Q3 2022 Vista Outdoor Inc Earnings Call
Cool.
My name is Lydia and there will be your operator today.
If you'd like to ask a question at the end of the presentation. You may do so by pressing star followed by one on your telephone keypad.
It's my pleasure to now hand, you over to our host Shelly Hubbard Vice President of Investor Relations. Please go ahead, when you're ready Shelly.
Thank you and good morning to everyone joining us for our third quarter fiscal year 2022 earnings call.
With me. This morning is Chris Metz Vista outdoor Chief Executive Officer, <unk>, <unk>, Senior Vice President and Chief Financial Officer, <unk>, <unk> president of outdoor accessories and golf.
Before we begin I would like to remind everyone that during today's call we will be making several forward looking statements and we make these statements under the safe Harbor provisions of the private Securities Litigation Reform Act.
Yeah.
These forward looking statements reflect our best estimates and assumptions based on our understanding of information known to US today. These forward looking statements are subject to the risks and uncertainties that face 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 risks.
Factors and uncertainties.
Please note that we have posted presentation materials on our website at investors Dot Vista outdoor dot com, which supplement our comments. This morning and include a reconciliation of non-GAAP financial measures.
Before I turn the call over to management, let me provide a few comments regarding the changes in segment reporting.
As you read in our earnings release. This morning, beginning with our third quarter results, we realigned our reportable segments to more closely reflect the important factors that affect each businesses financial performance <unk>.
Including supply chain and logistics.
We believe this will provide clear sight into the puts and takes that are affecting each of our businesses.
As such we are now, including our hunting and shooting accessories business and our outdoor products reporting segment renaming it outdoor accessories.
Our outdoor accessories businesses share similar manufacturing and logistics needs as the other brands in our outdoor products segment.
We believe that this change will allow our investors to better understand trends in those businesses.
Which predominantly rely on non U S based manufacturing unlike our ammunition businesses.
Our ammunition businesses will now be reported as a standalone reporting segment named sporting products.
Importantly, these changes have no impact on our historical financial results. We have provided historical segment information restated to conform to the new reporting structure as supplemental financial information on our IR website.
Please refer to our earnings release for more details.
With that said I'll turn the call over to you Chris.
Thank you Shelly and good morning, everyone. I appreciate you joining us today.
Q3 marks our sixth consecutive quarter of record breaking financial results.
Sales were up 38% from Q3 last year, driven by double digit growth in both of our reporting segments with sporting products and outdoor products up 60% and 17% respectively.
We delivered another quarter of increased profitability as we continue to successfully navigate industry wide supply chain and inflationary challenges for example, gross margin expanded more than 700 basis points from Q3 last year to 35%.
<unk> more than doubled EBIT increased over 80% and EBITA margins expanded over 400 basis points to 22%.
Overall, our performance through the first three quarters of fiscal year 2022 has exceeded the three year targets, we introduced at our Investor Day last may.
These outstanding results demonstrate the strength of our value creation strategy and our team's ability to successfully execute on our plan.
Our five strategic pillars aimed to achieve one overarching goal to leverage shared resources across our brands and achieved levels of excellence in financial performance that would be out of reach for any one brand on its own.
The first strategic pillar is to build the right team as well as the right culture.
Culture that puts people first empowering them and enabling them to surmount challenges grow and succeed.
Our team's perseverance through the unprecedented challenges over the past two years is nothing short of remarkable their continued dedication to deliver against our goals is one reason I am so proud to lead this company.
The second strategic pillar is organic growth. We now have 10 power brands each of them each of which currently generate more than $100 million in annual sales. This achievement reflects our multi year effort to expand the business and grow each of our brands in three distinct areas.
The first area of innovation.
And we're continuing to launch new products at a rapid pace across our portfolio of brands to continue meeting customer needs and expanding market share.
The second is marketing and our team is outstanding expertise of getting the word out about our brands and new products to outdoor and shooting sports consumers.
Third organic growth drivers e-commerce , we're continuing to make significant ecommerce investments all aimed at creating a seamless experience for our consumers meeting them wherever and whenever they want to shop with us.
<unk> e-commerce capabilities, a priority for US three years ago, we created in House Center of excellence to help our brands accelerate their efforts and achieve positions of ecommerce leadership in their markets.
We're seeing this investment pay off as we've grown our e-commerce business, nearly 10% and DSC nearly 30% in Q3 as compared to the prior year.
Our centers of excellence for e-commerce to supply chain represent the third pillar of our value creation strategy.
Our supply chain center of excellence is focused on enabling our brands to leverage shared resources and perform at higher levels than they could on their own similar to our E. Commerce Center of excellence drew.
Driven by the efforts of our supply chain team our brands have dramatically improved their performance over the past three years in areas, including procurement tariffs hedging SKU rationalization and freight optimization. This has resulted in significant efficiencies and improved ROI for our overall company given.
Given the current issues related to supply chain and logistics that our industry is facing its been challenging to make products fast enough to meet the high demand. We're experiencing however, as a result of our supply chain center of excellence, we have been successful in getting more products, including innovative new products manufactured and delivered from overseas on a timely basis.
At the same time, driven by our brand leadership, we've maintained the pricing power to sustain our profitability. Despite the pressures associated with higher commodity supply chain and SG&A costs.
The fourth pillar of our value creation strategy is our ability to make prudent acquisitions of fast growing outdoor brands and successfully integrate and grow them within our portfolio in order to deliver long term returns for our shareholders that exceed our industry peers in.
In late December we announced the acquisition of Sone Glacier another high growth business that increases our total addressable market in the back country, which has exploded in popularity in recent years and offers an outstanding line of packs equipment and technical apparel.
Stone laser is an enthusiastic cultlike brand that is well managed and a great cultural fit we're excited to welcome the teams at Vista outdoor.
This marks our seventh acquisition in less than 18 months another milestone in our journey to become the acquirer of choice in the outdoor industry.
As brands realize the power of our scale centres of excellence advantages and nimble decentralized operating model.
When brands join our family we have a successful track record of quickly leveraging our shared strength to help them reach the next level of growth and leadership economics more quickly and more effectively than they would be able to do under any other ownership.
In fact, our M&A center of Excellence has developed a highly effective and repeatable integration process that has greatly contributed to us beating the business case for every acquisition that we've made to date.
Turning to the fifth pillar in our value creation strategy. Our capital deployment strategy is aimed at keeping our balance sheet strong and generating the cash flow necessary to provide financial flexibility for value creation.
We have continued to opportunistically repurchase shares of our stock with excess cash and low our leverage following the acquisition of stone Glacier, our net debt leverage ratio was approximately one times at the low end of our stated target of one to two times.
In addition, today, we announced another 200 million share repurchase program, which is a testament to the confidence we have in our brands our team and the valuable opportunities ahead.
Now, let's move on to our reportable segments overall, the level of consumer demand remains unprecedented across our portfolio of brands and the 2021 holiday season was strong our ecommerce and supply chain centers of excellence teams worked tirelessly to seamlessly serve customers and ease the purchasing experience, while ensuring that each of our <unk>.
<unk> delivered products to our consumers in time for Black Friday, or Black Friday, and cyber Monday DTC sales were up substantially from Q3 last year as a result average order value for the holiday season increased 30% and our conversion rate on Black Friday increased more than 15% a significant accomplishment given the record comps.
<unk> 2020.
Moving on to outdoor products. This segment was up 17% to a record $335 million driven by double digit growth in outdoor recreation and action sports as well as growth in outdoor accessories, EBIT increased 10% to $42 million.
As we previously noted our M&A efforts had been primarily focused on adding fast growing brands to our outdoor products segment. In addition to stone Glacier in December our acquisitions of foresight sports and fiber energy about of growth profitability and expanded our total addressable market within our outdoor products portfolio.
Let me share a few highlights from our outdoor product brands.
Our camelback brand drove revenue up over 30% year over year in the third quarter, marking the fourth consecutive quarter with growth over 30% driven by strong demand for bike products hydration packs and custom bottle designs.
With the support from our E. Commerce Center of Excellence Camelback has also dramatically improved its direct to consumer capability, which posted record sales in the third quarter Importantly, camelback continues to deliver innovative new products to capture additional market share and meet customers' needs. Most recently at launch the product collaboration with the water purification.
Brand Lifestraw, which captured the coveted gear of the year award from gear patrol.
Our back country electric bike brand quiet cat, which we acquired last May reported another record quarter and it's been significantly expanding its distribution across the U S.
We have also leveraged our shared resources to help quiet continue its rapid growth. Most recently by opening a larger and more strategically located shared distribution center in Arkansas with our other brands. We're also pleased to announce that <unk> extended the Jeep partnership for another three years with an option for two year extension.
<unk> continues to focus on new product innovation with the spring launch of its apex grill, expanding the brand's leadership position and giving consumers a choice for wood pellet or propane fuel cooking in a single platform. This innovation offers a breakthrough design with several camp chef features including the sidekick thus creating.
A unique offering in the marketplace.
Fiber energy also has a capacity to expand which will support camp chef's pellet business in a macro environment, where pellet capacity is limited.
Another highlight was gyros cell business, which had strong performance in the U S. Due to product availability early season snowfall and innovation.
<unk> received multiple gear of the year awards for seven different helmets and four different goggles from sources, such as outside magazine gear Junkie popular science and trip Savi, our new grid and lightweight helmet and contour Rs goggle, we're editor picks and freestyle magazine expanding on prior recognition from our.
<unk> magazine.
As for Bell its recent video under the helmet with motocross racer. Eli told that was the biggest video release in the brand's history, expanding their brand awareness awareness and consumer loyalty through viral digital channels. We're also seeing strong momentum from our bike accessory brand Blackburn, which is expanding shelf space with new.
<unk> at Walmart as well as expanding into additional doors and we had another quarter of very strong performance across our golf brands, including Bushnell golf and foresight I'll have <unk> anchor and provide an update in a moment.
Now, let's move on to our ammunition business, which are being reported separately as our sporting products segment.
Sales in the sporting products rose, 60% to $460 million with EBIT margin expansion of over 1500 basis points to nearly 33% driven by improved pricing volume and mix, including the scaling of Remington.
Federal premium will celebrate its 100th anniversary this year, a milestone that few companies reach and we are proud of the team for this achievement and the tremendous growth and leadership position. We've created over the last year and federal is more nimble lean and dynamic today than ever before considered the team's recent accomplishments the <unk>.
<unk> recently awarded federal and sphere contracts for all four categories of its handgun ammunition, even with strong consumer demand, we've been able to provide products to important government and law enforcement customers and secure those contracts.
Federal's 'twenty two LR product was recently awarded NRA womens year over year, Golden Bullseye Award and within New product innovation Federal recently launched 30 Super carry around which will revolutionize the personal defense ammunition market as well as the high overall, which was engineered to be the industry's best.
Competition shot shell into service.
High demand market.
This first product launched since the acquisition, it's been a huge success the core lock tip reception in the marketplace is yet another signal that big Green ammo is back and finally federal's terminal ascent continues to Garner awards and accolades alike and has become the most sought after hunting load on the market.
We are proud of these accomplishments and taken against the backdrop of today's of off market. We believe our ammunition business is far stronger and more resilient than it was five years ago. This business continues to benefit from strong consumer demand and trends that we see continuing for the foreseeable future. This is supported by nearly 14 million new diverse enter.
<unk> into the sport, including a high percentage of people of color and women. These new enthusiasts are contributing to high participation rates at shooting ranges and youth shooting leagues as well as increased sales of hunting licenses.
Which continues to grow to the highest levels in over 60 years.
This available data indicates that the influx of new entrants into hunting and shooting sports has produced a new pool of enthusiasts that we expect to be repeat customers for our consumable ammunition products for years to come.
Channel inventories remain quite low with the exception of small rifle ammunition products produced at the Lake City Army ammunition plant.
However, we've discussed on prior calls following our purchase of Remington. We are now far less reliant on Lake City small rifle ammunition sales and we werent prior years and our strategic goal of shifting our product mix into more stable and more profitable hunting and shot shell ammunition is paying dividends in terms of both topline sales and Bob.
Some line profitability.
We have also implemented strategic pricing actions to offset rising material labor and transportation costs, and we continue to drive increased efficiencies as our team increases output.
I want to emphasize that we're not resting our optimism for the future solely on heightened demand, we're continuing to modernize our ammunition business and reach consumers wherever they shop through our DTC and e-commerce platforms, which are leading the industry and our brands are actively building loyalty among new users as evidenced from federal's aforementioned gear of the.
Year Award.
We are also continuing to target capex for incremental capacity expansion and efficiency improvement to increase volume at our existing plants. We believe that our latest investments will allow us to achieve higher output productivity and operational efficiency rates than any other manufacturer further expanding our long term competitive advantage.
Now I'll turn it over to the shack and he'll talk more about the exciting new opportunities in this operating segment be shocked.
Thanks, Chris and good morning, everybody. The third quarter was a transformative one for Vista outdoor as we expanded our leadership position in the golf technology sector.
Our acquisition of foresight spoke enabled us to quickly penetrate an emerging category and launch monitors and simulation. While also bringing together one of the strongest technology brands and foresight with one of the strongest consumer brands and Bushnell golf.
These two assets gives us a distinct competitive advantage in golf.
We can sell is undergoing an incredible transformation young.
Younger more diverse box expense are driving growth across both on and off course category and opening new audiences for our golf team.
In 2021 total golf participation was up 2% to $37 5 million.
One.
Our $12 4 million people are off course box with this demographic is younger and diverse and growing.
<unk> grew 5%, which is remarkable given the 13% growth in 2020.
This growth was driven impart youll heightened off course interest and engagement.
This mean that the off course experience, it's sticky and bringing new demographics to the golf course of any cycle for the game.
Both sides, both positions <unk> well for these evolving and diversifying trend by expanding our leadership position within encore product what.
Enabling deeper entry into the off course segments.
During the third quarter, So Vista outdoor golf operating segment grew triple digits led by strong results from our four site acquisition and double digit growth from Bushnell golf.
Q3 included the first.
Full quarter with foresight, which over delivered.
Posting strong double digit top and bottom line growth.
<unk> performance was driven by the new DC three launch monitor the latest model in the GC lineup.
The DC three delaware's professional level ball club and barometric data to everyday golfers and we are pleased with the early results.
<unk> is also launching its upgraded X play software, which is the engine that powers the growing of course stimulation experience.
Our combined hardware software ecosystem is unique in the industry and gives us access to a large and dynamic installed user base and recurring revenue stream.
The brand new Bushnell golf launch growth.
Followed by four sites boats was released for presale on multiple occasions during the quarter with each that selling out in a minute.
The launch will enable us to expand large monitor technology to a broader consumer demographic, which accelerates penetration and expansion of our installed user base and record revenue opportunity.
Lastly, international sales grew double digits in Q3, and we expect additional growth as Europe , and Asia ease pandemic related restrictions.
I would also like to commend the outdoor accessories team, formerly known as hunt shoot for a fantastic quarter.
This segment posted its biggest quarter in the last five years and seventh consecutive quarter of year on year growth.
Chris commented on the strength of the ammunition business and the overall category our performance validates this commentary and demand split that today's recreation with shorter it's more active and consumption.
Yeah.
Im fortunate to lead a team of dedicated hardworking professionals across the entire business unit.
Thanks, and appreciation go toward employee who is effort dedication and ingenuity enabled our success and progress.
Thank you all for your efforts.
Now I'll turn it over to you is that on chip.
Thanks be shock and good morning, everyone.
Quarter, three we achieved another record quarter in sales as Chris noted.
At the same time, we have maintained a sharp focus on expense management.
<unk> continued to make important investments in growth.
While delivering increased profitability and strong returns to our stakeholders in an environment of rising unit product cost.
Having completed seven acquisitions in less than 18 months, we have proven that we can drive accretive growth and productivity across an expanded portfolio of high growth outdoor brands.
In quarter, three our leverage ratio by approximately one times in line with our guidance last quarter and unchanged. Following the acquisition of storm Glacier.
From a purchase price perspective. This was a relatively small transaction that had a strong growth and profitability profile.
The acquisition is expected to be accretive to our consolidated financials immediately.
Excluding transaction and transition costs.
We also repurchased more than 750 <unk> shares in quarter three for a total of $30 million.
We continued share repurchases in quarter, four and have nearly exhausted our current program.
As Chris mentioned, we also announced another new 200 million.
Share repurchase program today as the focus on delivering returns for our shareholders.
Now, let's move on to our Q3 results.
Earlier. This morning, we provided both as reported and adjusted results in our earnings release, including the slide <unk>.
<unk> our earnings conference call.
My comments today focused on at just digital's compared with the same period, a year ago unless otherwise noted.
Looking at Slide 16, we continue to drive strong growth margin expansion and profitability.
Q3 sales increased 38%, reaching a record $795 million.
Gross profit increased 73% to $283 million, driven predominantly by supporting products and to a lesser degree outdoor products.
EBIT was 127% to $1 $66 million and margin increased to 21% up over 815 basis points, driven by gross margin expansion and operating leverage.
And EBITDA margin expanded to 23% increasing more than 775 basis points and continued to exceed our three year target.
EPS increased more than 100% to $2 10.
With $1 <unk>.
Lastly, we generated over $100 million of free cash flow in the quarter, despite securing supply to deliver sales growth.
Turning to page 17 of our presentation.
We are continuing to maintain a strong balance sheet.
Our net leverage ratio remains at the low end of our target our one times and we have more than $200 million of liquidity.
At quarter end, we had $220 million in outstanding borrowings on our ABL revolver, driven by high growth acquisitions.
Moving on to page 18, you can see that our capital allocation priorities have remained unchanged.
We've continued to focus on reinvesting in organic growth.
Making strategic acquisitions.
Deeper choosing shares and maintaining a low leverage ratio of one to two times.
Our strong results over the past several quarters demonstrate that our capital investments are driving strong performance across our portfolio.
Now, let's shift to our new reporting segment highlights beginning on page 19.
Within outdoor products Q3 sales increased 17% to $335 million driven by growth in outdoor recreation led by golf and common back as well as outdoor accessories and extra sports led by growth in quite yet.
Gross profit was primarily driven by higher margin acquisitions, including foresight sports and quite got.
This was partially offset by higher product cost and logistics as well as mixed across sales channels.
EBIT margin was 13% down roughly 70 basis points, driven primarily by higher SG&A from execution as we continue to invest in these brands to drive future growth as well as higher selling and marketing expenses as our teams.
Return to events, including trade shows.
Turning to supporting products on page 20.
We continue to experience broad based demand across all calibers of ammunition.
Very low channel inventories and the continued ramp up of Remington.
In quarter, three was floating product sales rose, 60% to $460 million.
Gross profit increased due to strategic pricing actions higher sales volume mix and operating efficiencies driven by our lean cost structure.
This was partially offset by higher input labor and other supply chain related costs.
Lastly, EBIT margin increased more than 14, 100 basis points to 33% driven by higher gross margin and operating leverage.
We noted earlier this fiscal year that our most favorable hedges, but rolling off.
In the first half of the year and input cost would increase in the second half of this fiscal year.
Lastly, let's turn to our outlook on slide 21.
Similar to last quarter, we expect continued strong consumer demand across our portfolio.
We remain confident in our business model in our ability to continue executing successfully across our brands.
And in our potential to deliver another record performance this fiscal year.
As a result, we are raising full fiscal year 2022 guidance too.
Revenue between $2 $97 billion to $3 billion up approximately 35% from previous records in fiscal year 2021.
EBITDA margin of approximately 24% to 24, 5% as compared to 15, 5% in fiscal year 2021.
Earnings per share of $8 to $8 10.
An increase of approximately 120% from last year.
And free cash flow for the fiscal year 2022 is anticipated to be between $275 million to $325 million.
This guidance includes acquisition mid to date.
Our fiscal year 2022 of Johnson's remain unchanged and can be found in our earnings release.
As we look beyond fiscal year 2022.
We continue to see strong demand and growth opportunities across our portfolio.
We are also reiterating the long term targets provided at our Investor day.
We expect performance at the high end of each target driven by a strong organic growth and accretive acquisitions as well as a disciplined financial strategy.
We also see elevated long term demand trends for sporting products as evidenced by 14 million new firearm owners highly by distribution activity and trends lower channel inventories and our multibillion dollar backlog.
As we mentioned last quarter, we believe that other sporting product segment can continue to operate at high EBITDA margins driven by the lean cost structure, and our legacy facilities and opportunities to drive continued growth and operating efficiencies at our Remington plans.
<unk>.
In addition, our acquisitions in outdoor products quickly contributing to sales growth and margin expansion.
In summary, we remain highly confident in our business model and powerful portfolio of brands.
This style door is well position to continue to drive long term growth profitability and returns for our shareholders.
Now I will hand, it back to Chris for closing comments Chris.
Thank you should answer it would be shaq before we take your questions I want to reiterate our confidence in Vista outdoors future growth and opportunities. This is well positioned to win in this environment with key competitive advantages that separate Vista outdoor from others in the industry, we have a diverse portfolio of leading iconic and.
Disruptive brands are multibillion dollar organization, including our centers of excellence bring size and resources to our brands, our healthy balance sheet and strong free cash flow position us to support continued organic investments as well as prudent M&A and return excess capital to shareholders via share repurchases.
And we have a purpose and sustainability driven culture with a proven track record of attracting outstanding talent and making an impact.
We have confidence in the power of outdoor recreation and the sustainability of the trends, which continue to reflect that people value and prioritize time outdoors activity in participation rates across outdoor recreation continue to rise whether it be golfing camping hiking biking hunting a recreational shooting two years into the pandemic.
People are finding enjoyment and their newly acquired and rediscovered outdoor passions whatever their chosen activity Vista outdoor we will continue to be there with brands. They trust to deliver innovative quality products that enhance their outdoor experiences. While we are mindful of the risks associated with Covid. We believe we will continue to operate in a world in which COVID-19 .
<unk> is epidemic and our team is prepared to adapt and adjust to deliver continued success. Our brands have met the challenges head on for the last two years, we are confident in their ability to continue to rise to the occasion no matter what comes our way in 'twenty two or beyond.
We're excited about our future and remain committed to executing on our strategy to deliver long term value for all of our stakeholders now let's open it up for your questions operator.
Thank you Craig.
If you'd like to ask a question. Please press star followed by one of your telephone keypad now.
Can you talk to your question is Staphylococci. Please ensure your devices on muted likely when it's your turn to speak.
Our first question today comes from Scott Stambaugh, CL King and Associates. Your line is open.
Good morning, guys and congrats on the very very strong results.
Thanks, Scott good morning.
Okay.
Maybe talk about the on the ammunition side.
From an inventory standpoint.
Where we stand have we made any meaningful dense.
And filling of the chain and then maybe secondarily just talk about the pricing environment.
Sure sure.
Scott.
Yes.
In certain calibers.
Walk.
The retail and Youll find that there is more stock than there were a few months ago, but in total stocks remain still very low.
And it's.
It's kind of hand Panda glove, if you will so the calibers that remain.
In need or all the hunting all of our shot shells most of the center fire and gun calibers and the calibers Youll see our more Lake city small rifle two to $3 56, and some of the nine millimeter. Those are the ones that you see more in stock not enough, but still.
More in stock in total not not enough stock, we still think were.
At a position that.
If we had to restock all the channels, we're still a couple of quarters.
Full production to restock the channels. So we're not there yet, but if we reach that point, that's that's how long it would take in the pricing pretty much follows so.
<unk> compressed a little bit in two to 3556, it's compressed a little bit in nine millimeter and all the other calibers are as strong as it's ever been.
Great and then on the.
You did mention pricing got it.
And then.
On the outdoor products side what.
What was the contribution from foresight and just trying to get a sense of the organic performance and shooting and alpha.
Outdoor products.
Sure.
So Scott you want to take the first question I'll talk a bit about organic thanks, Chris has got this would honchos foresight has done better than what we predicted. So we have said, it's a $100 million eight year business that we acquired for roughly $25 million a quarter it did slightly better than that but all of our other businesses grew.
Overall organically, we grew in all of our product business.
So Scott to put a finer point on the outdoor products growth.
With the segment realignment.
<unk> grew 17% year over year now if we use the old reporting we would've been up 25% in outdoor products and if you think about organically, we grew kind of low to us.
Mid single digits organically, which is in keeping with our long term guidance and our belief going forward and then we use our acquisitions to Super drive our organic.
Our total growth in outdoor products.
Got it and this last question looking out to 'twenty three I know, it's early and issuing.
Issuing guidance I'm, just trying to get a sense. So just early on where does.
How does <unk> play in your targets your longer term targets.
Whether it's sales or margins.
Yes, Scott, it's a really good question and something that.
We're looking forward to talking in in a more fulsome way as we closed through our fourth quarter, but.
Suffice it to say that the guidance, we gave last year at our Investor Conference. We still feel very good about so when you look at the sales growth. If you look at the EBITDA margins. We still think we're capable of continuing to perform in that range, we're not going to grow with the hyper rate that we grew last year, where this year that's.
Not sustainable and frankly, if you look at our EBITDA margins have been kind of in those mid twenties, that's not sustainable either.
We said long term that we're.
Mid to high teens, and we think we can operate at the upper end of the high teens on EBITDA margin and everything we've seen continues to lead us to believe we can do that and that factors in what we think is going to happen in all of our end user markets. So it is not expecting demand to continue the way that we have.
Seen it over the past couple of years that type of thing. So we're we're very bullish on the.
The guidance, we gave last year and being able to continue that.
That obviously doesn't include acquisitions or things of that nature, which would take us beyond where we are today.
Got it that's all I have thank you.
Okay. Thanks, Scott.
Our next.
Today comes from Matt Koranda of Roth Capital. Please go ahead.
Okay.
Okay.
Hey, guys good morning.
Just wanted to quickly touch on the gross margins in the segment. So it took a bit of a step down sequentially and I think you guys had already.
Sort of telegraph that given some hedges that are rolling off but wanted to see if you could maybe put a finer point on how much of the step down sequentially was hedges rolling off versus sort of inefficiencies like increased labor costs on a sequential basis any color you can provide there and is this where gross margins sort of stabilize for the foreseeable future.
Sort of given the strength in demand in the pricing environment being relatively firm.
Q1 person.
Yes, Matt it's a very good question. So as you said, we have talked before that plus hobby will have better input cost because of the hedges.
But in Q3 in addition to those hedges rolling off will be also saw.
Disruptions in month of December and then we also saw that in January .
We have two plants running here and we saw some only corn cases. So there was some efficiency also that impacted the gross margin, we don't break that down.
But overall as you said, we believe that we will continue to maintain the guidance for Q4, we will maintain this kind of gross margin going forward. We've got we continue to see the demand until our Q4 guidance, but that gives you a poor gross margin. We will continue to maintain that in our sporting product segment.
Okay. Thank you and then.
One other one for me on the ammo segments.
Just wanted to see if you could maybe provide a bit more color on sort of.
The Remington contribution.
<unk>.
I think commentary that you can also provide I'm just sort of price versus volume in the organic component of ammo as well would be super helpful. And then just if you could put a finer point on pricing it sounded like Chris was saying probably less opportunity to take price on a go forward basis, but are there certain calibers, where you can still price.
Just to sort of offset some of the labor and other component, let's say you've got.
So Remington is organic for us be closed last year in Q3, so as Remington 12 months is up so it's the organic part of the organic growth.
10 is reaching the $100 million quarterly run rate that <unk> laid out.
We'll have some room to grow but you're also facing the challenges of raw material I talked about labor.
But remington is doing great and we still have some work to do in terms of getting them to the margin of legacy ammo level, but sales we are very happy reaching to a critical mass, but we were expecting.
And Matt on pricing too because there is theres two components to pricing right. There is the pricing at retail and then there is our pricing to retail and then they generally.
Correlate positively as you might imagine so we.
We announced our last price increase in January which will take effect in April so that will affect our next fiscal year.
And we continue to see.
The ability to offset input costs be the variety of input costs with both pricing as well as efficiencies. So the inefficiencies that we saw with Covid related.
The vacancies or shortages in labor.
We're quickly working our way through it and we've as you can imagine we've been fighting this for the better part of two years. So we're our team is very very adept at working through those issues and the crime. We've worked through a lot of those issues.
So as we go forward, we continue to believe that our facilities will operate highly efficiently and it'll be kind of normal course, if you will going forward.
Excellent.
Very helpful. I'll leave it there guys. Thank you.
Okay.
Thank you. Our next question today comes from Mark Smith of Lake Street capital markets.
Your line is open Marc.
Thank you guys can you talk a little bit about the backlog of orders in ammunition in any delta and change that we saw in that during the quarter.
So mark.
Communicated previously that it's in the multi billions and it hasnt changed.
Which is a very good indicator that demand continues to operate at the level that we've seen over the past couple of years and no surprises when you see 14 million new entrants into the into the sports that we participate in and hunting licenses up.
Record numbers in 19, and 20, but still at the highest level. We've seen since they started recording hunting licenses. So the demand is there and the backlog continues to be.
Very very high.
Perfect and then just as we look at sales of ammo and accessories.
Particular, as you've changed some of the <unk>.
How you report or where you put kind of these outdoor accessories revenue.
Can you just talk about how this is trending following the big firearm surge and as we're seeing that maybe fall into a new normal kind of how your accessories for firearms.
Settled in and kind of tailwind that you still have for those accessories.
Sure and theirs.
The neat thing about our accessories business and you could say it relates to a number of other outdoor product categories as well.
We saw a heightened demand over the past year or so and it hasnt fallen off I mean that demand continues to remain strong.
Now it doesn't have the hybrid demand.
Will that ammo has.
But our accessories continues to grow and continues to grow it.
At rates that were very very pleased with them.
If you walk the shot show or if you read some of our new product introductions, you can't help but notice the innovation that we're bringing into the outdoor accessories space, we'd become a highly innovative organization and its in keeping with the nimble culture, we have and getting close to users and really doing the research. So.
What we've done in optics this year, what we've done in laser range finders, and slings and all sorts of things.
Loading with our CBS , we've done a lot of neat things that I think will contribute to us continuing to take share and we've certainly taken share over the past 12 to 18 months and we see that continuing.
Excellent if I can just squeeze one more in.
With the.
Fiber energy products, we see almost some more vertical integration within kind of that camp chef outdoor cooking within ammunition, you've got more vertical integration is that an opportunity maybe in some of the other areas in the business to add more businesses that in acquisitions, and maybe give you more vertical integration.
Market, certainly is and I don't want to mislead folks on the phone that thats going to be our primary focus because it's not I mean, we look at the whole landscape and we look at vertical integration in kind of the same vein that we look at bolt ons or frankly, new platforms, where we think we can achieve leadership economic.
Mix and where we feel like we've got the permission to play an add on to a particular business.
Absolutely interested in it and fiber energy is a unique opportunity for us to help enable the camp chef business. So when we sell in the Trojan horse of the the pellet grill itself.
Theres, a strong attachment rate and stickiness to the the input consumables, which are pellets in charcoal and what have you. So frankly, the industry has been capacity constrained and the demand is just outstripped the ability to provide those consumables. So we're really excited about the potential that fiber energy has to contribute to <unk>.
Camp Chef's future.
Excellent. Thank you guys.
Thanks Mark.
Our next question today comes from Jim Chartier of <unk> Crespi Hardt. Please.
Please go ahead.
Good morning, Thanks for taking my questions.
Okay.
Just wanted to so the acquisitions that you've made this year quiet cabin foresighted enough stone glacier seem to have really kind of raised the organic growth profile for non Apple business. So I was wondering if you could talk about what percentage on a pro forma basis those businesses now represent.
And then can you give a sense of what the medium term growth outlook for those businesses is.
30, 40, 50% growers.
That'd be great. Thanks.
So Jim.
<unk> the question in a very insightful question.
<unk>.
<unk>.
For competitive reasons have been very careful about where we disclose certain revenue size and what have you, particularly given the limitations in input materials and what have you so where it becomes material like our foresight, we disclosed but I think the best way to look at this is Hal.
It kind of described the.
The outdoor products profile, so we're growing 17% year over year old reporting we're growing 25%. So if you think of the organic business growing low to mid single digits and the rest of that growth being contributed by.
Acquisitions. It gives you a sense and a feel for the magnitude of the acquisitions, we're making now in fairness some of the acquisitions as we've said.
Like a quiet cat or some glacier.
They are leaders in their own right, but they are still relatively small but are growing exponentially.
Each of those businesses, we expect to double in size for the next couple of years, they're highly exciting for us and and at some point in time in the not too distant future they will become more material.
Okay, and then any capacity constraints.
And foresight are quiet cat in the quarter and what investments you talked about quite a cap of what investments are you, making to kind of grow those businesses.
Yes, so we are making.
Growth investments in both of those businesses and frankly, our other businesses, where we see <unk>.
<unk> growth.
And that is what you see born into the SG&A increases there's a lot of year over year stuff with Covid coming off with traveled this that and whatever but most of our SG&A investments are in our higher growth newer businesses, where we see the good rois and.
As it relates to capacity constraint both of those businesses are constrained. So you think about foresight and it also extends into Bushnell golf with our new launched pro.
We honestly just can't get enough chips and so the same supply chain constraints that you see in the automotive sector and other sectors that use.
Chips.
And their controllers and everything else where.
We're fighting that supply chain. So despite the strong results we're posting in these businesses, we still can't meet the demand that we know is out there which is a very exciting sign for us and there is nothing we can do as it relates to investing in capacity to relieve that log jam those are just supply.
Components that frankly.
Frankly, a lot of sectors are facing the same issues.
Right, Thanks, and best of luck.
Thanks, Jim.
The next question is Ryan Sundby of William Blair. Please go ahead.
Yes, hi, good morning, Congrats on another great quarter there.
Hey, good morning, Thanks, Brian the stock price.
Hey.
With the stock price arguably not reflecting the current business fundamentals.
Can you talk a little bit about the board's decision to approve the $200 million share repurchase authorization.
I guess why was this the right amount and what would it take to get even more aggressive in buying back your shares here.
People.
So what we're really referring which we're referring to there Ryan as our capital allocation and it's something that the board discusses regularly in depth than we have.
Very very thoughtful strategic discussions on this.
We believe that buying back stock, particularly at these levels is very attractive for our shareholders.
The board authorized 100 million just six months ago, we've utilized that.
And the board thought another $200 million or <unk> that was the appropriate amount.
Is attractive as buying back our own stock as we continue to see very very attractive investments for our free cash flow in our organic businesses. We know that as we continue to innovate with new products as we continue to build out our centers of excellence as we continue to leverage the synergies within the.
Any.
How you see the outsized margins that we're generating and the strong free cash flow that we're generating that will fuel.
Continued cash flow to drive stock repurchases or however, we want to invest in it and then we also see the opportunity to deploy our cash into high growth high margin acquisitions, and we really believe that as we continue to perform youre going to see our stock price increase so it's.
Z to forget that just two years ago, we were trading at four to $5 a share and today, we're trading over $40 a share. So we still think we're the best investment in America.
And particularly in the outdoor product space given the investment thesis that we believe investors should be looking at so you look at our execution you look at our continued results you look at the forecast that we're delivering we frankly think were flight to safety.
And a strong bad in this marketplace and so youre going to see us continue to invest in organic growth.
High margin high growth through acquisitions, as well as stock repurchases, where we feel like we can be opportunistic and add value to shareholders.
Got it that makes a lot of sense.
And then I guess just to follow up on Chip's question.
Acquisitions with regards to <unk> are there any major distribution or product innovation opportunities that you see.
Low hanging fruit for that business and then are there any synergies between stone glacier and been or maybe put those businesses kind of next to each other.
Yes, good questions Ryan So first of all on the innovation front. This this team has a highly talented team and its made up of folks that have been in.
Different companies around the industry headquartered in Bozeman, Montana, which is the epicenter of a lot of neat things going on in the consumer product space I mentioned that they have a cult like following if you go look at the price points. They sell at people are paying up for the technical nature of the <unk>.
Products the innovation that they bring the materials. The look the fit these guys are doing a superb job and they honestly werent looking to sell the company, but we built a relationship with them over the past couple of years and they came to the realization that the big growth requires growth capital and so that's.
Where we came in to help them. So we're super excited about the opportunities and the synergies across our company. So <unk> is a perfect example, where with the website database end user technologies that we've built we can share consumer trends across our businesses and our brands, which we are doing today and increasingly help.
Smaller fledging brands like Vanore grow more than they normally would we've also got nice cut so capabilities in.
In our Eagle facility in our Black Hawk facility, where we can help the stone glacier team with more capacity.
That's great. Thanks.
Our final question today comes from Eric Wold of B Riley <unk> Securities. Please go ahead.
Thanks, guys just a couple of questions on ammo segment, obviously kind of a follow up you mentioned that.
You did see some.
Impacts on.
Production from Covid in labor in <unk> in December and January .
Maybe give us a sense of kind of how much production capacity was held back in the quarter.
From that versus what you could have shipped.
Eric we don't do disclose at that level, obviously put the competitive regions, but you saw what kind of number we posted in terms of the sales.
In Q3.
In reporting product and also the kind of guidance. We gave for so yes, there was some hiccups and it impacted more of our gross profit.
But we had.
Inventory buildup and we managed to get the sales number going to be wanted it just cost did a little bit more and that impacted our gross margin.
And the other component to within ammunition I think this is you start to think about the general landscape in ammunition in total.
The biggest constraint we see is not labor, it's really the material input. So if we were to expand capacity there would still be a limit on the input materials.
And I think Thats why you are largely seeing people not expand capacity like they did in the last surge where material inputs were not as constrained.
So where you see people maybe talking about capacity expansion.
Our view, given where we sit and as the leaders in the industry.
We're gathering as many materials as we possibly can and we still know that there's a shortage in the future.
So you got to be careful when you think about capacity expansion that it may not all come to fruition.
Because of the material shortages, which we don't see changing really anytime soon so we're going to drive continued growth really through the efficiencies that we gain and if we look at our Remington facility. We were doing the team is doing a remarkable things in that facility the beating all expectations, but we still can be more efficient there.
Perfect and then obviously you talked extensively about inventories in the channel being being low.
Maybe can you give us a sense on how Pos sell through has been trending year to date.
Super.
POS is frankly, a factor of what we can supply.
If you talk to all the retailers they continue to be able to.
Sell through everything that.
That we and our and our peers can deliver and we spend an awful lot of time everyday figuring out how to make sure that our customers get everything that they expect and as you might imagine sometimes they are not the easiest conversations because we're working our factories and our folks as hard as we can to supply.
Our.
Our trusted retail customers and we're going to continue to do that.
And then just final question if I might.
Obviously.
Everyone being capacity constrained on on inputs and whatnot and cranking out as much ammo.
As they can.
What are your thoughts on kind of updated thoughts on the on the Russian ammo band at that kind of come to fruition over the coming months.
Obviously.
Supply coming out of the market. There is not much you can do to replace it where do you see the benefit of that and when does that start.
Coming to play for you guys or the next.
12, 18, 24 plus months.
Well just to refresh everybody on the call.
Our legislators our congresspeople passed legislation, which.
Over a period of the next 18 15 to 18 months will ban imports from Russia, and we fully expect that those bands will come into place. So how it plays out between now and then I wouldn't expect a lot of changes I mean, right now the Russians and some of the others are filling in predominantly Russia filling in some of the holes in.
In demand that we can't supply and to the extent that our supply comes on stream because production. Our materials are available I think youll see that wane, a bit and now how the whole Ukraine situation plays out and whether they need to.
Pushed some of the ammunition towards the front lines. There may have an impact on their ability to export as well, but we won't speculate on that.
Helpful. Thanks, guys.
Yes. Thank you.
Thank you.
And I went out of time, so I'll hand back to the management for closing remarks.
Ladies and gentlemen, we want to thank you again for your time today, we're excited about the position that we have within the industry and we're looking forward to another great quarter in front of us and talking to you in another 90 days. Thank you so much.
This concludes today's call. Thank you for joining you may now disconnect your line.
Okay.
Yes.