Q3 2023 Vista Outdoor Inc Earnings Call
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Hello, everyone and welcome to the Q3 FY2023 Vista outdoor adding his conference call. My name is not yet and I will be coordinating the call. Today. If you would like to ask a question at the end of the presentation. Please press star followed by one no telephone keypad I will now hand over to your host Todd of Lento, Vice President corporate development and tried.
Larry and interim Vice President Investor Relations to begin Tyler. Please go ahead.
Thank you operator, and good morning to everyone joining us for our third quarter fiscal year 2023 earnings call with me. This morning is Gary Mcarthur.
<unk> Chief Executive Officer.
Jason Vanderberg, President Sporting products, and Andy Keegan, Vice President and interim Chief Financial Officer.
Before we begin I'd 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.
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 risk factors and uncertainties.
Please also note that we have posted presentation materials on our website at investors that Vista outdoor dot com, which supplement our comments. This morning and include a reconciliation of non-GAAP financial measures.
Gary I'll turn it over to you.
Yes.
Thank you Jonathan we appreciate all of you joining us this morning.
Before we discuss our third quarter results I would like to take a moment to address the CEO transition that we announced today Chris.
Chris Metz has agreed to resign as CEO and a director at the request of the board.
I have been appointed to serve as interim CEO effective immediately Kristen.
Chris This is Robert.
Asian with based on the Orange Plaza confidence in his leadership for reasons not involving financial reporting or internal controls.
On behalf of the entire bar.
I appreciate Chris his many contributions to Vista outdoor.
And wish him well in his next endeavor.
We've entered into an agreement with <unk> to ensure access to the institutional knowledge and I look forward to working with them to ensure a seamless transition.
By the way of a brief introduction.
Served as a member of Vista outdoors Board of directors since 2015.
Previously I served as CFO of <unk> Hill from 2014 to 2017 and.
And before that spent more than 15 years at Harris Corporation, including serving as the CFO for eight years.
Together with my fellow directors.
These were involved in the oversight and execution.
Outdoor strategy, including the planned separation.
Outdoor at fording products segments.
I look forward to serving as interim CEO at this time.
Vista outdoor history.
I have a clear strategic path and remain on track to complete the separation in calendar year 2023.
Which I'll cover in more detail later in my remarks, I am confident that we will continue to capitalize on our strong momentum with Vista outdoors unmatched portfolio of iconic brands resilient operating model and strong balance sheet.
Very well positioned to create compelling value for our shareholders.
With that I will now turn to discussing our third quarter results.
First and foremost.
We'd like to thank all Vista outdoor employees for their hard work during the quarter.
These included two major holidays Thanksgiving and Christmas.
Meaning that many of our employees spent time away from families to help support our teams and our customers.
Entire leadership team can't Thank you enough for all he did to help this outdoor achieved solid results again this quarter.
I'd like for you to walk away from our call today with four key takeaways.
We are operating from a position of strength.
Our separation is on track and we are reaffirming expectations for the spin to be completed in calendar year 2023.
Our long term outlook is encouraging and we're growing our share of wallet, the operating discipline and brand strength.
We maintain a strong and healthy balance sheet.
Despite our robust free cash flow generation prudent use of cash.
Disciplined inventory management practices.
Moving to the quarter, we again delivered solid results in a challenging environment.
Total sales were $755 million down $40 million from the prior year period.
78% over the same period in fiscal year, 2020, which was pre pandemic.
Our outdoor products segment posted record sales of $353 million.
5% over the prior year period, and up 59% over the same period in fiscal year 2020.
Sporting product sales were $402 million down 13% over the prior year period and consistent with previous guidance.
The quarter's performance was up 19% over the same period in fiscal year 2020.
Our adjusted EBITDA margins were 18, 1%, which is approximately 1000 basis points higher than the same period in fiscal year, 2020, and roughly 300 basis points above our long term target of 15%.
We generated $109 million in free cash flow for the quarter.
Bringing our year to date total to a record $304 million.
Up 44% over the prior year period, and 556% higher than the same period in fiscal year 2012.
Lastly, our adjusted earnings per share was $1 37.
Which is approximately 520% higher than the same period in fiscal year 2020.
These results continue to prove that we are operating from a position of strength.
Through our transformation and execution of our long term strategy.
We have built a diversified portfolio of 41 Iconix brands.
Allowing us to leverage shared resources across our portfolio.
Cheap levels of excellence in financial performance that would be out of reach for any one brand on its own.
Leading brands are not created overnight.
We now have a stable of 12 power brands that generate more than $100 million in annual revenue.
We have wrong, either organically or purchased through acquisition.
This is a testament to the strong operators and talented executives who are in place at each of our businesses.
To that end I want to provide a brief update on the integration of Fox racing and our action sports business unit.
Captured a number of quick synergies and have also identified additional synergies above our initial business case.
We're also doing more to leverage the strength of our multi brand cycling snow in power sports positions I.
I am pleased to announce current Fox racing President John Mcclain.
Will become the new president.
Combined platform and guide to seven brands to New Heights.
Yes, Ross President will be focused on building a share scalable platform.
Or operational straight synergies and margin expansion.
While enabling each France, prioritize individuality creativity and ingenuity.
Congratulations to Jeff on this exciting accomplishment.
I would also like to thank Rick current in the form of precedent to Belgium.
Rick.
Recovery over the last few years and leaves the business significantly stronger than when he took the reins.
Where that's still the founder's mentality across our corporate and brand cultures.
<unk> profitability initiatives and created shared resources to bolster supply chain distribution and digital commerce capabilities.
We are closed and successfully integrated acquisitions of leading brands.
We have increased our total addressable market.
Broaden and deepen our categories and further diversify our portfolio to serve outdoor consumers across a variety of activities.
Taken together, we've added some of the most revered as well those brands in the outdoor space.
While also improving our growth and margin profile.
A win win against our strategy.
This execution is a result of a dedicated and resilient team and demonstrates that we are well positioned for the road ahead.
Our strong positioning in the industry lays the foundation for our planned separation.
And is our second key takeaway.
We are reaffirming the expectation for our separation to be complete in calendar year 2023.
The separation that out last may well create two independent publicly traded at soon to be named companies.
Nearly equal size by revenue.
Following the separation our outdoor products segment will be an industry leading portfolio.
Of outdoor brands, including Bell Bushnell, Bushnell golf Camelback capture foresight sports Fox racing zero.
Okay.
The aerospace team has still inflation.
Sporting products will continue to focus on ammunition categories through its renowned brands, including CCI federal heavy shot Remington and sphere and.
Independent companies, both outdoor products and its 40 products will have enhanced strategic focus with supporting resources.
Taylor capital allocation priorities.
Our strength and ability to attract and retain top talent.
Compelling value for shareholders and expanded strategic opportunities.
As we stated last quarter, we filed a confidential form 10 with the SEC and.
And have been diligently working with them.
To address any questions they may have.
We are confident in our ability to complete the spin in calendar year 2023, We also plan to share details about management teams members of the board and named for each company in the coming months so stay tuned.
Our third key takeaway from the deal with is that we believe our long term outlook is encouraging.
And our brands are resilient and well positioned to drive shareholder returns.
Taking a step back to look at the broader market.
We continue to see macroeconomic pressures impacting consumer purchasing behavior in response to higher inflation and higher interest rates.
We still see consumer purchasing patterns tightening in some categories and many are seeking to buy discounted or promotional items.
Overall retailer inventory levels remained high.
We are seeing positive signs emerging.
And we expect retailers to return to more normalized purchasing in the coming quarters.
Compared to the continuous restocking that we saw in the prior year period.
In addition, some of our categories, our FTE on retailer shelves and retailers have been cautious to reorder and to add additional inventory.
We're continuing to monitor the situation in China.
Weighted to COVID-19 case counts.
And the changing guidance related to are we.
We have a large team in China that has allowed us to react quickly to issues and adjust as necessary.
Even with these headwinds we are still seeing positive industry data and demand for our brands.
Our outdoor products PTC sales are up which is.
Typically a good leading indicator that consumers are still demanding our products.
We are continuing to recreate in the outdoors.
We believe that the pull through of Okay, let's start with Purion as retailers work through their excessive inventory and resume their normal purchasing patterns in the coming quarters.
Given some of our success with targeted price reductions in certain categories such as nine millimeter. For example, we believe demand is normalizing at a higher level than pre pandemic.
According to the latest government data the outdoor recreation economy generates 862 billion.
An economic outlet, one 9% of National GDP.
$4 5 million jobs.
In addition to these privacy figures, we continue to see strong participation numbers across the outdoor industry.
More specifically in many of the categories that our brands are.
And the broader outdoor recreation industry more than 20 million net new participants.
They entered over the past five years.
And the data further suggest that participation is sticky.
Some of them begin to participate in our outdoor activities.
To demonstrate the resiliency of this industry I wanted to share a few market highlights in certain categories that we compete including Dol snow and impact.
National Golf Foundation research found that the combination of on and off course, coffers top 40 million Americans in 2022.
The highest number ever recorded.
Based on this data it comes as no surprise that our cloud business posted record year to date sales.
With much of this success is attributed to the launch of new products.
Combined with strong holiday performance as Bushnell golf assortment of laser Rangefinders GPS trackers and speakers makes for excellent gifts during the season.
And there is no category a recent report estimated visits for the 2021 2022 season.
Were the highest reported in history at roughly $61 million.
These trends are continuing this year, we have seen a direct benefit from the strong snow season, coupled with the launch of the new tour and today Accountants.
<unk> sales were up more than 30% year to date versus the comparable prior year period.
According to the latest research for equal provides E bike sales were up 15% year to date through November .
This growth is powered by stronger consumer adoption.
And also government and corporate incentives that are becoming more popular.
For example, in Denver, and he buys rebate program was so popular the city plans to expand it and quiet cat just secured a major agreement with a fortune 100 companies to provide.
The Academy bikes as part of an employee engagement program.
In our sporting products business, we continue to see a growing diversity in hunting and shooting sports with females, representing 27% of participants in the industry.
Upfront, 60% only a decade ago.
Additionally, nix checks indicator of health of the shooting sports industry.
Remained strong in 2022 growing 24%.
From pre pandemic levels.
Jason will elaborate further on the sporting products business in a few moments.
Although not exhausted these data point to provide a snapshot into how our business is continuing to expand our reach and capture new participants while still serving the strong existing base of consumers who are recurring in record numbers.
There are more challenged categories, our brands still continue to deliver strong results through brand strength, new products and more cash.
Cash App is a great example.
The outdoor cooking market has been pressured by excess channel inventory at a discount.
That said catch ups successful launch of the premium woodwind flow.
Shows that demand exists.
A compelling products.
The same is true for our channel partners and we are excited to share that catch up is there any entry into flow on the strength of innovation and its Brad.
Stone Glacier also had an excellent third quarter.
Revenue was up over the same period last year with December accounting for triple digit year over year growth.
Why do you need to attribute to some glacier is the strength of the brand.
Their third quarter performance and specifically.
Last Friday and cyber Monday.
Good day happened with zero discounting promotions, even what competitors were discounting aggressively.
Additionally, since fishing, our most recent acquisition delivered over 25% growth during the quarter.
Compared to the prior year.
Driven by excellent DTC sales, which were up 65% in the quarter.
Exhibits the power of this as investments at premium brands with strong digital customer acquisition capabilities.
Our last day as the health of our balance sheet, our balance sheet is a pillar of strength and continues to be a competitive advantage and provides us with flexibility to invest in long term growth even in challenging times.
Our free cash flow continues to remain robust.
And in the first nine months of our fiscal year 2023, we have generated a record 300 at $4 million.
Up 44% year over year.
This is a testament to our inventory management practices.
Use of cash and rigorous monitoring of our customer and vendor terms.
These actions have allowed us to continued debt pay down.
Maintaining our net debt to EBITDA leverage ratio of one seven times.
Within our targeted range of one to two times and significantly below.
The fiscal year 2020 year end value of four three times.
This stability supported investment in new product research and development.
Which is the lifeblood of our company.
This sustained by our year to date, R&D spend increasing by 59% year over year.
During the quarter, we also paid down approximately $90 million in debt and we will continue to focus on debt Paydown and ahead of our plan on separation.
Our outdoor products and supporting products before I hand, it over to Jason.
I want to reiterate that I am proud of this company, we are operating from a position of strength.
The outdoor industry is robust.
We're navigating challenging economic conditions and maintaining our share of wallet.
And our resilient operating model focused on our strong brand and a clean balance sheet positioned this company favorably to thrive in all phases of the economic cycle with that let me turn it over to you Jason.
Thank you Gary and good morning, everyone.
Sporting products is stronger today in terms of brand's operations and share of wallet than we've ever been.
There are six key themes that demonstrates the strength.
Number one the industry is very healthy during 2022, the mixed background check system process more than 1 million checks every single month for a total yearly increase of 24% over 2019.
Number two our operational footprint across four factories is driving cost downward, while enabling a culture of ingenuity collaboration and self determination.
We're doing this while also improving our mix to help offset higher input costs.
Number three our dynamic and balanced portfolio the acquisition of Remington in 2020 brought two of the largest American ammunition brands under the same company, which has improved the market stability, even during times of intense competition from imports.
Number four our new product pipeline is robust with collaboration across brands that provides high quality performance of ammunition to our dedicated consumers law enforcement and the military.
Number five our customers are rationalizing vendors and selecting us to fulfill their needs, which provides us with more share of the shelf.
Number six while the market continues to normalize in a few categories. We are delivering at near record profit levels.
Moving to the quarter, we have not been immune from the macro pressures Gary outlined for.
For the quarter sales for the segment were down 13% driven by market normalization in nine millimeter and our planned exit from the Lake City Army ammunition contract.
In addition, rising costs higher interest rates and declining macro consumer confidence have affected industry sales.
We also know the ammunition market is cyclical and that the elevated patterns seen during the pandemic would not last forever.
Even with these pressures we have demonstrated that our strategy multi brand offerings and business transformations make us much more resilient and adaptable in this dynamic environment.
I'd like to now highlight areas that continue to demonstrate our ability to deliver on earnings through a normalized annual cycle and how we are positioned to build on our momentum.
A key indicator insight into the health of the industry has adjusted Nix checks 2022 ended with $16 4 million checks, placing a third historically behind the two pandemic years of 'twenty, one and 'twenty.
Another sign of a healthy consumer base the volume of new users that have entered the shooting and hunting sports estimates of new shooters gained since the pandemic began show more than 16 million new consumers have entered the industry and one of the fastest growing segments as you'd shooting sport leagues and high schools across the country.
Our federal CCI and Remington brands are deeply rooted in the shooting sports for the hunting side the field to table movement spring more days in the field.
All of this signals a healthy baseline of consumers our promise of the next generation of shooting sports enthusiasts and increase engagement.
Operational excellence.
We have the world's best workforce within all of our factories and we continue to gain efficiencies.
We are maintaining a lean cost structure by not adding overhead and our teams have been more efficient in all areas of our operations to help protect margins.
<unk> costs will increase profitability with overhead structures that match demand while never sacrificing quality.
We will be disciplined in the deployment of our capital and SG&A.
To that point, our initiatives will focus on the innovative products that drive higher margins and the research and development pipeline, a humongous competitive advantage, we see as a sales driver.
Since I think every shot to the portfolio the brand well known for waterfall, Turkey and proud of their hunting the positive impact to our overall business has exceeded expectations.
Brand to bring strength to our portfolio and the alternative of metal base of heavy shop products solidifies, our company's leadership position in the shot shell category, whether it be hunting sports shooting or personal protection.
We will continue to leverage every shop brand in the out years with plans for product extension.
Pricing.
To offset increased costs of raw materials labor and freight we've taken recent price increases in select categories that had been widely accepted by the market contributing to our profitability.
Very limited nine millimeter pricing actions resulted in substantial pull through our retail and distribution and signaled a healthy consumer buying pattern and preference of our brands.
Other industry conditions favorable to ammunition or the promotional activities, we are sitting to reduce channel inventory of firearms.
Lastly, we have a healthy backward position, especially in our higher margin premium center fire rifle category, where we expect consumer demand to remain strong.
Modernization and innovation.
We've completed our pistol factory modernization in Anoka and increased our use of core technologies across each of our major plans to reduce cost and risk. This includes the implementation of copper plating for pistol bullets nickel plating for premium handgun offerings and shared best in class resources and processes to lower costs.
<unk> and increased synergies in.
In addition, our dedicated center fire rifle expansion is nearing completion.
In quarter, four we expect to wrap up the modernization of the Remington primer facility in loan up across all.
All facilities, we have installed splits teams, which are cross location teams that deliver faster path to manufacturing solutions at.
At the recent shot show, we introduced more than 30, new products and line extensions that build on an already superior lineup of product offerings.
One of the innovations that is capturing considerable attention as remingtons node 360 Buck camera.
This revolutionary new caliber is optimized for lever action rifles, and greatly improves the performance and accuracy of straight walled cartridges.
Brainpower.
When it comes to innovation and brand power. There is no peer in the ammunition market that matches federal Remington heavy shot CCI Speer and the state and they are a long list of award winning products our.
Our brands are sought after in the marketplace because of our innovation reliability and performance gun.
Guns, and Ammo magazine award of its prestigious designation of ammo of the year for Federal's, New 30 Super Kerry.
Other accolades for the 30 Super carrying include ballistics best designation for best handgun ammo and shooting illustrated Golden Bullseye for ammunition product of the year.
I reckon rifleman recognized remingtons Nucor lock tip as a choice for a golden bullseye for ethylene product of the year.
These innovations are paying off and our recent purchasing survey federal and CCI, we're the leading brands bought by consumers in every category of ammunition in the third quarter of 2022.
In closing we are in the middle of our calendar year 2023 booking season and are beating all of our expectations across the portfolio.
I want to emphasize that we are solidly positioned to continue to take market share in all product categories because of our product portfolio is balanced.
<unk> pricing has been restored to the marketplace and we've maintained a very healthy backlog and profitable ammunition categories.
Our lean operations continue to drive efficiencies and synergies across our plants as we further integrate our four domestic manufacturing plants into a cohesive nimble operating union.
Before concluding my remarks, I want to thank each of our employees and the management team across the sporting products segment.
Out of the work our World class dedicated team does every day 365 days a year to build the best ammunition right here in America.
Thank you Andy.
Thank you, Jason and Hello, everyone.
My comments today will focus on adjusted results compared to the prior year period, unless otherwise noted.
Both as reported and adjusted results are included in our earnings release and website and can be found on our website.
Turning to slide 15, we posted another solid quarter of sales, including record outdoor product sales and flooring product sales that were consistent with our guidance of approximately $400 million per quarter.
Q3 margins were impacted by lower volumes and the organic business increased promotional activity unfavorable mix and higher input costs, including freight and commodity.
Overall as Gary said, we are operating from a position of strength, we are holding our share of wallet and seeing strong industry participation trends.
Our balance sheet is healthy and our quarterly results are in line with what we expected.
For the third quarter total sales were $755 million down, 5% driven by a double digit decline in organic sales across several categories.
Partially offset by our golf business and recent acquisitions.
Compared with Q3, FY 'twenty total sales are up 78%.
Recall that our FY 'twenty represents the most recent pre pandemic year as our fiscal year ends in March.
Throughout the quarter, we've been methodical with our approach to promotional activity, having walked away from opportunities itself discounted products to retailers.
Some sales may have been left on the table, but the decision otherwise kept a healthier margin profile and protected our brand images without exasperated the higher retail inventory level.
Gross profit decreased 14% 244 million and gross margin contracted 327 basis points to 32, 3%, primarily due to increased promotional activity mix shifts and higher input costs, including freight and commodity.
Yeah.
EBITDA decreased 26% to approximately $137 million each.
EBITDA margin decreased 522 basis points to 18, 1%, which remains very strong.
With that with Q3, FY 'twenty margin of eight 1%. This represents margin expansion of approximately 1000 basis.
Q3, yes decreased 38% to $1 30, driven by lower gross profit as well as higher SG&A and interest.
This was slightly offset by a lower tax rate and a two 1% decline in outstanding shares.
We generated robust free cash flow of $109 million in the quarter and year to date free cash flow climbed to $304 million up 44% over the prior year period.
Our balance sheet positions us favorably given the current macroeconomic environment and demonstrates our financial discipline and effective operating model.
We were able to generate solid cash flows in the quarter despite increase in our inventory sequentially.
The increase is a result of our flooring products business, securing raw materials at advantageous prices.
Our outdoor products segment saw a decrease in inventory sequentially as we began to monetize our inventory position with sharp trend at the time and targeted promotions to move through areas of elevated inventory.
We are monitoring inventory levels and strategically leveraging promotions across all our channels to reduce inventory, while also remaining competitive protecting our brands our margins and our market share for the long term.
Turning to slide 16, our balance sheet remains strong.
Net debt increased from fiscal year end 2020 to the $1, one 5 billion largely driven by acquisitions.
Within the quarter, we paid down approximately $90 million in debt and at one seven times Levered, we're still within our target net leverage ratio of one to two times.
Our immediate liquidity is $187 million as of quarter end.
Looking forward, we are expecting to continue to generate robust free cash flow and deliver on our commitment to pay down debt.
As we noted last quarter, our capital allocation strategy is focused on primarily on debt repayment and we are pausing, our M&A until weeks in which we anticipate to occur in calendar year 'twenty two 'twenty three.
Our long term capital allocation strategy is focused on investments that we expect will drive the highest return for our shareholders.
Our business model allows us to continually invest in our brands in any economic cycle, given we play in a multitude of consumer demographics.
Our strong financial discipline over the past four years has resulted in a strong balance sheet record free cash flow and sustainable financial performance.
Now, let's turn to our Q3 segment results on slide 17.
Within outdoor products as mentioned, we posted a record sales of $353 million, an increase of 5% driven by acquired businesses and golf, partially offset by declines in other organic businesses, primarily due to reduced purchases from international big box into other wholesale channels.
In comparison outdoor products third quarter sales were up 23% compared to Q3, 'twenty, one and up 59% compared to Q3 of 'twenty.
The decline in the organic sales was primarily driven by outdoor accessories and the organic action sports business.
Due to Peel has exceeded sell in which we expect will carry into Q4.
Gross profit decreased 2% to $102 million, driven primarily by organic business volume declines increased amortization costs from acquired businesses unfavorable mix and higher promotional activity in outdoor products associated with holiday season.
Partially offset by volume from acquired businesses.
Gross margin declined 225 basis points to 29%.
EBITDA was $32 million down 41%.
The EBITDA margin decreased 709 basis points to 9%, primarily driven by lower gross profit in the organic businesses as well as higher SG&A related to acquired businesses.
Turning to supporting product sale.
Sales were $402 million down 13% in line with our guidance and driven primarily by lower shipments of pistol ammunition as channel inventory has normalized the timing of shot show shipments as well as the previously announced termination of the Lake City contract at the beginning of the quarter.
Gross profit was $141 million down, 26% due mainly to lower volume unfavorable mix and increased commodity and freight costs.
Really offset by pricing.
EBITDA was $124 million EBIT margin decreased 302 basis points to 39%.
Learning product profitability remains much stronger than in the pre pandemic levels due to a more disciplined pricing environment and a broader and more profitable product mix as a result of the acquisition of Remington and the strategic decision to shift away from the less profitable and more bottle ammunition product categories purchased from the Lake City Army Ami.
Initial plan.
Let's turn to slide 18 for our revised fiscal year 2023 outlook.
Inflation and rising interest rates continue to influence consumer spending.
While higher levels of retailer inventory contributed to additional promotional activity.
Retailers have been cautious and slow to reorder for the sake of adding additional inventory.
We're also experiencing pressures in the international markets due to the strength of the U S dollar.
We are taking several actions to mitigate risk by managing inventory closely controlling costs.
On a positive note, we expect retailer purchasing to normalize in the coming quarters as retailers sell through their inventory positions.
And we continue to see strong demand for our brands and product as demonstrated in our strong DTC performance, which is a leading indicator for overall demand.
Moving to guidance, we have adjusted the low end high end of our guidance ranges.
The full fiscal year, we expect sales of <unk>.
$3 6 billion to $3 8 billion down 1% year over year at the midpoint.
Slower product sales in the range of $1 73 billion to $1 4 billion.
And outdoor products in the range of $1, three 3 billion to $1 34 billion.
The midpoint of adjusted EBITDA margins remains the same with the new estimate at 19, eight 5% to 21, 5%.
Interest expense in the range of 56 million to $59 million.
Effective and adjusted tax rate of approximately 22%.
Adjusted EPS between $6 <unk> to.
At $6 30.
And free cash flow between 320 million to $350 million.
As Gary stated we are reaffirming that we will complete our planned separation in calendar year 'twenty three.
Let me briefly touch on the debt we owe.
All of them, both scoring product and outdoor product businesses relative to the separation.
As part of the separation we are currently in discussions with our banks to refinance our existing credit facility, which includes the asset backed loan and the fixed asset term loans and establish a new credit facility for the outdoor product cingal.
Conversation have been well received thus far and we are continuing to actively meet with potential lenders.
We currently expect our $500 million of senior notes will stay with remain co are starting bus business in their current state. After we complete our planned separation.
We currently expect our sporting products business will add approximately $1 billion to $1 1 billion in debt, including the senior notes after separation and maintain a long term leverage ratio of approximately one to two times.
We believe that the robust free cash flow generated by flooring products business will support this debt paydown, while also providing a dividend payout ratio that investors will find attractive.
Our outdoor products business is expected to have minimal debt at the completion of our planned separation at which time, we will be able to pursue accretive acquisitions and maintain our reputation as the acquirer of choice in the industry.
In closing, we continue to demonstrate our ability to drive solid financial results and robust cash flow our balance sheet remains strong and we maintain flexibility given our low leverage levels.
We are a resilient and operationally strong team with the expertise to execute our strategy wisely during these challenging macroeconomic <unk>.
NGL political times.
We are taking proactive measures on factors within our control to further mitigate this risk.
We are confident in our future and through our transformation over the past four years, we have positioned the company well to drive long term shareholder value.
The purpose of today's call is to discuss the company's third quarter results as.
As we hope you can appreciate we will not be discussing the leadership transition beyond what we have announced and we kindly request that you focus your questions on our operations and financial results and outlook.
Operator, please open the line for questions.
Of course, if you would like to ask a question. Please press star followed by one on the Internet.
Pat Thank you Keith.
Your question. Please press star followed by Keith on the panel to ask your question Sheila Thank you Dmitry.
I'll now ask questions. Thank you, Eric Wold of B body Securities I like.
Please go ahead your line is open.
Thank you.
Two questions one for one for each of the two.
I guess I guess first off.
You mentioned that you didn't increase prices on some of the animal categories.
In response to some inflationary pressures I guess in general can you talk about the current ammo pricing environment at retail and how sustainable.
Do you think those higher prices, Oregon pending through 'twenty, three and 'twenty, four and kind of what are the long term.
Term gross margin expectations for this segment given those pricing expectations.
Eric Good morning, this is Jason.
What we're seeing on retail pricing as we are it depends on the category. We mentioned the nine member leader in small rifle Youre. Obviously, you can see in the retail prices come down in the market.
We took pricing action.
Some categories, where we thought we could offset some margin pressures due to the commodities those pricing.
Actions have stock and we expect those to stick all year long.
As far as the overall pricing category.
At retail, we're pretty confident with what we see as input costs continue to go up I think what we see at the shelf today is going to hold or 'twenty three.
Given that anything that we see right now October is that we certainly don't expect it to go down any.
And the gross margin expectations.
The longer term.
As we laid out at our Investor day, we are still.
Bullish on mid 20, EBITDA margins, we think that's going to be the normalization of the.
The market normally normalizing its still going to be in the mid 20 EBITDA per sporting products.
Got it and then just.
Quick question on the on the outdoor products side.
Can you talk about kind of.
What youre seeing with the point of sale.
Patterns.
At retail and then maybe within your own E. Commerce platform that gives you some indication of the kind of.
The health of the consumer where the consumer is just trying to get a sense of it.
Or you do start shipping product in the retailers' credit towards a more normalized starting.
I'm just trying to incentive.
How do you think that inventory would sell through in this environment.
Yes, I appreciate that Eric this is Andy so well what we're seeing in this is that the pls is down year over year at retailers right now, but the sell in is down further than the Pls and we feel the demand is strong in our in our outdoor products as we mentioned.
Our actual our sites are actually up over that time period, and so where we do see that demand is there we're seeing stock out on shelves in our outdoor products. So as retailers do start to normalize their purchasing which we expect over the coming quarters that they are going to do that that we'll see.
See that start to start to increase as we are missing some of the stock outs in our sell in will certainly go up as well. So we're we're bullish on the what will happen once retailers are starting to repurchase.
Perfect. Thank you both.
Thank you and the next question guys you Mark Smith of Lake Street. Please go ahead. Your line is open.
Hi, guys.
First off just wanted to ask a question on the ammo side of the business I don't know if you guys can quantify or talk about maybe the impact in the quarter from from backing away from some of the Lake City ammo.
Okay. Martin Martin This is Jason we don't we don't quantify at Lake City, I think we've released publicly.
Previous fiscal years sales peaked.
At around $180 million a year when we have that contract years ago. So that's as far as we're going to quantify Lake city.
Okay.
And then looking at the other side of the business.
Just curious any other insights you can give us on an action sports business in particular.
The Fox business is that.
Hitting internal expectations.
Some of the slowdown that we've seen in action sports is that impacting Fox as well any additional insights there would be great.
Yeah.
Yeah.
It's a great question so.
In the quarter sales per active for Fox were $67 million.
They are experiencing some of the pressures that the action sports businesses. They do have a fairly large international presence, which is being affected as well from the U S currency adjustments that we're seeing but that being said I'd say, we have optimism with the synergies that were already experiencing between Fox and bell there.
Meeting, our EBITDA expectations, and we see actually additional opportunities in those arenas that we've identified so we are.
Very pleased with the current result, given some of the macroeconomic pressures that the sales are little bit lower along with the similar action sports, but not not to the same extent as their demographic and who they sell to is is not that opening price point, so they're not nearly at the at the reductions that you are.
Seeing it given our mass business that we have in the belt.
Bill area.
Perfect and just confirming that was 67.
Yes 67.
Perfect. Thank you guys.
Thank you and the next question guys you Amit Thanks Kim of Jefferies. Please go ahead. Your line is open.
Hi, good morning, Thanks for taking my question.
On the outdoor products business, thanks for quantifying the.
The box leasing, but could you quantify the impact from acquisition.
On sales and EBITDA.
And I can't give you the exact amount, but what I can say is is that they.
Organic decline was in line with what we expected from last quarter, which was in that 20 ish percent range. So.
So it was in line with what we had expected it to come in at overall.
Got it and then I appreciate.
The need for some promotions at the channel it's cleared particularly.
Sure.
I guess when are you expecting to get to more of a normalized promotional and buying.
Right.
And most of that market.
Yeah.
This is Gary let me speak to that I mean, I think as most of the world. We're expecting you know a tougher first half of the year with expectations that we will see a better environment that retailers moving into the second half maybe Andy can add a little more to that.
You're exactly right that we certainly as we go through Q4, we do expect that the promotional environment is going to continue and youll start to see it ease.
But still be elevated as we start clearing into Q1, and then we'll start to clear up if it aligns with that kind of clearing the retailer inventories.
Through those that same time period, as we said in the coming quarters, we expect that to ease and that'll help us facilitate less promotional activity.
Got it.
And then one more any thoughts to win.
The form 10 with the publicly available.
What I can say on that is that we are working with the FCC to clear or any any questions and concerns that they have at the end of the quarter, we will be by providing the FCC.
Nine month performance.
Would it be provided until the quarter ended we would then be working with them on any questions or comments related to that.
But I can just assure you were working through this as quickly as we can I can't give you a definite time, but.
It is top of mind for sure of what we're working through it.
Great. Thanks.
Thank you and the next question. Thank you, Matt <unk> of Cowen.
Im not please go ahead your line is open.
Hey, guys. Good morning, just on the sporting products segment.
Any way to quantify or think about the volume price split in the 13% decline within the quarter I would assume.
On a blended pricing basis, you were up so does that imply volume down more than the 32%.
Is that data and just sort of the full year outlook that you provided it looks like maybe a little bit more deterioration in topline in the fourth quarter, but how should we think about volume versus price there.
Well, let me have Jason start and then maybe Andy ill add a little bit to that.
Good morning as.
As far as the question directly it was mostly volume driven.
Due to what we had talked about in the <unk>.
Opening remarks, and then as far as the guidance that we had given you last quarter 400 million for the third quarter 400 million for the fourth quarter, we're pretty comfortable with that guidance range.
Andy Andrew.
Well I think net net price was actually up.
Florida, there are certain cat certain categories that we as we talked about that pricing has been under pressure, but versus last year net net price was actually up so the decline was volume offset by price going up now there's mix in there that drive some price some pressure on that but overall I would say prices up.
Okay, Great and then on the upper products side can you just highlight more specifically where you've seen strength in the DTC performance you guys had mentioned that a couple of times both in the prepared remarks, and the Q&A and clarify also if you've seen some positive pockets as well if you could call out any of those on a year over year.
Basis.
Yeah, I can touch on obviously, we've seen a lot of good PT DTC experiences Sims.
We've had pockets of great performance.
Snow as well, maybe Andy you can add some more details, but yes in general I would say across the board the majority of the sites.
<unk>.
Better results there were ones that are feeling the pressure, but theyre aligned somewhat with what we're seeing in the <unk>.
So youre talking to the hunt shoot category, which was down the most overall.
That one did experience continued pressures, but what what I think is a highlight is it's less than what we're seeing in our wholesale and <unk>.
Retail channels themselves so.
Though it is down it's down less which for US gives us indications as I said earlier that the demand is there and that we'll see it come back as we as we continue to move through some of the pressures we're seeing in our wholesale channels.
Okay I'll take the restaurant offline thanks, guys.
Okay.
Thank you and our final question today, you guys provided some day of William Blair. Please go ahead. Your line is open.
Yeah, Hey, good morning, thanks for the questions.
Gary Andy I think you both mentioned retailer inventories at the time total, but then you've got some other categories that are showing stocked out.
Could you give us a rough breakdown of what percentage of the portfolio is over inventory versus correct versus under at retail.
And then I think you mentioned retailers picking through the next couple of quarters to normalize their ordering patterns is that across the board or is that really just for a couple of specific categories.
Well, let me speak to that.
Yeah Ryan.
Question I'm glad we can help to clarify here.
First thing I would say is in general we actually feel our inventories are actually in fairly good shape. There. There is pockets that are a little bit over inventory, but not on the whole it's actually in fairly good shape. When we say retailer inventory, we're talking about their total inventory not just our products, but all inventory.
They're carrying and what we see is and it might be by category that theyre heavy in all in the category as a total they may not be purchasing anything in that category and so we're seeing that happening right now and so we're trying to work through that with them. As we said we had stock out in certain areas and they're just saying while others arent.
Knocked out so until we can clear through that that is causing some pressure on us. So our inventories where we are heavy is some of the areas that we've talked about we look at outdoor cooking has a little bit heavier inventory right now, but on the total its actually in fairly good shape and we just.
I think that the retailers are going to move through these inventories and as they get through their fiscal year ends. We will start seeing those then be able to move and reorder at a more consistent basis.
Got it that's really helpful. And then just on the consumers seeking out either more discounts or promotions can you talk a little more about how how widespread you've seen that again is that across the portfolio.
The categories.
How does that look for more of your premium items versus your opening price points.
So on the premium I think it is split fairly well is that our premium items arent seeing the same level of discounting and we talked about some inflation not having through the holiday season. They didn't they weren't seeing any discounts. So some of our top end product arent seeing the same levels of discounting.
The heavy what we were talking about it during the holiday season, what we did note and we noted this on our sites and in the in the channels is.
The without a discount on some of the mid to low price point items, you were seeing in the activity.
Buyers would look but they want they want to purchase.
And as we go forward that is something that we're monitoring and we do think that promotions will be necessary, especially in the retail channel to move through the inventories.
Maybe less so on our D to C sites to try to move through that but it is going to continue we up but it is more so on the on the lower end price points versus the upper.
Okay. Thanks, Chris.
Thank you we have a nice to have the questions I'll hand back to Gary for any closing remarks.
Let me make a few comments.
You know as Youre aware of this is a great company and we're going to be laser focused on making it even better we have great employees work really hard I am very fortunate to be surrounded by a deep talented and experienced management team several of which will be included in the search for the Vista outdoor CEO of <unk>.
Physician.
We have 41 iconic brands that we are going to work hard to even better leverage.
We had a solid quarter, but worldwide there's work to be done.
We are a 100% committed to completing the spin in this calendar year, and we'll be working hard towards that and I just want to leave with you that we are very optimistic about the future is bright we sure. It is we're ensuring you it will be shareholder rewarding and look forward to talking to you further thanks for your time today on the call.
Thank you. This now concludes today's call. Thank you so much for joining you may now disconnect your lines.
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