VISTA OUTDOOR INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (kind 10-Q)

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(Amounts in thousands except per share data and unless otherwise indicated)

Forward-Looking Information is Subject to Risk and Uncertainty

Some of the statements made and information contained in this report, excluding
historical information, are “forward-looking statements,” including those that
discuss, among other things: our plans, objectives, expectations, intentions,
strategies, goals, outlook or other non-historical matters; projections with
respect to future revenues, income, earnings per share or other financial
measures for Vista Outdoor; and the assumptions that underlie these matters. The
words “believe,” “expect,” “anticipate,” “intend,” “aim,” “should” and similar
expressions are intended to identify such forward-looking statements. To the
extent that any such information is forward-looking, it is intended to fit
within the safe harbor for forward-looking information provided by the Private
Securities Litigation Reform Act of 1995. Numerous risks, uncertainties and
other factors could cause our actual results to differ materially from the
expectations described in such forward-looking statements, including the
following:

•supplier capacity constraints, production or shipping disruptions or quality or
price issues affecting our operating costs;

•the supply, availability and costs of raw materials and components;

•increases in commodity, energy, and production costs;

•seasonality and weather conditions;

•our ability to complete acquisitions, realize expected benefits from
acquisitions and integrate acquired businesses;

•reductions in or unexpected changes in or our inability to accurately forecast
demand for ammunition, accessories, or other outdoor sports and recreation
products;

•disruption in the service or significant increase in the cost of our primary
delivery and shipping services for our products and components or a significant
disruption at shipping ports;

•risks associated with diversification into new international and commercial
markets, including regulatory compliance;

•our ability to take advantage of growth opportunities in international and
commercial markets;

•our ability to obtain and maintain licenses to third-party technology;

•our ability to attract and retain key personnel;

•disruptions caused by catastrophic events;

•risks associated with our sales to significant retail customers, including
unexpected cancellations, delays, and other changes to purchase orders;

•our competitive environment;

•our ability to adapt our products to changes in technology, the marketplace and
customer preferences, including our ability to respond to shifting preferences
of the end consumer from brick and mortar retail to online retail;

•our ability to maintain and enhance brand recognition and reputation;

•others’ use of social media to disseminate negative commentary about us, our
products, and boycotts;

•the outcome of contingencies, including with respect to litigation and other
proceedings relating to intellectual property, product liability, warranty
liability, personal injury, and environmental remediation;

•our ability to comply with extensive federal, state and international laws,
rules and regulations;

•changes in laws, rules and regulations relating to our business, such as
federal and state ammunition regulations;

•risks associated with cybersecurity and other industrial and physical security
threats;

•interest rate risk;

•changes in the current tariff structures;

•changes in tax rules or pronouncements;

•capital market volatility and the availability of financing;

•foreign currency exchange rates and fluctuations in those rates;

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•general economic and business conditions in the United States and our markets
outside the United States, including the war in Ukraine and the imposition of
sanctions on Russia, conditions affecting employment levels, consumer confidence
and spending, conditions in the retail environment, and other economic
conditions affecting demand for our products and the financial health of our
customers; and

•risks related to our Planned Separation.

You are cautioned not to place undue reliance on any forward-looking statements
we make. A more detailed description of risk factors that may affect our
operating results can be found in Part 1, Item 1A, Risk Factors, of our Annual
Report on Form 10-K for fiscal year 2022 and in the filings we make with
Securities and Exchange Commission (the “SEC”) from time to time. We undertake
no obligation to update any forward-looking statements, except as otherwise
required by law.

Business and Products

We serve the outdoor sports and recreation markets through a diverse portfolio
of well-recognized brands that provide consumers with a wide range of
performance-driven, high-quality, and innovative products. Our broad range of
consumers include outdoor enthusiasts, hunters and recreational shooters,
athletes, as well as law enforcement and military professionals. We sell our
products through a wide variety of mass, specialty and independent retailers and
distributors, such as Academy, Amazon, Bass Pro Shops/Cabela’s, Dick’s Sporting
Goods, Kiesler Police Supply, Nations Best Sports, Sports Inc., Sports South,
Sportsman’s Warehouse, Target, and Walmart. Some of our products are also sold
directly to consumers through the relevant brand’s website. We have a scalable,
integrated portfolio of brands that allows us to leverage our deep customer
knowledge, product development and innovation, supply chain and distribution,
and sales and marketing functions across product categories to better serve our
retail partners and consumers.

Reportable Segments and Products

We operate under seven operating segments, which have been aggregated into two
reportable segments, Sporting Products and Outdoor Products.

•Our Sporting Products reportable segment designs, develops, distributes and
manufactures ammunition, primers, components and related equipment and
accessories and serves devoted hunters, recreational shooters, federal and local
law enforcement agencies and the military. Ammunition products include pistol,
rifle, rimfire, shotshell ammunition and primers. Our Sporting Products
reportable segment consists of our Ammunition operating segment, which includes
our ammunition-related businesses, including Federal, Remington, CCI, Speer, and
HEVI-Shot.

•Our Outdoor Products reportable segment designs, develops, distributes and
manufactures gear and equipment to enhance the outdoor experiences of a wide
variety of end users, including hunters, hikers, campers, cyclists, skiers,
snowboarders, and golfers. Products from the businesses included in this
reportable segment include hunting and shooting accessories, personal hydration
solutions, outdoor cooking solutions, action sports helmets and goggles,
footwear and cycling accessories, eBikes, audio speakers for outdoor sports,
golf GPS devices, laser rangefinders, and golf launch monitors and simulators.
Our Outdoor Products reportable segment consists of:

•Our Outdoor Accessories operating segment, which includes our Bushnell Optics,
Primos, RCBS, BlackHawk!, and Eagle businesses;

•Our Sports Protection operating segment, which includes our Bell and Giro
businesses;

•Our Cycling operating segment, which is comprised of our QuietKat business;

•Our Outdoor Cooking operating segment, which includes our Camp Chef and Fiber
Energy businesses;

•Our Hydration operating segment, which is comprised of our CamelBak business;
and

•Our Golf operating segment, which includes our Bushnell Golf and Foresight
businesses.

Planned Separation of Outdoor Products and Sporting Products

On May 5, 2022, we announced that our Board of Directors has unanimously
approved preparations for the separation of our Outdoor Products and Sporting
Products reportable segments into two independent, publicly-traded companies. We
anticipate that the transaction will be in the form of a distribution to our
shareholders of 100% of the stock of Outdoor Products, which will become a new,
independent publicly traded company. The distribution is intended to be tax-free
to U.S. shareholders for U.S. federal income tax purposes. We currently expect
the transaction will be completed in calendar year 2023, subject to final
approval by our Board of Directors, a Form 10 registration statement being
declared effective by the U.S. Securities and
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Exchange Commission, regulatory approvals and satisfaction of other conditions.
There can be no assurance regarding the ultimate timing of the proposed
transaction or that the transaction will be completed.

We expect that the Planned Separation will create a number of benefits for
Outdoor Products and Sporting Products, including:

•Enhanced strategic focus with supporting resources: Each company will have
enhanced strategic focus with resources to support its specific operational
needs and growth drivers.

•Tailored capital allocation priorities: Each company will have a tailored
capital allocation philosophy that is better suited to support its distinctive
business model and long-term goals.

•Strengthened ability to attract and retain top talent: Each company will
benefit from enhanced ability to attract and retain top talent that is ideally
suited to execute its strategic and operational objectives.

•Compelling value for shareholders: Each company will present a differentiated
and compelling investment opportunity based on its particular business model.

•Expanded strategic opportunities: Improved focus will allow Outdoor Products to
further cement its reputation as the acquirer of choice through continued M&A in
the outdoor recreation products marketplace and enable Sporting Products to
secure attractive partnerships with other manufacturers.

Executive Summary

We had a strong performance for the first quarter of fiscal year 2023. Financial
highlights and notable events for the three months ended June 26, 2022 included
the following:

•Net sales increased $139,700, or 21.1%, over the comparable quarter last year.

• Sporting Products net sales increased $146,339, or 40.2%.

• Outdoor Products net sales decreased $6,639, or 2.2%.

•Gross profit increased $52,043, or 21.6%, as compared to the same period last
year. Gross profit margin increased to 36.6%, an increase of 15 basis points
over the comparable quarter last year.

• Sporting Products gross profit increased $51,966, or 34.9%.

• Outdoor Products gross profit decreased $307, or 0.3%.

•EBIT increased $28,769, or 20%, for the three months ended June 26, 2022 as
compared to the three months ended June 27, 2021. EBIT margin decreased to
21.5%, a decrease of 19 basis points over the comparable quarter last year.

•Net income increased to $126,015, or $2.16 per diluted share, compared to net
income of $102,725, or $1.71 per diluted share for the comparable quarter last
year.

Outlook

Sporting Products Industry

Sales of hunting and shooting-sports related products, including ammunition, are
heavily influenced by hunting and recreational shooting participation rates,
civil unrest and the political environment. We believe that long-term
participation trends support our expectation of continued increased demand for
hunting and shooting-sports related products. Participation rates have remained
strong, and we are seeing an expanded demographic of users. This broadened end
consumer base has resulted in a much larger total addressable market opportunity
for the industry and for our company. We believe we are well-positioned to
succeed and capitalize on this demand given our scale and global operating
platform, which we believe is particularly difficult to replicate in the highly
regulated and capital-intensive ammunition manufacturing sector.

Outdoor Recreation Industry

We believe that long-term outdoor participation trends combined with a larger
base of participants supports our expectation of continued increased demand for
the innovative outdoor recreation-related products produced by our Outdoor
Products brands. Rising inflation and the absence of stimulus payments have had
an impact on the opening price points of certain categories. However, outdoor
participation trends and demand for premium price points remain strong across
our brand portfolio. We believe that demand for our Outdoor Products is being
temporarily impacted by higher inflation causing a contraction in disposable
income. Our Outdoor Products brands hold a strong competitive position in the
marketplace, and we intend to further differentiate our brands through focused
research and development and marketing investments including

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increased use of social media and other digital marketing. Following significant
investments in our brands’ e-commerce capabilities, both directly and through
our E-Commerce Center of Excellence, we believe our brands are well-positioned
to benefit from the ongoing shift in consumer shopping behavior to utilize
online channels.

Management’s Discussion and Analysis of Financial Condition and Results of
Operations (“MD&A”) is intended to provide a reader of our financial statements
with a narrative from the perspective of our management on results of
operations, our financial condition, liquidity, and certain other factors that
may affect our future results. The following information should be read in
conjunction with our Condensed Consolidated Financial Statements included in
this Quarterly Report on Form 10-Q.

Results of Operations

Segment results for the three months ended June 26, 2022 compared to the three
months ended June 27, 2021

The Company’s net sales, gross profit, and EBIT by reportable segment and by
corporate and other (where applicable) are presented below (dollars in
thousands):

Three months ended Change
Net Sales: June 26, 2022 June 27, 2021 (1) Dollars Percent
Sporting Products $ 510,626 $ 364,287 $ 146,339 40.2 %
Outdoor Products 291,986 298,625 (6,639) (2.2) %
Total net sales $ 802,612 $ 662,912 $ 139,700 21.1 %

(1) We modified the structure of our reportable segments during the third
quarter of fiscal 2022. Accordingly, prior period amounts have been reclassified
to conform with the current period presentation. See Note 17, Operating Segment
Information, to the unaudited condensed consolidated financial statements in
Part I, Item 1 of this Quarterly Report on Form 10-Q.

Sporting Products- The increase in sales was driven by increased volume due to
timing of shipments to fill large commercial orders and improved pricing.

Outdoor Products- The decrease in sales was caused by reduced purchasing from
big box retailers and prior year channel inventory fill in our Outdoor
Accessories, Outdoor Cooking, and Action Sports businesses. Partially offsetting
these declines were sales from businesses acquired in the prior fiscal year and
strong demand in the independent dealer channels.

Three months ended Change
Gross Profit: June 26, 2022 June 27, 2021 (1) Dollars Percent
Sporting Products $ 200,962 $ 148,996 $ 51,966 34.9 %
Outdoor Products 92,508 92,815 (307) (0.3) %
Corporate and other – (384) 384 – %
Total gross profit $ 293,470 $ 241,427 $ 52,043 21.6 %
Gross profit margin 36.6% 36.4%

Sporting Products-The increase in gross profit was driven by sales volume and
improved pricing, These increases were partially offset by increased commodity
and input costs. Gross profit margin was 39.4% compared to 40.9% in the prior
year quarter.

Outdoor Products-The decrease in gross profit was primarily caused by increased
costs and lower volume as discussed above. These decreases were partially offset
by gross profit from acquisitions that occurred during the prior fiscal year.
Gross profit margin was 31.7% compared to 31.1% in the prior year quarter.

Corporate and Other-The increase in corporate gross profit was due to inventory
step-up expenses in the prior year quarter.

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Three months ended Change
EBIT: June 26, 2022 June 27, 2021 (1) Dollars Percent
Sporting Products $ 176,086 $ 124,704 $ 51,382 41.2 %
Outdoor Products 27,686 42,945 (15,259) (35.5) %
Corporate and other (31,347) (23,993) (7,354) (30.7) %
Total EBIT $ 172,425 $ 143,656 $ 28,769 20.0 %
EBIT margin 21.5% 21.7%

Sporting Products-The increase in EBIT was primarily driven by the increase in
gross profit. EBIT margin was 34.5% compared to 34.2% in the prior year quarter.

Outdoor Products-The decrease in EBIT was primarily caused by selling, general,
and administrative costs in our prior year acquisitions. EBIT margin was 9.5%
compared to 14.4% in the prior year quarter.

Corporate and Other-The decrease in EBIT was primarily caused by increased
transaction, transition, and post-acquisition compensation.

Three months ended Change
Interest expense, net: June 26, 2022 June 27, 2021 Dollars Percent
Corporate and other $ 6,310 $ 5,678 $ 632 11.1 %

For the three months ended June 26, 2022, the increase in interest expense is
due to our higher average debt balance and borrowings under the 2021 ABL
Revolving Credit Facility.

Three months ended
Effective Effective
Income tax provision: June 26, 2022 Rate June 27, 2021 Rate $ Change
Corporate and other $ (40,100) 24.1 % $ (35,253) 25.5 % $ (4,847)

See Note 15, Income Taxes, to the unaudited condensed consolidated financial
statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for
information regarding income taxes.

The decrease in the effective rate for the three-month period ending June 26,
2022 from the prior year three-month period is primarily driven by the impact of
beneficial state tax law changes and a decrease in uncertain tax position
reserves.

Financial condition

Cash increased to $36,612 at June 26, 2022 compared to $22,584 at March 31,
2022, primarily due to cash provided by operating activities which was partially
offset by payments on the ABL Revolving Credit Facility.

Cash provided by operating activities increased $78,805 in the three months
ended June 26, 2022 compared to the prior year quarter. Timing of vendor and
post-acquisition compensation payments, increased net income, and decreased
inventory growth, contributed to the increase. These increases were partially
offset by higher accounts receivable due to higher sales volumes and timing of
compensation payments as compared to the prior year quarter.

Investing Activities

Cash used for investing activities decreased $10,491 for the three months ended
June 26, 2022 compared to the prior-year quarter. The change was driven by a
decrease in the acquisition of businesses.

Financing Activities

Cash used for financing activities increased by $40,768 for the three months
ended June 26, 2022 compared to the prior year quarter. The increase is due to
additional payments on the ABL Revolving Credit Facility, and partially offset
by a reduction in the repurchase of treasury shares as compared the prior year
quarter.

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Liquidity and Capital Resources

In addition to our normal operating cash requirements, our principal future cash
requirements will be to fund capital expenditures, debt repayments, employee
benefit obligations, share repurchases, and any strategic acquisitions. Our
short-term cash requirements for operations are expected to consist mainly of
capital expenditures to maintain production facilities and working capital
requirements. Our debt service requirements over the next two years consist of
required interest payments due under our 4.5% Notes and 2021 ABL Revolving
Credit Facility.

Based on our current financial condition, management believes that our cash
position, combined with anticipated generation of cash flows and the
availability of funding, if needed, under our 2021 ABL Revolving Credit
Facility, access to debt and equity markets, as well as other potential sources
of funding including additional bank financing, will be adequate to fund future
growth to service our currently anticipated long-term debt and pension
obligations, make capital expenditures, and fund the 2022 Share Repurchase
Program over the next 12 months. As of June 26, 2022, based on the borrowing
base less outstanding borrowings of $90,000, outstanding letters of credit of
$15,445, and minimum required borrowing base of $45,000, the amount available
under the 2021 ABL Revolving Credit Facility was $299,555. Our total debt as a
percentage of total capitalization (total debt and stockholders’ equity) was
32.1% as of June 26, 2022. Subsequent to quarter end, we entered into a
definitive Share Purchase Agreement with Fox and a definitive Agreement and Plan
of Merger with Simms. We intend to fund the acquisitions through a combination
of a $600,000 Credit Facility, that will replace our current 2021 ABL Revolving
Credit Facility, and a $350,000 secured term loan facility. See Note 18,
Subsequent Event, to the unaudited condensed consolidated financial statements,
in Part I, Item 1 of this Quarterly Report on Form 10Q, which is incorporated
herein by this reference.

There can be no assurance that the cost or availability of future borrowings, if
any, will not be materially impacted by capital market conditions, including any
disruptions to capital markets as a result of the COVID-19 pandemic (including
the emergence and spread of vaccine resistant coronavirus variants), the
military conflict in Ukraine and imposition of sanctions on Russia, or our
future financial condition and performance. Furthermore, because our 2021 ABL
Revolving Credit Facility is secured in large part by receivables from our
customers, a sustained deterioration in general economic conditions, including
as a result of the COVID-19 pandemic (including the emergence and spread of
vaccine resistant coronavirus variants) or the military conflict in Ukraine and
imposition of sanctions on Russia, that adversely affects the creditworthiness
of our customers could have a negative effect on our future available liquidity
under the 2021 ABL Revolving Credit Facility

Additional information about our 2021 ABL Revolving Credit Facility, and
long-term debt is presented in Note 13, Long-term Debt, to the unaudited
condensed consolidated financial statements in Part I, Item 1 of this Quarterly
Report on Form 10-Q, which is incorporated herein by this reference.

Contractual Obligations and Commitments

The Company leases certain warehouse, distribution and office facilities,
vehicles and office equipment under operating leases. As of June 26, 2022,
current and long-term operating lease liabilities of $11,582 and $77,827,
respectively, were recorded in the accompanying unaudited condensed consolidated
balance sheets. For further discussion on minimum lease payment obligations,
see Note 3, Leases, to the unaudited condensed consolidated financial statements
in Part I, Item 1 of this report.

There have been no material changes with respect to the contractual obligations
and commitments or off-balance sheet arrangements described in our Annual Report
on Form 10-K for fiscal year 2022.

Contingencies

Litigation

From time-to-time, we are subject to various legal proceedings, including
lawsuits, which arise out of and are incidental to, the conduct of our business.
We do not consider any of such proceedings that are currently pending,
individually or in the aggregate, to be material to our business or likely to
result in a material adverse effect on our operating results, financial
condition, or cash flows.

Environmental Liabilities

Our operations and ownership or use of real property are subject to a number of
federal, state, and local environmental laws and regulations, as well as
applicable foreign laws and regulations, including those governing the discharge
of hazardous materials, remediation of contaminated sites, and restoration of
damage to the environment. We are obligated to conduct investigations and/or
remediation activities at certain sites that we own or operate or formerly owned
or operated.

Certain of our former subsidiaries have been identified as potentially
responsible parties (“PRPs”), along with other parties, in regulatory agency
actions associated with hazardous waste sites. As a PRP, those former
subsidiaries may be

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required to pay a share of the costs of the investigation and clean-up of these
sites. In that event, we would be obligated to indemnify those subsidiaries for
those costs. While uncertainties exist with respect to the amounts and timing of
the ultimate environmental liabilities, based on currently available
information, we do not currently expect that these potential liabilities,
individually or in the aggregate, will have a material adverse effect on our
operating results, financial condition, or cash flows.

We could incur substantial additional costs, including cleanup costs, resource
restoration, fines, and penalties or third-party property damage or personal
injury claims, as a result of violations or liabilities under environmental laws
or non-compliance with environmental permits. While environmental laws and
regulations have not had a material adverse effect on our operating results,
financial condition, or cash flows in the past, and we have environmental
management programs in place to mitigate these risks, it is difficult to predict
whether they will have a material impact in the future.

Critical Accounting Policies and Estimates

There have been no changes to our critical accounting policies and estimates
from the information provided in Part II, Item 7, “Management’s Discussion and
Analysis of Financial Condition and Results of Operations,” included in our
Annual Report on Form 10-K for fiscal year 2022.

Dependence on Key Customers; Concentration of Credit

No single customer contributed 10% or more of our sales in the three months
ended June 26, 2022. Walmart represented approximately 10% of our sales in the
three months ended June 27, 2021.

If a key customer fails to meet payment obligations, our operating results and
financial condition could be adversely affected.

Inflation and Commodity Price Risk

We are exposed to inflationary factors such as increases in labor, supplier,
logistics and overhead costs that may adversely affect our operating results.
Although we do not believe that inflation has had a material impact on our
financial position or results of operations to date, a high rate of inflation in
the future may have an adverse effect on our ability to maintain current levels
of gross margin and operating expenses, if the selling prices of our products
are not able to offset these increased costs. Additionally, inflation may
potentially impact demand as consumers reduce discretionary spending. We have
been impacted by changes in the prices of raw materials used in production as
well as changes in oil and energy costs. In particular, the prices of commodity
metals, such as copper, zinc, and lead continue to be volatile. These prices
generally impact our Sporting Products Segment. See Note 5, Derivative Financial
Instruments, to the unaudited condensed consolidated financial statements in
Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information.

We have a strategic sourcing, pricing and hedging strategy to mitigate risk from
commodity price fluctuation. We will continue to evaluate the need for future
price changes in light of these trends, our competitive landscape, and our
financial results. If our sourcing and pricing strategy is unable to offset
impacts of the commodity price fluctuations, our future results from operations
and cash flows would be materially impacted.

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