(Dollar amounts in thousands 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:
•impacts from the COVID-19 pandemic (including the emergence and spread of
coronavirus variants) on our operations, the operations of our customers and
suppliers and general economic conditions;
•general economic and business conditions in the United States and our markets
outside the United States, including 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;
•our ability to attract and retain key personnel and maintain and grow our
relationships with customers, suppliers, and other business partners, including
our ability to obtain acceptable third-party licenses;
•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 and
boycotts;
•reductions in or unexpected changes in or our inability to accurately forecast
demand for ammunition, accessories, or other outdoor sports and recreation
products;
•risks associated with our sales to significant retail customers, including
unexpected cancellations, delays, and other changes to purchase orders;
•supplier capacity constraints, production or shipping disruptions or quality or
price issues affecting our operating costs;
•our competitive environment;
•risks associated with diversification into new international and commercial
markets, including regulatory compliance;
•changes in the current tariff structures;
•the supply, availability and costs of raw materials and components;
•increases in commodity, energy, and production costs;
•changes in laws, rules and regulations relating to our business, such as
federal and state ammunition regulations;
•our ability to realize expected benefits from acquisitions and integrate
acquired businesses;
•our ability to take advantage of growth opportunities in international and
commercial markets;
•foreign currency exchange rates and fluctuations in those rates;
•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;
•risks associated with cybersecurity and other industrial and physical security
threats;
•capital market volatility and the availability of financing;
•changes to accounting standards or policies; and
•changes in tax rules or pronouncements.
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
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Form 10-K for fiscal year 2021 and in the filings we make with 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.
Operating and Reportable Segments
We operate under seven operating segments, which have been aggregated into two
reportable segments, Shooting Sports and Outdoor Products. This is consistent
with how our chief operating decision maker (CODM), our Chief Executive Officer,
allocates resources and makes decisions.
•Shooting Sports generated approximately 70% of our external sales in the three
months ended June 27, 2021. This segment currently 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. Shooting Sports is
comprised of our ammunition and hunting and shooting accessories product lines.
Ammunition products include pistol, rifle, rimfire, shotshell ammunition and
primers. Hunting and shooting accessories products include binoculars,
riflescopes, laser rangefinders, trail cameras, archery accessories, blinds,
decoys, game calls, gun care products, mounts, holsters, powder, reloading
equipment, targets, target systems, and accessories. Our brands include Federal,
Bushnell, Remington Ammunition, Primos, Blackhawk, CCI, and more.
•Outdoor Products generated approximately 30% of our external sales in the three
months ended June 27, 2021. This segment currently designs, develops,
distributes and manufactures personal hydration solutions, outdoor cooking
solutions, action sports helmets and goggles, footwear and cycling accessories,
eBikes, audio speakers and golf GPS and laser rangefinders and serves hikers,
campers, cyclists, skiers, golfers, families and a variety of other outdoor
recreation participants. Our brands include CamelBak, Camp Chef, Bell, Giro,
Bushnell Golf, Blackburn, KRASH!, Copilot, Raskullz, QuietKat, Venor, and more.
Outdoor Products is comprised of sports protection, outdoor cooking, golf,
hydration, and cycling product lines.
Business Strategy
In fiscal year 2021, we built upon the capabilities developed during the first
two years of our strategic transformation, with an additional emphasis on
driving long-term, profitable organic sales growth. Vista Outdoor has plans in
place under each of its five strategic pillars to deliver long-term,
sustainable, profitable growth and continued cash generation, solidifying our
position as the outdoor sports and recreation market leader.
The pandemic accelerated many consumer trends that favored our business, and we
believe that these trends will fuel long-term success in fiscal year 2022 and
beyond. To achieve this long-term success, we remain relentlessly focused on the
following five strategic pillars, which define our key priorities and investment
focus areas:
Talent and Culture-Invest in talent and foster our culture of agility,
efficiency, and innovation while focusing on diversity and inclusion in hiring,
marketing, and product development.
Organic Growth-Identify and capture opportunities for organic growth and market
share expansion by:
a.allocating capital to our brands to aid in their development of new and
innovative products that serve the needs and preferences of their core
consumers; and
b.leveraging and expanding our distribution channels to expand the commercial
presence of all of our brands and efficiently deliver product to meet consumer
demand and shopping behavior.
Centers of Excellence-Leverage our shared resources, expertise and scale to
achieve a level of excellence that would be out of reach for our individual
brands, with a focus on:
a.operational excellence to improve margins, supply chain resiliency, and
agility;
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b.e-commerce, direct-to-consumer, and digital marketing capabilities;
c.acquisition target selection, deal execution, and integration.
Acquisitions-Acquire complementary businesses that we can take to the next level
in terms of sales and profitability.
Capital Allocation-Maintain a conservative balance sheet, healthy margins and
strong cash flow generation to provide financial flexibility and enable us to
thrive and grow at all points in the market demand cycle while driving
shareholder value.
Executive Summary
We had a strong performance for the first quarter of fiscal year 2022. Financial
highlights and notable events for the first quarter of fiscal year 2022 include:
•Quarterly sales increased $183,772, or 38.4%, for the three months ended
June 27, 2021 as compared to the three months ended June 28, 2020. Shooting
Sports increased $129,160, or 38.7%. Our Outdoor Products sales increased
$54,612 or 37.7%.
•Gross profit increased $116,059, or 92.6%, for the three months ended June 27,
2021 as compared to the three months ended June 28, 2020. Gross profit for
Shooting Sports increased $96,826, or 114.6% Gross profit for Outdoor Products
increased $19,617, or 48.0%.
•EBIT increased $95,613, or 199%, for the three months ended June 27, 2021 as
compared to the three months ended June 28, 2020.
•We repurchased 1,212 shares during the first fiscal quarter under our share
repurchase program, which was adopted on May 6, 2021. See PART II, ITEM 2,
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
•During the quarter, we welcomed QuietKat and Venor to the Vista Outdoor family
of brands. QuietKat is an electric bicycle company that specializes in
designing, manufacturing and marketing rugged, all-terrain eBikes. Venor is a
hunt-inspired female apparel brand. The Venor lifestyle is anchored in
adventure, community and empowering women to live their best outdoor lives. Both
of these businesses will be reported within the Outdoor Products reportable
segment.
•We are reporting $1.71 of diluted EPS for the three months ended June 27, 2021
as compared to diluted EPS of $0.69 for the three months ended June 28, 2020.
We believe that long-term participation trends support our expectation of
continued increased demand for our outdoor recreation and hunting and
shooting-sports related products. Participation rates in fiscal year 2022 have
remained strong, and we are seeing an expanded and more diverse demographic of
users in all categories. We expect to see continued increases in participation
as consumers continue to look to local outdoor activities as a substitute for
travel and other competing pursuits impacted by the COVID-19 pandemic. We
believe that we are well-positioned to succeed and continue to capitalize on
this demand given our scale, operating expertise, and strong balance sheet.
Following significant investments in our brands' e-commerce capabilities, both
directly and through our E-Commerce Center of Excellence, our brands are also
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 27, 2021 compared to the three
months ended June 28, 2020.
The Company's net sales, gross profit, and EBIT by reporting segment and by
corporate and other (where applicable) are presented below (dollars in
thousands):
                               Three months ended                      Change
Net Sales:             June 27, 2021       June 28, 2020        Dollars       Percent
Shooting Sports       $      463,318      $      334,158      $ 129,160        38.7  %
Outdoor Products             199,594             144,982         54,612        37.7  %
Total net sales       $      662,912      $      479,140      $ 183,772        38.4  %


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Shooting Sports- First quarter of fiscal year 2022 includes sales from
acquisitions that occurred in the third and fourth quarters of the prior fiscal
year. The increase also reflects improved pricing and strong demand in the
market across all categories. These increases were partially offset by a
reduction of small rifle ammunition sales due to reduced supply from the Lake
City Army Ammunition Plant.
Outdoor Products- The increase in sales was driven by continued demand in the
market for all categories and was not restricted by retail store closures that
impacted the prior year quarter.
                                          Three months ended                      Change
        Gross Profit:             June 27, 2021       June 28, 2020        Dollars       Percent
        Shooting Sports          $     181,328       $      84,502       $  96,826       114.6  %
        Outdoor Products                60,483              40,866          19,617        48.0  %
        Corporate and other               (384)                  -            (384)          -  %
        Total gross profit       $     241,427       $     125,368       $ 116,059        92.6  %
        Gross profit margin               36.4  %             26.2  %


Shooting Sports-First quarter of fiscal year 2022 gross profit includes profits
from acquisitions that occurred in the third and fourth quarters of the prior
fiscal year. The increase also reflects improved pricing, sales volume (as
described above), and operating efficiencies. These increases were partially
offset by increased commodity and product costs. Gross profit margin was 39.1%
compared to 25.3% in the prior year.
Outdoor Products-The increase in our gross profit was primarily driven by sales
volume (as described above) and operating efficiencies, partially offset by
higher logistics costs. Gross profit margin was 30.3% compared to 28.2% in the
prior year.
Corporate and Other-The decrease in corporate gross profit was due to inventory
step-up expenses during the current year quarter.
                                  Three months ended                     Change
EBIT:                     June 27, 2021       June 28, 2020       Dollars       Percent
Shooting Sports          $     141,722       $      54,565       $ 87,157       159.7  %
Outdoor Products                25,927              11,506         14,421       125.3  %
Corporate and other            (23,993)            (18,028)        (5,965)      (33.1) %
Total EBIT               $     143,656       $      48,043       $ 95,613       199.0  %
EBIT margin                       21.7  %             10.0  %


Shooting Sports-The increase in EBIT was primarily driven by the gross profit as
described above, partially offset by higher selling, general, and administrative
expenses from acquisitions and higher selling and marketing expenses to support
increased sales. EBIT margin was 30.6% compared to 16.3% in the prior year.
Outdoor Products-The increase in EBIT was primarily driven by the gross profit
increase as described above, partially offset by higher selling and marketing
expenses to support increased sales. EBIT margin was 13.0% compared to 7.9% in
the prior year.
Corporate and Other-The decrease in EBIT was primarily driven by higher stock
and incentive compensation expense and higher transaction costs in the current
year.
                                                     Three months ended
Interest expense, net:         June 27, 2021       June 28, 2020       $ Change       % Change
Corporate and other           $        5,678      $        6,418      $    (740)       (11.5) %

The decrease in interest expense was due to a reduction in our interest rate on the 4.5% Notes, slightly offset by our higher average debt balance.


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                                                          Three months ended
                                                Effective                          Effective
Income Tax Provision:       June 27, 2021         Rate         June 28, 2020         Rate         $ Change
Corporate and other        $      (35,253)         25.5  %    $       (1,149)          2.8  %    $ (34,104)


See Note 15, Income Taxes, to the unaudited condensed consolidated financial
statements in Item 1 of Part I of this report for information regarding income
taxes.
The increase in the rate from the prior year quarter is primarily caused by the
impact of the prior year decrease in the valuation allowance driven by earnings
which permitted us to realize previously valued tax assets.
Financial condition
Cash and cash equivalents increased 479% to $208,670 at June 27, 2021 from
$36,059 at June 28, 2020, primarily due to increased net income during the last
twelve months, partially offset by the timing of working capital payments and
receipts, repurchase of shares and cash paid for the acquisition of businesses.
Operating Activities
Cash provided by operating activities decreased $48,591 in the three months
ended June 27, 2021 compared to the prior year period. Increases in inventory
purchases, increases in accounts receivable due to higher sales volumes and the
timing of vendor, compensation and payroll tax payments was partially offset by
increased net income and lower interest expense payments as compared to the
prior year period.
Investing Activities
Cash used for investing activities was $15,358 for the three months ended
June 27, 2021 compared to $4,452 in the prior-year period. The current period
cash usage was driven by the acquisition of businesses.
Financing Activities
Cash used for financing activities decreased by $20,348 for the three months
ended June 27, 2021 compared to the prior year period. The decrease is due to a
reduction in debt payments, partially offset by the repurchase of approximately
1.2 million shares for approximately $44,232 during the first fiscal quarter.
Liquidity and Capital Resources
We manage our business to maximize operating cash flows as the primary source of
liquidity. In addition to cash on hand and cash generated by operations, our
sources of liquidity include committed credit facilities and access to the
public debt and equity markets. We use our cash primarily to fund investments in
our existing businesses and for debt payments, acquisitions, and other
activities.
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. As of June 27, 2021, there
is $55,768 remaining under our $100,000 2021 Share Repurchase Program, which we
intend to fund through the first fiscal quarter of 2024. This amount is
currently well below the covenants that limit our stock buyback.
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 over the next 12 months and fund the 2021
Share Repurchase Program. As of June 27, 2021, based on the borrowing base less
outstanding borrowings of 0, outstanding letters of credit of $21,800, and
minimum required borrowing base of 45,000, the amount available under the 2021
ABL Revolving Credit Facility was $383,200. Our total debt as a percentage of
total capitalization (total debt and stockholders' equity) was 38.4% as of
June 27, 2021.
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 coronavirus variants), 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
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general economic conditions as a result of the COVID-19 pandemic (including the
emergence and spread of coronavirus variants) 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 13, Long-term Debt, to the Notes 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 27, 2021,
current and long-term operating lease liabilities of $10,616 and $79,123,
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 2021.
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 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 2021, except for our adoption of the
Accounting Standards Updates ("ASU") No 2019-12, "Income Taxes (Topic 740):
Simplifying the Accounting for Income Taxes" and No 2020-06, "Debt-Debt with
Conversion and Other Options (Subtopic 470-20) and Derivatives and
Hedging-Contracts in Entity's Own Equity (Subtopic 815-40): Accounting for
Convertible Instruments and Contracts in an Entity's Own Equity" which both
became effective as of April 1, 2021. For further discussion on the adoption of
new accounting standards please see Note 1, Significant Accounting Policies, to
the unaudited condensed consolidated financial statements in Item 1 of Part I of
this report.
Dependence on Key Customers; Concentration of Credit
The loss of any key customer and our inability to replace revenues provided by a
key customer may have a material adverse effect on our business and financial
condition. Walmart represented approximately 10% of our sales in both the three
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months ended June 27, 2021 and June 28, 2020. No other single customer
contributed more than 10% of our sales in the three months ended June 27, 2021
and June 28, 2020.
If a key customer fails to meet payment obligations, our operating results and
financial condition could be adversely affected.
Inflation and Commodity Price Risk
In management's opinion, inflation has not had a significant impact upon the
results of our operations. However, 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 Shooting Sports
Segment. See Note 5, Derivative Financial Instruments, 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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