Vista Outdoor Inc. (NYSE:VSTO) Q2 2024 Earnings Call Transcript

Vista Outdoor Inc. (NYSE:VSTO) Q2 2024 Earnings Call Transcript November 2, 2023

Operator: Thank you all for joining. I would like to welcome you all to the second quarter fiscal year 2024 Vista Outdoor Earnings Conference Call. My name is Brika and I will be your moderator for today’s call. [Operator Instructions]. I would now like to pass the conference over to your host, Tyler Lindwall, Vice President of Investor Relations. Please go ahead.

Tyler Lindwall: Thank you operator and good morning to everyone joining us for our second quarter fiscal year 2024 earnings call. With me this morning is Gary MacArthur, Interim Chief Executive Officer, Jason Vanderbrink, CEO of Sporting Products; Eric Nyman, CEO of Outdoor Products; and Andy Keegan, Vice President and Interim 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, reflecting future events, and their potential effect on our operating and financial performance, 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 and we are under no obligation to provide updates to these forward-looking statements.

These forward-looking statements are subject to the risks and uncertainties that face Vista Outdoor and industries in which we operate and actual results may differ materially from these forward-looking statements. 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 investors.vistaoutdoor.com which supplement our comments this morning and include are conciliation of non-GAAP financial measures. Gary, I’ll turn it over to you.

Gary McArthur: Thank you, Tyler, and good morning, everyone. I would like to thank all of you for joining us today as we discuss our second quarter fiscal year 2024 results. For the next few minutes, I’m going to focus my comments on the sale of the Sporting Products segment and then turn the time over to Jason to provide an update on Sporting Products, then, Eric, to do the same for Outdoor Products. Recently, we branded as Revelyst and to trade under the stock ticker GEAR, followed by Andy, who will provide our Q2 results and guidance. We are currently at one of the most exciting junctures in our company’s history. As recently announced, we have entered into a definitive agreement to sell our Sporting Products segment to Czechoslovakia Group or CSG for $1.91 billion.

We believe that this outcome provides great value is the best strategic alternative for maximizing value to stockholders due to the payment of approximately $750 million of cash consideration and locking uncertainty of value for stockholders in the near term .Long term, this outcome jump starts our compelling vision for Revelyst, by capitalizing its balance sheet with cash to accelerate its capital allocation strategy and puts us in a position to hit the ground running as a successful independent company. The Sporting Products business will remain headquartered in Anoka, Minnesota and will led by Jason Vanderbrink and his team and the business will stay true to its long standing heritage of manufacturing and selling our iconic American Brands in America.

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Q&A Session

Additionally, teaming with CSG, sporting products will increase its efforts to market and sell these iconic brands to civilian and government customers around the globe. For every one share of Vista Outdoor held at the time of closing, a stockholder will receive one share of Revelyst and cash consideration of $12.90 per share for a total cash consideration to stockholders of approximately $750 million. This cash consideration is not a dividend and is instead part of the merger consideration. Upon closing this transaction, will be treated as a taxable sale of stockholders Vista Outdoor shares for the Revelyst shares and cash consideration they receive in the merger. This Outdoor stockholders will generally recognize gain or loss in the transaction equal to the difference between their tax basis in the Vista Outdoor shares they exchange and the sum of the cash consideration and the fair market value of the Revelyst shares they received determined as of the closing date.

This allows stockholders to recover tax basis and recognize built-in gain and loss in their Vista Outdoor shares at the time of closing. Looking forward, a stockholder’s new tax basis and each share of Revelyst received will equal the fair market value of such share determined as of the closing date. Additionally, we expect that immediately after closing, any cash remaining after the payment of taxes, transaction costs, and other customary closing related payments, the pay down of all debt will be approximately $750 million payment to stockholders and the capitalization of Revelyst with cash up to $250 million will be returned to stockholders of Revelyst in the form of a share buyback or a onetime special dividend. Please refer to Slide 9 in the slide deck provided.

Prior to the stockholder vote, all free cash flow will be used to pay down debt as we are unable under applicable security laws to repurchase shares while the stockholder vote for our Sporting Products sale is pending. After the stockholder vote is complete and before closing, we will have the option to evaluate whether a share repurchase program would be appropriate. The transaction is subject to approval of our stockholders, receipt of necessary regulatory approvals and other customary closing conditions. We expect to hold our stockholder vote in the March/April timeframe of calendar year 2024.If we have not received regulatory approvals prior to the stockholder vote, the timing of closing will depend primarily upon receipt of necessary regulatory approvals.

Under the merger agreement, CSG has committed to take all actions necessary or advisable to obtain the necessary regulatory approvals and to pay a termination fee equal to $114.6 million if the transaction does not close due to failure to obtain the required regulatory approvals. We are excited about the future opportunities for both the Sporting Products business under CSG ownership and Revelyst under Eric’s leadership as we embarked on our new strategic journey, including a new transformation program that Eric and Andy will cover in more detail shortly. I would like to thank all of our employees for their hard work in shaping our company into what it has become today and for giving us confidence in the future success, both businesses will be able to achieve at separate companies.

Thank you everyone. I will now hand the call over to Jason who will discuss Sporting Products.

Jason Vanderbrink: Thank you Gary and good morning everyone. We are at the midpoint of our fiscal year and are pleased with where we are currently standing and we believe there are positive trends on the horizon. Sales for the Sporting Products segment in the second quarter were $350 million with segment adjusted EBITDA margins of 28%, which shows a strong product mix and is in line with our margin rate expectations As Gary mentioned in his opening remarks, we believe the sale of Sporting Products to CSG is a great outcome for our stockholders, our business, our employees and our customers. A private global strategic owner will allow us to grow the reach of our iconic American brands and expand our legacy of US manufacturer support for the military and law enforcement customers and investments in conservation and our hunting and shooting heritage.

The leadership team is excited for a bright future, and I’m pleased to welcome Allan Kerfeld as the Chief Financial Officer, Jeff Ehrichas our General Counsel and Corporate Secretary, and Mark Kowalski, as Controller and Chief Accounting Officer. This team has 8 decades of combined experience and a great working knowledge of our business and the ammunition industry. While market conditions were more challenging in the second quarter, we see a higher baseline and participation rates remain very strong. Index data continues to signal sustained gun purchases with now 50 straight months of firearms checks over one million. In September, this was 13% higher than 2019 and continues to show the industry has grown its user base. We have seen a return to seasonal buying patterns driving the consumer purchase cycle and continued participation from the 19 million new gun owners.

There has also been a significant recent increase in demand across several categories due to global unrest that we are monitoring. We continue to monitor point of sale and customer level inventory in this dynamic market. To highlight some recent wins, we secured the Department of Homeland Security contracts for five years to provide the highest quality duty ammunition for both the US Customs and Border Patrol and Immigration’s and Customs Enforcement Agencies. The CBB contract is our second largest ever in both agencies chose Federal’s Tactical Bonded Ammunition for their duty rifles. This supports their mission to protect our borders and preserve national security and public safety. Our law enforcement team also secured a contract win with the Miami-Dade Police Department, the 8th largest department in the United States.

The 3500 member police force will use Spear 9mm Gold Dot for their duty pistol and Federal .223 Tactical Bonded Ammunition for the Department’s duty rifle. We are proud to provide the highest quality duty ammunition to law enforcement Federal Agencies in the United States and globally. Our employees produce excellent products that many law enforcement agencies in the United States trust to protect and serve our communities. As we work toward the closing of the sale to CSG, the team will continue to focus on making the best ammunition in America and delivering on our goals. We believe our diverse customer base and multi-brand strategy will allow us to compete for additional market share, expand our presence into new markets, improve the financial performance of Remington and continue to deliver mid 20% segment adjusted EBITDA margins.