Vista Outdoor Inc.

Hello all and a warm welcome to the Vista Outdoor third quarter fiscal year 2022 earnings call. My name is Lydia and I'll 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, Shelley Hubbard, Vice President of Investor Relations. Please go ahead when you're ready, Shelley.

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, Sudhanshu Priyadarshi, Senior Vice President and Chief Financial Officer, and Vishak Shankaran, President of Outdoor Accessories and Golf. 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. 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 secured 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 note that we have posted presentation materials on our website at investors.vistaoutdoor.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 business's financial performance, including supply chain and logistics. We believe this will provide clearer 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 in 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 product segment. We believe that this change will allow our investors to better understand trends in those businesses, which predominantly rely on non-US-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 We stated 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 due to my double-digit growth in both our reporting segments, with sporting products and outdoor products up 60% and 17% respectively. We delivered another quarter of increased profitability as we continued 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%. EPS more than doubled, EBIT increased over 80%, and EBITDA 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 aim to achieve one overarching goal, to leverage shared resources across our brands and achieve levels of excellence and 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, a 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'm so proud to lead this company. The second strategic pillar is organic growth. We now have 10 power brands, each of which currently generate more than $100 million in annual sales. This achievement reflects a multi-year effort to expand the business and grow each of our brands in three distinct areas. The first area is 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 has outstanding expertise in getting the word out about our brands and new products to outdoor and shooting sports consumers. The third organic growth driver is e-commerce. We're continuing to make significant e-commerce investments, all aimed at creating a seamless experience for our consumers meeting them wherever and whenever they want to shop with us. This e-commerce capability is a priority for us. Three years ago, we created an in-house center of excellence to help our brands accelerate their efforts and achieve positions of e-commerce 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 from 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. 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, speed rationalization, and freight optimization. This has resulted in significant efficiencies and improved ROI for our overall company. Given the current issues related to supply chain and logistics that our industry is facing, it's 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've 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 late December, we announced the acquisition of StoneGlacier, another high-growth business that increases our total addressable market in the backcountry, which has exploded in popularity in recent years and offers an outstanding line of packs, equipment, and technical apparel. Stone Glacier is an enthusiastic, cult-like brand that is well-managed and a great cultural fit. We're excited to welcome the team to 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, centers 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 have 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 support.