Q3 2021 Vista Outdoor Inc Earnings Call
Yeah.
[music].
Good day and welcome to the Vista Outdoor Inc. Third quarter fiscal year 'twenty 'twenty One earnings call. Today's conference is being recorded at this time I would like to turn the call over to Kelly Reisdorf. Please go ahead.
Good morning, and thank you for joining us for our third quarter fiscal year 2021 earnings call with me. This morning is Chris Metz Vista Outdoor Chief Executive Officer, <unk>, <unk>, Senior Vice President and Chief Financial Officer.
I'm, Jason Vanderbeek, Inc. President of ammunition.
Before we begin I'd like to remind everyone that during today's call, we'll be making several forward looking statements and we make these statements under the safe Harbor provisions of the private Securities Litigation Reform Act. These.
These forward looking statements reflect our best estimate from assumptions based on our understanding of information known to us today.
These forward looking statements are subject to the risks and uncertainties that day Vista outdoor and the industries in which we operate we encourage you to review today's press release and Vista outdoors SEC filings for more information on these risk factors and uncertainties.
Please also note that we have posted presentation materials on our website at Vista outdoor dot com, which supplement our comments. This morning and include a reconciliation of non-GAAP financial measures with that said I'll turn the call over to you Chris. Thank.
Thank you Kelly and good morning, everyone. Thank you for joining us before I start with the results from prepared remarks, I wanted to take a moment to thanks for the men and women that stand behind the results I'm going to share with you and.
So incredibly appreciative and grateful for the hard work of our dedicated team.
We've been through a lot the past few years to reposition Vista outdoor to its rightful position as leaders in the industry and our <unk>.
People have worked through incredibly challenging times for the past 12 months, many juggling personal strength and Harvard through it all our team has contributed immensely to enable us to distinguish ourselves as leaders I'm proud of our team and thankful to be a part of it mark.
Much has happened over the past 90 days on our team has delivered another quarter of outstanding results across just about every facet of our business. Our third quarter was marked by continued strong consumer demand a strengthening balance sheet execution excellence and decisive moves for future strength.
Sales were up 35% year over year to $575 million and gross profit was 84% up 84% to $164 million.
Our shooting sports segment was up 41% year over year to $402 million and our outdoor products segment was up 24% to $173 million our.
Our EBITDA margin was 15, 4%, which is a 735 basis point improvement over the prior year adjusted EPS was $1 three versus 21 last year.
We achieved year to date free cash flow of $294 million versus $46 million last year. Additionally, our leverage ratio is now below one times.
Consumer demand during this pandemic fuel period remained high and outperformed expectations in the third quarter. This is notable as the third quarter is generally slower given the winter weather and the seasonality is from core products, such as outdoor cooking Viking golf and target practice with social distancing and other limitations.
<unk> still in place our teams were able to capitalize on the heightened demand and provide the right products at the right time for our end users.
Like many of you we are working to analyze the new core demand level per outdoor consumer products. We know that 2020 produced more than 8 million first times on owners many of them many of whom are more diverse and more active there are 1 million new hunters powered by new and reactivated on it. This has led to a 12% increase on hunting.
<unk> sales across the country.
We know that more people experience the outdoors with their first campaign trip of the camping trips taken in 2020 half of the trips were taken by first time or reactivated campus in November 2020, the most recent month in which people for bike state is available we saw bicycles bike equipment, a bike shop service.
<unk> increased by 84% year over year.
These are all key metrics, we review each month.
This data is highly encouraging.
While we recognize we will return to a new and improved normalized growth rate at some point. The events of 2020 are clearly expanded debates and will support long term growth of the outdoor industry for years to come.
The strength, we are seeing has contributed to us performing at our strongest levels to date in fact, nearly every company repurchase is now operating at or near historically high levels of sales and profit because of the hard work by transformation efforts over the past few years, our sales performance has translated into record profit rates.
Free cash flow and cash conversion our team's focus on both the income statement and balance sheet is delivering balanced results.
Our leadership team understands the importance of being great stewards of capital our acquisition of Remington is ahead of plan and we expect similar results with our just announced acquisition of heavy shot.
We most recently acquired heavy shot ammunition per total of $16 million. This iconic brand is an innovation powerhouse specializing in the manufacturer of top tier shot shells bullets and lead free technology.
Henry Schein is well known for their high end high performing shot shells with a strong emphasis and waterfowl hunting. This is an attractive category as lead free hunting products provide stability.
And regulatory certainty, which helps to mitigate volatility overall, the iconic heavy shop brand edge technical capabilities to leverage across our ammunition portfolio will provide cost and revenue synergies to us and also enhance our market leading position as with Remington, we expect heavy shot to be accretive to <unk>.
Earnings in under 12 months post transition.
In total we have the underlying strategy to deliver market, leading growth and profitability given our team's ability to execute while we've had incredible acquisition opportunities in an ammunition. As we look ahead, you should expect to see more activity in the outdoor products segment of our business.
Within outdoor products each of our business units performed better than expected in the face of typical seasonality camp chef continues to expand its positioning in the marketplace with more consumers migrating to can't just back patio offerings, which include the Wi Fi woodwind pellet grill and the versatile sidekick grilling attachment.
This expansion is fueled multiple months of triple digit growth and with camp chef loyalty and lifetime customer value metrics 2020 growth bodes well for the future of our outdoor cooking platform.
Well on zero also had a strong quarter of cyclin trends continued to power the industry, resulting in another quarter of double digit growth for both of our bell and Giro brands as expected the snow related parts of our business were down given the COVID-19 related closures and reduced capacity at ski resorts.
We fully expect this to bounce back next year as the resorts open back up.
Our Bushnell golf team continues to enjoy a phenomenal success, resulting from new product innovation. The wind manned GPS enabled speaker continues to outperform expectations and was boosted further by holiday sales. We believe when NAND is a nice runway as the European and Asian Golfing markets had been more constrained Utica.
The restrictions that we've seen in the United States the.
The Bushnell wing man is a perfect case study of what product innovation can bring to both our top and bottom lines and importantly, <unk> NAND sales have combat map pricing, ensuring our customers make a fair profit and have every incentive to support and market the product.
For Camelback, we're excited to share with you a collaboration with one of the industry's great companies peloton peloton is the world's leading interactive fitness platform with more than 3 million subscribers. We have collaborated with peloton to create a new bottle and program. This program called Hydrea will feature accustomed peloton.
Camelback Protium cycling bottle as part of a larger assortment of personal fitness equipment and will start shipping in April of this year.
This partnership is a great fit to further build camelback brand awareness and as well times heading into the spring season.
On the ecommerce front, Black Friday, and cyber Monday revenue and traffic were up more than 100% when compared with the prior year within <unk> brands revenue more than doubled over the prior year from Black Friday, and cyber Monday traffic on.
<unk> strength with powered both by new product innovation, and an enhanced marketing strategy that brought together Bushnell ambassadors specialized educators and media per week long event for new product demos training and brand education.
The results were fantastic and the teams efforts supported strong launches for the Rx 100, Rx $2 50, Red Dot sights and the new T series L to see holster.
For the third quarter on total revenue across our ecommerce channels was up more than 50% year over year all of our businesses performed well on line with our camp chef and Bushnell golf brands, leading the pack with continued triple digit increases as.
As we've discussed previously our ecommerce business represents roughly 20% of our total company sales importantly, we continue to see significant opportunities to grow this channel distribution with little to no cannibalization of our traditional brick and mortar sales partnerships.
Now I would like to spend some time talking about our ammunition business I have asked Jason Zander brink president of ammunition to join US today and provide an update on the business given the recent Remington and now heavy shot transactions Jason.
Thanks, Chris and good morning, everyone I'm excited to be here, representing the men and women of federal CCI and Speer Remington and now having shop today.
Together, we have nearly 4000 employees, who work day and night $24 seven to deliver the best products to our customers our nation's law enforcement in the United States military citizens across our country, who are heading out into the woods are heading to the range and many international partners, our workforce, including our newest employees outlets, we Paul Mark.
And on.
Our number one competitive advantage and I'm honored to represent them today.
Safety is something we practice on promote on a daily basis and throughout the pandemic. We have altered the way we operate to account per CDC guidelines and other best practices.
Our employees wear masks have their stations pointed on a regular basis and while most positions are naturally social distance, we havent heard that all positions can operate with the proper spacing.
Now getting to the quarter.
Touching on the consumer demand trends, Chris just mentioned key themes that drove our results. This quarter were innovation innovation is the lifeblood of our company and is the key to driving increases in participation and consumption. We recently earned the American rifleman ammunition product of the year per federal's terminal ascent and <unk>.
<unk> per <unk>.
CCI clean 22 received the coveted editors choice award from on targeted magazine.
We are excited to bring new and better products out each year heading into fiscal 2022, we have more than 15, new product launches scheduled including many within the Remington.
Brand and we are looking forward to a big Green box come back.
Second we saw continued strength on the government sales channel I am pleased to share that federal was just awarded the FBI 556 reduced lab training and service contracts.
This award grants on increased volumes for the next five years with shipments beginning in the first quarter of our fiscal year 2022.
This was a major win per our employees and our business as this creates a halo effect for our portfolio of ammunition brands contract wins, such as this serve to heads from volatility we experience in the commercial market.
Third we were able to fully offset the impact of the loss of the Lake City contract with increased sales in our other ammunition categories as Chris mentioned on our last earnings call. We've reached a two year agreement with a new operator of the facility to distribute a portion of former volumes up two to three by five six ambition from the Lake City.
Plan.
However growth on our center-fire pistol on hunting ammunition sales have more than offset the decrease in lake City volume demand for these categories has historically been less volatile than demand for $5 six in two to three we are optimistic that the net result of the loss of the Lake City contract will be total ammunition sales that are more stable.
And more profitable in the future.
And fourth Remington. This integration is ahead of schedule has delivered better than expected results from the quarter and we now expect this business will be accretive to earnings and as early as the first quarter of fiscal 2022.
In a category, where we are a leader our talented teams are executing well and we are excited to be able to in view of the market with this sought after brand.
Additionally, many of you are following the stock outs across distribution channels closely since we have last commented on our ammunition backlog. It has continued to increase in velocity has accelerated since last fall across all of our ammunition brands.
The demographics of our end users are also changing our goal is to recruit educate and retain as many of these more than 8 million new users as possible.
In addition to increasing our presence in core market the advertising and consumer engagement panel. We have quickly added messaging that speaks to the new market entrant in hunting and shooting sports.
Our outreach campaign includes targeting people on web sites outside of the traditional we're seeing a video view completion rate of 90%, which is more than double our average and we are driving perspective customers back to new getting started content on our website. This has been particularly successful with.
Messaging focused on personal protection firearms cleaning and proper firearm safety and storage practices. The engagement on all of our social channels has been stronger than ever and proves our strategy is working.
Our consumer panel is giving us greater insights into consumption and participation trends stockpiling behavior and a better look at what is most important to the new shooter.
Throughout the pandemic, we have seen a 30% increase on engagement, which gives us great feedback for us to keep improving our product offerings and to service all of our end users.
Overall this has been an exciting new adventure for the ammunition team and we are excited to see such strong participation and demand for a whole new demographic.
Our vision is to be truly one stop shop for all types of suitors to learn more about the safe and enjoyable use of our ammunition. So that they can count on each one of our brands to be a reliable and informative source of education material on everything from firearm safety for personal protection for the lifetime of their journey and <unk>.
And shooting sports.
Promote safety through our partnerships on marketing, we support project child, safe, which gets more lots and firearm space into the hands of consumers.
We have recently partnered with the International Hunters Education Association to modernize their website, which will bring more safety and educational content to new and old hunters alike.
And our branded social media channels on web platforms are populated with education material and tutorials to promote and share best practices for the safe use of our products.
Finally, our team of federal deserves to be recognized for the work they've done to cut costs and improve sustainability through the conversion of materials.
Federal just introduced a new stock sale product line that has replaced the historical plastic wide with a 100% cardboard what this new feature ads for our industry, leading sustainable offerings, which includes steel shop business job tungsten Super shot and now this line of target loans with a paper wide.
A more cost effective more sustainable alternatives to plastic while at the same time studying the performance standards for shooters that have required tissue biodegradable was at various ranges.
Together these products support our business, while also complementing the conservation ethic that lives within all of Us who hi.
Our ammunition business leads the industry in the use of recycled lead and other raw materials. We believe our innovation is good for the natural world and also for our bottom line.
If shooters prefer to use non toxic ammunition or if they are required our broad offerings lead the industry for the end user.
Thank you for your time today and for your interest in our ammunition business and Vista outdoor.
So to answer.
Thanks, Jason and good morning, everyone. This time with Dougherty is currently in a position of strength beginning strength growth. During this time has been able to company from further gain share with each new network book influence on buying power to use debt and build cash.
This dynamic is a compelling overlay for the foundational attributes of Vista outdoor such as leading brands large and growing market proven management and ability to create long term value. We are factors within our control such as product mix price and cost savings initiatives.
Our long term financial strategy remain patch profit focus on return on investment to provide fuel for continued organic growth.
Second conservative balance sheet management and code our capital allocation approach.
Sure.
And supportive of tuck in acquisition opportunities.
Let's discuss a few key points from the quarter.
I'm not going to go through the whole P&L as Chris covered already but I'd like to provide context on a few areas.
We have provided you with both as reported and adjusted results in our press release and slides.
My comments today focused on access to the Gulf.
Year over year increases in gross profit of 84% to $164 million reflect overall improvement in pricing mix and efficiencies across nearly all of our brands.
EBITDA margin increased nearly 800 basis points to 16% in the third quarter.
Interest expense for the third quarter was $6 million down 25% from the prior year.
Third quarter adjusted tax expense was $6 million compared with a benefit of 710000 in the prior year.
The adjusted tax rate of about 8% reflects the benefit from the release of uncertain tax positions due to the statute of limitations prediction.
Adjusted net income was $62 million, resulting in an adjusted EPS of dollar tree comp.
Paired with 41 in the prior year quarter.
Key drivers behind EPS of strength, where volume improved gross margin in both segments growth on our E Commerce channel and benefit from the new product and cost savings initiatives.
The difference between GAAP EPS of $1 71.
And at adjusted EPS of <unk> <unk> is the result of a gain on the sale of our <unk> force non NATO training business.
Tax value with an aligned and M&A related transaction expenses.
Our balance sheet has been strengthened by delivering 104 million from free cash flow this quarter and $294 million year to date.
We had a strong working capital performance driven by good collection due to demand and an overall reduction in inventory in the channel primarily.
The average outstanding balance of our ABL loans in our third quarter was $10 million compared with $209 million in the prior year quarter.
Our balance sheet continues to get stronger and we continue to have ample liquidity to fund our growth.
Based on the outsides of shrimp. These past few quarter. We now believe we can keep our leverage ratio in the range of roughly one to two times.
It is prudent that we target a lower long term leverage ratio to derisk, our balance sheet staying at 1% to two times leaves us plenty of room to grow through internal investment and M&A.
Going forward, we will cause some cash as a safeguard should slowdown or headwinds in March while also ensuring that we have the flexibility to grow through internal investments and M&A at all points in the market demand cycle.
As a reminder, we are now in what is historically, a seasonal step down quarter sequentially.
And year over year comp will be compared to pandemic proof record high quarters.
<unk> vaccine becomes more widely on level, we will increasingly compete for the share of consumer's wallet, the travel and entertainment sector that has been restricted by the pandemic.
The pace of our sales growth and cash generation could moderate.
I believe it is prudent at this point to resist the temptation to increase leverage on put our cash to more aggressive yields.
On to segment results.
<unk> recorded third quarter sales of $402 million up 41% from the prior year quarter.
Of this our ammunition business was up 42% and our country business was up 37%.
We continue to see strong demand for ammunition and hunting and shooting accessories. The.
On the strongest ammunition categories.
LIFO and pistol ammunition, we also saw strength in both brick and mortar and online channels as overall participation remained strong.
Third quarter gross profit dollar $114 million up 120% from the prior year quarter.
Gross profit rate for the quarter was 28%, which is more than housing basis point improvement when compared with the prior year quarter.
Commercial strength drove improvement to mix and price.
We also saw improvement, resulting from E commerce growth and operating efficiencies.
EBIT improvement in the quarter once again nothing short of outstanding.
989% over the prior year and the rate improved by more than 900 basis points.
Turning to other products.
Third quarter sales per $173 million up 24% over the prior year.
We saw continued demand from the resurgence in outdoor activities and exceptional E commerce performance across all brands.
Gross profit plus $50 million up 35% from the prior year.
Gross profit margin improve like cash program 200 basis points.
The segment delivered 110 percentage year over year increase to EBIT and the EBIT margin rate increased to 11% from 6% in the prior year.
Turning to our outlook.
Today, we are providing guidance for our fourth fiscal quarter.
Our key against <unk>.
Continued strength of demand in commercial ammunition.
Overall E commerce trends continue.
Our supply chain net remains largely uninterrupted to be offset somewhat by a quarter with seasonally lower demand.
And lastly, we expect margin pressure from tariffs commodity pricing and freight charges.
We anticipate shooting sports to show a higher year on year growth rate than other products influenced by the headwinds of winter possible risk of retail closer as well as possibility of vaccination, prompting people to leave the home more and conduct less E commerce shopping.
Also from a modeling purposes, we anticipate full year annual cash capital expenditure spend to be roughly 25% higher than the prior year, reflecting accelerated investments in Remington operations.
We expect annualized interest expense to be significantly less than the prior year.
Our tax rate for the fourth quarter expected to be in the high teens.
We expect our leverage ratio to stay at or below one times in the fourth quarter.
And given visibility into cash flow, we expect fourth quarter free cash flow results to be better than the fourth quarter of last year.
Therefore, our fourth quarter fiscal year, 2021 guidance, which includes Remington and hitting shock is as follows.
We expect revenue in the range of $510 million to $530 million and earnings per share in the range of 55 to 65 loans.
Fourth quarter sales guidance includes roughly $30 million in sales from Remington and heavy shot combined.
Maybe shock generated approximately $20 million on sales in calendar year 2020.
In fiscal 2022, we expect Remington to reach a quarterly run rate of roughly 50 million plus by mid next fiscal year and expect heavy shock to be accretive to earnings within 12 months post transition.
We intend to provide a more fulsome outlook on fiscal year 2022 in may.
In summary growth in profit and free cash flow continues to strengthen our balance sheet and enables our ability to accelerate the building of our innovation pipeline investing our centers of excellence and deliver growth to talk from align tuck in acquisitions.
This formula of strikes the right balance between growth and fiscal discipline, while positioning our brands and businesses for long term success.
We have the right business model to acute these growth we've been.
Inc. Together, two segments, who share a common bond on well known brand asset and users and belief in expanding outdoor recreation through great products policy and by reaching new users no matter, where they live on what their backing on might be.
Thank you everyone and now we will open the line and take your questions.
If you would like to ask a question you may signal by pressing star one on your telephone keypad if youre on.
Using a speaker phone please make sure your mute function as shown on your line is from Nokia reach on equipments. Please limit yourself to one question per person.
We would like to ask a second question you may signal once again with star one.
We will pause for just a moment to allow everyone an opportunity to signal.
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And it looks like we may have had a technical groups.
I would like to ask a question please signal once more.
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Sure.
Yes.
Alright.
Question from James Hardiman, James could you. Please press star one once again please.
Okay.
We'll go ahead and take your questions.
And can you hear me.
Yes.
Hey, James you can hear you just find out okay.
Okay great.
So.
Sort of a.
Question, and then maybe just a little bit of a clarification.
So obviously there was a lot going on in 2020.
That that.
Would contribute to the growth we've seen out of shooting sports.
Obviously social unrest.
Delek Pelike assumption was that we'd get into 2021 on things.
Cool the opposite appears to have been the case, the net numbers look like they've reaccelerate.
So maybe.
Sort of talk us through whatever you can in terms of what you've seen.
At the beginning on the year.
Obviously with the SaaS net Democrats.
Holding legislated power for the first time in a while it seems like a big deal for the space, even though it seems pretty far down debt Melissa.
Bob.
Legislation priority. So maybe just talk us through what you've seen year to date and then.
The FBI contract, where it seems like a big deal when does that start and then is there any way to.
Does that provide an excellent per cycle.
Yeah, So Jamie certainly.
A good question and something that we think through every day every week every month here as we go through the remarkable events shows.
Calendar year, 2020, and what made the 2020 different.
Certainly for the ammunition business that you're referencing as it was.
Completely different in any previous surge we've seen previous surges had a large technical debt surrounded or was emanated from second amendment political legislative issues and what we saw starting in spring of last year with Covid was a pent up.
On work from home, let's get outdoors type of surge and that certainly helped our shooting and some of the activities then that moved into civil unrest and we saw a lot of folks looking for self sufficiency and looking for personal protection.
And then as we moved into the fall season, we saw hunting at record numbers and as.
As I mentioned in my script hunting licenses were up 12% all of this contributing to demand and remarkably we didn't see any runoff from the political general election, then when things went.
Maybe a little bit different we've seen of recent political.
No political.
Impact on our ammunition business.
So I think in summary games, what we saw on 2020 has not only.
Slowed down or abated.
<unk> actually increased in demand. So the demand continues to be strong we've seen.
<unk> seen some of the highest levels of demand frankly in a month.
Approach the end of the calendar year 2020, and frankly as we look forward here you know, we don't have a crystal ball this perfectly clear, but we see this continuing for the foreseeable future and this is also the knock on effect on our outdoor products business. Because you can see the robustness that we saw on the second quarter continue into the third quarter.
<unk> and we feel that momentum carrying forward as it relates to the FBI contract. Fortunately, we have Jason here and I'm going to let him.
I'll add some color to this but it is a real real cool for our team and.
Really.
Kudos to our team for securing this and as you know we don't necessarily comment on.
Long term the potential impact than necessarily the size of it because you know that whenever they contract for it could exceed that number depending upon how many rounds issues, but Jason on the FBI contract. Yes. Thanks, James on that contract, we expect deliveries to start in quarter, one of fiscal 2022 as Chris.
Mentioned, we do not size up that contract because there's lots of unknowns.
What's nice about this contract as it certainly gives us a halo effect when he when such a prestigious contract, especially with the Bureau.
So our business units.
You know what the new product that we delivered for the F. B I, we expect that we'll have some sales.
On a side of that contract up on the revenue side.
Okay. Thanks for the color guys I appreciate it.
Good day, thank you.
Alright, once again that is star one.
On to ask a question. If you find your question has been answered you may remove yourself from the queue by pressing star queue. The next question is from Ghansham Qunar.
<unk> with Cowen and company.
This is Dan on for Jonathan Thanks for the question.
So we were curious on.
And on pricing. So price is obviously increased a lot at the retail level, but we're wondering like how much of that Vista.
To capture.
And on kind of like how do your pricing agreements work with customers as a spot or contracted or some next year on that too.
Any level of detail that you can provide us about how that relationship works would be helpful. Thanks.
Yeah sure Dan Let me, let me answer that for you so ammo pricing is.
Is it a factor of many things and the primary factor is is us looking at the input costs that we have to absorb and then us looking at market conditions and what we think is a is.
Is that appropriate price given all of the circumstances, we see.
And the.
What we're seeing on the input side as it is a dramatic increase in our raw materials.
Bad debt copper be it led.
<unk> corrugated paper what have you we're seeing overtime rates increase says we're running on continually flat out in our facilities and the on the last 90 days, we see an increase in freight as is every American corporation as seen in and so that all goes into our thinking as it relates to pricing now in terms of.
Of the sharing and pricing, it's a it's a value chain that contributes to everybody and so our distributors are buying groups are very healthy are our customers and our dealers are are very healthy as well from a.
From a just a financial standpoint in this environment.
As evidenced by this basic supply and demand. So we don't necessarily size up how that pricing of share, but you can see in the results that we posted that we're at.
At all time highs as it relates to.
You know what our profitability is in and we need to be there because we see continued pressure.
And we're constantly evaluating the pressure, we see and making sure that we're the way we're pricing it is fair.
On the marketplace. So we're very careful because we know that we supply a lot of products of peoples.
Self defense and their hobbies and their passions and what have you. So we try to keep pricing at a level that is as fair as we possibly can make it now the majority of our pricing is is not contract basis.
It goes with the commercial market, but we do have on contracts with law enforcement with military debt.
That is locked in.
Yes.
Okay, we'll take the next question.
Scott.
Okay.
Good morning, Thanks for taking my questions and congrats on the continued success.
Against non following up on James's question before about I guess, the sustainability of dimension I can talk about.
How are you.
On the usage of your products are differing from I guess past surges and and how that really speaks to how things can be sustained at these positive about home, maybe not that Aetna square foot participant channel going forward and then after that maybe just.
Talk a little bit more about the telecom camelback be on maybe slide that I'll first Oliver Thank you.
Sure Scott So let me let me first talk about the aggregate at camelback in debt.
On the upheld on relationship and net and I'll address the.
BMO, a sustainability and let Jason add onto it but.
So the camelback and peloton as you can appreciate is a it's a confidential contract. We don't typically share terms conditions, what have you on our contracts, but is a super super weighted for the camelback payments.
Takes one of the great brands in the recreation space on peloton width.
On a the iconic brands in the outdoor space and camelback and marry the two together. So we're really really excited about what this brings to us the ammunition surge I mean again, what I alluded to on James's question is the fact that it's just very very different and it's probably the broadest base.
Surge we've seen so it's not just.
556, Q2 to three calibers nine millimeter yourself defenses hunting loads it's.
Center-fire long rifle hunting loads waterfowl, you name it across the board it is.
Every one of the categories has seen a surge and we mentioned 8 million new users a lot of which are.
People color women, what have you that are getting into the sport and shooting and enjoying from the first time. So it is pretty broad based.
Jason anything else that you see.
Thanks Scott.
Add that as Chris mentioned it is a extremely broader based on previous surges I would venture you to go to a range that isn't busy today, whether it just be for recreational shooting hunting sales were up 12%. We hope that continues and we think it will continue.
It's a it's a much broader.
Serge than we've seen in previous years, which is good because when it's tied to one or two calibers us on previous surges work that's not good for manufacturing the products. So everything seems to be doing well right now across broad based categories, where our brands fit, especially on the performance side per hunting ammunition on personal defense.
We have a nice share of that market. So it's just a it's a win win for us and for the industry as a whole for the longevity of it.
Got it thank you.
Alright. The next question is from Matt Koranda with Roth capital.
Hey, guys. Thanks for taking the question.
Moving to cover the Remington rapidly could I know you guys said it contributed a bit faster than expected this quarter.
Maybe if you could cover a little detail on what enabled debt faster ramp and how much it contributed to the quarter in terms of revenue that would be helpful. And then I think you mentioned Jason that.
From a can they be accretive intervals standard for first quarter, but per year. So just wanted to understand is that earnings accretive margin accretive.
Should we think about the EBIT margin contribution that Remington.
<unk> grabbed the middle of the year next year.
Yeah. So.
Yeah, Good question and will let Jason address.
How this thing has progressed force because I think what he and his team have done is a remarkable job.
In the early stages of integrating that business much much differently than that then we have lift on previous acquisitions in and it's right in our wheelhouse in adjacent space So patients.
Matt on the on the integration itself, obviously, we did exceed our expectations for the quarter.
Net finance or talk about on the accretive remarks on it but the ramp up plan is going well as you can imagine when you have to hire hundreds of people and trained hundreds of people at the same time fighting raw material outages. It has its challenges, but our team has done a fantastic job the workforce in the low milk, Arkansas is remarkable.
And we expect this ramp up plan and integration plan to go above schedule for the rest of our year and into fiscal 'twenty two.
And Matt on the sales point, we talked about in Q3 weighted roughly 15 million and Q4 will be doubling it we think $30 million based on intent on heavy shop.
So and after that it's basically we see you on mid by mid fiscal year. They will book with D. A 50 million ton run rate so it will be earning accretive.
In Q1 for us.
And we are very excited about this deal and its really really working route debate Jv's TV, Jason Covid, leading it.
Great and if I could ask one follow up.
Okay.
Just a more modeling question, but and the earnings per share guidance was 65 from the midpoint you guys mentioned, you're expecting some carrier and price headwinds.
In terms of what you're factoring in.
Could you help us quantify that a bit maybe in the fourth quarter guidance if at all.
Yeah, So Matt we are.
We don't typically.
Yes size that up but as I mentioned it is freight as you talked about it's a container shortages, which were going in and negotiating every day.
Current rates to make sure that.
We're being smart about getting product on the water, where we're in a source.
Cash position, we've also got increase in commodities we've got.
Various input costs, all factored into the EPS model that we have in and frankly some of this stuff is.
We expect to be onetime events I mean, the rate increases in the containers.
To work itself out at some point in time its going to go on through the quarter may even go on into the first quarter of our next fiscal year, but.
Lot of the folks that I talk to my peers and other companies in our suppliers suggest that some of the input cost is.
It is going to abate and the one thing I didn't talk about is tariffs, which we've seen a negative effect on tariffs not not big but certainly.
You have something that has impacted a couple of our businesses and we anticipate that that will continue as we as we go forward.
Okay, Great very helpful. Hunter I bet you guys. Thanks.
Yes.
Alright. The next question is from Mark Smith with Lake Street Capital Management.
Hi, guys just wanted to ask about E com and as it applies to ammunition business can you walk us through on quantify or maybe you can talk about the growth that you've seen in E commerce for ammo.
And then with that can you also talk about the backlog in ammunition and how much of that is maybe made up of E com or how much you can fulfill.
Of that backlog through your ecommerce channel.
Yes.
Yeah, So good morning, Mark and this.
This is Chris I'll take those a couple of questions. So E com.
We had a actual slow down versus previous quarters in our ammunition business than it was all.
Because of the choice, we made to ensure that our retail.
And E tail partners get their fair share and so Jason and his team in many cases have limited purchases to two boxes. So we know we can sell more on E com, but we may be on purpose decision to support our customers on our dealers who are working so hard to build a demand and we'll book.
We continue to evaluate debt as we go forward now the backlog we gave a general size of it last time and as I alluded to in my prepared remarks last quarter. We don't intend to continue to do that because there's a number of factors that.
Net influence and impact that backlog, we just did it at the time to give people an indication of the demand surge that we're seeing and so.
It's safe to say that.
As I've alluded to earlier that the demand has not only continued but we've seen a strengthening of the demand which would lead to a backlog across all of our channels of distribution, including our own E Commerce.
Okay. Thank you.
Yes, thanks Mark.
Alright, and the next question is from Ryan Sundby with William Blair.
Sure.
Good morning, and thanks, Thanks for taking my questions on.
Congrats on the quarter.
Thanks, Rob.
A little bit more about the rationale for the long term loss per average ratio from one to two times.
And.
Isn't that a target that you'd be willing to add backs up against the right deal on and work the way back down I'm just trying to understand.
Back on Monday.
Brian This is <unk> as I mentioned in my prepared remarks, we had is cyclical industry and we want to be more conservative in terms of the balance sheet management.
We believe that the kind of earnings and cash flow, we will generate one to two time, Inc.
Still gives us enough flexibility to invest internally to do tuck in acquisitions, and we believe that debt good for the company for the long term balance sheet management.
Or would you be willing debt well above the two times book the right deal comes along or is that on a cap on local co pack.
So but right now all of this on a long term guidance is one to two times and we believe that gives us enough flexibility to do the right type of deals which will be accretive to us yes.
So Ryan let me add a couple of points to that Sudan to underlying the cyclicality nature of our business and so what we don't want to do is.
Run, even a remote risk that we get back into the capital leverage situation that we got into a few years ago. So we're very mindful of that however that being said, we're seeing a lot of opportunities to drive organic growth and we're seeing increasing opportunities on the M&A side, but as everyone knows.
<unk>.
On multiples are high right now so as much as we're excited about the.
Potential M&A activity out there you know we want to be really good stewards of capital and Inc.
And so where we see opportunities and what we're looking at now we can.
Feel like with the cash generation that we are demonstrating and what our projections are we feel that we can stay within that 1% to two times and do everything we need to do.
Okay. Thanks, Michael.
And the next question is from Eric Wold with B Riley.
Thank you good morning.
Moving to follow on questions to the last one.
On the acquisition landscape.
On the Gulf War going on tuck in.
Should we look at the $60 million price, where Henry shop on.
The 81 million from Remington kind of book and so you're going to what you'd deals on attractive.
Tuck in acquisition range or.
What would get you comfortable going above that.
Kind of a range of on the range.
So Eric the way, we're looking at is a bit different.
In terms of.
How we value the businesses, we valued both.
As you said, you're kind of bookends right. So 180 116, we didn't set out to play it that way, we looked at both independently and saw great opportunities to get.
Get them at attractive prices to leverage the synergies we have in our centers of excellence that we're building and make them very accretive. So we purposely not box ourselves into a size because they need to meet our criteria and if.
They come in varying sizes were absolutely fine with that and I think it's fair to say, we're not going to look at really really small acquisitions that take an awful lot of our teams.
Precious resources, we look at everything.
And look at it as though it has an opportunity cost. So please don't take those as book ends we look at everything independently.
Got it and then if I.
It's simple and I know you.
Don't want to comment on on backlog in the quarter, but just.
Maybe can flow into thinking about converting from last quarter, and how you're going to come from.
Added on to this quarter.
The approximate.
Kind of annualized and annual manufacturing capacity right now taking a rig count kind of initially what your guidance on Remington Henry Schein.
And what do you think over the next 12 months ago to acquisition to get further integrating debt get improved and the company what could you see here.
The ammo manufactures that could be 12 months from now.
Yes, Eric we certainly look at it we want to be mindful of the total capacity within the industry, but we don't know the exact size.
We're working as best we can with.
Yes different outside sources to understand how and where capacity is being put in because in previous searches theres a lot of capacity that was added what we're doing is smartly, adding capacity to our organization without adding to the industry one of our key competitors.
He has done something similar on the Lake City front. So it's one of those things where I think the strong are getting stronger.
Adding capacity in our smart smart manner to keep the market rational and I think all of US are looking internally at how we can be more efficient can we reduce skus can we get more dedicated runs can we mix in a way that allows us to serve the consumer better.
Sorry about all volume of small Chris I'll turn it on not the industry capacity just to get the capacity.
Yeah, So Eric.
What you see us from doing right now is running.
Flat out.
I think that gives you a good window into where we sit now.
<unk> provides great upside for us heavy shop provides more capacity, that's what I'm, referring to so I.
You've got <unk>.
Some good information that we share that it gives you a feel for where our capacity really lives.
Thank you.
Yes.
Thanks, Eric.
Alright, and the next question is from Brian <unk> with Baird.
Yes.
Good morning.
Just Chris Hunt shoot on.
For material inflation.
Are you doing anything to hedge that inflation cost over the near and medium term.
Yes, So hey, Brian we've talked about hedging in the past and I think it's.
It certainly helped us over the last 12 months to 18 months, a bit and we will continue to help us a bit but.
When we look at the spot rates of or the hedge rates based upon the current spots.
We're very careful about locking into something that we feel like it is.
Is not a smart bed. So we look at the spot rates now we see them at.
At highs so we're not excited about jumping in and locking our team into <unk>.
Hedge positions that we don't think are smart, but we continue to evaluate it so not too.
Keegan, who you all know and our whole team along with Jason and his team and frankly outside advisers and bankers that we work with look at it very very Holistically should answer you on anything that low Chris. This is our top priority to keep watching it and we feel that we will do the right thing as we get the different type of advice.
Great and maybe just one last one if you can just given the changes in the competitive landscape can you talk about how the current ammunition newborn is in terms of the competition imports versus sort of a consolidated base here on the U S.
Yes, so we are.
The competitive landscape is it's a competitive industry right you've got.
A lot of good competitors.
That we work with.
In many respects on different initiatives and.
I don't think Jason we see the landscape changing too much.
As you see surges in this where demand is outstripping supply youre going to see.
<unk> continue to grow as well because they just consumers can't get the.
The brands they want initially.
Yeah, I think history shows us that the times of a surge imports come up when there is not a surge our customers much more prefer a domestic manufacturer. So it puts us on a and a good seat with with the brands that we've acquired recently.
Great I appreciate the thoughts.
And again that is star one if you would like to ask a question.
Alright, we did just get another question in from.
Jim.
With no net.
I'm sorry.
Betsy and Hearts.
Good morning, Thanks for taking my question.
Jason Our just wondering if you could talk good morning.
Can you just talk about.
Where do you think EBITDA margins for the Remington business can get to Covid.
Get on par with the rest of your existing business.
And is it a factor of sales volume to get there. So what sales volume or is it more a function of just kind of training.
The workforce there.
Bottom on recently.
Thanks.
Yes, so Jim when we look at the the Remington business.
Jason and his team are.
Making herculean efforts to take day facility from a cold start in a demand environment that we're in right now and produce at the highest level. So we've got chat.
<unk> on the material front, we've got challenges on the labor front and everybody in that area wants to come back and work force, which is terrific, but we have to train folks reframe folks that are coming off furlough and make sure that they're cross trained so.
We're doubling the business this quarter, which Sudan suit prepared in his remarks is almost a doubling again.
In the ensuing quarters as we get kind of into the middle of next fiscal year. So net Remington business as you look at the challenges we've had will not be at federal Speer and CCI margin rates.
This.
Next 12 months, but when we look out beyond that there's no reason why it cant be at federal rates. That's the way we look at it and so.
So far would support that.
Right and then.
Can you talk about what the or does the order book for the outdoor products business looks like and how retailers are kind of planning that business for spring of next year.
Yes, the outdoor products business is is is equally as exciting we've seen the same on surgeon demand we've seen demand continue.
And again from what we see right now we are.
Continuing right I mean, there's a number of factors for it people have rediscovered the outdoor is again.
Covid vaccination rates I think are are surprising some people that they're not as fast as they could be and so we see all the trends that we continue to see continuing right. So people are cooking outdoor as people are still a bit reticent to go to restaurants people are riding their bikes, we see E bikes coming on stream.
A lot of stuff that factors into our demand continuing which we're very excited about we didn't talk much about outside the U S. But we've got brands like Bushed, Alan Camelback in Bell and zero debt have good footholds in areas of the world that frankly are struggling more than the United States is and so that.
Pent up demand is there we know it's there.
And we also expect our SKU related businesses to recover as mountains open up so yeah.
Yeah.
It's a good time for I think folks in the outdoor recreation business and those who are most innovative and have really good brands.
And to Prosper in times like this.
Great Thanks, and best of luck.
Okay.
Alright, and there appear to be no further questions at this time.
Thank you operator, and thank everybody for your time today, and we look forward to chatting with you on another 90 days.
This concludes today's call. Thank you for your participation you may now disconnect.
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Okay.
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