbitrage or sales synergies.

All that's great, and that absolutely factors into how we look at acquisitions. But it really comes down to what is -- how is this going to help us overall in the company and our employees and most importantly, our shareholders. Truly harness the power of the sustainable competitive advantage of ours. And so that's really what he's tasked with right now is cultivating that pipeline that will allow us to do that. While also, there is an element of being opportunistic while also assessing acquisitions that are being brought to market, which there are more, more of them are coming to market. But then seeing what is the strategic angle here for us, so we can continue to leverage this.

And that will conclude our question-and-answer session. I would like to turn the conference back over to our CEO, Brian Murphy for any closing remarks. Please go ahead.

Thank you, operator. In closing, I want to sincerely thank our employees for their dedication and their commitment throughout fiscal 2026. Truly, truly, truly thank you for sticking with us, taking a long-term perspective. We just -- we've built a tremendous call here, and you are absolutely a big part of that.

In addition, your passion for innovation and focus on execution, continue to strengthen our company and ultimately advance our long-term vision. I also want to thank our shareholders, our customers and our business partners for their continued support. We look forward to updating you on our progress throughout fiscal 2027. Thank you.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Good day, everyone, and welcome to American Outdoor Brands, Inc. Third Quarter Fiscal 2026 Financial Results Conference Call. This call is being recorded.

At this time, I would like to turn the call over to Liz Sharp, Vice President of Investor Relations, for some information about today's call.

Our comments today may contain predictions, estimates and other forward-looking statements. Our use of words like anticipate, project, estimate, expect, intend, should, could, indicate, suggest, believe and other similar expressions is 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 and 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. You can find those documents as well as a replay of this call on our website at aob.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.

A few important items to note about our comments on today's call. First, we reference certain non-GAAP financial measures. Our non-GAAP results exclude amortization of acquired intangible assets, stock compensation, emerging growth transition costs, nonrecurring inventory reserve adjustments, impairment of assets held for sale, technology implementation costs, other costs and income tax adjustments. The reconciliation of GAAP financial measures to non-GAAP financial measures, whether they are discussed on today's call, can be found in our 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. Joining us on today's call is Brian Murphy, President and CEO; and Andy Fulmer, CFO.

And with that, I will turn the call over to Brian.

Thanks, Liz, and thanks, everyone, for joining us today. I believe our third quarter performance demonstrates the disciplined execution of our strategy. In a period marked by shifting tariff policies, uneven retailer ordering patterns and consumer uncertainty, our team remained focused on the fundamentals, delivering strong retail sell-through, advancing our innovation pipeline and actively managing our portfolio to ensure our resources are concentrated behind the brands and product categories where we can create the most value. Despite the ongoing uncertainty that continues to characterize fiscal 2026, we believe our underlying operating model remains fully intact. Importantly, our results give us the confidence to reiterate our net sales and adjusted EBITDA guidance for fiscal 2026.

With that, let's dig into the details. Net sales for the quarter were $56.6 million, down 3.3% on a year-over-year basis, but ahead of our expectations. To refresh everyone, there are a couple of elements creating tough sales comps in our current environment. One is an ongoing inventory reset taking place at our largest e-com retailer, and the other is the extended softness in the aiming solutions category. We believe these are near-term challenges and that our underlying business is performing very well. In fact, for the third quarter, when we adjust out for these elements, our net sales would have grown in the high single digits and our POS results would have grown in the mid-teens. Even without that adjustment, our POS results were still strong with growth of 5% for the quarter. This marks the third consecutive quarter of favorable POS results, which were led by strength in the outdoor lifestyle category.

Ultimately, what matters most is what happens when consumers encounter our products at retail. And the continued strength we're seeing in POS reinforces that our innovation is resonating. The Outdoor Lifestyle category generated over 62% of net sales in the quarter and delivered year-over-year growth of 5.4%, driven by strength in our BOG and MEAT! Your Maker brands. The Shooting Sports category declined 15% in the quarter, largely due to softness in aiming solution products. Notably, our Caldwell brand delivered solid growth, reflecting strong retailer and consumer response to the innovative ClayCopter platform. That momentum was reinforced at SHOT Show in January, where engagement around our new ClayCopter and Claymore connected products was exceptionally strong. Increasingly, retail partners are seeking differentiated innovation to drive traffic and strengthen consumer engagement, allowing us to take share following our entry into the Shotgun Sports category.

Turning to innovation. Investments we've made in our new product pipeline continue to bear fruit with new products representing over 26% of our net sales in the quarter. Looking ahead, as we enter peak fishing season, we're preparing an initial rollout in April of SCORETRACKER LIVE, a platform that integrates Major League Fishing SCORETRACKER technology into our BUBBA app to deliver real-time tournament hosting and live scoring to anglers and organizers everywhere. SCORETRACKER LIVE brings the intensity and excitement once reserved for professional MLF Bass tournaments to events of any size from neighborhood competitions and school teams to local clubs and regional circuits. It also supports the growing adoption of catch and release tournament formats that promote sustainable fisheries, aligning competitive excitement with responsible stewardship.

These new products from Caldwell and BUBBA demonstrate that we are executing on a strategy that pairs 2 things: in a novel way in our markets. And that is by combining innovative hardware with integrated digital capabilities, especially in categories where connectivity enhances the consumer experience. By building connected product ecosystems around select growth brands, we're deepening engagement, creating differentiated value for our retail partners and supporting recurring revenue opportunities that increase customer lifetime value. The momentum we're seeing with brands like Caldwell and BUBBA reflects the impact of directing our capital and innovation priorities toward areas where our capabilities can create meaningful differentiation and long-term value. They are just 2 examples within what we consider to be our highest growth brands, which include BOG, BUBBA, Caldwell, Grilla and MEAT! Your Maker.

We invest in them accordingly, and that same discipline also guides how we evaluate the rest of our portfolio. We continually assess where our proven innovation engine can have the greatest impact and just as importantly, where it cannot. During the quarter, we took 2 actions that reflect that disciplined approach to capital allocation and portfolio management. First, we made the decision to divest our camping and survival brand. UST was originally acquired by our former parent company in 2016 and was included in our brand portfolio when we spun off in 2020. Since then, the camping accessories category has become increasingly price-driven and more brand agnostic with retailers deemphasizing traditional camping products and dedicating that shelf space to other product categories.

And while we evaluated opportunities to introduce differentiated innovation in the camping category, we ultimately concluded that the UST brand is unlikely to benefit from our innovation capabilities and additional investment would be unlikely to generate returns consistent with our expectations. Therefore, we will continue fulfilling customer orders from existing inventory while we evaluate opportunities to transition the brand and its remaining inventory to an appropriate buyer. Second, and as I mentioned earlier, weak trends in aiming solutions stand out in contrast to the balance of our Shooting Sports category. While we believe this market will rebound at some point, we also believe there is a greater near-term opportunity to redeploy capital into higher growth categories.

As we prepare to accelerate the sell-through of a portion of this inventory, we took a reserve in the quarter that Andy will detail later. Together, these actions demonstrate our focus on investing in the brands and product categories where innovation and differentiation can drive stronger long-term growth while reinforcing our commitment to disciplined working capital management. And lastly, I want to touch briefly on tariffs, which continue to represent a dynamic and evolving element of the operating environment for many companies, including ours. As we've discussed in prior quarters and as we all continue to experience, the policy landscape around tariffs can change quickly, requiring us to remain agile and thoughtful in how we proceed.

Our teams have done a great job staying close to these developments, evaluating the potential impacts and positioning the business so that we can respond appropriately as conditions evolve. It's clear that the current environment requires us to remain disciplined and agile. Accordingly, we remain focused on the priorities that continue to strengthen our business, investing in innovation, refining our brand portfolio and allocating capital with discipline. With a strong set of brands and well-performing operating model, we believe we are well positioned to navigate the current environment while continuing to build enduring long-term value for our shareholders.

And with that, I'll turn it over to Andy to walk through the financial results.

Thanks, Brian. As Brian mentioned, we're pleased with our third quarter results, particularly given the ongoing macroeconomic and tariff-related dynamics impacting our business. Net sales for Q3 were $56.6 million compared to $58.5 million in Q3 last year, a decrease of 3.3%. In our Outdoor Lifestyle category, which consists of products relating to hunting, fishing, meat processing, outdoor cooking and rugged outdoor activities, net sales for Q3 increased 5.4% over last year to $35.3 million, mainly driven by increases in our BOG and MEAT! Your Maker brands. In our Shooting Sports category, which includes solutions for target shooting, aiming, safe storage, cleaning and maintenance and personal protection, net sales declined 15% compared to last year, driven mainly by a decrease in aiming solutions.

Turning to our distribution channels. Our traditional channel net sales decreased by 2.1% in Q3, while our e-commerce net sales decreased 4.6% compared to last year. Consistent with previous quarters this year, our largest e-com retailer continued to reset its inventory, which we believe is in response to tariff pressures. Domestic net sales decreased 3.4%, while international net sales remained relatively flat to Q3 of last year. Gross margin was 41% for Q3, down 370 basis points from Q3 last year, driven by the impact of new tariffs, including IEPA tariffs and an inventory reserve of $1.2 million related to aiming solutions that Brian discussed.

While the reserve impacted gross margin a bit in the quarter, it demonstrates our commitment to rationalize slower-moving inventory so we can reallocate capital toward higher return opportunities such as share repurchases and M&A opportunities. We expect to monetize a meaningful portion of this inventory over time, helping to drive improved working capital and enhancing financial flexibility. Without the reserve, gross margin would have been 43.1%, slightly ahead of our original expectations. It's important to note that on February 20, the U.S. Supreme Court issued a ruling striking down tariffs previously imposed under IEPA. The third quarter was the first period in which we began to see the impact of IEPA tariffs flow through cost of goods sold, with approximately $1.7 million recognized in the quarter. As a reminder, tariffs are capitalized into inventory and then recognized in cost of goods sold as that inventory turns.

As Brian explained, during the third quarter, we made the decision to divest our UST brand. Following this decision, we reclassified the related assets to assets held for sale and then performed a valuation based on expected future cash flows. As a result, we recorded a noncash impairment charge of $3.4 million, which is reflected in operating expense in Q3. The UST contribution to the business has been minimal, and we do not anticipate any impact to our fiscal 2026 outlook. GAAP operating expenses for the quarter were $27.1 million compared to $25.8 million last year. The increase was driven by the noncash impairment related to UST, partially offset by lower variable costs from reduced net sales as well as lower intangible amortization.

On a non-GAAP basis, operating expenses in Q3 were $21 million compared to $22.7 million in Q3 of last year. Non-GAAP operating expenses exclude the noncash impairment, intangible amortization, stock compensation and certain nonrecurring expenses as they occur. GAAP EPS for Q3 was a loss of $0.32 compared to GAAP EPS of $0.01 last year. On a non-GAAP basis, EPS was $0.12 for the third quarter compared to $0.21 last year. Our Q3 figures are based on our fully diluted share count of approximately 12.5 million shares, a number that should remain consistent through year-end outside of any additional share buybacks that may occur. Adjusted EBITDA for the quarter was $3.3 million compared to $4.7 million in the third quarter of last year, driven by the $1.2 million inventory reserve and the $1.7 million of IEPA tariffs I referenced in my gross margin discussion.

Turning now to the balance sheet and cash flow. We continue to maintain a strong balance sheet, ending the quarter with $10.4 million in cash and no debt after repurchasing $1.4 million of our common stock. As we've discussed before, our business is seasonal with the highest quarterly net sales typically occurring in Q2 and Q3. This pattern generally results in operating cash outflows in the first half of the fiscal year, followed by inflows in the second half as receivables are collected and inventory levels decline. This seasonal pattern played out as expected in Q3. Operating cash inflow was $9.9 million in Q3, reflecting decreases in accounts receivable and inventory. During the quarter, inventory levels declined by $13.8 million, which includes UST-related assets held for sale. We ended the quarter with total inventory of $110.2 million, down from $124 million at the end of Q2. We expect our inventory at the end of the year to be approximately $110 million, which is lower than we originally planned. We will continue to explore opportunities to further lower that balance by monetizing slower-moving inventory.

Our balance sheet remains strong and debt-free. We ended the quarter with no balance on our $75 million line of credit, resulting in total available capital of over $100 million. We're also pleased to share that we recently amended our debt agreement with TD Bank to extend the maturity date to March 2031. We believe this renewal provides us with favorable pricing and terms, reflecting the strength of our financial position.

Turning to capital expenditures. We spent $1.2 million in Q3, primarily related to product tooling and patent cost. For full fiscal 2026, we are lowering our expected CapEx range by $500,000 and now expect to spend between $3.5 million and $4 million, consistent with our asset-light operating model. During Q3, we continued returning capital to shareholders through our share buyback program, repurchasing approximately 181,000 shares at an average price of $7.87 per share.

Now turning to our outlook. We're in the final stretch of our fiscal year, and we're encouraged by our performance to date. As such, we are maintaining our previously communicated full year guidance for net sales, gross margin and adjusted EBITDA. Let's begin with net sales. We continue to expect fiscal 2026 net sales in the range of approximately $191 million to $193 million. Recall that at the end of fiscal 2025, retailers accelerated approximately $10 million of orders originally planned for fiscal 2026 to get ahead of impending tariffs, creating a more challenging comparison for the current year. Including that impact, fiscal 2026 net sales would decline approximately 13% to 14% year-over-year. However, adjusting for that acceleration, the underlying decline in net sales for fiscal 2026 would be approximately 5%, which we would view as solid performance given the current environment.

Turning to gross margin. We continue to expect full year gross margins in the range of 42% to 43%. This implies lower gross margins in Q4, primarily due to increased amortization of tariff variances, including IEPA tariffs associated with inventory purchases made earlier in the year.

Turning to operating expenses. We remain disciplined in managing our costs and avoiding structural expense growth, an approach that helps us maintain a lower level of expense over the long term, allowing us to be agile and asset-light when responding to changes in our environment. We've reduced spending in areas such as travel, remote office footprints and nonessential contracts. As a result, we expect total operating expenses to decline for full fiscal 2026. With regard to tariffs, our outlook reflects our current expectations based on what we know today and mitigation initiatives that we've taken, which include pricing actions as well as benefiting from the flexibility of our asset-light business model. Our outlook does not reflect any potential tariff refunds, which remain subject to further guidance from U.S. Customs and Border Protection.

Lastly, based on all the factors I've discussed, we continue to expect adjusted EBITDA for fiscal 2026 to be in the range of 4% to 4.5% of net sales. We remain committed to our long-term operating model, which targets EBITDA contribution of 25% to 30% on net sales above $200 million. We've demonstrated this level of performance in the past. And as our brands continue to introduce innovative and compelling products, we remain confident in our ability to drive sustained profitability over time.

With that, operator, please open the call for questions from our analysts.

[Operator Instructions] The first question will come from Matt Koranda with ROTH Capital.

Maybe we'll start out with the POS commentary, up 5% year-over-year. I think you mentioned in the press release. I guess we still have to lap the kind of wonky fourth quarter from last year where retailers reordered a fair bit. Can you just remind us what was pulled forward in the fourth quarter last year, so we have like a reasonable comparison to make for the implied fourth quarter sales run rate?

Yes, Matt, this is Andy. So retailers pulled in roughly $10 million, and that was pretty much the last 2 weeks of Q4, so from May back into the last couple of weeks of April.

Okay. Got it. So it seems like fourth quarter, once we get through this period, perhaps there's a little bit more appetite from your retail customers to sort of load in a bit more. I mean maybe just talk about their inventory levels and where they sit currently given POS has remained positive, but it seems like they've been sort of flushing inventory for the better part of the last couple of quarters.

Yes. Matt, it's Brian. So I think what you're seeing here, we alluded to it at the beginning part of the script where there are kind of 2 things occurring right now that we have aiming solutions softness and then we have this large e-commerce customer that is, I would say, not destocking. I would consider it more underordering relative to demand. And so we do expect that both of those areas will normalize at some point. But that said, excluding those 2 isolated items, the majority of our business, the far majority of our business is performing quite well.

We had mentioned high single digits in the quarter versus last year and being up mid-teens for POS. So that convergence, right, between POS and replenishment certainly is more correlated for the majority of our business. Really, where we're seeing that disconnect is with those 2 items I just mentioned. And so going forward, I would expect at some point, there will be a normalization. We are seeing signs of that, but not quite ready to declare finality by any means. But certainly, things are moving, I think, in the right direction. It's just going to be a matter of time to those normalize.

Okay. Got it. And then Andy mentioned we're performing better on inventory reductions and expect to be at $110 million by the end of the year. Is that coming from sort of promotional activity and like monetizing slow-moving inventory through promotions? Or we're just finding new avenues of demand? Like maybe just help us understand why the inventory reduction is happening a little faster than expected.

Yes. So that -- it assumes just a regular amount of promotions, like nothing crazy. In fact, I think there's opportunity to get a little bit to -- end a little bit better than the $110 million if we can move some of the slower moving inventory that I talked about.

Yes. But I think it's just to add on what Andy said, it's really about efficiency. We talked about capital allocations, and we're constantly looking for areas where we can take advantage of, look, do we have a higher -- is there a higher growth opportunity on one side of the business versus another? The aiming solution product is great. It's great. And something could change tomorrow, and we would see demand spike for that type of product. But we just look at ourselves and say, look, the opportunity cost is too high, let's move through this. So I think that's part of it is the reduction, but it's also just increased efficiency from that higher growth inventory that's going to be churning through, which would lead to a lower inventory number.

The next question will come from Doug Lane with Water Tower Research.

Just staying on inventories. If you get down to your level that you're expecting to end the year at, you're still up a little bit versus the prior year in a year where sales went down. So what was the reason for the increase in inventories to begin with? And do you think you'll have to be a little bit more promotional going into the first half of 2027?

Yes, Doug, this is Andy. The main driver there is the increase in tariffs. So the year-over-year, it's effectively all IEPA and the Section 232 tariffs that we have now.

Yes. But the core inventories health is reducing really quite well. Yes, it's -- the tariffs are obfuscating the overall business. But it's still real inventory, right? It's real inventory number.

No, that makes sense. I get that.

And I'm sorry what was the second part?

Yes. I wanted to talk about tariffs because you talked about the third quarter being the first real impact as that capitalized tariffs start coming through the cost of goods sold. So fourth quarter gross margin is down, should we -- I know you're not giving '27 guidance yet, but should we just directionally see continued gross margin pressure in the first half of 2027 as this capitalized tariffs continue to go through the P&L?

Yes. I think that's a safe assumption. We can't comment on what the margin percentage would be. But when you think back to when the IEPA tariff started back in April -- March and April last year, they were accelerated all the way up to 125% in April kind of died down to roughly 30% for a while and then November down to 20%. So as we talked about, those are capitalized into inventory and then amortized in the future. So yes, you'll see some spikes with those fluctuations rolling into fiscal '27.

And I want to jump in, too, just to give some historical context. So when we were hit with the first round of 301 tariffs and the first time the administration implemented the 301 tariffs back in 2018 -- 2018 or so. And what you saw is a very similar pattern where it hits immediately, you amortize that over time. But the pricing actions that you take, coupled with the fact that we are such prolific generators of new products, our new product velocity off the charts, but that's our main way for us to, over time, really reclaim that margin. So I think you're seeing something very similar right now, which if you look back, it took us probably, I don't know, Andy, 18 months, something like that, to be able to kind of fully recover that margin pressure. So I think right now, it's a snapshot at a moment in time, but this is actually following a pretty similar path.

Okay. And the IEPA tariffs, how much of your tariff pressure is from IEPA? And will that help that it's not -- at least going away? And then have you begun any efforts to try to recover the tariffs you've already paid?

Yes. The IEPA tariffs are kind of that difference in pressure that you talked about before. TBD on what happens going forward, though, the 122 tariffs as of today are 10% until, I think, the end of July or so. But who knows what that will be replaced with. So we're obviously keeping a keen eye on it every day as the news comes out. As far as the refunds go, we're doing everything we can to preserve our rights, and we'll kind of see how that process shakes out.

Okay. Fair enough. And just lastly, the third quarter sales came in better than you expected and the Street expected and the full year sales number is unchanged. So did the third quarter bar from the fourth quarter? Or are you just being conservative given the environment?

Yes, I can jump in. No, there was no shifting of orders. Everything came through. That's what we try to do each quarter is not try to pull, push in any way. Really want to have sort of a normal recurring, more comparable business. So from where I sit in this chair today, I didn't see anything that caught my eye. That's something that's worth calling out.

[Operator Instructions] The next question will come from Mark Smith with Lake Street Capital.

First, just a clarification question. Just looking at the impairment, I just want to confirm all of the impairment was on UST or was there anything else that was impaired?

No, 100% of the impairment was UST.

Perfect. And then second, just you talked a lot about point of sale, talked about kind of a little bit about kind of where the consumer is today. Curious if you can give us more thoughts on kind of what you're hearing, what you're seeing out there from consumer spending. And as we think about Shooting Sports, mix improved a little bit following the end of the quarter. Have you seen any uptick since then? Any thoughts that you have on your consumer would be great.

Sure, Mark. So I'll touch on Shooting Sports first because I think there's an interesting contrast that's happening there. You have aiming solutions, which based on some of the data that I've seen from third parties has been one of the worst performing product categories in the space, whereas the areas that we play in outside of that are doing pretty well. And then in others, especially like Shotgun Sports, Caldwell, we're seeing some really nice share gains there. I mean a good portion of that new product revenue is coming from products like the new ClayCopter platform. So overall, I think we're seeing good trends there. Just the aiming solutions is the one to kind of keep an eye on, but should normalize.

And then let's see, anything else related to the customer, I'd say there still is that bifurcation that we had talked about before. I think it will be interesting to see going forward what happens with oil prices. Do they sustain? But any uncertainty with the consumer is going to lead them to start changing their behavior most likely. And so if unemployment begins to go up, the consumer is under pressure, we'll see what happens with rates. All that just adds to uncertainty. But in real time, it looks like store traffic growth seems or store -- sorry, store foot traffic growth does seem to be improving versus our last call looking at different retailers. So that's a positive.

So I don't know. I think going forward, the consumer is still kind of a touch and go. I think the more affluent consumers are continuing to spend. And then I think the lower income, middle income folks are -- the avid, I would say, sportsmen and women are certainly still spending and the more casual one is not. I think they're really pulling back. So I think AOB is really well situated just given kind of where our brands play and the innovation piece, which is so important to these retailers to pull in consumers.

Perfect. I think last question for me, just the topic du jour of inventories and kind of the guidance for year-end. It seems like a lot of the new product that you had that you showed off at SHOT Show of lots. Is a lot of that going to be kind of built up in that inventory number at the end of the fiscal year? Or will you be shipping and have some of that cleared out before the end of the year? And then second, just a moving piece within that. Will the UST, I imagine that that's a small piece of inventory. Do you expect that to kind of be all gone or at least not in the books at year-end inventory?

Yes. So as far as the new products, it's a great question because the timing of 2 of the key products that you saw at SHOT Show is right near year-end. We're planning to ship those to our customers kind of late April, early May. So yes, we will have some of that new product coming in because obviously, we want to make sure our fill rates are good there. And then on the UST question, it's pretty minimal at this point after the impairment that was recorded. So TBD on what that looks like going forward.

This concludes our question-and-answer session. I would like to turn the conference back over to Brian Murphy for any closing remarks.

Thank you, operator. Before we close, I want to let everyone know that we'll be participating in the ROTH Conference in California on March 23 and the Lake Street Virtual Conference on March 31. So we hope to see some of you there. I also want to thank our employees whose tireless commitment to innovation allows us to remain focused on executing our long-term vision. Thank you to everyone who joined us today. We look forward to speaking with you again next quarter.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Good day, everyone, and welcome to the American Outdoor Brands, Inc. Second Quarter Fiscal 2026 Financial Results Conference Call. This call is being recorded. At this time, I would like to turn the call over to Liz Sharp, Vice President of Investor Relations, for 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, should, could, indicate, suggest, believe and other similar expressions is 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 and 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. You can find those documents as well as a replay of this call on our website at aob.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. A few important items to note about our comments on today's call: First, we reference certain non-GAAP financial measures. Our non-GAAP results exclude amortization of acquired intangible assets, stock compensation, emerging growth transition costs, nonrecurring inventory reserve adjustments, technology implementation costs, other costs and income tax adjustments.

The reconciliation of GAAP financial measures to non-GAAP financial measures, whether they are discussed on today's call, can be found in our 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. Joining us on today's call is Brian Murphy, President and CEO; and Andy Fulmer, CFO. And with that, I will turn the call over to Brian.

Thanks, Liz, and thanks, everyone, for joining us today. Reflecting on the second quarter, I'm very proud of the way our teams continue to deliver in a dynamic environment, efficiently managing tariffs, customer ordering dynamics and cost reduction opportunities, all while remaining committed to innovation and executing our term strategy. That commitment to innovation, paired with disciplined execution of our strategy to enter new outdoor product categories, it's fueling the strength of our growth brands and the engagement we're seeing from consumers and retail partners.

Together, these factors enabled us to deliver second quarter results that surpassed our expectations even amid a dynamic retail backdrop. Pull-through of our products at several of our largest retailers was notably strong during the second quarter with total POS up 4% year-over-year. This marks the second consecutive quarter of favorable POS performance, an encouraging indication that our products remain in demand and are helping to drive engagement at retail. This result is especially meaningful in light of recent reports from Placer.ai, indicating that foot traffic at most retailers trended down during the period.

Before I turn to channel sell-in, I want to take a step back and talk about the evolution that is occurring in our traditional and e-comm sales channels. In our traditional channel, a growing share of what has historically been classified as brick-and-mortar or in-store sales are now occurring through traditional retailers' online channels. Buy online, pick up in store, ship to home and same-day delivery, reflecting an evolutionary shift in how consumers shop. Many of our largest brick-and-mortar partners have invested heavily in omnichannel capabilities and we are benefiting from that investment.

For some of our retailers, online sales represent up to 20% of their total revenue. Although these transactions reflect digital buying behavior, they are captured in a growing portion of our traditional sales channel results. In short, consumers are still buying online, but the wear is shifting.

Turning to our e-com channel. This channel has been evolving over time as well. Within this channel is our direct-to-consumer business on our own branded websites as well as our sales to customers who only have an online presence such as one of the world's largest online retailers. Over the past 3.5 years, as our DTC business has grown and as our traditional retailers have expanded their online presence, our exposure to customers with an online-only presence has reduced.

In fact, online-only customers represent just 20% to 25% of our total net sales today. So with that evolution in mind, let's turn to sell-in for the quarter. We benefited from higher demand in our traditional channel, which makes up roughly 65% of our overall business. Sales into the traditional channel were up 2.3%, aligned directionally with our POS results for the quarter, an indication that our brands are performing well across the broader omnichannel landscape. This compares to lower demand in our e-commerce channel, which makes up roughly 35% of our business where sales declined by 15.9%. While the decline is due largely to lower sales to our largest online-only e-com partner, we believe a meaningful portion of the softness is being offset by digital sales flowing through traditional retailers' online platforms as I discussed earlier.

Our second quarter results also reflected the continued expansion of our product and brand offerings within our existing retail partner network, consistent with our long-term growth strategy. During the quarter, we made meaningful progress with a major mass market retailer that is now introducing our Caldwell and BOG brands into thousands of their stores for the first time. Given this retailer significant scale and reach, this new placement curated specifically for this retailer's audience, provides a substantial increase in visibility for both brands. It also represents a strong example of how our retail partners are increasingly turning to our innovative and popular products to strengthen their assortments and help drive consumer traffic.

Turning to innovation. Our innovation engine was firing on all cylinders this quarter. New products drove over 31% of net sales demonstrating the power and consistency of our pipeline. We also locked in several launches for SHOT Show in January, including major expansions to our successful Caldwell ClayCopter and Claymore lines for shotgun enthusiasts. At SHOT, we unveiled the Caldwell ClayCopter, surface-to-air launcher, a complete reimagining of our handheld disc launcher into a compact lightweight wireless ground unit featuring a 50-disc hopper and seamless integration with our new Caldwell Clays app.

Multiple units can be tethered together for greater challenge and fun, laying the groundwork for future gamification, much like we did with our BUBBA brand. The Caldwell Clays app also makes Caldwell the only brand to bring disc and clay shooting together for the first time. Users compare surface to air units with our new wireless electronic Clay thrower, the Claymore Connect, coordinating disc and clay launches simultaneously for the most dynamic shock on training and recreational shooting experience ever.

With these new additions to the Caldwell platform, our team has done an incredible job demonstrating that we don't just participate in categories, we reshape them. And we're not the only ones who feel this way. The Caldwell ClayCopter was just named as the 2025 Innovation of the Year by Guns and Ammo Magazine and by the industry Choice Awards. Over the past 5 years, our innovation pipeline has generated nearly $100 million in incremental annual new product revenue. Today, I believe that innovation pipeline is the strongest in our company's history, and this is only the beginning. Couldn't be more excited about SHOT Show in January where we'll introduce another wave of innovation that will fuel our brands into fiscal 2027 and beyond.

Now just a quick update on Black Friday. We're very encouraged by our results on Black Friday and Saturday as well as our overall performance in November. Initial POS results are in and show that each of our leading brands performed well, not just over the holiday weekend, but throughout the month. In our outdoor lifestyle category, POS for November grew approximately 13%, an exceptional result that reflects the continued strength of our growth brands, including BOG, MEAT! and BUBBA with both consumers and retailers.

As we head into the back half of the year, we're optimistic but remain cautious about the macro environment, particularly surrounding evolving consumer spending patterns and the resulting volatility in retail order patterns that is often the result. Feedback from our retailers indicates that consumer health is somewhat fractured with higher income cohorts remaining healthy and lower income cohorts facing increasing pressure. We've all read this in recent media reports and we see reflected in our own sales analysis as well with higher ASP products outperforming the pack.

Accordingly and not surprisingly, we continue to see demand patterns from our retailers that are highly variable as they seek to address their divergent consumer audience, try to assess the impact of their pricing decisions on demand elasticity and then work to manage their inventory levels relative to those 2 factors.

These dynamics underscore the importance of having a business model designed for agility and strength. Because we've deliberately built our company on a core foundation of innovation, our brands continue to deliver compelling new products, build consumer loyalty, expand our market presence and strengthen our relationships with our retail partners. With innovation at the center of our strategy and a proven ability to stay focused on our priorities, we're confident that our agility will enable us to navigate what lies ahead and deliver durable long-term value for our shareholders. And with that, I'll turn it over to Andy to walk through the financial results.

Thanks, Brian. As Brian mentioned, we're very pleased with our results for the second quarter with net sales and profitability coming in well ahead of our expectations. Net sales for Q2 were $57.2 million compared to $60.2 million in Q2 last year, a decrease of 5%. In our Outdoor Lifestyle category, which consists of products relating to hunting, fishing, meat processing, outdoor cooking and rugged outdoor activities, net sales were $34.6 million, down 5% compared to Q2 last year, mainly driven by a decrease in meat processing equipment, partially offset by increases in our BOG and Grilla brands.

In our Shooting Sports category, which includes solutions for target shooting, aiming, safe storage, cleaning and maintenance and personal protection, net sales declined 5.1% compared to last year driven by decreases in gun cleaning and personal protection products, partially offset by strong sales in our Caldwell brand. The outperformance by Caldwell was the result of expanded distribution of these innovative new products, particularly the Caldwell ClayCopter, with an existing mass market retailer that have had not previously carried our Caldwell brand, as Brian mentioned.

Turning to our distribution channels. Our traditional channel net sales increased by 2.3% in Q2 while our e-commerce net sales decreased 15.9% compared to last year. Consistent with what we indicated in September, we believe our largest e-com retailer continued to adjust its purchasing patterns to realign with ongoing tariff impacts. Domestic net sales, which generated approximately 95% of our revenue in the quarter decreased by $2.4 million or 4.3% while international net sales decreased by roughly $600,000 compared to Q2 of last year.

Gross margin remained strong in Q2 at 45.6% compared to 48% in Q2 last year. This performance is noteworthy given the actions we took to clear some slow-moving inventory. In fact, without that action, gross margin would have come in approximately 150 basis points higher.

Turning to operating expenses. GAAP operating expenses for the quarter were $24 million compared to $25.8 million last year. The decrease was driven by lower variable costs from the decrease in net sales as well as lower intangible amortization. On a non-GAAP basis, operating expenses in Q2 were $21.3 million compared to $22.7 million in Q2 of last year. Non-GAAP operating expenses exclude intangible amortization, stock compensation and certain nonrecurring expenses as they occur. GAAP EPS for Q2 was $0.16 compared to $0.24 last year. On a non-GAAP basis, EPS was $0.29 for the second quarter compared to $0.37 last year. Our Q2 figures are based on our fully diluted share count of approximately 12.9 million shares, a number that should remain consistent through year-end outside of any additional share buybacks that may occur. Adjusted EBITDA for the quarter was $6.5 million compared to $7.5 million in Q2 last year, down slightly from the prior year to 11.3% of net sales.

Turning now to the balance sheet and cash flow. We continue to maintain a strong balance sheet, ending the quarter with $3.1 million in cash and no debt after repurchasing $662,000 of our common stock. We've talked in the past about the seasonal nature of our business, where our highest quarterly net sales occur in Q2 and Q3. This pattern typically results in the first half of our fiscal year reflecting operating cash outflow from increases in accounts receivable and inventory, followed by a second half with cash inflow when we collect those receivables and lower our inventory levels. We expect the same seasonal pattern to occur in fiscal 2026. Operating cash outflow was $13 million in Q2, reflecting an increase in accounts receivable of $18.5 million. This increase in AR was driven by the sequential increase in net sales in Q2 versus Q1 as well as by the timing of shipments, which were higher towards the end of the second quarter.

We ended the quarter with total inventory of $124 million, down $1.8 million compared to Q1, but up $12.4 million compared to Q2 last year. The year-over-year increase in Q2 was driven entirely by $14 million of incremental tariffs capitalized into inventory. Walking that math, you can see that our base inventory has actually declined by $1.6 million compared with last year.

As I'll discuss when I get to the outlook section, these higher tariff variances will start to amortize beginning in Q3 and will continue into next fiscal year. We remain committed to reducing our inventory levels over time to improve our working capital position. We've identified specific pockets of slower moving inventory that we believe we can convert to cash on an opportunistic basis. As I mentioned earlier, we sold a small amount of this inventory in Q2, and we expect to sell more in Q3 and Q4. As a result, we are targeting inventory to be slightly lower in Q3 and then drop to roughly $115 million by the end of the fiscal year.

Our balance sheet remains strong and debt-free. We ended the quarter with no balance on our $75 million line of credit. So as of Q2, we have total available capital of $93 million. Turning to capital expenditures. We spent $1 million on CapEx in Q2, mainly for product tooling and patent costs. For full year fiscal 2026, we expect to spend $4 million to $4.5 million, unchanged from last quarter and consistent with our asset-light operating model. Lastly, during the second quarter, our Board of Directors approved a new $10 million share repurchase program, effective October 2025 through September 2026. In Q2, we repurchased roughly 74,000 shares of our common stock at an average price of $8.76 per share.

Now turning to our outlook. You'll recall that in our prior fiscal year, which ended April 30, 2025, we reported that retailers had accelerated approximately $10 million in orders originally slated for our current fiscal year as they sought to get ahead of impending tariffs. That action allowed us to deliver full fiscal 2025 net sales of $222 million, a fantastic result but one that created some challenging comps in the current fiscal year, particularly for the fourth quarter. That said, we are now more than 7 months into our fiscal year and we are pleased with our performance, especially given the macro challenges that have characterized the calendar year-to-date, including tariffs, cautious retailer buying and the uncertain consumer environment.

We've demonstrated that innovation continues to set us apart with both retailers and consumers and that our relentless focus on execution and agility positions us to capitalize on opportunities as they arise. We believe these strengths will continue to benefit us through the back half of fiscal 2026 and help mitigate the impact of ongoing external pressures.

Based on what we know today, we believe the full fiscal year could deliver net sales that are down roughly 13% to 14% year-over-year from last year's $222 million. That percentage would include the $10 million of orders accelerated into the prior year. Adjusting for those orders, the underlying net sales decline would be roughly just 5%, performance we would view as extremely positive given the current environment.

So let me walk you through a few details on how we're thinking about the third quarter and the balance of the year. With regard to net sales, in the third quarter, we expect net sales to decline approximately 8% year-over-year, reflecting the macro environment and retailer dynamics that Brian referenced earlier.

Turning to tariffs. We've now been operating in the new tariff landscape for about 9 months. Our teams have done an outstanding job navigating these challenges. We've taken pricing where appropriate, worked closely with our supplier partners to secure cost sharing and identify optimal sourcing locations and continue to fuel our pipeline with innovative products designed to minimize tariffs on a go-forward basis. We believe these actions taken together will allow us to fully mitigate the financial impact of incremental tariffs starting in fiscal 2027 as we realize the full benefit of pricing actions and cost concessions as well as new product velocity.

Turning to gross margin. Let me start with a recap of how tariffs impact our P&L. We capitalized tariff costs when we purchase inventory and then amortize those costs over inventory turns. So typically, as we build seasonal inventory for fall hunting and holiday seasons in the first half of our fiscal year, we then amortize those tariffs in the back half of the year with the timing based on inventory turns. As we think about the current period, this year's situation is amplified because of the incremental tariffs that began in February. Accordingly, we will begin to see the impact of the amortization of those higher tariffs starting in December of this year, ahead of our ability to realize the full benefit of our pricing actions and cost concessions. As a result, we expect gross margin for both the third quarter and likely for the full fiscal year in the range of 42% to 43%.

Turning to operating expenses. We remain disciplined with the cost management philosophy we employ in the ordinary course of business as we look for ways to avoid building an unnecessary costs. It's an approach that helps us maintain a lower level of expense over the long term, allowing us to be agile and asset-light when responding to changes in our environment. That said, we've identified certain potential cost-saving opportunities within the organization. For example, reducing travel expenses, consolidating remote offices and allowing nonessential contracts to expire without renewal. We should begin to see the impact of these cost saving initiatives and others in the second half of the year and into fiscal 2027. As such, we expect total OpEx to decline in Q3 and full fiscal 2026.

Based on all the factors I discussed and what we know today, we expect adjusted EBITDA for the full fiscal 2026 in the range of 4% to 4.5% of net sales. While it's too early to provide a detailed outlook for fiscal 2027, we expect having the full year benefit of tariff mitigation actions I mentioned earlier will give us a clear path to improve upon that range next fiscal year and get us back on track towards our long-term model.

I believe the changes and progress I've outlined to demonstrate our commitment to maintaining the level of profitability reflected in our long-term operating model, which targets an EBITDA contribution of 25% to 30% on net sales above $200 million. We've proven our ability to deliver this level of performance in the past. Therefore, as our brands continue to bring innovative and compelling new products to consumers, we're confident in our ability to translate back consumer loyalty into sustained profitability growth over time.

With that, operator, please open the call for questions from our analysts.

[Operator Instructions]

Our first question is from Matt Koranda with ROTH Capital.

So I guess I just wanted to start with the 4% sell-through metric that you shared. How much of your revenue in a given quarter, do you have visibility into a POS? And maybe just which brands were tracking ahead of that 4% sell-through metric? And what were maybe tracking a little bit below?

Matt, it's Brian. So on the visibility question, we actually get to see quite a bit of our sales through POS. So it captures the majority of our largest retailers and then, of course, we can also see our direct-to-consumer business. So I think we've sized it in the past, Andy, something close to 60% or so, roughly 2/3 of our revenue. And so we get a pretty good look at what's moving through.

And then related to your second question, which brands seem to perform better and where there are others that perform not as well. I think it's pretty consistent with what we saw in November. Outdoor lifestyle, in particular, has been doing very, very well. And within Shooting Sports, I think as a category as a whole, it's been kind of aligning with NICS somewhat. So a little bit more pressure. There are softer demand for those types of products than there was last year with the exception of Caldwell, Caldwell has just been off the charts. So with all the new products, including the ClayCopter.

Okay. All right. That's helpful, Brian. And then I was going to ask you referenced the November performance in the prepared remarks and just now, up 13%, I guess, in outdoor lifestyle, but then the guide for the quarter looks like it's down 8%. So maybe just help us kind of sketch the disconnect there? Is it Shooting Sports a little weaker in the quarter? Or is there some inventory overhang that still needs to clear out among your traditional retailers? Maybe just help us understand the gap there.

Yes, absolutely. So I mean, overall, demand is choppy, but it's not collapsing by any means. And the POS has been very strong, but retailers have been managing to much lower inventory levels. And also, we're seeing them -- this is based on our conversations, too, placing bets at different times based on their available capital, depending on the seasonality, depending on if it's, at this point, the holidays, and so we're having to react and work with them, plan with them in regards to how that replenishment will work going forward. It's part of the reason we gave an outlook today is because we have a little bit more visibility after some of those conversations and following Black Friday. We'll learn even more in SHOT Show in January. But it's based on what we know today, yes, POS is incredibly strong, but this is really working through their ordering patterns and how they're choosing to allocate capital.

Got it. What can you do to, if anything, I guess, to mitigate the softness from the large customer in the e-com channel that seems to be causing some of the revenue headwinds for you guys in the near term? Do we just have to lap the adjustments that they've made to sort of the inventory that they carry? Or are there any levers you have to pull on your end to sort of stabilize that channel a little bit.

Yes. I mean, we're -- again, just taking a step back, we thought it was important this call to just call out this evolution that we see taking place. And I think if you listen to some of the other publicly traded traditional retailers like Academy, et cetera. While they're experiencing lower foot traffic, you are seeing higher sales. And that's attributed to, in most cases, to just growing e-commerce and omnichannel. So I think following COVID, you really saw a hurry-up offense and begin to invest significantly on those sides of things. And so we've even internally begun to think how can we begin to parse this out because this really is an e-com sale. We just don't have a lot of visibility to it. And we're seeing them take share, frankly, from some of these other very large online-only retailers.

So I think over time, to answer your question, how do you begin to kind of reduce some of that volatility. I think that's just sort of a nature -- I hate to say this, but nature of that one customer. But the fact that our direct-to-consumer business has grown as much as it has coupled with our traditional retailers beginning to take a greater share of omnichannel. I think that, by the nature of how those percentages will ultimately work out, will reduce that volatility inherently. Outside of that, I think it's -- whenever there is a big change in the economy, this one large e-com retailer tends to be up and down. It's just -- it's been our experience.

Got it. I'll just ask one more and then turn it over. But the EBITDA guide is helpful for the full year. I was curious to get a little bit more on the seasonality as you guys see it, I would assume third quarter typically a little bit stronger for you guys seasonally on sales and profitability. So is that a fair way to think about the split for the rest of the year? And then any tariff kind of puts and takes to help us with, Andy, on sort of the cadence of margin for the rest of the year and what we expect in terms of tariff headwind?

Yes, absolutely. So we've said in the past, Q2 and Q3 are our highest net sales quarter. So the 8% down, that's off of a pretty high quarter last year. So overall, it's going to be a strong Q3 on the top line to 42% to 43%. And gross margin bakes in the start of the incremental tariffs kind of starting in December into January. And then the full year guide of the 42% to 43% for gross margin does imply a Q4 drop.

If you look back historically, Q3 to Q4 has dropped and it's really because the higher tariffs from purchases in the first half of the year, start to really hit us, especially with lower sales in that Q4 period. So I think you're -- typically, if you look back historically, we're going to -- we expect that same seasonality in Q3 and Q4 at a high level.

I'd just make one comment, too, just on the tail end of that. I mean tariffs have been a headwind for everybody. I think for us, the difference is we have a clear path to how we're going to offset those tariffs by FY '27, going into FY '27. So when you start to see some of those timing changes flow through from pricing, supplier negotiations, we've got tariff efficient product designs. And at the end of the day, still keeping innovation at the center of our story.

So new product velocity is also a big part of that, and we've demonstrated that in the past. So I don't want that to be lost because the team has done an incredible job getting out ahead of us. There may be some timing differences like Andy alluded to. But at the end of the day, we feel confident that we're going to be able to offset the tariffs.

The next question is from Doug Lane with Water Tower Research.

Just staying on tariffs. That's very helpful in laying out the cadence there. But just in stepping back, the implementation of the tariff mitigation is complete. It's just a question of having it come around and working through the P&L. Is that right?

That is correct, Doug. So the tariffs started to get capitalized in inventory way back in March. So the timing for our P&L for amortizing starts to hit in December, right? Our mitigation efforts with pricing was after that. So there's a little delay on that. We've also gotten cost concessions, cost concessions work like tariffs, but opposite. So if we get cost concessions in May, we're really not going to see the benefit of those until our fourth quarter and then into next year.

So as Brian talked about, when all of this shakes out, all the timing differences shake out, in 2027, we believe that we fully offset all the -- with mitigation, we've offset all the tariff impact.

The tariff that exists today.

Yes.

Right. That's very helpful. It looks like you -- I mean, the numbers beat estimates sounds like they beat your internal forecast and a lot of that came in the last couple of weeks of the quarter. Do you think there was maybe a little borrowing from Q3 here at the end of the quarter?

Yes, this is Brian. No. The short answer is no. We -- I've worked at companies before that are trying to pull things into quarters and you don't want to get on that treadmill. So we just try to run the business the best we can, not be promotional if we can avoid it. Obviously, that leads to higher margins. But really, I think it's that new customer that we brought on, expanded distribution, combined with the online retailer we discussed, that we started to see a bounce back and begin to replenish some of those orders that we would have expected in prior quarters.

And just finally, as I try to understand this disconnect between sales and POS is such a wide gap. Is there -- I mean, you would think they would track. Do you have any visibility or any guesses on when you think the 2 numbers will align a little bit more closely than where we are today?

That's a great question. That's a great question. I think we spent a lot of time talking about what's happening with the retailer and what are the decisions that they're making because as we said in the prepared remarks, they're trying to navigate. One, a consumer that's under increasing pressure, specifically within that, this divergence between 2 different cohorts. You've got the higher end cohorts, high income that continue to spend on premium products, which we benefit from, and we see that in our data. And then this lower income cohort, which is certainly pulling back and they're spending a lot less. So trying to allocate and make sure they've got the right mix and assortment to appeal to their sort of evolving consumer base.

And at the same time, trying to play a little bit of a steering contest with some of the other retailers on pricing, which their pricing would be. Just because we pass along price doesn't mean they just immediately turn around and pass that on to the consumer. They have their own promotional cycles and seasonality. So it's different by retailer. I realize this is becoming a little bit of a complex answer. But to answer your question, it's really all of those things taken together, combined with how they're allocating their capital on what they think is going to win, where they're seeing traction with certain cohorts. And certainly, they have a desire to bring on new products, which were a key vendor for. So those are getting -- they are beginning to converge more and more, the longer we go on, especially as tariffs stay where they are. So I see that window narrowing, I don't have a magical date in mind, but I think we're getting closer to it. I really do.

Well, no question it's been a challenging environment. That's helpful.

[Operator Instructions]

The next question is from Mark Smith with Lake Street Capital.

I wanted to ask first just a little bit about consumer trends, primarily any other insights you can give us around Black Friday and kind of point-of-sale trends that you saw there? And also curious if you've seen any bump really from Florida and maybe how much of your products maybe fall under a tax holiday there.

Yes, Mark, this is Andy. So as we talked in the consumer -- in the written remarks, we were really happy with Black Friday. Our -- not only with POS -- Black Friday in November, not only with our POS results but our direct-to-consumer. So yes, we're really happy with that.

Yes. And I think the -- we haven't talked about direct-to-consumer much either, but we also saw, and that's part of the POS, really, really strong direct-to-consumer business, in particular for MEAT! Your Maker and Grilla and then regarding your question on Florida, that's not something that we looked into. So that we'll circle back and take a look at that.

Okay. And then next question is just thinking about new products. You guys talked about SHOT Shows, some new products coming in and you guys really proved you can enter new markets with Caldwell as we think about Shotgun Sports here. I'm curious as we think about these new products that you have in the pipeline, will -- should we look at a lot of these coming in kind of backfilling markets where you currently play? Or are there new segments and markets that you expect to enter here over the next 12 months?

Yes. Great question. As you were asking that, Andy and Liz were looking at me because I started to smile. As I said in the remarks, like we truly have the best pipeline I've ever seen. So it's like super exciting. And if you look in our investor deck, I think we started last -- this last quarter, we certainly have the same slides this time. But we gave a tease to where we're taking some of our growth brands as it relates to innovation. So -- and a big part of that is really just building upon the ecosystems -- in those ecosystems within Caldwell, within BUBBA, et cetera. And what we found is, as we've expanded some of those new families like the ClayCopter, the Claymore, the BUBBA, Smart Fish scale is they're becoming very sticky with the consumer. And so we want to try to build on that momentum. So what you'll see, especially at SHOT, and we mentioned it in the prepared remarks, is the ClayCopter surface to air, which is unbelievable.

I mean, like when you see this product, Mark, like unbelievable, everything -- everybody we showed this to, our retailers just says this thing shouldn't exist. So to have that type of technology where we're building up the ClayCopter line, we're now integrating it with a new app, wait until you see what that app can do. But you can now tether and daisy chain several, whether it's disc or traditional clay throwers without the headaches of what the industry has had to deal with.

So I think we're truly trying to shape some of these activities, but it's really building on the momentum in this ecosystem and frankly, gamification. You're going to see a lot more gamification from us spread across several of our brands. And I think that's really the focus in FY '27. As it relates to entirely new products like what the Smart [indiscernible] fiscal was for BUBBA or what the ClayCopter was for Caldwell last year, we've got several of those in our pipeline. But I think you'll see at least the first part of FY '27, really building out those families and those ecosystems I talked about.

Excellent. Looking forward to seeing it. The last one for me is just any update on M&A. I think last quarter, you talked about maybe fewer kind of high-quality targets out there. Have you seen any changes in kind of the M&A landscape?

We are seeing a few changes. I would say the ice is beginning to break a little bit. I think if -- why is that? I do think that because tariffs have kind of paused somewhat, we're not seeing as many drastic changes I think that companies are now able to demonstrate some level of run rate performance where they can go to market. We're seeing a few instances where a family-owned businesses are at a point where, look, the last 5 years has delved the industry, a lot of change. And it's been -- if you're a family run business that can be a challenge if you don't have resources like we do. So we're seeing opportunities like that come to market. We also believe that there will be some bigger assets that will be surfacing here in the next 6 months, possibly some divestitures. And so we're keeping an eye on those and at the same time, continuing to cultivate our own pipeline. So if you were to ask my excitement level now versus 3 months ago, I would say I'm much more excited about the opportunities that are coming up right now.

This concludes our question-and-answer session. I would like to turn the conference back over to Brian Murphy for any closing remarks.

Thanks, operator. As we head into the holidays, I'd like to give a special thanks to our employees whose loyalty, hard work and dedication continue to move our company forward on the path towards an exciting long-term future. To those employees and to everyone else who joined us today, we wish you a happy and healthy holiday season, and we look forward to speaking with you again next quarter.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Good day, everyone, and welcome to American Outdoor Brands, Inc. First Quarter Fiscal 2026 Financial Results Conference Call. This call is being recorded. At this time, I would like to turn the call over to Liz Sharp, Vice President of Investor Relations, for 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, should, could, indicate, suggest, believe and other similar expressions is 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 and 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. You can find those documents as well as a replay of this call on our website at aob.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. A few important items to note about our comments on today's call. First, we reference certain non-GAAP financial measures. Our non-GAAP results exclude amortization of acquired intangible assets, stock compensation, emerging growth, transition costs, nonrecurring inventory, reserve adjustments, other costs and income tax adjustments.

The reconciliation of GAAP financial measures to non-GAAP financial measures, whether they are discussed on today's call, can be found in our 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.

Joining us on today's call is Brian Murphy, President and CEO; and Andy Fulmer, CFO. And with that, I will turn the call over to Brian.

Thanks, Liz, and thanks, everyone, for joining us today. As we look back on the first quarter, I'm very proud of how our teams delivered in a dynamic environment, navigating the evolving tariff landscape, leaning into the agility of our supply chain and continuing to drive excitement with consumers around our brands and new products. This quarter reaffirmed that innovation for us is more than new products. It's a mindset that enabled us to drive stronger point-of-sale performance versus peers across several strategic product categories, a result that is supported by feedback from key retail partners and third-party data.

Net sales were lower in the quarter, but in many respects, this moment feels much like FY '23, a period marked by macro uncertainty that I believe ultimately proved that our model works. By staying true to our competitive advantage, repeatable consumer-driven innovation while controlling what we can control by adapting to a shifting environment, we took share, strengthened our brand equity and extended our long-term runway for growth. I believe that we'll look back at this current period similarly, a time when our long-term discipline was rewarded with growth.

So what does the current dynamic environment look like? It's an environment shaped by evolving tariff impacts, shifting retailer order patterns and broader macroeconomic uncertainty. Like I said, it's important to remember that we've been here before. We know how to adapt, and we know that innovation is what drives consumer demand, retailer partnerships and ultimately, sustained growth and profitability. That is why we remain confident in our long-term strategy. Diving into consumer pull-through and brand momentum. Our brands continue to resonate with consumers, fueling point-of-sale performance across several of our largest traditional retailers.

You'll recall that many of these partners accelerated orders late in Q4 to get ahead of tariff-related price changes, ensuring inventory of both our most popular products and exciting new products like the Caldwell ClayCopter and BUBBA Smart Fish Scale Lite. We believe the strength in consumer pull-through speaks to the power of our innovation engine and the enduring appeal of our portfolio, especially during a seasonally light period of the year.

In fact, new products represented nearly 29% of our net sales during the first quarter. Purchasing activity from our retailers during Q1 reflected replenishment cycles that were periodically turned on and off on a retailer-by-retailer basis as each one sought to optimize pricing, product mix and cash flows, tailored to their specific situation. We are seeing a continuation of this behavior in Q2 and would expect it to continue as long as the tariff situation remains fluid.

These ordering patterns created a year-over-year net sales decline in Q1. However, if we adjust for the acceleration of orders by our retailers into Q4, total first quarter net sales would have declined just 5%, a favorable result given the environment and net sales in our traditional channel would have increased by about 15%. This tells us our strategy is effective and that coupled with our POS performance, our brands are winning at retail.

Turning to net sales in the e-commerce channel for Q1. We experienced lower order flow from a large e-commerce retailer that we believe is adjusting its purchasing patterns to realign with the ongoing tariff impacts. As a result, our e-commerce channel underperformed in the quarter, declining 35.2% year-over-year. Regarding supply chain agility and margin discipline, throughout the quarter, we continued to proactively manage our supply chain in the face of changing tariff rates. For certain products, we've already shifted production to countries outside China.

For others, China remains the most competitive and reliable option. In all cases, our priority is clear: preserve product quality, protect margins and maintain supply continuity, serving near-term adaptability needs while building a sustainable and resilient long-term solution. At the same time, we remain focused on advancing our long-term growth initiatives. That commitment was on full display with our announcement of an expanded partnership between BUBBA, our innovation-driven fishing brand and Major League Fishing, the world's leading tournament fishing organization.

Together, we are introducing MLF's exciting tournament format, SCORETRACKER LIVE, to all anglers for the first time, available exclusively through our BUBBA app beginning in spring 2026. SCORETRACKER LIVE invites anglers, tournament organizers and fans everywhere to experience the thrill of live scoring while promoting more sustainable [ catch, we release ] practices. We believe this expanded offering will accelerate our recurring subscription revenue stream, extend BUBBA's reach with anglers of all skill levels and set the stage for near-term product introductions that build on the success of our approach of integrating hardware and app technology, first pioneered by our popular Smart Fish Scales.

Looking ahead, as we approach the fall season, a key period for hunting, shooting, meat processing and outdoor cooking, we are excited about opportunities across our portfolio from BOG and MEAT! Your Maker to Grilla. At the same time, our teams are preparing for [ SHOT Show ] in January, where we look forward to introducing another wave of innovation that will fuel our brands into fiscal 2027 and beyond.

With Q1 under our belt, these first few months of our fiscal year suggest that the near-term environment will continue to reflect shifting market conditions and evolving consumer trends, requiring us to remain agile and adaptable as we navigate quarterly fluctuations. And like FY '23, we will continue to lean on a strategy that we believe has proven to be resilient across cycles by continuing to innovate, staying close to our consumers, strengthening our retail partnerships and executing with discipline.

These fundamentals, combined with our strong financial position, are not only helping us manage through today's uncertainty, but also positioning us to emerge from this period as an even stronger company. And with that, I'll turn it over to Andy to walk through the financial results.

Thanks, Brian. Net sales in Q1 were $29.7 million compared to $41.6 million in Q1 last year, a decrease of 28.7%. As we've outlined, our traditional retailers accelerated about $10 million in orders originally scheduled for Q1 into the prior quarter, and that acceleration occurred in just the last 3 weeks of fiscal 2025. Because of that sudden shift in revenue, it's worth noting that on a 6-month basis, which we believe provides a more accurate reflection of the trends we're seeing in the business, net sales for Q4 and Q1 combined this year increased 4.2% compared to the same 6-month period last year.

Turning to our sales channels. Our traditional channel net sales decreased by 24.4% in the first quarter, and our e-commerce net sales decreased 35.2% compared to last year. Without the acceleration of retail orders into the prior year, traditional channel net sales would have increased 15%. As Brian mentioned, the lower e-commerce net sales were driven by a large e-commerce retailer that we believe is adjusting its purchasing patterns to realign with ongoing tariff impacts.

On a category basis, in the first quarter, net sales in Shooting Sports decreased 25.1%, while net sales in Outdoor Lifestyle decreased 31.6% over Q1 last year. Domestic net sales during the quarter decreased by roughly 25% while our international net sales decreased 58.2% or $2.6 million compared to Q1 last year. You'll recall that earlier this summer, there was a heightened level of national concern regarding Canada-U.S. trade relations and orders coming from Canada were paused for many companies.

While it's still a very small portion of our overall business today, our long-term perspective for growth prospects in Canada, along with other international markets remains unchanged. Turning to gross margin. As Brian indicated, we continue to proactively manage our supply chain in the face of changing tariff rates, including migrating certain products to more advantageous countries of origin and securing cost-sharing arrangements from our supplier partners.

In addition, we're preserving margins by making strategic pricing adjustments as necessary, redesigning certain products and processes to lower tariff impacts and maintaining new product velocity, which allows us to feather in new higher-margin products. In all cases, our priority is clear: to preserve product quality, protect margins and maintain supply continuity. These actions, along with our disciplined approach to managing operating expenses, give us confidence that our operating model will continue to yield 25% to 30% EBITDA contribution in the long term.

For Q1, gross margin was 46.7%, up 130 basis points compared to Q1 last year. Turning to operating expenses. GAAP operating expenses for the quarter were $20.7 million compared to $21.5 million last year. The decrease was driven by lower variable costs from the decrease in net sales as well as lower intangible amortization. On a non-GAAP basis, operating expenses in Q1 were $18.2 million compared to $18.4 million in Q1 of last year. Non-GAAP operating expenses exclude intangible amortization, stock compensation and certain nonrecurring expenses as they occur.

GAAP EPS for Q1 was a loss of $0.54 compared to a GAAP EPS loss of $0.18 last year. On a non-GAAP basis, EPS was negative $0.26 for the first quarter compared to $0.06 in Q1 last year. Our Q1 figures are based on our fully diluted share count of approximately 12.7 million shares. For full fiscal 2026, we expect our fully diluted share count will be about 12.9 million shares outside of any additional share buybacks that may occur.

Adjusted EBITDA for the quarter was a loss of $3.1 million compared to $2 million in Q1 last year, driven mainly by the decrease in net sales. Turning now to the balance sheet and cash flow. We continue to maintain a strong balance sheet, ending the quarter with $17.8 million in cash and no debt after repurchasing $2.5 million of our common stock. Inventory increased $21.1 million in the quarter. The bulk of the increase supports our seasonal inventory build as we prepare for hunting and holiday seasons.

The balance is largely tariff related and includes the following: first, recall that in our Q4, tariffs on Chinese imports were as high as 145%. We paused inventory purchases at that time to avoid those high rates. Once those tariffs were lowered to 30% in Q1, we resumed purchases, allowing us to avoid significantly higher tariffs while maintaining healthy service levels with our retail partners. Second, we are now experiencing higher embedded costs in inventory from [ AIEPA ] and Section 232 tariff rates that now include virtually every country of origin.

And lastly, as we migrate certain products to more advantageous countries of origin, we are building strategic inventory reserves to provide flexibility and service continuity. For the remainder of the year, our inventory management will be focused on maintaining our service levels and being a reliable partner to our retailers. As such, we are targeting inventory to remain at roughly $125 million for Q2 and Q3 and then decrease to around $120 million for Q4. Our balance sheet remains strong and debt-free.

We ended the year with no balance on our $75 million line of credit. So as of Q1, we have total available capital of up to $108 million. Turning to capital expenditures. We spent $370,000 on CapEx in Q1, mainly for product tooling and patent costs. For full year fiscal 2026, we continue to expect to spend $4 million to $4.5 million, consistent with our asset-light operating model. Lastly, we continue to return capital to our shareholders through our share repurchase program.

During Q1, we repurchased roughly 240,000 shares of common stock at an average price of $10.47 per share. At the end of the quarter, we still had roughly $4.6 million of availability remaining on our $10 million share repurchase program, which runs through September 2025. Now turning to our outlook. Brian mentioned that the current environment is reminiscent of fiscal 2023. During that year, the aftermath of COVID and its residual impacts, inflation, return to work and stimulus payments made it difficult to determine what underlying consumer demand really looked like.

Today, it's very similar, albeit with different drivers. The current macro-environment remains fluid and tariff policies and their impacts are likely to continue. We believe our retail partners will continue to take a disciplined approach as they navigate these dynamics, especially considering that the outlook for the health of the consumer is an important unknown as we move towards the upcoming holiday season. We expect a continuation of a measured ordering cadence as they seek to balance their inventories, optimize pricing and align their purchasing decisions with evolving consumer buying patterns.

Accordingly, in the near term, we expect to see a year-over-year decline in net sales for our second quarter of approximately 15%. Longer term, while we believe it is premature to resume full year guidance, we remain optimistic about the year on the whole. That optimism is fueled by POS performance, which has remained strong into our second quarter, combined with several exciting new products and the launch of SCORETRACKER LIVE later this year.

As we continue to invest in our new product pipeline, we remain focused on maintaining gross margins, mitigating the impact of tariffs and controlling costs while supporting initiatives that will continue to drive our long-term growth. With that, operator, please open the call for questions from our analysts.

[Operator Instructions] And your first question today will come from Doug Lane with Water Tower Research.

It sounds like some of that excess retailer inventory you talked about on your last call has been worked off, but maybe not all of it. Is that fair? Do you -- still do you think have excess tariff-related inventory at your retail partners?

Doug, this is Andy. I wouldn't call it excess. In our Q4, we mentioned that the retail partners pulling in -- accelerating some of their orders ahead of those -- our price adjustments. Those are in key categories where those retailers had open to buy to invest in kind of key brands from their perspective.

Okay. And also in managing the impact of tariffs, you talked about pricing. Can you elaborate a little bit more on that? How much pricing have you taken so far? How much do you expect to? And the timing on that? Is this going to be like a one-and-done deal this quarter? Or are we going to see some pricing being layered in as the year progresses?

Doug, this is Brian. So it really just goes beyond pricing. So clearly, we're operating in a higher cost environment. But what we're doing that gives us the confidence in our ability to offset the increase in price are a few different things, right? You've got supplier concessions, product redesigns like we mentioned, the pricing adjustments, which you just referenced and especially where the consumer sees value. And then lastly is maintaining the velocity of new product launches, which for us is a great, consistent, reliable way for us to feather on higher-margin products.

So we're continuing to calibrate the price side of things, but that's really also just a function of how well those other levers that I mentioned are taking hold and how effective they are. And I suspect as we go throughout the year and as we keep a close eye on the health of the consumer, how our retailers are trying to calibrate their own strategies, it will be different levers at different times. And of course, pricing is one of those.

Got it. That's helpful. And just -- and that comes back to the innovation that you talked about. And I guess I'm trying to figure out in my mind, does product innovation become more important or less important given the uncertain consumer environment. I mean how much [ of that ] money are you getting a return on versus how much of it is important to get through the higher-margin product?

Yes. Brian again here. So yes, innovation is critical, and I would underline that. And when it comes to innovations, we have the steady stream, the steady pipeline that's always being worked against. And we have at times actually paused or pulled back from certain launches. We haven't stopped working on those products, but we paused. And the times where we paused similar to FY '23 is usually during times of, I'll call it, a little bit more chaotic, right, where retailers, given some of their own situations may need to discount products, things like that.

We don't want to compete with noise in the market. And so we found that we have the biggest impact when we have more clear line of sight and having that conversation with the consumer. So throughout the rest of this year, so yes, new products are very important to us and to be able to get better in those higher-margin products. But we're going to do it at times where we have the loudest voice and the largest share of mind with the consumer.

And when we do that, our marketing dollars go much further, and we've got a much better opportunity with that consumer longer term. And you can see it with [indiscernible] the chart we have in our investor deck, where we show the stacking of innovation over time. And you look at FY '23, and we said back then, "Hey, we're going to be really careful about when we launch some of these new products, we're not competing for airtime." And that year, we had less -- fewer sales from new products. But then you look at the next 2 years, and that vintage grew significantly because we were able to introduce them at the right time.

[Operator Instructions] And your next question today will come from Matt Koranda with ROTH Capital Partners.

Apologies if I'm [ retreading on ] stuff here, but I'm jumping between a few calls here. I guess the main question I had for you around the quarter was when does the order of choppiness sort of settle down in your view? I know that there's a lot of crosscurrents right now with supply chain management from your retail and wholesale customers. How long do we think it takes to settle to kind of get back to a normal cadence of order flow?

Matt, it's Brian. So I would say, just in general, retailers are certainly ordering more cautiously than the POS would suggest. And like we said, they're managing working capital and balancing the tariff uncertainty. And so while this creates some short-term volatility for us, the POS for us is the truest indicator of consumer demand. So as inventory positions begin to normalize, and I think the big question there is how that relates to the tariff uncertainty.

But as that begins to normalize, just given that strong POS, we think that the two will better align in the future. When that date is, I'm not sure. But at some point, they do need to replenish that inventory if they want to keep up that strong POS that they've experienced with us. So as we move forward, I do expect that it will begin to normalize, which should support improved visibility as we move through the rest of FY '26.

Okay. In which brands are you seeing the strongest POS? Are you positive in certain areas that you can highlight for us? Maybe just quickly touch on where POS trends are most positive and then maybe where they're struggling a little bit more?

Yes. Great question. I would say that, in general, our growth -- brands that we've called our horse brands or growth brands have certainly done very, very well when it comes to the POS data. So those would be brands like Caldwell, especially with the launch of the ClayCopter last quarter. BUBBA continues to perform very, very well, especially with the launch of the Smart Fish Scale Lite. And then also seeing increases in that subscription revenue, which we'd like to at a future date once it becomes a more meaningful share of our business to share those numbers.

BOG continues to do very well. I think that will do very well in the hunting and holiday season. Grilla and frankly, MEAT! Your Maker, so those are the kind of the core brands, I would say, that have been doing well relative to the rest of the portfolio. And then when we look at the POS trends for the rest of our categories and brands, our other brands, whether it's cutlery and tools, et cetera, are performing better than their peers, better than the competition. A little bit weaker, I would say, overall, but much better than the categories are doing overall.

Okay. That's a helpful overview. And then I don't know if you touched on sort of M&A funnel and how we think about pipeline of opportunity on the acquisition front, but I'd love to get an update on that and where things stand.

Yes. So we're still very active in looking at targets. I think similar to last quarter, we're seeing fewer targets coming to market, and we are seeing more distressed assets and brands. In some cases, really good brands that we're taking a hard look at. But overall, I think similar to some others in our category, [ it's ] just trying to figure out where are they in the cycle themselves, right?

Do they have the right inventory, the right mix? Do they have IP? IP for us is incredibly important. and how well would those fit into our system. And so I would just say candidly, we're not finding a lot of great targets right now. So we're being very patient. One thing we alluded to in the past, too, is our ability to launch new brands. And there are categories that are popping to the top for us that I think we could go [indiscernible] for very low cost and low investment, enter some of these categories that we would have traditionally sought to enter through M&A. So during this time period, we're taking a hard look at that option. So more to come on that front.

And your next question today will come from Mark Smith with Lake Street Capital Markets.

You got Alex Sturnieks on the line for Mark today. Also kind of just [ sitting through ] some things here. I'm not sure if you already covered this, but you mentioned some variability on orders into Q2. But just curious if you're seeing any signs that buyers are trading down or shifting toward more value-oriented products? Or do you feel like they're still leading in a premium innovation despite the broader macro pressures?

Yes. It's a really good question. This is Brian. I'll answer it. Andy, feel free to chime in. So I think the shifts that we're seeing, and you can hear it too from some of the other retailer calls is the consumer is shifting maybe among the different retailers, maybe shifting down. Academy called that out, and they're one of the beneficiaries of that as the higher income consumers, as they would say, trading down.

But then specifically for our products, I think that if our POS was not as strong as it is, I would have a better answer for our products. But I think what it does actually is it reinforces that our consumer is really two parts, right? You have the more affluent consumer because our products are more premium, higher priced or you have the super enthusiast, somebody who, "Hey, they want the best, they're going to pay for it." And so I think that we're doing a really good job of continuing to capture those consumers.

With that said, the data that I've seen around spending with the lower middle-income households is they're under pressure right now. And I think that they're -- I think they're just buying less. I think you're seeing just less foot traffic from those consumers going into stores. And I think the sort of opening and mid-level price point products, most of which we don't compete in are seeing the impact of that. So I don't know [indiscernible] necessarily that group is trading down as much as looking to other retailers where they would trade down or just pulling back spend altogether, which is evidenced through lower foot traffic.

Okay. That's great. And then switching over on the gross margin side with tariffs and sourcing costs [ in flux. ] You mentioned you can probably hold the line where it's at right now. Just curious like what are the biggest factors you're watching that can push the outlook higher or lower?

I think it depends. I mean obviously, we're monitoring the tariff landscape on a daily basis. and the levers that we have in play, Brian mentioned the cost concessions. We have great relationships with our vendor partners, and we've worked with them on cost concessions. The pricing adjustments is a fluid situation. Again, we're looking at to be competitive. We're looking at competitive landscape on pricing. And we specifically -- we did a very measured approach when we looked at our pricing adjustments by category. So it's a fluid situation, and we'll keep pulling those levers as we can throughout the year.

Okay. Then another one for me. You mentioned you moved some production outside of China already. Could you help us [ think ] through how much of the portfolio still needs to be assessed whether or not to be moved? And then what kind of cost or execution trade-offs are there if that's necessary?

Yes. No, great question. It's Brian again. So we've -- like we said, we've made significant progress diversifying our sourcing. And a portion of our portfolio has already shifted away from China, primarily into Southeast Asia. But that said, there are certain product categories, especially ones where as we release new products, our average selling prices go up. They're more complicated.

There's more technology. Just think about all the BUBBA products and Caldwell products, for example. Those require highly specialized tooling. And China is and remains one of the best places for quality and cost competitiveness when it comes to those types of products. So as we've been sort of watching the ups and downs in news releases on the different tariff rates. It's one of the things that's led us to stay put momentarily for some of these categories until we see where the chips finally fall.

But like I said, China is and remains one of the most competitive countries for those types of products. And then in the future -- to the second half of your question, in the future, I think any further moves that we make, which we're assessing day-by-day by the way and are moving will really just depend on the tariff stability, how much line of sight we get to this coming to an end, which I have not seen yet. And of course, supplier readiness and ensuring that we maintain product quality. That is absolutely a critical piece to make sure that we can continue to service our retailers and meet our consumers' demand.

Okay. That's great. And then last one for me, if I can fit it in, just kind of going through the channel side of things. On the e-commerce side, given that a lot of your sales are concentrated with the largest online partner and then they're readjusting their purchasing patterns, are there any strategies you're pursuing to broaden that mix and build a bit more balance in that channel over time?

Yes. It's a good question. And one of the -- I think one of the things that our data, the data that we get does not do a good job of is showing the full e-commerce picture. And so what do I mean by that? Our traditional retailers have done a fantastic job of playing hurry up offense over the last 4 years, 5 years coming out of COVID, I think because they were forced to during that period of time when people weren't going into stores.

And so at least the data that I'm seeing, a lot of these retailers have significantly increased their website sales and now for some of them represent between 10% to even up to 30% of their total net sales. So I can't see how much of our traditional sales are going through the e-com channel. But when you look at some of the recent same-store sales trends, comp stores relative to their overall performance, it's clear that e-com is performing very well for a lot of these retailers.

So to sort of defy what's happening with people going into their stores, I think lower foot traffic, offset by more purchasing online. So as we think about just how the consumer is purchasing through e-commerce channels, I think that we're seeing a little bit of maybe a retailer mix, but where the data that we get obfuscate some of these bigger trends where traditional retailers are taking share. So our goal is to be, like we've always said, be where the consumer expects to find us. And I think that's what's happening. I think you're seeing traditional retailers begin to take a larger share of that piece of the pie.

This concludes our question-and-answer session. I would like to turn the conference back over to Brian Murphy for any closing remarks.

Thank you, operator. I want to thank our employees whose tireless commitment to innovation allows us to remain focused on executing our long-term vision. And thank you to everyone who joined us today. We look forward to speaking with you again next quarter.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.