Good day, everyone, and welcome to Smith & Wesson Brands Inc. Third Quarter Fiscal 2021 Financial Results Conference Call. This call is being recorded. At this time, I would like to turn the call over to Rob Cicero, General Counsel who will give us some information about today's call.

Thank you and good afternoon. Our comments today may contain predictions, estimates, and other forward-looking statements. Our use of the words anticipate, project estimate expect, intend, believe, and other similar expressions are intended to identify those forward-looking statements. Forward-looking statements also include statements regarding our product development, focus, objectives, strategies, strategic evolution, market share, and demand for our products, as well as inventory conditions related to our products, growth opportunities and trends, and conditions in our industry in general. Our forward-looking statements represent our current judgment about the future and they are subject to various risks and uncertainties that could cause our actual results, levels of activity, performance or achievements to be materially different from those expressed or implied by our statements today. These risks and uncertainties are described in detail in our securities filings, including our periodic reports on forms 8-K 10- K and 10-Q, which you can find on our website at smith-wesson.com along with a replay of today's call. Our actual results, levels of activity, performance and achievements could differ materially from those expressed or implied by our statements today, and we expressly disclaim any obligation to update any forward-looking statements. I have a few important items to note about our comments on the call today. First, we reference certain non-GAAP financial results on this call. Our non-GAAP financial results exclude acquisition rate amortization, one-time transition costs, COVID-19 expenses and the tax effect related to each of these exclusions. Reconciliations of GAAP financial measures to non-GAAP financial measures whether or not they are discussed on today's call can be found in our securities filings and also in today's earnings press release. Our securities filings and today's earnings press release can be found on our website, also, when we reference ups, we're always referencing fully diluted EPS. Finally, when we discuss NICS results, we're referring to adjusted NICS, a metric published by the National Shooting Sports Foundation, based on the FBI NICS' data. Adjusted NICS removes those background checks conducted for purposes other than the purchase of a firearm. Please remember that adjusted NICS background checks are generally considered to be the best available proxy for consumer firearm demand at the retail counter. But since we transfer firearms only to law enforcement agencies, and federally-licensed distributors and retailers and not to end consumers, NICS generally does not directly correlate to our shipments or market share in any given time period, we believe mostly due to inventory levels in the channel. Before I hand the call over to our speakers today, I want to remind everyone that we completed the spinoff of our outdoor products and accessories business on August 24, 2020. As such, we are now reporting all historical financial information for that business as discontinued operations. Unless otherwise indicated, any reference to income statement items during this call refers to results from continuing operations. Joining us on today's call are Mark Smith, President and Chief Executive Officer; and Deana McPherson, Chief Financial Officer. With that, I will turn the call over to Mark.

Thank you, Rob, and thanks, everyone, for joining us. Before I cover the results and highlights of our third quarter, I just want to provide a quick update regarding our ongoing response to the COVID-19 pandemic. The decisive and immediate actions that we implemented at the beginning of the pandemic to ensure the health and safety of our employees and that we've detailed on previous calls are all still in effect. We closely monitor best practices and are always looking to make improvements to enhance our protocols. Thanks to the diligence of our employees, we have been able to safely operate our business through these difficult times. With that, let me cover the highlights of our third quarter. Our quarterly revenue of $257 million more than doubled the prior year period and marks a third consecutive record-breaking quarter. These impressive top line numbers resulted in record net income of over $62 million, a 27% increase over the prior record set just last quarter - drove $1.12 of EPS for both GAAP and non-GAAP and we generated over $60 million in cash from operations. Our manufacturing and logistics teams produced and shipped over 623,000 units during the three-month period, an increase of more than 250,000 units over the prior year period. These numbers are certainly impressive and a testament to the ability of our dedicated operations team to leverage our flexible manufacturing model and deliver results in any market conditions. However, as we've spoken about on previous calls, our key metric for the long term is our ability to take and hold market share by ensuring that our products are not only available at the retail counter, but that our brand is front of mind with the consumers and our product line is best in class for meeting their preferences. Our sales, marketing, and new product development teams have also been hard at work, ensuring the share gains that we've achieved over the last nine months are lasting. Our sales team has been meeting with retailers, ensuring their needs are met during these busy times. Safely leading classes with consumers to ensure that beginners and experts alike are increasing their knowledge and skill and even occasionally stepping behind the counter to help our retail partners manage the heavy influx of new consumers at their stores. Our marketing team is busy setting the stage for the next chapter of our iconic brand. As we've discussed on previous calls, they've developed and launched the GUNSMARTS program to welcome into our community the millions of new consumers from all walks of life, who purchased their first firearm in the past year. We've repositioned pricing to better-align with our brand's value proposition and they are thoroughly reviewing our entire product line to ensure any white space is addressed and the feature set of our existing line exceeds consumer expectations. Our new product development team is tirelessly working to ensure that in spite of the record-demand levels and capacity constraints that the industry as a whole is facing, our new product pipeline is extremely healthy for the long term. And finally, we're thrilled to announce that we'll be hosting our first-ever virtual show on March 15. During this event, we'll be giving a behind-the-scenes look at our history, highlighting a few of our loyal consumers and launch an exciting brand new product. To register or RSVP for this event, please just visit our website at www.smith-wesson.com. The outcome of our collective team's efforts is that consumers are responding by choosing Smith & Wesson product at the retail counter. Smith & Wesson shipments into the channel continue to exceed overall mix and inventory of our product in the channel decreased even the impressive production numbers we highlighted earlier. So let's go over those numbers. In our Fiscal Q3, NICS' background checks for all firearms types increased 45% over the comparable timeframe last year. For Smith & Wesson, our total units shipped into the sporting goods channel during this time increased over 70% to 593,000 units while meanwhile during the quarter, our SRA and distributor combined inventory levels declined by 28,000 units. Breaking those numbers down a little further, as compared to our Fiscal Q3 of 2020 NICS checks for handguns increased nearly 49%, while our handgun units shipped increased by 64% to 473,000 units. And finally, as compared to our fiscal Q3 of 2020, NICS checks for long guns increased 46% in the quarter, while our long gun unit shift increased nearly 107% to 120,000 units. For both long guns and handguns, distributor inventory in the channel for our products remains at approximately one week of supply. Before I hand the call over to Deana, just a quick update on the overall firearms market. As we all know, calendar year 2020 delivered tremendous growth for the industry with 21 million NICS checks, smashing the previous record set in 2016 by 34% or 5.3 million. As we've discussed on previous calls NSSF data indicates that an estimated 8.4 million Americans purchased their first firearm in the year and the industry is not only growing but also diversifying, with women and minorities making up more than 40% of the overall purchases. This expanded base of new consumers and the increased general consumer interest in the outdoors and shooting sports bodes very well for the industry as we look forward. More recently, January of 2021 was the fifth largest NICS month ever on record and the February results that were just released on Tuesday indicate that although the firearm sales decelerated sequentially, we believe due to a number of factors from severe weather disruptions to delayed stimulus and tax returns, interest in the shooting sports remains very strong, with daily rates of firearm permit checks flat sequentially and 35% above prior year for February. We do expect as we lapped the beginning of the pandemic in March, that NICS checks comparisons will become more difficult. But we also believe that the expanded consumer base has fundamentally increased the number of participants in the market. All of this, combined with an exciting new product launch coming up this month, healthy new product pipeline behind it, the most recognizable brand in the industry, a proven, flexible manufacturing model ready and able to deliver impressive profitability in any market conditions and comparison data showing Smith & Wesson is gaining market share, we couldn't be more excited about what the long-term future holds for our industry and our company. With that, I'll turn the call over to Deana to cover the financial highlights.

Thanks, Mark. For the third consecutive quarter, we are reporting record revenues due to the increases in capacity that we implemented in response to the very strong demand for firearms that began in March 2020. Revenue for the quarter reached $257.6 million, a $130 million increase, or more than twice the prior year results. Our team was able to generate an $8.9 million increase over our second quarter in spite of having three less production days by implementing a 3% price increase that went into effect in mid-November by capitalizing on a shift in NICS toward higher priced products and by maximizing the small capacity increases that went into effect early in the quarter. These outstanding results are a testament to the hard working and dedicated Smith & Wesson employees who have maintained a safe and productive work environment throughout the pandemic. Gross margin of 42.6% was 1,460 basis points above the 28% realized in the prior year comparable quarter and 200 basis points above our second quarter. This increase in margin against prior year was due to increased unit shipments, combined with the elimination of promotional activity, a 3% price increase and the mix shift to higher margin products. Margins were slightly negatively impacted by recall related costs, increased depreciation on machinery purchases and compensation-related costs associated with increased headcount. Operating expenses were $2.4 million higher than the prior year, due to increased shipping costs associated with increased volume, $3.3 million of increased profit-sharing expense and a $500,000 donation to the National Shooting Sports Foundation. Increased volume related customer allowances and increased stock and incentive compensation costs were more than offset by reduced travel and other costs associated with the cancellation of the trade show season due to the ongoing pandemic. Lower advertising costs and lower employee medical costs, likely due to the deferral of elective procedures resulting from the pandemic. Additionally, in the prior year third quarter, there were $1.2 million of spin-related costs that were not repeated in the current year. The increase in revenue and gross margin led to record profitability, including net income of $62.3 million, GAAP and non-GAAP earnings per share both of $1.12, and adjusted EBITDA of $89.8 million, or almost 35% of revenue. During the quarter, we generated $60.3 million in cash from operations and spent $3.3 million on capital equipment, leaving $57.1 million in free cash. We also spent $50 million to repurchase approximately 2.7 million shares of our common stock at an average price of $18.26 and paid $2.8 million in dividends, resulting in the company ending the quarter with $59.7 million of cash and no bank debt. As you may remember, from our call last quarter, we indicated that our capital allocation priorities were to invest in our business, repay our debt and return capital to our shareholders. I am pleased to announce that our Board has once again authorized our $0.05 per share dividend to shareholders of record on March 17, this payment to be made on March 31. And has also authorized a new share repurchase program for up to $100 million of the company's common stock through March 1, 2022. Looking forward regarding our fourth quarter, I'd like to remind you that in periods of high demand, our ability to recognize revenue is primarily a function of our production capacity. That production capacity is somewhat governed by the number of operating days we have available due to weekends, holidays, and other non-operating days, such as shutdowns. Our third quarter had only 56 operating days due to the Thanksgiving and Christmas holiday shutdown periods, whereas our fourth quarter will have 65 days. Although we had a small increase in capacity during the early part of the third quarter, we are not currently planning to add any capacity that will have an impact on our fourth quarter results. As Mark noted, we are investing in strategic marketing initiatives and we'll have our first virtual show that will coincide with the launch of an exciting new product. We would expect a bit of an increase in our marketing costs for fourth quarter, while other costs remain relative to our sales volume. We continue to monitor our supply chain for indications of stress related to the significant increase in demand or issues related to the pandemic and are happy to report that at this time, we have been able to overcome or mitigate any challenges. We are closely monitoring the impact of the weather situation across the south, particularly in Texas, as that may have some impact on our resident suppliers. As always, supply chain risks are subject to change and our team continues to develop contingencies to avoid any interruptions. Finally, our effective tax rate is approximately 24%. With that, Operator, can we please open the call to questions from our analysts?

[Operator Instructions] First question comes from the line of Cai von Rumohr from Cowen.

Yes. Thanks so much and nice quarter. Were your shipments supply constrained at any point and what's the current status? Maybe give us some color on demand. You mentioned the impact of stimulus and severe weather, but maybe just give us some color on all of those issues and demand today?

Sure. Hey, Cai. How are you doing? It's Mark. Yes, obviously, our supply is still capacity constrained. So, in terms of I think what you're referring to with the question on the stimulus, et cetera, as the February NICS results, I think there's a lot of noise in those numbers right now. I think if you look at the overall NICS results for February, including the permit checks, it was the highest February ever. However, backing out the permit checks, there was a pretty severe deceleration between January and February now. A lot of the channels checks and the information we have, there's a lot of reasons that went behind that, there's a lot of mitigating circumstances, if you will, between the weather situation down in Texas. We had several retailers, large retailers, closed for up to a week. You've got the tax returns being delayed, as many of you probably know, this year versus previous year as you've got stimulus checks that people may or may not be waiting for. You've also probably got a little bit of a hangover from, the largest January ever, so probably a combination thereof and it's probably too early to tell exactly what that means going forward.

Keep in mind, though, Cai, that that relates to sort of February NICS, not our results for the quarter. During the quarter, our operations team was able to manage and mitigate supply chain issues as they came up. We're continually working through those in times like this. We can only go as hard as we can on production and as things come up, we'll shift production around and try to be as flexible as possible, making sure that we're always keeping in mind what's coming in and what's going out.

Got it. So, you have the 3% price hike. What's the kind of strategy for next year? I mean, obviously, I'm not asking for numbers, but you talked a little bit - what's the strategy? We may have higher medical costs, tire travel, what sort of I guess, from 20,000 feet, the strategy for dealing with kind of return to a more normal environment?

That's a great question, Cai. We managed the business very much for the long term, as we've talked about many, many times before on the calls. So, we're able to be obviously - our flexible manufacturing model enables us to take advantage as you see from the results in an environment where the demand is very strong. However, we maintain our fixed cost base at a level where we're able to be profitable in any market conditions. So, in terms of how to think about price increases next year, we do an annual price increase and it really is, frankly, going to depend on the market conditions at the time. So for me to predict now what we're going to do in our annual price increase, which is usually in the late fall-early winter is probably a little too early to be talking about that.

Got it. And the last one, you mentioned 56 days going to 65, was last year 58 going to 62? That's what I remember. But maybe you can...

Yes, I'll have to take a look at that. I don't really recall what last year's was, but if I get the chance I will.

But it looks like you always have a weaker third quarter because of [indiscernible] but it looks like this is a little bit more pronounced than normal?

I think it's probably not far off. Generally, when we closed down between Christmas and New Year's and we always have the two days off on Thanksgiving, so it's not often that it's too far off. But generally speaking, the fourth quarter is always the longest, we have no holidays in the fourth quarter. So it's usually 64-65.

Got it. Thank you very much.

Thank you.

Thanks, Cai.

Our next question comes from Mark Smith with Lake Street Capital.

Hi, guys. Another good quarter. Just wanted to ask on price just real quick, and you hit it a little bit here, you took it in November. Any changes in your thought process around pricing? Do you feel like there's opportunity to selectively take pricing kind of outside of your normal cadence?

Hey, Mark. Yes, obviously, when the market conditions are like they are right now, it allows us a little more flexibility to adjust pricing in some categories where maybe we didn't feel that we were undervalued. And so, yes, do we have a little more flexibility right now to make some adjustments? And did we? Yes. In some categories, we did. We took some higher than 3% price increases in some categories, we made some product line adjustments and mix changes. As you can probably see from some of the numbers and the profitability increase, some of that is driven by mix and discontinuing or deemphasizing certain categories that were frankly unprofitable or not as profitable as we wanted them to be. So yes, obviously, when the market is hot, gives us a little more flexibility.

And I would assume here in another 10 to 11 days that we may see an opportunity to take some pricing in new products?

Yes. So, yes. That's a great point. Obviously, one of the best ways we can do that is to launch new products and obviously, there's no benchmark or there's no expectation of what that pricing is, and we can kind of set it where we feel it should be. And that new product coming out is very exciting and should do very well for us. And obviously, as all of our products is going to provide [ph] some nice profitability for us.

And then just kind of following up on a previous question. Just as we look at consumer behavior. You guys have pretty good fingers on the pulse of what's going on out there. Are you seeing any changes, whether it's in the price points that consumers are paying? any push back there? Any shift in behavior from more towards handguns? It looks like long guns have maybe done a little better here than the last couple months. Anything that you can point to and then we would also just point out February with a leap year last year certainly made the comp with five Saturdays. Certainly a little different last year, but anything you can point to where you're seeing any change in consumer behavior would be great.

Sure. Yes, and that's a great point and something to always remember, as we go from January with 31 days to February of 28, is you kind of need to look at the rate versus the overall absolute number. I think, again, we did some channel checks as we always do and as I think I mentioned before, we get a weekly report from our salesforce. The market is still very healthy and strong and a lot of interest in the shooting sports. And, I think some of the feedback we got was, kind of a combination of - yes, there was a little bit of a hangover from January, but people are still coming into the store and maybe where they wanted Shield EZ and it wasn't available, they would buy whatever else was under the counter. Now, they're kind of saying, 'Well, I'll come back when you have availability', so you got a little bit of that going on, maybe a little bit of that panic buying going is subsiding a little bit. But then we spoke to some retailers who said, 'Well, yes, of course, because I was shut down for a week because we didn't have any power down south' or, et cetera. So, I think, as I said, we kind of got a little bit of a confluence with a bunch of different factors playing into February.

Okay. And then the last one for me, just a segment that we really don't talk that much about. Can you talk at all about Gemtech, the suppressor business, as well as kind of your other products, handcuffs and whatnot? And kind of how that business has been trending?

Yes. Gemtech has been doing very well for us this year. It is a smaller portion of our business, obviously, but that suppressor market is doing very, very well. It's up in-line the rest of our categories. So yes, that does well for us. On the handcuffs side, I can't - I think just the interest in the shooting sports is up in general and a lot of foot traffic in the stores where those retailers are carrying that product. Handcuffs is up significantly as well. So to end that, that's a really nice piece of business for us and extremely profitable.

Right, and those are showing up in our other products and services. You see that in the quarter, other products and services is up 52% and for the year, it's up 36%. So that's where those categories will fall.

Absolutely. This has been helpful. Thank you.

Thank you.

Thanks, Mark.

Our next question comes from Scott Stember with CL King.

Good evening and thanks for taking my questions.

Hey, Scott.

You were just talking about panic buying, potentially some of it pulling back a little bit in February and last quarter you talked about maybe in the long guns that possibly, it was benefiting that side of it a little bit. Can you just maybe broadly speak [ph] or just talk about how much of the surge that we've seen - obviously, there's tons of new shooters in the market. But the panic buying, is it bigger than we thought? Or is it kind of there but not nearly as big as it has been in the past?

That's a hard question to answer, be a lot of speculation and conjecture. But I think this has been talked about before in previous calls. I think this surge has been a little bit different than previous ones that we've seen. A lot of times it's mostly driven by fear of gun regulation and this one as we've talked about, has been I think, in large part, yes, there was fear of gun regulation but I think a large part was fear of personal protection. So a lot of handguns and then a lot of new shooters to the market. Now as a new shooter comes into the market and maybe goes out and picks up a concealed carry pistol or a handgun, their next purchase as they get involved in the shooting sports might be coming back into that rifle now and a long gun. So, I think that the panic buying really was just around just getting a product. I think that maybe has subsided a little bit in February, but again, that demand I think is still there. That interest in the shooting sports is still there and I just - now maybe if I was looking for a handgun, I would have bought a rifle in the store. But now if I'm looking for a rifle, I'm going to wait until you have inventory

Got it. And then thinking of long guns. You talked about basically double and much better than what the industry did. Is there any specific item there? Is it the modern sporting rifles driving that?

I mean, we don't get a whole lot of breakdown color on that, as you know, but I'll just kind of directionally point you to the hunting season's over. So, our mix is going to move towards the categories that we have heavy backlog of that are in demand right now, if that helps.

Okay, got it. And just last question, bigger picture. Ammunition, obviously, is very tough to get these days. For the first time shooter that maybe can't get their hands on it, does that in any way, potentially inhibiting gun demand, or are gun retailers making sure to hold off to some ammunition to help out a first time shooter?

Yes, I think it's the latter. I think they are holding on to some ammunition. I don't think that we know that. So, a lot of retailers will hold some ammunition behind the counter, so that if you buy a firearm, they're able to provide you the ammunition. That said, I do think that the lack of ammunition was probably definitely a factor that played into February. So obviously, that ammunition hopefully becomes more available as we go forward. It should provide a tailwind for us.

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

Thanks, Scott.

Our next question comes from Steve Dyer with Craig-Hallum.

Thanks. Ryan [ph] on for Steve. A couple questions for us. Do you think the industry is at a point of getting closer to balancing supply with demand where we can restock the channel inventory over the next quarter or two? Or I guess, said differently, what's the thought behind not adding more outsource capacity?

Yes. I can't really answer the first question just because I would frankly be giving you speculation. As I said, there's a lot of things that played into the February deceleration from January, but if you're - just keep in mind that January, December and November, all were in the top five months of NICS checks ever on record. So I mean, the demand is very strong. So when that deceleration or when that, I guess the 'normalization' occurs, we don't know. And quite frankly, as we said in our prepared remarks, there's a whole lot more participants in the industry right now. So I definitely believe that we're at a new normal, if you will. So, we'll see where that goes.

Maybe just under supply side? I guess it sounds like demand remains elevated. So I guess, why not add more supply?

Yes, as we talked about on our prepared remarks, we're still at one week of supply at distribution.

So, we're cautious because this is a very cyclical industry to not overload our business with too much fixed overhead. We do have flexible manufacturing, but as we've stated, we've been managing through supply chain issues and working through and have been very, very successful at that. But to try continue to add at the pace that we added earlier this year, would be a difficult thing to maintain, particularly with some of the other things that are happening throughout the country, particularly with weather and whatnot. So I think as an industry, we are not able to meet demand. If we were able to meet demand, you'd see lots of firearms on the shelves and they're still not there yet. But we have to be cautious that we don't overload, we manage for the long term. And our flexible manufacturing allows us to do that. We can capitalize on the growth, but we can't build to meet all of the orders that come in every time that there is an increase, like there has been over the last nine or 10 months.

Yes, makes sense. And then can you just help me balance the puts/takes for Q4. There will be a greater number of days, which I would think would outweigh the supply chain challenges. But I guess without getting too specific, you're not asking for point estimate, but is it reasonable to assume sequential revenue growth quarter-over-quarter?

Well, I think as we mentioned in the prepared remarks, our capacity, we put a small capacity increase at the beginning of our third quarter and we're not currently planning for any further capacity increases through the fourth quarter. However, our ability to deliver in these, when we get into constrained environments like this is really governed by our operating days, which were 56 as she said on the call are versus 56 in our third quarter and 65 on our fourth.

Got it. And then just on OpEx, helpful commentary kind of on a go-forward on the marketing being higher, et cetera. But OpEx was adjusted OpEx, that it was down just shy of $3 million sequentially despite the rise in revenue. So, really nice cost management. But can you help kind of walk through the puts/takes and what you're able to optimize sequentially here?

You know, I didn't anticipate that question there, Ryan. That's an interesting question. I don't think I can, there's not a lot - we are continuing to manage through. We will have less spin costs because as the further away we get from the spin, the less there is that we're dealing with. There's not anything, I think that is really a big number. There was an insurance recovery on bad debt this quarter that pulled the number down just under a $1 million, now $800,000 or $900,000. So, that is pulling the number down this time. So it was a combination of those two items with higher spin costs last quarter and the insurance recovery that we had from a bad debt. The two of those things combined is probably the biggest piece of it. Now, there is a lot of volume-related activity that goes on. We are accruing for higher level of profit-sharing, we have volume related, some mix issues between whether it's a strategic retailer or a distributor, or a buying group. Certain of those customers have higher levels of cooperative advertising that are like a percentage base in our SG&A numbers. So nothing that I would say is driving it from a fixed perspective. We're doing a great job, I think, as Mark said, just managing our costs and keeping them down and capitalizing as we can.

Absolutely. Good problem to have for it to be lower.

Exactly.

One final point of clarification. Did you mentioned the date that you're doing the virtual event? I can look offline, but I didn't see it on the website. Or is it just later this month?

It's March 17 [ph].

Okay.

March 15.

Thank you. Good luck.

Thanks.

[Operator Instructions] Our next question comes from a line of Rommel Dionisio with Aegis Capital.

Thanks. I just wanted to inquire about the safety recall you guys had in November. On the Shield EZ line, one of your important lines, I didn't see that you call that out in the comments, or I didn't see them - sorry if it's buried in there and I haven't gotten to it yet, but what if you can just quantify was that a meaningful impact on the expense line in the quarter or also on the top line, while you may be held back production until you fixed the problem? I wonder if you could just address that or is it filtering into fourth quarter instead? Thanks.

Sure. Obviously, it wasn't a material impact, otherwise, we would have a call out on it. We had a very, very small number of firearms that we had an issue with. There's actually two of them, but the issue, we are always very cautious and ensuring that our products meet our standards and our expectations. So we decided out of an abundance of caution to do a recall there. So the impact to the top line was frankly favorable. The reaction from the industry and from our consumer base was, Smith & Wesson always stands behind this product. The social media feedback was extremely positive, which we always do, of course. We've had a fairly decent participation or recall rate in terms of the number of affected firearms that we've gotten back so far. But it's definitely tailed off now. Obviously, anytime you do a recall, you get an initial bump. As soon as you make the announcement, then it kind of tails off. And we're very much into that kind of tail off period. It's really nothing material [indiscernible].

Yes. So I would say the recall-related costs would affect the cost of sales line only. And, as Mark said, we haven't seen any negative impact on orders or whatnot for the EZ line. Really thinking $2 million or so of cost for the whole year, probably split between Q2 and Q3. So, not a large amount and not terribly meaningful on the overall margin percentage.

Okay, perfect. Thanks for clearing that up and congrats on the quarter.

Thank you.

Thank you.

[Operator Instructions] We have a follow up question lined Cai von Rumohr with Cowen.

Yes, thanks so much. So, obviously, you've got a lot of financial firepower. You've announced share buyback of $100 million, but through March of - was it 2022? So what's your strategy for buying back stock? Under what circumstances would we expect you to use the whole $100 million right away? Or how should we think a little bit about that?

Yes, obviously, Cai, we're probably not going to answer that question in its entirety. So we'll just talk about, the overall, I guess, thought process or strategy behind the capital allocation. As we've talked about before, the first priority is to reinvest back in the business, which, as I think you can see, we've done a great job of over the last 12 months. And then after that it's return access capital to the shareholders. So, we've done that obviously, through the dividend and when we're in a period like this, when we're obviously being very successful, then we'll take that opportunistic opportunity [ph] to reduce our share count. Obviously, you can see that we're committed to that and what that means going forward, obviously, we talked about before, we've earned the dividend for the long term and we're looking to be a growth dividend. So we're starting off understandably a little bit low. But that provides us plenty of runway as we go forward. And then beyond that, we'll use any excess capital beyond that, too, as you as you've just seen to reduce the share count.

Some companies, when they announce a buyback, you can pretty much set your watch. It's $100 million, it will be $25 million per quarter or close to that number. But the fact that you're not kind of saying, I assume you're taking an opportunistic approach and when stock price goes up, you may not buy, it goes down, you may buy more. Is that a fair assessment that it's really opportunistic, if you meet the other criteria, invest in the business, et cetera?

Yes, I think that would be a fair statement.

Okay, great. Thank you.

And Cai, just one last thing. We did pull up the numbers from last year, it was 57 and 64. So one day shift out of Q3 into Q4 for this year.

Thank you very much.

You're welcome.

[Operator Instructions] I'm showing no further questions in queue at this time. I'd like to turn the call back to Mark Smith for closing remarks.

Thank you, operator, and thank you, everyone for joining us today. Once again, just a congratulations to all my fellow Smith & Wesson team members for delivering yet another exceptional quarter. Everybody please stay safe. We look forward to speaking with you next quarter.

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