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RGR Sturm, Ruger & Co.

Participants
Christopher Killoy President and Chief Executive Officer
Kevin Reid Vice President and General Counsel
Thomas Dineen Chief Financial Officer
Ryan Hamilton Morgan Dempsey Capital Management LLC
Call transcript
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Operator

Ladies and gentlemen, thank you for standing by and welcome to the Quarter 2019 Sturm, Ruger Earnings Conference Call. At this time all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. [Operator Instructions]

Please be advised that today’s conference is being recorded. now President, hand Christopher would to conference I and CEO Killoy. Instructions] like the to over [Operator

Christopher Killoy

Financial of Dineen, our and an then Thank you. I will will Good discuss overview to Ruger ask & the morning Reid, XXXX read of and welcome statements. Then Year Officer, Kevin forward-looking and XXXX to the End caution Conference General Call. results, Tom our the would on to and financial state Company like the Counsel, the operations market. our Chief give fourth quarter I Sturm,

After that, we’ll get to your questions. Kevin?

Kevin Reid

is everyone in statements predictions to meeting or management’s such company’s the remind projected to want could note of company’s hopes, course intentions, in of this the We materially that state or important the from results that those It actual forward-looking made future expectations the differ are beliefs, statements. that statements. forward-looking

Additional contained Form in XXXX, XX-Q information first, from not course, could the the second XXXX. materially of that including on filings, the in forward-looking limited ended and December actual year quarters forms third time of for and differ on to but to, from for company’s cause results concerning the company’s SEC factors reports statements XX-K the to is those XX, the time

quarters for website. be and three of on EBITDA. are be for year-ended XXXX, Copies the EBITDA website first that SEC note the company again, which or our do net of XX-K on also at the GAAP contacting Please income XX-Q December by forms at of sec.gov. may these to found in XXXX or non-GAAP can ruger.com/corporate the reference company’s Form documents the our obtained the SEC posted non-GAAP our website XX, or We reconciliation on the

Chris? Furthermore, disclaims statements. update all responsibilities the forward-looking company to

Christopher Killoy

Kevin. you, Thank

discuss company’s Tom, Now, XXXX results. the will

Thomas Dineen

Chris. Thanks,

had at the X XX-K file SEC. delay Before our acknowledge XX-K we Time as we our plan our filing o’clock night. Unfortunately, We to would our technical the in uploaded financials, like last into the service issue Form normally get the do. a XX-K getting provider of to I to Eastern Form third-party Form

our not was SEC o’clock apologize confusion a posted for or As on website XX-K inconvenience. any until We morning. result, the this X Form

financial net sales were per Now share. for earnings and results, were the diluted to million XXXX, $XXX.X $X.XX

For and earnings XXXX, $X.XX share. sales net were $XXX.X diluted million were per

net For sales per and XXXX, were earnings million the diluted quarter fourth were $XXX.X of share. $X.XX

For the million corresponding per in earnings share. and period were $XXX.X were net $X.XX XXXX, sales diluted

invested $XXX.X at sheet, balance XX, are million. cash T-bills U.S. our which December The totaled short-term in XXXX, investments, and

had a Our to was December value and current XXXX, which share, per per cash X.X X short-term of was share equity which investments. $X.XX we book $XX.XX and ratio equates million, $XXX.X to XX, no stockholders’ of debt. was At

of million, focus, $XX $XX form products. expenditures, of development. XXXX, new approximately again, we be capital Cash operation. of $XX will estimate company that product back into the We million million capital We new generated XXXX primarily to expenditures reinvested with flows, in that from cash on in a the related

dividends $XX per million market open in million. repurchase returned through an our we total million $XX to the price at XXXX, returned Cash to of average payment stock $X for the and shares in XX,XXX of of common our shareholders, $XX.XX of a shareholders of of the share

for shareholders of XX, XXXX, XXXX. March declared of Directors payable March record per as on XX, of share Board an Our $X.XX dividend quarterly

Chris? update for XX% As That’s XXXX. the dividend a approximately varies reminder, income, is our net therefore, financial and quarterly quarter-to-quarter. of

Christopher Killoy

to settled and extension of a discounting, and challenging excessive payment Tom. the was of all demand a softness with of Thanks, as levels overcapacity, terms at reckless manufacturing industry led XXXX year marketplace excess promotions. firearms channel for a inventories the continued undisciplined

objectives, and in of the which measured, more process, profitability sheet value. were XXXX our the product in strengthening bolstering for shareholder partners, our Ruger our new efforts our line enhance delivery of balance fortifying long-term promotional of include and brand, we investing our on product our Conversely, our which instead, all development distribution focused downstream

and the additional caused June X products; consumer sell-through the to disruption half NICS market the significant the XX% as discounting retailers distributors aggressive The discounts, to ultimately of company’s be by of our sell-through distributors continued inventory XXXX filed The its loss XXXX; following: by We from payment a products in decreased the bankruptcy the background in the distributor the XXXX. of terms rebates, encourage that Ruger retailer the cautious loss the company’s from as for many further of of those firearms the competitors; buying XXXX adjusted of estimated inventories in checks to a demand. for use second formerly smaller independent of of anticipation of behavior by retailers. decreased protection subsequent attributable products and liquidation reduction may the offered proxy promotions, in and of more extension

directives adjusted a However, perfect regulations by issued it laws be changes as and is can interpretations and by impacted and many state agencies. government metric, in not NICS

For of carry adjusted of in This for XX% example, certain in increases XXXX in background the the for Minnesota background curtailed firearms transactions the states was respectively. Alabama use of XX%, of NICS resulted NICS and checks in XXXX. state issued lieu significantly and permits to checks

increase firearms demand NICS NICS impact particular unduly the adjusted a to compared anomalies, NICS comparison. X% results its Minnesota, we gun consumer limitations the and believe of Despite which level. decreased Also, used X% insight includes and an can or period for in at into for reported. XXXX underlying adjusted as sales, its Alabama adjusted provides Excluding,

product development. New

introductions the by its new which remains to pistol, evidenced XXXX, which launch the strength included of since development the December. Ruger-XX products of product the in steadfast, been in product as our has one commitment in new industry Our hottest

despite family also strong last December demand, to continues the compact is on of magazine. a in latest outstripped front LCP whose of April, to and.XX it demand its which most manufacturing the the Wrangler doubling American enjoy the Rifleman was II and The fact, of cover capability. Rifle, and recent since In the revolver LCP has pistols, Long addition production introduced launch

products represented of firearm XXXX. over in XX% in compared in models XXXX, major $XXX.X to families. of shipped XXXX XXX million In $XXX unique product sales or well XX New firearm or we million XX% sales

length have featuring We so models, about the year models that finish. XXX different catalog models, is non-catalog last which of caliber, were half shipped derivatives uncommon. we models, These of existing were barrel or a not

exclusives XXXX, compact GPXXX Ruger Pro Security-X American pistols including new the for Pro compact remain they years in Some while the been Security-X models, demand, and and of chambered these PC distributor were in the in many have XXX XXXX offered others as free-float strong Ruger Rifle and Rifle with AR-XXX Sporting including and Legend, Modern handguards, offerings, new Bolt-Action pistol, officer-style the XX/XX the the models models. Super in Carbine shop competition X-millimeter, revolver custom chassis

XXXX. included product-wise but commitment These major in our pretty products. as because focus It’s introduced new new sales to product helps it into past on include derivatives we product total, X products in not the new tough years. we were that are head to are longstanding, shape we development, unwavering Thanks our significant great new a us standard, only in the breakthrough

and the and sales, Ruger independent our reviews through following: sales inventory. distributors the the inventory levels, inventory inventories We semimonthly our production products of manage independent products primarily our to estimated of Production at and retailers, distributors. base from of the our our our

All reviews XX each of these for are our product of done families.

we from in tempting or more XXXX, take we While disciplined increase always production capacity XX% to and a manufacturing production to it’s XXXX. leverage approach utilize units unit or by and decreased XXX,XXX maintain even better fixed almost costs, total

manufacturing and shutdown a Our great our in taking job to X additional reducing folks attrition days shutdown in by addition in allowing hiring to time, proactively managing XXXX a our freeze, workforce, normal week over implementing July. our reduce did workforce

our XX,XXX financial As a positioned goods the our XX% during decreased products likely In by inventory has distributor result, and XXXX disciplined decreased this XX,XXX results, XXXX. This finished us aggregate, an XXXX. units units hindered decrease in for approach, which of by our XXXX. was well inventories

Cash.

million. generation in Our $XX XXXX cash was

$XXX of more we Our is million operations. need than cash to investment our support and short-term daily balance

places in Rest storm from weather we Our eye changed. that a always an our keeping opportunities unique industry financial profitably has which capital allocation strength our thrive market, long-term assured, a either and emerge. may recovering in in for enviable or not a out position us can philosophy

the opportunities looking generate decide cash that accumulated we returns shareholders continually our capital. dividends. get are to be to capital, for employ our we where return strong point our in form of to We able not to If we with we a the will

facilities, they excellence the my me be managed of As for for challenges. team any a with to I people of continues and each our At drive commitment stated XXXX continuous through company. to the of our proud and at those comments, beginning their challenging way couldn’t But year I our was impress Ruger the improvement.

numerous exclusively line, launched a Newport, Hampshire, models pistol, Security-X, an Mark new array were with They and exclusives. that Ruger-XX exclusives. Prescott, machines distributor IV our of pistol In In derivatives such XX/XX repurposed and along almost amazing rapidly of Caliber the in-house. chassis Wrangler designed Pistol and distributor Arizona, as Carbine delivered products team’s revolver the already production New with slew we capacity cool also increased and the of

and improve Pine Wrangler products in.XX numerous the pistol, lock our delivering high-volume employment products, state In ergonomics AR-XXX our the and LCP.XX chambered high-impact revolvers. to treating II as in improve our chambered and on parts repetitive Ruger-XX and Rifle. quality AR-XXX Mayodan, while Rifle LCP incentives the such in-sourced critical come, reached as Castings the for for North Carolina, threshold in Tree at teams XXX December, the to to needed heat and and new delivery Long Legend pistol, American motion automated we years awesome to Meanwhile, such the single-action operations new

that traditional injection And out City, only X time Metals, production mold to in lead of capacity molds metal we our our days mold expanded versus QX XX support product using in weeks per to and Ruger with printed XD new molding the of X Precision develop facility to led and an QX, average Missouri, technology XX at methods. Earth launches

products stable great am about entering XXXX, new optimistic I our of our future. very With

I consider as privilege major that be no As team there I show or would industry I Ruger’s trade company our rather this serve any all-hands of kickoff meetings, to tell in is and of the one great a CEO. at, at our quarterly at

Operator, Those highlights may question? please the have we XXXX. the of first were

Operator

Our [Operator Dempsey. first with line the Ryan from question Certainly. of Hamilton Morgan Instructions] comes

Ryan Hamilton

everyone. Good morning,

Christopher Killoy

Good morning.

Ryan Hamilton

us Could it on a overcapacity you that is far is? as just you’re a as give as seeing Could of mix it little far as excess little color inventories. range, is more the little? oversupply touch on pistols? and of that long What touched You you bit kind a what

Christopher Killoy

We saw as excess that Well, XXXX, has exit in particular; it category I and its think category, sport I’d fact, through saw a system. say, throughout modern XXXX, of the several rifle lot and, relates the in completely. manufacturers worked discounting way capacity in that heavy to

has XXXX, So we’re to that no the industry. at shape optimistic some think its that a in lot we longer of hopefully, as there, enter that worked system. Ruger, of and as way I’m I that is better and certainly an capacity maybe going be through

Ryan Hamilton

how metric? really Is at your inventories are of Is looking by that you some analyzing competitors of that are the one decreasing, doing? that discounting how are amount or increasing

Christopher Killoy

metric. one That’s

see public level The And their the sales of like the of network, keep are frankly, see can see certain competition, we network, struggling those our we tune on discounting, very our distribution an metrics. financially. filings. you course, to case Ruger stay of And eye try all what’s knowing other, both on we just the we there in filings companies can our of going competitors course, whether through at knowing is in through

on the family, any one deep And that the really rate of you increasing particular, be SIOP time, Sales because to take then Planning what’s process, may product decreasing as we one product the marketplace. we our dive at do in rate each family X going in Operations and where weeks, of other the a mentioned, of by process the every again, I advantage Inventory is take

Ryan Hamilton

be had I about on us kind how sense. in cadence of a of November, lot to but holiday quarter would of a the And I walk asked makes every October? a November you that there, color quarter. little compared looked maybe Could just you that Sure, know just appreciated. to December through

Christopher Killoy

we you both don’t tell typically month-to-month quarter, and But we and throughout saw saw comment improvement looked we things time through, distributors Yeah, it at certainly, fourth we steady the like will the from on a I our December, specifics. retail. were by hit selling –

and then look both you down. from inventories, both at As our when what we presented, the inventories, numbers that with at Tom you distributors’ at note numbers Ruger our were those saw

have in time we pleased periods through shipped that the see distributors. well from seems to that product pretty sold our in December very to We’re subsequent

forward. – So we’re think that well going we bodes

Ryan Hamilton

you you it see up That’s that? you. by loss distributors. few Thank take looking the When When of I’m And of out Sure. smaller falls a market, time of do for distributor touched kind absorb a good. all that does at distributors? what – to other lag volume soaked them the of on

Christopher Killoy

That’s question. sometimes depending liquidated, a warehouses at on distributor. far hope to into our is to disruption creates as is capital provide that risk their less as discounting, transitioning saw opening well. times, our And wholesale we working if credit. one it’s lines just product in somewhat off But it’s winds and in we the also in an as earlier are Ruger’s our the up Obviously, orderly marketplace good payment sold independent put retailers more in case, bit then some a sometimes they happens, thing typically business, that distributors distributor to the for challenge their The than as forget it how marketplace of another other a accounts, What stores cetera. terms is they salespeople, national biggest distributor. box other then et with as if big distributors that that really and and of we the inventory business more Ruger measured manner, some in up chaotic, is handled little bankruptcies, it’s

So that’s sometimes from would distributor function than like base. an to takes time we transition business to out goes a distributors, for that remaining and more distribution that important who of the

Ryan Hamilton

lot I good a That’s on point. a Sure. ask headcount.

roles? your on challenges if having give touched specific just you’re filling there staffing. any – You Could any us you a feel

Christopher Killoy

help folks one and right Well, facilities sign our got us the of each we’ve now, on help at frankly, out production. to for with

additional looking for We’re talent. engineering also actively

good for We’re well always design as the on engineers. as lookout manufacturing engineers

of So those again, have can that be we the is our that business where indication good – and website, on going. a

Ryan Hamilton

Great. note? And inflation of I material raw more one on any have just inputs,

Christopher Killoy

things. year No, seen our of have see entered the we steel that, down side we I We things on again, did the buy earlier tariffs all steel settled haven’t the really as saw but we think, But more were equation, in as restriction an they of were supply seen perhaps we in standpoint a domestic at haven’t earlier year point, this tightening a inflation from really sources than of the pricing had customers used to. or supply. domestically,

we’re I think in So pretty shape. good

Ryan Hamilton

the year? that Annual So is good. you have this it’s Shareholder Day guys here? Do out Where at figured

Christopher Killoy

at it’s yeah, going in that meeting Mayodan, be May in Carolina, and in North a North information for the Wednesday, have XX. Mayodan, Carolina We’ll and year to be it’s going be will tour factory to – analysts the This itself on Greensboro. actual

Ryan Hamilton

Thank Perfect. very much. you

Christopher Killoy

Thanks, Ryan.

Operator

further no And questions. I’m showing Instructions] [Operator

remarks. So any further Christopher call President, for that, to with and turn I’ll CEO back the Killoy, over

Christopher Killoy

to customers to like the factories. look manufacture Ruger, in on team, would every and of like you rugged and of Ruger May Annual firearms to Carolina. interest loyal I at many hardworking Wednesday, and and our reliable American seeing design thank day I’d in XX, thank the continued our members I in our Ruger North XXXX Greensboro, closing, you In X,XXX Meeting who for your forward

Operator

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