Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
The following discussion and analysis of our financial condition and results of operations for the three and nine months ended January 31, 2023 and 2022 should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for fiscal year ended April 30, 2022. This discussion and analysis should also be read in conjunction with our unaudited condensed consolidated financial statements and the notes thereto included in Item 1 of this Quarterly Report on Form 10-Q.
The following discussion and analysis includes forward-looking statements. These forward-looking statements are subject to risks, uncertainties, and other factors that could cause our actual results to differ materially from those expressed or implied by the forward-looking statements. Factors that could cause or contribute to these differences include those discussed above in “Statement Regarding Forward-Looking Information” in this Form 10-Q. In addition, this section sets forth key objectives and performance indicators used by us, as well as key industry data tracked by us.
The following discussion and analysis includes references to net sales of our products in shooting sports and outdoor lifestyle categories. Our shooting sports category includes net sales of shooting accessories and our products used for personal protection. Our outdoor lifestyle category includes net sales of our products used in hunting, fishing, camping, rugged outdoor activities, and outdoor cooking.
In March 2022, we acquired substantially all of the assets of Grilla Grills (including its branded products) from Fahrenheit Technologies, Inc., or FTI, for a purchase price of $27 million, subject to certain adjustments. Grilla Grills is a provider of high-quality, barbecue grills; Wi-Fi-enabled wood pellet grills; smokers; accessories; and modular outdoor kitchens. We have fully integrated Grilla Grills into our business as of January 31, 2023. Results of operations for the three and nine months ended January 31, 2023 include activity for the period subsequent to the acquisition date of Grilla Grills.
Third Quarter Fiscal 2023 Highlights
Our operating results for the three months ended January 31, 2023 included the following:
•Net sales were $50.9 million, a decrease of $19.2 million, or 27.4%, from the comparable quarter last year.
•Gross margin was 47.1%, an increase of 130 basis points over the comparable quarter last year.
•Net loss was $2.9 million, or ($0.21) per diluted share, compared with net income of $3.8 million, or $0.27 per diluted share, for the comparable quarter last year.
•Non-GAAP Adjusted EBITDAS was $3.3 million for the three months ended January 31, 2023 compared with $10.5 million for the three months ended January 31, 2022. See non-GAAP financial measure disclosures below for our reconciliation of non-GAAP Adjusted EBITDAS.
Our operating results for the nine months ended January 31, 2023 included the following:
•Net sales were $149.0 million, a decrease of $52.6 million, or 26.1%, from the prior year comparable period.
•Gross margin was 46.3%, a decrease of 40 basis points from the prior year comparable period.
•Net loss was $8.2 million, or ($0.61) per diluted share, compared with net income of $11.8 million, or $0.82 per diluted share, for the prior year comparable period.
•Non-GAAP Adjusted EBITDAS was $11.0 million for the nine months ended January 31, 2023 compared with $31.8 million for the nine months ended January 31, 2022.
Results of Operations
Net Sales and Gross Profit
The following table sets forth certain information regarding consolidated net sales and gross profit for the three months ended January 31, 2023 and 2022 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2023 |
|
|
2022 |
|
|
$ Change |
|
|
% Change |
|
Net sales |
|
$ |
50,894 |
|
|
$ |
70,105 |
|
|
$ |
(19,211 |
) |
|
|
-27.4 |
% |
Cost of sales |
|
|
26,905 |
|
|
|
38,010 |
|
|
|
(11,105 |
) |
|
|
-29.2 |
% |
Gross profit |
|
$ |
23,989 |
|
|
$ |
32,095 |
|
|
$ |
(8,106 |
) |
|
|
-25.3 |
% |
% of net sales (gross margin) |
|
|
47.1 |
% |
|
|
45.8 |
% |
|
|
|
|
|
|
21
The following table sets forth certain information regarding trade channel net sales for the three months ended January 31, 2023 and 2022 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2023 |
|
|
2022 |
|
|
$ Change |
|
|
% Change |
|
e-commerce channels |
|
$ |
24,493 |
|
|
$ |
35,397 |
|
|
$ |
(10,904 |
) |
|
|
-30.8 |
% |
Traditional channels |
|
|
26,401 |
|
|
|
34,708 |
|
|
|
(8,307 |
) |
|
|
-23.9 |
% |
Total net sales |
|
$ |
50,894 |
|
|
$ |
70,105 |
|
|
$ |
(19,211 |
) |
|
|
-27.4 |
% |
Our e-commerce channels include net sales from customers that do not traditionally operate physical brick-and-mortar stores, but generate the majority of their revenue from consumer purchases from their retail websites. Our e-commerce channels also include our direct-to-consumer sales. Our traditional channels include customers that primarily operate out of physical brick-and-mortar stores and generate the large majority of revenue from consumer purchases in their brick-and-mortar locations.
We sell our products worldwide. The following table sets forth certain information regarding geographic makeup of net sales included in the above table for the three months ended January 31, 2023 and 2022 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2023 |
|
|
2022 |
|
|
$ Change |
|
|
% Change |
|
Domestic net sales |
|
$ |
49,489 |
|
|
$ |
67,610 |
|
|
$ |
(18,121 |
) |
|
|
-26.8 |
% |
International net sales |
|
|
1,405 |
|
|
|
2,495 |
|
|
|
(1,090 |
) |
|
|
-43.7 |
% |
Total net sales |
|
$ |
50,894 |
|
|
$ |
70,105 |
|
|
$ |
(19,211 |
) |
|
|
-27.4 |
% |
For the three months ended January 31, 2023, total net sales decreased $19.2 million, or 27.4%, from the comparable quarter last year.
Net sales in our e-commerce channel decreased $10.9 million, or 30.8%, from the comparable quarter last year, primarily as a result of lower net sales to the world’s largest e-commerce retailer because of reduced demand primarily in our shooting sports category as well as their efforts to reduce their overall inventory. The lower net sales to our online retailers were partially offset by a 37.5% increase in our direct-to-consumer net sales over the comparable quarter last year, primarily in our outdoor lifestyle products, and which also include sales resulting from the acquisition of Grilla Grills. We believe the increase in our direct-to-consumer net sales represents the demand for our products in the market that are not typically hindered by retailer inventory management. Our brands that are only sold on our direct-to-consumer websites represented $7.2 million, or 29.3%, of total e-commerce channel net sales for the three months ended January 31, 2023, which includes net sales from a business acquisition completed in the prior fiscal year.
Net sales in our traditional channels decreased $8.3 million, or 23.9%, from the comparable quarter last year, primarily because of lower net sales for most of our products as a result of decreased orders from retailers, which we believe was caused by a combination of lower foot traffic because of less discretionary consumer spending and retailers’ efforts to reduce their overall inventory levels. In addition, lower net sales of our shooting sports products to our OEM customers resulted in lower traditional channel net sales from the comparable quarter last year. Our international net sales declined primarily because of reduced demand for our shooting sports products and timing of customer shipments.
New products, which we define as any SKU introduced over the prior two fiscal years, represented 23.9% of net sales for the three months ended January 31, 2023.
Gross margin for the three months ended January 31, 2023 increased 130 basis points over the comparable quarter last year, primarily because of lower freight and tariff expenses from the planned reduction in inventory purchases, new product introductions that typically have higher gross margins, and favorable valuation provisions on inventory, partially offset by product and customer mix and promotional product discounts that are consistent with pre-pandemic promotional discount levels.
22
The following table sets forth certain information regarding consolidated net sales and gross profit for the nine months ended January 31, 2023 and 2022 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2023 |
|
|
2022 |
|
|
$ Change |
|
|
% Change |
|
Net sales |
|
$ |
149,006 |
|
|
$ |
201,633 |
|
|
$ |
(52,627 |
) |
|
|
-26.1 |
% |
Cost of sales |
|
|
80,015 |
|
|
|
107,518 |
|
|
|
(27,503 |
) |
|
|
-25.6 |
% |
Gross profit |
|
$ |
68,991 |
|
|
$ |
94,115 |
|
|
$ |
(25,124 |
) |
|
|
-26.7 |
% |
% of net sales (gross margin) |
|
|
46.3 |
% |
|
|
46.7 |
% |
|
|
|
|
|
|
The following table sets forth certain information regarding trade channel net sales for the nine months ended January 31, 2023 and 2022 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2023 |
|
|
2022 |
|
|
$ Change |
|
|
% Change |
|
e-commerce channels |
|
$ |
67,750 |
|
|
$ |
79,540 |
|
|
$ |
(11,790 |
) |
|
|
-14.8 |
% |
Traditional channels |
|
|
81,256 |
|
|
|
122,093 |
|
|
|
(40,837 |
) |
|
|
-33.4 |
% |
Total net sales |
|
$ |
149,006 |
|
|
$ |
201,633 |
|
|
$ |
(52,627 |
) |
|
|
-26.1 |
% |
The following table sets forth certain information regarding geographic makeup of net sales included in the above table for the nine months ended January 31, 2023 and 2022 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2023 |
|
|
2022 |
|
|
$ Change |
|
|
% Change |
|
Domestic net sales |
|
$ |
141,871 |
|
|
$ |
191,599 |
|
|
$ |
(49,728 |
) |
|
|
-26.0 |
% |
International net sales |
|
|
7,135 |
|
|
|
10,034 |
|
|
|
(2,899 |
) |
|
|
-28.9 |
% |
Total net sales |
|
$ |
149,006 |
|
|
$ |
201,633 |
|
|
$ |
(52,627 |
) |
|
|
-26.1 |
% |
For the nine months ended January 31, 2023, total net sales decreased $52.6 million, or 26.1%, from the prior year comparable period.
Net sales in our e-commerce channel decreased $11.8 million, or 14.8%, from the prior year comparable period, primarily as a result of lower net sales in our shooting sports category, almost entirely offset by increased net sales in our outdoor lifestyle category that included a 99.4% increase in direct-to-consumer net sales over the prior year comparable period, which also include sales resulting from the acquisition of Grilla Grills. Our brands that are only sold on our direct-to-consumer websites represented $18.9 million, or 27.8%, of total e-commerce channel net sales for the nine months ended January 31, 2023, which included net sales from a business acquisition completed in the prior fiscal year.
Net sales in our traditional channels decreased $40.8 million, or 33.4%, from the prior year comparable period, primarily because of lower net sales for most of our products as a result of decreased orders from retailers, which we believe was caused by a combination of lower foot traffic in stores mentioned above and retailers’ efforts to reduce their overall inventory levels. In addition, traditional channel net sales were impacted by lower net sales of our shooting sports products to our OEM customers. We believe the decrease in traditional channel net sales was a result of a build in traditional channel inventories of our products during the first fiscal quarter last year as certain customers accelerated their purchases to offset the possibility of delays caused by global supply chain disruptions. Our international net sales declined primarily becuase of reduced demand for our shooting sports products and timing of customer shipments.
New products, which we define as any SKU introduced over the prior two fiscal years, represented 27.7% of net sales for the nine months ended January 31, 2023.
Gross margin for the nine months ended January 31, 2023 decreased 40 basis points from the prior year comparable period primarily because of lower sales volumes, product and customer mix, and increased promotional product discounts that are consistent with pre-pandemic promotional discount levels, partially offset by favorable impacts of price increases and tariff drawbacks.
23
Operating Expenses
The following table sets forth certain information regarding operating expenses for the three months ended January 31, 2023 and 2022 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2023 |
|
|
2022 |
|
|
$ Change |
|
|
% Change |
|
Research and development |
|
$ |
1,575 |
|
|
$ |
1,377 |
|
|
$ |
198 |
|
|
|
14.4 |
% |
Selling, marketing, and distribution |
|
|
14,522 |
|
|
|
15,627 |
|
|
|
(1,105 |
) |
|
|
-7.1 |
% |
General and administrative |
|
|
10,893 |
|
|
|
10,366 |
|
|
|
527 |
|
|
|
5.1 |
% |
Total operating expenses |
|
$ |
26,990 |
|
|
$ |
27,370 |
|
|
$ |
(380 |
) |
|
|
-1.4 |
% |
% of net sales |
|
|
53.0 |
% |
|
|
39.0 |
% |
|
|
|
|
|
|
Research and development expenses were relatively flat compared with the comparable quarter last year. Selling, marketing, and distribution expenses decreased $1.1 million from the comparable quarter last year because of lower sales volume-related accruals and lower advertising expenses. General and administrative expenses increased $527,000 primarily because of increased software expenses.
The following table sets forth certain information regarding operating expenses for the nine months ended January 31, 2023 and 2022 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2023 |
|
|
2022 |
|
|
$ Change |
|
|
% Change |
|
Research and development |
|
$ |
4,887 |
|
|
$ |
4,354 |
|
|
$ |
533 |
|
|
|
12.2 |
% |
Selling, marketing, and distribution |
|
|
40,226 |
|
|
|
44,490 |
|
|
|
(4,264 |
) |
|
|
-9.6 |
% |
General and administrative |
|
|
32,575 |
|
|
|
31,020 |
|
|
|
1,555 |
|
|
|
5.0 |
% |
Total operating expenses |
|
$ |
77,688 |
|
|
$ |
79,864 |
|
|
$ |
(2,176 |
) |
|
|
-2.7 |
% |
% of net sales |
|
|
52.1 |
% |
|
|
39.6 |
% |
|
|
|
|
|
|
Research and development expenses increased $533,000 primarily related to increased compensation-related expenses. Selling, marketing, and distribution expenses decreased $4.3 million from the prior year comparable period because of lower sales volume-related accruals and lower advertising expenses. General and administrative expenses increased $1.6 million over the prior year comparable period, primarily as a result of $1.2 million of legal and advisory fees associated with the completed cooperation agreement with a stockholder and $374,000 of increased standalone expenses, such as our information technology infrastructure costs and subscription and software costs, partially offset by lower compensation-related expenses.
Operating Income
The following table sets forth certain information regarding operating income for the three months ended January 31, 2023 and 2022 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2023 |
|
|
2022 |
|
|
$ Change |
|
|
% Change |
|
Operating (loss)/income |
|
$ |
(3,001 |
) |
|
$ |
4,725 |
|
|
$ |
(7,726 |
) |
|
|
-163.5 |
% |
% of net sales (operating margin) |
|
|
-5.9 |
% |
|
|
6.7 |
% |
|
|
|
|
|
|
Operating loss for the three months ended January 31, 2023 was $3.0 million, a decrease of $7.7 million from $4.7 million operating income for the three months ended January 31, 2022, primarily because of lower sales and gross profit as described above.
The following table sets forth certain information regarding operating income for the nine months ended January 31, 2023 and 2022 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2023 |
|
|
2022 |
|
|
$ Change |
|
|
% Change |
|
Operating (loss)/income |
|
$ |
(8,697 |
) |
|
$ |
14,251 |
|
|
$ |
(22,948 |
) |
|
|
-161.0 |
% |
% of net sales (operating margin) |
|
|
-5.8 |
% |
|
|
7.1 |
% |
|
|
|
|
|
|
Operating loss for the nine months ended January 31, 2023 was $8.7 million, a decrease of $22.9 million from $14.3 million operating income for the nine months ended January 31, 2022, primarily because of lower sales and gross profit as described above.
24
Income Taxes
The following table sets forth certain information regarding income tax (benefit)/expense for the three months ended January 31, 2023 and 2022 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2023 |
|
|
2022 |
|
|
$ Change |
|
|
% Change |
|
Income tax (benefit)/expense |
|
$ |
(125 |
) |
|
$ |
1,149 |
|
|
$ |
(1,274 |
) |
|
|
-110.9 |
% |
% of income from operations (effective tax rate) |
|
|
4.2 |
% |
|
|
23.4 |
% |
|
|
|
|
|
-19.2 |
% |
We recorded income tax benefit of $125,000 for the three months ended January 31, 2023, compared with income tax expense of $1.1 million for the prior year comparable quarter because of lower operating income. The income tax benefit recorded during the three months ended January 31, 2023 was primarily due to a full valuation allowance recorded against our deferred tax assets and recording return to provision adjustments relating to the Federal tax return filed for the prior fiscal year.
The following table sets forth certain information regarding income tax (benefit)/expense for the nine months ended January 31, 2023 and 2022 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2023 |
|
|
2022 |
|
|
$ Change |
|
|
% Change |
|
Income tax (benefit)/expense |
|
$ |
(98 |
) |
|
$ |
3,282 |
|
|
$ |
(3,380 |
) |
|
|
-103.0 |
% |
% of income from operations (effective tax rate) |
|
|
1.2 |
% |
|
|
21.8 |
% |
|
|
|
|
|
-20.6 |
% |
We recorded income tax benefit of $98,000 for the nine months ended January 31, 2023, compared with income tax expense of $3.3 million for the prior year comparable period because of lower operating income. The income tax benefit recorded during the nine months ended January 31, 2023 was primarily due to a full valuation allowance recorded against our deferred tax assets and recording return to provision adjustments relating to the Federal tax return filed for the prior fiscal year.
Net (Loss)/Income
The following table sets forth certain information regarding net (loss)/income and the related per share data for the three months ended January 31, 2023 and 2022 (dollars in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2023 |
|
|
2022 |
|
|
$ Change |
|
|
% Change |
|
Net (loss)/income |
|
$ |
(2,863 |
) |
|
$ |
3,766 |
|
|
$ |
(6,629 |
) |
|
|
-176.0 |
% |
Net (loss)/income per share |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
(0.21 |
) |
|
$ |
0.27 |
|
|
$ |
(0.48 |
) |
|
|
-177.8 |
% |
Diluted |
|
$ |
(0.21 |
) |
|
$ |
0.27 |
|
|
$ |
(0.48 |
) |
|
|
-177.8 |
% |
Net loss was $2.9 million, or $(0.21) per diluted share, for the three months ended January 31, 2023 compared with net income of $3.8 million, or $0.27 per share, for the comparable quarter last year, primarily because of lower sales volume and gross profit.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2023 |
|
|
2022 |
|
|
$ Change |
|
|
% Change |
|
Net (loss)/income |
|
$ |
(8,188 |
) |
|
$ |
11,806 |
|
|
$ |
(19,994 |
) |
|
|
-169.4 |
% |
Net (loss)/income per share |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
(0.61 |
) |
|
$ |
0.84 |
|
|
$ |
(1.45 |
) |
|
|
-172.6 |
% |
Diluted |
|
$ |
(0.61 |
) |
|
$ |
0.82 |
|
|
$ |
(1.43 |
) |
|
|
-174.4 |
% |
Net loss was $8.2 million, or $(0.61) per diluted share, for the nine months ended January 31, 2023 compared with net income of $11.8 million, or $0.82 per share, for the comparable period last year, primarily because of lower sales volume and gross profit.
25
Non-GAAP Financial Measure
We use GAAP net income as our primary financial measure. We use Adjusted EBITDAS, which is a non-GAAP financial metric, as a supplemental measure of our performance in order to provide investors with an improved understanding of underlying performance trends, and it should be considered in addition to, but not instead of, the financial statements prepared in accordance with GAAP. Adjusted EBITDAS is defined as GAAP net income/(loss) before interest, taxes, depreciation, amortization, and stock compensation expense. Our Adjusted EBITDAS calculation also excludes certain items we consider non-routine. We believe that Adjusted EBITDAS is useful to understanding our operating results and the ongoing performance of our underlying business, as Adjusted EBITDAS provides information on our ability to meet our capital expenditure and working capital requirements, and is also an indicator of profitability. We believe this reporting provides additional transparency and comparability to our operating results. We believe that the presentation of Adjusted EBITDAS is useful to investors because it is frequently used by analysts, investors, and other interested parties to evaluate companies in our industry. We use Adjusted EBITDAS to supplement GAAP measures of performance to evaluate the effectiveness of our business strategies, to make budgeting decisions, and to neutralize our capitalization structure to compare our performance against that of other peer companies using similar measures, especially companies that are private. We also use Adjusted EBITDAS to supplement GAAP measures of performance to evaluate our performance in connection with compensation decisions. We believe it is useful to investors and analysts to evaluate this non-GAAP measure on the same basis as we use to evaluate our operating results.
Adjusted EBITDAS is a non-GAAP measure and may not be comparable to similar measures reported by other companies. In addition, non-GAAP measures have limitations as analytical tools, and you should not consider them in isolation or as a substitute for analysis of our results as reported under GAAP. We address the limitations of non-GAAP measures through the use of various GAAP measures. In the future, we may incur expenses or charges such as those added back to calculate Adjusted EBITDAS. Our presentation of Adjusted EBITDAS should not be construed as an inference that our future results will be unaffected by these items.
The following table sets forth our calculation of non-GAAP Adjusted EBITDAS for the three and nine months ended January 31, 2023 and 2022, respectively (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended January 31, |
|
|
For the Nine Months Ended January 31, |
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
|
(Unaudited) |
|
GAAP net (loss)/income |
$ |
|
(2,863 |
) |
|
$ |
|
3,766 |
|
|
$ |
|
(8,188 |
) |
|
$ |
|
11,806 |
|
Interest expense |
|
|
213 |
|
|
|
|
68 |
|
|
|
|
641 |
|
|
|
|
167 |
|
Income tax (benefit)/expense |
|
|
(125 |
) |
|
|
|
1,149 |
|
|
|
|
(98 |
) |
|
|
|
3,282 |
|
Depreciation and amortization |
|
|
3,894 |
|
|
|
|
4,164 |
|
|
|
|
12,115 |
|
|
|
|
12,550 |
|
Stock compensation |
|
|
1,065 |
|
|
|
|
920 |
|
|
|
|
2,900 |
|
|
|
|
2,336 |
|
Technology implementation |
|
|
543 |
|
|
|
|
460 |
|
|
|
|
1,585 |
|
|
|
|
1,619 |
|
Acquisition costs |
|
|
— |
|
|
|
|
— |
|
|
|
|
47 |
|
|
|
|
— |
|
Facility consolidation costs |
|
|
548 |
|
|
|
|
— |
|
|
|
|
840 |
|
|
|
|
— |
|
Stockholder cooperation agreement costs |
|
|
— |
|
|
|
|
— |
|
|
|
|
1,177 |
|
|
|
|
— |
|
Other |
|
|
— |
|
|
|
|
22 |
|
|
|
|
— |
|
|
|
|
40 |
|
Non-GAAP Adjusted EBITDAS |
$ |
|
3,275 |
|
|
$ |
|
10,549 |
|
|
$ |
|
11,019 |
|
|
$ |
|
31,800 |
|
Liquidity and Capital Resources
We expect to continue to utilize our cash flows to invest in our business, including research and development for new product initiatives; hire additional employees; fund growth strategies, including any potential acquisitions; to make payments on our borrowings under our revolving line of credit, and any additional indebtedness we may incur over time; implement our enterprise resource planning systems; and to repurchase shares of our common stock if we are authorized to do so. We estimate that our information technology infrastructure will cost a total of approximately $8.8 million over a period that spans fiscal 2022 and fiscal 2023. In fiscal 2022, we recorded capital expenditures of $3.9 million and one-time operating expenses of $1.0 million. In fiscal 2023, we expect capital expenditures of approximately $2.2 million and one-time operating expenses of approximately $1.7 million. In addition, we recorded $948,000 of duplicative expenses in fiscal 2022 and we expect to spend approximately $500,000 of duplicative expenses in fiscal 2023, as we operated both our existing and our new information technology and enterprise resource planning platforms in parallel during the system changeover period. The one-time operating expenses and duplicative expenses will be recorded in general and administrative expenses on our condensed consolidated statement of operations.
26
The following table sets forth certain cash flow information for the nine months ended January 31, 2023 and 2022 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2023 |
|
|
2022 |
|
|
$ Change |
|
|
% Change |
|
Operating activities |
|
$ |
24,263 |
|
|
$ |
(26,186 |
) |
|
$ |
50,449 |
|
|
|
-192.7 |
% |
Investing activities |
|
|
(4,231 |
) |
|
|
(4,711 |
) |
|
|
480 |
|
|
|
-10.2 |
% |
Financing activities |
|
|
(17,843 |
) |
|
|
(7,126 |
) |
|
|
(10,717 |
) |
|
|
150.4 |
% |
Total cash flow |
|
$ |
2,189 |
|
|
$ |
(38,023 |
) |
|
$ |
40,212 |
|
|
|
-105.8 |
% |
Operating Activities
On an annual basis, operating activities generally represent the principal source of our cash flow.
Cash generated by operating activities was $24.3 million for the nine months ended January 31, 2023 compared with cash used in operating activities of $26.2 million for the nine months ended January 31, 2022. Cash generated by operating activities for the nine months ended January 31, 2023 was primarily impacted by $16.2 million of reduced inventory as a result of a planned reduction in purchases during the period, offset by additional purchases for new product introductions that will launch later in the year. In addition, accounts receivable decreased by $3.7 million due to timing of payments from our customers and $2.2 million of increased accrued expenses which was primarily because of timing of payments for sales volume accruals. The cash generated during the nine months ended January 31, 2023 was partially offset by $2.8 million of reduced accounts payable because of the planned reduction in purchases mentioned above.
We expect our inventory levels to decline in the fourth quarter of fiscal 2023 as we reduce our planned inventory purchases, other than purchases for new product introductions, and a return to typical seasonality trends for our business.
Investing Activities
Cash used in investing activities was $480,000 lower during the nine months ended January 31, 2023 as compared with the prior year comparable period primarily from lower spending on tooling fixtures. We expect to spend approximately $6.0 million to $6.5 million of capital expenditures in fiscal 2023, a decrease of $600,000 to $100,000 from fiscal 2022, which includes the capital expenditures for the development and implementation of our independent information technology infrastructure noted above. We recorded spending of $1.8 million of capital expenditures during the nine months ended January 31, 2023 related to our development and implementation of our independent information technology infrastructure.
Financing Activities
Cash used in financing activities was $17.8 million for the nine months ended January 31, 2023, primarily from $15.2 million of payments on our revolving line of credit and $2.6 million of payments to repurchase our common stock under an authorized stock repurchase program.
Our future capital requirements will depend on many factors, including net sales, the timing and extent of spending to support product development efforts, the expansion of sales and marketing activities, the timing of introductions of new products and enhancements to existing products, the capital needed to operate as an independent publicly traded company, including the establishment of our enterprise resource planning systems, any acquisitions or strategic investments that we may determine to make, our ability to navigate through the many negative business impacts from the COVID-19 pandemic and related aftermath, and changes in consumer spending, which is sensitive to economic conditions and other factors. Further equity or debt financing may not be available to us on acceptable terms or at all. If sufficient funds are not available or are not available on acceptable terms, our ability to take advantage of unexpected business opportunities or to respond to competitive pressures could be limited or severely constrained.
We had $21.7 million of cash equivalents on hand as of January 31, 2023 and had $19.5 million in cash and cash equivalents on hand as of April 30, 2022.
27
Other Matters
Critical Accounting Policies
The preparation of our condensed consolidated financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of net sales and expenses during the reporting periods. Significant accounting policies are summarized in Note 2 of the Notes to the consolidated and combined financial statements in our Annual Report on Form 10-K for the fiscal year ended April 30, 2022. The most significant areas involving our judgments and estimates are described in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the fiscal year ended April 30, 2022, to which there have been no material changes. Actual results could differ from our estimates.
Recent Accounting Pronouncements
The nature and impact of recent accounting pronouncements, if any, is discussed in Note 2—Basis of Presentation to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q, which is incorporated herein by reference.
28