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Smith & Wesson Brands, Inc. (NASDAQ:SWBI)
Q1 2021 Earnings Call
Sep 03, 2020, 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Good day, everyone, and welcome to Smith & Wesson Brands, Inc. first-quarter fiscal 2021 financial results conference call. This call is being recorded. At this time, I would like to turn the call over to Rob Cicero, general counsel, who will give us some information about today's call.

Rob Cicero -- General Counsel

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

Our forward-looking statements represent our current judgment about the future and they are subject to various risks and uncertainties. Risk factors and other considerations that could cause our actual results to be materially different are described in our securities filings, including our periodic reports on forms 8-K, 10-K, and 10-Q. You can find those documents, as well as, a replay of today's call on our website at smith-wesson.com. Today's call contains time-sensitive information that is accurate only as of this time and we assume no obligation to update any forward-looking statements.

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

Reconciliations of GAAP financial measures to non-GAAP financial measures, whether or not they are discussed on today's call, can be found in our securities filings, as well as, today's earnings press release, which are posted on our website. Also, when we reference EPS, we are always referencing fully diluted EPS. As many of you may know, on August 24th, 2020, the company completed the previously announced spin-off of its outdoor products & accessories segment. Therefore, first-quarter fiscal 2021 represents the final period in which our financial results will include the outdoor products and accessories segment.

On the call today, we are going to focus primarily on our firearms business. Joining us on today's call are Mark Smith, president and chief executive officer; and Deana McPherson, chief financial officer. With that, I will turn it over to Mark.

Mark Smith -- President and Chief Executive Officer

Thank you, Rob, and thanks, everyone, for joining us. First, let me recap for everyone our response related to COVID-19. From the onset of the pandemic, we have taken aggressive and decisive action to ensure the health and safety of our employees while continuing to operate our business in this challenging environment. All of the safety precautions we spoke about on our last call, which we put in place in March and April, are still in effect today.

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

I'll now turn to our first-quarter performance. I'm very pleased to report that despite the enormous challenges presented by the pandemic, our team has delivered a record-breaking quarter in firearm sales. Our firearms segment revenue of $230 million represents shipments of more than 584,000 units, both of which are new records, representing milestones in the history of our great company that our employees should be extremely proud of. This achievement clearly demonstrates our ability to rapidly respond to increased demand through our flexible manufacturing model and our state-of-the-art distribution facility. We believe these strong quarterly results have also translated into long-term market share growth.

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

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

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

Our handgun unit shipped increased by 122% to 441,000 units, while simultaneously, our handgun channel inventory dropped by 103,000 units. And finally, NICS checks for long guns increased 96% in the quarter and our long gun unit shipped increased 89% to 108,000 units, while simultaneously, our long gun channel inventory dropped by nearly 9,000 units. This all translates to a 58% decline in channel inventory for our products in spite of a record quarter in unit shipments from our facilities, which we believe indicates very strong market share growth. Our internal finished goods inventory also declined by almost 48% or $28 million during the quarter.

As we've seen before during these surge periods, these results reflect that despite our record numbers in market share growth, consumer demand for our products during the quarter still exceeded our internal manufacturing capacity levels. This again highlights the unique benefit provided by our flexible manufacturing model. You may recall that we have referenced this model in prior calls. This allows us to capture the benefit of sudden increases in demand without incurring long lead times and the high cost of adding manufacturing infrastructure that has been idled when demand decreases.

As we discussed on our last call, we have fully reengaged our third-party component manufacturing partners and are aggressively ramping production to meet incoming orders and this ramp continues today. Further, we were able to utilize our state-of-the-art distribution center to deliver products more efficiently and rapidly than ever before. Moving now to our go-forward plan that we have been speaking about for the past few quarters. As you are aware, we successfully spun off our outdoor products and accessories segment last week and we have now returned to Smith & Wesson's heritage as a pure-play firearms company with a focus on organic growth and returning excess capital to our stockholders.

I'm therefore very excited to announce that our board of directors has authorized the company to declare a regular quarterly cash dividend of $0.05 per share. Our first-quarterly dividend will be payable on October 1st to shareholders of record as of September 17th. Before I hand the call over to Deana for the financial highlights, I just wanted to speak about a tremendous program that our sales and marketing teams have launched in the last few weeks. The current increase in consumer demand for firearms is in many ways, unparalleled.

A recent poll of firearms retailers conducted by NSSF estimates that between 40% to 60% and of the consumers purchasing firearms are first-time gun owners who are looking to exercise their Second Amendment rights to protect themselves and their families. Since March, the NSSF estimates that nearly 5 million Americans have purchased their first firearm. Not only are we seeing record new consumer entrants in the market, but those new entrants are serving to broaden and diversify the core base of firearms consumers. With the two fastest-growing segments of new gun owners being women and African Americans.

In light of this new surge and as part of our continued commitment to safe and responsible gun ownership, we have launched an innovative nationwide outreach campaign called gun smarts. We have three goals with this program. First, welcome these new gun owners to our industry. Second, make sure they know how to safely use and store their firearms.

And finally, provide instructional resources from Smith & Wesson on increasing shooting proficiency, help them understand the basics of firearms function, and help them locate welcoming, hands on training, ranges, and other resources. Everything a first-time gun owner would want to know but may not want to ask. Gun smart is the only program of its kind in the market today. Using the very top professional shooters and instructors in the industry, we have produced over 60 instructional online videos and tips to help convey best practices, all regardless of the brand of firearm purchased.

Further, we are providing free of charge and again, regardless of the brand of firearm purchased, a welcome kit to new gun owners that include Smith & Wesson branded safety glasses, hearing protection, instructional booklets, and a link to our online platform containing the video library. This program launched in mid-August and by mid-September, we will have donated over 40,000 gun smarts boxes to new gun owners. In collaboration with other industry partners, gun smarts will also offer several sweepstakes over the next few months to keep our new consumers engaged. As an industry and as a company, we are dedicated to safe and responsible gun ownership and we are proud to be able to welcome these new gun owners to our community.

Please visit www.smith-wesson.com/gunsmarts, to see the program tools for yourself. And with that, I'll turn the call over to Deana.

Deana McPherson -- Chief Financial Officer

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

The significant increase in consumer demand that started in the middle of March continued throughout our first quarter and led to the total combined company revenue of $278 million, a $154.3 million increase or more than double the prior-year results. This increase was driven by a $134.4 million or a 141% increase in firearm revenue, resulting in a record first-quarter firearm segment revenue of $230 million. These incredible results are a testament to our operations management team that increased firearms production output, utilizing a combination of targeted headcount increases, and continued activation of our flexible manufacturing model, all while keeping our employees safe during the pandemic. Total company gross margin of 42% was 3.3% higher than the prior year on improved volume in both segments.

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

Total company operating expenses were $4.6 million higher than the prior year due to $3.6 million of spin-off costs and $2.8 million of increased profit sharing expense. Increased volume-related customer allowances were more than offset by reduced travel, lower advertising costs, and lower employee medical costs, likely due to the deferral of elective procedures resulting from the pandemic. The increase in revenue in gross margin led to a significant profit gain as compared to the prior-year comparable quarter, including net income of $48.4 million, GAAP earnings per share of $0.86, non-GAAP earnings per share of $0.97, and adjusted EBITDA of $84.2 million. During the quarter, we generated $83.5 million in cash from operations and spent $7.6 million on capital equipment, leaving $75.8 million in free cash.

We also repaid $135 million on a revolving line of credit, leaving $25 million outstanding on the revolver, and zero net debt. After the end of the first quarter, as part of the spin-off process, we restructured our credit facility for a new five-year term that enables us to maintain an unsecured $100 million line of credit for the foreseeable future. With that, operator, can we please open the call to questions from our analysts.

Questions & Answers:


Operator

[Operator instructions] Our first question comes from Scott Stember with CL King. Your line is now open.

Scott Stember -- C.L. King -- Analyst

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

Mark Smith -- President and Chief Executive Officer

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

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

Scott Stember -- C.L. King -- Analyst

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

Mark Smith -- President and Chief Executive Officer

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

So, you know, when that -- the industry goes through cycles, as we've talked about for years and you've seen. So when that -- how that turns around and when it turns around, I guess, we're not going to, I guess, speculate about what those drivers are going to be. But again, we are very, very well set up as you mentioned, with our flexible model to continue increase in word. I mean, as I mentioned in the prepared remarks, we're continuing to increase today.

There does come a point though, where that's -- there's only so much we can do and whether that's going to meet the demand or not. I guess, in August, we'll see.

Scott Stember -- C.L. King -- Analyst

All right. That's all I have now. Thank you.

Mark Smith -- President and Chief Executive Officer

Thanks, Scott.

Operator

Our next question comes from Cai von Rumohr with Cowen. Your line is now open.

Cai von Rumohr -- Cowen and Company -- Analyst

Yes. Thank you very much. Great quarter, obviously. So, I guess, I didn't quite get.

So you said the uh -- the inventories were down 103,000 in handguns and 98 -- excuse me, 9,000 in -- in long guns. So that's year over year, correct?

Deana McPherson -- Chief Financial Officer

No, that's --

Mark Smith -- President and Chief Executive Officer

No, that's in the quarter.

Cai von Rumohr -- Cowen and Company -- Analyst

Actually, in the quarter. OK. OK. So, you know, which gets to the next point, and are you going to break -- I think you said you would break all that down.

I didn't see it in the Q.

Deana McPherson -- Chief Financial Officer

Right. Cai, we did just send the script information to you so that you could get the numbers that were in the script so that you could understand what that was. What we did just show you what the the reduction in the quarter was and compare that to our units. So, like you say, with handgun units being increased shipments of 122% and then the 103,000 units you can quickly figure out that the 141% NICS handgun units up is very comparable.

So it shows that more than likely, we're taking market share because of our ability to ship that much and what was taken out of the channel.

Cai von Rumohr -- Cowen and Company -- Analyst

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

Mark Smith -- President and Chief Executive Officer

Absolutely. Yeah. Yeah, absolutely. I think the industry, in general, as is mentioned, I think we're into one of those surges where the industry's ability to supply is outstripped by the demand.

And I think what you saw in -- I mean, obviously, you can look at the inventory numbers from us and from some of the other firearms, retailers, and manufacturers, and I think we're just out of inventory.

Cai von Rumohr -- Cowen and Company -- Analyst

Got it. OK. And then uh -- so when are you going to give us the -- you mentioned that AOUT is going to be treated as a disco. But in doing our models, when is that going to happen? That's going to happen with the next quarter.

So, we'll get all the restated numbers.

Deana McPherson -- Chief Financial Officer

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

Cai von Rumohr -- Cowen and Company -- Analyst

But we won't get them until then.

Deana McPherson -- Chief Financial Officer

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

Cai von Rumohr -- Cowen and Company -- Analyst

Got it. OK. Excellent. OK, super.

Thank you very much.

Mark Smith -- President and Chief Executive Officer

Thanks, Cai.

Operator

Our next question comes from James Hardiman with Wedbush Securities. Your line is now open.

James Hardiman -- Wedbush Securities -- Analyst

Hey, good afternoon. Thanks for taking my question. Obviously, a great quarter. Just a clarification on the guidance.

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

Mark Smith -- President and Chief Executive Officer

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

James Hardiman -- Wedbush Securities -- Analyst

OK. OK. That's what I thought. And, uh -- but just to help me understand how to think about where you are from a manufacturing perspective? Obviously, your own internal inventories are way low.

You talked about how retailer inventories are way low. It sounds like you're going to be pushing your plants at sort of maximum output, as well as, the third-party manufacturing for some time. I just want to get my head around, as I think about what you delivered in the first quarter, you know, is there room for upside to that number? Meaning, right, if you're, uh --

Mark Smith -- President and Chief Executive Officer

That's a good question.

James Hardiman -- Wedbush Securities -- Analyst

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

Mark Smith -- President and Chief Executive Officer

Yeah. I think you know, even though we do have a very flexible model, you got to remember that we're -- that the lead time for making a firearm is long. In terms of it's not measured in weeks, it's measured in months. And so, a turn up in manufacturing and C&C capacity will translate into a finished good coming off the line.

You know, it's going to be -- you're looking at somewhere in six- to eight-week kind of time frame. So we're continuing to ramp, as I mentioned in the prepared remarks right now. But you're right, we're pushing -- you know, we're pushing up the -- we're going to go to maximum capacity. And you know, I think you can kind of think of that like what we did in the first quarter.

You took $28 million out of internal inventory. We will replace, you got to think about that in terms of sales value, not that cost. So you got to think about that in terms of sales value. We will replace a significant portion of that better than half, and so, yes, you're going to get to the point where we're capacity constrained.

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

James Hardiman -- Wedbush Securities -- Analyst

OK. And then last, just real quick clarification. Maybe I'm doing the math wrong here. But -- and it's a small point, but long gun unit sales were up not quite double, but dollar sales are up more than 4 times.

So it seems like there was a big ASP jump in long guns. A, am I doing that math right? And b, if so, what's going on there?

Deana McPherson -- Chief Financial Officer

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

So this is a more normalized lack of promotional pricing that you're seeing in the ASP.

Mark Smith -- President and Chief Executive Officer

Yeah. I think, James, you've got to think last year was abnormally low. This year's not abnormally high.

James Hardiman -- Wedbush Securities -- Analyst

OK. That's perfect. I appreciate it, guys.

Deana McPherson -- Chief Financial Officer

Thank you.

Operator

Our next question comes from Steve Dyer with Craig-Hallum. Your line is now open.

Steve Dyer -- Craig-Hallum Capital Group -- Analyst

Thanks. Good afternoon. I appreciate the additional granularity. Just following up on the -- on the last question.

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

Mark Smith -- President and Chief Executive Officer

No, I think there -- I mean, obviously, you've got it. I mean, it's promotions. We're not doing any promotions right now. We didn't really do any promotions at all through our -- through our Q1, we ramped down the last of them.

I mean, I'm trying to think back now, I don't think we ship really much of anything in terms of promotional orders in our quarter. So you can kind of take that and drive it forward. I think that probably answers your question.

Steve Dyer -- Craig-Hallum Capital Group -- Analyst

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

Mark Smith -- President and Chief Executive Officer

Yeah, I think when the pandemic first hit and we were -- obviously, everybody in the country and the world was trying to figure out, where do we go from here? We definitely had some efficiency and impact as we were kind of relaying our lines out and putting barriers in between stations, that couldn't socially distance, etc. But as we now -- you know, we've been dealing with this for the last six, seven months, I think we've kind of hit our stride. Our operations management team, I cannot say enough about what an absolutely tremendous job they did and really being able to keep all of our employees safe first and foremost, and then, react to this increase in demand that we saw. And really, it's kudos to them for these results so.

So, yeah, I mean, I don't think -- we're really not seeing much in the way of efficiency losses from that at this point.

Steve Dyer -- Craig-Hallum Capital Group -- Analyst

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

Mark Smith -- President and Chief Executive Officer

Yeah. I think uh, you know -- and I think it'd been talked about a lot. I do think that this election cycle is different in terms of what's happening now with this -- with this surge. The surge is really not -- I mean, yes, of course, there's some portion of the surge that's related to gun-control regulation fears.

But the majority of the, you know -- at least a vast -- a large portion, I don't want to say the majority, I don't know if we know that. But I mean, a large portion of the demand is driven by folks who are just fearful of their personal protection and safety with -- starting with the pandemic and moving on to the civil unrest. So I think the NSSF put a number out last week or week before, estimating 5 million new shooters into the market or new gun owners into the market in, uh -- since March. So you know, really, I do think that this bodes very well for us into the future in terms of those -- a significant portion of those.

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

And then, the other big piece of that is inventories. You look at inventory in the channel right now and it's just nonexistent. So for us to kind of refill the channel even when the demand -- if and when the demand ever does slow down. I think we're going to have a little bit of a softer landing, whereas, if you look -- I think if you look at the inventory in the channel in 2016, inventory levels were already fairly healthy.

And so, there was no channel fill after the election cycle, the one you said zigged and we zagged.

Steve Dyer -- Craig-Hallum Capital Group -- Analyst

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

Mark Smith -- President and Chief Executive Officer

No, it's going to be fixed. And your -- the first part of your question there is where we're at. So I mean, obviously, we came out of the gate here. You know, we want to -- we want to get into the dividends as we've been talking about for the past year now.

We want to return excess capital to the shareholders and we are starting off at a level that we are extremely comfortable with, and you can draw your conclusions from there. I mean, I think you're right. I mean, you know, so there's probably upside there on the dividend, but it is going to be --

Steve Dyer -- Craig-Hallum Capital Group -- Analyst

Got it. All right. Thanks. Well done.

Mark Smith -- President and Chief Executive Officer

Thanks.

Deana McPherson -- Chief Financial Officer

Thank you.

Operator

[Operator instructions] Our next question comes from Mark Smith with Lake Street Capital Markets. Your line is now open.

Mark Smith -- President and Chief Executive Officer

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

Yeah. I don't think we've ever provided that kind of breakdown and we're not -- and we're still not yet, Mark. So, I mean, I'll kind of point you to -- back to the how the surges usually work is, you know, it's gun control. In an environment where it's gun control, it's going to be the MSRs and the pistols [Inaudible] pistols followed by revolvers and then down to hunting.

So this one's a little bit different in terms of the fact that we got people, you know -- it's not necessarily driven so much by fear of gun control regulation and just general feel of -- fear of personal safety. But directionally, that's kind of how the surges go. So I don't know if that provides you any color you can use or not, but --

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

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

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

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

OK. OK. And that kind of leads to my -- my next question. Gross profit margin, obviously, was -- was big, kind of back to kind of peak gross profit margins.

Is there any reason as you look at the environment right now? And I know that you're not giving guidance. Is there any pressures out there or any reason that you can't continue to drive gross profit margin in the near-term at this, let's call it, roughly 40% level?

I'll just talk to -- I mean, our main drivers of our gross margin, as I think Deana talked about. I mean, the main drive -- we're a manufacturing facility. We have 600,000-700,000 square foot facility here in a couple -- so point being, we're -- you know, we're really a manufacturing facility and volume is a huge piece of our ability to drive the gross margins that you saw in Q1. So --

Deana McPherson -- Chief Financial Officer

That -- the other thing. Yeah and the other thing I would say is, as long as the promotional environment remains the way it is now, virtually nonexistent. The margins are going to be better.

Mark Smith -- President and Chief Executive Officer

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

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

It's just -- it's kind of you dictate what it is.

Deana McPherson -- Chief Financial Officer

One thing I would point out is that we do still maintain our -- our shutdown period. We don't operate a week -- last week of July, first week of August. We do have some light operations during that period of time. But generally speaking, we used to talk quite a bit about like the number of days of production.

And so the number of days, we are a week short in July, a week short in August. And sort of the second quarter, we are closed between Christmas and New Year's and then the fourth quarter for us always has the most production days because there isn't a holiday and there isn't the shutdown. So that's just a normal kind of cadence of our quarters.

Mark Smith -- President and Chief Executive Officer

OK. OK. And then just as we kind of look the income statement a little bit. I don't know if you guys can or are willing to give us some breakdown of operating expenses.

Maybe that that would be allocated to Smith & Wesson versus American Outdoor during the quarter, especially as we look at selling and marketing expense during the quarter?

Deana McPherson -- Chief Financial Officer

We can't really do that. At this point, the only thing we can do is point you toward the segment reporting that we do in the Q and you can look at the discontinued ops reporting that we filed, I think it was August 26th, and you can also look at the Form 10 that AOUT filed on August 3rd.

Mark Smith -- President and Chief Executive Officer

Yeah.

Deana McPherson -- Chief Financial Officer

Other than that, unfortunately, we have to wait because we have to go through a lot of work for the discontinued ops and we have to get auditors to buy off on all of that work, too. So we can't really provide that right now much as we might want to.

Mark Smith -- President and Chief Executive Officer

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

Deana McPherson -- Chief Financial Officer

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

Mark Smith -- President and Chief Executive Officer

OK. Wouldn't that be hitting the $1.5 million, let's call it, on the outdoor products and accessories side?

Deana McPherson -- Chief Financial Officer

On theirs.

Mark Smith -- President and Chief Executive Officer

Correct, on theirs.

Deana McPherson -- Chief Financial Officer

Right, right.

Mark Smith -- President and Chief Executive Officer

I'm looking more so on the intersegment revenue, you know, just over $1 million on the firearm segment.

We sell them certain -- as they sell us certain components, we sell them certain components. I'm not sure you're aware.

Deana McPherson -- Chief Financial Officer

Yeah.

Mark Smith -- President and Chief Executive Officer

We're -- they're a licensee for us going forward. So that's us shipping components that they end up packaging and then marketing and selling for us.

Deana McPherson -- Chief Financial Officer

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

Mark Smith -- President and Chief Executive Officer

OK. Great. Thank you.

Operator

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

Cai von Rumohr -- Cowen and Company -- Analyst

Yes, thank you. Given the super cash flow you have, I took a look at your cash flow over the last nine years to kind of take out cycles and it totaled like $63 million on average, but most of that's clearly SWBI. So as I look at your fixed dividend a little under $12 million, that looks like it's very skimpy. What's -- what's your strategy going to be? I mean, you want to have a fixed dividend, but you're way under what your average cash flow has been.

So how -- is this -- at what point -- what would it take you to consider raising that dividend? And how do you think about share repurchase in the mix?

Deana McPherson -- Chief Financial Officer

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

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

Mark Smith -- President and Chief Executive Officer

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

Cai von Rumohr -- Cowen and Company -- Analyst

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

Mark Smith -- President and Chief Executive Officer

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

So that'll -- it won't be any more than $10 million to $12 million.

Cai von Rumohr -- Cowen and Company -- Analyst

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

Mark Smith -- President and Chief Executive Officer

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

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

Cai von Rumohr -- Cowen and Company -- Analyst

Thank you very much.

Operator

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

James Hardiman -- Wedbush Securities -- Analyst

Hey, just a quick sort of bigger picture question. We've talked a number of times about how many sort of new consumers there are purchasing firearms. I think the number that you mentioned in the prepared remarks, 40% to 60%. Obviously, a pretty wide range there in terms of what portion of sales this year or maybe that was since March, where we're first time gun owners.

When is that normally so we could sort of gauge? Obviously, there's always some new gun buyers, but is it twice as many new consumers as it normally is? How do we think about that?

Mark Smith -- President and Chief Executive Officer

I don't know that I can actually give you a number on that that I wouldn't be taking an educated guess at. So I would say, James, the best thing to do there is go to the NSSF website.

James Hardiman -- Wedbush Securities -- Analyst

OK, then.

Mark Smith -- President and Chief Executive Officer

And they can -- they'll probably have that information there. I just don't have it right in front of me. It's significantly higher now than like significantly, I would say, more -- I think your double number is probably in the ballpark or maybe even a little conservative, so thank you.

James Hardiman -- Wedbush Securities -- Analyst

OK. Totally fair.

Mark Smith -- President and Chief Executive Officer

Yup.

James Hardiman -- Wedbush Securities -- Analyst

Appreciate it.

Mark Smith -- President and Chief Executive Officer

Yup.

Operator

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

Mark Smith -- President and Chief Executive Officer

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

Operator

[Operator signoff]

Duration: 50 minutes

Call participants:

Rob Cicero -- General Counsel

Mark Smith -- President and Chief Executive Officer

Deana McPherson -- Chief Financial Officer

Scott Stember -- C.L. King -- Analyst

Cai von Rumohr -- Cowen and Company -- Analyst

James Hardiman -- Wedbush Securities -- Analyst

Steve Dyer -- Craig-Hallum Capital Group -- Analyst

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