Good day, and welcome to the Vista Outdoor Inc. First Quarter Fiscal Year 2022 Earnings Conference Call. Today's conference is being recorded. And at this time, I would like to turn the conference over to Vice President, Investor Relations, Shelly Hubbard. Please go ahead, ma'am.

Good morning, and thank you for joining us for our first quarter fiscal year 2022 earnings call. With me this morning is Chris Metz, Vista Outdoor, Chief Executive Officer; Sudhanshu Priyadarshi, Senior Vice President and Chief Financial Officer; and Vishak Sankaran, President of Hunt, Shoot & Tactical Accessories and Bushnell Golf. Before we begin, I'd like to remind everyone that during today's call, we will be making several forward-looking statements, and we make these statements under the safe harbor provisions of the Private Securities Litigation Reform Act. These forward-looking statements reflect our best estimates and assumptions based on our understanding of information known to us today. These forward-looking statements are subject to the risks and uncertainties that face Vista Outdoor and the industries in which we operate. We encourage you to review today's press release and Vista Outdoor's SEC filings for more information on these risk factors and uncertainties. Please note that we have posted presentation materials on our website at investors.vistaoutdoor.com, which supplement our comments this morning and include a reconciliation of non-GAAP financial measures. With that said, I'll turn it over to you, Chris.

Thank you, Shelly. Good morning, everyone, and welcome to our fiscal Year 2022 first quarter earnings call. We are excited to share details about our results and the growth potential of our brands. Our management team spent a great deal of time together at the beginning of the quarter as part of our Investor Day in May. We hope you felt the energy and passion of our leadership team like I did. As part of the value creation framework, we introduced new 3-year financial targets, and I can tell you that our teams are already well on their way to delivering results. Thank you, again, to those who joined the Investor Day. Now let's get started with our first quarter results. We began our fiscal year with another record quarter and strong performance across the entire portfolio, including sales growth of nearly $184 million, up 38% to $663 million compared with the prior year quarter. Record gross profit of $241 million, up 93%. Record EBIT of $144 million, up 200%; and record adjusted EPS of $1.74 compared with $0.51 in the prior year quarter. In Q1, we delivered 38% sales growth, which translated to 24% EBITDA margins due to growth and operational changes we made over the past 2 years of our strategic transformation stage. As a result, our business is running more effectively and efficiently than ever, generating tremendous leverage. Taking a look at our segments growth in Q1 was evenly balanced, with shooting sports up 39% and outdoor products, up 38%, driven by innovation and heightened demand for all of our products. E-commerce posted another quarter of double-digit sales growth, up 19% year-over-year on top of the previous year's 40% growth rate despite physical doors reopening. Our DTC channel grew significantly higher. We also maintained a strong balance…

Thanks, Chris, and hello, everyone. Our hunting and shooting accessories business continues to thrive with sales growth of 37% year-over-year, driven by triple-digit sales growth for our RCBS reloading and Gold Tip arrows business. New product innovation and increased participation across the hunting and recreational shooting markets were primary drivers of growth. We were especially pleased with the performance of our rangefinder category. The category was up triple digits year-over-year, supported by strong market demand for the Prime 1300 and the newly introduced Prime 1800 with ActivSync technology. The new ActivSync technology is a game changer in the market and allows the display to fluidly change based on the lighting conditions. We also integrated the same ActivSync technology into our new Fusion X range finding binoculars, which has seen strong market demand as we head into the fall hunting season. The Fusion X is loaded with features and gives users the best of both worlds, optimal viewing clarity and ranging accuracy all in 1 unit. It is immensely rewarding to watch our continued success in the rangefinder category Bushnell created 25 years ago. Bushnell has also made tremendous advancements in the trail camera market. especially with our new line of cellular models, the CelluCORE 20 and 30. These new models offer proven cellular performance, improved connectivity and best-in-class battery life and a user-friendly app for sorting and storing images. We have also made advancements to our entire digital ecosystem, focusing on an improved brand experience across all websites. We are now more agile with product updates and are consistently putting our best foot forward with enhanced content and improved navigation supporting the customer experience and our retail partners. Before I turn to Golf, many of you have seen the launch of the new Outdoorsman Bluetooth Speaker, which is a rugged…

Thanks, Vishak. I'm very excited about the future of Vista Outdoor. We have great leaders, passionate employees and plans in place to drive growth and profitability across the entire organization. Now I'll turn it over to Sudhanshu to dive deeper into our Q1 financial performance and provide our outlook. Sudhanshu?

Thanks, Chris, and good morning, everyone. As Chris mentioned earlier, we delivered another quarter of record results in gross profit, EBIT and EPS in Q1 following a record year in fiscal 2021. We grew sales by 38% in Q1 with balanced growth across both segments exceeding our expectations. There is no question that industry trends remain highly favorable as consumers continue to look to the outdoors for recreation. To capitalize on this opportunity, we further invested in innovation, e-commerce and our supply chain to position Vista Outdoor for continued growth and profitability. During the quarter, we purchased 1.2 million shares and maintained a low leverage ratio of 0.7x, well below our target leverage ratio of 1 to 2x. We also ended the quarter with $209 million in cash and integrated 2 recent acquisitions into our business. Remington is also ramping up faster than we had anticipated, enabling us to better meet higher demand for our products. We have had great success in integrating acquisitions. We are a smart serial acquirer and illustrating that we can do this in an accretive manner. In May, we hosted our Investor Day and outlined our 3-year performance goals. To recap, we are targeting the following growth and profitability ranges. Sales growth of 10% plus on average annually, which includes mid-single-digit organic growth plus acquisitions. EBITDA margin in the range of 15% to 20%. Free cash flow of $600 million or more over the next 3 years. E-commerce as a percentage of total sales of approximately 25% to 30%, a leverage ratio at approximately 1 to 2x and capital expenditures of roughly 1% to 2% of sales. These targets are supported by our long-term financial strategy to drive continued organic growth through investments and increase market share, maintain a strong balance sheet and cash flow…

[Operator Instructions] We'll now move to our first question over the phone, which comes from James Hardiman from Wedbush Securities.

Congrats on another pretty impressive quarter here. So obviously, you blew away our expectations. I don't know if you blew away your own expectations by quite the same magnitude. But I guess as I look specifically to Shooting Sports. And I guess within that ammunition, $364 million of sales, I wouldn't have thought that was possible, given that, that is obviously capacity constrained. Maybe walk us through how you were able to accomplish that? I'm assuming that a big part of the answer is Remington being up to speed maybe quicker than expected. I don't know if that's the entirety of it. But maybe speak just to: a, how you're able to accomplish that; b, is that 364 the new baseline? And then how do I think about ammunition in the context of a second quarter guide that is also up there, so to speak?

So James, thanks for the kind words at the beginning. I mean to answer, I guess, the first part of your question, we were pleasantly surprised with the way things came in, in the first quarter. Remington, because of the execution of our team came on speed even faster than we had anticipated. And I should say the same for Hevi-Shot. And unrelated to ammunition, we're proud of the fact that we fully integrated our 2 other acquisitions, QuietKat and Venor. But we're pleasantly surprised with the trends we saw in the ammunition business. I would not look at the margins or the sales level as something that is continuing at those levels. It will continue to be high. It will continue to be beyond any historic highs that we've seen, and we'll continue to ramp up Remington, but the margins were extraordinary. And we were benefited by some strong hedge positions that will begin to roll off. We continue to see the extraordinary demand in the marketplace, help us from a pricing standpoint. And so there were a number of factors that contribute to it. But as I said in my opening script remarks, we've taken NICS and said that's no longer a strong indicator or a correlating factor in the way we look at continued ammunition performance. I mean, obviously, it is a factor but not the biggest. I mean the underlying backlog we have, the inventory levels that are low the participation that is at all-time highs, the new people that we've entered into the industry, all are good harbingers for forward-looking forecast and demand.

That's helpful. And to the question of sort of the forward guidance. I don't know, is there a way to think about sort of a maximum ammunition sales rate or output once Remington is up to full speed?

James, we've given some pretty good color in the past in terms of running 24/7. And we think we've done -- well, we believe we've achieved more capacity expansion than anybody in the industry by the pure fact that we've bought Remington and Hevi-Shot. We've added 2 more factories into our lineup, if you will. And we've been running 24/7, as I mentioned, but we continue to smartly find ways to increase our capacity a little bit here and a little bit there, and that certainly contributed to it. But we're being super mindful of not adding a lot of fixed costs and a lot of fixed overhead knowing that at some point in time, the hyper demand we're seeing. We don't see it going backwards, but we see it certainly slowing down to a more reasonable level at some point in time. We don't know when that point in time is. So we're going to continue to run the factories as we're running them, and we're going to continue to scratch and claw for a little bit of capacity expansion here and there, but nothing material.

We'll now move on to our next question over the phone, which comes from Gautam Khanna from Cowen & Company.

This is Dan on for Gautam. So listen, it appears from our channel checks that in-store ammo availability has been improving at least marginally. And it sounds from your comments earlier that it's not on the demand side, it's not like demand is slowing. So is there anything that you see on the supply side that explains this? And also did backlog increase again this quarter?

Yes. So Dan, our -- let me take the latter of the 2. Yes, our backlog did increase. And as I mentioned in the scripted remarks, it's in the multibillion dollar level. It's at a high level. And the inventory in our customers' channel although improving, I think, the word you used is the right word, which is marginal improvement. I don't think we have 1 customer that I can think of that is real happy with their inventory position. And we work tirelessly day and night trying to allocate inventory in the most appropriate, fair and equitable way. So we would, however, continue to see the inventory levels marginally improve as we go forward in the ensuing quarters. And a lot of that has to do with us becoming more efficient, increasing a little bit of capacity here and as I mentioned, as well as our competitors. So demand continues to be there. And I mean people have certainly enjoyed the product coming available, and we expect that to continue as we go forward.

Okay. Great. Could you also just comment on pricing trends in the industry?

Well, I mean, pricing has certainly remained stable. In fact, in some respects, it's started to come down a little bit, which we think is a good thing. And when I say come down, I mean, the pricing that is MSRP pricing, what have you, that hasn't changed. But I think the retail pricing to customers driven predominantly by the e-tailers has come down to what we believe is a more reasonable level. Not much, but it has come down a bit. I mean it still follows supply and demand dynamics. But the -- I think the pricing has come down a little bit. Now what we would say is last year -- with last year's acquisition of Remington, it certainly helped us from a capacity standpoint. And it certainly helped us from a variety and a price, I would say, discipline standpoint because we bought one of the companies that we felt like we could help from a market commercial standpoint, and we certainly have, creating even more discipline from a supply standpoint. So I would look going forward to see more discipline in the industry than in previous surges. That is our certain belief.

We'll now move on to our next question over the phone, which from Matt Koranda from ROTH Capital.

Just specifically in the ammo side of the Shooting Sports segment. I just wondered if you could comment on sort of volume versus price contribution to growth in the quarter? And then just on a go-forward basis, how do we think about that?

Yes. So Matt, why don't I let Sudhanshu talk a little bit about the volume price questions you've asked.

Thanks, Chris. Thanks, Matt. So we don't disclose the mix between price and volume. But as you can see, the improvement you saw in our ammunition gross margin and EBIT is driven by all of those factors. Volume, price, obviously, Remington is helping us. We are much ahead of integration. It is doing great, both in adding sales and profitability and also DTC channel. You saw our e-commerce grew 19%, but DTC grew significantly higher than that. So that's what I will leave that at. We don't break down within volume, pricing and mix, but we believe the kind of margin we have done, all of those things out. Obviously, commodity, as Chris mentioned, we had good hedges has also helped. I will leave it at that.

Matt, I would add 1 thing because shoutout to our manufacturing and operations team. So to add to Sudhanshu's point on pricing and mix, a big part of our margin lift as well is the efficiencies that we're driving in our facilities. So we continue to take our efficiencies up. We figure out smarter ways to run longer to produce the calibers that people are looking for. And we're doing this with really not adding people, not adding machinery, PP&E, things of that nature, which have really helped us leverage our entire operation. So think of the last surge where we were kind of in the low 20s EBITDA margin. This surge we're in the low 30s from an EBITDA margin standpoint. And pricing and mix is, I would say, maybe we haven't studied if there's much of a difference. But I can tell you, we've got a completely different team in place in terms of the way they manage the operations, which I think points to longer-term stability in the gross margin line for us.

Okay. Helpful. And then just on the Remington ramp, just wanted to -- maybe if you could put a finer point on it. It sounds like you guys are ramping a little bit faster than we had anticipated and maybe a little bit faster than you guys had spoken to in prior quarters. What are the gating items that keep you from ramping now to that $400 million run rate that you kind of talked about on the upper bound of what's feasible. Is it more labor related? Or is it component related? What are the gating items there?

Yes. So Matt, again, when we bought Remington, we felt like it was going to be a really good fit for our organization, but we knew we had a number of challenges. And I think why it's even exceeded our expectations is because we were able to really leverage some of the supply chain and materials and what have you. And we really had a collaborative effort between the Remington team and our federal CCI Spear team. So just a wonderful team effort. We're quickly getting to that run rate, and as Sudhanshu pointed by, as we move through the year, we'll be at that $300 million to $400 million run rate. And really the limiting factors of the 2 you mentioned, which is one, labor. I mean, labor is tight everywhere, although we've got a workforce down in the Little Rock, Arkansas area, which is terrific and super excited to be a part of -- for the first time ever, an ammunition company that's really focused on ammunition; and two, input materials, right? I mean whether it's ammunition, Outdoor Products or any consumer products category for that matter, everybody is facing input material shortages. So we factored all of this into our guidance going forward, and that would be probably the limiting factor, if you will.

We'll now move to our next question over the phone, which comes from Scott Stember from CL King.

Congratulations on a great quarter. What was the actual dollar contribution from Remington and Hevi-Shot in the quarter?

So Scott, this is Sudhanshu. As I said last call, we don't disclose it anymore because we run it as 1 ammunition business. We're making trade-off decisions between raw material, from Remington factory or Hevi-Shot factory. But what I told you before, we were expecting a $200 million run rate from Remington, and Hevi-Shot is $20 million business. But now we guided that Remington will achieve $300 million to $400 million run rate starting Q2. So you can work -- do your math but you can see from sequential improvement from Q4 to Q1 in our ammunition business, Remington is a big part of it.

Got it. And last question on the DTC, I definitely got some really nice growth there, and obviously, the margin opportunities are huge. But can you talk about how far along you are in growing that? And the -- how much low-hanging fruit is still there for you guys?

Yes, Scott, I would characterize it as we're still in the early innings on DTC. And the exciting thing is we started 3 years ago, laying the plumbing and the piping and what have you. So the infrastructure, which we spent a lot of money and we've added a lot of people to is largely there. We continue to add to it in fairness. So that it's been built, it's highly scalable, and it's going to help us not only with our organic businesses, but it's going to help us increasingly as we acquire companies. And we certainly, with our debt position have really ramped that up. But I would again characterize it in the early innings. It's something that we are super excited to collaborate with our brands, but also with our customers. I mean we think a big part of what we're doing on DTC will help grow the pie in total. I mean, if you sit back and you look at all the new products we've just launched, I mean, gosh, it's every quarter, we launch more and more. And you heard Vishak talk about hunting and shooting accessories and all the laser rangefinders. So we just -- we've introduced dozens and dozens of new products. There isn't any number of customers that can really say grace over all of the content that we want to provide online. So we're doing that not only for ourselves but for them. And we're taking insights, and we're taking learnings and we're driving much more viewership online with all the content that we're creating, and we think it's going to grow the pie in total. We think all of our customers are going to grow their business. And wherever we can, we'd like to feed our business to them. So DTC is along for the ride. We certainly understand there's hyper growth opportunities for us, and we don't want to be beholden to people not showing our consumers the experience that we frankly believe they deserve. So we're controlling our own destiny and feeding the business where it wants to be.

We'll now move on to our next question over the phone, which comes from Mark Smith from Lake Street Capital Markets.

Guys, just wanted to follow up a little bit on that direct-to-consumer business. Can you talk at all about mix and how that is Shooting Sports and Outdoor Products, in particular, and ammunition. How early are you in really building out that direct-to-consumer business?

Well, Mark, I got to tell you, I mean, the exciting part is it's so broad-based, and it's across the board -- across all of our business units. I think that's what's contributing in many respects to why our business is -- all of our businesses are growing double digits. Now when you think of DTC, it really gives us the opportunity to bring new products to light faster. So where we have exciting new products and we need to get them to market fast, it really enables us to overnight launch this to the consumer. Now we're excited to tie ammunition to Hunt, Shoot Accessories to even brands like QuietKat or to Camp Chef is really behind the scenes, right? We're running on a singular platform that allows us to leverage technology where we can cross promote. So things like loyalty programs or things like subscription really help not just our ammunition business, but you'll see us roll it across all of our Outdoor Products businesses and where we have light consumers, and we have lots of light consumers across our brands, that's where we can really tie it together. And that's why we really reinforced the fact that, hey, we're in the early innings. I mean, we said before, we said at our Investor Day that listen, best-in-class today is kind of 30% to 35% overall online business and a large part of the great companies are moving towards DTC. We're a fraction of that. And despite being hundreds of millions of dollars in our e-comm online business, there's a lot more to come.

And then can you just talk about what you're seeing on the M&A front as far as deals coming out, valuations? And then maybe if you can discuss if you feel like got cash burning a hole in your pocket or how patient you want to be on the M&A front?

Well, Mark, I mean, listen, we certainly don't have cash burning a hole in our pocket. I mean we've been very mindful of our capital allocation, right? So we went in opportunistically and bought back shares and thank our Board for the authorization we had. And I think that's going to turn out to be 1 of our better investments. We have quietly built a small -- we're not yet calling in center of excellence, but we built a small team internally here that has worked over the last year to really evaluate targets. And so you think about 3 of the first 4 acquisitions we did -- I wouldn't call them proprietary deals, but they didn't go to auction. And so we're able to smartly buy companies and not pay huge multiples because there's a lot of cash chasing deals right now. And I can assure you that we're not going to go chase deals and pay huge premiums, but we are not going to be afraid to lean into something where we feel like it's great for shareholders. We feel like we can get really good returns on it. And you're going to see us increasingly become more active. We've heard investors say and we certainly talked about defense versus offense. We were doing a lot of defense in the first couple of years of my tenure here. In the last 12 to 18 months or so, we kind of had a balance of offense, defense. And we're always going to play some defense, but we're much more on the offense now, right? We find and we think there's some great, great outdoor products companies out there that really view Vista as a great landing spot, right, where they don't necessarily want to sell to a financial sponsor, they want to be part of a long-term outdoor products company. That they can carry their legacy on for years and years to come. So we're excited about the deal flow we're seeing, to be honest.

We'll now move on to our next question over the phone, which comes from Ryan Sundby from William Blair.

I'll add my congrats on another great quarter, too. I want to ask about your plans to enter the Golf monitoring simulation market. It seems like Bushnell has plenty of brand equity in that space. So can you talk about why now is the right time to enter why Foresight is the right partner? Then maybe what the economics look like with something like this? Is this a licensing deal? Or I guess, will you be making the product. -- And then I guess, finally, what kind of price point should we expect to see for something like this? Because it seems like there's a pretty big range out there for some of these offerings.

Ryan, it's such an exciting opportunity, and we have so what's going on in our golf business, and that's the big reason why we have Vishak with us this morning to talk about it. So Vishak, do you want to take that question?

Thank you, Chris. And a great question. Really appreciate it. Obviously, we are as excited as you to enter the space. I mean, just to give a little context, right? You saw NGF and Golf Datatech announce. This was probably the third month consecutively that we had about $400 million plus spent in golf equipment. That's the third highest month in a long, long time. So great market to be in. When you look at it from a golf enthusiast perspective, what we've been seeing is really 2 key trends emerging in the space. One trend is really around technology becoming relevant, which is around hitting dynamics, understanding, ball flight and analytics, and how that can be translated into performance enablement for golfers. And it's been incredibly already well adopted in the pro space. You see that in all major golfing events. But we see that as now is the time where those technologies can be brought to our consumer and the golfing enthusiastic space. The second big opportunity and trend we see in the golfing space is really the growth of off-course participation, I mean I know all of us have seen top golf. You've all gone to those arenas. But increasingly more than just top golf, in-home simulators are starting to gain traction. And we see that both of those are the right point in evolution in technology where they can be meaningfully bought at the right value proposition in the right way to our consumer. From a partnership perspective, I think it's important to note that we've been actually researching this space for quite some time. All the players in this space, we have spoken, we have extensively tested. We have a great internal facility and a team that I'm really proud of that spent a lot of time evaluating different technologies. And what we have come to the conclusion that Foresight is among the top leaders, and their technology -- that camera-base is increasingly become very, very popular and successful in the pro arena. Primarily because it accomplishes two things: It delivers on accuracy and it delivers on consistency. And those are the 2 most important things that golfers seek when they're trying to deliver. So those are the things. I hope that helps you give some context of why we are excited.

Yes. Vishak, I think that's a great answer for it. I think as a closing comment on the golf segment. Vishak's team really studied the market. One of the things we found out is Bushnell is one of the most popular brand names in launch monitors despite the fact that we weren't even in launch monitors. We were the second most recognized brand. So we have permission to play in this category. And what Vishak and team are going to do is take a product offer kind of 80% of the features, if you will, and bringing at a price point that's a fraction of what the pros pay for launch monitor. So exciting growth opportunity for us in Golf. So we appreciate everybody's attendance this morning. We know this is a busy earnings release week, and a lot of you are busy on other calls. So certainly wanted to thank you for your attendance this morning. And in closing, I'd like to highlight the recent release of our second ESG impact report. We're excited to have this be released, and our ESG focus is rooted in the belief that common ground can be found outside. We know through experience that outdoor experiences can bring people together regardless of their differences. Our report details our efforts in bringing people together and leading by example. I encourage every one of you to view our website and review the report in more detail. I'm proud of our continued drive to do well so that we can do good and thank you all for joining us here today.

Ladies and gentlemen, this does conclude today's call. Thank you very much for your participation. You may now disconnect.