Vista Outdoor Q1 2025 Earnings Call Transcript

Quartr
Provided by Quartr
August 6, 2024

There are 9 speakers on the call.

Operator

Hello, and welcome to the 1st Quarter Fiscal Year 2025 Vista Outdoor Earnings Conference Call. My name is Alex, and I'll be coordinating the call today. I'll hand it over to your host, Tyler Lindewall, Vice President of Investor Relations. Please go ahead.

Speaker 1

Thank you, operator, and good morning to everyone joining us for our Q1 fiscal year 2025 earnings call. With me this morning are Eric Niemann, Co CEO of Vista Outdoor and CEO, Revelist Jason Van Derink, Co CEO of Vista Outdoor and CEO of The Kinetic Group and Andy Keegan, Chief Financial Officer of Vista Outdoor. 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. 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.

Speaker 1

These forward looking statements are subject to the risks and uncertainties that face Vista Outdoor and the industries in which we operate and actual results may differ materially from these forward looking statements. We encourage you to review our quarterly earnings press release and Vista Outdoor's SEC filings for more information on these risks, 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 reconciliations of non GAAP financial measures. Eric, I'll turn it over to you.

Speaker 2

Thank you, Tyler. Good morning, everyone, and thank you all for joining us this morning as we discuss our Q1 fiscal year 2025 results. Before I dive into the quarter, I wanted to first touch on the press release issued last week. Last week, the Board issued a release noting that we have commenced a review of strategic alternatives and have adjourned the special meeting for the CSG transaction to September 13, 2024. The Board is committed to acting in the best interests of the company and its stockholders.

Speaker 2

The strategic review will be comprehensive and include the following: 1, an exploration of a full range of alternatives for REVELIST, including a potential sale of REVELIST. CSG is also considering an acquisition of REVELIST with potential partners in addition to its proposed acquisition of the Kinetic Group. 2, an engagement with MNC Capital and its private equity partner with respect to its proposal to acquire Vista Outdoor to see if it can deliver superior value for the company's stockholders. This follows MNC's recent public statement on July 26, 2024, that if there were a reason or basis to increase our offer, including Vista engaging with us and providing 1, we would increase our offer price. In light of that recent statement, the Board has determined that MNC's proposal would reasonably be expected to lead to a superior proposal and meets the standard for engagement under the terms of the CSG merger agreement.

Speaker 2

Considering the extensive diligence conducted by MNC and its private equity partner to date, Vista Outdoor expects MNC to be able to confirm an increased proposal for the acquisition of Vista Outdoor in short order. 3, a continued consideration of the separation of Revolist and the Kinetic Group through a spin off. Our advisors are looking at several strategic alternatives in order to maximize stockholder value. As an update on the strategic review, we have engaged with MNC to see if they can deliver superior value for the company's stockholders. Additionally, we have reached out to several parties regarding a potential acquisition of the REVELIST business.

Speaker 2

Furthermore, CSG remains steadfast in their commitment to acquiring the Kinetic Group and is exploring the acquisition of Revelist with potential partners. The Board continues to recommend Vista Outdoor stockholders vote in favor of the proposal to adopt the merger agreement with CSG. We look forward to evaluating all strategic alternatives that would maximize value for stockholders and we remain as focused as ever on delivering high quality innovative products for our consumers around the world. Moving on to Revolus results. Our teams across the organization executed against our plan in the Q1 of fiscal year 2025 and we are grateful for their hard work delivering in the face of continued market headwinds in certain segments and the continued uncertainty in the face of our planned separation.

Speaker 2

We did face some challenges in Q1 in both supply chain and new product launch timing introductions, which led to results that were not up to our expectations. That said, we understand the challenges and are already putting solutions in place to improve in the future and the teams did find some tailwinds led by our gear up cost saving initiatives and great product innovation. Sales for the quarter were 274,000,000 dollars and adjusted EBITDA was $16,000,000 with an adjusted EBITDA margin of 5.7%. We are confident in our fiscal year 2025 financial targets and strongly believe in Revoist potential to deliver on the long term strategy that we are executing. Across the enterprise, we made progress implementing our actionable standalone strategy to drive value creation.

Speaker 2

Our strategy is built on our Dragonflywheel to generate momentum. The Revoist Dragonflywheel is our multi pronged strategic flywheel, which plays upon our iconic Dragonfly logo. The Dragonfly wheel contains our key strategies to unlock growth and propel margin expansion across our integrated international house of brands. The Dragonflywheel is brand focused and consumer informed to unlock value through innovative product and technology offerings, enhanced direct to consumer and international channel strategies, a robust digital gaming ecosystem and world class licensing partnerships. We continue to focus on innovation by leveraging our portfolio of category defining power brands to win market share despite challenges related to market softness, order timing and divestitures.

Speaker 2

We remain focused on driving growth and market share gains no matter the market conditions and are poised to revolutionize our future through innovative, brand led and consumer obsessed product and technology offerings as well as leading partnerships. Recent examples of these brand highlights, innovative offerings and partnerships include: in Revelist Adventure Sports, we are capturing market share across numerous categories, including helmets, mountain bike protection and bike hydration in a declining market environment. Newness is gaining traction with our customers and many of our newly introduced products and new styles such as the V3 RS, Race Frame and PureView are sold out. We intend to further capitalize on these trends with upcoming product launches. In REVELIST Outdoor Performance, recent product launches across the platform have driven market share gains.

Speaker 2

We continue to grow market share at Sims, where we hold a dominant position in waiters and in fishing sportswear where we recently won Best in Category Awards at ICAST for the women's Latitude Hoodie and the ProDry suit. The successful launch of the Camp Chef gridiron in the spring drove 8% growth in the flat top grill category outpacing the market in a category that has been a bright spot within the broader outdoor cooking market. In Revolist Precision Sports Technology, Foresight has had multiple consecutive quarters of growth as a result of the QuadMAX and Falcon product launches. The delayed launch of the Phantom 3 GPS drove Bushnell Golf sales lower than anticipated in the quarter, but we still expect this product to capture additional sales for the rest of fiscal year 2025. Foresight and Bushnell Golf continue to set the standard in golf technology.

Speaker 2

The power of these two brands living under the same leadership and platform will really be showcased this fall with a cooperative effort between Foresight Sports and Bushnell Golf that will change the way golfers capture and utilize information from launch monitors and laser range finders. In licensing, our platform teams have been hard at work leveraging our brands to ink new licensing partnerships to unlock additional revenue streams, further scale our brands and reach new customers. We are excited to announce our biggest partnership ever, a collaboration with celebrity chef and restauranteur Guy Fieri. This collaboration between Revelist, Camp Chef and Fieri unites the Mayor of Flavortown himself with the leading innovator in outdoor cooking gear. Fieri has long served as an unofficial brand ambassador while using the brand's products on screen, on stage and at home.

Speaker 2

This multi year partnership will include several collaborations between Fieri and Camp Chef and will include a number of co branded cooking equipment pieces. Be on the lookout for more news on this category defining announcement on August 19 across Revelus social channels and campchef.com. We are extremely excited to welcome Guy to team Revelist. Furthermore, at Foresight, we have an exciting licensing agreement and product collaboration coming very soon through our relationship with Volition America. This custom offering will bridge the tangible and the digital worlds and will benefit the Folds of Honor Foundation.

Speaker 2

Moving on, our international expansion and transformation of our operating model is underway and we believe that there is a significant opportunity to elevate and grow our brands through a unified and scalable approach. We have made substantial progress at Revolist by leveraging the operational backbone we acquired through our acquisition of Fox. This has allowed us to expand our presence across the globe for additional brands to reach new markets. We plan to continue the strategic expansion to regions where a unified operating model can be a growth catalyst for our brands. As we look at our direct to consumer and digital approach, our enhanced direct to consumer strategy places an emphasis on our owned brand channels and other e commerce sites including Amazon.

Speaker 2

This strategy shift is in process and early results are promising, particularly with Amazon, where we grew low single digits year over year in Q1. We have also seen gains at certain direct brand sites including Foresight, where the direct site revenue is up over 30% year over year and continues to be a leading growth contributor to the Revelist Precision Sports Technology platform. We also had a milestone achievement in the REVOEST Adventure Sports platform with the iPhone created campaign CamelHack that over indexed and received over 1,000,000 views on TikTok and 2,000,000 views on Instagram becoming the highest viewed post on Camelback's Instagram of all time. We aim to repeat this success with other products to drive brand engagement and sales in the future. Our digital gaming and esports initiatives are applying REVELIS digital first thinking to create engaging content and gaming experiences that provide new consumer opportunities.

Speaker 2

Our acquisition of Pindseeker furthered our commitment to this strategy. Pinseeker has seen explosive year over year growth and early results have exceeded our acquisition forecast model, further validating our digital gaming strategy and the decision to acquire that business. The Pinseeker team has also jump started our broader Foresight Studios strategy.

Speaker 3

We had

Speaker 2

a strong quarter of successful course launches, including our recent digital course launch of Pinehurst 2 available on our foresight simulators that coincided with the U. S. Open Week played at the namesake course. We also entered into an exclusive partnership with Tara Ity, the number 2 ranked course in the world on the Golf Digest World's 100 Greatest Golf Courses list. These courses add to Foresight's list of premium course offerings that can be purchased for use in our simulators and demonstrate our commitment to providing a world class user experience for all of our simulator owners.

Speaker 2

We are encouraged by these developments and the roadmap the team has set forth and we expect to have more announcements to come soon. You will hear more about our excellent progress on our Gear Up transformation from Andy shortly, but I wanted to highlight strong work our teams have done to optimize our portfolio to focus on our core assets with significant value and growth potential. In July, we announced the sale of Fiber Energy Products. This strategic divestiture generated cash for Revolist that can be reinvested in our power brands and product innovation in support of our Gear Up transformation initiative. The new ownership provides resources and scale to the fiber energy brand and we wish them the best of luck with this new endeavor.

Speaker 2

Alongside the RCBS sale announced in May, we have now completed 2 strategic divestitures to rebalance our portfolio. Our strategic review is ongoing and we see additional opportunities in the future. This review is a critical step in evaluating where further rebalancing will help to best position us for long term success. In closing, I am energized by the roadmap we have in front of us at REVELIST. Teams across our business are executing on our transformation through the GEAR UP program and our value creating dragon flywheel to unlock growth and margin expansion through game changing innovations, exceptional licensing partnerships and enhanced direct to consumer and international channel strategy and digital first thinking to create engaging content and gaming opportunities.

Speaker 2

We are relentless in our pursuit of excellence and that drives my belief in our strategy and the future ahead of us. I'm confident in our financial targets and ability to double our standalone adjusted EBITDA in fiscal year 2025. In that spirit, we'll be announcing the date of our upcoming Investor Day in the weeks ahead and look forward to sharing more details about the RevoWis story. I'll now hand it over to Jason to provide an update on the Kinetic Group. Jason, over to you.

Speaker 4

Thank you, Eric, and good morning, everyone. The Kinetic Group delivered above expected earnings for the Q1. Sales were $370,000,000 with an adjusted EBITDA margin of 30% and adjusted EBITDA of $111,000,000 continuing the strong performance we demonstrated at the end of fiscal year 2024. Our team has stayed focused while facing economic headwinds and inflationary pressures with rising commodity prices and successfully navigating a global powder shortage. As history has shown us several times, if the market starts to slow, we expect to gain market share due to vendor consolidation at our customers and consumers generally will purchase the brands they trust.

Speaker 4

As we are getting close to the important hunting seasons, our finished goods inventory in this key category is well positioned to fill consumer demand in all hunting loads in every category. We expect Heavy Shot to continue the momentum we have built since the acquisition and Remington core locked inventory and demand is in the best shape it has been in several years. Our seasonal build program has produced many calibers that the consumer has not been able to purchase in many years, which also brings higher margins with it. We continue to try to meet the demand we have seen with the CCI Uppercut product, which has exceeded our forecast when we introduced this game changing product. At the industry's largest consumer trade show, the National Rifle Association annual meetings and exhibits, our brands were officially presented with Golden Bullseye Awards in every ammunition category.

Speaker 4

This is the first time we have swept these prestigious awards for excellence in new product technology. The products recognized were Spear Gold Dot Carbine, Federal Premium Force X II Shorty and Remington 360 Buckhammer. Continuing our long standing support for the United States military, Federal announced a $3,600,000 contract award for the 7.62x51 long range ammunition for the United States Special Operations Command or SOCOM. This trusted product is currently being produced for the United States Navy in a separate contract, demonstrating our American manufacturing expertise and proven history of supplying the United States Warfighter with the best products to protect and defend. As part of our company DNA, we recently held a benefit auction at our annual sales meeting in Minnesota and were able to donate at least $20,000 to each of our beneficiary charities.

Speaker 4

The Anoka County Police Department, the Anoka County Sheriff's Office, the Anoka County Brotherhood Council Food Shelf, and the Vista Outdoor Employee Assistance Fund. This is a true testament to helping serve the communities that our factories are located in. For the 59th straight month in June, NICS data surpassed more than 1,000,000 background checks. This continued high monthly volume supports a healthy and higher baseline of suiting and hunting participants. As we navigate the future and the United States presidential election, our American manufacturing facilities remain focused on building the best ammunition in America and delivering on all of our key financial metrics.

Speaker 4

The cross collaboration between our factories has resulted in cost savings, technology sharing and allows us to best route production by cost and expertise. This serves as a tremendous competitive advantage for us, which is reflected in our profitability. Our mission has not and will not change. We will focus on what the end consumer wants and expects and work backwards from that. Our obsession with the consumer and customers we service will lead us through this volatile market and help us gain market share.

Speaker 4

With a diverse customer base and multi brand strategy, the Kinetic Group is poised to continue to be the leader in ammunition technology and we are planning to release the most exciting product we have ever developed in our history in our Q3. I have full confidence that with the best team in the ammunition business, we will continue to perform at the highest level. Our future is filled with great opportunity and we look forward to growing our market share, building on world class profitability and delivering new and innovative products to our increasingly diverse customer and consumer base. I want to thank our 4,000 team members for their steadfast commitment to our vision and being part of the best team in the world. Together, we are winning and our financial metrics reflect just that.

Speaker 4

Thank you. Andy?

Speaker 3

Thank you, Jason, and hello, everyone. My comments today will focus on adjusted results compared to the prior year period, unless otherwise noted, which are presented using non GAAP financial measures. In the appendix to the slide presentation, we've included reconciliations of these non GAAP financial measures to the most directly comparable GAAP financial measures. For additional information regarding forward looking statements and non GAAP financial measures, please refer to page 4 of the slide presentation. I will reference the 3 REVLIS segments, REVLIS Adventure Sports, REVLIS Outdoor Performance and REVLIS Precision Sports Technology in a combined manner as REVLIS in my remarks that follow.

Speaker 3

We made progress on our long term goals during the quarter. At the Kinetic Group, our sales met expectations and our adjusted EBITDA was strong despite persistent input cost headwinds. At REVELIS, we experienced challenges related to new product introduction and order fill timing, market softness in the specialty channel and divestitures that impacted our results. These were partially offset by $5,000,000 of realized cost savings attributable to the Gear Up transformation program. The progress on the Gear Up initiative gives us momentum and confidence that we will double our standalone adjusted EBITDA in fiscal year 2025.

Speaker 3

Additionally, adjusted free cash flow significantly outperformed our expectations in the Q1, delivering $70,000,000 due to strong adjusted free cash flow from the Kinetic Group and a continued focus to reduce inventory at REVOEST, allowing us to reduce our net debt position by $81,000,000 in the quarter. For the Q1, total sales decreased 7.1% to $644,200,000 due to lower volumes at The Kinetic Group and REBLIS, partially offset by increased government sales at REVELIS and increased price at The Kinetic Group. Gross profit in Q1 decreased 6.9 percent to $211,200,000 due to decreased volume and increased input costs, including for copper and powder at the Kinetic Group and lower volume at REVLIS, partially offset by increased price at the Kinetic Group. Q1 margin was relatively flat at 32.8%. EBITDA in Q1 decreased 11.3 percent to $110,100,000 equating to an EBITDA margin of 17.1 percent due to decreased gross profit at the Kinetic Group and Revolis, partially offset by decreased selling, general and administrative costs related to gear up initiatives.

Speaker 3

Q1 EPS declined 6.5 percent to $1.01 Turning to slide 19. Our balance sheet is in a strong position. We continue to exercise sound financial discipline and drive incremental improvement at Revolis by placing a sharp focus on inventory levels. Vista Outdoor inventory decreased 13% year over year in the quarter, primarily driven by Revolis inventory reduction of approximately $100,000,000 or 25 percent year over year and $10,000,000 or 4% sequentially. Our continued inventory reduction efforts at Revolis and strong profitability at the Kinetic Group drove adjusted free cash flow of $70,000,000 in the quarter, providing the opportunity to reduce our net debt by $81,000,000 sequentially.

Speaker 3

Our net debt ended the quarter at $579,000,000 equating to a net debt leverage ratio of 1.3x. Turning to our business results on Slide 20. Within REVLIS, sales decreased 13.6% in Q1 to $273,700,000 driven by pre order delivery timing and one time royalty revenue in the prior year as well as unfavorable product mix towards lower price point channels within REVOEST Adventure Sports, lower wholesale volume and order timing within REVOEST Outdoor Performance and lower volume as a result of strong new product introductions in the prior year for Bushnell Golf and order timing within REVELIS Precision Sports Technology. The decline was partially offset by increased government sales at REVELIS Outdoor Performance and Growth at Foresight driven by new product introductions at REVELIS Precision Sports Technology. Gross profit decreased 14.2% in Q1 to $81,400,000 and Q1 gross margin decreased 21 basis points to 29.7% due to reduction in sales, partially offset by lower freight costs at REVELOS Venture Sports, lower discounting at REVELOS Outdoor Performance and favorable product mix at REVLIS Precision Sports Technology.

Speaker 3

Q1 EBITDA was $15,600,000 down 35.2 percent and EBITDA margin for the quarter was 5.7%, down 190 basis points year over year due to lower gross profit at all three REVO segments, partially offset by decreased selling, general and administrative costs related to the Gear Up initiatives. For the Kinetic Group, sales decreased 1.6% in Q1 to $370,400,000 due to lower shipments across nearly all categories, partially offset by increased price. Gross profit decreased 1.6% in Q1 to $129,800,000 and Q1 margin remained flat at 35% due to decreased volume and increased input costs, primarily for copper and powder. These decreases were partially offset by increased price. Q1 EBITDA was $111,200,000 down 3.2% and EBITDA margin for the quarter was 30% due to decreased gross profit and increased selling, general and administrative costs.

Speaker 3

Moving on to Page 22. As we look to the remainder of the fiscal year 2025, at the Kinetic Group, we continue to see headwinds from a global powder shortage limiting production and from increased input costs, including for copper and powder. These factors are expected to continue to put pressure on both the top and bottom line. Turning to the sales guidance for our Revolis business. Within the channels we serve, we have seen softness in specialty, while seeing stronger performance in mass and direct to consumer relative to the specialty channel.

Speaker 3

We have seen channel inventory health continue to improve during the quarter relative to the prior year in both specialty and mass channels. But we saw softness in the specialty channel, we did see successes as well. Where we had new product introductions, we saw year over year growth in those categories. As we look to the remainder of the year, we have included in our guidance the list of exciting product launches, cross collaborations and key partnership launches that we plan to announce in the coming months. We do expect to recoup the $13,000,000 of orders, which shifted out of Q1 into Q2 due to challenges related to shipping filled orders at the end of the quarter and delayed new product introductions.

Speaker 3

Further, our fiscal year 2025 sales guidance excludes our CBS and Fiber Energy products, both of which have been divested. Our CBS and Fiber Energy Products contributed approximately $30,000,000 of total combined sales in fiscal year 2024. As we look at Revo's EBITDA guidance, we are confident in our expectations for the fiscal year and expect to see sequential margin improvement each quarter due to a number of factors, including our Gear Up transformation program. As Eric mentioned, we are making tremendous progress with our Gear Up program, which contributed $5,000,000 in realized cost savings in the Q1. We see a clear path to reaching our goal of $25,000,000 to $30,000,000 in cost savings in fiscal year 2025 across our key Gear Up focus areas that include organizational structure, real estate, supply chain and operations, indirect costs and direct costs.

Speaker 3

Within our organizational structure, we expect cost savings of $20,000,000 this year due to increased efficiency through the consolidation to 3 platform headquarters with an eye on refining our structure to promote growth and bring in new capabilities. Within real estate, we expect to save approximately $2,000,000 to $3,000,000 in real estate cost savings this year by exiting leases and space, reducing our U. S. Real estate footprint by a third. We are targeting savings of more than $5,000,000 this year related to our supply chain and operations.

Speaker 3

At the center of this is our distribution network warehouse strategy. We are reducing our distribution center footprint and rebalancing the inventory in our network to reduce costs. As of today, we have closed 2 distribution centers and are targeting the closure of a third by the end of the second quarter. Looking at indirect costs, we are finding savings of $2,000,000 to $3,000,000 that we anticipate will flow through the P and L this year. One contributing example is a new contract that will reduce the credit card fees we pay when conducting card transactions.

Speaker 3

And as it relates to direct costs, longer term, we have a line of sight to significant cost savings in the key spend categories through cross brand supplier rationalization, consolidation and simplification. Overall, we are pleased with the GearUp results to date. The positive momentum we have built provides confidence in achieving our long term goal of realizing $100,000,000 of run rate cost savings by FY 2027. Beyond the Gear Up initiatives outlined, we have also incorporated additional considerations into our guidance. These considerations are: the contributions from our previously announced April 2023 cost restructuring program will contribute approximately $10,000,000 to REVLIS in fiscal year 2025.

Speaker 3

Improvements in supply chain and freight as our inventory with higher priced freight will have turned through our inventory balance and lower expected promotions as compared to our fiscal year 2024 in which we had higher than usual promotional levels to drive inventory levels down. We are confident that Revolus' operational and organizational improvements will continue to positively flow through to the bottom line in both the short and long term regardless of near term marketplace conditions. We reaffirm our expectation to double our standalone adjusted EBITDA at REVELIS in fiscal year 2025 and over the long term, believe that REVELIS standalone adjusted EBITDA margins will be in the mid teens. Based on the factors outlined, for the full fiscal year 2025, we expect sales of $2,665,000,000 to $2,775,000,000 the Kinetic Group sales of $1,425,000,000 to $1,475,000,000 and regular sales of $1,240,000,000 to $1,300,000,000 adjusted EBITDA between $410,000,000 $490,000,000 the Kinetic Group adjusted EBITDA of $350,000,000 to $400,000,000 and Revolis adjusted EBITDA of $130,000,000 to $160,000,000 adjusted EPS in the range of $3.60 to 4 point between $240,000,000 $320,000,000 As we look at phasing for both the Kinetic Group and REVEL's businesses, within the Kinetic Group, both sales and EBITDA for the remaining 3 quarters of the fiscal year are expected to be evenly distributed each quarter.

Speaker 3

For REVELIS, as we look at Q2, we expect sales to be down year over year, but improve sequentially, and we continued sequential improvement throughout the remainder of the year. We expect EBITDA to more than double sequentially and be higher than the prior year as Europe savings take effect. We further expect EBITDA margin to improve sequentially through the remainder of the fiscal year 2025. Thank you, everyone. Operator, please open the line for questions.

Operator

Thank you. Our first question for today comes from Anna Gleichsen from B. Riley. Your line is now open. Please go ahead.

Speaker 5

Hey, good morning. Thanks for taking my questions. I guess to start off, you've reaffirmed the standalone Revolus EBITDA guidance to double this year. Taking into account kind of the 1Q shortfall, I understand there's timing issues associated with that. And you were helpful on the call.

Speaker 5

But could you just give us a little bit more help in bridging getting there through the year to that to reaffirming that doubling? Thanks.

Speaker 3

Yes. I appreciate the question, Anna. So as we there's probably 2 prongs that I look at as we look at the bridge. 1st is going to be the gear up, the savings have started coming through, the $5,000,000 that we mentioned. We do see the path to the $25,000,000 to $30,000,000 which was implied has to continue to increase through the rest of the year, which we're seeing as we the activities are happening throughout the year and are staged to be able to get to that number.

Speaker 3

And on the revenue side, we have explained and give a little bit more color on how we look at the difference from last year to this year and why we're confident as we head into the future. We talked about the $13,000,000 that it is going to ship out that we didn't see go out this past quarter for a variety of reasons. The divestitures from a year over year standpoint a chunk of that as well. We talked about the $30,000,000 of total for the year. So that was clearly in Q1 that it's a pretty even split between the quarters for that.

Speaker 3

And then there was some one time items that we've mentioned. So between the royalties that we had mentioned on the call, the pre orders that we had mentioned on the call and some new product in the prior year. That accounts for about $20,000,000 of the difference year over year. So we're down on what I call normal run rate type basis, not as significantly as they would imply. And we see that as we look forward, we didn't have those in the future quarters last year, plus the new products that we're introducing, the partnership we just announced with Guy Fieri and the activities that we're looking to in the future are going to be able to amplify our EBITDA because the sales are going to be stronger than they were in this quarter as we see sequential improvement each quarter going forward.

Speaker 5

Got it. Thanks. And then taking a little taking a closer look at gross margin, would it be safe to assume that we should start to see that inflect based on the color you've provided in the fiscal Q3 For Revolix.

Speaker 3

Yes, for Revolix standalone, you'll start to see it actually improve even in Q2. As the sales start to improve, we do have pretty good flow through on our gross margin compared to what we call OCOG, so kind of a fixed cost structure of the cost of sales line. That will start to, as we mentioned, we will see sequential improvement each quarter in our revenue numbers, which will help drive the margin up. Alongside that, we're implementing the Gear Up program, which does have some impact on our cost of sales as distribution for us goes through our cost line. So you will see that also helping to benefit the margin line as those activities continue through the rest of this year.

Speaker 5

Got it. And just one more. I think it's encouraging to hear that you're seeing market share gains in some categories and Revoicing good response to new product introductions. It seems like the specialty channel is getting a little bit better, but there are still some inventory overages. Can you speak to their capacity to take on or allocate space to some of these new product introductions and if that's still been a hurdle in terms of your ability to go to market?

Speaker 2

Sure. Good morning, Anna. On the market share front, we are encouraged by what we're seeing in terms of increases in share. We've had according to Serkanah some good increases with bike helmets, with snow goggles, with bike hydration and hard plastic bottles on the Camelback side, all within our outdoor performance group, within our adventure sports group. Within Revelist Outdoor Performance, we did highlight on the call some increases in market share again according to Sukana on fishing sportswear, flat top grills and our waiters and we're proud of that.

Speaker 2

And certainly at Precision Sports, we're seeing according to Golf Data Tech, some good share increases in launch monitors. So across the board, we are seeing regardless of market conditions, some improving share. I think specific to your question about specialty, that is something that we continue to see as a longer term turnaround. It's a smaller portion of our business, but we do see that as we look at specialty, the bike market for example, we are seeing some green shoots, but we see that as a kind of 12 to 18 month complete turnaround and we think that by next spring, we are already starting to see some green shoots with regard to things like preorders. On the other hand, places like Mass, we've talked about, we're seeing some good signs in terms of improvements.

Speaker 2

So it is a bit of a changing environment with regards to different retail channels. Specialty is probably feeling across our base the most pressure still right now with a little bit of a longer term outlook for improvement.

Speaker 5

Great. Thanks. That was super helpful.

Operator

Thank you. Our next question comes from Matt Koranda from Roth Capital. Your line is now open. Please go ahead.

Speaker 6

Hey, guys. Good morning. Just on the Revolis side, just wanted to hear a little bit more about why the delay in sales and the push out into the Q2. Can you just put a finer point on what the product shipment issues were? What happened?

Speaker 6

And then maybe just how much did the Bushnell launch delay and hurt revenue? Was that in addition to the $13,000,000 that you guys called out in the release? And could you just be clear, I guess, it sounds like that all benefits the 2nd quarter. So potentially, it just fills in and we should see, I guess, we're not seeing growth. Why aren't we seeing growth yet in the second quarter?

Speaker 3

Hey, Matt. Yes, good question. So on the delay, so there's really 2 components, I would say, overall. 1 is the new product introduction. So we did have a product that we pride ourselves on the introduction of products that are quality products and are going to be a meet the consumers' needs.

Speaker 3

What we ran into was an issue that it wasn't going to do what we wanted it to do. So in our Bushnell Golf platform, we had a product that as we did our final quality inspections as the products arrived, we noticed an issue with software that we needed to correct. That required a delay. We instead of launching the product into the market and then subsequently being able to fix it, we chose to launch the product a little bit delayed. It is now being processed, so that is out there in the market.

Speaker 3

It is coming through. We expect that to deliver sales. Could some of those go into Q3? We'll see exactly when the timing of all those come back in, but we do expect to recoup them through the full year. The other piece of it was more order processing and getting them through the warehouses.

Speaker 3

This was a process that as we got to the end of the quarter, there was whether it was credit reviews, whether it was order entry, price deviation type activities, getting them into the warehouse, being able to ship them out. There was some noise in our system as we move to the platforms that we're moving to, people are shifting and that caused a little bit of delay. Now what I would say to that is Joe Beck has joined our team as the Chief Supply Chain Officer and has already addressed these issues. We had a full work down of the issues right after they occurred and we have the fixes in place already that as we ended the month of July, everything went out and actually went out better than we had expected. So I think that the team has smoothly been able to transition through those issues.

Speaker 3

So we do see that as improvement. To your question on growing for Q2, I mean, we're still down a little bit, but we're going to be much better than we were in Q1 from the percentage decrease, which is closing that gap that we're talking about. We are the new products that we're launching through the rest of the year aren't all hitting in Q2. Those are going to come through over the next few quarters. So I wouldn't expect we didn't expect even with the flow through of the 13 that you're going to see a larger growth quarter.

Speaker 3

You'll start seeing that as we head through the remainder of the year.

Speaker 6

Okay. All right. That's helpful. And then just on the EBITDA progression for Revolus and maybe I'll take a crack at it this way. Dollars 5,000,000 in realized savings in the Q1, I think that implies probably another $20,000,000 to $25,000,000 this year from GearUp.

Speaker 6

But I guess if I just baseline off of the segment EBITDA from last year, which was just under $100,000,000 dollars and we add the $25,000,000 to $30,000,000 We're still short of the $145,000,000 What else are we relying on to get there? So maybe just address that and then talk about the cadence of realization of Gear Up for the rest of the year?

Speaker 2

Sure. Matt, good morning. Why don't Andy and I tag team that one a little bit. I think with regards to our commentary on the $25,000,000 to $30,000,000 in run rate cost savings for $25,000,000 and then the $100,000,000 through fiscal year 'twenty seven, We have made some great progress and I think we'll give you a little why don't we give you a little bit more color on where that's coming from. On the operating model side, the team has done an excellent job already thus far putting into place our new operational strategy with really an eye on refining our structure to move the move to platforms that we've talked about several times.

Speaker 2

And we've trimmed over $20,000,000 of headcount costs already along with bringing in new capabilities. So we feel like we've done a really good job in the early days on that part that gives us a lot more confidence on the balance of the year with regards to the EBITDA savings. As Andy mentioned, we did have some hiccups in Q1 on supply chain. We take full accountability for that. We're going to get better and we brought in a new Head of Supply Chain, Joe Beck to do that.

Speaker 2

I mean, he's in that evaluative phase now, but we are targeting $5,000,000 this year on the way to $10,000,000 to $15,000,000 over the 3 years through our distribution network and our warehouse strategy. We've talked about that. And so far this year, we've already consolidated our domestic warehouses or targeting to consolidate our domestic warehouses by over 40%. Going forward, we'll probably consolidate our domestic warehouses over the 3 year period by over 80%. So again, that gives us a lot more confidence in terms of savings on the supply chain side, while we improve performance, and that's going to be something that's very important for us.

Speaker 2

We also see some good EBITDA flow through happening and we have good targets on indirect costs, on our real estate footprint. We're reducing our USA real estate footprint this year alone by over 30% and that will give us some EBITDA flow through. So I think you'll start to see that EBITDA goal continuing to come sharper into focus now that we're through Q1 and we can start seeing that flow through in the P and L and we're targeting sequential improvement. I don't know Andy if you have any more to add on that element.

Speaker 3

The only thing Matt to your question on closing the gap for the rest of the we'll call it, dollars 20 ish million of contribution. There's 3 primary drivers I'd point to. The first is we have talked about the other restructuring program that we had done, which was the April 2023 restructuring program, which will contribute through this year about $10,000,000 or so of additional savings for the overall RevWorks business. We are seeing improvements in our freight. So freight costs for our company as we head through this year is improving compared to the prior years as we are seeing the reduction in our container costs come down pretty substantially with our inventory levels coming down.

Speaker 3

And then lastly is promotions. We were in the Q3, you may recall last year, we were very promotional and intentionally promotional trying to drive our inventory and our retailers' inventory down and that was successful. This year, we don't expect to be as promotional, still promotional, it's the holiday season, but the actual promotions themselves will be less than last year. So those 3 are the primary drivers for the additional $20 ish million of EBITDA contribution.

Speaker 6

Okay. That makes sense. And then maybe just last one for me, the free cash flow looks solid in the Q1 and seasonally, I think maybe a little bit ahead of where you guys expected to be. You reiterated the free cash flow guide. I'm just looking for a little help on seasonality of free cash flow for the remainder of the year.

Speaker 6

Should we expect it to be pretty normal in terms of the year? Is there more opportunity in terms of inventory flush? You guys did call out a lot of inventory flush from Revolis. So just looking for a little bit more around how to think about seasonality of free cash flow for the remainder of the fiscal year.

Speaker 3

Yes. It's a good question. I mean, we are very happy with how cash came through in Q1. We had a very successful reduction both on both sides of the business, EBITDA being strong and the kinetic and being able to drive down some inventory in the Revos business. As we look at the year, I'd expect Q2 to probably be the lightest of the quarters.

Speaker 3

We do see some inventory actual build as we go into the last season and the holiday season. You'll see inventory go up slightly. So I wouldn't expect as much of a drive through on that. You'll also see some AR as we're trying to get our businesses to be able to sell through some products and have products on hand as they head into that season. So you'll see that quarter probably be the lightest and then the back 2 are pretty similar in size.

Speaker 6

Got it. I'll take the rest of my offline. Thanks guys.

Speaker 2

Thank you.

Operator

Thank you. Our next question comes from Mark Smith of Lake Street Capital Markets. Your line is now open. Please go ahead.

Speaker 7

Hey guys. I had just a couple of questions on the Kinetic first. Just gross profit margin looked a little better than expected. It looks like the guidance implies that coming down through the rest of the year. Can you just talk about some of the cost pressures and kind of your outlook on gross profit margin within Kinetic Group?

Speaker 4

Yes, Mark. Good morning. So for the Q1 of BSE, we had a good gross margin, gross profit quarter, mainly due to mix and price. So we did push a price increase on the category into the quarter, which obviously helped out. And on the remaining back half, we expect commodities continue to be elevated.

Speaker 4

Along with that is powder, which are going to be year over year increases. That's pretty substantial. So it would be those categories are the biggest drivers for

Speaker 7

it. Okay. And then just similarly on Kinetic, just Jason, if you want to talk about kind of channel

Speaker 3

inventory, what you're seeing in the industry out there

Speaker 8

as well as pricing

Speaker 7

and availability if needed,

Speaker 3

Yes.

Speaker 4

Yes. I don't think we're going to be able to push price into the market, Mark. I think we're going to I think there's always a balancing act of consumption that you got to weigh into that versus commodity costs. So I don't think the market is favorable right now for price. Having said that, I think our history shows we're the first one to take price and the last one to discount it.

Speaker 4

And if we think that there's a way to push price increase in it, we will certainly try. But at the same time, we need

Speaker 6

to keep our

Speaker 4

factories flowing in efficiently like they are. Channel inventory is good. I think if you look at Centerfire Rifle, for instance, you see CoreLock out there that hasn't been out there in 5 or 6 years, Calibers. So the consumer has a lot better choices for calibers that he or she hasn't been able to purchase. So our customers need to get some sales data on that so the replenishment systems can pick up the sales because they haven't been there in many, many years.

Speaker 4

So I think it's going to be our inventory is as good as it's been in 5 or 6 years for replenishment orders. And now I think our customers are sitting good and we're not really seeing anything that is what we would say overstocked in the channels right now. We're in good shape into our customers.

Speaker 7

Okay. And then for both Kinetic and Revolus, I think both at some point in press releases or presentation called out kind of government sales. Curious just kind of the outlook, what you're seeing in budgets and any opportunities coming forward maybe to pick up any additional contract business or anything that maybe is coming off that you have to fight for to continue to keep in government businesses, again, on both QinetiQ and Revalyst?

Speaker 4

Yes. For Kinetic, Mark, there's some big contracts coming. And again, I think our history shows, if you look at what we released on the SOCOM win, for instance, that's a big win for us. That's a pickup from our competitor. But again, I want to reiterate, we'll go chase the contracts if it's profitable.

Speaker 4

We're not going to go out on a limb and chase a contract that we don't view as profitable long term and that's 1st and foremost. Generally, we will go for contracts that are performance ammunition where we can take a little more risk, margins are a little better And we love what we see in that business right now. There's opportunities coming. And at the same time, we I think we our history shows that we go win contracts, we deliver and the government is the winner as well.

Speaker 3

Yes, I'll just add

Speaker 2

to that. On the Revolist side, we're really proud of what the team is doing. We continue to believe it's a great opportunity for Revelist and overall for Vista to take the best technology being created for the outdoors and apply that to the opportunity to serve our military, our first responders and our law enforcement. We have a great team in Virginia Beach that's working hard on that every day. We did have some good wins, particularly within Eagle, our PAC business and our Blackhawk business and we're going to continue to search for opportunity there.

Speaker 2

And we believe that over the 3 year period that's going to be an area of growth for Revolus.

Speaker 7

Perfect. And last one for me, just Eric, you guys talked a little bit about mix within channel for Revolist and kind of some impact that, that had. I'm curious just as we look at price kind of ASP, maybe primarily in adventure sports, but would love to hear it across the board, kind of any mix shift? Are you seeing consumers pull back, maybe look at lower priced helmets or anything else that you're seeing? Just want kind of to hear your view on how the consumer is doing today.

Speaker 2

Sure. We've been very conservative with regard to the consumer outlook. We called for the year a range that's essentially flat, to slightly up or down depending on some market conditions. And what we're seeing is that that's continued to be what we're what we continue to see from the outlook. I think across the businesses with regards to I'll start with our Revolis Precision Sports.

Speaker 2

That's typically a direct business. If you think about what we do every day at Foresight Sports and we're seeing continued strong response both on our, I'll call it our hardware, our launch monitors and things of that nature, but also like I mentioned in the call, our software solutions. And that's an area that we're going to continue to lean into with regard to digital gaming. And I think you'll see continued strong response. I think that's going to continue to be our best area of growth both short term and medium term and we're really leaning into that as a team and I'm proud of the work the team continues to do and there's going to be some more exciting announcements over the next several months.

Speaker 2

With regards to adventure sports, specifically on bike, I think you asked about. Again, we're seeing a little bit of mix shift. I think overall when you look at the channel performance, we're seeing some better performance across, I'll call it, mass and B2C, including Amazon. And we're seeing a little bit more continued pressure like I talked about in the first question at specialty. We do see some green shoots at specialty over the longer term.

Speaker 2

I think 12 months to 18 months we are seeing some pre order action that we're feeling a little bit more optimistic about. But I'd say that is a little bit more mix shift specifically to your question.

Speaker 7

Perfect. Thank you, guys.

Operator

Thank you. Our next question comes from Jim Chartier of Monness Crespi Hart. Your line is now open. Please go ahead.

Speaker 8

Good morning. Thanks for taking my questions. You said a number of times for Revolish, you're confident in doubling standalone EBITDA this year. Can you get there at the low end of your revenue guidance?

Speaker 3

I mean, our revenue and our EBITDA guidance kind of go hand in hand. So there'd be a little bit of pressure on being able to exactly double EBITDA at the bottom end of the range. But we'd be very close with that. I think if we're seeing revenue at that point in time, we are looking at additional things on the gear up and then potential for savings on that side. So we could still accomplish it.

Speaker 3

It would just feel a little bit more of a challenge to be able to get there.

Speaker 8

Okay, makes sense. And then for both businesses, can you give me a sense of what POS looked like during the quarter?

Speaker 4

Jim, good morning. For our Q1, POS was down some. I mean, certainly goes different by categories. You can imagine in ammunition, we see hunting rifle and shotshell still really good and just still is hanging in there. There's some categories that we're seeing down.

Speaker 4

So I think all in all, it's flattish to down a little bit.

Speaker 2

Yes. And on the Revolis side, Jim, I would say it's pretty much in line with a lot of the shipments. We had some pressure in the Q1 on POS and we expect it to start improving sequentially going forward.

Speaker 8

Great. Thanks and best of luck.

Speaker 2

Thank you.

Operator

Thank you. At this time, we currently have no further questions for today. Therefore, that concludes today's conference call. Thank you all for joining. You may now disconnect your lines.

Powered by Quartr
Earnings Conference Call
Vista Outdoor Q1 2025
00:00 / 00:00