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Edited Transcript of VSTO earnings conference call or presentation 12-May-16 1:00pm GMT

Q4 2016 Vista Outdoor Inc Earnings Call

Clearfield May 12, 2016 (Thomson StreetEvents) -- Edited Transcript of Vista Outdoor Inc earnings conference call or presentation Thursday, May 12, 2016 at 1:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Michael Pici

Vista Outdoor Inc. - VP of IR

* Mark DeYoung

Vista Outdoor Inc. - Chairman and CEO

* Stephen Nolan

Vista Outdoor Inc. - SVP and CFO

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Conference Call Participants

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* Greg Konrad

Jefferies & Co. - Analyst

* Rommel Dionisio

Wunderlich Securities - Analyst

* Andrew Burns

D.A. Davidson & Co. - Analyst

* Bill Ledley

Cowen and Company - Analyst

* Brian Ruttenbur

BB&T Capital Markets - Analyst

* Jim Chartier

Monness, Crespi & Hardt - Analyst

* Scott Hamann

KeyBanc Capital Markets - Analyst

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Presentation

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Operator [1]

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Good day, and welcome to the Vista Outdoor fourth-quarter and FY16 conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Michael Pici, Vice President of Investor Relations. Please go ahead, sir.

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Michael Pici, Vista Outdoor Inc. - VP of IR [2]

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Thank you. Good morning, and thank you for joining us for our fourth-quarter FY16 earnings call. With me this morning are Mark DeYoung, Vista Outdoor Chairman and Chief Executive Officer; and Stephen Nolan, 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 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 also note that we have posted presentation materials on our website at vistaoutdoor.com which supplement our comments this morning and include a reconciliation of non-GAAP financial measures.

With that said I'll turn the call over to you, Mark.

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Mark DeYoung, Vista Outdoor Inc. - Chairman and CEO [3]

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Okay. Thank you, Mike. Good morning, everyone. Thanks for joining us this morning on our fourth-quarter and our full FY16 earnings call.

In the last fiscal year, we achieved $2.27 billion in revenue, up 9% from the prior year and up 3% organically. We delivered gross profit for the full year of $619 million, up 17% from the prior year and up 8% organically. We delivered EPS of $2.35 and adjusted EPS of $2.50, up 6% from the prior-year period. And we achieved organic growth in both segments, with demand in the Shooting Sports trending higher as the year progressed.

FY16 was a year of solid achievement for Vista Outdoor. We demonstrated to shareholders, partners, customers, consumers, and our employees our ability to establish and execute a broad and defining strategic vision for our Company. Our focus on strategic growth and portfolio management resulted in $850 million in acquired business, including: Jimmy Styks -- as you know, is a leading supplier of stand-up paddleboards; CamelBak, the world leader in personal hydration solutions; and Action Sports, with its category-leading brands Bell, Giro, Blackburn, as well as Copilot, KRASH!, and Raskullz. These acquisitions repositioned and broadened Vista Outdoor, and rebalanced our portfolio with leadership in shooting sports and in the outdoor products markets. We are now supplying the personal hydration and water sports markets, and have positioned Vista as a global leader in protective equipment for cycling and for snow sports.

The integration of our latest acquisition of Action Sports is going very well. I'm impressed by the management team and the rigor Action Sports brings to new product development and marketing. Their R&D facility in Scotts Valley, California, houses industry-leading design, development, and testing facilities. Action Sports' commitment to safety, quality, innovation, and performance is a real testament to the passionate employees who have made those brands leaders.

We are integrating the Action Sports team into it a broader Vista Outdoor sales organization and are focused on opportunities for synergistic growth in cycling and snow sports markets with CamelBak, Bolle, and Sav A brands. Leveraging our strong trade relationships across all brands remains a core strategy for the Company. Now with 50 brands, we are in a leadership position and a key supplier to numerous top retail and wholesale customers. The integration of all of our recently acquired businesses is on track. We continue to develop best practices to insure shareholders, the Company, and our consumers all benefit from acquiring these market-leading assets.

In terms of over-arching Vista Outdoor accomplishments, we all know standing up a publicly traded company can be challenging. However, we were able to efficiently achieve outstanding results while, at the same time, putting in place new systems, programs, people, and new processes. Our leadership teams are key to our accomplishments and, throughout the year, we've worked to further strengthen our already capable and talented teams.

In the fourth quarter, we hired Kelly Grindle to lead our Outdoor Products segment. Kelly has nearly 20 years in consumer products and was previously with Johnson Outdoors. His experience in the outdoor recreation market and his business background have added real value to the Company. Kelly oversees more than 35 diverse brands that span individual recreation markets. I appreciate his strategic leadership and experience, and his focus on results.

This week, Bob Keller joined Vista Outdoor as President of the Shooting Sports segment. I look forward to leveraging his 30 years of consumer products experience to help us deliver growth, profitability, product innovation, and execution excellence. Bob was recently the President and CEO of Escalade, Incorporated, and has also held leadership positions in Disston Tool Company, the Russell Corporation, Coca-Cola, and The Clorox Company. Bob is a capable and passionate business leader who loves the outdoors and will bring new perspectives and a full complement of excellent leadership capabilities to our Shooting Sports segment. Bob will replace David White, who recently announced his retirement after 40 years with the Company. I'd like to thank David for his many contributions over the years, including his oversight of the Shooting Sports segment last year, and wish him well as he heads to the golf course.

We've repositioned our portfolio by significantly expanding beyond our traditional shooting sports capabilities. To support this broad portfolio of brands and products, we've added Dave Allen to my senior executive team. Dave will serve as Vista Outdoor's Senior Vice President for Sales. Dave was most recently the President of Coleman USA for the Jarden Corporation, and has over 20 years of experience in consumer products. Dave will be a key leader in executing our commitment to deliver global sales strategies, integration of acquisitions in the global sales model, and he will be a very positive influence on the sales organization, our customer relationships, and the Company as a whole. He has extensive experience operating within our primary sales channels, and I'm confident he will hit the ground running. Dave is a very capable and respected executive in the outdoor recreation industry. He is results-oriented, energetic, strategic, a team player, and has a track record of accomplishment and excellence.

I'm extremely pleased that Vista was able to attract these top executives. Kelly, Bob, and Dave all share my vision for Vista Outdoor and my commitment to results, strategic growth, and creating a world-leading outdoor recreation company. They are skilled, respected leaders who will further strengthen an already talented and capable executive leadership team.

In FY16, Vista Outdoor demonstrated a culture of execution excellence. This culture of excellence is highlighted by our world-class safety and environmental stewardship performance. One of many success stories is our Savage Arms facility in Lakefield, Ontario, where we achieved approximately 235,000 work hours without a single recordable injury.

At Vista Outdoor, our social responsibility is also an important part of our culture. Our mission is to bring the world outside and one of the ways we do this is through support of conservation organizations to put vital resources into wildlife habitat development. We are committed to conservation programs that advance the future of wildlife and wild places. We advocate for safe and responsible recreation through our own initiatives and through our strategic partnerships.

In FY16, Vista Outdoor contributed to conservation programs like Pheasants Forever, the National Wild Turkey Federation, Safari Club International, Rocky Mountain Elk Foundation through our branded royalty programs. During the PGA show in the fourth quarter, Vista Outdoor donated over a $0.25 million to Folds of Honor Foundation through our royalty program on Bushnell golf laser rangefinders. This program supports higher education for children of veterans and our wounded warriors. CamelBak recently launched a program celebrating the centennial anniversary of our national parks. For every national park commemorative water bottle sold, $2 will be donated to the National Parks Foundation.

I believe employee engagement is key to a successful company. Therefore, we spent the greater part of FY16 putting competitive benefits, wellness and compensation programs in place, not only for our existing brands but for those we recently acquired. We're focused on leadership and talent development, diversity, and inclusion. Vista Outdoor truly employs the best of the best in the industry.

To highlight some of Vista's outdoor achievements, I'd like to share with you a few key recognitions we received in the quarter. CamelBak was recognized by Total Wellness Health as having a world-class wellness program. ACG Utah named Vista Outdoor its dealmaker of the year for our strategic acquisition of CamelBak. Cabela's honored us with its 2015 Strategic Partner award, demonstrating the importance of our role and our productive relationship with this major outdoor retailer.

Cebe won the ISPO award for its Fireball junior snow helmet. The ISPO award is determined by an independent panel and serves as a reference for retailers when they are choosing innovative new products to offer their consumers. Federal Premium Ammunition won Telly awards for outstanding new television commercials for our Fusion and our Black Cloud products. And our Savage A17 rifle received numerous awards for its pioneering design and functionality, including NRA's 2016 Golden Bullseye Award for rifle of the year.

We delivered solid results across the board in FY16. We quickly created a unique portfolio and a unique position in outdoor rec. I appreciate the efforts and the results, and the people who made it all happen. Looking forward, FY17 will be another great year for Vista Outdoor. It will be a year of continued execution, growth, and strategic investment in our future.

As we've previously disclosed, each year our capital expenditures include funding to modernize facilities and to improve production, throughput, and eliminate bottlenecks and inefficiencies. We will continue those efforts this year and deliver higher levels of throughput in all of our manufacturing businesses. We call these ongoing efforts our Factory of the Future initiatives.

Even with Factory of the Future initiatives, we see the opportunity for enhanced long-term growth in our ammunition business. Given that we've been operating near capacity in our ammunition factories, the strength of our ammunition brands and the continued demand for more of our products, we are initiating an ammunition capacity expansion project. We are the world leader in ammunition and we intend to retain our leadership position, as well as capture additional share through low-cost manufacturing, efficient capacity expansion, increased innovation, strong branding strategies, and an unparalleled distribution network.

The Company is also investing in R&D and new product launches in both segments to foster growth and create a sustainable competitive advantage. Our strategic vision is to meet market demand, provide our consumers with innovative product solutions, and continue our track record of market share growth over the long term.

As we continue our pursuit of organic growth, we will maintain a sharp focus on opportunities for continued acquired growth. Vista Outdoor's acquisition pipeline remains robust, with numerous potential opportunities. The cash generated from our operations, along with our strong balance sheet, give us flexibility we need to pursue additional strategic opportunities while also investing in our organic capabilities. In addition, we will continue to repurchase shares under the Company's existing two-year share repurchase authorization. We anticipate fully executing the current share repurchase program this fiscal year.

I'm very proud of our first year and the foundation we've built for Vista's future growth and performance. I remain very optimistic about Vista Outdoor's future. I'm proud to be part of a great new company. We are focused on strategically investing in our future through modernizing and expanding our operational capabilities, funding our innovation engine, enhancing our marketing and branding initiatives, and developing our talented workforce, all with the firm commitment to deliver long-term shareholder value.

Stephen is now going to provide some more details on the financial results for the quarter and the year, and walk you through our guidance for FY17. Stephen?

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Stephen Nolan, Vista Outdoor Inc. - SVP and CFO [4]

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Thank you, Mark. Good morning, everyone, and thanks for joining our fourth-quarter and full-year FY16 earnings call. We've disclosed both as reported and adjusted results in our press release to assist you in your understanding of the underlying numbers and to assist in comparison to prior periods. You will find a more detailed financial presentation of our fourth-quarter and full-year FY16 performance on our website.

Today, I will discuss the adjusted results, first for Vista Outdoor overall, and then I'll provide a little more color on the drivers for the segments. For the fourth quarter, we recorded sales of $612 million, up 26% from the prior-year quarter and up 15% on an organic basis. Both segments were up organically year over year. In addition, Outdoor Products results include $56 million of sales from the Jimmy Styks and CamelBak acquisitions. The Company achieved full-year sales of $2.27 billion, up 9% from the prior year, including $120 million of sales from acquisitions. Organic sales for the year were $2.1 billion, up 3% from the prior year, despite unfavorable foreign-exchange impact in Outdoor Products.

Our fourth-quarter gross profit of $164 million was up 33% from the prior-year period, including $22 million of gross profit from acquisitions. Organic gross profit for the quarter was $142 million, an increase of 15% over the prior-year period, driven by Shooting Sports performance. Full-year gross profit was $619 million, up 17% from the prior year, including $48 million in gross profit from acquisitions. Organic gross profit was $572 million, an increase of 8%, driven by an increase in Shooting Sports, partially offset by the unfavorable foreign-exchange impact in Outdoor Products.

Our operating expenses for the fourth quarter were $93 million, compared to $72 million for the prior-year quarter. The increase reflects additional operating expenses incurred by the acquired businesses, stock-based compensation, and additional selling and marketing investments. Full-year operating expenses were $343 million, compared to $267 million for the prior year. The increase reflects additional operating expenses incurred by the acquired businesses, stand-alone Company costs, stock-based compensation, and additional selling and marketing investments.

Interest expense for the fourth quarter was $7 million, up 54% compared to the prior-year period as a result of the increase in average debt balance and an increase in our average borrowing cost. Interest expense for the full year was down $6 million. The Company's financial statements for the prior year included approximately $29 million of interest allocated to Vista Outdoor prior to the spinoff.

The tax rate for the quarter was 38.2%, compared to 35.4% in the prior-year quarter. The tax rate for the year was 37.9%, compared to 35.4% in the prior year. The increase for both the quarter and the full year were primarily driven by adjustments to deferred taxes and payables, partially offset by a favorable accounting method change for the treatment of stock-based compensation. EPS in the fourth quarter was $0.63, up 34% from the prior-year quarter. EPS for the year was $2.50, up 6% from the prior year. These increases were due to the results just discussed and share repurchases performed throughout the year.

Free cash flow for the full year was $163 million, compared to $160 million in the prior year. This increase was primarily driven by improved usage of working capital. The Company repurchased approximately 572,000 shares for $27 million in the fourth quarter under our $200 million two-year share repurchase program. Since the end of the fourth quarter, we've repurchased approximately 200,000 additional shares for $10 million. Since the program's initial authorization, we've repurchased a total of approximately 3.5 million shares for $159 million, which is approximately 80% of the authorized program.

Now, turning to our business segments where we report both sales and gross profit. For the fourth quarter, our Shooting Sports segment recorded sales of $382 million, up 22% from the prior-year quarter. The increase over the prior-year quarter reflects increased demand due to the market stabilization and return to growth that we began to see earlier this year. For the full year, Shooting Sports reported sales of $1.4 billion, up 4%, driven by firearms and rimfire ammunition, partially offset by a decrease in shotshell. Fourth-quarter gross profit was $95 million, up 23% from the prior-year quarter. Full-year gross profit in Shooting Sports was $377 million, up 14% from the prior year. These increases were driven by the sales volume increase noted previously, by product mix, and by favorable material procurement.

Now, turning to our Outdoor Products segment, fourth-quarter sales were $230 million, a 34% increase from the prior-year quarter, including approximately $56 million of sales from acquisitions. Organically, the segment was up 2% over the prior-year quarter, driven by an increase in shooting accessories, partially offset by tactical products. For the full year, sales were $862 million in the segment, up 18% from the prior year, including $120 million in sales from acquisitions. Organically, sales in our Outdoor Products segment were...


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