Vista Outdoor Inc.

good morning and welcome to today's first quarter fiscal year 2023 vista earnings conference call my name is candice and i will be your moderator for today's call all lines have been placed on mute during the presentation portion of the call with an opportunity for question and answer at the end if you would like to ask a question please press start followed by one on your telephone keypad i would now like to pass the conference over to our host shelly hubbard to begin

Thank you, Operator, and good morning to everyone joining us for our first quarter fiscal year 2023 earnings call. With me this morning is Chris Metz, VISTA Outdoor Chief Executive Officer, Jason Vanderbrink, President, Sporting Products, and Sudhanshu Priyadarshi, Senior Vice President and 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 the information known to us today. These forward-looking statements are subject to the risks and uncertainties that face this outdoor in 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.vistaoutdoors.com, which supplement our comments this morning and include a reconciliation of non-GAAP financial measures. Chris, I'll turn it over to you.

Thank you, Shelly. Good morning, everyone, and welcome. Today I will cover five key topics which address why we are confident about our future despite current macroeconomic headwinds. These include our strong quarter one earnings performance, our planned acquisitions of Fox Racing and Sims Fishing, trends we are seeing across the marketplace in our businesses, strong growth from product innovations, and lastly, an update on our planned separation. Let's start with our first quarter performance. Fiscal 2023 is off to a great start with a strong Q1. We out-executed our plan and long-term targets and invested free cash flow in future returns while maintaining a strong balance sheet with ample liquidity and doing so in a challenging macroeconomic environment. We believe this outdoor is well-positioned to deliver continued growth in fiscal 2023 despite the economic headwinds. Our strategy and execution have positioned us to capture the lifestyle shifts we are seeing in outdoor recreation. Although sales are not as elevated as during the COVID bump, we are highly encouraged by the continued participation in outdoor activity in the post-pandemic environment. I've always led with the mantra that we control our own destiny. As you can see on slide four, we've created a company with 39 coveted brands and soon to be 41. as we continue to expand our addressable market through strategic acquisitions, such as the most recent planned acquisitions of Fox Racing and Sims Fishing. As a result, we will have amassed 12 power brands, generating more than $100 million in annual revenue. We're also maintaining our leading number one, number two category positions across multiple brands, as you can see on slide five. Moving to slide six, both Fox Racing and Sims Fishing are iconic brands with cult-like following in their categories. Fox Racing, a global brand in performance motocross, mountain bike, and lifestyle gear, is on a path that is expected to generate $350 million in revenue this calendar year. Sims Fishing, a premium fishing brand and leading manufacturer of waders, outerwear, footwear, and technical apparel, is expected to generate $110 million in annual revenue this calendar year. Before we dive into the quarter's results, I want to leave you with three key messages today as shown on slide seven. One, we are committed to unlocking value for our shareholders. Two, we will continue to grow and leverage our $1,200 million plus businesses, building number one and number two share positions in the market. And three, We're on track and continue to deliver growth and profitability. Our first quarter results and full year guidance are a testament to this commitment. Now, moving to slide eight. In Q1, we posted our second best sales record ever of 803 million, up 21% over the prior year, driven by continued shifts in outdoor lifestyles and recreation, the strength of our brand portfolio, new product innovation, and execution excellence. Sporting product segment revenue grew 40% year-over-year, driven by higher volume, better mix, and pricing. Revenue in the outdoor product segment was down slightly from Q1 last year in a more challenging demand environment, as expected, declining 2%, driven largely by outdoor accessories. This was partially offset by growth in our outdoor recreation operating segment. Let me give you a bit more color on trends we are seeing. During Q1, demand was beginning to soften at opening price points due to the lack of stimulus money this year and higher inflation. However, we believe this is short term as underlying participation rates remain elevated. At higher price points, we continue to see strong demand and participation rates remain steady. Within outdoor recreation, golf posted exceptional growth and sales at Camelback also increased, primarily driven by new products. Our outdoor cooking platform was impacted by high comps from sell-in last year, as retailers were replenishing low inventory to keep up with elevated demand. This year, brick-and-mortar retailers are in an overstocked position, particularly at lower-priced and medium-priced point grills. We're beginning to see a normalization within the domestic commercial market. ammunition market, and we're seeing consumer demand and consumption settling to an elevated run rate that is higher than prior post-peak levels. Our outlook for ammo remains positive. The ranks of new shooters are increasing both in quantity and diversity. Recent growth has not been politically driven, but culturally driven by new entrants who are participating more frequently and consuming more ammunition than legacy shooters. We expect demand to remain solid through midterm elections, as we are confident this event won't have a large impact on demand. Overall, we expect to see lower price point categories continue to be affected more by inflation, as reduced stimulus and higher prices have led to lower spend in areas such as hunting and shooting accessories, bike helmets in the mass channel, and grills at opening price points. Across several of our brands, retail customers in our categories bought heavily last year in both Q1 and Q2, creating extremely tough comps, particularly in outdoor accessories. Similarly, certain large retailers have been reducing or halting new purchases across all categories, which is affecting our buyers open to buy, even in categories where sell-through of our products remains strong. I'll also note that last year in Q1, Amazon's Prime Day was in June, whereas this year it shifted to Q2 in July. Our latest acquisitions, including Foresight, Stone Glacier, and Quiet Cat, are all performing very well, as planned, despite the economic headwinds. We believe this reflects two dynamics. First, they're selling to higher-end, more affluent consumers, less affected by inflation. And second, they're participating in higher growth categories, which is a key reason we acquired these businesses, as well as our planned acquisitions of Fox Racing and Sims Fishing. We expect these acquisitions to partially offset the slowing of legacy products from historic highs, demonstrating that having a diversified portfolio affords the flexibility to be strategic in the current operating environment. Q1 was also a strong quarter on the bottom line. Adjusted EBITDA margin for the total company expanded 83 basis points to 25.2%, our second highest margin rate ever. and diluted EPS was the second best in company history at $2.31. Moving to slide nine, this quarter exemplified the value creation strategy we laid out at our investor day in May as we delivered strong revenue growth, profitability expansion, traction from new product innovation, and capital allocation excellence inclusive of M&A. Looking at market traction on slide 10, Our investments in new product innovations are driving growth. Examples this quarter included CamelBak drinkware, which was up more than 100% year-on-year. This quarter, CamelBak introduced the ChillBak cooler series, leading to strong media coverage and market uptake. With the ChillBak, we have entered the soft cooler space with best-in-class insulation and an integrated hydration reservoir only CamelBak can provide. Additionally, we have launched our new fusion reservoir line with key features such as lightweight, easy to fill, easy to clean as well as a universal fit. The fusion reservoir continues to cement our leadership position in hydration reservoirs. For the sixth consecutive quarter, Camelback posted sales growth led by D2C, which increased strong double digits from the prior year. Camp Chef stoves were up 30% year over year. Lifestyle shifts are embracing camping. There were 93 million active camping households in 2021, with 9 million first-time camping households added during the year. Camp Chef launched the new Apex Grill in July, which exceeded expectations. The Apex Grill sold out during the first week. In fact, the Apex Grill was featured in a 4th of July profile in the Wall Street Journal covering the best grills on the market. While the Apex changes the grilling game, there's yet another game-changing launch planned for October 1st. Keep an eye on Camp Chef as they are leading the pack on innovation. Sales at Foresight with their lineup of launch monitors, including the all-new GC3 personal launch monitor, surged in the quarter, driven by strong consumer demand and the ability to procure a larger chip supply. Callaway and Topgolf recently named Foresight as their exclusive launch monitor partner. because our technology delivers shot data with the highest level of quality, accuracy, and reliability. Giro Snow is up more than 500% compared with the prior year, driven by strong consumer demand, new product innovation, and favorable supply chain factors. Bushnell's strong growth reflected in part the continued success of our Cellu-420 trail cameras. Trail cameras drove more than 100% growth year over year, In addition, we're excited to be launching two new line extensions, one with dual SIM capability and the other with an adjustable integrated solar panel. Bell Power Sports are up double digits in a category where we are building on momentum with one of the most exciting brands in the space, Fox Racing. This success was driven by supply chain efficiencies that led to stronger order fulfillment and consumer demand driven by new products such as the Bell Moto 10 and strong performances by sponsored athletes, showcasing our gear in traditional and social media outlets. Now moving to slide 11. As lifestyles began to shift in early 2020, we committed to leverage our above-trend cash flow and invest in the future to drive organic growth, make strategic acquisitions, and repurchase shares, and to do so while maintaining a low leverage ratio. The innovations I've just described the result of this commitment to excellence in capital allocation now i'd like to turn your attention to the value creation framework on slide 12 that we first shared with you in calendar 2021 we have several pillars to deploy and in q1 we leaned into acquisitions as the right opportunities became apparent with fox racing this legendary brand will bring us into one of the most passionate sporting bases we address with motocross and mountain biking With SIMS Fishing, we believe we can create a fishing platform that delivers long-term growth and value for all stakeholders. With each of these planned acquisitions, we are continuing the successful implementation of our strategy to use accretive acquisitions to expand leadership positions across categories while enhancing our ability to capitalize on long-term growth opportunities in outdoor recreation. While we reported a strong first quarter, we acknowledge that we are operating in a much more challenging environment with rising inflation and interest rates as well as eroding consumer sentiment. We recognize these dynamics, and we are taking actions to mitigate risks. We are mindful of the potential impacts on our businesses and have incorporated expectations into our guidance with the visibility known to us at this time. With several levers we can pull, including managing inventory, controlling costs, and optimizing our product offerings, to name a few, as shown on slide 13. Managing a diversified portfolio is a competitive advantage and allows us to absorb fluctuations in brand performance across our portfolio. We have the right teams in place with decades of experience in our industry to help us navigate the future, and we've built a nimble organization with a lean cost structure, enabling us the flexibility to pivot quickly. To summarize the first quarter, the theme that's driven our performance for the past two years remains firmly in place. Our results continue to reflect the strength of our management team and our brands, our talented workforce, cash flow generation, innovative new products, strategic execution, and strong outdoor sports and recreation markets. Moving on to the separation that we announced nearly 90 days ago, Today, we are just as confident about unlocking value, and our strategic rationale holds true, despite the current environment. We remain on track to spin off the outdoor product segment in calendar year 2023. To do so, there are three gating items to complete the spin shown on slide 14, including preparing the Form 10 registration statement for a confidential filing with the SEC. obtaining regulatory approval of the Form 10 by the SEC, along with other regulatory approvals, and final approval by our Board of Directors. Both companies will offer differentiated and compelling investment opportunity based on each company's respective business models. Each will also have a tailored capital structure and capital allocation strategy to support their distinctive business models and long-term goals. With both companies nearing 2 billion in pro forma annual sales, each will be one of the largest businesses in their space. Outdoor Products also offers a well-diversified brand portfolio that is positioned to capture consumer demand across a variety of outdoor and lifestyle activities. As I previously mentioned, we expect the separation to further unlock shareholder value. Before I hand it over to Jason Vanderbrink, who will discuss sporting products in more detail, I'd like to reiterate a few important thoughts. The start to fiscal 23 was both successful and transformative with the separation announcement and planned acquisitions of Fox Racing and Sims Fishing. We stayed the course on execution and financial performance. We understand the negative macroeconomic pressures are real. We're experiencing a slowing demand and lower price points across our brands. We're seeing pressures at key customers, including Target and Walmart, We're seeing the secular downdraft in backyard grilling, and ammo demand appears to be normalizing. Despite macroeconomic headwinds that all companies are facing, our fundamentals and competitive advantages are stronger than ever. We continue to remain confident about our long-term opportunities to grow as ammo demand is normalizing at new highs. Our new product innovation machine is replacing opening price points and driving affinity for our brands. Past acquisitions are growing the top and bottom line faster while enhancing our talent, diversifying our portfolio, and increasing our TAM. And we expect Fox Racing and Sims Fishing to do the same. Our diversified portfolio of leading brands provides us with size and scale to thrive now and into the future. And our execution is driving industry-leading financial performance as supported by our healthy balance sheet, strong free cash flow generation, and ample liquidity. Today's environment is unprecedented, and the impacts of inflation, supply chain constraints, and a tight labor market are not unique to Vista Outdoor. We believe we can continue to weather these challenges, unlock value, and win versus the competition. With that, I'll hand it over to Jason. Jason?

Thank you, Chris. Good morning, everyone. As Chris mentioned, sporting products set a record in the fiscal first quarter, delivering $511 million in revenue which is a 40% increase from the prior year. Our sales growth this quarter was driven by continued demand for our coveted brands. It has also reflected higher volume due to the timing of shipments to fill large commercial orders along with improved pricing. Note that the higher than expected volume of shipments resulted in low finished goods inventory for the upcoming quarters. Labor shortages and higher turnover rates are also impacting the amount we are able to ship over the next few quarters. That said, we continue to see low channel inventory in the categories that we are the clear market leader in, and we still have a multi-billion dollar backlog. We've long been low cost manufacturing leaders, and we've invested to improve the operations and drive efficiencies, as well as implement cost savings projects across the business. These improvements translated to strong performance on the bottom line this quarter. We delivered EBITDA of $182 million, up 39% year over year, driven primarily by higher gross profit. EBITDA margin was 35.7% compared to 36% in the prior year. In improving our operations, we've also aligned and optimized our production for changes in consumer demand. As a result, I feel confident that we have built a strong foundation for years to come. Although we don't anticipate the high levels of demand that we experienced over the last couple of years to persist, we have seen structural changes in the market that suggest the new post-peak demand levels will be higher than in prior cycles. We are better positioned today than we ever have been, both internally and externally. From our low point in fiscal year 2020, we have transformed our ammunition business in significant ways which we believe will result to deliver sustained profitability in line with the mid-20s EBITDA rate we presented at Investor Day. The key changes we have made include replacing over $185 million of ammunition sales from the Lake City Army ammunition plant that we had to sell at or below cost with close to $400 million in revenue from our acquisitions of Remington and Heavy Shop. The ammunition that these two brands produce are both higher in margin and in much more stable categories, which are much less price sensitive. With Remington, we acquired the company who led the industry in irrational pricing behaviors. We have secured multi-year primer agreements with OEM customers at much more favorable profit margins. We are the clear leader in shotgun shell manufacturing with a large installed base of youth shooting. With HeavyShot, we acquired the leader in non-lead ammo for future expansion. We have modernized our largest factory in Anoka, Minnesota to take cost out in every aspect of manufacturing. We have secured major law enforcement and government contracts at much more favorable pricing than in prior years. And we have not added any overhead in the past two and a half years. And we are done improving our factory efficiencies. Our Remington facility in Lone Oak, Arkansas is running at roughly two thirds the efficiency levels of our federal and CCI plan. However, we see a clear path to matching those efficiency levels by reducing costs per round significantly. Externally, the most important structural change is that our market has grown by 16 million new firearms owners over the past two plus years. and they're a much more diverse and active group of users than before. Ammo stockpiling was much more prevalent three to five years ago. Today, it's all about consumption. The drivers of that consumption are changing as well. Politics have historically played a major role in purchasing behaviors. By contrast, recent data shows that the growing field-to-table movement increases in home ownership, expanded interest in outdoor activities, and desires to increase personal safety are driving high participation rates well above historic levels. With respect to innovation, our new products, which include Federal's High Overall Target Load, 30 Super Carry, and Remington's Core Lock Tip, are driving consumer demand and external recognition. A recent study from Southwick Associates, one of the nation's most reputable outdoor market and consumer research firms, recognized Federal as the most purchased rifle and shotgun shell ammunition, along with CCI and its Blazer sub-brand for rimfire and handgun ammunition, respectively. Before I close, I'd like to recognize the hardworking and talented teams across our organization. Their dedication to delivering high quality products is why our platform is recognized as the ammunition industry leader in terms of performance, innovation and operational excellence i'd also like to recognize our culture of conservation and community we recently raised more than three hundred thousand dollars for causes supporting humanitarian relief in ukraine the anoka minnesota police department and food services for families in need and we're actively working to oppose misguided attempts to eliminate the pitman robertson wildlife trust fund our country's most significant and successful wildlife conservation program. I'm honored to lead this business and represent the great, hardworking people across each of our brands. With that, I'll hand it over to Sriracha.

Thank you, Jason, and good morning, everyone. My comments today will focus on adjusted results compared to the prior year period, unless noted otherwise. Both as reported and adjusted results are included in our earnings release and web slides and can be found on our website. Turning to slide 18, we posted our second best record quarter for sales EBITDA and EPS ever. Overall, we delivered more than 20% in sales and profit growth in the quarter and generated strong cash flow. For the quarter, sales increased 21% to $803 million, the second quarter ever to exceed $800 million. Gross profit increased 21% to $293 million, and gross margin expanded nine basis points to 36.6%. Operating expense as a percentage of sales was 13.7%, down approximately 80 basis points due to prudent cost management. EBITDA increased more than 25% to 203 million, driven by higher gross profit and operating leverage. Total company EBITDA margin increased 83 basis points to 25.2%. Q1 EPS increased 33% to $2.31, driven by strong sales growth, profitability expansion, a slightly lower tax rate, and a roughly 2.5% decline in outstanding shares, which was minimally offset by higher interest expense. Turning to slide 19, our balance sheet remains strong. Net debt increased year over year to $553 million, driven primarily by acquisitions. Our immediate liquidity increased to $336 million, as of quarter end. Our net debt leverage ratio declined to 0.7 times below our target ratio. With the recently announced planned acquisitions of Fox Racing and Sims Fishing, post-closing, we expect a leverage ratio of roughly 1.6 times, which is within our target ratio of 1 to 2 times. Slide 20 highlights our capital allocation strategy. Over the past four quarters, strong free cash flow generation has enabled us to meet our capital allocation priorities. We are continually to invest organically. These investments are driving profitable and sustainable growth, as Chris mentioned. Our new acquisitions are further diversifying our portfolio, generating strong returns and broadening our total addressable market and end user base. At the same time, we have repurchased approximately 5% of our stock while maintaining low leverage. We evaluate investment that we expect will drive the highest return for our shareholders over the long term. Our strong financial discipline over the past four years has resulted in a solid balance sheet and sustainable financial performance. Turning to slide 21, acquisitions are a key growth driver which strengthen our portfolio in adjacent spaces, acquire strong brands, and complement our portfolio with businesses where we can add value to drive long-term growth and improve profitability. Before we move on to the segment results, I will discuss how we are thinking about our capital allocation strategy before and after the anticipated separation. We do not expect to pursue any further material acquisitions prior to the separation as we have created scale in outdoor products with approximately $1.7 billion in annualized sales. Our primary focus now will be on debt pay down and opportunistic series purchases. We expect to further reduce our leverage ratio to the low end of our target range of one to two times prior to the spin. Post spin, we expect the maximum leverage ratio for RemainCo, our sporting products business, to be between two to three times. Our plan is to use strong cash generation to reduce our leverage ratio to less than two times within 12 to 18 months while paying a dividend. We expect that our outdoor product business, or SPINCO, will have a leverage ratio of one to two times post-SPIN. Now let's turn to our Q1 segment results on slide 22. Within outdoor products, we have added five acquisitions since fiscal year 20 and announced definitive agreements to purchase two more power brands. Sales declined 2% year over year. In comparison, outdoor products first quarter sales were up 35% compared to Q1 fiscal 21 and up 32% compared to Q1 fiscal 20. Outdoor recreation growth was driven by strength in golf and camelback. Outdoor accessories benefited last year through stimulus checks, a low inflationary environment, and higher than average selling to replenish low-channel inventory and meet heightened demand. Gross profits remained flat, driven by lower sales in outdoor accessories and higher transportation and freight costs offset by accretive acquisitions. EBITDA declined to 39 million, reflecting 13.5% margin, primarily driven by higher SG&A expense related to acquisitions, higher supply chain costs, and lower operating leverage in our legacy businesses due to lower sales. Turning to sporting products, sales increased 40% driven by higher volume and price. Gross profit increased 35%. Gross margin declined to 39.4%, primarily due to sales mix and higher commodity and freight costs. EBITDA increased to $183 million. EBITDA margin contracted slightly to 35.7% from 36% a year ago. Let's turn to slide 23 for our updated fiscal year 2023 outlook. For the full fiscal year, we expect sales to increase to $3.2 billion to $3.325 billion, up 7% year over year at the midpoint. The sporting product sales in the range of $1.725 billion to $1.775 billion and outdoor product sales in the range of $1.475 billion to $1.55 billion. Adjusted EBITDA margin between 21% to 21.5%. Adjusted EPF between $7.05 and $7.65. And free cash flow generation between $310 million to $360 million. we expect interest expense to increase to 50 to 55 million upon closing fox racing and sim fishing. Furthermore, as we look to the last three quarters in our fiscal year, our guidance includes the following assumptions. For sporting products, record sales in Q1 have reduced finished goods inventory to very low levels, as Jason mentioned. We are also working through higher employee turnover rates, labor shortages, and reduced efficiency at Remington. As a result, we expect sales in Q2 through Q4 to be more closely aligned with the average quarterly sales in full fiscal year 2022. For outdoor products, we continue to see strength driven by our acquisitions, strong performance in camelback, and new product innovations. We are, however, being prudent with our expectations for the fiscal year, given our reduced legibility into how long higher inflation will impact consumers at opening price points. We expect sales for outdoor products in Q2 to be in line with first quarter sales decline, with growth weighted towards the second half of fiscal year 23, reflecting the inventory loading in which benefited both Q1 and Q2 last year. This also reflects the expected closing of fox racing and sim swishing no later than by the end of Q2, as well as continued macroeconomic pressures. We expect Q3 and Q4 sales to be closely aligned. In addition, it is important to note that fox racing and sim swishing tend to experience higher seasonality in what would be our Q1 fiscal quarter. Overall, we have maintained a lean cost structure over the past few years, and we will continue to evaluate opportunities to further optimize our costs. We are taking proactive measures on factors within our control to further reduce risk. We are confident about our future and the long-term value we are creating. Thank you, everyone. Let's now open it up for questions. Operator?

Thank you. If you'd like to ask a question, please press Start followed by 1 on your telephone keypad. If for any reason you'd like to remove your question, please press Start followed by 2. Again, to ask a question, please press Start followed by 1. As a reminder, if you are using a speakerphone, please remember to pick up your headset before asking your question. So our first question comes from Eric Wald of B. Reilly. Your line is now open. Please go ahead.

Thank you. Appreciate it. I guess, Sudhanshu, just a couple quick questions to follow up on your latest comments. Appreciating the contributions from the two acquisitions and the guidance, you made the comment that they're more Q1 seasonal. My assumption there is obviously there's less contribution in the back half of the year that someone just took a straight average of their sales. Is there any way you give us a sense of some level of kind of pro forma sales change between fiscal 22 and fiscal 23, kind of assuming, you know, Foresight, Fox, Sims kind of rolling both periods? Just trying to get a sense of kind of the baseline business delta between the two.

So good morning, Eric. This is a great question, and it has a lot of moving pieces. As you know, we haven't closed FOX and SIMS. We expect to close sometime by end of Q2. So we will have second-half benefit for FOX and SIMS in our number, and that's where we think our product will be higher in dollar term in Q3 and Q4. Foresight, we closed last year, and last year it was roughly $100 million business. We're growing. We're growing a lot in Q1. That's helping us offset the decline you're seeing in outdoor accessories business. So you saw we only declined 2%. So it helped. It was helped by Foresight. But it's hard to perform a match till we close the Fox and Sims for this year.

Got it. Understood. And then I'm not sure if a question for you or for Jason, but on the ammo side, Is the thought that sales will drop from the $500 million range to, I guess if I do the math, something around the $400 million range for the remaining three quarters, is that more your ability to supply demand? You talked about labor shortages and whatnot into the market, or are you seeing something on the demand side and POS sell through, that would give you some pause in terms of where consumption is landing.

Good morning. This is Jason. Great question. When we delivered $510 million, as we had pointed to in the script, our finished goods inventory is very low right now. So when we look at the rest of the year, I think we should look at what we did on an average for fiscal year 22, kind of being the run rate going forward due to labor shortages and, frankly, just our finished goods inventory being relatively low right now from where we'd want to see them.

Eric, this is Chris. I would add to Jason's comment, too. We had a healthy inventory position, so we were able to fill a bit more of the backlog, if you will, in Q1. and that's why you saw elevated numbers for the sporting products business.

And also to add on to that, Eric, as far as what we're seeing, unlike what we've seen for the last two quarters really, the 5.56 small rifle market is full, and that's why we're much, much less reliant on that category. So the growth going forward is the growth in where we are, the clear number one leader going forward in the categories where the most demand remains.

Guys, just to confirm, is it demand-driven in any way or really just supply-driven in your part in terms of where the sales will shake out?

In our categories, where we're the clear number one leader, it's certainly supply.

Got it. Thank you guys very much. Appreciate it.

Thank you. Our next question comes from the line of Scott Stember of MKM Partners. Your line is now open. Please go ahead.

Good morning, everyone, and thanks for taking my questions.

Morning, Scott.

First question, Jason, just talking about ammo. Obviously, normalizing things can't keep going through the roof forever, but it sounds like we're on a much higher plane. Could you talk about how you expect the pricing environment to be? over the course of the next year, even if you take out the midterm elections?

Yeah, good morning, Scott. As far as the pricing, we're seeing some pressures on the 5.56, the small rifle arena, but we're a relatively small player in that market. Again, on the categories where we are seeing the most demand with our biggest market share advantages, we haven't seen any price degradation in the market.

Okay, got it. And then the comments of some of the bigger mass merchandisers that have, you know, cut their overall order intake because of some overordering. Could you talk about if that's leveling out? Obviously, they hit this quarter and they're probably going to hit the second quarter, but could you talk about the timeline of when you would expect that process to run its course?

Yes, Scott. As we alluded to, Chris, we alluded in the – It's a bit of a tale of two cities, right? So you've got the lower price point SKUs that are selling through the mass merchants that that consumer demographic is more affected by inflation. And so that affects our helmets in our action sports business. It affected our outdoor accessories to a great deal. And it affects our low to mid price point grilling platform in Camp Chef. But on the flip side of things, We've got the higher-end demographic where we sell a lot of our products and, frankly, where all of our acquisitions have been, that much more inflation and recession-resistant, given the inflation hasn't affected the consumer demographic as much. But in terms of the timing of the mass, so to your point, some of our customers have just stopped ordering overall. So you saw Walmart report – down earnings and they're more promotional to get rid of a heavy inventory position. So they pretty much stopped across the board in a lot of categories that affect us even though our demand was still pretty solid. We've seen this before and it typically takes a couple of quarters to work its way out. So the way we've guided for the rest of the year is you should expect Q2 to look pretty similar to Q1 and then we start to pick back up in the second half in some of these categories where we've been suffering.

All right, and the last question just on the guidance. I appreciate the last two deals have not closed yet, but could you just give us a little bit of a framework of how much that's contributing to your updated guidance so we could just, you know, better measure the pre-acquisition or core businesses?

Yeah, so this is Hanchu. If you assume that it closes by end of Q2, it will be roughly in 200 million plus range, depending on when we close. So that's the math you should do for our output product business. We guided 1.475 to 1.550. If we take roughly 200 million out from these M&As, you will see our base business is growing slightly or flat. And that reflects all the macro challenges we're seeing. That reflects what we're seeing in Q1 and Q2. But all of these growth is much better when you compare us from fiscal 20 and 2021.

Okay, got it. That's all I have. Thank you.

Thank you. Thank you. Our next question comes from the line of Matt Karanda of RothBank.

capital your line is now open please go ahead hey guys good morning um just curious if you could maybe do the same thing with the ebitda outlook as well so that should be helpful just to kind of reconcile the 693 at the midpoint versus your prior ebitda guide and what fox and sims are expected to contribute so it's a similar map or as you see our base business you will see contraction in gross margin from

Q1 onwards, mainly in ammunition business, it's efficiency, higher labor cost, and then all the product business, the continued higher supply chain cost, product cost, and also reduce operating leverage because sales is not growing as much as we expected. Fox and SEMS EBITDA, we haven't guided it. You can do the math because it's not that meaningful for last six months. six months of our year and plus six months on their watch. It's there, but it's not that meaningful, but you can do the math from Fox and same event depending on when we close.

Okay, got it. And then on the sporting product segment, wondering maybe Jason, if you could put a finer point on, it sounds like maybe not, maybe there's some supply constraints, and you guys did allude to maybe some inefficiencies at Remington, but how much of the constraint on your supply side is Remington versus the core brands within Vista Lake Federal?

Good morning, Matt. We're not going to break it out by factory, but it's safe to say in the categories where The most demand is none of our factories have that demand right now. So it's not so much on an efficiency side. It's just on a throughput side on the categories where we are number one clear leader.

Got it. And then maybe last one for Chris. You mentioned sort of potential for pickup and demand, especially load-in within the outdoor product segment in the back half of the fiscal year. Just curious what visibility you have there in terms of open-to-buy indications from some of your retail customers. What gives you the confidence to sort of say that we see a pickup in the back half of the fiscal year?

Yes, Matt, there's a number of factors. So first is quarter one, quarter two are really difficult comps for our outdoor products business, particularly in outdoor accessories where we – We loaded in a bit more than I think our customers and us thought last year in quarters one and quarter two. So it's already working its way through the system. Secondly, early indications on some of the fall activity, particularly in hunting, is highly encouraging. And then three, you just got general seasonality as we move into some of our seasonal periods. And then lastly, you've got the contribution of some of the new products coming in. particularly in golf and in snow.

Okay, I'll leave it there, guys. Thank you.

Thank you. Our next question comes from the line of Ryan Sundby of William Blair. Your line is now open. Please go ahead.

Yeah, hi. Good morning. Thanks for the question here. Chris, I was wondering if you could maybe compare and contrast some of the growth opportunities and maybe risks for an acquisition like Fox that is seemingly close to fit with some of your other brands and bikes and accessories versus something like SENS that's more of a first entry and a new category here into fishing. I guess just any color there on how you think about the approach to those deals would be great.

Sure. So Ryan, both of them have a lot of similarities and DeerPoint has some differences as well. So let me first talk about the similarities. When we look at acquisitions and there's the consistent theme across the other acquisitions we've made to date, they're all number one brands in their space. They're iconic and have cult-like followings. They participate in large TAMs and then increasingly faster growing markets, if you will. They all bring a world-class management team and the great cultural fits, right? So they're complementary and they're synergistic and allow us to leverage the centers of excellence that we've developed. Now, the differences between a Fox and a Sims is Fox is highly synergistic. It's probably the most synergistic acquisition we've made since Remington. So when you think about the opportunities with an action spread, we really can't control our own destiny there. It's a business that we believe will continue to grow. The trends are great. Our pre-order book looking into fall is terrific. So there's no reason to believe that we shouldn't continue to grow this business. But we're able to control our destiny on the logistic cost side as well. So we'll be exploring that. That's not a quick one, but we'll be integrating it carefully as we look forward over the next couple of years. Sims, you know, we couldn't be more excited about the opportunity for Sims. What Casey Walsh has done with his team is he's built a terrific team and it is easily the most iconic brand in the fishing space. And so we've been, as I've commented previously on prepared remarks and open comments, we've really been targeting the fishing space over the last couple of years, studying it, understanding it better. Um, really, really digging into it, but we wanted to get into it with more of a platform play if we could. And so Sims just provided that perfect opportunity and they love us as a, uh, as a landing spot for them because they know that we'll continue to grow them and use our strengths to, to leverage them in places where they just couldn't leverage as much as they hope they could. So both of them are just terrific acquisitions that we think will add a lot of value to this outdoor.

Great color. And then just, I guess, quickly, on outdoor products, it sounds like part of the decline there was due to the stimulus checks from a year ago. Is that isolated just to this quarter, and is there a way to help maybe quantify how big of an impact that had versus maybe some of the broader softening demand for certain products and price points you talked about earlier?

Yes, so, Ryan, I would view the – the stimulus checks is affecting that more price sensitive category of consumers. And what's really interesting, and I think this kind of baffles a lot of people in our country is, you know, unemployment is very low. You know, so people have jobs, they're earning good wages, but at the lower socio-demographic end of the market, inflation has affected them more so. And so without stimulus checks or what have you, We see it affecting us and affecting some of those categories, as I mentioned before, that are more price sensitive.

Thanks, guys. Yep. Thanks, Ryan.

Thank you. Our next question comes from the line of Mark Smith from Lake Street Capital Markets. Your line is now open. Please go ahead.

Hi, guys. First, just wanted to dig in on the ammo business just a little bit. Jason, it sounds like you've kind of confirmed backlog still at multi-billions. Just trying to kind of reconcile with that strong of a backlog, why we would look at volume, production down, if pricing will be flat, why production would be down maybe so much over the next three quarters versus Q1 level.

Yeah, Mark, good morning. As we had mentioned, our finished goods inventory is much lower than we had expected. So our efficiencies at the factory and output that we had expected didn't quite get where we want to get. So a throughput versus finished goods inventory equation, nothing on the demand side where we see healthy demand, as you had mentioned.

Hey, Mark, this is Chris. So let me add a bit to it. As you guys start to dig into some more of the detail, you're going to see the inventory position in our sporting products business is relatively healthy. But if you really dig into finished goods versus raw materials and WIP and what have you, as Jason said, we kind of drained the pond a little bit in Q1 just because we had the ability and the routes open up to be able to do that. And so Jason's mantra has been, hey, listen, if we're able to ship a backlog, we're going to do that. So we did that well in the first quarter. What Jason's talking about within efficiencies is really a tight, tight labor market, right? So when you've got a tight labor market, particularly in some of these geographies where we're manufacturing, you're bringing in new labor. You've got some labor that's turned it over. And so they're not as efficient as they will be in another couple of quarters. So, you know, we plan Remington in particular to be higher output. They're doing a great, great job versus our original expectations, but it's going to take them a little bit longer to get to the efficiency that we see in our other two plants. And that's simply the reason for the lower quarters, if you will, is rebuilding some of that finished goods inventory to supply the demand.

Okay. And as we look at, you know, demand trends, but also look at kind of retail shelves and retail inventory that's out there, are there some inefficiencies that come in changeover, you know, perhaps from 9 millimeter to more centerfire rifle or shotgun. Are there any inefficiencies that come with kind of changeover in the plant?

Yeah, Mark, there's certainly some during the last 5 years we have worked to minimize what changeovers are, whether it be skew rationalization, what products we make on what lines. So, on a go forward basis, we're much, much better off than we were five years ago, just on changeovers, getting OEE up, getting throughput out, and getting efficiencies up. So we have certainly kept a steady eye on that during these past two and a half years.

Okay. And then kind of big picture, as we think about consumer trends, you guys have talked about kind of the entry price points being weaker than the higher end price points, you know, it would Bell versus Giro be perhaps an example of, of that within. And if so, you know, can you talk about trends that you saw on demand for, for Bell during the quarter, maybe versus Giro?

Yeah. So Mark, what's interesting about the, uh, the Bell brand is the Bell brand. Um, a lot of us think of it as selling mass helmets through, uh, mass channels of distribution, which is a big part of their business. Also one of the leaders in the motocross and mountain biking category, which are a higher demographic. So Bell in itself really needs to be taken down another level or two. So we've got pockets of Bell that are really, really growing nicely. And then, of course, we've got our Mass Channel that's a bit upside down right now. All this stuff is built into our guidance. Jiro sells predominantly to a higher socio-demographic, so that has fared well. So the one thing I do want to say, though, because you're talking about consumer trends, is we talked a lot about the slowing in the opening price points, but the participation rates are still very high, and we're highly encouraged by people that we see that are continuing to grill, be it backyard or backcountry, and that's why we said our stoves were up 30% for Camp Chef. We can... You see people visiting parks and camping, participating with road biking. So we don't think that this is going to be a long-term issue with the opening price point categories continuing to be soft. Some of it is as our retailers start to replenish in some of those key categories, we'll fix it. But we think that it will start to level as we go forward.

Perfect. And the last one for me, just can you guys talk about direct-to-consumer or e-com trends during the quarter?

Yes, our direct-to-consumer business continues to be strong in total. Obviously, some of the categories that are affected in brick and mortar also get affected the same way in direct-to-consumer. So our campus business, where we've sold a lot of you know, opening and mid-price point grilling platforms in the past was a little bit slower, but made up by some of the other categories that continue to grow in strength in D2C. Perfect. Thank you.

Thank you. Our final question comes from the line of Jim Chaltier of 1S Crispin Hardet. Your line is now open. Please go ahead.

Good morning. I was wondering if you could talk a little bit more about the foresight partnership with Topgolf. What does that mean for the business? What does that do in terms of getting you towards, I think, the $500 million goal for the platform over time?

Jim, this is Chris. Good question. We don't typically size up partnerships like that, but the way I would characterize it is It's not as much of a big dollar increase. It'll be nice, right? So we'll get our platform in the top costs. We'll get it into some of the other locations. We'll get it into their fitting locations. But what's really exciting is the halo effect this gives the Foresight brand. When you get a top brand like Callaway that says, okay, you guys have the best technology. And it wasn't just Callaway, right? We've been working with TaylorMade for a long time now. We've been increasingly working with the CushNet Titleist group as well. So Callaway is the third big one to come on board to say, guys, credit to you. You've got terrific technology. We want to use the best, and so we're going to bring you guys on. And that's why the partnership announcement was really exciting. And so we're going to continue to build a relationship with them and support them in every way we can.

Great. And then on FIMS, I think you said the deal won't be accretive until, you know, FY24, and you're forecasting a mid-teens EBITDA margin, you know, post-integration. So, you know, I guess what do you need to do to, you know, to bring those margins up to the mid-teens? And then you mentioned kind of building a phishing platform. You know, what's the plan kind of acquisitions versus organic to do that? Thanks.

So this is Sudhanshu. So the two things, as you know, with the Center of Excellence, we have an e-commerce and supply chain. And that's where we will add a lot more value, a lot more synergy to CIMS. It's a new platform. So they will get most of the benefit because of our Center of Excellence. Plus, you know, our relationship with retailers, being part of a bigger 3 billion plus company. So those are the things that help us get to that mid-teen EBITDA margin And they made a lot of investments for the last couple of years to get to this level, so we will see more leverage in the business as we continue to grow at this level.

And, Jim, just to add on to Sudhanshu's comments, you had a question, too, about the phishing platform. And so that's really a nod to the future, that it opens up a very large total addressable market for us. But as we have stated, our capital allocation strategy at this point is to pay down debt, even though we've got a low leverage. We'd like to continue to take that leverage down in a prudent manner. And then secondly, look at share repurchases where we think we can opportunistically go in and purchase. So not that we're ignoring M&A activities, but we don't have anything in our funnel right now that's imminent, and we're just going to continue down the path of building that SIMS business out and looking to the future. Great. Thank you.

Thank you. Ladies and gentlemen at this time as there are no additional questions waiting I'd like to thank you for joining today's