Vista Outdoor Inc.

Gentlemen, welcome to the full year 2022 fourth quarter VISTA Outdoor Earnings Conference Call. Towards the end of the presentation, you will have the opportunity to ask questions. Please press star 1 on your telephone keypad to register for the same. I shall now hand over to the management team to begin.

Thank you, Operator, and good morning to everyone joining us for our fourth 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 Jason Vanderbrink, President of Sporting Products. 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 Outdoors 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 which supplement our comments this morning and include a reconciliation of non-GAAP financial measures. Before I turn it over to Chris, I would like to invite you to join us on May 23rd for Investor Day, which will feature Chris Metz, CEO, Sudhanshu Priyadarshi, CFO, and other key business leaders. This event will be webcast live on our website at investors.vistaoutdoor.com under Events. More details will follow. Chris, I'll turn it over to you.

Thank you, Shelly, and good morning, everyone. We appreciate you joining us this morning. Before I discuss our FY22 financial results, I want to provide some additional comments on our other press release. Today we announced a very important strategic step for the company that we believe will unlock significant value for our shareholders and other stakeholders. After a very thorough assessment of our business and value creation opportunities, With the help of outside advisors, VISTA Outdoors Board has approved a plan to separate our outdoor products and sporting product segments into two separate and independent publicly traded companies. Today's announcement is just the first step in the separation process, which we expect to complete in calendar year 2023. I'll spend a few minutes discussing the details of the separation, along with the many compelling benefits that motivated our decisions. Our outdoor product segment, to be renamed at a later date, will be an industry-leading, diversified platform of iconic outdoor brands, including Camelback, Bell, Xero, Camp Chef, Bushnell, Bushnell Golf, Foresight Sports, Stone Glacier, and Quiet Cat. Sales for our outdoor product segment were $1.3 billion in FY22. I will lead the outdoor products business as Chief Executive Officer and Sudhanshu Pridharshi will serve as Chief Financial Officer. Other members of the Outdoor Products leadership team will be announced at a later date. Sporting Products, to also be renamed at a later date, will continue to be the world's leading manufacturer of ammunition. Its iconic brands include Federal, Remington, CCI, Sphere, and Heavy Shot. Sales for our Sporting Products segment were 1.7 billion in FY22. Jason Vanderbrink, President of Sporting Products, will be appointed Chief Executive Officer and other members of their leadership team will be announced at a later date. So why are we doing this? Over the past few years, we've made significant progress executing on our value creation strategy to grow our leading portfolio of brands and become a nimbler and more profitable business. In the past few fiscal years, we have grown sales from 1.8 billion to over 3 billion. net income from a loss in FY20 to a net income of $473 million in FY22, adjusted EBITDA from $114 million to $739 million, adjusted EPS from $0.24 to $8.29, while our share price has appreciated from approximately $10 to $36. This strategy has delivered incredible results. and has built a strong foundation for outdoor products and sporting products to unlock further tremendous value and succeed on their own as separate and distinct independent companies. Each company will have a singular strategic focus with resources to support its specific operational needs and growth drivers. Additionally, each company will have tailored and discrete capital allocation priorities that are better suited to support its distinctive business model and long-term goals. Outdoor products will be a high-growth platform, continuing its proven track record of strategic acquisitions of complementary outdoor businesses, furthering its reputation as the acquirer of choice in the outdoor recreation products marketplace, and reinvesting in organic growth through new product development, marketing, and expanded e-commerce and international sales. Our centers of excellence will remain with the outdoor products business, enabling the platform to continue to leverage its scale and better together concept that has been so effective for us. Meanwhile, sporting products will prioritize using its strong cash flow to return capital to shareholders through a consistent dividend policy and opportunistic share repurchases. Separating the businesses will provide shareholders the opportunity to invest in two attractive businesses with differentiated capital allocation priorities. We expect that the enhanced strategic focus for each will allow both businesses to trade at more appropriate valuations in the marketplace. We look forward to working through this transformative process to ensure that each company is optimized with the right teams and resources so they can continue to create value for shareholders. We will share more details with you regarding the structure of each company as we work towards completing the transaction. Now let's turn to our financial results. We completed another record year at Vista with sales topping $3 billion, coupled with record fourth quarter sales of over 800 million, rising 36% year over year and marking the seventh consecutive quarter of record results. In FY22, both reportable segments grew strong double digits. EBITDA margins continued to expand, reaching 23.6 with adjusted margins of 24.3. And we posted record EPS of $8 and adjusted EPS of $8.29. We also invested in organic growth, completed five acquisitions, repurchased 5% of our outstanding shares, and maintained a debt leverage ratio of 0.9 times. lower than our stated straighted target of one to two times. Furthermore, these metrics exceeded the long-term targets we discussed and committed to in our last year's Investor Day. These outstanding results are a testament to the tremendous efforts of our teams. When I walked in the door over four years ago, there was a lot to be done to return this company to growth and profitability. Fast forward to today, and we have just completed our second record year of performance. Our team has put in the time and effort and made tough decisions to best position VISTA Outdoor to capture the lifestyle shifts we are seeing in outdoor recreation. We now have a diversified portfolio of 39 highly coveted brands, 10 of which are power brands, with revenues exceeding $100 million each, with seven in outdoor products and three in sporting products. In FY22, we added five new brands with strong growth potential and leaders in their respective spaces. Leading brands like this do not get created overnight. We're well positioned to deliver another year of profitable growth in fiscal 23 and beyond as consumer demand remains strong and participation levels remain high. The results delivered by our portfolio of businesses, both legacy and new, demonstrate that our operating model enhances the performance of outdoor brands regardless of where they fall on the growth and maturity curve. We intend to translate this underlying momentum into greater value for shareholders going forward. As many of you know, many times past performance serves as the best indicator for future performance. As such, I would like to reflect a bit on what we've accomplished over the past 12 months to give you a glimpse of what's in store for this coming fiscal year. Our value creation strategy has built a foundation for the future success of both companies that will allow them to deliver long-term value for their shareholders for years to come. Our first strategic pillar at Vista Outdoor was to build the right team as well as the right culture. And again, the results speak for themselves. Each of our business units is now led by a team of experienced operators who know how to win in all market conditions. Those leaders will continue to deliver for outdoor products and sporting products post-separation. Our second strategic pillar has been organic growth. We've been successful over the years in growing our brands by focusing on three areas. One, product innovation. Two, marketing. And three, e-commerce. I am pleased to share with you that over the past 12 months, we've organically grown our entire business by over 20%. The investments we've made in these areas will continue to pay dividends for outdoor products and sporting products for years to come. The third pillar of our value creation strategy has been building our centers of excellence, focusing on e-commerce, supply chain, and M&A. The returns on these investments have been substantial. A few notable achievements over the past 12 months Our Ecom Center of Excellence helped our direct-to-consumer business grow by 23% year over year, and our social followers grew to over 8 million followers. Our Supply Chain Center of Excellence rallied to help our businesses through the headwinds created by COVID and the general logistics challenges faced by all companies. Here are a few examples. We increased container shipments 35% despite bottlenecks at ports around the world by leveraging total VISTA volume to secure both capacity and competitive costs. We added two new multi-brand distribution centers in the West Coast and South Central regions to expand capacity and reduce lead times to customers. And we've tripled the number of e-bikes imported since our Quiet Cat acquisition less than 12 months ago. Our M&A Center of Excellence enabled us to identify complete due diligence, close, and fully integrate five new businesses in the past 12 months. And all of them have exceeded our base projections. In fact, mergers and acquisitions, the oldest trade brand for the dealmaker community, recognized our acquisition of Foresight Sports as the gold standard in the middle market category, finding this transaction to be the top deal in the consumer goods category. Given the focus of these investments, we believe that the Centers of Excellence will be better positioned to support the success of our outdoor products business post-separation. As we have previously stated and have shown each year, our Centers of Excellence create a real competitive advantage and will continue to enable our outdoor products brands to achieve levels of greatness that would be unattainable to them as stand-alone businesses. Lastly, our value creation strategy has been balanced capital deployment, maintaining our balance sheet strength, and generating the cash flow necessary to provide financial flexibility for value creation. Our efforts to date have resulted in a dramatically improved balance sheet. In FY22 alone, our acquisitions contributed over $400 million in revenue and $100 million of EBITDA. and we've bought back 3 million shares, reducing our outstanding shares by 5%, all while creating a balance sheet with 0.9 times leverage, and we have ample dry powder to continue to grow. Post-separation, our outdoor products and sporting products businesses will each begin their time as independent companies, larger, more profitable, and with stronger balance sheets because of our successful balance capital allocation strategy. We believe that allowing each of our segments to pursue a tailored capital allocation philosophy going forward will be critical to their success as independent companies and their value proposition for shareholders. Outdoor products will focus its capital deployment on growth to drive long-term shareholder value, while sporting products will prioritize returning capital to shareholders. We expect that the separation process will cause minimal disruption to our business units and create only modest dis-synergies in corporate overhead. Now, let's move on to some of the FY22 accomplishments of our outdoor products and sporting product segments. Looking first at the outdoor product segment, sales rose in outdoor products 15% to a record $345 million in Q4, and fiscal year sales for outdoor products increased 18% to a record $1.3 billion year over year, driven by double-digit growth in outdoor recreation, action sports, and outdoor accessories. Our hydration pack and drinkware brand, Camelback, saw Q4 sales climb double digits, marking the brand's fifth straight quarter of double-digit sales growth and a record fourth quarter. Camelback ended the year up over 30% while posting its best marks in company history, driven by strong demand across its product lines. Camelback's international sales were also up over 30% last year and now represent over 30% of Camelback's overall revenue. Our action sports brands, Bell and Giro, likewise, finished the year strong with FY22 sales growth year over year. Giro's show business delivered record sales in Q4. In bikes, Zero rolled out three new major helmet releases and expanded its flat pedal shoe line to tap into growing mountain bike and urban riding trends, including e-bikes. We're expanding Bell Zero's manufacturing footprint in the U.S. and Portugal. We expect these new facilities to help ease supply chain issues and get products to customers faster around the globe. Like Camelback, Bell Zero has launched a major sustainability initiative in the quarter, which will substantially reduce its carbon footprint, fueling brand awareness and affinity. In the first year of ownership of our e-bike brand, Quiet Cat, we doubled sales. Additionally, Quiet Cat achieved a major channel win just recently in Q4 by gaining entry into Lowe's, where customers will be able to purchase e-bikes online and in stores starting in our fiscal Q1. For Camp Chef, our outdoor cooking brand, March marked its second best month in its 31-year history. Helping drive its performance, Camp Chef became a TikTok sensation, growing its followers to nearly 125,000 in its first year. Our golf businesses continued to thrive in the fourth quarter, driven by strong new product introductions and surging golf trends. Over the past few years, there have been over 6 million golfers who played on a course for the first time. This growth is 30% stronger than the last major surge, which was sparked by Tiger's dominant run in 1999 and 2000. Foresight Sports again exceeded our expectations in Q4 in terms of revenue and bottom line growth, despite the fact that sales were somewhat impacted by supply chain constraints in the global chip market. We anticipate continued chip challenges, but remain confident that our supply chain team will procure what we need to meet our plans. For Bushnell Golf, the LaunchPro, which is Bushnell's branded launch monitor powered by Foresight Sports, is now available at major golf retailers. The LaunchPro enables consumer entry into the personal launch monitor category at a lower price point coupled with an exclusive subscription service which drives penetration and market expansion while also creating recurring revenue. The product has been so popular that we can't keep it in stock. Our outdoor accessories business unit, which includes Stone Glacier and our hunting brands, grew in the low single digits in Q4, marking its eighth consecutive quarter of year-over-year growth. In March, Bushnell wrapped up a 12-month, 25th anniversary marketing campaign for its hunting laser range finder, a category that Bushnell created. Now let's move on to sporting product segments. Sales for the segment were up 56% to a record $464 million and up 55% to $1.7 billion for Q4 and fiscal 22, respectively, year over year. This sustained success in sporting products is another data point that demonstrates how the new ammo consumer is different today compared with prior surges. We have seen continued and steady demand for ammunition, even as firearm indicators have slowed. For example, As of the fiscal year end, we had a backlog of over $3 billion. As we said before, traditional firearms-related indicators are not necessarily correlated with ammo, which is a consumable. For example, we are seeing more sustained participation from legacy users as well as the 14 million new first-time firearms owners in the current surge in ammo demand. Channel inventories remain low for most calibers, apart from small rifle ammunition products like those produced at the Lake City Army Ammunition Plant. Purposely, we are less reliant on Lake City small rifle ammunition sales due to the Remington acquisition and our strategic shift into product mixes that are more stable and more profitable, such as hunting, personal defense, and shot shell ammunition. Primers, a critical ingredient to all ammunition, has always been a strength of ours. However, with industry-leading technology and much-needed capacity, we have leveraged this strength. Our team has done a terrific job in partnering with several OEM companies on long-term contracts that lock in reliable orders at competitive pricing for many years to come. Lastly, as Federal celebrates its 100th anniversary, the team's culture of innovation and impact is as strong as ever. Our connection with consumers is equally strong. In a recent national study by Southwick Associates, one of the nation's most reputable outdoor market and consumer research firms, Vista Outdoors brands were named the top brands in every single ammunition category for the first time ever. Abroad, I commend our team for stepping up to support the resistance in Ukraine. Our team made a $50,000 contribution to the humanitarian effort and donated one million rounds of needed ammunition for the Ukrainian troops. Additionally, our Ukraine t-shirt promotion, which can be found on our website, has sold over 14,000 t-shirts so far, generating over $100,000 in profits, of which 100% will be donated to help the refugees. I encourage each of you to go online to www.federalpremium.com and purchase one for yourself. Across VISTA, we've always had a strong culture of leading from the front, and I'm proud of the entire team for doing their part. Now we'll turn it over to Sudhanshu to discuss our financials in more detail. Sudhanshu?

Thank you, Chris, and hello, everyone. As Chris mentioned, we have announced an exciting new chapter for the company, and we look forward to continuing to drive long-term value for shareholders as two independent public companies. One of the primary benefits of the separation, as Chris noted, will be each company's ability to tailor their capital allocation philosophy to meet the needs of their respective businesses and strategic goals. As we work through the separation process, we will finalize the initial capital structure of each company. We expect to engage in discussions in due course with our bondholders regarding any need for liability management with respect to our outstanding notes in connection with the separation. Now let's turn to our financial results. My comments today will focus on our adjusted results with comparison to the prior year period unless noted otherwise. Both as reported and adjusted results are included in our earnings release and web slides accompanying our earnings call. These can be found on our website. Looking at our web slides, on slide 13, we posted a record year for sales, EBIT, EBITDA, and EPS, with EBITDA margins expanding 878 basis points to 24%. Q4 sales increased 36% to a record 809 million the first quarter to exceed 800 million, reflecting growth of 56% and 15% in our sporting products and outdoor product segments, respectively. This double-digit growth was driven by strong consumer demand, acquisitions, new product innovation, and pricing. For FY22, sales rose 37% to over 3 billion, topping FY21's growth of 27%. Q4 gross margin expanded 500 basis points to 35.6 percent. Fiscal year gross margin expanded over 800 basis points to 36.5 percent. These improvements were driven by higher sales from both organic and acquisitive growth, favorable pricing, volume, and mix, and operating leverage. partially offset by higher logistics and input costs, as well as higher commodity costs in our sporting product segment. EBITDA in Q4 increased 86% to $181 million, translating to an EBITDA margin of over 22%, expanding 603 basis points. The increase was driven by strong double-digit sales growth Gross margin expansion and operating leverage partially offset by higher supply chain costs. For FY22, EBITDA rose to a record $739 million and EBITDA margins expanded 878 basis points to over 24%. Q4 EPS increased 100% to $2.04 and full-year EPS rose 127% to a record $8.29, mainly driven by higher sales, gross margin expansion, operating leverage, and a lower share count, partially offset by a higher effective income tax rate in the current year. Turning to slide 14, our balance sheet remains strong. Net debt increased year over year to $647 million, due to the acquisitions of foresight sports equating to a net debt leverage ratio less than one times. We also have ample liquidity. On slide 15, we have laid out our capital allocation priorities. Our strong balance sheet and free cash flow of 292 million enabled us to invest in organic growth, acquire leading high-growth outdoor brands, repurchase $113 million, or 5% of our outstanding stock, and preserve a net debt to adjusted EBITDA below our three-year target. While we generated strong free cash flow, we ended the year with a lower EBITDA conversion ratio as compared to our three-year target of 50% to 60%. This was largely driven by higher inventory as a result of supply chain disruption. We experienced longer lead times translating to a higher volume of inventory in transit as well as strategic purchasing to ensure we had supply to meet heightened demand. Turning to our segment results beginning on slide 16. Both segments delivered double digit sales growth and profitability expansion in Q4 and the fiscal year. I will touch on a few highlights within outdoor products. Sales rose 15% in Q4 and 18% in FY22 driven by strong consumer demand for our brand as well as growth from acquisitions. Gross profit rose 16% in Q4 and 24% in FY22. Q4 and FY22 gross margin increased to 31%, respectively, driven primarily by acquisitions, volume, and operating efficiencies, partially offset by higher logistics and input costs, as well as sales channel mix. Q4 EBITDA was 49 million, down 2% primarily due to acquisitions with increased SG&A expenses as well as higher selling and marketing expenses driven by a return to trade shows and other customer-facing events. For FY22, EBITDA increased 17% to $207 million. EBITDA margin remained relatively unchanged at 16%. Turning to sporting products, beginning on slide 17, sales increased 56% in Q4 and 55% in the fiscal year, driven by a strong demand in commercial ammunition, favorable pricing and mix, as well as acquisitions continuing to scale. Remington and heavy short sales in Q4 increased nearly 200%, driven primarily by favorable volumes. Gross margin for Q4 rose to 39%, driven largely by higher volume, favorable pricing, and operating leverage, partially offset by rising commodities and other input costs. Gross margin for the fiscal year expanded to 41%. EBITDA in Q4 increased 117% to 157 million. EBITDA margin expanded to 34%. For fiscal 22 EBITDA increased to 626 million and margin rose to 36%. Let's turn to slide 19 for our fiscal year 2023 outlook. For the full fiscal year, we expect sales increasing to 3.15 billion to 3.25 billion, up 5% year over year compared to the midpoint. Sporting product sales growth in the mid single digit range and outdoor product sales growth in the high single digit range. Adjusted EBITDA margins between 20.5% and 21.5%. Adjusted EPS between $7 and $7.75 and free cash flow between $300 million to $350 million. Furthermore, for Q1, we expect the following. Sales of $770 million to $790 million, adjusted EBITDA in the range of 22% to 22.5%, and adjusted EPF of $1.85 to $1.95. Thank you, everyone. I will now pass it back to Chris for closing comments.

Thank you, Shidanshu. Again, I would like to congratulate and thank our team on a strong fourth quarter and record-breaking year. The trends in outdoor recreation remain strong, and we begin fiscal 23 with positive momentum, from our balance sheet to our leverage ratio to our powerhouse portfolio of brands, where we continue to innovate and take market share. Looking ahead, we are confident that our outdoor products and sporting products businesses are persistent for continued growth and success as independent companies. We're very excited about the next chapter. On May 23rd, we will be hosting Investor Day in New York. We have a wonderful event planned and hope that you can join us. More details will follow soon. With that, we'll take your questions.

Ladies and gentlemen, if you want to ask a question, please press star followed by one on your telephone keypad. To withdraw your question, press star followed by two. When asking your question, please ensure your line is unmuted locally.

Brian Sunby from William Blair.

Brian, your line is open.

Yeah, hi. Good morning, and congrats on another great quarter. It sounds like you're seeing demand. Yes. Chris, it sounds like you're seeing demand and outward participation really hold up well here, which I think is a topic investors are keenly focused on. Clearly, the guide this morning helps back up that view, but can you talk a little bit more about what you're seeing in the market that gives you confidence that these gains in participation will hold up?

Yeah, so, Ryan, we sit in a variety of different ways. I mean, first and most obviously with our retail partners, We continue to see POS at a level that is consistent with what we had thought it would be. We've got our own direct communications with consumers through our D2C channels. And our D2C business, as evidenced by being up over 24% this past year, continuing to accelerate each quarter, gives us another healthy indicator. And probably the most... important thing is just the general participation we see, whether it be participating in the fields for hunting, whether it be participating in bikes off-road, whether it be participating in outdoor cooking, what have you. There's just any number of areas that we look at that we're super excited about. And you take golf, which is that it's biggest surge since the Tiger days. And that's just really on course. And the fastest growing segment of golf is really off course where foresight and Bushnell golf launch pro really play nicely. So when you look at the bifurcation of that golf market, it's really, it's really transitioning into both on course, off course, which were very, very well suited to serve. So every, area that we look at, we're very excited. And certainly on the ammunition side, which we talked about a lot, that continues to persist in a very, very positive way, unlike past markets where we saw surges or what have you. We believe that the structural changes in people's lifestyles and habits that they picked up are sustainable as we move forward.

That's great to hear. Chris, I know you'll give us, I think, a lot more detail as you work through the separation, but just at a high level, can you talk a little bit more about what the sales profiles look like for each of these businesses over a longer-term period, and then also what the cash flow maybe looks like for each business going forward?

Sure, and Ryan and others, I would strongly encourage you to attend our investor conference, investor day in two weeks, because that's really an opportunity for us to kind of lean into a lot more detail that we just don't have time to do in a short and truncated session this morning. But as you start to think of our businesses today and where we finished on a last 12 months basis, you've got a shooting sports business and a and a outdoor products business that are billion seven, billion three, if you will. As we start to go forward, we have the capacity to continue to run the plays that we've run. So you should expect us to continue to lean into smart acquisitions that will build the outdoor products business into a bigger platform by the time we separate. So I would expect both businesses to be in that billion five to two billion. kind of revenue by the time we look to spin both businesses when you think about a cash flow and you think about a growth rate as we've talked about our capital allocation our sporting products business is going to be a lower growth business based upon the accelerated growth that seen over the past couple of years but it's in one of the healthiest categories so I would kind of think of that business is kind of low to low single digits to maybe mid-single digits growth for the foreseeable future. And I'd look at the outdoor products business as a high-growth business. And in terms of cash flow, listen, our ammunition or our sporting products platform is a cash flow machine, and they will continue to do that. When you think of our outdoor products business, consistent with the conversion of cash flow that we've communicated at that 50 to 60%. That will be a long-term projection for our business. So as we look to separate the companies, both companies are viable platforms to be able to drive into the investment thesis that each of them have. And in particular, Outdoor Products is gonna have a, a balance sheet and a capital structure to continue to support that growth.

That's great to hear. I look forward to hearing more in a couple of weeks.

Good.

Thank you, Ryan.

Our next question is from Eric Wold from B. Reilly Securities. Eric, please go ahead.

Thank you. Good morning, Chris. Two questions on the shooting sports segment. I guess one, you talked about post-spin-off, that would be kind of a low to maybe mid-single-digit revenue grower. I guess where are you right now in terms of maximum production capacity now that you've had some time with Remington? I guess maybe ask me another way, you know, you know, revenues in that segment have been essentially, you know, flattish, you know, for the past three quarters and going up a little bit quarter to quarter, I guess. What would it take to take that notably higher from here?

Well, so I, you know, listen, the way we look at the Remington business, it's been a highly, highly accretive acquisition. And, you know, we don't talk specifically about, you know, where we're at as it relates to capacity, but the job that Jason and team have done to get it to, kind of that $400 million run rate on an annual basis and kind of north of 20% EBITDA margins, the ability to outperform what I just suggested is twofold. One, participation continues at a level that may exceed what we've seen, and that's a possibility. And two, Jason and team continue to find capacity, smart capacity expansion opportunities, and there are opportunities there. You know, what they discover every week in that facility is ways to make it more akin to our other two big facilities that we've been working on for 100 years. And there's opportunities to further that. That would help drive the top line and drive the bottom line simultaneously.

Perfect.

And then, you know,

It was evidence that, you know, some new calibers in parts of the ammo chain are kind of seeing inventory improvements out there in retail. I guess, what are you seeing in terms of reorder rates, point of sale going to demand for those calibers where inventories are improving? Are you seeing sales and reorder velocity just as strong or potentially getting stronger? And kind of what does that tell you in terms of being able to continue to push price on any inflationary pressures?

Yeah, so Eric, we've got Jason here, and we'll let Jason take that one.

Hey, good morning, Eric. As far as calibers, it hasn't changed over the last two quarters. You know, the calibers are still small rifle, as Chris had mentioned in his opening remarks, and 9mm. What is different about our company today versus five years ago is we're much less reliant on small rifle. So we see the market going forward much, much more favorable to where Remington and Federal and CCI and Spear, where they're – strengths are versus a small rifle reliability that we had previous surge. So we're very excited with what we see as far as POS. It plays into our strengths much better, we think, than some others.

Got it. Thank you. Thanks, Eric.

Our next question comes from Matthew Coranda from Roth Capital. Matthew, your line is open now.

Hey guys, good morning. Just wanted to start off with the spin process and wanted to get your preliminary thoughts on sort of the split of corporate expense and the allocation between the two segments. I think it'll be helpful for everybody as we start kind of trying to build out their standalone models. And then on the spin as well, any, I guess the right way to ask this is like, you move some of the hunt shoot accessories into the outdoor products. segment and there were some probably some synergies between that and the MO segment. So any dis synergies that we should be taking into account with the spin.

So Matt, let me answer the first question on Huntshoot Accessories and then Sudhanshu can talk to you a little bit about the corporate cost, what have you. So Huntshoot Accessories has always been squarely in the outdoor product segment. And we changed that for about 12 months. and realized that it's much more akin to an outdoor products from a variety of reasons, from innovation, from a sourcing, from the way we manage the business to everything else. There's just so much synergies with our outdoor products business. And that's why it went back. And the synergies that we developed were with the sporting product side is more on the go-to-market side. And we'll have a strong transition service agreement in place to continue to manage that. So it's not a concern, not a worry of ours. You won't see any change to the way we run and operate those businesses.

Thanks, Chris. Matt, as you know, we run both brands, sporting product and outdoor product, as a separate business. They have their own business P&L. They have their respective functions. So as such, we don't see a material increase in corporate cost. There will be some minimal dis-synergy Chris talked about, but we're thinking that will be $10 to $15 million range, not what normally people expect. So it will be a very, very, very minimal dis-synergy in terms of corporate cost allocation to both businesses. Obviously, a lot of details to work out what will go to which business unit, but overall, we don't see much of dis-synergy from this transaction.

And I would add that one of the hallmarks of a company over the last number of years is we've really tried to invest our money in areas that grow the top line and expand our margins. And with that means a very lean corporate overhead. We're going to continue to drive a lean corporate overhead. So when we talk about potential dis-energies, we're going to keep those to a minimum.

Okay, fair. And then just on the outlook for fiscal 23, I was specifically curious about the sporting product side of the business and the single digit outlook that you provided. Curious if you could help us maybe understand the growth cadence that you see for the year there. And then also pricing, you know, what's embedded in that outlook? What's been action so far? And are there any commercial price increases that you foresee on the horizon?

So for sporting products, we talked about that we will grow a bit single-digit for the year, but you will see Remington started ramping up last year as we were moving towards the year in the quarter, and we also guided Q1. So you actually will see more growth in Q1 in sporting products, but the dollar-wise, it won't change a lot in terms of by quarter mix. Slightly improvement here and there in terms of, as Chris mentioned, capacity utilization. But net-net, you will see a very flattish kind of quarterly run rate for sporting products. We don't break down pricing and volume, but we talked about we have a $3 billion of backlog. We have the pricing power. And depending on how commodity moves, we will pass through to continue to deliver that kind of margin.

And Matt, when you think of your modeling, I mean, you think about an ammunition business that's running at full capacity, which you look at in terms of fourth quarter run rate, it's somewhat indicative of what it's going to look like in the next number of quarters, absent any potential seasonality. But I think it's an easier business, if you will, to model. And we continue to see an environment where we're able to take the inflationary input costs and pass those along in terms of price increases. And we're always very, very judicial about that because, you know, we don't want to pass on any more than we need to.

Okay, very helpful. I'll jump back into you guys.

Thank you.

Our next question is from Mark Smith from Lake Street Capital Markets. Mark, your line is open now.

Hi, guys. First question for me, I just wanted to dig in a little bit into the $3 billion AMO backlog. You know, we like seeing that quantified, but can you talk about the ability for any of those orders to be canceled or just how solid that backlog is?

Yeah, so, Mark, I mean, listen, the backlog is solid. However, like any order, if a customer decides that... They don't want to fulfill it. They can pull that order, right? So in today's environment, if we had the ability to ship $3 billion of ammo, we'd ship $3 billion of ammo. You know, the shelves are still light. The customer demand is high. We see consumption continuing to be at all-time high. So this is one of many leading indicators that it's a very, very healthy business, and it's got a very bright future as we look to our fiscal year here. But, again, that's not to say that, you know, that can't over time. We would expect over time that as we fill the demand that that will revert to a more normal level. But we're pretty excited about where that is right now, and it's been stable for a long period of time now.

Great. And as we look at, you know, the sporting products, ammunition side of the business, fantastic EBITDA margin here in the quarter and in the year. Can you talk about what's built into your guidance as we look at EBITDA margins on that business for fiscal 23 and maybe discuss any inflationary headwinds that you're seeing right now in that business?

This is Sudhanshu. We don't break down guidance by segment, but as we talked about last quarter, you should take Q4 as your run rate. And again, depending on what the capacity is, what the commodity is, there could be some movement, but Q4 as your run rate is a good starting point.

Perfect. And then does that fit as well as we look at outdoor products? You know, that EBITDA margin has been flatter. We haven't seen them move higher.

in that business should should we expect that to kind of maintain at this 16 or so even down margin yeah so for outdoor product business you know you because it's mostly source business some quarter may look different but for the full year we did 16 and because foresight contribution and all the work our center of excellence in the corporate does in supply chain, we expect that margin to improve this year. So you shouldn't look at Q4 number, you should look at more full year. And as foresight makes the increase, we expect that EBITDA for outer product to improve.

Yeah, and let me add on to that, because I know some of you may look at the fourth quarter and outdoor products and that margin compression. You know, it's hard. We're a public company. We report every quarter, and you want to take a 90-day period and extrapolate that into what the next number of quarters are going to be. And the fourth quarter for outdoor products business was a tougher quarter from a margin standpoint because of a number of factors. And so as you go forward here, you should think of our outdoor products business as every one of our brands we expect to grow in our fiscal year 2023. And we expect in total that our margins will expand year over year.

Perfect. I'm going to squeeze in one more here. And it might be early for this question, but as you think about post-spin, any shared services, you know, warehousing, things like that that we would expect between the two separate companies?

You know, Mark, the... The beautiful nature of the way we have historically run our two reporting segments is they're pretty standalone, right? So our sporting products business distributes, manufactures out of its own facilities, distributes out of its own warehouses, and the same is true for the outdoor products in total. Now, outdoor products has warehouses where we share multiple brands and what have you, But that's why there is going to be little in the way of dis-synergies and, frankly, little in the way of transition service agreements. And it's also why the centers of excellence that have added a tremendous amount of value to the outdoor product side and not as much to the sporting product side will continue to reside in the outdoor products reporting segment.

Thank you. Great. Thank you, guys.

Thanks, Mark.

As a reminder, please press star followed by one on your telephone keypad if you have a question. Our next question comes from Jim Chartier from Monash, Crespi, Hart & Co. Jim, your line is open now.

Great. Good morning. Thanks for taking my question. First, I was wondering if you could kind of talk about any research you've done on kind of some of the newer firearms owners over the last two years. and how they're behaving, what their consumption looks like relative to legacy firearms owners. Are they consuming at the same rate as longer-term owners, or is there some kind of maturity curve that typically happens?

Thanks. Hey, Jim. This is Jason. Good morning. We do a lot of research as far as to understand the new users, and we have marketing campaigns in place just to focus on those new users because they're such a more diverse user than we had seen historically. So consumption, they use ammo. They don't hoard ammo. So we love the new demographic, the purchasing that they do. A lot of them are hunting, which plays very, very well into our brand. So everything that we see with, you know, Chris referenced 14 million new users. We think there's another 2 million in 2022 so far on top of the 14 million. so all of this expansion of new users fits really well into our brand because they're they're consuming it they're not hoarding it and and they're very focused on shooting um which obviously it helps on the margin side as well great and then on on the outdoor products um and separation you know just

curious as to your ability to kind of maintain the current pace of acquisitions for outdoor products without the cash flow from the ammo business. You had previously forecast 5%, you know, annual contribution from acquisitions, which would imply kind of 10% plus, you know, for outdoor products as a standalone. So any comment there would be great. Thanks.

Yeah. So Jim, we, you know, at the boards level where we, thought through how we unlock further value. This was a critical discussion point and we came to the conclusion that we can continue to drive in the new format that outdoor products growth. And keep in mind that we're gonna go down the path here of separating these companies as expeditiously and as efficiently as we can But there's a lot of work that needs to be done, and that's why we say calendar year 23. So between now and when we actually do separate, you're likely to see more acquisitions. You're likely to see more bulk on our outdoor product side. You're likely to see a bigger platform that's capable of generating more free cash flow to continue that pace. And this is critically important because we've proven with our M&A and Centers of Excellence capability that we can be really, really good stewards of capital and integrate companies and make them better than they were prior to acquisition. So it's an important part of the investment thesis that we believe we're going to continue to be able to accelerate.

That's great. Thank you.

Thank you, Jim.

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