Sturm, Ruger & Company, Inc. (RGR) Earnings Call Transcript & Summary

Good morning. My name is Ron Whitaker. I am the Chairman of the Board of Sturm, Ruger & Company, Inc. It is my pleasure, on behalf of the directors, officers and employees of the company, to welcome you to our 2021 Annual Meeting of Stockholders. In consideration of the ongoing COVID-19 pandemic and related CDC guidelines, the Board concluded that it would be prudent to have a virtual shareholder meeting again this year. On the positive side, we believe this format will allow greater participation by stockholders who otherwise might not be able to attend a live meeting. As is our custom, we will conduct the business portion of the meeting, followed by a presentation by Chris Killoy, our President and CEO. After that, we will entertain questions from stockholders, which may be submitted via the web portal. In addition to Chris and me, Tom Dineen, our CFO and Senior Vice President; and Kevin Reid, who is our General Counsel, Corporate Secretary and a Vice President, we'll be participating today on behalf of the company. For the record, I'd also like to advise you that all members of the Board are on the call. I call to order the 2021 Annual Meeting of Stockholders of Sturm, Ruger & Company, Inc. Please note that the polls are open. If you are a stockholder and have not voted or you have voted by proxy and wish to change your vote, you can do so via the web portal. We will be closing the poll shortly, so please vote now if you plan to vote during the meeting. Also, stockholders may submit questions through the portal by typing a question into the space provided, and clicking the submit button. If you are asking a question, please be mindful of the rules of conduct for the meeting, which are posted with the meeting materials. Our agenda for the formal matters to be brought before the stockholders today will be as follows: to take care of the necessary appointments and documentations for the meeting; to establish quorum; and to take votes on the items of business properly brought before the meeting. These items of business are: first, to elect 9 Directors to serve on the Board of Directors for the ensuing year; second, to ratify the appointment of RSM US LLP as the company's independent auditors for the 2021 fiscal year; and third, to hold an advisory vote on the compensation of the company named executive officers. First, I'll deal with the appointments. As the company's bylaws provide, I will act as Chairman and conduct the meeting. Corporate Secretary, Kevin B. Reid Sr., will act as Secretary of the meeting, and was appointed as inspector of elections before the meeting. As inspector, Mr. Reid will determine the presence of a quorum and serve as judge on all matters requiring a stockholder vote at this meeting. Now I'll deal with the certification of the meeting documents. Documents concerning the call and notice of this meeting will be filed with the records of the company, and are available for inspection by any stockholder upon request. These documents include: a copy of the notice of availability of proxy materials; an affidavit of mailing certifying that the proxy materials were mailed to the stockholders of record of the company; the signed oath and report of the inspector of elections; and a list of registered stockholders entitled to vote at this meeting, which also is available via a link on the web portal. We have previously supplied each stockholder of record with a notice regarding availability of proxy materials that contained instructions on how to access the company's proxy statement and Form 10-K. The bylaws of the company provide that a majority of the voting stock shall constitute a quorum for the transaction of business at this meeting based on proxies and stockholders present. Mr. Reid, may we have a report of the inspector of elections on whether or not a quorum is present?

Mr. Chairman, the proxies received by the company in connection with the 2021 Annual Meeting of Stockholders of the company has been examined and have been found to be in proper form. And there are present at the meeting by proxy at least 14,156,424 or 80.5% of the shares outstanding of the company, which are entitled to vote, and such shares do come to a quorum for the transaction of business at the meeting. Also, there were no additional stockholder proposals for business for this meeting properly filed with the Corporate Secretary in accordance with the advanced notice requirements of the company's bylaws. As such, the business of the meeting is limited to the matters set forth in the agenda.

Thank you. Because the quorum is present, this meeting will proceed. Please note that we will give stockholders an opportunity to comment on the proposals themselves after all proposals have been presented. The first order of business is to elect 9 Directors for the ensuing year. Those Directors receiving the highest number of votes or a plurality of votes of shares present in person or by proxy at this meeting will be elected as Directors of the company to serve until the 2022 Annual Meeting of Stockholders, and until their successors are duly elected and qualified. As indicated in the company's proxy statement, the Board of Directors has nominated the following persons to serve as Directors: me, Ronald C. Whitaker; John A. Cosentino, Jr.; Michael O. Fifer; Sandra S. Froman; C. Michael Jacobi; Christopher J. Killoy; Terrence G. O'Connor; Amir P. Rosenthal; and Phillip C. Widman. The company's bylaws require that a stockholder give advance notice of the company in order to nominate any person as a Director. Because no such notice was received, I hereby declare the nominations for Directors closed. The second order of business on the agenda is the ratification of the Board's appointment of RSM US LLP as the company's independent auditors for the 2021 fiscal year. The affirmative vote of at least a majority of the shares entitled to vote and represented in person or by proxy at this meeting is required to ratify the appointment of RSM US LLP as our independent auditors for the 2021 fiscal year. The third order of business on the agenda is an advisory vote to approve the compensation of the company's named executive officers as described in the 2021 proxy statements, otherwise known as the say-on-pay vote. While the vote is not binding on the Board of Directors, we will review the voting results and take them into consideration when making future decisions regarding the compensation of our named executive officers. The affirmative vote of at least a majority of the shares entitled to vote and represented in person or by proxy at this meeting is required to approve, on an advisory basis, the say-on-pay vote. If any shareholder would like to make a comment regarding any of these 3 proposals, please submit your comment now through the web portal. Because we are all remote and there is a slight delay, I will pause and allow stockholders to comment. Mr. Reid, are there any comments submitted on the proposals?

No, Mr. Chairman, there were not.

This concludes discussion on all formal matters to be brought before the stockholders, and we will finalize the vote on these matters. Mr. Reid?

As the Chairman noted earlier, the polls have been open throughout the meeting. Any stockholder who has not voted or voted by proxy and wishes to change their vote may do so by clicking on the voting button on the web portal and following the instructions there. Stockholders who have sent in proxies or voted via the telephone or internet and do not want to change their vote, do not need to do anything at this time. We will pause for a moment to permit voting and then close the polls. So given the delay and remoteness, we'll give it a few seconds here. [Voting]

The polls for all voting matters are now closed at 9:10 a.m. on May 12, 2021. Mr. Chairman, we've completed the tabulation of the votes with the following results. On the first proposal, the election of Directors, I report that the nominees for election to the Board have all been duly elected. On the second proposal, the ratification of the independent auditors for 2021, I report that a majority of the shares present and voting were cast for the approval of RSM US LLP as the company's independent registered public accounting firm for 2021, and as such, their selection is therefore ratified. On the third proposal, the advisory vote on the compensation of the named executive officers, as presented in the proxy statement, I report that a majority of the shares present and voting were cast for the approval of the compensation of the company's named executive officers.

Thank you, Mr. Reid. The chair declares that all of the nominees for Directors named in the proxy statement have been elected, and 2 proposals have passed. I now direct that Mr. Reid prepare a written report of the results of the elections and include them in a Form 8-K. This concludes the formal business of the 2021 Annual Meeting of Stockholders. In order to help ensure that the meeting runs smoothly, Chris Killoy prerecorded the presentation he usually gives live. Following the presentation, we will have a short question-and-answer period, which will be live. Stockholders wishing to submit a question for consideration should type their question into the block provided in the web portal, and click submit. Again, if you plan to submit a question, please be mindful of the rules of conduct for the meeting that are posted with the meeting materials. In the interest of fairness, we ask that stockholders only submit one question each. Guests are welcome to listen to Mr. Killoy's presentation and the question-and-answer period. But only stockholders of record on the record date are permitted to submit questions. At this time, I would like Kevin Reid to read a cautionary statement, after which we will play Chris' presentation. Kevin?

Thanks, Ron. We want to remind everyone that statements made in the course of this meeting that state the company's or management's intentions, hopes, beliefs, expectations or predictions of the future are forward-looking statements. It is important to note that the company's actual results could differ materially from those projected in such forward-looking statements. Additional information concerning factors that could cause actual results to differ materially from those in the forward-looking statements is contained from time to time in the company's SEC filings, including, but not limited to, the company's reports on Form 10-K for the year ended December 31, 2020, and of course, on the Form 10-Q for the first quarter of 2021, which we filed last week. Copies of these documents may be obtained by contacting the company or the SEC or on the company's website at ruger.com/corporate, or, of course, the SEC website at sec.gov. We do reference non-GAAP EBITDA. Please note that the reconciliation of GAAP net income to non-GAAP EBITDA can be found in our Form 10-K for the year ended December 31, 2020, and our Form 10-Q for the first quarter of 2021, both of which, again, are posted on our website. Furthermore, the company disclaims all responsibility to update forward-looking statements. Ron?

Thank you, Kevin. In a moment, we will proceed with the recorded presentation from Chris Killoy. Again, stockholders wishing to submit questions should type into the space provided in the web portal, and click submit. Following the presentation, Chris will respond to questions, which will be presented by Tom Dineen on behalf of the shareholders. Operator, please play the presentation. [Presentation]

Last week, during our Q1 earnings call, I was able to cover our outstanding financial performance for the first quarter of this year, our commitment to strengthening our workforce and our continued battle with the struggles caused by the COVID-19 pandemic. I was also able to answer questions regarding our operations, employment status and plans for the rest of 2021 including an update on the Marlin product line. Today, in light of this being our annual meeting, we wanted to take some time to look back on what has been an unprecedented year for the world, our country, this industry and our company. To do this, I would like to play a short video highlighting our journey as we navigated this very difficult but ultimately successful year for our company, and that's because of our people. [Presentation]

As you can see, our people will drive our culture and that culture allows for the great success and growth we've seen over this very difficult past year. Personally, I want to welcome our many new employees. You are the people we speak of. You are part of this family. Growing from about 1,500 employees to just under 2,000 employees over the past 12 months has made us stronger and more prepared for what lies ahead. Thank you. And although I wanted to focus this annual presentation on our associates, there is another group of important people that need to be acknowledged, our customers. As I discussed last week, the record sales over the past year were exacerbated by the tremendous growth in new or first-time gun owners. To you, I say, thank you, and welcome to the family. Lastly, and most important for this meeting, I want to sincerely thank our shareholders. Those who believe in our strong and stable management team and appreciate the return that we work so hard to provide to you. Let me offer some high-level insight into our financial performance over the past year or so and why Ruger is such a great investment. Let me start with the tremendous and steady growth that we've had in sales over each and the last 4 quarters. Jumping from just over $120 million in sales in Q1 of 2020 to just short of $185 million of sales this past quarter. Let me illustrate this growth in another manner. As our revenue increased over this period, we also saw our profitability increase significantly over that time, growing from 29% in Q1 last year to $72.6 million this past quarter or almost 40% of revenues. This is an outstanding achievement, and represents one of our most profitable quarters ever. That growth equates to similar record growth in earnings per share, from $0.87 last year to over $2 this past quarter. Of course, this financial success was driven by our ability to increase production and limit promotional activities over this period. With production rising from just over 360,000 units to over 540,000 units last quarter, which is amazing considering our people, who are able to do this during a pandemic, with limited hiring opportunities and working through supply channel constraints. As I close this presentation portion of the annual meeting, I want to leave you with a comment that you may have heard me say in the past, and one that I sincerely mean. When I think of our business, our company and this industry, there is no company, no leadership team or group of people that would rather be associated with than the folks at Ruger. As an investor, you should feel the same. As a company, we continue to offer a strong balance sheet, stable leadership, sustainable growth, strong investments, and high value proposition for our consumers. As our CFO, Tom Dineen, often reminds me, we established a strong game plan some years ago, and that plan continues to work for us today. We maintain a conservative balance sheet. We're disciplined with our capital allocation, and we maintain a constancy of purpose with the consistency of execution. Operator, I'll take our first question.

Chris, we've got a couple of questions from shareholders. The first is, do you see the classic Marlin 39 and 39A coming online in the next wave of Marlin rifles?

Thanks, Tom. The first guns that we're going to be focusing on, on the Marlin line are going to be the centerfire lever-action rifles. It's going to be the Model 336, 1894 and 1895 in the larger calibers. The 39 and 39A, some may recall, are the .22 caliber lever action rifles that were made for many years by Marlin. We're going to look at that, but they are definitely not in the first wave of products that we're introducing. Again, we'll focus on the centerfire lever actions. That line is coming along very well down at our factory in Maiden, North Carolina. The folks down there have done a phenomenal job when they removed the equipment from the Remington facilities, getting it down to our factory and getting ready to begin production. We also have some of that equipment up in our factory in Newport, New Hampshire, getting ready to produce the wood stocks for the Marlin line. So we're excited about it. But with regard to 39 and 39A, we're not sure where that will be in the batting order.

Very good. Thanks, Chris. The next question, do you have any comments on the NRA's issues?

Well, the NRA, of course, is embroiled in certain legal matters it wouldn't be appropriate for us to comment on. But we've been long time supporters of the NRA. And of course, the NRA has been a champion of second amendment rights for Americans for decades. And we look forward to their successful resolution of the challenges that are facing them, and we're watching like everyone else at this point.

Good. That's all the questions we have, Chris.

All right. Well, thanks, Tom. I want to thank all of you for your interest in Ruger and participating in our Annual Meeting of Stockholders. Ron?

Thank you, Chris, and Tom, and thanks to the stockholders for those good questions. There being no other business to come before the meeting, the 2021 Annual Meeting of Stockholders of the company is adjourned. On behalf of the Board of Directors, I would like to thank you for attending the meeting and for your continued support of the company. Good day.

This now concludes the meeting. Thank you for joining, and have a pleasant day.