SWBI 10-K & 10-Q changes, risk factors and insider trading

Our performance is impacted by a variety of economic, political, social, legislative, regulatory, and inflationaryregulatory factors.

Our business may be adversely impacted by political, social, and related factors. Concerns about presidential, congressional, state, and local elections, and legislative and public policy shifts resulting from those elections, can adversely affect demand for our products. For example, we believe demand for our products was negatively impacted in recent years by unified Republican control of the executive and legislative branches of the federal government during the first two years of the first Trump administration and we believe demand for our products is currently being, and may continue to be, impacted by unified Republican control of the executive and legislative branches of the federal government, in each case, as a result of thea reducedperceived riskslower risk of federal gun control legislation and regulation. In addition, speculation surrounding increased gun control at the federal, state, and local level and heightened fears of crime and terrorism can affect consumer demand for our products. These concerns often result in an increase in near-term consumer demand for our products and subsequent softening of demand when these concerns subside. For example, we experienced historic levels of demand for our products in parts of fiscal 2022 and 2021 as a result of the impact of COVID-19 and the social unrest experienced in the United States during the summer of 2020, with demand for our products subsequently returning to more normalized levels. As a result of these significant fluctuations in demand, our operating results can vary significantly from period to periodperiod, and we may build and maintain inventory levels that are significantly in excess of customer demand.

Federal and state legislatures frequently consider laws to regulate firearms, including the amendment or repeal of existing laws. Existing laws may also be affected by future judicial rulings and interpretations. Changes to existing laws or the enactment of new laws may seek to restrict the makeup of firearms, including limiting magazine capacity; mandating the use of certain technologies in a firearm; removing existing legal defenses into lawsuits; or banning the sale and, in some cases, the ownership of various types of firearms and accessories. For example, certain states (i) prohibit the sale of modern sporting rifles; (ii) restrict magazine capacity; or (iii) have raised the minimum age for buying firearms; or (iv) levy excise taxes on firearm, firearm component, and ammunition sales. Certain states have also adopted some form of so called "gun industry accountability" or "firearm industry responsibility" laws that attempt to facilitate the filing of civil lawsuits by the respective state government or private individuals against certain firearm industry participants. CertainThese statesstatutes haveare alsobeing raisedactively the minimum age for buying firearmsenforced, and begunwe levyingare excisea taxes on firearm, firearm component, and ammunition sales. Interestdefendant in gun control legislation among federal and state legislatures tends to intensify following significant events,one such as mass shootings. If restrictive laws or restrictive changes to existing laws are adopted, we could find it difficult, expensive, or even impossible to comply with such laws, which could impede our ability to develop new products and distribute existing products, and it may become more difficult or costly to purchase our products. In addition, gun-control activists may succeed in imposing restrictions or an outright ban on private firearm ownership or particular firearm models, which could have a material adverse effect on our business, operating results, and financial condition.action.

In addition to these matters, which are largely beyond our control, demand for our products may also be adversely impacted by shortages of ammunition since potential purchasers of our products may choose not to purchase our products unless supplies of ammunition to use with our products are available. Since we do not manufacture ammunition, the supply of ammunition is also beyond our control.

The manufacture, sale, and purchase of firearms are subject to extensive federal, state, and local governmental regulation. The primary federal laws are the National Firearms Act of 1934, or NFA, the Gun Control Act of 1968, or GCA, and the Firearms Owners’ Protection Act of 1986, which have been amended from time to time.1986. The NFA severely restricts the private ownership of fully automatic weapons and heavily regulates other firearms defined in that law and accompanying regulations, including firearm suppressors. The GCA places certain restrictions on interstate firearm sales, among other things. Most of our exported products are governed by the U.S. Department of Commerce and regulated by its Bureau of Industry and Security, or BIS, under the Export Administration Regulations. Certain of our exported products are governed by the U.S. Department of State and subject to the International Traffic in Arms Regulations. We are generally required to obtain U.S. government authorization for exports, including licensure or other similar authorization prior to engaging in international transactions. The U.S. government has discretion as to whether to grant a license. In addition, Congress may block a proposed sale of firearms that are export controlled by the Department of State valued at $1 million or more. Consequently, we may not be able to obtain export licenses or complete profitable contracts as a result of political or other reasons that are beyond our control. InFor Mayexample, in 2024, new BIS rules took effect that, among other things, led to the revocation of certain of our previously valid licenses that authorized firearm exports to non-government end users in countries deemed "high risk" by the State Department and otherwise imposed significant changes on the licensing requirements for many firearms exports. These new restrictions negatively impacted our international sales.sales – these rules were rescinded in 2025. Failure to receive required licenses or authorizations, or the termination or suspension of our export privileges, could have a material adverse effect on our business, operating results, and financial condition.

We are subject to numerous federal, state, and local laws that regulate or otherwise relate to the protection of the environment, including the Clean Air Act, the Clean Water Act, CERCLA, and the Solid Waste Disposal Act, as amended by RCRA. CERCLA and RCRA and related state laws subject us to the potential obligation to remove or mitigate the environmental effects of the disposal or release of certain pollutants at our manufacturing facilities and at third-party or formerly owned or leased sites at which contaminants generated by us may be located. We have incurred and expect to continue to incur expenditures in order to comply with these requirements. Further, we may become subject to governmental proceedings and orders pertaining to waste disposal, air emissions, and water discharges.

WeAdditionally, we may not have identified all existing contamination on our properties, and our operations may cause contamination in the future. As a result, we could incur additional costs to clean up contamination that exceed the amount of our reserves, and our reserves may increase from time to time. Furthermore, it is not possible to predict with certainty the impact on us of future environmental compliance requirements or the cost to satisfy future regulatory proceedings and claims.

We are currently subject to tariffs on certain of our products, and other of our products could become subject to tariffs in the future. Protectionist trade restrictions, such as changes in tariff structures, export or import compliance laws, or other trade policies in the United States or foreign countries could reduce our ability to sell our products in foreign markets, negatively impact the ability of foreign customers to purchase our products, adversely affect our ability to import products, components, and raw materials from foreign suppliers, and interfere with our supply chain. Tariffs that result in increased costs or adversely impact the availability of imported products, components, or raw materials used in the production of our products could materially and adversely impact our business, operating results, and financial condition. In particular, increased input costs may require us to increase the prices of our products, which may result in lower demand for our products or lower gross margins on such products if we are unable to increase the price of those products to our customers. In addition, the imposition of tariffs on products that we export to international markets could make those products more expensive compared to those of our competitors if we pass the additional costs on to our customers, which may also adversely impact our business.

Consumer preferences include the choice of sales channels. In 2025, we launched a direct-to-consumer e-commerce website for certain apparel and firearm accessories. Legal and regulatory restrictions apply to the sale of certain of the products offered (such as magazines) through our e-commerce website. For example, in January 2026, a new law took effect that imposes restrictions on the sale of firearm accessories to California residents. As a result,result of this or other laws and regulations, we may be unable to sell or may choose not to sell certain products through our e-commerce website, and any changes in applicable federal or state laws or regulations may impact our ability to sell our products through our e-commerce website. Our efforts to increase our sales on our e-commerce website may not be successful.

We house our management, administrative, assembly (except for revolvers, certain metal pistols, and lever-action rifles, which continue to be manufactured and assembled in the Springfield facility), distribution, and plastic injection molding functions at our Maryville facility. Our Maryville facility includes computer controlled and automated equipment, which is complex and may be subject to a number of risks related to security or computer viruses, the proper operation of software and hardware, electronic or power interruptions, and other system failures.

We also depend on ourtwo Houltonfacilities facilities,in Houlton, which are used primarily to machine our firearm parts and manufacture all of our handcuffs and restraints.

We utilize contract manufacturers for a portion of our production requirements, particularly during periods of very high customer demand, in order to increase our manufacturing capacity and reduce our capital expenditures for facilities that may not always operate at peak capacity. Qualifying new contract manufacturers is time consumingtime-consuming and may result in unforeseen disruptions in our operations. The loss of our relationships with our contract manufacturers or their inability to conduct their services for us as anticipated in terms of capacity, cost, quality, and timeliness could adversely affect our ability to fill customer orders in accordance with required delivery, quality, and performance requirements. If this were to occur, the resulting decline in net sales could harm our business.

From time to time, we have been capacity constrained and have been unable to satisfy on a timely basis the demand for some of our products. We believe that we have improved our manufacturing productivity by adding capacity, increasing daily production quantities, increasing operational availability of equipment, reducing machinery down time, extending machinery useful life, increasing manufacturing efficiency, and contracting with suppliers to obtain additional finished parts. Future significant increases in demand for our products, if any, may require us to further expand our manufacturing capacity, particularly through the purchase of additional manufacturing equipment and the addition of manufacturing space, and we may not be able to increase our capacity in time to satisfy these increases. Capacity constraints may prevent us from satisfying customer orders and result in a loss of market share to competitors that are not capacity constrained. At other times, we may suffer excess capacity and increased overhead costs, particularly if we increase our capacity to meet actual or anticipated demand, which decreases or does not materialize. Our business, operating results, and financial condition could be materially and adversely impacted if we fail to align our capacity with demand for our products.

We have become increasingly dependent on a small number of key vendors that supply components and parts for our firearms as a result of our decision to increase our manufacturing flexibility by using third parties that can supplement our internal capacity to better react to changes in market conditions.firearms. We also use numerous raw materials, including steel, wood, lead, brass, and plastics, that we purchase from third-party suppliers to produce and test our products. The price of these raw materials may fluctuate substantially depending on a variety of factors, including demand, weather, supply conditions, transportation costs, energy prices, work stoppages, government regulation, environmental protection, and other unpredictable factors. Any of these factors may be exacerbated by global climate change. Inflationary pressures have resulted in increases in the cost of certain of the components, parts, raw materials, and other supplies necessary forto the production ofproduce our products, and such increases may continue to impact us in the future. In addition, uncertainties related to governmental fiscal policies, including increased duties, tariffs, or other trade restrictions, could result in an increase in the price of components, parts, raw materials, and other supplies we purchase from third-party suppliers. In an inflationary environment, we may be unable to raise the price of our products sufficiently to keep up with the rate of inflation, which would reduce our profitability and cash flows.

Our inability to obtain sufficient quantities of components, parts, raw materials, and other supplies from independent sources necessary forto the production ofproduce our products could result in reduced or delayed sales or lost orders, which could materially and adversely impact our operating results. Many of the components, parts, raw materials, and other supplies used to produce our products are available only from a limited number of suppliers. In most cases, we do not have long-term supply contracts with these suppliers. As a result, we could be subject to increased costs, supply interruptions, and difficulties in obtaining materials and finished products. Our suppliers also may encounter difficulties or increased costs in obtaining the materials necessary to produce the components and parts that we use in our products. The time lost in seeking and acquiring new sources of supply or our inability to locate alternative sources of supply of comparable quality at an acceptable price, or at all, could negatively impact our net sales and profitability.

While we have historically relied on print and electronic media advertising to increase consumer awareness of our brands to increase purchasing intent and conversion, we increasingly rely on other forms of media advertising, including social media and digital marketing. Our future growth and profitability will depend in large part upon the effectiveness and efficiency of our advertising, marketing, public relations, and promotional programs. These brand promotion activities may not be effective, and their efficacy will depend on a number ofvarious factors, including our ability to:

Increases in the pricing of one or more of our marketing and advertising channels could increase our marketing and advertising expenses or cause us to choose less expensive, but possibly less effective, marketing and advertising channels. If we implement new marketing and advertising strategies, we may incur higher costs, whichwhich, in turnturn, could materially and adversely affect our operating results. Implementing new marketing and advertising strategies also could increase the risk of devoting significant capital and other resources to endeavors that do not prove to be cost effective. We also may incur marketing and advertising expenses significantly in advance of the time we anticipate recognizing revenue associated with such expenses, and our marketing and advertising expenditures may not generate sufficient levels of brand awareness and conversion or result in increased net sales. Even if our marketing and advertising expenses result in increased net sales, the increase might not offset our related expenditures. If we are unable to maintain our marketing and advertising channels on cost-effective terms or replace or supplement existing marketing and advertising channels with similarly or more effective channels, our marketing and advertising expenses could increase substantially, our customer base could be adversely affected, and our business, operating results, financial condition, and reputation could suffer.

We believe that the value of our brand depends, in part, on the value consumers place on the quality of our products. Poor product quality or performance could adversely impact the value of our brand and materially and adversely impact our business, operating results, and financial condition. In particular, weWe have experienced manufacturing and design issues with respect to certain of our firearms and have initiated product recalls and safety alerts in the past and may experience similar issues in the future,future whichthat may result in the initiation of product recalls and safety alerts in the future. Based on the volume of products we have shipped into the market, any future recalls, safety alerts, or product liability claims could result in us incurring significant warranty, support, and repair costs. Such incidents could harm our reputation, damage the value of our brands, and cause us to lose business, all of which could materially and adversely affect our business, operating results, and financial condition. We generally provide a limited one-year warranty and a lifetime service policy to the original purchaser of our new firearm products.

Nearly all of our competitors are privately held, which may give them certain competitive advantages. For example, these competitors may be less focused on maintaining high levels of profitability, which may give them more flexibility to compete aggressively on price, particularly during periods of high inflation.price.

Our insurance policies are subject to periodic review by our insurers and may not be renewed at all or on similar or favorable terms. Because we manufacture and sell firearms, a number ofcertain insurance carriers have decided in the past, and may decide in the future, not to insure us. For example, inIn the past, certain insurance carriers have chosen either to cancel our insurance coverage or not to submit proposals to insure us in areas such as auto, general liability, and products liability insurance, among others.insurance. In addition, if we or other firearm manufacturers sustain significant losses or make significant insurance claims, our ability to obtain future insurance coverage at commercially reasonable rates could be materially and adversely affected. For example, our ability to obtain liability insurance on commercially reasonable terms has been adversely impacted by the $73 million settlement that was announced in 2022 between insurance carriers representing Remington Outdoor Company and plaintiffs in the Soto v. Bushmaster Firearms International, LLC case. Our liability insurance costs were $7.8$8.4 million, $8.4$7.8 million, and $7.8$8.4 million in fiscal 2026, 2025, and 2024, and 2023, respectively.

We have been and may continue to be subject to governmental investigations and inquiries. Such investigations and inquiries could subject us to various sanctions, including significant civil and criminal penalties, the indictment of our company or various of our officers and employees, our being prevented from bidding on domestic military and government contracts, restriction by the U.S. Government, including by the U.S. Department of State or U.S. Department of Commerce, on exporting our products, private civil litigation arising out of the outcome of the investigations or inquiries, the diversion of time and attention of our management from normal business operations, and a negative impact on the perception of our company by investors, customers, and others. For example, in 2020 the office of the attorney general of New Jersey issued us a subpoena requesting certain business records as part of an investigation into potential violations of the New Jersey Consumer Fraud Act; in 2022, certain gun control activists submitted a petition to the FTC suggesting that the FTC investigate and regulate our industry’s alleged unfair and deceptive advertising; and in 2022, the U.S. House of Representatives Committee on Oversight and Reform issued us a subpoena requesting certain business records as part of an investigation into certain firearm manufacturers, including us. More recently, in 2024 certain state attorneys general announced the formation of a multistate coalition that purports to target the firearm industry. Responding to inquiries and investigations, including through litigation, is time consuming and costly, may disrupt our ongoing business and distract management from operating our business, and may expose us to litigation, including claims raised by private plaintiffs.

As a distributor of non-firearm consumer products, such as handcuffs, we are subject to the U.S. Consumer Products Safety Act of 1972, as amended by the Consumer Product Safety Improvement Act of 2008, which empowers the Consumer Products Safety Commission to exclude from the market products that are found to be unsafe or hazardous, and similar laws under foreign jurisdictions. Under certain circumstances, the Consumer Products Safety Commission or comparable foreign agencies could require us to repurchase or recall one or more of our products. Additionally, other laws and agencies regulate certain consumer products sold by us, and more restrictive laws and regulations may be adopted in the future. Any repurchase or recall of our products could be costly and damage our reputation. If we were required to remove, or we voluntarily remove, our products from the market, our reputation could be tarnished, and we might have large quantities of finished products that we could not sell. We also face exposure to product liability claims in the event thatif one of our products is alleged to have resulted in property damage, bodily injury, or other adverse effects. In addition to the risk of substantial monetary judgments, fines, or penalties that may result from any governmental investigations, product liability claims, or regulatory actions, such events could result in negative publicity that could harm our reputation, adversely impact the value of our brands, and result in an increase in the cost of producing our products. Similar to product liability claims, we face exposure to class action lawsuits related to the performance, safety, or advertising of our products. Such class action lawsuits could result in substantial monetary judgments, injunctions related to the marketing and sale of products, and potentially harm our reputation.

Patents may not be issued for the patent applications that we have filed or may file in the future. Our issued patents may be challenged, invalidated, or circumvented, and claims of our patents may not be of sufficient scope or strength, or issued in the proper geographic regions, to provide meaningful protection or any commercial advantage. We have registered certain of our trademarks and trade dress in the United States and other countries.countries Weand have also recorded certain of our registered trademarks with customs officials in the United States and other countries.officials. We may be unable to enforce existing, or obtain new, registrations of trademarks in key markets. Our failure to obtain or enforce such registrations could compromise our ability to protect our trademarks and brands fully and could increase the risk of challenges from third parties to our use of our trademarks and brands.

In addition to intellectual property that we own, some of our products and services may use or include intellectual property owned by third parties. As a result, it may be necessary in the future to seek or renew licenses relating to various aspects of our products, processes, and services. We may be unable to obtain or renew such licenses in the future on reasonable terms or at all. In the past, we did not consistently require our employees and consultants to enter into confidentiality agreements, employment agreements, or proprietary information and invention agreements. Therefore, our former employees and consultants, and certain of our current employees, may try to claim some ownership interest in our intellectual property and may use our intellectual property competitively and without appropriate limitations. In addition, our acquired businesses may not have consistently required their employees and consultants to enter into confidentiality agreements, employment agreements, or proprietary information and invention agreements. Claims by such individuals may affect our business, operating results, and financial condition.

We may become involved in litigation regarding patents and other intellectual property rights. Other companies, including our competitors, may develop intellectual property that is similar or superior to our intellectual property, duplicate our intellectual property, or design around our patents and may have or obtain patents or other proprietary rights that would prevent, limit, or interfere with our ability to make, use, or sell our products. Effective intellectual property protection may be unavailable or limited in some foreign countries in which we sell products or from which competing products may be sold. Unauthorized parties may attempt to copy or otherwise use aspects of our intellectual property and products that we regard as proprietary. Our means of protecting our proprietary rights in the United States or abroadWe may proveincur inadequate,substantial expense and competitorsdevote maysignificant be ableresources to independentlyprosecute developothers similarfor intellectualtheir property.unauthorized Ifuse of our intellectual property protectionrights is insufficientor to protectdefend ouragainst claims that we infringe the intellectual property rights,rights weof could face increased competition in the markets for our products.others.

WeAny have filed lawsuits, and may file additional lawsuits in the future, to enforce our intellectual property rights, protect our trade secrets, or determine the validity and scope of the proprietary rights of others. Thissuch litigation, whether successful or unsuccessful, could be costly and divert valuable resources, which could materially and adversely impact our business, financial condition, and results of operations.

We operate our business utilizing SAP, which is a fully integrated ERP system. We continue to implement various modules and additional usages of SAP, including in connection with the Relocation. Any new implementations or usages of SAP, including those related to the Relocation,SAP could result in a significant disruption to our business, and any disruption could materially and adversely impact our business, operating results, and financial condition. In addition, utilizing SAP has required and will continue to require significant resources and refinement to fully realize the expected benefits of the system.

changes in the amount and or timing of our operating expenses; and changes in laws and regulations that may affect the marketability of our products.

We have been, and may be in the future, subject to informal private or public inquiries and formal proxy proposals by stockholder activists urging us to take certain corporate actions. For example, in recent years, certain stockholder activists submitted proposals requesting that our Board of Directors engage a third party to conduct a human rights impact assessment. Responding to inquiries or proposals can be costly, time consuming,time-consuming, and disruptive to our operations and could divert the attention of our resources, including those of our management team and other employees. In addition, certain stockholder inquiries and proposals could create perceived uncertainties or concerns as to our future operating environment, legislative environment, strategy direction, or leadership, and could (i) result in the loss of potential business opportunities; (ii) harm our ability to attract or retain investors, customers, and employees; (iii) harm or disrupt our business and financial relationships; (iv) result in consumer boycotts of our products; and (ivv) cause the trading price of our common stock to experience periods of decline, volatility, or stagnation. Stockholder activists have pressured and may continue to pressure us to adopt actions that are not in the best interests of our company or our stockholders, inconsistent with the legal operation of our business, or contrary to the beliefs of our core consumers, and our reputation could be damaged if our core consumers believe that we have adopted the gun control agenda of certain activists. In February 2025, certain stockholder activists filed a stockholder derivative suit against our directors and certain of our officers. Responding to the stockholder activists’ claims has been, and may continue to be, costly and time consuming.time-consuming. Finally, the actions of stockholder activists may strengthen our competitors, particularly those that are privately held and not subject to these types of gun control focused stockholder activism.

Our success depends on our ability to attract, motivate, train, and retain employees with the skills necessary to understand and adapt to our customers’ continuously developing needs. The increasing demand for qualified personnel makes it more difficult for us to attract and retain employees with requisite skill sets, particularly employees with specialized technical and trade experience. Changing demographics and labor work force trends also may result in a loss of knowledge and skills as workers with more tenure and experience retire. The market for both hourly workers and professional workers has been particularly challenging in recent years, and we have incurred higher labor costs as a result. Despite our focused efforts to attract and retain employees, our attrition rates in recent years have exceeded our historical rates, resulting in higher operating costs at certain of our facilities in the form of higher wages and higher levels of overtime pay. The Relocation was a significant contributing factor to these higher rates of attrition, as certain employees, particularly those based in our Springfield facility and former Deep River facility, left our employment to work for employers that would allow them to continue working near their homes or to work remotely. In addition to challenges associated with a competitive labor market, we may also struggle to identify qualified candidates who are comfortable or enthusiastic to work for a firearm business. If we fail to attract, motivate, train, and retain qualified personnel, or if we experience excessive turnover, we may experience declining sales, manufacturing delays or other operating inefficiencies, increased recruiting, training, and relocation costs, or other difficulties, and our business, financial condition, and results of operations may be materially and adversely impacted.

We have identified a material weaknessweaknesses in our internal control over financial reporting in the past and may identify material weaknesses in our internal control over financial reporting in the future that may, if not remediated,could result in material misstatements in our financial statements.

WeIn arefiscal responsible for establishing and maintaining adequate internal control over our financial reporting, as defined in Rule 13a-15(f) under the Exchange Act. As disclosed in Item 9A, “Controls and Procedures,”2025, we identified a material weakness in our internalcontrol over financial reporting that was remediated in fiscal 2026, and in fiscal 2020 we identified a material weakness in our control over financial reporting relatedthat towas theremediated accrualin offiscal certain legal expenses.2021. A material weakness is defined as a deficiency or combination of deficiencies in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of oura company's annual or interim financial statements willmight not be prevented or detected on a timely basis. As a result of the material weakness, we concluded that our internal control over financial reporting and related disclosure controls and procedures were not effective as of April 30, 2025 based on criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission. We evaluated the errors resulting from the material weakness and determined that the related impact was not material to results of operations, financial position, or cash flows for any historical annual or interim period. We are actively engaged in implementing a remediation plan designed to address this material weakness; however, we cannot guarantee that these steps have been sufficient or that we will not have a material weakness in the future. If our remedial measures related to the material weaknesses that we identified in recent fiscal years are insufficient to address the material weakness,weaknesses we identified in recent years, or if additional material weaknesses in our internal control are discovered or occur in the future, our financial statements may contain material misstatements and we could be required to restate our financial statements.

This section generally discusses year-to-year comparisons between fiscal 20252026 and fiscal 2024.2025. A discussion of our results of operations, liquidity, and capital resources for fiscal 20242025 compared with fiscal 20232024 is not included in this Annual Report on Form 10-K and can be found in Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" of our Annual Report on Form 10-K for fiscal 2024,2025, filed with the SEC on June 20, 2024. See also the discussion below related to an immaterial correction of an error.2025.

Net sales of $474.7$523.8 million represented aan decreaseincrease of $61.2$49.2 million, or 11.4%,10.4%, fromover the prior fiscal year.

Gross profit decreasedincreased $30.9$13.9 million, or 19.6%,10.9%, fromover the prior fiscal year, primarily as a resultbecause of lowerhigher sales volume and a shift in product mix.volume. Gross margin decreasedincreased 270by ten basis points from the prior fiscal year inprimarily spite of a $3.2 million legal settlement recognized in the prior year comparable period. Excluding the impact of the prior year legal settlement, gross margin was 330 basis points lower as a result of higher material costs, higher promotional costs, and a shift in product mixdue to lower marginpromotional products,costs and lower federal firearms excise taxes, partially offset by lowerunfavorable inventoryfixed-cost adjustments (including standard cost revaluations, shrink,absorption and excessa inventory100-basis writepoint downs).impact from higher tariffs.

We evaluate the performance of our business based upon operating profit and net income, which includes net sales, cost of sales, selling and administrative expenses, and certain components of other income and expense. We also track our return on invested capital, and we use adjusted EBITDAS (earnings before interest expense,interest, taxes, depreciation, amortization, and stock-based compensation expense, excluding certain non-operational items), 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. We evaluate the performance of our products using measurements such as gross margin per unit produced, units produced per day, revenue by trade channel, and incoming orders per day.

The firearm industry has been subject to many external factors in the past that have significantly increased the volatility of revenue generated forby companies within the industry. These factors include, among others, fears surrounding crime and terrorism; significant news events; potential restrictions on the sale or makeup of firearms; actual and potential legislative, judicial, and regulatory actions; economic changes; and changes in the social and political environment, including congressional and presidential elections. See Item 1A, Risk Factors, for further discussion of external factors that impact the firearm industry. Although these external factors have created demand surges and volatility in the firearm market, and often make it difficult to predict demand, we believe that those external factors have also likely contributed to a long-term increase in consumer interest in firearms. We estimate that the annual domestic non-military firearm market is approximately $2.8$2.7 billion for handguns and $1.9$1.7 billion for long guns, excluding shotguns, based on the latest data for industry shipments as calculated by the National Shooting Sports Foundation, or NSSF, utilizing Firearms and Ammunition Excise Tax data for calendar year 2023.2024. According to calendar 20242025 reports by the ATF, the U.S. firearm manufacturing industry grew at a 1.5%6.2% compound annual growth rate in units from 20182019 through 2023,2024, although there has been wide variation among years (e.g., 2019 to 2020 grew 58.0%). We believe that this expanding base of consumers combined with our strong brand reputation and attractive price points lend support to our goal of continuing to increase our market share.

Sales of our handguns decreasedincreased $50.0$62.5 million, or 13.1%,18.8%, fromover fiscal 2024,2025, primarily as a result of lower consumer demand within the industry and a shift in product mix to lower priced models, partially offset by increased shipments of newly introduced products (defined as any new SKU not shipped in the prior year), whichhigher representedconsumer 42.6% of handgun sales in the period,demand, and a 2%-5%2% to 3% price increase on select products that became effective on January 1, 2026. Shipments of new products represented 43.6% of handgun sales in the third fiscal quarter of fiscal 2024.period. Handgun unit shipments into the sporting goods channel decreasedincreased 3.5%19.0% fromover fiscal 2024,2025, while overall consumer demand decreased 3.2%,0.2% (as indicated by adjusted background checks for handguns reported to the National Instant Criminal Background Check System, or NICS).

Other products and services sales increased $1.3 million,$191,000, or 3.5%,0.5%, over fiscal 2024,2025, primarilyas becausehigher of increased component partse-commerce and suppressor sales, partiallysales offset by lower business-to-business sales. Lower business-to-business sales resulted from the closure of our Deep River facility in fiscal 2025 as part of the Relocation.

New products represented 42.8%38.1% of net sales for the 12 monthsyear ended April 30, 20252026 and included sixfour new pistols, sixfour new long guns, and many new product line extensions.

Inventory balances increaseddeclined $29.3$33.6 million between April 30, 20242025 and April 30, 20252026 as a result of a slowdown in demand combined with level loading of our manufacturingproactive facilitiesinventory management and production planning efforts intended to ensureoptimize ourinventory abilitylevels toand satisfycash anticipated future demand.flows. While inventory levels, both internally and in the distribution channel, in excess of demand may negatively impact future operating results, it is difficult to forecast the potential impact of distributor inventories on future revenue and income as demand is impacted by many factors, including seasonality, new product introductions, news events, political events, and consumer tastes. We expect our inventory levels to moderatelyincrease declinemodestly during fiscal 2026.2027.

Research and development expenses increased $2.3 million, primarily$737,000 because of higher tooling-related costs, partially offset by materials and testing costscosts, associatedwhich withwere newelevated productin developmentthe andprior higher compensation-related costs.year. Selling, marketing, and distribution expenses increased $702,000 in spite of a $1.9 million impairment on distribution equipment related to the Relocation and one-time costs related to our grand opening event at our Maryville facility in fiscal 2024. Excluding the impact of these one-time prior year charges, selling, marketing, and distribution expenses increased $3.5 million,$284,000, primarily as a result of higher spendingprofit-related oncompensation promotionsexpenses and higherone-time compensation-relatedcosts related to the grand opening event for the Academy, partially offset by lower promotional costs. General and administrative expenses decreasedincreased $8.2$5.1 million,million over the prior year, primarily becauseas a result of lower Relocation costs, lowerhigher profit-related and stock-based compensation expense,expenses, and lower insurance costs, partially offset by higher legal costs.expenses. During fiscal 2025, we sold certain real estate located adjacent to our former Missouri distribution center located in Columbia, Missouri for $2.3 million, net of transaction costs, and recognized a $2.3 million pre-tax gain on sale.

Operating income for fiscal 20252026 decreasedincreased $23.2$5.3 million, or 49.3%,22.3%, fromover the prior fiscal year, primarily for the reasons outlined above.

Other Income/(Expense), net

Other income for fiscal 20252026 decreasedincreased $6.7 million,$686,000, primarily as a result of theinvestment saleincome ofon certainour intangiblemarketable assets in fiscal 2024.securities.

Interest ExpenseExpense, net

Interest expense increased by $2.6 million,$188,000, primarily as a result of higherlower average cash balances, partially offset by lower average interest rates on debt and lower average debt balances andduring lowerfiscal average cash balances2026 compared with fiscal 2024.2025.

We recorded income tax expense of $5.8$6.6 million for fiscal 2025,2026, $4.5$769,000 million lowerhigher than the prior fiscal year, primarily because of decreasedincreased profitability. Our effective tax rates were 30.2%26.3% and 20.0%30.2% for fiscal 20252026 and 2024,2025, respectively. The 20242026 rate was impacted favorably as a result of ana amendmentdecrease ofin state taxable income from the prior year returnsand forfavorable the foreign derived income deduction that reduced 2024 income tax expense by $1.4 million, or 2.9%. Adjusting for the foreign derived income deduction for each year, the effective tax rate would have been 22.8% for fiscal 2024, which is 7.9% lower than fiscal 2025 due primarilyreturn to decreased pretax income and changes in state apportionment and other stateprovision adjustments.

Net income decreasedincreased $27.9$5.1 million, or $0.59$0.11 per diluted share, fromover fiscal 20242025 primarily for reasons outlined above.

Cash usedprovided inby operating activities was $7.2$114.2 million in fiscal 20252026 compared with $106.7$7.2 million of cash providedused in fiscal 2024.2025. Cash usedprovided inby operating activities in fiscal 20252026 was unfavorablyfavorably impacted by a $33.6 million decrease in inventory compared with a $29.3 million increase in inventory compared with a $16.6 million decrease in inventory in fiscal 2024,2025, a $5.4 million increase in accounts payable compared with a $14.8 million decrease in accounts payable comparedin withfiscal 2025, a $18.2$6.1 million increase in accountsaccrued payablepayroll inand fiscalincentives 2024,compared with an $8.1 million decrease in accrued payroll and incentives compared with a $1.4 million decrease in accrued payroll and incentives in fiscal 2024,2025, a $4.4 million decrease in accrued profit sharing compared with a $895,000 increase in accrued profit sharing in fiscal 2024, and lower net income. Cash used in operating activities in fiscal 2025 was favorably impacted by a $3.2$15.8 million decrease in accounts receivable compared with a $3.9$3.2 million increasedecrease in accounts receivable in fiscal 2024.2025, a $519,000 increase in accrued profit sharing compared with a $4.5 million decrease in accrued profit sharing in fiscal 2025, and higher net income. Cash provided by operating activities in fiscal 2026 was unfavorably impacted by a $3.0 million decrease in accrued expenses and deferred revenue compared with a $268,000 decrease in accrued expenses and deferred revenue in fiscal 2025.

Cash used inby financing activities was $83.0 million for fiscal 2026 compared with $9.2 million for fiscal 20252025. comparedCash withused $18.0by financing activities during fiscal 2026 was primarily the result of $60.0 million in fiscalnet 2024.repayments under our revolving line of credit and $23.2 million in dividend distributions. Cash used in financing activities duringfor fiscal 2025 was primarily the result of $40.0 million of net borrowings, $25.5 million of sharestock repurchasesrepurchases, and $23.1 million in dividend distributions,distributions. partiallyWe offsethad byno $40stock millionrepurchases ofduring netfiscal borrowings under our revolving line of credit.2026.

Share Repurchase Programs – On September 19, 2023, our Board of Directors authorized the repurchase of up to $50.0 million of our common stock, subject to certain conditions, in the open market or in privately negotiated transactions through September 19, 2024, or the 2023 Authorization. During fiscal 2024, we purchased 793,551 shares of our common stock for $10.2 million under the 2023 Authorization. During fiscal 2025, we purchased 1,531,763 shares of our common stock for $21.4 million under the 2023 Authorization. The 2023 Authorization expired on September 19, 2024. On September 5, 2024, our Board of Directors authorized the repurchase of up to $50.0 million of our common stock, subject to certain conditions, in the open market or in privately negotiated transactions from September 20, 2024 through September 20, 2025, or the 2024 Authorization. DuringAs fiscalof 2025,April 30, 2026, we had repurchased 312,310 shares of our common stock for $4.1 million under the 2024 Authorization. DuringOn fiscalSeptember 15, 2025, our Board of Directors authorized the repurchase of up to $50.0 million of our common stock, subject to certain conditions, in the open market or in privately negotiated transactions from September 21, 2025 through September 21, 2026, or the 2025 Authorization. As of April 30, 2026, we had not repurchased a total of 1,844,073any shares of our common stock forunder $25.5the million.2025 Authorization.

Finance Lease – We are a party to a material finance lease, which is a $46.2 million lease that has an effective interest rate of approximately 5.0% and is payable in 240 monthly installments through fiscal 2039, as well as a related payment and performance guaranty, dated October 26, 2017, in favor of the Original Missouri Landlord. The building is pledged to secure the amounts outstanding. As part of the Relocation, on January 31, 2023, we entered into the Assignment and Assumption Agreement and the Amended and Restated Guaranty. Because of the Amended and Restated Guaranty, we continue to account for this lease as we have since prior to the Relocation. During fiscal 2025,2025 and 2026, AOUT made payments pursuant to this lease directly to the landlord and we neither received nor paid any cash related to this arrangement. See Note 3 — Leases for additional information.

This section generally discusses year-to-year comparisons between the three and nine months ended JanuaryJuly 31, 2026 and 2025. A discussion of our results of operations, liquidity, and capital resources for the three and nine months ended JanuaryJuly 31, 2025 compared to JanuaryJuly 31, 2024 is not included in this Quarterly Report on Form 10-Q and can be found in Item 2, "Management's Discussion and Analysis of Financial Condition and Results of Operations" of our Quarterly Report on Form 10-Q for the quarterly period ended JanuaryJuly 31, 2025, filed with the Securities and Exchange Commission, or the SEC, on MarchSeptember 6,4, 2025. See also the discussion below related to an immaterial correction of an error.

ThirdFirst Quarter Fiscal 20262027 Highlights

Our operating results for the three months ended JanuaryJuly 31, 2026 included the following:

Net income was $3.8$2.6 million, or $0.08$0.06 per diluted share, compared with $2.1a net loss of $3.4 million, or $0.05$0.08 per diluted share, for the comparable quarter last year.

Net Sales and Gross Profit – For the Three Months Ended JanuaryJuly 31, 2026

The following table sets forth certain information regarding net sales and gross profit for the three months ended JanuaryJuly 31, 2026 and 2025 (dollars in thousands):

The following table sets forth certain information regarding firearm units shipped by trade channel for the three months ended JanuaryJuly 31, 2026 and 2025 (units in thousands):

Sales of our handguns increased $27.6$18.8 million, or 34.6%,29.0%, over the comparable quarter last year, primarily as a result of higher consumer demand, a shift in product mix to higher priced models, increased shipments of newly introduced products (defined as any new SKU not shipped in the comparable period last year), a shift in product mix to higher priced models, higher consumer demand, and a 2% to 3% price increase on select products that became effective on January 1, 2026. Shipments of new products represented 44.0%43.1% of handgun sales in the quarter. Handgun unit shipments into the sporting goods channel increased by 28.0%16.7% over the comparable quarter last year while overall demand for handguns decreasedincreased by 2.2%4.7% (as indicated by adjusted background checks reported in the National Instant Criminal Background Check System, or NICS) partially due to an increase in inventory at our distributors..

Sales of our handgunslong guns increased $36.3$6.8 million, or 16%,49.9%, over the comparable periodquarter last year, primarily as a result of increased shipments of newly introduced products, higher consumer demand,demand during the period and a 2%shift in product mix to 3%higher pricepriced increase on select products that became effective on January 1, 2026.models. Shipments of new products represented 42.0%17.6% of handgunlong gun sales in the period. HandgunLong gun unit shipments into the sporting goods channel increased by 17.2%21.7% overfrom the comparable periodquarter last year while overall consumer handgun demand wasfor largelylong flatguns increased by 10.1% (as indicated by NICS).

Other products and services revenue decreasedincreased $4.7$1.9 million, or 15.9%,29.0%, fromover the comparable periodquarter last year, primarily because of lowerhigher business-to-business, parts,parts and suppressor sales; partially offset by higher e-commerce sales, which began in the third quarter of fiscal 2025.sales.

Newly introduced products represented 38.3%35.3% of overall net sales for the ninethree months ended JanuaryJuly 31, 2026.2026 and included one new pistol, one new long gun, and many new product line extensions.

Inventory balances decreasedincreased $14.6$24.4 million between April 30, 20252026 and JanuaryJuly 31, 2026 as a result of level loading of our proactivemanufacturing inventory management and production planning efforts intendedfacilities to optimizeensure inventoryour levelsability andto cashsatisfy flows.anticipated future demand. While inventory levels, both internally and in the distribution channel, in excess of demand may negatively impact future operating results, it is difficult to forecast the potential impact of distributor inventories on future revenue and income as demand is impacted by many factors, including seasonality, new product introductions, news events, political events, and consumer tastes. We expect our inventory levels to build through the second quarter of fiscal 2027 and then decline during the remainder of the fiscal year.

The following table sets forth certain information regarding operating expenses for the three months ended JanuaryJuly 31, 2026 and 2025 (dollars in thousands):

Research and development expenses decreased $457,000$450,000 from the prior year comparable quarter primarily because of materialshigher andtooling testing costs, which were elevatedcosts in the prior year quarter,period, partially offset by higher laborcompensation-related costs and higher profit-related compensation expenses in the current quarter.costs. Selling, marketing, and distribution expenses increased $834,000,$1.4 million, primarily as a result of higher profit-relatedvolume-related compensationcosts, expenses.including cooperative advertising and freight. General and administrative expenses increased $3.1$2.0 million over the prior year comparable quarter, primarily as a result of higher profit-relatedlegal costs and stock-basedprofit-related compensation expenses, and higher legal expenses. During the three months ended January 31, 2025, we sold certain real estate located adjacent to our former distribution center located in Columbia, Missouri for $2.3 million, net of transaction costs, and recognized a $2.3 million pre-tax gain on sale.

The following table sets forth certain information regarding operating income for the three months ended JanuaryJuly 31, 2026 and 2025 (dollars in thousands):

Operating income for the three months ended JanuaryJuly 31, 2026 increased $2.0$7.2 million over the comparable quarter last year, primarily for the reasons outlined above.

The following table sets forth certain information regarding interest expense, net for the three months ended JanuaryJuly 31, 2026 and 2025 (dollars in thousands):

Interest expense, net decreased by $196,000$907,000 from the comparable quarter last year, primarily as a result of lower average debt balances and lower average interest rates on debt during the three months ended JanuaryJuly 31, 2026 compared with the comparable quarter last year.

The following table sets forth certain information regarding income tax expense for the three months ended JanuaryJuly 31, 2026 and 2025 (dollars in thousands):

Income tax expense increased $698,000$2.1 million from the comparable quarter last year, primarily as a result of higher discrete items associated with stock-based compensation and higher operating income. Before adjusting for discrete items related to stock-based compensation, the effective tax rate was 28.9%28.0% in the current quarter and 30.5%33.7% in the prior year comparable quarter. The decrease in the effective tax rate before adjusting for discrete items was primarily due to an increase in forecasted pre-tax profitability and changes in state apportionment.income.

Net Income/Loss

The following table sets forth certain information regarding net income/(loss) and the related per share data for the three months ended JanuaryJuly 31, 2026 and 2025 (dollars in thousands, except per share data):

Net income for the three months ended JanuaryJuly 31, 2026 was $3.8$2.6 million compared with $2.1a net loss of $3.4 million for the comparable quarter last year for the reasons outlined above.

The following table sets forth certain cash flow information for the ninethree months ended JanuaryJuly 31, 2026 and 2025 (dollars in thousands):

Cash providedused byin operating activities was $39.6$8.8 million for the ninethree months ended JanuaryJuly 31, 2026 compared with cash used in operating activities of $48.1$8.1 million for the ninethree months ended JanuaryJuly 31, 2025. The improvement was2025, primarily driven byas a $87.9result of a $6.6 million reductionincrease in working capital usage.usage, partially offset by higher net income.

Working capital usage for the ninethree months ended JanuaryJuly 31, 2026 was favorablyunfavorably impacted by aan $53.0$11.2 million reductionincrease associated with inventory, a $15.9$7.2 million reduction associated with accounts payable, a $10.3 million reductionincrease associated with accrued payroll and incentives, a $4.0$4.3 million increase associated with accounts receivable, a $9.5 million reduction associated with accounts payable, and a $2.1 million reduction associated with accrued profit sharing,expenses and adeferred $3.4 million reduction associated with accounts receivable.revenue.

Cash used in investing activities increased $11.7$5.8 million for the ninethree months ended JanuaryJuly 31, 2026 compared with the prior year period, primarily as a result of a $4.6$7.6 million increase in capital expenditures, largely relatedfor machinery and equipment to theexpand Smith & Wesson Academy, $4.6 million of purchases of marketable securities during the nine months ended January 31, 2026,capacity and $2.3increase millionoperational of proceeds included in the prior year period related to the sale of certain real estate located adjacent to our former distribution center located in Columbia, Missouri during the nine months ended January 31, 2025.efficiency.

Cash usedprovided by financing activities was $23.0$12.6 million for the ninethree months ended JanuaryJuly 31, 2026 compared with $25.7$8.3 million of cash provided by financing activities for the ninethree months ended JanuaryJuly 31, 2025. Cash usedprovided by financing activities during the ninethree months ended JanuaryJuly 31, 2026 was primarily the result of $17.4 million in dividend distributions, and $5.0$20.0 million in net repaymentsborrowings under our revolving line of credit.credit, partially offset by $6.0 million in dividend distributions. Cash provided by financing activities for the ninethree months ended JanuaryJuly 31, 2025 was primarily the result of $70.0$15.0 million of net borrowings, partially offset by $25.5 million of stock repurchases and $17.4$5.9 million in dividend distributions. We had no stock repurchases during the nine months ended January 31, 2026.

Credit Facilities — We entered into the Second Amended and Restated Credit Agreement on October 3, 2024. The Second Amended and Restated Credit Agreement provides for a revolving line of credit of $175.0 million at any one time, or the Revolving Line. The Revolving Line bears interest at either the Base Rate (as defined in the Second Amended and Restated Credit Agreement) or the Adjusted Term SOFR rate,rate (as defined in the Second Amended and Restated Credit Agreement), plus an applicable margin based on our consolidated leverage ratio. The Second Amended and Restated Credit Agreement also provides a swingline facility in the maximum amount of $5.0 million at any one time (subject to availability under the Revolving Line). Each Swingline Loan (as defined in the Second Amended and Restated Credit Agreement) bears interest at the Base Rate, plus an applicable margin based on our Adjusted Consolidated Leverage Ratio (as defined in the Second Amended and Restated Credit Agreement). Subject to the satisfaction of certain terms and conditions described in the Second Amended and Restated Credit Agreement, we have an option to increase the Revolving Line by an aggregate amount not exceeding $50.0 million. The Revolving Line matures on the earlier of October 3, 2029 or the date that is six months in advance of the earliest maturity of any Permitted Notes (as defined in the Second Amended and Restated Credit Agreement) under the Second Amended and Restated Credit Agreement.

As of JanuaryJuly 31, 2026, we had $75.0$40.0 million of borrowings outstanding on the Revolving Line, bearing interest at ana weighted average rate of 5.75%,5.42%, which is equal to the Adjusted Term SOFR rate plus an applicable margin.

The Second Amended and Restated Credit Agreement for the Revolving Line contains financial covenants relating to maintaining maximuma leverageminimum Consolidated Fixed Charge Coverage Ratio and minimuma debtmaximum serviceAdjusted coverage.Consolidated Leverage Ratio. We were in compliance with all debt covenants as of JanuaryJuly 31, 2026.

Share Repurchase Programs — On September 19, 2023, our Board of Directors authorized the repurchase of up to $50.0 million of our common stock, subject to certain conditions, in the open market or in privately negotiated transactions through September 19, 2024, or the 2023 Authorization. During fiscal 2025, we purchased 1,531,763 shares of our common stock for $21.4 million under the 2023 Authorization. The 2023 Authorization expired on September 19, 2024. On September 5, 2024, our Board of Directors authorized the repurchase of up to $50.0 million of our common stock, subject to certain conditions, in the open market or in privately negotiated transactions from September 20, 2024 through September 20, 2025, or the 2024 Authorization. As of JanuarySeptember 31,20, 2026,2025, we had repurchased 312,310 shares of our common stock for $4.1 million under the 2024 Authorization. On September 15, 2025, our Board of Directors authorized the repurchase of up to $50.0 million of our common stock, subject to certain conditions, in the open market or in privately negotiated transactions from September 21, 2025 through September 21, 2026, or the 2025 Authorization. AsWe ofhave January 31, 2026, wenot had not repurchased any sharesrepurchases of our common stock under the 2025 Authorization.